-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DJWBhfouHINj1SY9/dWW6x6De4e8EB4biGsdg1NOb+KokbfEhMFzAkWjaFwcRBqo zgw3KOM+1aayKyFrs2yPoA== 0000927356-97-001152.txt : 19971003 0000927356-97-001152.hdr.sgml : 19971003 ACCESSION NUMBER: 0000927356-97-001152 CONFORMED SUBMISSION TYPE: SC 13E3 PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 19971002 SROS: NASD SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: CABLE TV FUND 12-C LTD CENTRAL INDEX KEY: 0000782975 STANDARD INDUSTRIAL CLASSIFICATION: RADIO TELEPHONE COMMUNICATIONS [4812] IRS NUMBER: 840970000 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13E3 SEC ACT: SEC FILE NUMBER: 005-51655 FILM NUMBER: 97689890 BUSINESS ADDRESS: STREET 1: 9697 E MINERAL AVE CITY: ENGLEWOOD STATE: CO ZIP: 80155 BUSINESS PHONE: 3037923111 MAIL ADDRESS: STREET 1: P O BOX 3309 CITY: ENGLEWOOD STATE: CO ZIP: 80155-3309 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: JONES INTERCABLE INC CENTRAL INDEX KEY: 0000275605 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 840613514 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13E3 BUSINESS ADDRESS: STREET 1: PO BOX 3309 CITY: ENGLEWOOD STATE: CO ZIP: 80155 BUSINESS PHONE: 3037923111 SC 13E3 1 SCHEDULE 13E-3 FOR CABLE TV FUND 12-C, LTD. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 RULE 13e-3 TRANSACTION STATEMENT (Pursuant to Section 13(e) of the Securities Exchange Act of 1934 and Rule 13e-3 thereunder) Cable TV Fund 12-C, Ltd. ------------------------ (Name of the Issuer) Jones Intercable, Inc. (File No. 0-8947) and Cable TV Fund 12-C, Ltd. (File No. 0-13964) ------------------------------------------- (Name of Person(s) Filing Statement) Limited Partnership Interests ----------------------------- (Title of Class of Securities) Elizabeth M. Steele, Esq. Vice President and General Counsel Jones Intercable, Inc. 9697 E. Mineral Avenue Englewood, Colorado 80112 (303) 784-8400 -------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications on Behalf of Person(s) Filing Statement) This statement is filed in connection with (check the appropriate box): a. X The filing of solicitation materials or an information statement _____ subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under the Securities Exchange Act of 1934. b. _____ The filing of a registration statement under the Securities Act of 1933. c. _____ A tender offer. d. _____ None of the above. THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. Check the following box if the soliciting materials or information statement referred to in checking box (a) are preliminary copies: X _____ Calculation of Filing Fee TRANSACTION VALUATION* AMOUNT OF FILING FEE - --------------------- -------------------- $33,444,490 $6,689 X Check box if any part of the fee is offset as provided by Rule 0- _____ 11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid: $6,689 Form or Registration No.: Schedule 14A Filing Party: Cable TV Fund 12-C, Ltd. Commission File No. 0-13964 Date Filed: Concurrently with this Rule 13e-3 Transaction Statement on Schedule 13E-3 *Pursuant to Rule 0-11(c)(2), the transaction valuation is based upon Cable TV Fund 12-C, Ltd.'s 15 percent interest in the $222,963,267 sales price that is to be paid to Cable TV Fund 12-BCD Venture by Jones Intercable, Inc. in connection with the transaction that is the subject of the proxy solicitation. INTRODUCTION ------------ This Rule 13e-3 Transaction Statement is being filed jointly by Cable TV Fund 12-C, Ltd., a Colorado limited partnership, and by Jones Intercable, Inc., a Colorado corporation that is the general partner of Cable TV Fund 12-C, Ltd., in connection with the sale of assets of Cable TV Fund 12-BCD Venture to Jones Intercable, Inc. upon the terms and subject to the conditions of a Purchase and Sale Agreement by and between Cable TV Fund 12-BCD Venture and Jones Intercable, Inc. The sale may be a transaction subject to Rule 13e-3 because it will result in the sale of certain assets of Cable TV Fund 12-BCD Venture to Jones Intercable, Inc. The transaction also involves a vote of the limited partners of Cable TV Fund 12-C, Ltd., which is subject to Regulation 14A of the Securities Exchange Act of 1934, and the information contained in the preliminary proxy statement filed pursuant thereto is incorporated by reference in answer to the items of this Rule 13e-3 Transaction Statement. Attached as an exhibit to this Rule 13e-3 Transaction Statement are the preliminary proxy solicitation materials that have been filed simultaneously herewith. The cross-reference sheet that follows shows the location in the preliminary proxy statement of the information incorporated by reference in response to the items of this Rule 13e-3 Transaction Statement, as permitted by General Instruction F to Schedule 13E-3. -3- CROSS-REFERENCE SHEET --------------------- (Pursuant to General Instruction F to Schedule 13E-3)
Schedule 13E-3 Item Caption in the Number and Caption Proxy Statement ------------------ --------------- 1. Issuer and Class of Security Subject to the Transaction. (a)................... Vote of the Limited Partners of Cable TV Fund 12-C, Ltd.; Certain Information About the Partnership and the General Partner. (b)-(c)............... Vote of the Limited Partners of Cable TV Fund 12-C, Ltd. (d)................... Special Factors, Prior Acquisition and Sales. (e)................... [Not applicable.] (f)................... [Not applicable.] 2. Identity and Background. (a)-(d), (g).......... Vote of the Limited Partners of Cable TV Fund 12-C, Ltd.; Certain Information About the Partnership and the General Partner; Schedule 1. (e)-(f)............... [The answers to these items are in the negative; pursuant to the Instruction following Item 2(f), negative answers to Items 2(e) and 2(f) have not been furnished to limited partners in the proxy statement.]
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Schedule 13E-3 Item Caption in the Number and Caption Proxy Statement ------------------ --------------- 3. Past Contracts, Transactions or Negotiations. (a)(1)................ Certain Related Party Transactions. (a)(2)................ [None.] (b)................... [None.] 4. Terms of the Transaction. (a)................... Proposed Sale of Assets. (b)................... [Not applicable.] 5. Plans or Proposals of the Issuer or Affiliate. (a)................... Vote of the Limited Partners of Cable TV Fund 12-C, Ltd.; Certain Information About the Partnership and the General Partner. (b)-(e)............... [Not applicable.] (f)-(g)............... Vote of the Limited Partners of Cable TV Fund 12-C, Ltd,; Certain Information About the Partnership and the General Partner. 6. Source and Amounts of Funds or Other Consideration. (a)................... Proposed Sale of Assets, The Purchase and Sale Agreement; Proposed Sale of Assets, Purchase Price.
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Schedule 13E-3 Item Caption in the Number and Caption Proxy Statement ------------------- --------------- (b)................... Special Factors, The Appraisals; Special Factors, Costs of the Transaction. (c)................... Proposed Sale of Assets, The Purchase and Sale Agreement. (d)................... [Not applicable.] 7. Purpose(s), Alternatives, Reasons and Effects. (a)................... Special Factors, The Partnership's Investment Objectives; Special Factors, The General Partner's Objectives; Special Factors, Reasons for the Timing of the Sale. (b)................... Special Factors, Reasons for the Timing of the Sale; Special Factors, Recommendation of the General Partner and Fairness of the Proposed Sale of Assets. (c)................... Special Factors, The Partnership's Investment Objectives; Special Factors, Reasons for the Timing of the Sale; Special Factors, Recommendation of the General Partner and Fairness of the Proposed Sale of Assets.
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Schedule 13E-3 Item Caption in the Number and Caption Proxy Statement ------------------- --------------- (d)................... Special Factors, Certain Effects of the Sale; Special Factors, Recommendation of the General Partner and Fairness of the Proposed Sale of Assets; Federal Income Tax Consequences. 8. Fairness of the Transaction. (a)-(b)............... Vote of the Limited Partners of Cable TV Fund 12-C, Ltd.; Special Factors, Recommendation of the General Partner and Fairness of the Proposed Sale of Assets; Special Factors, The Appraisals. (c)................... Vote of the Limited Partners of Cable TV Fund 12-C, Ltd.; Special Factors, Relevant Provisions of the Partnership Agreement; Proposed Sale of Assets, Conditions to Closing. (d)-(e)............... Special Factors, Recommendation of the General Partner and Fairness of the Proposed Sale of Assets. (f)................... [Not applicable.] 9. Reports, Opinions, Appraisals and Certain Negotiations. (a)................... Vote of the Limited Partners of Cable TV Fund 12-C, Ltd.
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Schedule 13E-3 Item Caption in the Number and Caption Proxy Statement ------------------- --------------- (b)................... Special Factors, Recommendation of the General Partner and Fairness of the Proposed Sale of Assets; Special Factors, The Appraisals. (c)................... Special Factors, The Appraisals; Available Information. 10. Interest in Securities of the Issuer (a)................... Vote of the Limited Partners of Cable TV Fund 12-C, Ltd.; Schedule 1. (b)................... [None.] 11. Contracts, [None.] Arrangements or Understandings with Respect to the Issuer's Securities. 12. Present Intention and Recommendation of Certain Persons with Regard to the Transaction. (a)................... Vote of the Limited Partners of Cable TV Fund 12-C, Ltd. (b)................... Vote of the Limited Partners of Cable TV Fund 12-C, Ltd.; Special Factors, Recommendation of the General Partner and Fairness of the Proposed Sale of Assets.
-8- Schedule 13E-3 Item Caption in the Number and Caption Proxy Statement -------------------- --------------- 13. Other Provisions of the Transaction. (a)................... Special Factors, Certain Effects of the Sale. (b)................... [Not applicable.] (c)................... [Not applicable.] 14. Financial Information. (a)(1)................ [Pursuant to General Instruction D to Schedule 13E-3, the audited financial statements of Cable TV Fund 12-C, Ltd. for the fiscal years ended December 31, 1995 and 1996 are incorporated by reference from Cable TV Fund 12-C, Ltd.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1996, which is filed as an exhibit to this Schedule 13E-3.] (a)(2)................ [Pursuant to General Instruction D to Schedule 13E- 3, the unaudited financial statements of Cable TV Fund 12-C, Ltd. for its 1997 fiscal quarters are incorporated by reference from Cable TV Fund 12-C, Ltd.'s Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 1997 and June 30, 1997, which are filed as exhibits to this Schedule 13E-3.] (a)(3)................ [Not applicable.] (a)(4)................ Special Factors, Recommendation of the General Partner and Fairness of the Proposed Sale of Assets. (b)................... Unaudited Pro Forma Financial Information of Cable TV Fund 12-C, Ltd. -9-
Schedule 13E-3 Item Caption in the Number and Caption Proxy Statement ------------------- --------------- 15. Persons and Assets Employed, Retained or Utilized. (a)................... Vote of the Limited Partners of Cable TV Fund 12-C, Ltd. (b)................... [None.] 16. Additional Special Factors, Relevant Provisions of the Information. Partnership Agreement. - ------------------------------------------------------------------------------- 17. Materials Filed as Exhibits: (a)................... Jones Cable Holdings II, Inc.'s Credit Facility. (b)(1)................ Appraisal of the Albuquerque System by The Strategis Group, Inc. (b)(2)................ Appraisal of the Albuquerque System by Western Cablesystems, Inc. (b)(3)................ Appraisal of the Albuquerque System by Bond & Pecaro, Inc. (c)................... [Not applicable.] (d)(1)................ Preliminary Proxy Statement to be furnished to the limited partners of Cable TV Fund 12-C, Ltd. (d)(2)................ Cable TV Fund 12-C, Ltd.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1996. (d)(3)................ Cable TV Fund 12-C, Ltd.'s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1997. (d)(4)................ Cable TV Fund 12-C, Ltd.'s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1997. (e)................... [Not applicable.] (f)................... [Not applicable.]
-10- SIGNATURES ---------- After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. JONES INTERCABLE, INC., a Colorado corporation Dated: September 30, 1997 By:/s/ Elizabeth M. Steele ----------------------- Elizabeth M. Steele Vice President CABLE TV FUND 12-C, LTD., a Colorado limited partnership By: Jones Intercable, Inc., a Colorado corporation, as general partner Dated: September 30, 1997 By:/s/ Elizabeth M. Steele ----------------------- Elizabeth M. Steele Vice President -11- EX-99.(A) 2 JONES CABLE HOLDINGS II, INC. CREDIT FACILITY EXHIBIT 99.(a) CREDIT AGREEMENT [Tranche A] among JONES CABLE HOLDINGS II, INC., as the Borrower THE SEVERAL LENDERS FROM TIME TO TIME PARTIES HERETO THE BANK OF NOVA SCOTIA, NATIONSBANK OF TEXAS, N.A. and SOCIETE GENERALE, as the Managing Agents THE BANK OF NOVA SCOTIA, as the Administrative Agent NATIONSBANK OF TEXAS, N.A., as the Documentation Agent and SOCIETE GENERALE, as the Syndication Agent Dated as of October 29, 1996 TABLE OF CONTENTS -----------------
Page ---- SECTION 1. DEFINITIONS..................................................................1 1.1 Defined Terms..............................................................1 1.2 Other Definitional Provisions.............................................20 SECTION 2. AMOUNT AND TERMS OF COMMITMENTS.............................................21 2.1 Commitments...............................................................21 2.2 Notes.....................................................................21 2.3 Procedure for Borrowing...................................................21 2.4 Repayment of Loans........................................................22 SECTION 3. LETTERS OF CREDIT...........................................................23 3.1 L/C Commitment............................................................23 3.2 Procedure for Issuance of Letters of Credit...............................23 3.3 Fees, Commissions and Other Charges.......................................23 3.4 L/C Participations........................................................24 3.5 Reimbursement Obligation of the Borrower..................................25 3.6 Obligations Absolute......................................................26 3.7 Letter of Credit Payments.................................................26 3.8 Application...............................................................26 SECTION 4. GENERAL PROVISIONS APPLICABLE TO LOANS AND LETTERS OF CREDIT.....................................................27 4.1 Interest Rates and Payment Dates..........................................27 4.2 Optional and Mandatory Commitment Reductions and Prepayments..............27 4.3 Commitment Fees, etc......................................................29 4.4 Computation of Interest and Fees..........................................30 4.5 Conversion and Continuation Options.......................................30 4.6 Minimum Amounts of Tranches...............................................31 4.7 Inability to Determine Interest Rate......................................31 4.8 Pro Rata Treatment and Payments...........................................31 4.9 Requirements of Law.......................................................32 4.10 Taxes.....................................................................33 4.11 Indemnity.................................................................35 4.12 Change of Lending Office..................................................36
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Page ---- SECTION 5. REPRESENTATIONS AND WARRANTIES..............................................36 5.1 Financial Condition........................................................36 5.2 No Change..................................................................37 5.3 Existence; Compliance with Law.............................................37 5.4 Power; Authorization; Enforceable Obligations..............................37 5.5 No Legal Bar...............................................................38 5.6 No Material Litigation.....................................................38 5.7 No Default.................................................................39 5.8 Ownership of Property; Intellectual Property...............................39 5.9 No Burdensome Restrictions.................................................39 5.10 Taxes......................................................................39 5.11 Federal Regulations........................................................39 5.12 ERISA......................................................................40 5.13 Investment Company Act; Other Regulations..................................40 5.14 Subsidiaries...............................................................40 5.15 Insurance..................................................................40 5.16 Certain Cable Television Matters...........................................41 5.17 Environmental Matters......................................................41 5.18 Accuracy of Information....................................................43 5.19 Security Documents.........................................................43 5.20 Solvency...................................................................43 5.21 Indebtedness...............................................................43 5.22 Labor Matters..............................................................43 5.23 Prior Names................................................................44 5.24 Franchises.................................................................44 5.25 Chief Executive Office; Chief Place of Business............................45 5.26 Full Disclosure............................................................45 5.27 Intercompany Subordinated Debt.............................................45 SECTION 6. CONDITIONS PRECEDENT........................................................45 6.1 Conditions to Initial Extensions of Credit.................................45 6.2 Conditions to Each Extension of Credit.....................................47 SECTION 7. AFFIRMATIVE COVENANTS.......................................................48 7.1 Financial Statements.......................................................48 7.2 Certificates; Other Information............................................49 7.3 Payment of Obligations.....................................................50 7.4 Conduct of Business and Maintenance of Existence, etc......................50 7.5 Maintenance of Property; Insurance.........................................50
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Page ---- 7.6 Inspection of Property; Books and Records; Discussions.....................50 7.7 Notices....................................................................51 7.8 Environmental Laws.........................................................51 7.9 Collateral.................................................................52 7.11 New Subsidiaries...........................................................53 SECTION 8. NEGATIVE COVENANTS..........................................................53 8.1 Financial Condition Covenants..............................................54 8.2 Limitation on Indebtedness.................................................54 8.3 Limitation on Liens........................................................55 8.4 Limitation on Fundamental Changes..........................................56 8.5 Limitation on Sale of Assets...............................................56 8.6 Restricted/Unrestricted Designation of Subsidiaries........................57 8.7 Limitation on Restricted Payments; Other Payment Limitations...............58 8.8 Limitation on Acquisitions.................................................58 8.9 Investments, Loans, Etc....................................................59 8.10 Limitation on Transactions with Affiliates.................................60 8.11 Certain Intercompany Matters...............................................60 8.12 Limitation on Restrictions on Subsidiary Distributions.....................60 8.13 Limitation on Lines of Business............................................60 8.14 No Negative Pledge.........................................................60 8.15 Tax Sharing Agreement......................................................61 8.16 Limitation on the Borrower's Ownership of Assets...........................61 8.17 Limitation on Issuance of Capital Stock....................................61 SECTION 9. EVENTS OF DEFAULT...........................................................61 SECTION 10. THE ADMINISTRATIVE AGENT....................................................64 10.1 Appointment................................................................64 10.2 Delegation of Duties.......................................................65 10.3 Exculpatory Provisions.....................................................65 10.4 Reliance by the Administrative Agent.......................................65 10.5 Notice of Default..........................................................66 10.6 Non-Reliance on the Administrative Agent and the Other Lenders.............66 10.7 Indemnification............................................................66 10.8 The Administrative Agent in Its Individual Capacity........................67 10.9 Successor Administrative Agent.............................................67 10.10 Managing Agents and Co-Agents..............................................68 SECTION 11. NEW RESTRICTED SUBSIDIARIES.................................................69
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Page ---- SECTION 12. MISCELLANEOUS..............................................................69 12.1 Amendments and Waivers...................................................69 12.2 Notices..................................................................70 12.3 No Waiver; Cumulative Remedies...........................................70 12.4 Survival of Representations and Warranties...............................71 12.5 Payment of Expenses and Taxes............................................71 12.6 Successors and Assigns; Participations and Assignments...................71 12.7 Adjustments; Set-off.....................................................75 12.8 Counterparts; When Effective.............................................75 12.9 Severability.............................................................75 12.10 Integration..............................................................76 12.11 GOVERNING LAW............................................................76 12.12 SUBMISSION TO JURISDICTION; WAIVERS......................................76 12.13 Acknowledgements.........................................................77 12.14 WAIVERS OF JURY TRIAL....................................................77 12.15 Confidentiality..........................................................77
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SCHEDULES - --------- Schedule 1.1 Commitments and Addresses of the Lenders Schedule 5.1 Financial Disclosure Schedule 5.4 Required Consents and Authorizations Schedule 5.6 Litigation Disclosure Schedule 5.14 Subsidiaries and Designation Schedule 5.24 Franchise Agreements Schedule 5.25 Chief Executive Office/Chief Places of Business Schedule 6.1(f) Stock Ownership of the Borrower and the Restricted Subsidiaries Schedule 8.10 Existing Affiliated Transactions EXHIBITS - -------- A Form of Assignment and Acceptance B Form of Compliance Certificate C Form of Intercompany Subordinated Debt Agreement D-1 Jones Cable Holdings II, Inc. Negative Pledge Agreement D-2 Restricted Subsidiary Negative Pledge Agreement E Form of Intercompany Subordinated Note F Form of Pledge Agreement(s) G Form of Note H-1 Form of Notice of Borrowing H-2 Form of Notice of Conversion/Continuation I Form of Closing Certificate J Form of Legal Opinion of the General Counsel or the acting General Counsel of the Borrower K Form of FCC Opinion L Form of Alternative Note
-v- THIS CREDIT AGREEMENT [TRANCHE A] is entered into as of October 29, 1996, among JONES CABLE HOLDINGS II, INC., a Colorado corporation (the "Borrower"), the several lenders from time to time parties to this Agreement -------- (the "Lenders"), THE BANK OF NOVA SCOTIA, NATIONSBANK OF TEXAS, N.A. and SOCIETE ------- GENERALE, as the Managing Agents (in such capacity, the "Managing Agents"), THE --------------- BANK OF NOVA SCOTIA, as the Administrative Agent for the Lenders hereunder, NATIONSBANK OF TEXAS, N.A., as the Documentation Agent (in such capacity, the "Documentation Agent") and SOCIETE GENERALE, as the Syndication Agent (in such ------------------- capacity, the "Syndication Agent"). ----------------- WITNESSETH: ---------- WHEREAS, (i) the Borrower has purchased or will purchase from Jones Cable Holdings, Inc., a Colorado corporation ("JCH") 100% of the Capital --- Stock of Jones Communications of Georgia/South Carolina, Inc. ("JCG") and Jones --- Communications of Arizona, Inc. ("JCA") and (ii) prior to or contemporaneously --- with the purchase of such Capital Stock by the Borrower, JCH will sell to JCG the Cable Systems serving North Augusta, South Carolina, Augusta, Georgia and Savannah, Georgia and sell to JCA the Cable System serving Pima County, Arizona (the transactions described in subsections (i) and (ii) above being collectively referred to herein as the "Stock Purchase"); and -------------- WHEREAS, the Borrower has requested the Lenders to furnish the extensions of credit provided for herein, which shall be used by the Borrower (a) to finance a portion of the cost to purchase the Capital Stock of JCG and JCA and to finance other permitted acquisitions, (b) for capital expenditures to expand and upgrade the Cable Systems, (c) to make dividends or distributions permitted under this Agreement and (d) for general corporate purposes; NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein, the parties hereto agree as follows: SECTION 1. DEFINITIONS 1.1 Defined Terms. As used in this Agreement, the following terms ------------- shall have the following meanings: "ABR": for any day, a rate per annum (rounded upwards, if necessary, --- to the next 1/16 of 1%) equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. For purposes hereof: "Prime Rate" shall mean the rate of ---------- interest per annum publicly announced from time to time by the Administrative Agent as its prime rate in effect at its principal office in New York City (the Prime Rate not being intended to be the lowest rate of interest charged by the Administrative Agent in connection with extensions of credit to debtors); and "Federal Funds ------------- 1 Effective Rate" shall mean, for any day, the weighted average of the rates -------------- on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it. Any change in the ABR due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective as of the opening of business on the effective day of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. "ABR Loans": Loans the rate of interest applicable to which is based --------- upon the ABR. "Acquired Assets": as defined in Section 7.9(c). --------------- -------------- "Acquired Systems": the Cable Systems serving North Augusta, South ---------------- Carolina, Augusta, Georgia, Savannah, Georgia and Pima County Arizona, transferred by JCH to certain of the Restricted Subsidiaries of the Borrower on or before the Initial Funding Date. "Administrative Agent": Scotiabank, together with its affiliates, as -------------------- the agent for the Lenders under this Agreement and the other Loan Documents. "Affiliate": as to any Person, any other Person which, directly or --------- indirectly, is in control of, is controlled by, or is under common control with, such Person. A Person shall be deemed to control another Person if such Person (acting alone or with a group of Persons acting in concert) possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such other Person, whether through ownership of voting securities, by contract or otherwise. "Aggregate Outstanding Extensions of Credit": as to any Lender at any ------------------------------------------ time, an amount equal to the sum of (a) the aggregate principal amount of all Loans made by such Lender then outstanding and (b) such Lender's Specified Percentage of the L/C Obligations then outstanding. "Agreement": this Credit Agreement [Tranche A], as amended, --------- supplemented or otherwise modified from time to time. "Alternative Note": as defined in Section 12.6(d). ---------------- --------------- "Alternative Noteholder": as defined in Section 12.6(e). ---------------------- --------------- "Annualized Operating Cash Flow": for the most recently ended fiscal ------------------------------ quarter, an amount equal to Operating Cash Flow for such period multiplied ---------- by four. -- 2 "Applicable Margin": at the time of any determination thereof, for ----------------- purposes of all Loans, the margin of interest over the ABR or the Eurodollar Rate, as the case may be, which is applicable at the time of any determination of interest rates under this Agreement, which Applicable Margin shall be subject to adjustment (upwards or downwards, as appropriate) based on the Leverage Ratio, as follows:
---------------------------------------------------------------------------------- Applicable Margin Applicable Margin for Leverage Ratio for ABR Loans Eurodollar Rate Loans ---------------------------------------------------------------------------------- Greater than or equal to 5.50 to 0.250% 1.250% 1.00 ---------------------------------------------------------------------------------- Less than 5.50 to 1.00 but greater than or equal to 5.00 to 1.00 0.000% 1.000% ---------------------------------------------------------------------------------- Less than 5.00 to 1.00 but greater than or equal to 4.50 to 1.00 0.000% 0.750% ---------------------------------------------------------------------------------- Less than 4.50 to 1.00 0.000% 0.500% ----------------------------------------------------------------------------------
For the purposes of this definition, the Applicable Margin shall be determined as at the end of each of the first three quarterly periods of each fiscal year of the Borrower and as at the end of each fiscal year of the Borrower, based on the relevant financial statements delivered pursuant to Section 7.1(a) or (b) and the Compliance Certificate delivered pursuant -------------- --- to Section 7.2(b); changes in the Applicable Margin shall become effective -------------- on the date which is the earlier of (i) two Business Days after the date the Administrative Agent receives such financial statements and the corresponding Compliance Certificate and (ii) the 60th day after the end of each of the first three quarterly periods of each fiscal year or the 120th day after the end of each fiscal year, as the case may be, and shall remain in effect until the next change to be effected pursuant to this definition; provided, that (a) until the first such financial statements and Compliance -------- Certificate are delivered after the date hereof, the Applicable Margin shall be determined by reference to the Leverage Ratio set forth in the Closing Certificate delivered to the Administrative Agent pursuant to Section 6.1(b) -------------- and (b) if any financial statements or the Compliance Certificate referred to above are not delivered within the time periods specified above, then, for the period from and including the date on which such financial statements and Compliance Certificate are required to be delivered to but not including the date on which such financial statements and Compliance Certificate are delivered, the Applicable Margin as at the end of the fiscal period that would have been covered thereby shall be deemed to be the Applicable Margin which would be applicable when the Leverage Ratio is greater than or equal to 5.50 to 1.00. "Application": an application, in form and substance consistent with ----------- this Agreement and mutually satisfactory to the Borrower and the Issuing Lender, requesting the Issuing Lender to open a Letter of Credit. 3 "Assignee": as defined in Section 12.6(c). -------- --------------- "Assignment and Acceptance": an Assignment and Acceptance ------------------------- substantially in the form of Exhibit A. --------- "Authorizations": all filings, recordings and registrations with, and -------------- all validations or exemptions, approvals, orders, authorizations, consents, Licenses, certificates and permits from, the FCC, applicable public utilities and other Governmental Authorities, including, without limitation, Franchises, FCC Licenses and Pole Agreements. "Available Commitment": at any time, as to any Lender, an amount equal -------------------- to (a) the amount of such Lender's Commitment at such time, minus (b) such ----- Lender's Aggregate Outstanding Extensions of Credit at such time. "BCI": Bell Canada International Inc. --- "Board": the Board of Governors of the Federal Reserve System or any ----- successor. "Borrower": as defined in the preamble hereto. -------- "Borrowing Date": any Business Day specified in a notice pursuant to -------------- Section 2.3 as a date on which the Borrower requests the Lenders to make Loans - ----------- hereunder. "Business": as defined in Section 5.17(c). -------- --------------- "Business Day": a day other than a Saturday, Sunday or other day on ------------ which commercial banks in New York, New York are authorized or required by law to close and, with respect to Eurodollar Loans, a day on which dealings in Dollar deposits are carried out in the London interbank market. "Cable Systems": all cable television facilities and distribution ------------- systems that are owned, operated and maintained by the Borrower or a Restricted Subsidiary pursuant to the terms of the related licenses, franchises and permits issued under federal, state or municipal laws from time to time in effect, which authorize a person to receive or distribute, or both, by cable, optical, antennae, microwave, satellite or otherwise, audio, video, digital, other broadcast signals or information or telecommunications and visual signals within a defined geographical area for the purpose of providing entertainment or other services, together with all the property, tangible and intangible, owned or used in connection with the services provided pursuant to said licenses, franchises and permits, and each other cable television facility from time to time operated by the Borrower and the Restricted Subsidiaries. A Cable System means one of such Cable Systems. 4 "Capital Lease Obligations": as to any Person, the obligations of such ------------------------- Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP and, for the purposes of this Agreement, the amount of such obligations at any time shall be the capitalized amount thereof at such time determined in accordance with GAAP. "Capital Stock": any and all shares, interests, participations or ------------- other equivalents (however designated) of capital stock of a corporation, any and all classes of partnership interests (including, without limitation, general, limited and preference units) in a partnership, any and all equivalent ownership interests in a Person (other than a corporation or partnership), and any and all warrants or options to purchase any of the foregoing. "Cash Equivalents": (a) securities with maturities of one year or ---------------- less from the date of acquisition issued or fully guaranteed or insured by the United States Government or any agency thereof, (b) certificates of deposit and eurodollar time deposits with maturities of one year or less from the date of acquisition and overnight bank deposits of any Lender or of any commercial bank having capital and surplus in excess of $500,000,000, (c) repurchase obligations of any Lender or of any commercial bank satisfying the requirements of clause (b) of this definition, having a term of not more than 30 days, with respect to securities issued or fully guaranteed or insured by the United States Government, (d) commercial paper of a domestic issuer rated at least A-1 by Standard and Poor's Ratings Group ("S&P") or P-1 by Moody's Investors Service, --- Inc. ("Moody's"), (e) securities with maturities of one year or less from the ------- date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States, or by any political subdivision or taxing authority of any such state, commonwealth or territory, the securities of which state, commonwealth, territory, political subdivision, taxing authority (as the case may be) are rated at least A by S&P or A-2 by Moody's, or (f) shares of money market mutual or similar funds which invest exclusively in assets satisfying the requirements of clauses (a) through (e) of this definition. "Change of Control": shall be deemed to have occurred at such time as ----------------- any of the following occur: (a) if Glenn R. Jones and/or BCI shall no longer have the power to elect a majority of the board of directors of JIC or to direct or cause the direction of the management and policies of JIC through the ownership of voting securities; or (b) (i) if Glenn R. Jones and/or BCI shall no longer have the power, directly or indirectly, to elect a majority of the board of the Borrower or to direct or cause the direction of the management and policies of the Borrower and/or any Restricted Subsidiary or (ii) JIC shall create, incur, assume or suffer to exist any Lien on any Capital Stock of the Borrower. 5 "Closing Certificate": as defined in Section 6.1(b). ------------------- -------------- "Co-Agents": CoreStates Bank, N.A., Credit Lyonnais New York Branch, --------- PNC Bank, National Association, Mellon Bank, N.A., Royal Bank of Canada, The Chase Manhattan Bank, Toronto Dominion (Texas), Inc., Banque Paribas and Bank of America. "Code": the Internal Revenue Code of 1986, as amended from time to ---- time. "Collateral": all Acquired Assets, if any, and all Capital Stock of ---------- all the Restricted Subsidiaries, now owned or hereinafter acquired. "Commitment": as to any Lender, its obligation, if any, to make Loans ---------- to, and/or issue or participate in Letters of Credit issued on behalf of, the Borrower in an aggregate amount not to exceed at any one time outstanding the amount set forth opposite such Lender's name in Schedule 1.1 under the heading ------------ "Commitment" or, in the case of any Lender that is an Assignee, the amount of the assigning Lender's Commitment assigned to such Assignee pursuant to Section ------- 12.6(c) and set forth in the applicable Assignment and Acceptance (in each case, - ------- as the same may be increased, reduced or otherwise adjusted from time to time as provided herein). "Commonly Controlled Entity": an entity, whether or not incorporated, -------------------------- which is under common control with the Borrower within the meaning of Section 4001 of ERISA or is part of a group which includes the Borrower and which is treated as a single employer under Section 414(b) or (c) of the Code. "Compliance Certificate": a certificate of a Responsible Officer of ---------------------- the Borrower, substantially in the form of Exhibit B. --------- "Contractual Obligation": as to any Person, any provision of any ---------------------- security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound. "Default": any of the events specified in Section 9, whether or not ------- --------- any requirement for the giving of notice, the lapse of time, or both, has been satisfied. "Disposition": as defined in Section 8.5. ----------- ----------- "Documentation Agent": as defined in the preamble hereto. ------------------- "Dollars" and "$": dollars in lawful currency of the United States of ------- - America. "Effective Date": as defined in Section 12.8. -------------- ------------ 6 "Environmental Laws": any and all Federal, state, local or municipal ------------------ laws, rules, orders, regulations, statutes, ordinances, codes, decrees, requirements of any Governmental Authority or other Requirements of Law (including common law) regulating, relating to or imposing liability or standards of conduct concerning protection of human health or the environment, as now or may at any time hereafter be in effect. "ERISA": the Employee Retirement Income Security Act of 1974, as ----- amended from time to time. "Eurocurrency Reserve Requirements": for any day as applied to a --------------------------------- Eurodollar Loan, the aggregate (without duplication) of the rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of the Board or other Governmental Authority having jurisdiction with respect thereto) dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in ------------------------ Regulation D of such Board) maintained by a member bank of the Federal Reserve System. "Eurodollar Base Rate": with respect to each day during each -------------------- Interest Period at which Scotiabank is offered Dollar deposits at or about 11:00 A.M., New York City time, two Business Days prior to the beginning of such Interest Period in the interbank eurodollar market where the eurodollar and foreign currency and exchange operations in respect of its Eurodollar Loans are then being conducted for delivery on the first day of such Interest Period for the number of days comprised therein and in an amount comparable to the amount of its Eurodollar Loan to be outstanding during such Interest Period. "Eurodollar Loans": Loans, the rate of interest applicable to which ---------------- is based upon the Eurodollar Rate. "Eurodollar Rate": with respect to each day during each Interest Period --------------- pertaining to a Eurodollar Loan, a rate per annum determined for such day in accordance with the following formula (rounded upward to the nearest 1/100th of 1%): Eurodollar Base Rate ---------------------------------------- 1.00 - Eurocurrency Reserve Requirements "Event of Default": any of the events specified in Section 9, ---------------- --------- provided that any requirement for the giving of notice, the lapse of time, or - -------- both, or any other condition, has been satisfied. "Facility": the Commitments and the extensions of credit made -------- thereunder. 7 "FCC": the Federal Communications Commission and any successor --- thereto. "FCC License": any community antenna relay service, broadcast ----------- auxiliary license, earth station registration, business radio, microwave or special safety radio service license issued by the FCC pursuant to the Communications Act of 1934, as amended. "Franchise": any franchise, permit, wire agreement or easement, --------- License or other Authorization granted by any Governmental Authority, including all laws, regulations and ordinances relating thereto, for the construction, operation and maintenance of a Cable System or satellite master antenna television system and the reception and transmission of signals by microwave, and shall include, without limitation, all FCC Licenses and all certificates of compliance and cable television registration statements which are required to be issued by or filed with the FCC. "Franchise Agreement": any ordinance, agreement, contract or other ------------------- document stating the terms and conditions of any Franchise, including, without limitation, all exhibits and schedules thereto, all amendments thereof and consents, waivers and extensions issued thereunder, any documents incorporated therein by reference and the application from which such Franchise was granted. "GAAP": generally accepted accounting principles in the United States ---- of America in effect from time to time. "Governmental Authority": any nation or government, any state or other ---------------------- political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guarantee Obligation": as to any Person (the "guaranteeing person"), -------------------- ------------------- any obligation of (a) the guaranteeing person or (b) another Person (including, without limitation, any bank under any letter of credit) to induce the creation of which the guaranteeing person has issued a reimbursement, counterindemnity or similar obligation, in either case guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or other obligations (the "primary obligations") ------------------- of any other third Person (the "primary obligor") in any manner, whether --------------- directly or indirectly, including, without limitation, any obligation of the guaranteeing person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (1) for the purchase or payment of any such primary obligation or (2) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; provided, however, that the term -------- ------- Guarantee Obligation shall not include endorsements of 8 instruments for deposit or collection in the ordinary course of business. The amount of any Guarantee Obligation of any guaranteeing person shall be deemed to be the lower of (a) an amount equal to the stated or determinable principal amount of the primary obligation in respect of which such Guarantee Obligation is made and (b) the maximum principal amount for which such guaranteeing person may be liable pursuant to the terms of the instrument embodying such Guarantee Obligation, unless such primary obligation and the maximum principal amount for which such guaranteeing person may be liable are not stated or determinable, in which case the amount of such Guarantee Obligation shall be the principal amount of such guaranteeing person's reasonably anticipated liability in respect thereof as determined by the Borrower in good faith. For the purposes of Section 8.2, Guarantee Obligations by the Borrower or any of the Restricted - ----------- Subsidiaries in respect of Indebtedness of the Borrower or any of the Restricted Subsidiaries shall be calculated without duplication of any other Indebtedness. It is understood that obligations pursuant to indemnities which (a) are granted in the ordinary course of business, are related to officer or director liability for officers and directors of the Borrower or the Restricted Subsidiaries, or made in connection with asset Dispositions and (b) do not cover Indebtedness of the types described in clauses (a) through (d) of the definition thereof shall not constitute "Guarantee Obligations" for the purposes of this Agreement. "Indebtedness": of any Person at any date, (a) all indebtedness of ------------ such Person for borrowed money or which is evidenced by a note, bond, debenture or similar instrument, (b) all indebtedness of such Person for the deferred purchase price of property or services (other than current trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices), (c) all Capital Lease Obligations of such Person, (d) all obligations of such Person in respect of the principal amount of acceptances or letters of credit issued or created for the account of such Person, (e) all Guarantee Obligations of such Person and (f) all liabilities of the type described in clauses (a) through (e) above secured by any Lien on any property owned by such Person even though such Person has not assumed or otherwise become liable for the payment thereof; provided that the amount of any nonrecourse -------- Indebtedness of such Person shall be not more than an amount equal to the fair market value of the property subject to such Lien, as determined by the Borrower in good faith. The Indebtedness of any Person shall include the Indebtedness of any partnership in which such Person is a general partner, other than to the extent that the instrument or agreement evidencing such Indebtedness expressly limits the liability of such Person in respect thereof. "Information": written information, including, without limitation, ----------- certificates, reports, statements (other than financial statements, budgets, projections and similar financial data) and documents. "Initial Funding Date": the date when the initial extensions of -------------------- credit have been made hereunder and all of the conditions precedent set forth in Section 6 have been satisfied in full or waived. - --------- 9 "Insolvency": with respect to any Multiemployer Plan, the condition ---------- that such Plan is insolvent within the meaning of Section 4245 of ERISA. "Insolvent": pertaining to a condition of Insolvency. --------- "Intercompany Subordinated Debt": any Indebtedness of the Borrower ------------------------------ related to or resulting from any loan or advance from, or any non-equity investment in the Borrower by, or any management or similar fees payable by the Borrower to, or any other obligation of the Borrower to pay to, BCI or an Affiliate of the Borrower (excluding a Restricted Subsidiary), and all such present and future Indebtedness of the Borrower owing to, or non-equity investment in the Borrower by, or management or similar fees payable by the Borrower to, or any other obligation of the Borrower to pay to, BCI or an Affiliate of the Borrower (excluding a Restricted Subsidiary) now or hereafter existing (whether created directly or acquired by assignment or otherwise), fixed, contingent, liquidated, unliquidated, joint, several, or joint and several, whether evidenced in writing or not, and interest, premiums and fees, if any, thereon and other amounts payable in respect thereof, and all rights and remedies of such obligees with respect thereto. Notwithstanding the foregoing, Intercompany Subordinated Debt shall not include (a) payments under the agreements described in Schedule 8.10, or (b) payments relating to any purchase, ------------- sale, lease or exchange of property or the rendering of any service, with any Affiliate of the Borrower (other than a Restricted Subsidiary) which is (i) entered into in the ordinary course of the Borrower's business, (ii) the terms of which are fair and reasonable and in the best interests of the Borrower and (iii) which is approved by the Board of Directors of the Borrower. "Intercompany Subordinated Debt Agreement": the agreement executed and ---------------------------------------- delivered pursuant to Section 6.1(a) by and among JIC, the Borrower and any -------------- other Affiliate of the Borrower who becomes a party thereto pursuant to the terms thereof, substantially in the form of Exhibit C. --------- "Intercompany Subordinated Note": a note substantially in the form of ------------------------------ Exhibit E, evidencing Intercompany Subordinated Debt. - --------- "Interest Expense": for any fiscal quarter or fiscal year of the ---------------- Borrower, as applicable, the aggregate of all letter of credit fees, commitment fees and interest accrued or paid by the Borrower or any of the Restricted Subsidiaries, during such period in respect of Total Debt, all as determined on a consolidated basis in accordance with GAAP. "Interest Payment Date": (a) as to any ABR Loan, (i) the last --------------------- Business Day of each March, June, September and December prior to the Termination Date and (ii) the Termination Date, (b) as to any Eurodollar Loan having an Interest Period of three months or less, the last day of such Interest Period and (c) as to any Eurodollar Loan having an Interest Period longer than three months, each day which is three months or a whole multiple thereof, after the first day of such Interest Period and the last day of such Interest Period. 10 "Interest Period": with respect to any Eurodollar Loan: --------------- (a) initially, the period commencing on the borrowing or conversion date, as the case may be, with respect to such Eurodollar Loan and ending one, two, three or six months thereafter (or, to the extent available from all Lenders, nine or twelve months thereafter), as selected by the Borrower in its Notice of Borrowing or Notice of Conversion/Continuation, as the case may be, given with respect thereto; and (b) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Eurodollar Loan and ending one, two, three or six months thereafter (or, to the extent available from all Lenders, nine or twelve months thereafter), as selected by the Borrower by irrevocable notice to the Administrative Agent not less than three Business Days prior to the last day of the then current Interest Period with respect thereto; provided that, all of the foregoing provisions relating to Interest Periods are - -------- subject to the following: (i) if any Interest Period would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day; (ii) any Interest Period that would otherwise extend beyond the Termination Date shall end on the Termination Date; and (iii) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month. "Interest Rate Hedge Agreement": any interest rate protection ----------------------------- agreement, interest rate futures contract, interest rate option, interest rate cap or other interest rate hedge arrangement, to or under which the Borrower or any Restricted Subsidiary is a party or a beneficiary. "Investments": as defined in Section 8.9. ----------- ----------- "Issuing Lender": Scotiabank, provided that, in the event that -------------- -------- Scotiabank shall be replaced as the Administrative Agent pursuant to Section 10.9, (i) no Letter of Credit shall be issued by Scotiabank on or - ------------ after the date of such replacement and (ii) the replacement Administrative Agent shall be an Issuing Lender from and after the date of such replacement. 11 "JCA": as defined in the recitals. --- "JCG": as defined in the recitals. --- "JCH": as defined in the recitals. --- "JIC": Jones Intercable, Inc., a Colorado corporation. --- "JIC Negative Pledge": the Negative Pledge Agreement to be executed and ------------------- delivered by JIC, substantially in the form of Exhibit D-1, as the same may be ----------- amended, supplemented or otherwise modified from time to time, whereby JIC agrees not to create, incur, assume or suffer to exist any Lien upon the Capital Stock of the Borrower nor upon any Intercompany Subordinated Debt from the Borrower in favor of JIC. "L/C Fee Payment Date": the last Business Day of each March, June, -------------------- September and December. "L/C Obligations": at any time, an amount equal to the sum of (a) the --------------- aggregate then undrawn and unexpired amount of the then outstanding Letters of Credit and (b) the aggregate amount of all unpaid Reimbursement Obligations. "Lenders": as defined in the preamble hereto. ------- "Letters of Credit": as defined in Section 3.1(a). ----------------- -------------- "Leverage Ratio": as of the last day of the most recently ended fiscal -------------- quarter, the ratio of (i) Total Debt as of such day to (ii) Annualized Operating Cash Flow based on such fiscal quarter. "License": as to any Person, any license, permit, certificate of need, ------- authorization, certification, accreditation, franchise, approval, or grant of rights by any Governmental Authority or other Person necessary or appropriate for such Person to own, maintain, or operate its business or property, including FCC Licenses. "Lien": any mortgage, pledge, hypothecation, assignment, deposit ---- arrangement, encumbrance, lien (statutory or other), charge or other security interest or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement and any capital lease having substantially the same economic effect as any of the foregoing). "Loan": any loan made by any Lender pursuant to this Agreement. ---- 12 "Loan Documents": this Agreement, the Applications, all Intercompany -------------- Subordinated Notes, the Intercompany Subordinated Debt Agreement, the Notes, the JIC Negative Pledge, all Restricted Subsidiary Negative Pledges, any Interest Rate Hedge Agreements with any of the Lenders and the Security Documents. "Loan Parties": the collective reference to the Borrower and the ------------ Restricted Subsidiaries. "Majority Lenders": at any time when no Loans or L/C Obligations are ---------------- outstanding, the Lenders having Commitments greater than 50% of the Total Commitment, and at any time when Loans or L/C Obligations are outstanding, the Lenders with outstanding Loans and participations in L/C Obligations having an unpaid principal balance and face amount, respectively, greater than 50% of all Loans and L/C Obligations outstanding, excluding from such calculation the Lenders which have failed or refused to fund a Loan or their respective portion of an unpaid Reimbursement Obligation. "Managing Agents": as defined in the preamble hereto. --------------- "Managing Agents Fee Letter": the letter agreement, dated September -------------------------- 25, 1996, among the Borrower, NationsBank, Scotiabank, and Societe. "Material Adverse Effect": a material adverse effect on (a) the ----------------------- business, assets, operations or condition (financial or otherwise) of the Borrower or any of the Restricted Subsidiaries, (b) the ability of any Loan Party to perform its obligations under the Loan Documents or (c) the rights or remedies of the Administrative Agent or the Lenders under this Agreement or any of the other Loan Documents. "Materials of Environmental Concern": any gasoline or petroleum ---------------------------------- (including crude oil or any fraction thereof) or petroleum products or any hazardous or toxic substances, materials or wastes, defined or regulated as such in or under any Environmental Law, including, without limitation, asbestos, polychlorinated biphenyls and urea-formaldehyde insulation. "Maximum Permitted Indebtedness": shall mean, at the date of ------------------------------ determination, an amount equal to the product of (i) Annualized Operating Cash Flow based on the preceding fiscal quarter and (ii) the Leverage Ratio permitted pursuant to Section 8.1(a) on the date of determination. -------------- "Multiemployer Plan": a Plan which is a multiemployer plan as defined ------------------ in Section 4001(a)(3) of ERISA. "NationsBank": NationsBank of Texas, N.A. ----------- 13 "Net Unrestricted Designated Subsidiaries Three Month Cash Flow": -------------------------------------------------------------- shall mean, for any period, the excess, if any, of (i) the Three Month Cash Flow attributable to all Restricted Subsidiaries which have been designated during such period as Unrestricted Subsidiaries pursuant to Section 8.6, ----------- including, if applicable, the Three Month Cash Flow attributable to any Restricted Subsidiary which is then being designated as an Unrestricted Subsidiary pursuant to Section 8.6 (calculated at the time of each such ----------- designation), over (ii) the Three Month Cash Flow attributed to all Unrestricted Subsidiaries which have been designated during such period as Restricted Subsidiaries pursuant to Section 8.6, including, if applicable, ----------- the Three Month Cash Flow attributable to any Unrestricted Subsidiary which is then being designated as a Restricted Subsidiary pursuant to Section 8.6 ----------- (calculated at the time of each such designation). "Non-Excluded Taxes": as defined in Section 4.10(a). ------------------ --------------- "Non-U.S. Lender": as defined in Section 4.10(b). --------------- --------------- "Notes": as defined in Section 2.2. ----- ----------- "Notice of Borrowing": as defined in Section 2.3. ------------------- ----------- "Notice of Conversion/Continuation": as defined in Section 4.5. --------------------------------- ----------- "Obligations": the unpaid principal of and interest on (including, ----------- without limitation, interest accruing after the maturity of the Loans and Reimbursement Obligations and interest accruing after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to any Loan Party, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) the Loans and Reimbursement Obligations and all other obligations and liabilities of any Loan Party to the Administrative Agent or to any Lender (or, in the case of any Interest Rate Protection Agreement, any affiliate of any Lender), whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, this Agreement, any other Loan Document, the Letters of Credit, any Interest Rate Protection Agreement entered into with any Lender (or any affiliate of any Lender) or any other document made, delivered or given in connection herewith or therewith, whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses (including, without limitation, all reasonable fees, charges and disbursements of counsel to the Administrative Agent or to any Lender that are required to be paid by any Loan Party pursuant hereto) or otherwise. "Operating Cash Flow": for any period the total revenues ------------------- (excluding the gain on the sale of any assets to the extent included therein) of the Borrower and the Restricted Subsidiaries, less the sum of (a) operating expenses of the Borrower and the Restricted Subsidiaries for such period, and (b) general and administrative expenses of the Borrower 14 and the Restricted Subsidiaries for such period, in each case determined and consolidated in accordance with GAAP and calculated after giving effect to acquisitions, exchanges and dispositions of assets of the Borrower and any of the Restricted Subsidiaries (and designations of the Restricted Subsidiaries and the Unrestricted Subsidiaries) during such period as if such transactions had occurred on the first day of such period; provided, -------- that for purposes of determining Operating Cash Flow for any such period during which (a) the Borrower or any of the Restricted Subsidiaries acquired or disposed of any assets, or (b) any Restricted Subsidiaries were designated Unrestricted Subsidiaries or Unrestricted Subsidiaries were designated Restricted Subsidiaries, then such Operating Cash Flow shall be increased (in the case of asset acquisitions or the designation of a Unrestricted Subsidiary as a Restricted Subsidiary) or reduced (in the case of asset dispositions or the designation of a Restricted Subsidiary as an Unrestricted Subsidiary), by the Operating Cash Flow that would have been contributed by such assets or Restricted Subsidiary or Unrestricted Subsidiary, as the case may be during such period, determined on a pro forma basis in a manner reasonably satisfactory to the Managing Agents, as though the Borrower or the relevant Restricted Subsidiary acquired or disposed of such assets or the designations of the Restricted Subsidiaries or the Unrestricted Subsidiaries took place, on the first day of such period. "Participant": as defined in Section 12.6(b). ----------- --------------- "PBGC": the Pension Benefit Guaranty Corporation established ---- pursuant to Subtitle A of Title IV of ERISA. "Permitted Line of Business": as defined in Section 8.13. -------------------------- ------------ "Person": an individual, partnership, corporation, limited ------ liability company, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "Plan": at a particular time, any employee benefit plan which is ---- covered by ERISA and in respect of which the Borrower or a Commonly Controlled Entity is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) a "contributing sponsor" as defined in Section 4001(a)(13) of ERISA or a member of such contributing sponsor's "control group" as defined in Section 4001(a)(14) of ERISA. "Pledge Agreements": the Pledge Agreements to be executed and ----------------- delivered by the Borrower and each of the Restricted Subsidiaries, substantially in the form of Exhibit F hereto, as the same may be amended, --------- supplemented or otherwise modified from time to time. "Pledged Subsidiary": any Restricted Subsidiary of the Borrower. ------------------ 15 "Pole Agreement": any pole attachment agreement or underground -------------- conduit use agreement entered into in connection with the operation of any Cable System. "Prime Rate": as defined in the definition of "ABR". ---------- "Pro Forma Debt Service": on any date of determination, without ---------------------- duplication, for the succeeding twelve-month period from the end of the most recently ended fiscal quarter, the sum of (a) all Interest Expense scheduled to be paid on Total Debt during such twelve-month period (including without limitation any amounts scheduled to be paid pursuant to any Interest Rate Hedge Agreement), plus (b) all rentals (other than insurance premiums and property taxes) scheduled to be paid under Capital Lease Obligations during such twelve-month period, plus (c) required principal payments on Total Debt and/or payments associated with reductions in the Total Commitment for such twelve-month period; provided that, for -------- purposes of this definition, the rates of interest payable during any period on Total Debt (x) bearing interest at a variable rate or at different fixed rates or (y) on which interest does not become payable until a specified date after the end of such quarter shall, in each case, be the interest rates per annum payable on such Total Debt as of the date for which such calculation is made. "Properties": as defined in Section 5.17(e). ---------- --------------- "Quarterly Percentage Reduction": as defined in Section 4.2(c). ------------------------------ -------------- "Register": as defined in Section 12.6(g). -------- --------------- "Reimbursement Obligations": the obligations of the Borrower to ------------------------- reimburse the Issuing Lender pursuant to Section 3.5 for amounts drawn ----------- under Letters of Credit. "Reorganization": with respect to any Multiemployer Plan, the -------------- condition that such plan is in reorganization within the meaning of Section 4241 of ERISA. "Reportable Event": any of the events set forth in Section 4043(b) ---------------- of ERISA, other than those events as to which the thirty day notice period is waived under Sections .13, .14, .16, .18, .19 or .20 of PBGC Reg. (S) 2615. "Requirement of Law": as to any Person, the Certificate of ------------------ Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority (including any Authorization), in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Responsible Officer": the chief executive officer, the president, ------------------- the chief financial officer or the treasurer of the relevant Loan Party. 16 "Restricted Payments": as defined in Section 8.7. ------------------- ----------- "Restricted Subsidiary": (a) each of the Subsidiaries designated --------------------- as such on Schedule 5.14 attached hereto, (b) any Subsidiary created or ------------- acquired after the Effective Date pursuant to Section 8.9(e), unless and ------------- until designated as an Unrestricted Subsidiary pursuant to Section 8.6 and ----------- (c) as of the date of such designation, any Unrestricted Subsidiary designated as a Restricted Subsidiary pursuant to Section 8.6. ----------- "Restricted Subsidiary Negative Pledge": the Negative Pledge ------------------------------------- Agreement to be executed and delivered by each Restricted Subsidiary in the form of Exhibit D-2, as the same may be amended, supplemented or otherwise ----------- modified from time to time, whereby the Restricted Subsidiaries agree not to create, incur, assume or suffer to exist any Lien upon any of their assets except as permitted under Section 8.3 of the Tranche B Agreement and ----------- this Agreement. "Scotiabank": The Bank of Nova Scotia. ---------- "Scotiabank Fee Letter": the letter agreement, dated September 25, --------------------- 1996, between the Borrower and Scotiabank. "Security Documents": the collective reference to the Pledge ------------------ Agreements and any other security documents hereafter delivered to the Administrative Agent granting a Lien on any asset or assets of any Person to secure the obligations and liabilities of the Borrower hereunder and under any of the other Loan Documents or to secure any guarantee of any such obligations and liabilities. "Single Employer Plan": any Plan which is covered by Title IV of -------------------- ERISA, but which is not a Multiemployer Plan. "Societe": Societe Generale. ------- "Solvent": when used with respect to any Person, means that, as of ------- any date of determination, (a) the amount of the "fair value" or "present fair saleable value" of the assets of such Person will, as of such date, exceed the amount of all "liabilities of such Person, contingent or otherwise", as of such date, as such quoted terms are determined in accordance with applicable federal and state laws governing determinations of the insolvency of debtors, (b) the fair value or present fair saleable value of the assets of such Person will, as of such date, be greater than the amount that will be required to pay the liability of such Person on its debts as such debts become absolute and matured, (c) such Person will not have, as of such date, an unreasonably small amount of capital with which to conduct its business, and (d) such Person will be able to pay its debts as they mature. For purposes of this definition, (i) "debt" means liability on a "claim", (ii) "claim" means any (x) right to payment, whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, 17 matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured or (y) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured or unmatured, disputed, undisputed, secured or unsecured and (iii) unliquidated, contingent, disputed and unmatured claims shall be valued at the amount that can be reasonably expected to be actual and matured. "Specified Percentage": at any time, as to any Lender, the -------------------- percentage of the Total Commitment then constituted by such Lender's Commitment. "Stock Purchase": as defined in the recitals hereto. -------------- "Subsidiary": as to any Person, a corporation, partnership or ---------- other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors (or Persons holding equivalent positions) of such corporation, partnership or other entity are at the time owned, or the management and policies of which are otherwise ultimately controlled, directly or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Borrower. "Syndication Agent": as defined in the preamble hereto. ----------------- "Tax Sharing Agreement": that certain Jones Intercable, Inc. and --------------------- its Qualifying Subsidiaries Income Tax Sharing Agreement, dated as of October 31, 1995, among JIC and certain of its Subsidiaries, as amended solely to include the Borrower and the Restricted Subsidiaries as parties thereto. "Termination Date": the earlier of (i) December 31, 2005, (ii) the ---------------- date the Lenders' Commitments to lend under this Agreement are otherwise cancelled or terminated and (iii) the date any Note shall become due and payable, whether at stated maturity, by acceleration or otherwise. "Three Month Cash Flow": for a Person or group of Persons or the --------------------- assets of any Person as the context requires that portion of Operating Cash Flow derived from or produced by such Person, Persons or assets for the three-month period ending on the last day of the month immediately preceding the date of designation, transfer, sale or exchange of such Person, Persons or assets or, in the case of the Borrower and the Restricted Subsidiaries, immediately prior to the date of determination thereof. "Total Available Commitment": the sum of the Available Commitments -------------------------- of all the Lenders. 18 "Total Commitment": the sum of the Commitments (in each case, as ---------------- the same may be increased, reduced or otherwise adjusted from time to time as provided herein) not to exceed $300,000,000. "Total Debt": for the Borrower and the Restricted Subsidiaries as ---------- of any date, without duplication, the sum of (a) Indebtedness outstanding on such date excluding any Intercompany Subordinated Debt, provided that -------- the Intercompany Subordinated Debt is unsecured and subordinated pursuant to the terms of the Intercompany Subordinated Debt Agreement, (b) Capital Lease Obligations outstanding on such date and (c) Guarantee Obligations, determined on a consolidated basis in accordance with GAAP. "Total Extensions of Credit": at any time, the sum of the -------------------------- Aggregate Outstanding Extensions of Credit of all of the Lenders at such time. "Tranche": the collective reference to Eurodollar Loans, the then ------- current Interest Periods of which begin on the same date and end on the same later date (whether or not such Loans shall originally have been made on the same day). "Tranche B Agreement": the Credit Agreement [Tranche B] among the ------------------- Borrower, the several Lenders from time to time parties thereto, the Managing Agents, the Syndication Agent, the Documentation Agent and the Administrative Agent, of even date herewith, as amended, supplemented or otherwise modified from time to time. "Transferee": as defined in Section 12.6(i). ---------- --------------- "Type": as to any Loan, its nature as an ABR Loan or a Eurodollar ---- Loan. "Uniform Customs": the Uniform Customs and Practice for --------------- Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500, as the same may be amended from time to time. "Unrestricted Subsidiary": (a) any Subsidiary created or acquired ----------------------- after the Effective Date, pursuant to Section 8.9(f) and/or any Subsidiary ------------- that is designated as an Unrestricted Subsidiary in accordance with the terms of Section 8.6 and (b) any Subsidiary of any such Unrestricted ----------- Subsidiary, provided, that (i) at no time shall any creditor of any such -------- Subsidiary have any claim (whether pursuant to a Guarantee Obligation or otherwise) against the Borrower or any of its other Subsidiaries (other than another Unrestricted Subsidiary) in respect of any Indebtedness or other obligation of any such Subsidiary; (ii) neither the Borrower nor any of its Subsidiaries (other than another Unrestricted Subsidiary) shall become a general partner of any such Subsidiary; (iii) no default with respect to any Indebtedness of any such Subsidiary (including any right which the holders thereof may have to take enforcement action against any such Subsidiary) shall permit (upon notice, lapse of time or both) any holder of any Indebtedness of the Borrower or its other Subsidiaries (other 19 than another Unrestricted Subsidiary) to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its final scheduled maturity; (iv) no such Subsidiary shall own any Capital Stock of, or own or hold any Lien on any property of, the Borrower or any other Subsidiary of the Borrower (other than another Unrestricted Subsidiary); (v) no Investments may be made in any such Subsidiary by the Borrower or any of its Subsidiaries (other than another Unrestricted Subsidiary except pursuant to Section 8.9(f)); and (vi) at the ------------- time of such designation, no Default or Event of Default shall have occurred and be continuing or would result therefrom. It is understood that the Unrestricted Subsidiaries shall be disregarded for the purposes of any calculation pursuant to this Agreement relating to financial matters with respect to the Borrower. "Unrestricted Subsidiary Designation": as defined in Section 8.6. ----------------------------------- ----------- "Wholly Owned Subsidiary": as to any Person, any other Person at ----------------------- least 100% of the Capital Stock of which (other than directors' qualifying shares required by law) is owned by such Person directly or indirectly through one or more other Wholly Owned Subsidiaries. 1.2 Other Definitional Provisions. (a) Unless otherwise specified ----------------------------- therein, all terms defined in this Agreement shall have the defined meanings when used in any other Loan Document or any certificate or other document made or delivered pursuant hereto or thereto. (b) Unless otherwise specified herein, all accounting terms used herein (and in any other Loan Document and any certificate or other document made or delivered pursuant hereto or thereto) shall be interpreted, all accounting determinations shall be made, and all financial statements required to be delivered hereunder shall be prepared, in accordance with GAAP as in effect from time to time; provided, however, that if the Borrower notifies the -------- ------- Administrative Agent that the Borrower wishes to amend any covenant in Section 8 --------- to eliminate the effect of any change in GAAP on the operation of such covenant (or if the Administrative Agent notifies the Borrower that the Majority Lenders wish to amend Section 8 for such purpose), then compliance with such covenant --------- shall be determined on the basis of GAAP in effect immediately before the relevant change in GAAP became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Borrower and the Majority Lenders. (c) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, Schedule and Exhibit references are to this Agreement unless otherwise specified. (d) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. 20 (e) References in this Agreement or any other Loan Document to knowledge by the Borrower or any Restricted Subsidiary of events or circumstances shall be deemed to refer to events or circumstances of which any Responsible Officer has actual knowledge or reasonably should have knowledge. (f) References in this Agreement or any other Loan Document to financial statements shall be deemed to include all related schedules and notes thereto. SECTION 2. AMOUNT AND TERMS OF COMMITMENTS 2.1 Commitments. (a) Subject to and in reliance upon the terms, ----------- conditions, representations and warranties contained in the Loan Documents, each Lender severally agrees to make revolving credit Loans to the Borrower from time to time until the Termination Date, provided that in no event shall the Aggregate Outstanding Extensions of Credit of any Lender at any time exceed such Lender's Commitment. Until the Termination Date, the Borrower may use the Available Commitments by borrowing, prepaying the Loans in whole or in part, and reborrowing, all in accordance with the terms and conditions hereof. (b) The Loans may from time to time be (i) Eurodollar Loans, (ii) ABR Loans or (iii) a combination thereof, as determined by the Borrower and notified to the Administrative Agent in accordance with Sections 2.3 and ------------ 4.5, provided that no Loan shall be made as a Eurodollar Loan after the day - --- -------- that is one month prior to the Termination Date. 2.2 Notes. In order to evidence the Loans, the Borrower will ----- execute and deliver to each Lender a promissory note substantially in the form of Exhibit G, with appropriate insertions as to payee, date and principal amount --------- (each, as amended, supplemented, replaced or otherwise modified from time to time, a "Note"), payable to the order of each Lender and in a principal amount ---- equal to each such Lender's Commitment. Each Note shall (x) be dated the Effective Date or the date of any reissuance of such Note, (y) be stated to mature on the Termination Date and (z) provide for the payment of interest in accordance with Section 4.1. ----------- 2.3 Procedure for Borrowing. Subject to the terms and conditions ----------------------- contained in the Loan Documents, the Borrower may borrow under the Available Commitments, prior to the Termination Date, on any Business Day by delivery to the Administrative Agent of an irrevocable notice substantially in the form of Exhibit H-1 (a "Notice of Borrowing"). A Notice of Borrowing must be received - ----------- ------------------- by the Administrative Agent prior to 12:00 Noon, New York City time, (a) three Business Days prior to the requested Borrowing Date, if all or any part of the requested Loans are to be initially Eurodollar Loans, or (b) on the requested Borrowing Date. A Notice of Borrowing shall specify (i) the amount to be borrowed, (ii) the requested Borrowing Date, (iii) whether the borrowing is to be of Eurodollar Loans, ABR Loans or a combination thereof and (iv) if the borrowing is to be entirely or partly of Eurodollar Loans, the respective amounts of each Tranche and the respective lengths of the initial Interest Periods therefor. Each borrowing under the Total Available Commitment shall be in an amount equal to (x) in the case of ABR Loans, $5,000,000 or 21 a whole multiple of $1,000,000 in excess thereof (or, if the then Total Available Commitment is less than $5,000,000, such lesser amount) and (y) in the case of Eurodollar Loans, $5,000,000 or a whole multiple of $1,000,000 in excess thereof. Upon receipt of any such Notice of Borrowing from the Borrower, the Administrative Agent shall promptly notify each Lender thereof. Each such Lender will make the amount of its pro rata share of each borrowing available to the Administrative Agent for the account of the Borrower at the office of the Administrative Agent specified in Section 12.2 prior to 2:00 P.M., New York City ------------ time, on the Borrowing Date requested by the Borrower in funds immediately available to the Administrative Agent. Such borrowing will then be made available to the Borrower by the Administrative Agent crediting the account of the Borrower as so directed by the Borrower in a Notice of Borrowing with the aggregate of the amounts made available to the Administrative Agent by the Lenders and in like funds as received by the Administrative Agent. 2.4 Repayment of Loans. (a) The Borrower hereby unconditionally ------------------ promises to pay to the Administrative Agent for the account of each Lender, (i) the then unpaid principal amount of each Loan of such Lender, on the Termination Date (or such earlier date on which the Loans become due and payable pursuant to Section 9) and (ii) the amounts specified in Section 4.2, on the dates specified - --------- ----------- in Section 4.2. The Borrower hereby further agrees to pay interest on the ----------- unpaid principal amount of the Loans from time to time outstanding from the date hereof until payment in full thereof at the rates per annum, and on the dates, set forth in Section 4.1. ----------- (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing indebtedness of the Borrower to such Lender resulting from each Loan of such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time under this Agreement. (c) The Administrative Agent shall maintain the Register pursuant to Section 12.6(g), and a subaccount therein for each Lender, in which shall be -------------- recorded (i) the amount of each Loan made hereunder, the Type thereof and each Interest Period, if any, applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) both the amount of any sum received by the Administrative Agent hereunder from the Borrower and each Lender's share thereof. (d) The entries made in the Register and the accounts of each Lender maintained pursuant to Section 12.6(g) shall, to the extent permitted by -------------- applicable law, be prima facie evidence of the existence and amounts of the ----- ----- obligations of the Borrower therein recorded; provided, however, that the -------- ------- failure of any Lender or the Administrative Agent to maintain the Register or any such account, or any error therein, shall not in any manner affect the obligation of the Borrower to repay (with applicable interest) the Loans made to the Borrower by such Lender in accordance with the terms of this Agreement. 22 SECTION 3. LETTERS OF CREDIT 3.1 L/C Commitment. (a) Subject to the terms and conditions -------------- hereof, Issuing Lender, in reliance on the agreements of the other Lenders set forth in Section 3.4(a), agrees to issue letters of credit ("Letters of Credit") ------------- ----------------- for the account of the Borrower on any Business Day in such form as may be approved from time to time by such Issuing Lender; provided that Issuing Lender -------- shall not issue any Letter of Credit if, after giving effect to such issuance, either (i) the L/C Obligations would exceed $30,000,000 or (ii) the Total Extensions of Credit would exceed the Total Commitment. Each Letter of Credit shall (i) be denominated in Dollars and shall be either (x) a standby letter of credit issued for the account of the Borrower, which finances the working capital and business needs of the Borrower and/or the Subsidiaries of the Borrower, including, without limitation, good faith deposits in connection with permitted acquisitions by the Borrower and/or the Subsidiaries of the Borrower, or (y) a commercial letter of credit issued for the account of the Borrower in respect of the purchase of goods or services by the Borrower and/or any of the Subsidiaries of the Borrower and (ii) expire no later than the earlier of (x) the Termination Date and (y) the date which is 12 months after its date of issuance. (b) Each Letter of Credit shall be subject to the Uniform Customs and, to the extent not inconsistent therewith, the laws of the State of New York. (c) The Issuing Lender shall not at any time be obligated to issue any Letter of Credit hereunder if such issuance would conflict with, or cause the Issuing Lender or any other Lender to exceed any limits imposed by, any applicable Requirement of Law. 3.2 Procedure for Issuance of Letters of Credit. The Borrower may ------------------------------------------- from time to time request that the Issuing Lender issue a Letter of Credit by delivering to the Issuing Lender, at its address for notices specified herein, an Application therefor, completed to the reasonable satisfaction of the Issuing Lender, and such other certificates, documents and other papers and information as the Issuing Lender may reasonably request. Upon receipt of any Application, the Issuing Lender will process such Application and the certificates, documents and other papers and information delivered to it in connection therewith in accordance with its customary procedures and shall promptly issue the Letter of Credit requested thereby (but in no event shall the Issuing Lender be required to issue any Letter of Credit earlier than three Business Days after its receipt of the Application therefor and all such other certificates, documents and other papers and information relating thereto) by issuing the original of such Letter of Credit to the beneficiary thereof or as otherwise may be agreed by the Issuing Lender and the Borrower. The Issuing Lender shall furnish a copy of such Letter of Credit to the Borrower promptly following the issuance thereof. 3.3 Fees, Commissions and Other Charges. (a) The Borrower shall ----------------------------------- pay to the Administrative Agent, for the account of each Lender, a letter of credit fee with respect to each Letter of Credit, computed for the period from and including the date of issuance of such Letter of Credit to the date such Letter of Credit is no longer outstanding, computed at a percentage rate per annum equal to the Applicable Margin from time to time applicable to Loans bearing interest at the 23 Eurodollar Rate, calculated on the basis of a 360-day year, of the aggregate average daily amount available to be drawn under such Letter of Credit for the period as to which payment of such fee is made, payable on each L/C Fee Payment Date to occur while such Letter of Credit remains outstanding and on the date such Letter of Credit expires, is cancelled or is drawn upon. Such fee shall be nonrefundable. (b) In addition to the foregoing fees, the Borrower shall pay to the Issuing Lender the fees set forth in the Scotiabank Fee Letter. (c) The Administrative Agent shall, promptly following its receipt thereof, distribute to each Lender all fees received by the Administrative Agent for each such Lender's account pursuant to this Section. 3.4 L/C Participations. (a) The Issuing Lender irrevocably agrees ------------------ to grant and hereby grants to each Lender, and, to induce the Issuing Lender to issue Letters of Credit hereunder, each Lender irrevocably agrees to accept and purchase and hereby accepts and purchases from the Issuing Lender, on the terms and conditions hereinafter stated, for such Lender's own account and risk an undivided interest equal to such Lender's Specified Percentage in the Issuing Lender's obligations and rights under each Letter of Credit issued by the Issuing Lender and the amount of each draft paid by the Issuing Lender thereunder. Each Lender unconditionally and irrevocably agrees with the Issuing Lender that, if a draft is paid under any Letter of Credit issued by the Issuing Lender for which the Issuing Lender is not reimbursed in full by the Borrower in accordance with Section 3.5(a), such Lender shall pay to the Issuing Lender upon -------------- demand at the Issuing Lender's address for notices specified herein an amount equal to such Lender's Specified Percentage of the amount of such draft, or any part thereof, which is not so reimbursed. (b) If any amount required to be paid by any Lender to the Issuing Lender pursuant to Section 3.4(a) in respect of any unreimbursed portion of any -------------- payment made by the Issuing Lender under any Letter of Credit is paid to the Issuing Lender within three Business Days after the date such payment is due, such Lender shall pay to the Issuing Lender on demand an amount equal to the product of (i) such amount, times (ii) the daily average Federal Funds Effective ----- Rate during the period from and including the date such payment is required to the date on which such payment is immediately available to the Issuing Lender, times (iii) a fraction the numerator of which is the number of days that elapse - ----- during such period and the denominator of which is 360. If any such amount required to be paid by any Lender pursuant to Section 3.4(a) is not in fact made -------------- available to the Issuing Lender by such Lender within three Business Days after the date such payment is due, the Issuing Lender shall be entitled to recover from such Lender, on demand, such amount with interest thereon calculated from such due date at a rate per annum equal to the ABR plus the Applicable Margin. ---- A certificate of the Issuing Lender submitted to any Lender with respect to any amounts owing under this Section shall be conclusive in the absence of manifest error. 24 (c) Whenever, at any time after the Issuing Lender has made payment under any Letter of Credit and has received from any Lender its pro rata share --- ---- of such payment in accordance with Section 3.4(a), the Issuing Lender receives -------------- any payment related to such Letter of Credit (whether directly from the Borrower or otherwise, including proceeds of Collateral applied thereto by the Issuing Lender), or any payment of interest on account thereof, the Issuing Lender will, if such payment is received prior to 1:00 p.m., New York City time, on a Business Day, distribute to such Lender its pro rata share thereof on the same --- ---- Business Day or if received later than 1:00 p.m. on the next succeeding Business Day; provided, however, that in the event that any such payment received by the -------- ------- Issuing Lender shall be required to be returned by the Issuing Lender, such Lender shall return to the Issuing Lender the portion thereof previously distributed by the Issuing Lender to it. (d) Notwithstanding anything to the contrary in this Agreement, each Lender's obligation to make the Loans referred to in Section 3.5(b) and to -------------- purchase and fund participating interests pursuant to Section 3.4(a) shall be -------------- absolute and unconditional and shall not be affected by any circumstance, including, without limitation, (i) any setoff, counterclaim, recoupment, defense or other right which such Lender or the Borrower may have against the Issuing Lender, the Borrower or any other Person for any reason whatsoever; (ii) the occurrence or continuance of a Default or an Event of Default or the failure to satisfy any of the other conditions specified in Section 6; (iii) any adverse --------- change in the condition (financial or otherwise) of any Loan Party; (iv) any breach of this Agreement or any other Loan Document by any Loan Party or any Lender; or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. 3.5 Reimbursement Obligation of the Borrower. (a) The Borrower ---------------------------------------- agrees to reimburse the Issuing Lender (it being understood that such reimbursement shall be effected by means of a borrowing of Loans unless the Managing Agents shall determine in their sole discretion that such Loans may not be made for such purpose as a result of a Default or Event of Default pursuant to Section 9(f)), upon receipt of notice from the Issuing Lender of the date and ------------ amount of a draft presented under any Letter of Credit and paid by the Issuing Lender, for the amount of (i) such draft so paid and (ii) any taxes, fees, charges or other costs or expenses incurred by the Issuing Lender in connection with such payment. Each such payment shall be made to the Issuing Lender, at its address for notices specified herein in Dollars and in immediately available funds, on the date on which the Borrower receives such notice, if received prior to 1:00 P.M., New York City time, on a Business Day and otherwise on the next succeeding Business Day. (b) Interest shall be payable on any and all amounts remaining unpaid by the Borrower under this Section 3.5, (i) from the date the draft ----------- presented under the affected Letter of Credit is paid to the date on which the Borrower is required to pay such amounts pursuant to paragraph (a) above at a rate per annum equal to the ABR plus the Applicable Margin and (ii) thereafter ---- until payment in full at the rate which would be payable on any Loans which were then overdue. Except as otherwise specified in Section 3.5(a), each drawing -------------- under any Letter of Credit shall constitute a request by the Borrower to the Administrative Agent for a borrowing of Loans that are ABR Loans pursuant to Section 2.3 in the amount of such drawing. The Borrowing Date with - ----------- 25 respect to such borrowing shall be the date of payment of such drawing and the proceeds of such Loans shall be applied by the Administrative Agent to reimburse the Issuing Lender for the amounts paid under such Letter of Credit. 3.6 Obligations Absolute. Subject to the penultimate sentence of -------------------- this Section 3.6, the Borrower's obligations under this Section 3 shall be ----------- --------- absolute and unconditional under any and all circumstances and irrespective of any set-off, counterclaim or defense to payment which the Borrower may have or have had against the Issuing Lender, any Lender or any beneficiary of a Letter of Credit. The Borrower also agrees with the Issuing Lender that the Issuing Lender and the Lenders shall not be responsible for, and the Borrower's Reimbursement Obligations under Section 3.5(a) shall not be affected by, among -------------- other things, (i) the validity or genuineness of documents or of any endorsements thereon, even though such documents shall in fact prove to be invalid, fraudulent or forged, or (ii) any dispute between or among the Borrower and any beneficiary of any Letter of Credit or any other party to which such Letter of Credit may be transferred or (iii) any claims whatsoever of the Borrower against any beneficiary of such Letter of Credit or any such transferee. The Issuing Lender and the Lenders shall not be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Letter of Credit, except for errors or omissions caused by such Person's gross negligence or willful misconduct. The Borrower agrees that any action taken or omitted by the Issuing Lender under or in connection with any Letter of Credit or the related drafts or documents, if done in the absence of gross negligence or willful misconduct and in accordance with the standards of care specified in the Uniform Commercial Code of the State of New York, shall be binding on the Borrower and shall not result in any liability of either the Issuing Lender or any Lender to the Borrower. 3.7 Letter of Credit Payments. If any draft shall be presented for ------------------------- payment under any Letter of Credit, the Issuing Lender shall promptly notify the Borrower and the Lenders of the date and amount thereof. Subject to Section 3.6, ----------- the responsibility of the Issuing Lender to the Borrower in connection with any draft presented for payment under any Letter of Credit shall, in addition to any payment obligation expressly provided for in such Letter of Credit, be limited to determining that the documents (including each draft) delivered under such Letter of Credit in connection with such presentment appear on their face to be in conformity with such Letter of Credit. 3.8 Application. To the extent that any provision of any Application ----------- related to any Letter of Credit is inconsistent with the provisions of this Agreement, the provisions of this Agreement shall apply. 26 SECTION 4. GENERAL PROVISIONS APPLICABLE TO LOANS AND LETTERS OF CREDIT 4.1 Interest Rates and Payment Dates. (a) Each Eurodollar Loan -------------------------------- shall bear interest for each day during each Interest Period with respect thereto at a rate per annum equal to the Eurodollar Rate determined for such day plus the Applicable Margin in effect for such day. - ---- (b) Each ABR Loan shall bear interest for each day that it is outstanding at a rate per annum equal to the ABR for such day plus the ---- Applicable Margin in effect for such day. (c) (i) After the occurrence and during the continuance of an Event of Default, all Loans and Reimbursement Obligations shall bear interest at a rate per annum which is equal to (x) in the case of the Loans, the rate that would otherwise be applicable thereto pursuant to the foregoing provisions of this Section 4.1 plus 2% or (y) in the case of Reimbursement Obligations, at a ----------- ---- rate per annum equal to the ABR plus the Applicable Margin plus 2% and (ii) if ---- ---- all or a portion of any interest payable on any Loan or Reimbursement Obligation or any commitment fee or other amount payable hereunder shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall bear interest at a rate per annum equal to ABR plus the Applicable ---- Margin plus 2%, in each case, with respect to clauses (i) and (ii) above, from ---- the date of such non-payment until such amount is paid in full (as well after as before judgment). (d) Interest shall be payable in arrears on each Interest Payment Date, provided that interest accruing pursuant to paragraph (c) of this Section -------- shall be payable from time to time on demand. 4.2 Optional and Mandatory Commitment Reductions and Prepayments. ------------------------------------------------------------ (a) The Borrower may at any time and from time to time prepay the Loans, in whole or in part, without premium or penalty (it being understood that amounts payable pursuant to Section 4.11 do not constitute premium or penalty), upon at ------------ least three Business Days' irrevocable notice to the Administrative Agent (in the case of Eurodollar Loans) or at least one Business Day's irrevocable notice to the Administrative Agent (in the case of ABR Loans), specifying the date and amount of prepayment and whether the prepayment is of Eurodollar Loans, ABR Loans or a combination thereof, and, in each case if a combination thereof, the principal amount allocable to each. Upon the receipt of any such notice the Administrative Agent shall promptly notify each Lender thereof. If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein, together with interest accrued to the date of such prepayment and (if a Eurodollar Loan is prepaid other than at the end of the Interest Period applicable thereto) any amounts payable pursuant to Section 4.11. Partial prepayments of Loans shall be in an aggregate principal - ------------ amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof. (b) The Borrower shall have the right, upon not less than three Business Days' notice to the Administrative Agent (which will promptly notify the Lenders thereof), to terminate the Total Commitment or, from time to time, to reduce the amount of the Total Commitment; 27 provided that no such termination or reduction of the Total Commitment shall be - -------- permitted if, after giving effect thereto and to any prepayments of the Loans made on the effective date thereof, the sum of the Aggregate Outstanding Extensions of Credit of all the Lenders then in effect would exceed the aggregate Total Commitment as so reduced. Any such reduction shall be in a minimum amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof and shall reduce permanently the Total Commitment then in effect. (c) On the last Business Day of each March, June, September and December, commencing March 31, 2000, through the Termination Date, the Total Commitment shall automatically and permanently be reduced by the percentage (the "Quarterly Percentage Reduction") of the original Total Commitment, as set forth ------------------------------ below. Notwithstanding anything contained in this Agreement to the contrary, on the Termination Date the Total Commitment shall automatically reduce to zero.
Quarterly Percentage Total Percentage Reduction Calendar Year Reduction for the Calendar Year ------------- --------- --------------------- 2000 1.875% 7.50% 2001 3.750% 15.00% 2002 4.375% 17.50% 2003 5.000% 20.00% 2004 5.000% 20.00% 2005 5.000% 20.00%
(d) If at any time the sum of the Aggregate Outstanding Extensions of Credit of all the Lenders exceeds the Total Available Commitment then in effect, the Borrower shall, without notice or demand, immediately repay the Loans in an aggregate principal amount equal to such excess, together with interest accrued to the date of such payment or repayment and any amounts payable under Section 4.11. To the extent that, after giving effect to any ------------ prepayment of the Loans required by the preceding sentence, the sum of the Aggregate Outstanding Extensions of Credit of all the Lenders still exceeds the Total Available Commitment then in effect, the Borrower shall, without notice or demand, immediately cash collateralize the then outstanding L/C Obligations in an amount equal to such excess upon terms reasonably satisfactory to the Administrative Agent. (e) In the case of any reduction of the Total Commitment the Borrower shall, if applicable, comply with the requirements of Section 4.2(d). -------------- Each repayment of the Loans under this Section 4.2 shall be accompanied by ----------- accrued interest to the date of such repayment on the amount repaid. Any amounts deposited in any cash collateral account established pursuant to this Section ------- 28 4.2 shall be invested in Cash Equivalents having a one-day maturity or such - --- other Cash Equivalents as shall be acceptable to the Administrative Agent and the Borrower. 4.3 Commitment Fees, etc. (a) The Borrower agrees to pay to the -------------------- Administrative Agent for the account of each Lender, a commitment fee, on the average daily amount of the Total Available Commitment computed at a rate per annum based on the Leverage Ratio in effect for the fiscal quarter preceding the payment date, determined as follows:
Leverage Ratio Commitment Fee -------------- -------------- (greater than) 5.00:1.00 0.375% (less than or equal to) 5.00:1.00 0.250%
For purposes of calculating the commitment fee due hereunder, the Leverage Ratio shall be determined as at the end of each of the first three quarterly periods of each fiscal year of the Borrower and as at the end of each fiscal year of the Borrower, based on the relevant financial statements delivered pursuant to Section 7.1(a) or (b) and the Compliance Certificate delivered pursuant to - -------------- --- Section 7.2(b); changes in the Leverage Ratio shall become effective on the date - -------------- which is the earlier of (i) two Business Days after the date the Administrative Agent receives such financial statements and the corresponding Compliance Certificate and (ii) the 60th day after the end of each of the first three quarterly periods of each fiscal year or the 120th day after the end of each fiscal year, as the case may be, and shall remain in effect until the next change to be effected pursuant to this Section 4.3; provided, that (a) until the ----------- -------- first such financial statements and Compliance Certificate are delivered after the date hereof, the Applicable Margin shall be determined by reference to the Leverage Ratio set forth in the Closing Certificate delivered to the Administrative Agent pursuant to Section 6.1(b), and (b) if any financial -------------- statements or the Compliance Certificate referred to above are not delivered within the time periods specified above, then, for the period from and including the date on which such financial statements and Compliance Certificate are required to be delivered until the date on which such financial statements and Compliance Certificate are delivered, then the Leverage Ratio as at the end of the fiscal period that would have been covered thereby shall be deemed to be greater than 5.00 to 1.00. Such commitment fee shall be (i) payable quarterly in arrears on the last Business Day of each March, June, September and December and on the date on which all of the Commitments shall have terminated and (ii) fully earned and non-refundable upon payment thereof. (b) The Borrower shall pay (without duplication of any other fee payable under this Section 4.3) to the Managing Agents, for their respective ----------- accounts, the fees in the amounts and on the dates agreed to in the Managing Agents Fee Letter. 29 (c) The Borrower shall pay (without duplication of any other fee payable under this Section 4.3) to the Administrative Agent, the fees in the ----------- amounts and on the dates agreed to in the Scotiabank Fee Letter. 4.4 Computation of Interest and Fees. (a) Interest based on the -------------------------------- Eurodollar Rate and fees shall be calculated on the basis of a 360-day year for the actual days elapsed; and interest based on the ABR shall be calculated on the basis of a 365- (or 366-, as the case may be) day year for the actual days elapsed. The Administrative Agent shall as soon as practicable notify the Borrower and the Lenders of each determination of a Eurodollar Rate. Any change in the interest rate on a Loan resulting from a change in the ABR or the Eurocurrency Reserve Requirements shall become effective as of the opening of business on the day on which such change becomes effective. The Administrative Agent shall as soon as practicable notify the Borrower and the Lenders of the effective date and the amount of each such change in interest rate. (b) Each determination of an interest rate by the Administrative Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Borrower and the Lenders in the absence of manifest error. The Administrative Agent shall, at the request of the Borrower, deliver to the Borrower a statement showing in reasonable detail the calculations used by the Administrative Agent in determining any interest rate pursuant to Section 4.1(a). - -------------- 4.5 Conversion and Continuation Options. (a) The Borrower may ----------------------------------- elect from time to time to convert Eurodollar Loans to ABR Loans by giving the Administrative Agent an irrevocable notice substantially in the form of Exhibit H-2 (a "Notice of Conversion/Continuation"), at least one Business Day - ----------- --------------------------------- prior to such election, provided that any such conversion of Eurodollar Loans -------- may only be made on the last day of an Interest Period with respect thereto. The Borrower may elect from time to time to convert ABR Loans to Eurodollar Loans or to continue Eurodollar Loans as Eurodollar Loans by giving the Administrative Agent a Notice of Conversion/Continuation at least three Business Days' prior to such election. Any such Notice of Conversion/Continuation to Eurodollar Loans shall specify the length of the initial Interest Period or Interest Periods therefor. Upon receipt of any such Notice of Conversion/Continuation the Administrative Agent shall promptly notify each Lender thereof. All or any part of outstanding Eurodollar Loans and ABR Loans may be converted as provided herein, provided that (i) no Loan may be converted into a Eurodollar Loan when -------- any Event of Default has occurred and is continuing and (ii) no Loan may be converted into a Eurodollar Loan if the Interest Period selected therefor would expire after the Termination Date. (b) Any Eurodollar Loans may be continued as such upon the expiration of the then current Interest Period with respect thereto by the Borrower giving irrevocable notice to the Administrative Agent, of the length of the next Interest Period to be applicable to such Loans, determined in accordance with the applicable provisions of the term "Interest Period" set forth in Section 1.1, provided that no Eurodollar Loan may be continued as such ----------- -------- (i) when any Event of Default has occurred and is continuing or (ii) after the date that is one month prior to the Termination Date, and provided, further, -------- ------- that if the Borrower shall fail to give any required notice as described 30 above in this paragraph or if such continuation is not permitted pursuant to the preceding proviso such Loans shall be automatically converted to ABR Loans on the last day of such then expiring Interest Period. Upon receipt of any such notice of continuation pursuant to this Section 4.5(b), the Administrative Agent -------------- shall promptly notify each Lender thereof. 4.6 Minimum Amounts of Tranches. All borrowings, conversions, --------------------------- continuations and payments of Loans hereunder and all selections of Interest Periods hereunder shall be in such amounts and be made pursuant to such elections so that, after giving effect thereto, the aggregate principal amount of the Eurodollar Loans comprising each Tranche shall be equal to $5,000,000 or a whole multiple of $1,000,000 in excess thereof. In no event shall there be more than six Tranches outstanding at any time. 4.7 Inability to Determine Interest Rate. If prior to the first ------------------------------------ day of any Interest Period: (a) the Administrative Agent shall have determined (which determination shall be conclusive and binding upon the Borrower) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Interest Period; or (b) the Administrative Agent shall have received notice from the Majority Lenders that the Eurodollar Rate determined or to be determined for such Interest Period will not adequately and fairly reflect the cost to such Lenders (as conclusively certified by such Lenders) of making or maintaining their affected Loans during such Interest Period, the Administrative Agent shall give facsimile notice thereof to the Borrower and the Lenders as soon as practicable thereafter. If such notice is given (x) any Eurodollar Loans requested to be made on the first day of such Interest Period shall be made as ABR Loans, (y) any Loans that were to have been converted on the first day of such Interest Period to Eurodollar Loans shall be continued as ABR Loans and (z) any outstanding Eurodollar Loans shall be converted, on the first day of such Interest Period, to ABR Loans. Until such notice has been withdrawn by the Administrative Agent or the Majority Lenders, as the case may be, no further Eurodollar Loans shall be made or continued as such, nor shall the Borrower have the right to convert Loans to Eurodollar Loans. 4.8 Pro Rata Treatment and Payments. (a) Each borrowing of Loans ------------------------------- hereunder shall be made, each payment by the Borrower on account of any commitment fee hereunder shall be allocated by the Administrative Agent, and any reduction of the Total Commitment shall be allocated by the Administrative Agent, pro rata according to the respective Specified Percentages of the --- ---- Lenders. Each payment (including each prepayment) by the Borrower on account of principal of and interest on, or commitment fees related to, the Loans or Reimbursement Obligations shall be allocated by the Administrative Agent to the Lenders pro rata according to the respective Specified Percentages of such Loans --- ---- and Reimbursement Obligations then held by the Lenders. All payments (including prepayments) to be made by the Borrower hereunder and under any Notes, whether on 31 account of principal, interest, fees, Reimbursement Obligations or otherwise, shall be made without set-off or counterclaim and shall be made prior to 2:00 P.M., New York City time, on the due date thereof to the Administrative Agent, for the account of the Lenders, at the Administrative Agent's office specified in Section 12.2, in Dollars and in immediately available funds. Payments ------------ received by the Administrative Agent after such time shall be deemed to have been received on the next Business Day. If any payment hereunder becomes due and payable on a day other than a Business Day, the maturity of such payment shall be extended to the next succeeding Business Day, (and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension) unless, with respect to payments of Eurodollar Loans only, the result of such extension would be to extend such payment into another calendar month, in which event such payment shall be made on the immediately preceding Business Day. (b) Unless the Administrative Agent shall have been notified in writing by any Lender prior to a borrowing that such Lender will not make the amount that would constitute its share of such borrowing available to the Administrative Agent, the Administrative Agent may assume that such Lender is making such amount available to the Administrative Agent, and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower a corresponding amount. If such amount is not made available to the Administrative Agent by the required time on the Borrowing Date therefor, such Lender shall pay to the Administrative Agent, on demand, such amount with interest thereon at a rate equal to the daily average Federal Funds Effective Rate for the period until such Lender makes such amount immediately available to the Administrative Agent. A certificate of the Administrative Agent submitted to any Lender with respect to any amounts owing under this Section 4.8 shall be ----------- conclusive in the absence of manifest error. If such Lender's share of such borrowing is not made available to the Administrative Agent by such Lender within three Business Days of such Borrowing Date, the Administrative Agent shall notify the Borrower of the failure of such Lender to make such amount available to the Administrative Agent and the Administrative Agent shall also be entitled to recover, on demand from the Borrower, such amount with interest thereon at a rate per annum equal to the ABR plus the Applicable Margin in ---- effect on the Borrowing Date. 4.9 Requirements of Law. (a) If the adoption of or any change in ------------------- any Requirement of Law or in the interpretation or application thereof or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the date hereof: (i) shall subject any Lender to any tax of any kind whatsoever with respect to this Agreement, any Note or any Eurodollar Loan made by it, or change the basis of taxation of payments to such Lender in respect thereof (except for Non-Excluded Taxes covered by Section 4.10, net income ------------ taxes and franchise taxes (imposed in lieu of net income taxes)); 32 (ii) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of such Lender which is not otherwise included in the determination of the Eurodollar Rate; or (iii) shall impose on such Lender any other condition; and the result of any of the foregoing is to increase the cost to such Lender, by an amount which such Lender deems to be material, of making, converting into, continuing or maintaining Eurodollar Loans or to reduce any amount receivable hereunder in respect thereof, then, in any such case, the Borrower shall promptly pay such Lender such additional amount or amounts as will compensate such Lender for such increased cost or reduced amount receivable. (b) If any Lender shall have determined in good faith that the adoption of or any change in any Requirement of Law regarding capital adequacy or in the interpretation or application thereof or compliance by such Lender or any corporation controlling such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority made subsequent to the date hereof shall have the effect of reducing the rate of return on such Lender's or such corporation's capital as a consequence of its obligations hereunder to a level below that which such Lender or such corporation could have achieved but for such adoption, change or compliance (taking into consideration such Lender's or such corporation's policies with respect to capital adequacy) by an amount reasonably deemed by such Lender to be material, then from time to time, the Borrower shall promptly pay to such Lender such additional amount or amounts as will compensate such Lender for such reduction. (c) If any Lender becomes entitled to claim any additional amounts pursuant to this Section 4.9, it shall promptly deliver a certificate to the ----------- Borrower (with a copy to the Administrative Agent), setting forth in reasonable detail an explanation of the basis for requesting such compensation. Such certificate as to any additional amounts payable pursuant to this Section 4.9 ----------- submitted by such Lender to the Borrower (with a copy to the Administrative Agent) shall be conclusive in the absence of manifest error. The Borrower shall pay each Lender the amount shown as due on any such certificate delivered by it within 15 days after the Borrower's receipt thereof. The agreements in this Section 4.9 shall survive the termination of this Agreement and the payment of - ----------- the Loans and all other amounts payable hereunder. 4.10 Taxes. (a) All payments made by the Borrower under this ----- Agreement and any Notes shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, excluding (i) net income taxes; (ii) franchise and doing business taxes imposed on the Administrative Agent or any Lender as a result of a present or former connection between the Administrative Agent or such Lender and the jurisdiction of the Governmental 33 Authority imposing such tax or any political subdivision or taxing authority thereof or therein (other than any such connection arising solely from the Administrative Agent or such Lender having executed, delivered or performed its obligations or received a payment under, or enforced, this Agreement or any Note); (iii) any Taxes, levies, imposts, deductions, charges or withholdings that are in effect and that would apply to a payment to such Lender as of the Effective Date; and (iv) if any Person acquires any interest in this Agreement or any Note pursuant to the provisions hereof, including without limitation a participation (whether or not by operation of law), or a foreign Lender changes the office in which the Loan is made, accounted for or booked (any such Person or such foreign Lender in that event being referred to as a "Tax Transferee"), -------------- any Taxes, levies, imposts, deductions, charges or withholdings to the extent that they are in effect and would apply to a payment to such Tax Transferee as of the date of the acquisition of such interest or change in office, as the case may be. If any such non-excluded taxes, levies, imposts, duties, charges, fees deductions or withholdings ("Non-Excluded Taxes") are required to be withheld ------------------ from any amounts payable to the Administrative Agent or any Lender hereunder or under any Note, the amounts so payable to the Administrative Agent or such Lender shall be increased to the extent necessary to yield to the Administrative Agent or such Lender (after payment of all Non-Excluded Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement, provided, however, that the Borrower shall not be required to -------- ------- increase any such amounts payable to any Non-U.S. Lender if such Lender fails to comply with the requirements of paragraph (b) of this Section. Whenever any Non-Excluded Taxes are payable by the Borrower, as promptly as possible thereafter the Borrower shall send to the Administrative Agent for its own account or for the account of such Lender, as the case may be, a certified copy of an original official receipt received by the Borrower showing payment thereof. If, when the Borrower is required by this Section 4.10(a) to pay any --------------- Non-Excluded Taxes, the Borrower fails to pay such Non-Excluded Taxes when due to the appropriate taxing authority or fails to remit to the Administrative Agent the required receipts or other required documentary evidence, the Borrower shall indemnify the Administrative Agent and the Lenders for any incremental taxes, interest or penalties that may become payable by the Administrative Agent or any Lender as a result of any such failure. (b) Each Lender (or Transferee) that is not a citizen or resident of the United States of America, a corporation, partnership or other entity created or organized in or under the laws of the United States of America, or any estate or trust that is subject to federal income taxation regardless of the source of its income (a "Non-U.S. Lender") shall deliver to the Borrower and the --------------- Administrative Agent (or, in the case of a Participant, to the Lender from which the related participation shall have been purchased) two copies of either U.S. Internal Revenue Service Form 1001 or Form 4224, or, in the case of a Non-U.S. Lender claiming exemption from U.S. federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of "portfolio interest", a Form W-8, or any subsequent versions thereof or successors thereto (and, if such Non- U.S. Lender delivers a Form W-8, an annual certificate representing that such Non-U.S. Lender (i) is not a "bank" for purposes of Section 881(c) of the Code (and is not subject to regulatory or other legal requirements as a bank in any jurisdiction, and has not been treated as a bank in any filing with or submission made to any Governmental Authority or rating agency), (ii) is not a 10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Code) of the Borrower and (iii) is 34 not a controlled foreign corporation related to the Borrower (within the meaning of Section 864(d)(4) of the Code)), properly completed and duly executed by such Non-U.S. Lender claiming complete exemption from, U.S. federal withholding tax on all payments by the Borrower under this Agreement and the other Loan Documents, along with such other additional forms as the Borrower, the Administrative Agent (or, in the case of a Participant, the Lender from which the related participation shall have been purchased) may reasonably request to establish the availability of such exemption. Such forms shall be delivered by each Non-U.S. Lender on or before the date it becomes a party to this Agreement (or, in the case of any Participant, on or before the date such Participant purchases the related participation). In addition, each Non-U.S. Lender shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered by such Non-U.S. Lender. Each Non-U.S. Lender shall promptly notify the Borrower at any time it determines that it is no longer in a position to provide any previously delivered certificate to the Borrower (or any other form of certification adopted by the U.S. taxing authorities for such purpose). Notwithstanding any other provision of Section 4.10, a Non-U.S. ------------ Lender shall not be required to deliver any form pursuant to this Section ------- 4.10(b) that such Non-U.S. Lender is not legally able to deliver, it being - ------- understood and agreed that, in the event that a Non-U.S. Lender fails to deliver any forms otherwise required to be delivered pursuant to this Section 4.10(b), --------------- or notifies the Borrower that any previously delivered certificate is no longer in force, the Borrower shall withhold such amounts as the Borrower shall reasonably determine are required by law and shall not be required to make any additional payment with respect thereto to the Non-U.S. Lender, unless such failure to deliver or notify is a result of change in law subsequent to the date hereof. (c) If a Lender (or Transferee) or the Administrative Agent shall become aware that it is entitled to receive a refund in respect of Non-Excluded Taxes paid by the Borrower, or as to which it has been indemnified by the Borrower, which refund in the good faith judgment of such Lender (or Transferee) is allocable to such payment made pursuant to this Section 4.10, it shall ------------ promptly notify the Borrower of the availability of such refund and shall, within 30 days after receipt of a request by the Borrower, apply for such refund. If any Lender (or Transferee) or the Administrative Agent receives a refund in respect of any Non-Excluded Taxes paid by the Borrower, or as to which it has been indemnified by the Borrower, which refund in the good faith judgment of such Lender (or Transferee) is allocable to such payment made pursuant to this Section 4.10, it shall promptly notify the Borrower of such refund and ------------ shall, within 15 days after receipt, repay such refund to the Borrower. The agreements in this Section 4.10 shall survive the termination of this Agreement ------------ and the payment of the Loans and all other amounts payable hereunder. 4.11 Indemnity. The Borrower agrees to indemnify each Lender and to --------- hold each Lender harmless from any loss or expense which such Lender may sustain or incur as a consequence of (a) default by the Borrower in making a borrowing of, conversion into or continuation of Eurodollar Loans after the Borrower has given a notice requesting the same in accordance with the provisions of this Agreement, (b) default by the Borrower in making any prepayment of Eurodollar Loans after the Borrower has given a notice thereof in accordance with the provisions of this Agreement or (c) the making of a prepayment of Eurodollar Loans on a day which is not the last day of an Interest Period with respect thereto. Such indemnification may include an amount equal to the 35 excess, if any, of (i) the amount of interest which would have accrued on the amount so prepaid, or not so borrowed, converted or continued, for the period from the date of such prepayment or of such failure to borrow, convert or continue to, but not including, the last day of such Interest Period (or, in the case of a failure to borrow, convert or continue, the Interest Period that would have commenced on the date of such failure) in each case at the applicable rate of interest for such Loans provided for herein over (ii) the amount of interest (as reasonably determined by such Lender) which would have accrued to such Bank on such amount by placing such amount on deposit for a comparable period with leading banks in the interbank eurodollar market. This covenant shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. 4.12 Change of Lending Office. Each Lender agrees that if it makes ------------------------ any demand for payment under Section 4.9 or 4.10(a), it will use reasonable ----------- ------- efforts (consistent with its internal policy and legal and regulatory restrictions and so long as such efforts would not be disadvantageous to it, as determined in its sole discretion) to designate a different lending office if the making of such a designation would reduce or obviate the need for the Borrower to make payments under Section 4.9 or 4.10(a) or would eliminate or ----------- ------- reduce the effect of any adoption or change described in Section 4.9. ----------- SECTION 5. REPRESENTATIONS AND WARRANTIES To induce the Administrative Agent and the Lenders to enter into this Agreement and to make the Loans and to issue Letters of Credit, the Borrower hereby represents and warrants to the Administrative Agent and each Lender that: 5.1 Financial Condition. (a) The consolidated balance sheet of JIC ------------------- and its consolidated Subsidiaries at June 30, 1996 and the related consolidated statements of income and of cash flows for the fiscal year ended on such date, reported on by Arthur Andersen L.L.P., copies of which have heretofore been furnished to each Lender, present fairly in all material respects the consolidated financial condition of JIC and its consolidated Subsidiaries as at such date, and the consolidated results of their operations and their consolidated cash flows for the fiscal year then ended. All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as approved by such accountants and as disclosed therein). Neither JIC, the Borrower nor any of their consolidated Subsidiaries had, as of June 30, 1996, any material Guarantee Obligation, contingent liability or liability for taxes, or any long-term lease or unusual forward or long-term commitment, including, without limitation, any interest rate or foreign currency swap or exchange transaction, which is not reflected in the foregoing statements or in the schedules or notes thereto. Except as set forth on Schedule 5.1, ------------ during the period from June 30, 1996 to and including the date hereof there has been no sale, transfer or other disposition by JIC or any of its consolidated Subsidiaries of any material part of its business, assets or property and no purchase or other acquisition of any business, assets or property (including any Capital Stock of any other Person) material in relation to the 36 consolidated financial condition of JIC and its consolidated Subsidiaries at June 30, 1996, other than the Stock Purchase. (b) The financial statements of the Borrower and the Restricted Subsidiaries and other information most recently delivered under Sections 7.1(a) --------------- and (b) were prepared in accordance with GAAP and present fairly the --- consolidated financial condition, results of operations, and cash flows of the Borrower and the Restricted Subsidiaries as of, and for the portion of the fiscal year ending on the date or dates thereof (subject in the case of interim statements only to normal year-end audit adjustments). There were no material liabilities, direct or indirect, fixed or contingent, of the Borrower or the Restricted Subsidiaries as of the date or dates of such financial statements which are not reflected therein or in the notes thereto. Except for transactions directly related to, or specifically contemplated by, the Loan Documents, there have been no changes in the consolidated financial condition of the Borrower or the Restricted Subsidiaries from that shown in such financial statements after such date which could reasonably be expected to have a Material Adverse Effect, nor has the Borrower or any Restricted Subsidiary incurred any liability (including, without limitation, any liability under any Environmental Law), direct or indirect, fixed or contingent, after such date which could reasonably be expected to have a Material Adverse Effect. 5.2 No Change. From June 30, 1996, through and including the --------- Effective Date there has been no development or event which has had or could reasonably be expected to have a material adverse effect on the financial condition and business operations of the Acquired Systems. Since the Effective Date there has been no development or event which has had or could reasonably be expected to have a Material Adverse Effect. 5.3 Existence; Compliance with Law. The Borrower and each of its ------------------------------ Subsidiaries (a) is duly organized, validly existing and, where applicable, in good standing under the laws of the jurisdiction of its organization, (b) has the corporate or partnership power and authority, and the legal right, to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged, (c) is duly qualified and, where applicable, in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification, except where the failure to be so qualified could not reasonably be expected to have a Material Adverse Effect, and (d) is in compliance with all Requirements of Law except to the extent that the failure to comply therewith could not reasonably be expected to have a Material Adverse Effect. 5.4 Power; Authorization; Enforceable Obligations. Each Loan Party --------------------------------------------- has the power and authority, and the legal right, to make, deliver and perform each of the Loan Documents to which it is a party and, in the case of the Borrower, to borrow hereunder, and has taken all necessary corporate or partnership action to authorize the execution, delivery and performance of each of the Loan Documents to which it is a party and, in the case of the Borrower, to authorize the borrowings on the terms and conditions of this Agreement. Except as set forth on Schedule 5.4, no consent or authorization of, filing ------------ with, notice to or other act by or in respect of, any Governmental Authority or any other Person (including any partner or shareholder of any Loan Party or any 37 Affiliate of any Loan Party) is required to be obtained or made by any Loan Party or any other Person, in connection with the Stock Purchase other than those that have been obtained or made and are in full force and effect; provided, that with respect to third party approvals necessary for the Stock - -------- Purchase, Schedule 5.4 lists only the material third party approvals required. ------------ No consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person (including any partner or shareholder of JIC, any Loan Party or any Affiliate of JIC or any Loan Party) is required to be obtained or made by JIC or any Loan Party or any Subsidiary of any Loan Party in connection with the borrowings hereunder or with the execution, delivery, performance, validity or enforceability of the Loan Documents other than those that have been obtained or made and are in full force and effect. Each Loan Document to which JIC and each Loan Party is a party has been duly executed and delivered on behalf of JIC and each such Loan Party. Each Loan Document constitutes a legal, valid and binding obligation of JIC, to the extent JIC is a party thereto, and each Loan Party party thereto enforceable against JIC and each such Loan Party in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent transfer or conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. 5.5 No Legal Bar. The Stock Purchase, the execution, delivery and ------------ performance of the Loan Documents, the borrowings hereunder and the use of the proceeds thereof will not (a) violate, result in a default under or conflict with any Requirement of Law or any material Contractual Obligation, in any material respect, of JIC, JCH, the Borrower or of any of the Restricted Subsidiaries or (b) violate any provision of the charter or bylaws of JIC, JCH, the Borrower or the Restricted Subsidiaries and will not result in a default under, or result in or require the creation or imposition of any Lien on any of their respective properties or revenues pursuant to any such Requirement of Law or Contractual Obligation (other than pursuant to the Security Documents). 5.6 No Material Litigation. Except as set forth on Schedule 5.6, no ---------------------- ------------ litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of the Borrower, threatened by or against the Borrower or any of the Restricted Subsidiaries or against any of its or their respective properties or revenues (a) with respect to any of the Loan Documents, the Stock Purchase or any of the transactions contemplated hereby or thereby, or (b) which could reasonably be expected to have a Material Adverse Effect. No attachment, prejudgment or judgment Lien encumbers the Acquired Systems or any asset of the Borrower or any of the Restricted Subsidiaries other than in respect of (i) claims as to which payment in full above any applicable customary deductible is covered by insurance or a bond or (ii) other claims aggregating not more than $10,000,000. No litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of the Borrower, threatened by or against (i) JCH with respect to the Stock Purchase or (ii) JIC, with respect to the JIC Negative Pledge. 38 5.7 No Default. Neither JIC, the Borrower nor any of its Restricted ---------- Subsidiaries is in default under or with respect to any of its Contractual Obligations in any respect which could reasonably be expected to have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing. 5.8 Ownership of Property; Intellectual Property. (a) Each of the -------------------------------------------- Borrower and the Restricted Subsidiaries has good record and indefeasible title in fee simple to, or a valid leasehold interest in, all its real property, if any, and good title to, or a valid leasehold interest in, all its other material property, if any, and none of such property is subject to any Lien except as permitted by Section 8.3. Upon the consummation of the Stock Purchase, the ----------- Borrower or the Restricted Subsidiaries, as applicable, will have good record and indefeasible title in fee simple to, or a valid leasehold interest in all of the real property, if any, and all other material property and Franchises associated with the Acquired Systems. (b) The Borrower and the Restricted Subsidiaries have the right to use all trademarks, tradenames, copyrights, technology, know-how or processes ("Intellectual Property") that are necessary for the conduct of the business of - ----------------------- the Borrower or any of the Restricted Subsidiaries. 5.9 No Burdensome Restrictions. No Requirement of Law or -------------------------- Contractual Obligation of JIC, its Subsidiaries, the Borrower or any of its Restricted Subsidiaries could reasonably be expected to have a Material Adverse Effect. 5.10 Taxes. (a) (i) Each of the Borrower and its Subsidiaries has ----- filed or caused to be filed all tax returns which, to the knowledge of the Borrower, are required to be filed and has paid all taxes shown to be due and payable by it on said returns and all other material taxes, fees or other charges (collectively, the "Specified Taxes") imposed on it or any of its --------------- property by any Governmental Authority due and payable by it and (ii) to the knowledge of the Borrower, no material claim is being asserted with respect to any Specified Tax, other than, in each case with respect to this clause (a), Specified Taxes the amount or validity of which are currently being contested in good faith by appropriate proceedings diligently pursued and with respect to which reserves in conformity with GAAP have been provided on the books of the Borrower or the relevant Subsidiary, as the case may be, and (b) no tax Lien has been filed with respect to any Specified Tax. 5.11 Federal Regulations. No part of the proceeds of any Loans will ------------------- be used for "purchasing" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under Regulation G or Regulation U of the Board as now and from time to time hereafter in effect. If requested by any Lender or the Administrative Agent, the Borrower will furnish to the Administrative Agent and each Lender a statement to the foregoing effect in conformity with the requirements of FR Form G-3 or FR Form U-1 referred to in said Regulation G or Regulation U, as the case may be. 39 5.12 ERISA. Except as, in the aggregate, could not reasonably be ----- expected to result in a Material Adverse Effect: (a) neither a Reportable Event nor an "accumulated funding deficiency" (within the meaning of Section 412 of the Code or Section 302 of ERISA) has occurred during the five-year period prior to the date on which this representation is made or deemed made with respect to any Plan, and each Plan has complied in all material respects with the applicable provisions of ERISA and the Code; (b) no termination of a Single Employer Plan has occurred, and no Lien in favor of the PBGC or a Plan has arisen, during such five-year period; (c) the present value of all accrued benefits under each Single Employer Plan (based on those assumptions used to fund such Plans) did not, as of the last annual valuation date prior to the date on which this representation is made or deemed made, exceed the value of the assets of such Plan allocable to such accrued benefits; (d) neither the Borrower nor any Commonly Controlled Entity has had a complete or partial withdrawal from any Multiemployer Plan, and neither the Borrower nor any Commonly Controlled Entity would become subject to any liability under ERISA if the Borrower or any such Commonly Controlled Entity were to withdraw completely from all Multiemployer Plans as of the valuation date most closely preceding the date on which this representation is made or deemed made; and (e) no such Multiemployer Plan is in Reorganization or Insolvent. 5.13 Investment Company Act; Other Regulations. No Loan Party is an ----------------------------------------- "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. No Loan Party is subject to regulation under any Federal or State statute or regulation (other than Regulation X of the Board) which limits its ability to incur Indebtedness under this Agreement or the other Loan Documents. 5.14 Subsidiaries. Except for changes permitted by this Agreement ------------ pursuant to Sections 8.6, 8.8 or 8.9, Schedule 5.14 sets forth a true and ------------ --- --- ------------- complete list of each of the Borrower's Subsidiaries and accurately designates as of the date hereof whether each such Subsidiary is a Restricted Subsidiary or an Unrestricted Subsidiary. The Borrower has or will have delivered to the Administrative Agent, an updated Schedule 5.14 within 30 days after any changes ------------- thereto. The outstanding shares of Capital Stock of each Restricted Subsidiary have been duly authorized and validly issued and are fully paid and non- assessable, and all of the outstanding shares of each class of the Capital Stock of each Restricted Subsidiary are owned, directly or indirectly, beneficially and of record, by the Borrower, free and clear of all Liens. 5.15 Insurance. Each Loan Party maintains with financially sound, --------- responsible, and reputable insurance companies or associations (or, as to workers' compensation or similar insurance, with an insurance fund or by self- insurance authorized by the jurisdictions in which it operates) insurance covering its properties and businesses against such casualties and contingencies and of such types and in such amounts (and with co-insurance and deductibles) as is customary in the case of same or similar businesses. 40 5.16 Certain Cable Television Matters. Except as could not -------------------------------- reasonably be expected to result in a Material Adverse Effect: (a) the Borrower and the Restricted Subsidiaries possess all Authorizations necessary to own, operate and construct the Cable Systems or otherwise for the operations of their businesses and are not in violation thereof. All such Authorizations are in full force and effect and no event has occurred that permits, or after notice or lapse of time could permit, the revocation, termination or material and adverse modification of any such Authorization; (b) neither the Borrower nor any of the Restricted Subsidiaries is in violation of any duty or obligation required by the Communications Act of 1934, as amended, or any FCC rule or regulation applicable to the operation of any portion of any of the Cable Systems; (c) there is not pending or, to the best knowledge of the Borrower, threatened, any action by the FCC to revoke, cancel, suspend or refuse to renew any FCC License held by the Borrower or any of the Restricted Subsidiaries. There is not pending or, to the best knowledge of the Borrower, threatened, any action by the FCC to modify adversely, revoke, cancel, suspend or refuse to renew any other Authorization; and (d) there is not issued or outstanding or, to the best knowledge of the Borrower, threatened, any notice of any hearing, violation or complaint against the Borrower or any of the Restricted Subsidiaries with respect to the operation of any portion of the Cable Systems and the Borrower has no knowledge that any Person intends to contest renewal of any Authorization. 5.17 Environmental Matters. Except as could not reasonably be --------------------- expected to result in a Material Adverse Effect: (a) the facilities and properties owned by the Borrower or any of its Subsidiaries (the "Owned Properties") do not contain, and, to the ---------------- knowledge of the Borrower to the extent not owned, leased or operated during the past five years, have not contained during the past five years, any Materials of Environmental Concern in amounts or concentrations which constitute or constituted a violation of, or could reasonably be expected to give rise to liability under, any Environmental Law; (b) the facilities and properties leased or operated by the Borrower or any of its Subsidiaries, but not owned by them (the "Leased and Operated ------------------- Properties"), to the knowledge of the Borrower, do not contain and have not ---------- contained during the past five years, any Materials of Environmental Concern in amounts or concentrations which constitute or constituted a violation of, or could reasonably be expected to give rise to liability under, any Environmental Law; 41 (c) the Owned Properties and all operations at the Owned Properties are in compliance, and, to the knowledge of the Borrower to the extent not owned, leased or operated during the past five years, have in the last five years been in compliance, with all applicable Environmental Laws, and there is no contamination at, under or about the Owned Properties or violation of any Environmental Law with respect to the Owned Properties or the business operated by the Borrower or any of its Subsidiaries (the "Business") which -------- could interfere with the continued operation of the Owned Properties or impair the fair saleable value thereof; (d) to the knowledge of the Borrower, the Leased and Operated Properties and all operations at the Leased and Operated Properties are in compliance, and, in the last five years been in compliance, with all applicable Environmental Laws, and to the knowledge of the Borrower there is no contamination at, under or about the Leased and Operated Properties or violation of any Environmental Law with respect to the Leased and Operated Properties or the Business operated by the Borrower or any of its Subsidiaries which could interfere with the continued operation of the Leased and Operated Properties or impair the fair saleable value thereof; (e) neither the Borrower nor any of its Subsidiaries has received any notice of violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance with Environmental Laws with regard to any of the Owned Properties or the Leased and Operated Properties (together, the "Properties") or the Business, nor ---------- does the Borrower have any knowledge that any such notice will be received or is being threatened; (f) the Borrower has not transported or disposed of Materials of Environmental Concern nor, to the Borrower's knowledge, have Materials of Environmental Concern been transported or disposed of from the Properties in violation of, or in a manner or to a location which could reasonably be expected to give rise to liability to the Borrower or any Restricted Subsidiary under, any Environmental Law, nor has the Borrower generated any Materials of Environmental Concern nor, to the Borrower's knowledge, have Materials of Environmental Concerns been generated, treated, stored or disposed of at, on or under any of the Properties in violation of, or in a manner that could reasonably be expected to give rise to liability to the Borrower or any Restricted Subsidiary under, any applicable Environmental Law; (g) no judicial proceeding or governmental or administrative action is pending or, to the knowledge of the Borrower, threatened, under any Environmental Law to which the Borrower or any Subsidiary is or will be named as a party with respect to the Properties or the Business, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any applicable Environmental Law with respect to the Properties or the Business; and 42 (h) the Borrower has not released, nor, to the Borrower's knowledge, has there been any release or threat of release of Materials of Environmental Concern at or from the Properties, or arising from or related to the operations of the Borrower or any Subsidiary in connection with the Properties or otherwise in connection with the Business, in violation of or in amounts or in a manner that could reasonably be expected to give rise to liability under Environmental Laws. 5.18 Accuracy of Information. (a) All Information made available to ----------------------- the Administrative Agent or any Lender by the Borrower pursuant to this Agreement or any other Loan Document did not, as of the date such Information was made available, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein not materially misleading in light of the circumstances under which such statements were made. (b) All pro forma financial information and projections made --- ----- available to the Administrative Agent or any Lender by the Borrower pursuant to this Agreement or any other Loan Document have been prepared and furnished to the Administrative Agent or such Lender in good faith and were based on estimates and assumptions that were believed by the management of the Borrower to be reasonable in light of the then current and foreseeable business conditions of the Borrower and the Subsidiaries. The Administrative Agent and the Lenders recognize that such pro forma financial information and projections --- ----- and the estimates and assumptions on which they are based may or may not prove to be correct. 5.19 Security Documents. The Security Documents are effective to ------------------ create in favor of the Administrative Agent, for the benefit of the Lenders, a legal, valid and enforceable security interest in the Collateral described therein and proceeds thereof and, after satisfaction of the conditions specified in Section 6.1(j), the Security Documents shall constitute a fully perfected -------------- first priority Lien on, and security interest in, all right, title and interest of, the Borrower and the Restricted Subsidiaries in such Collateral and the proceeds thereof (subject to Section 9-306 of the Uniform Commercial Code), as security for the Obligations (and the Obligations under and as defined in the Tranche B Agreement), in each case prior and superior in right to any other Person. 5.20 Solvency. As of the date on which this representation and -------- warranty is made or deemed made, each Loan Party is Solvent, both before and after giving effect to the transactions contemplated hereby consummated on such date and to the incurrence of all Indebtedness and other obligations incurred on such date in connection herewith and therewith. 5.21 Indebtedness. No Loan Party is an obligor on any Indebtedness ------------ except as permitted under Section 8.2. ----------- 5.22 Labor Matters. There are no actual or overtly threatened ------------- strikes, labor disputes, slow downs, walkouts, or other concerted interruptions of operations by the employees of any Loan Party which could reasonably be expected to have a Material Adverse Effect. Hours 43 worked by and payment made to employees of the Loan Parties have not been in violation of the Fair Labor Standards Act or any other applicable law dealing with such matters, other than any such violations, individually or collectively, which could reasonably be expected to have a Material Adverse Effect. All payments due from any Loan Party on account of employee health and welfare insurance have been paid or accrued as a liability on its books, other than any such nonpayments which could not, individually or collectively, reasonably be expected to have a Material Adverse Effect. 5.23 Prior Names. Neither the Borrower nor any Restricted Subsidiary ----------- has used or transacted business under any other corporate or trade name in the five-year period preceding the Effective Date. 5.24 Franchises. Schedule 5.24, as supplemented to reflect any ---------- ------------- renewals and extensions of Franchise Agreements and to reflect any acquisition, lists all Franchise Agreements of the Borrower and the Restricted Subsidiaries relating to the Cable Systems owned by the Borrower and the Restricted Subsidiaries as of the Initial Funding Date and, with respect to the Cable Systems acquired after such date, as of the date of acquisition, at any time thereafter, including but not limited to the Acquired Systems. As of the Initial Funding Date, JCH and all of the Loan Parties shall have taken all action required by applicable Governmental Authorities to lawfully transfer or grant all of the Franchise Agreements relating to the Acquired Systems to the Loan Parties and, with respect to the Cable Systems acquired after the Initial Funding Date, all of the Loan Parties have taken all action required by applicable Governmental Authorities to lawfully transfer or grant such after acquired Franchise Agreement to the Loan Parties. To the knowledge of the Borrower, as of the Initial Funding Date and at all times thereafter, all Franchise Agreements of the Loan Parties were lawfully transferred or granted to the Borrower or a Restricted Subsidiary pursuant to the rules and regulations of applicable Governmental Authorities. The Franchise Agreements authorize the Borrower or a Restricted Subsidiary as indicated on Schedule 5.24 (as ------------- supplemented to reflect any renewals and extensions of Franchise Agreements and to reflect any acquisition) to operate one or more Cable Systems until the respective expiration dates listed on Schedule 5.24 or, will authorize the ------------- Borrower or a Restricted Subsidiary as indicated on Schedule 5.24 (as ------------- supplemented to reflect any renewals and extensions of Franchise Agreements and to reflect any acquisition), and no other further approval, filing or other action of any Governmental Authority is or will be necessary or advisable as of the Initial Funding Date or, with respect to the Cable Systems acquired after such date, as of the date of acquisition, in order to permit the Borrower's or such Restricted Subsidiaries' operation of the Cable Systems in accordance with the terms thereof. Schedule 5.24 (as supplemented from time to time) correctly ------------- identifies the franchisee and accurately describes the franchise area, the exclusive or nonexclusive nature of each such Franchise Agreement and all limitations contained in the Franchise Agreement or related statutes on the assignment, sale or encumbering of the Franchise Agreement or the related Cable System's assets. The Borrower or the Restricted Subsidiary that is the franchisee is in compliance in all material respects with all material terms and conditions of all Franchise Agreements relating to the Cable Systems owned by it, and on and after the date of acquisition of any Cable System will be in compliance in all material respects with all material terms and conditions of all Franchise Agreements relating to such Cable 44 Systems so acquired and no event has occurred or exists which permits, or, after the giving of notice, or the lapse of time or both would permit, the revocation or termination of any Franchise Agreement. 5.25 Chief Executive Office; Chief Place of Business. Schedule 5.25 ----------------------------------------------- ------------- (as supplemented from time to time) accurately sets forth the location of the chief executive office and chief place of business (as such terms are used in the Uniform Commercial Code of each state whose law would purport to govern the attachment and perfection of the security interests granted by the Security Documents) of the Borrower and each Restricted Subsidiary. 5.26 Full Disclosure. There is no material fact or condition --------------- relating to the Loan Documents or the financial condition, business, or property of any Loan Party which could reasonably be expected to have a Material Adverse Effect and which has not been disclosed, in writing, to the Managing Agents and the Lenders. 5.27 Intercompany Subordinated Debt. There is no Intercompany ------------------------------ Subordinated Debt other than the Indebtedness described in Exhibit A (as --------- supplemented from time to time) to the Intercompany Subordinated Debt Agreement. SECTION 6. CONDITIONS PRECEDENT 6.1 Conditions to Initial Extensions of Credit. The agreement of ------------------------------------------ each Lender to make the initial extension of credit requested to be made by it is subject to the satisfaction, immediately prior to or concurrently with the making of such extension of credit of the following conditions precedent: (a) Loan Documents. The Administrative Agent shall have received -------------- (i) this Agreement and the Tranche B Agreement, each duly executed and delivered by the Borrower; (ii) the Notes, duly executed and delivered by the Borrower to each of the Lenders; (iii) the Pledge Agreements, duly executed and delivered by the Borrower and each of the Restricted Subsidiaries; (iv) the JIC Negative Pledge duly executed and delivered by JIC; (v) the Restricted Subsidiary Negative Pledges, duly executed and delivered by each of the Restricted Subsidiaries; and (vi) a copy of the Intercompany Subordinated Debt Agreement duly executed and delivered by the Borrower and JIC. (b) Closing Certificate. The Administrative Agent shall have ------------------- received a certificate (the "Closing Certificate") of each Loan Party and ------------------- JIC, dated the date of the initial extension of credit, substantially in the form of Exhibit I, with appropriate insertions and attachments, in --------- each case reasonably satisfactory in form and substance to the Administrative Agent, executed by a Responsible Officer and the Secretary or any Assistant Secretary of the appropriate Loan Party and JIC. 45 (c) Fees. The Administrative Agent and the Managing Agents shall ---- have received all fees and expenses required to be paid on or before the date hereof referred to in Section 4.3(b) and the Lenders shall have -------------- received all fees required to be paid on or before the date hereof pursuant to the various invitation letters from the Borrower to prospective lenders forwarded with the Confidential Information Memorandum, dated September 19, 1996. (d) Legal Opinions. The Administrative Agent shall have -------------- received, with a counterpart for each Lender, the following executed legal opinions: (i) the executed legal opinion of the General Counsel or the acting General Counsel of the Borrower, substantially in the form of Exhibit J; and --------- (ii) the executed legal opinion of Cole, Raywid & Braverman, L.L.P., substantially in the form of Exhibit K. --------- (e) Financial Statements. The Lenders shall have received -------------------- audited consolidated financial statements of JIC for the 1995 fiscal year, which financial statements shall have been prepared in accordance with GAAP and shall be accompanied by an unqualified report thereon prepared by Arthur Andersen L.L.P. (f) Satisfactory Organizational and Capital Structure. The stock ------------------------------------------------- ownership of the Borrower and each of the Restricted Subsidiaries shall be consistent with the structure described in Schedule 6.1(f). All --------------- necessary intercreditor arrangements shall be satisfactory to the Lenders. (g) Governmental and Third Party Approvals. All governmental -------------------------------------- approvals and material third party approvals necessary in connection with the Stock Purchase shall have been obtained and be in full force and effect. All governmental approvals and material third party approvals necessary in connection with the financing contemplated hereby shall have been obtained and be in full force and effect. (h) No Material Adverse Information. The Lenders shall not have ------------------------------- become aware of any previously undisclosed materially adverse information with respect to (i) the ability of the Loan Parties to perform their respective obligations under the Loan Documents in any material respect or (ii) the rights and remedies of the Lenders. (i) No Material Default Under Other Agreements. There shall ------------------------------------------ exist no material event of default (or condition which would constitute such an event of default with the giving of notice or the passage of time) under any agreements relating to Capital Stock, or any material financing agreements, lease agreements or other material Contractual Obligations, of JIC, the Borrower or any of the Restricted Subsidiaries. 46 (j) Pledged Stock; Stock Powers. The Administrative Agent shall --------------------------- have received the certificates representing the shares of Capital Stock pledged pursuant to each Pledge Agreement of the Borrower and each of the Restricted Subsidiaries, respectively, together with an undated stock power for each such certificate, if any, executed in blank by a duly authorized officer of the Borrower and each of the Restricted Subsidiaries, respectively. (k) Material Adverse Change. There shall exist no material ----------------------- adverse change in the financial condition or business operations of the Acquired Systems since June 30, 1996. (l) Additional Documentation. All other documentation, ------------------------ including, without limitation, any tax sharing agreement, employment agreement, management compensation arrangement or other financing arrangement of the Borrower or any of the Restricted Subsidiaries shall be reasonably satisfactory in form and substance to the Lenders. (m) Lien Termination. All Liens covering the Acquired Systems ---------------- shall have been terminated. (n) The Stock Purchase. The Stock Purchase shall have been ------------------ consummated. (o) Insurance. The Administrative Agent shall have received --------- certificates of insurance naming the Administrative Agent as loss payee for the benefit of the Lenders and as additional insured for the benefit of the Lenders, as required by Section 7.5(b). -------------- (p) Tax Sharing Agreement. The Administrative Agent or the --------------------- Documentation Agent shall have received a copy of the Tax Sharing Agreement. (q) Acquired Systems. The Acquired Systems shall have been sold ---------------- and transferred to JCG and JCA and all governmental approvals and material third party approvals necessary in connection with such sale and transfer shall have been obtained and in full force and effect such that JCG shall own good title to the Cable Systems serving North Augusta, South Carolina, Savannah, Georgia and Augusta, Georgia and JCA will own good title to the Cable System serving Pima County, Arizona. (r) Pro Forma Covenant Compliance. The Managing Agents shall ----------------------------- have received reasonably satisfactory calculations evidencing the Borrower's pro forma compliance with Sections 8.1(a) and (c), after --------------- --- giving effect to the requested borrowing. 6.2 Conditions to Each Extension of Credit. The obligation or -------------------------------------- agreement of each Lender to make any Loan or to issue any Letter of Credit requested to be made or issued by it on any date (including, without limitation, its initial extension of credit) is subject to the satisfaction, immediately prior to or concurrently with the making of such Loans or the issuing of such Letters of Credit, of the following conditions precedent: 47 (a) Initial Conditions Satisfied. Each of the conditions ---------------------------- precedent set forth in Section 6.1 shall have been satisfied and shall ----------- continue to be satisfied on the date of such Loans. (b) No Material Litigation. Except as disclosed on Schedule 5.6, ---------------------- ------------ no litigation, inquiry, injunction or restraining order shall be pending, entered or threatened in writing which could reasonably be expected to have a Material Adverse Effect. (c) No Material Adverse Effect. There shall not have occurred -------------------------- any change, development or event which could reasonably be expected to have a Material Adverse Effect. (d) Representations and Warranties. Each of the representations ------------------------------ and warranties made by any Loan Party or JIC in or pursuant to the Loan Documents to which it is a party shall be true and correct in all material respects on and as of such date as if made on and as of such date, after giving effect to the Loans requested to be made or the Letters of Credit to be issued on such date and the proposed use of the proceeds thereof. (e) No Default. No Default or Event of Default shall have ---------- occurred and be continuing on such date or will occur after giving effect to the extension of credit requested to be made on such date and the proposed use of the proceeds thereof. (f) Notice of Borrowing; Application. The Borrower shall have -------------------------------- submitted a Notice of Borrowing in accordance with Section 2.3 and ----------- certifying to the matters set forth in Section 6.2(a) through and including (e) and/or an Application in accordance with Section 3.2. ----------- Each borrowing by or issuance of a Letter of Credit on behalf of the Borrower hereunder shall constitute a representation and warranty by the Borrower as of the date of such extension of credit that the applicable conditions contained in this Section 6.2 have been satisfied. ----------- SECTION 7. AFFIRMATIVE COVENANTS The Borrower hereby agrees that, so long as any Commitment remains in effect, any Loan or Letter of Credit shall be outstanding or any other Obligation is due and payable to any Lender or the Administrative Agent hereunder or under any other Loan Document, the Borrower shall and shall cause each of its Restricted Subsidiaries to: 7.1 Financial Statements. Furnish to the Administrative Agent -------------------- for subsequent distribution to each Lender: (a) as soon as available, but in any event within 120 days after the end of each fiscal year of the Borrower, a copy of the consolidated balance sheet of the Borrower and the 48 Restricted Subsidiaries as at the end of such year and the related consolidated statements of income and shareholders' capital (deficit) and of cash flows for such year, setting forth in each case in comparative form the figures for the previous year, reported on without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit, by Arthur Andersen L.L.P. or other independent certified public accountants of nationally recognized standing; and (b) as soon as available, but in any event not later than 60 days after the end of each of the first three fiscal quarterly periods of each fiscal year of the Borrower, the unaudited consolidated balance sheet of the Borrower and the Restricted Subsidiaries as at the end of such quarter and the related unaudited consolidated statements of income and of cash flows for such quarter and the portion of the fiscal year through the end of such quarter, setting forth in each case in comparative form the figures for the previous year, certified by a Responsible Officer as being fairly stated in all material respects (subject to normal year-end audit adjustments). All such financial statements shall be complete and correct in all material respects and shall be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods (except as approved by such accountants or officer, as the case may be, and disclosed therein). 7.2 Certificates; Other Information. Furnish to the ------------------------------- Administrative Agent for subsequent distribution to each Lender: (a) concurrently with the delivery of the financial statements referred to in Section 7.1(a), a certificate of the independent certified -------------- public accountants reporting on such financial statements stating that in making the examination necessary therefor no knowledge was obtained of any Default or Event of Default, except as specified in such certificate; (b) concurrently with the delivery of the financial statements referred to in Sections 7.1(a) or (b), a Compliance Certificate executed --------------- --- by a Responsible Officer of the Borrower and each of the Restricted Subsidiaries; (c) without duplication of the financial statements delivered pursuant to Section 7.1, within five days after the same are sent, copies ----------- of all financial statements and reports which the Borrower sends to the holders of any class of its debt securities, and within five days after the same are filed, copies of all financial statements and reports which the Borrower may make to, or file with, the Securities and Exchange Commission or any successor or analogous Governmental Authority; and (d) promptly, such additional financial and other information as any Lender may from time to time reasonably request. 49 7.3 Payment of Obligations. Pay, discharge or otherwise satisfy ---------------------- at or before maturity or before they become delinquent, as the case may be, all its material obligations of whatever nature, except where the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of the Borrower or the relevant Restricted Subsidiary, as the case may be. 7.4 Conduct of Business and Maintenance of Existence, etc. ----------------------------------------------------- (a) Continue to engage in business of the same general type as now conducted by it, except as otherwise permitted by Section 8.13, and preserve, renew and keep ------------ in full force and effect its organizational existence and take all reasonable action to maintain all material rights, privileges and franchises necessary in the normal conduct of its business except as otherwise permitted pursuant to Section 8.4. - ----------- (b) Comply with all Contractual Obligations and applicable Requirements of Law, except to the extent that failure to comply therewith could not reasonably be expected to have a Material Adverse Effect. 7.5 Maintenance of Property; Insurance. (a) Keep all material ---------------------------------- property useful and necessary in its business in good working order and condition (ordinary wear and tear excepted) consistent with customary practices in the cable industry; maintain with financially sound and reputable insurance companies insurance on all its property in at least such amounts and against at least such risks as are usually insured against in the same general area by companies engaged in the same or a similar business; and furnish to the Administrative Agent certificates of insurance from time to time received by it for each such policy of insurance including insurance certificates evidencing compliance with Section 7.5(b). -------------- (b) In the event that the provisions of item (ii) of Section 8.16 apply, then contemporaneously with the Borrower's compliance with - ------------ Section 7.9 the Borrower shall cause (i) the Administrative Agent to be named, - ----------- in a manner reasonably satisfactory to the Administrative Agent, (a) as lender loss payee for the benefit of the Lenders under all policies of casualty insurance maintained by the Borrower and the Restricted Subsidiaries and (b) as an additional insured for the benefit of the Lenders on all policies of liability insurance maintained by the Borrower and the Restricted Subsidiaries; and (ii) all insurance policies to contain a provision that the policy may not be cancelled, terminated or modified without thirty (30) days' prior written notice to the Administrative Agent. 7.6 Inspection of Property; Books and Records; Discussions. Keep ------------------------------------------------------ and maintain a system of accounting established and administered in accordance with sound business practices and keep and maintain proper books of record and accounts; and permit representatives of any Lender to visit and inspect any of its properties and examine and make abstracts from any of its books and records during normal business hours and as often as may reasonably be requested and upon reasonable notice and to discuss the business, operations, properties and financial and other condition of the Borrower and the Restricted Subsidiaries with officers and employees of the 50 Borrower and the Restricted Subsidiaries and with their independent certified public accountants; provided that representatives of the Borrower designated by a Responsible Officer may be present at any such meeting with such accountants. 7.7 Notices. Promptly after the Borrower obtains knowledge ------- thereof, give notice to the Administrative Agent and each Lender of: (a) the occurrence of any Default or Event of Default; (b) any (i) default or event of default under any Contractual Obligation of JIC, the Borrower or any of the Restricted Subsidiaries or (ii) litigation, investigation or proceeding which may exist at any time between JIC, the Borrower or any of the Restricted Subsidiaries and any Governmental Authority, which in either case could reasonably be expected to have a Material Adverse Effect; (c) any litigation or proceeding affecting the Borrower or any of the Restricted Subsidiaries (i) which could reasonably be expected to result in an adverse judgment of $10,000,000 or more and which is not covered by insurance or (ii) in which injunctive or similar relief is sought which in the case of this clause (ii) could reasonably be expected to materially interfere with the ordinary conduct of business of the Borrower or any of the Restricted Subsidiaries; (d) the following events, as soon as possible and in any event within 30 days after the Borrower knows thereof: (i) the occurrence of any Reportable Event with respect to any Plan, a failure to make any required contribution to a Plan, the creation of any Lien in favor of the PBGC or a Plan or any withdrawal from, or the termination, Reorganization or Insolvency of, any Multiemployer Plan or (ii) the institution of proceedings or the taking of any other action by the PBGC or the Borrower or any Commonly Controlled Entity or any Multiemployer Plan with respect to the withdrawal from, or the terminating, Reorganization or Insolvency of, any Plan; and (e) any development or event which could reasonably be expected to have a Material Adverse Effect. Each notice pursuant to this Section shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and stating what action is proposed to be taken with respect thereto. 7.8 Environmental Laws. (a) Comply with, and use reasonable ------------------ efforts to require compliance by all tenants and subtenants, if any, with, all applicable Environmental Laws and obtain and comply with and maintain, and use reasonable efforts to require that all tenants and subtenants obtain and comply with and maintain, any and all licenses, approvals, notifications, registrations or 51 permits required by applicable Environmental Laws except, in each case, to the extent that failure to do so could not be reasonably expected to have a Material Adverse Effect. (b) Comply with all lawful orders and directives of all Governmental Authorities regarding Environmental Laws except to the extent that the same are being contested in good faith by appropriate proceedings diligently pursued. 7.9 Collateral. (a) To ratably secure full and complete payment ---------- and performance of the Obligations (and the Obligations under and as defined in the Tranche B Agreement), (i) the Borrower shall grant and convey to and create in favor of, the Administrative Agent for the ratable benefit of the Lenders a continuing first priority perfected Lien and security interest in, to and on all of the Capital Stock of each direct or indirect Restricted Subsidiary of the Borrower and any other direct or indirect Restricted Subsidiary of the Borrower, now owned or hereafter acquired and/or designated by the Borrower; and (ii) the Restricted Subsidiaries shall grant and convey to and create in favor of, the Administrative Agent for the ratable benefit of the Lenders a continuing first priority perfected Lien and security interest in, to and on all of the Capital Stock of each Restricted Subsidiary owned by a Restricted Subsidiary, now owned or hereafter acquired. (b) With respect to any new Restricted Subsidiary created, acquired or designated after the date hereof, the Borrower shall and shall cause each such new Restricted Subsidiary, as applicable, to promptly (but in no event later than 30 days after the creation, acquisition or designation of a Restricted Subsidiary) (i) execute and deliver to the Administrative Agent such new Pledge Agreements and/or amendments to existing Pledge Agreements as the Administrative Agent deems necessary or advisable in order to grant to the Administrative Agent, for the benefit of the Lenders, a perfected first priority security interest in the Capital Stock of such Restricted Subsidiary and any Restricted Subsidiaries of such Restricted Subsidiary, (ii) deliver to the Administrative Agent the certificates representing the Capital Stock of such Restricted Subsidiary and any Restricted Subsidiary of such Restricted Subsidiary, together with undated stock powers, in blank, executed and delivered by a duly authorized officer of the Borrower or such Restricted Subsidiary, as applicable, (iii) take such other actions as shall be necessary or advisable to grant to the Administrative Agent for the benefit of the Lenders a perfected first priority security interest in such Capital Stock, including, without limitation, the filing of such Uniform Commercial Code financing statements as may be requested by the Administrative Agent, (iv) execute and deliver to the Administrative Agent a Restricted Subsidiary Negative Pledge and (v) if requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described in the preceding clauses (i), (ii), (iii) and (iv), which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent. 52 (c) With respect to any assets (other than the Capital Stock of Subsidiaries) from time to time acquired by the Borrower which are not transferred to a Restricted Subsidiary in accordance with Section 8.16 (each, an ------------ "Acquired Asset" and collectively, the "Acquired Assets"), the Borrower shall, -------------- --------------- within 90 days after the date on which the aggregate fair market value of all Acquired Assets owned by the Borrower exceeds $500,000, execute and deliver or cause to be delivered to the Administrative Agent in a form reasonably acceptable to the Administrative Agent (i) one or more mortgages and/or security agreements which grant to the Administrative Agent a first priority perfected security interest in the assets of the Borrower, whether then owned or thereafter acquired (subject to any Liens permitted by Section 8.3) and ----------- (ii) such additional agreements and other documents as the Administrative Agent reasonably deems necessary to establish a valid, enforceable and perfected first priority security interest in such assets (subject to any Liens permitted by Section 8.3). - ----------- (d) Upon request of the Administrative Agent, promptly execute and deliver or cause to be executed and delivered to the Administrative Agent in a form reasonably acceptable to the Administrative Agent such additional agreements and other documents as the Administrative Agent reasonably deems necessary to establish a valid, enforceable and perfected first priority security interest in the Collateral. 7.10 Use of Proceeds. The Borrower shall use the proceeds of the --------------- Loans and the Letters of Credit only for (a) financing permitted acquisitions, (b) capital expenditures to expand and upgrade Cable Systems, (c) dividends or distributions permitted under this Agreement, and (d) general corporate purposes. 7.11 New Subsidiaries. Immediately upon the creation or ---------------- acquisition thereof, the Borrower shall notify the Administrative Agent of the designation of any newly created or acquired Subsidiary as a Restricted Subsidiary or an Unrestricted Subsidiary and shall provide the Administrative Agent with an updated Schedule 5.14 within 30 days of any changes thereto, ------------- provided that no designation of any newly created or acquired Subsidiary as an - -------- Unrestricted Subsidiary shall be permitted (except by another Unrestricted Subsidiary) unless such designation would otherwise be permitted under the definition thereof and Sections 8.6 and 8.9(f). In addition, the Borrower shall ------------ ------ cause any newly created or acquired Restricted Subsidiary to execute and deliver to the Administrative Agent, within 30 days of such creation or acquisition, a Restricted Subsidiary Negative Pledge. SECTION 8. NEGATIVE COVENANTS The Borrower hereby agrees that, so long as any Commitment remains in effect, any Loan or Letter of Credit is outstanding, or any other Obligation is due and payable to any Lender or the Administrative Agent hereunder or under any other Loan Document, the Borrower shall not, and the Borrower shall not permit any of the Restricted Subsidiaries to, directly or indirectly: 53 8.1 Financial Condition Covenants. ----------------------------- (a) Leverage Ratio. Permit the Leverage Ratio at any time during any period set forth below to be greater than the ratio set forth opposite such period below:
Period Ratio ------ ----- Effective Date through and including 6/30/99 6.00 to 1.00 7/01/99 through and including 6/30/2000 5.50 to 1.00 7/01/2000 through and including 6/30/2001 5.00 to 1.00 7/01/2001 and thereafter 4.50 to 1.00
(b) Interest Coverage Ratio. Permit the ratio of Operating Cash Flow for any fiscal quarter of the Borrower ending during any period set forth below to Interest Expense for such fiscal quarter to be less than the ratio set forth opposite such period below:
Period Ratio ------ ----- Effective Date through 6/30/2000 1.50 to 1.00 7/1/2000 and thereafter 2.00 to 1.00
(c) Pro Forma Debt Service Ratio. Permit, at any time, the ratio ---------------------------- of Annualized Operating Cash Flow based on the most recently ended fiscal quarter to Pro Forma Debt Service to be less than 1.10 to 1.00. 8.2 Limitation on Indebtedness. Create, incur, assume or suffer -------------------------- to exist any Indebtedness of the Borrower or any Restricted Subsidiary of the Borrower, except: (a) Indebtedness under this Agreement and the Tranche B Agreement, other than L/C Obligations of the Borrower that are for the benefit of or support the obligations of any Person other than the Borrower or a Restricted Subsidiary; (b) Indebtedness of the Restricted Subsidiaries resulting from any loan or advance from the Borrower; (c) Intercompany Subordinated Debt, provided that the -------- Intercompany Subordinated Debt is unsecured and subordinated pursuant to the terms and conditions of the Intercompany Subordinated Debt Agreement; (d) Interest Rate Hedge Agreements entered into with the Lenders or any of them for the purpose of hedging against interest rate fluctuations with respect to variable rate Indebtedness of the Borrower or any of the Restricted Subsidiaries; and 54 (e) Indebtedness of the Borrower and/or any Restricted Subsidiary not otherwise permitted by this Section 8.2, provided that ----------- -------- immediately prior to and after giving effect to the creation, incurrence or assumption of such Indebtedness (i) the aggregate outstanding principal amount of all such other Indebtedness of the Borrower and the Restricted Subsidiaries, on a combined basis plus (without duplication) the aggregate amount of all Indebtedness secured by Liens permitted under subsection (d) of Section 8.3 shall not at any time exceed 5% of Maximum -------------- ----------- Permitted Indebtedness and (ii) no Default exists and would then be continuing. 8.3 Limitation on Liens. Create, incur, assume or suffer to ------------------- exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, except for: (a) Liens for taxes, assessments or governmental charges arising in the ordinary course of business which are not yet due and payable or which are being contested in good faith by appropriate proceedings, provided that adequate reserves with respect thereto are maintained on -------- the books of the Borrower or the Restricted Subsidiary, as the case may be, in conformity with GAAP; (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business which are not yet due and payable; (c) Liens created pursuant to the Security Documents; (d) other Liens, provided that immediately prior to and after -------- giving effect to the creation of any such Liens (i) the aggregate amount of such Indebtedness secured by Liens permitted under this subsection (d) plus (without duplication) the aggregate amount of all -------------- Indebtedness of the Borrower and the Restricted Subsidiaries permitted under Section 8.2(e) shall not at any time exceed 5% of Maximum Permitted -------------- Indebtedness and (ii) no Default or Event of Default exists and would then be continuing; (e) encumbrances consisting of zoning restrictions, easements, or other restrictions on the use of real property, none of which impair in any material respect the use of such property by the Person in question in the operation of its business, and none of which is violated by existing or proposed structures or land use; and (f) any attachment, prejudgment or judgment Lien in existence less than sixty consecutive calendar days after the entry thereof, or with respect to which execution has been stayed, or with respect to which payment in full above any applicable customary deductible is covered by insurance or a bond. 55 8.4 Limitation on Fundamental Changes. Enter into any merger, --------------------------------- consolidation or amalgamation with any Person, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer or otherwise dispose of, all or substantially all of its property, business or assets to any Person, or make any material change in its present method of conducting business, except: (a) a Restricted Subsidiary may merge into or be acquired by the Borrower if the Borrower is the survivor thereof; (b) a Restricted Subsidiary may merge into or be acquired by another Restricted Subsidiary; and (c) the Borrower or any Restricted Subsidiary may sell, lease, transfer or otherwise dispose of any or all of its assets in a transaction permitted under Section 8.5. ----------- 8.5 Limitation on Sale of Assets. Convey, sell, lease, assign, ---------------------------- exchange, transfer or otherwise dispose of any of its property, business or assets (including, without limitation, receivables and leasehold interests), whether now owned or hereafter acquired to any Person (a "Disposition"), except: ----------- (a) Dispositions in the ordinary course of business (which shall not be construed to include the Disposition of any License, Franchise or Cable System); (b) subject to the provisions of Section 8.16, Dispositions between ------------ the Borrower and the Restricted Subsidiaries or between the Restricted Subsidiaries; (c) the Borrower may designate any Restricted Subsidiary as an Unrestricted Subsidiary in accordance with Section 8.6 and may make ----------- Restricted Payments in accordance with Section 8.7; and ----------- (d) other Dispositions, provided that all of the following -------- conditions are satisfied: (i) the Borrower or such Restricted Subsidiary receives consideration that represents the fair market value of such property or assets at the time of such Disposition, (ii) any such Disposition shall be on a non-recourse basis, except that the Borrower or such Restricted Subsidiary may make commercially reasonable representations, warranties and indemnities with respect to such properties or assets that are normal and customary in the cable television business ("Permitted Sale Representations"), (iii) no Default or Event of Default ------------------------------ shall have occurred and be continuing either before or after the consummation of such transaction and (iv) either (1) the Leverage Ratio is less than or equal to 3.75 to 1.00 after giving effect to such Disposition or (2) after giving effect to such proposed Disposition (x) the sum, without duplication, of (A) the Net Unrestricted Designated Subsidiaries Three Month Cash Flow for the prior twelve month period (or shorter period commencing on the Effective Date) ending on the date of such proposed transaction, (B) the Three Month Cash Flow attributable to the 56 properties or assets to be sold, leased, transferred, assigned or otherwise disposed of and (C) the Three Month Cash Flow attributable to all properties or assets sold, leased, transferred, assigned or otherwise disposed of during the prior twelve month period (or shorter period commencing on the Effective Date) ending on the date of such proposed transaction shall not exceed 15% of the Three Month Cash Flow of the Borrower and the Restricted Subsidiaries, and (y) the sum, without duplication of (A) the Net Unrestricted Designated Subsidiaries Three Month Cash Flow for the five-year period (or shorter period commencing on the Effective Date) ending on the date of such proposed transaction, (B) the Three Month Cash Flow attributable to the properties or assets to be sold, leased, transferred, assigned or otherwise disposed of and (C) the Three Month Cash Flow attributable to all assets sold, leased, transferred, assigned or disposed of during the five-year period (or shorter period commencing on the Effective Date) ending on the date of such proposed transaction shall not exceed 30% of the Three Month Cash Flow of the Borrower and the Restricted Subsidiaries. Notwithstanding anything to the contrary contained in the foregoing, if the Leverage Ratio is less than or equal to 3.75 to 1.00 for a period of twelve consecutive months all prior Dispositions and Unrestricted Subsidiary Designations shall be excluded from subsequent determinations pertaining to the foregoing clause (y). Upon request by and at the expense of the Borrower, the Administrative Agent shall release any Liens arising under the Security Documents with respect to any Collateral which (i) is permitted to be disposed of pursuant to Section 8.5(a), -------------- (ii) consists of the Capital Stock of a Restricted Subsidiary which is designated as an Unrestricted Subsidiary pursuant to Section 8.6, or (iii) is ----------- sold or otherwise disposed of in compliance with the terms of Section 8.5(d). -------------- 8.6 Restricted/Unrestricted Designation of Subsidiaries. Be --------------------------------------------------- permitted to designate a Restricted Subsidiary as an Unrestricted Subsidiary or an Unrestricted Subsidiary as a Restricted Subsidiary unless (a) the Borrower delivers to the Administrative Agent and the Lenders a written notice, not later than ten (10) days prior to such designation, certifying that all conditions set forth in this Section 8.6 are satisfied as of the proposed effective date of ----------- such designation, which certification shall state the proposed effective date of such designation and shall be signed by a Responsible Officer of the Borrower; (b) no Default or Event of Default shall exist immediately before or after the effective date of such designation; (c) after giving effect to such designation, there shall not be any material and adverse effect on the Borrower and the Restricted Subsidiaries on a consolidated basis with respect to the prospects for the future generation of Operating Cash Flow, the general mix of assets or the condition, quality and development level of technical equipment, and such designation shall not render the Borrower and the Restricted Subsidiaries on a consolidated basis insolvent or generally unable to pay its or their respective debts as they become due; (d) in the case of the designation of an Unrestricted Subsidiary as a Restricted Subsidiary, such notice shall also serve as the certification of the Borrower that, with respect to such Restricted Subsidiary, the representations and warranties contained herein are true and correct on and as of the effective date of such designation; and (e) in the case of the designation of any Restricted Subsidiary as an Unrestricted Subsidiary (an "Unrestricted Subsidiary Designation"), either (1) the Leverage Ratio is less - ------------------------------------ than or equal to 3.75 to 1.00 after giving effect to such Unrestricted Subsidiary Designation 57 or (2) after giving effect to such Unrestricted Subsidiary Designation the following additional conditions are satisfied as of the effective date of such proposed designation: (i) the sum, without duplication, of (x) the Net Unrestricted Designated Subsidiaries Three Month Cash Flow for the prior twelve month period (or shorter period commencing on the Effective Date) ending on the date of such proposed designation and (y) the Three Month Cash Flow attributable to all asset Dispositions made pursuant to Section 8.5(d) during the twelve -------------- month period (or shorter period commencing on the Effective Date) ending on the date of such proposed designation shall not exceed fifteen percent (15%) of the Three Month Cash Flow of the Borrower and the Restricted Subsidiaries, and (ii) the sum, without duplication, of (x) the Net Unrestricted Designated Subsidiaries Three Month Cash Flow for the five-year period (or shorter period commencing on the Effective Date) ending on the date of such proposed designation and (y) the Three Month Cash Flow attributable to all asset Dispositions made pursuant to Section 8.5(d) during the five-year period (or -------------- shorter period commencing on the Effective Date) ending on the date of such proposed designation shall not exceed thirty percent (30%) of the Three Month Cash Flow of the Borrower and the Restricted Subsidiaries. Notwithstanding the foregoing, if the Leverage Ratio is less than or equal to 3.75 to 1.00 for a period of twelve consecutive months, all previous Unrestricted Subsidiary Designations and asset Dispositions shall be excluded from subsequent determinations pertaining to the foregoing clause (ii). 8.7 Limitation on Restricted Payments; Other Payment Limitations. ------------------------------------------------------------ Declare or pay any dividend or distribution in respect of, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any shares of or interests in any class of Capital Stock of the Borrower, whether now or hereafter outstanding, either directly or indirectly, whether in cash or property or in obligations of the Borrower or any of its Subsidiaries, or make, or permit any payments of principal, interest, premium or fees on account of Intercompany Subordinated Debt or make any payment in respect of any fees payable to any Person (other than to the Borrower or a Restricted Subsidiary) for management, consulting, oversight or similar services (collectively, "Restricted Payments"), except that the Borrower and the Restricted Subsidiaries ------------------- may make Restricted Payments in cash or Capital Stock so long as both immediately before and after making such Restricted Payment (i) no Default or Event of Default shall have occurred and be continuing or would result therefrom and (ii) the Leverage Ratio is less than 5.50 to 1.00. Notwithstanding anything to the contrary contained in the foregoing, prior to making any Restricted Payment, the Borrower shall provide the Administrative Agent with a pro forma calculation of the Leverage Ratio demonstrating that such Leverage Ratio is less than 5.50 to 1.00 both before and after making such Restricted Payment, which calculation shall be certified to by the Borrower. 8.8 Limitation on Acquisitions. Purchase any stock, bonds, notes, -------------------------- debentures or other securities of or any assets constituting all or any significant part of a business unit of any Person (collectively, "Acquisitions"), except acquisitions (substantially all of which consist of ------------ Cable Systems or telecommunications systems) through the purchase of stock or assets in any Permitted Line of Business, provided, that (i) no such acquisition -------- may be made if a Default or an Event of Default shall have occurred and be continuing or would result therefrom, (ii) prior to such 58 Acquisition, the Borrower provides evidence of pro forma compliance with all of the terms and conditions of this Agreement, and in the case of Acquisitions in excess of $50,000,000 a ten year cash flow projection for any such Cable System or telecommunications system being acquired, demonstrating such compliance and (iii) compliance in a timely manner by the Borrower with Section 8.16. ------------ 8.9 Investments, Loans, Etc. Purchase or otherwise acquire or ------------------------ invest in the Capital Stock of, or any other equity interest in, any Person (including, without limitation, the Capital Stock of the Borrower), or make any loan to, or enter into any arrangement for the purpose of providing funds or credit to, or, guarantee or become contingently obligated in respect of the obligations of or make any other investment, whether by way of capital contribution or otherwise, in, to or with any Person, or permit any Restricted Subsidiary so to do (all of which are sometimes referred to herein as "Investments"), provided that, so long as no Default or Event of Default shall - ------------ -------- have occurred and be continuing or would result therefrom, nothing contained in this Section 8.9 shall be deemed to prohibit the Borrower or any Restricted ----------- Subsidiary from making Investments: (a) in certificates of deposit with maturities of 270 days or less from the date of acquisition and overnight bank deposits of any Lender or of any commercial bank having capital and surplus in excess of $500,000,000; (b) in repurchase obligations of any Lender or of any commercial bank satisfying the requirements of clause (a) of this Section 8.9, having a ----------- term of not more than 30 days, with respect to securities issued or fully guaranteed or insured by the United States Government; (c) in commercial paper of a domestic issuer maturing not in excess of 270 days from the date of acquisition and rated at least A-1 by S&P or P-1 by Moody's; (d) in indebtedness of a domestic issuer maturing not in excess of 270 days from the date of acquisition and having the highest rating by S&P and Moody's; (e) in Restricted Subsidiaries or for the acquisition or creation of new Restricted Subsidiaries, provided that (i) in the case of an -------- acquisition, the Borrower complies with the provisions of Section 8.8, (ii) ----------- such Restricted Subsidiary is organized under the laws of any state of the United States or the District of Columbia and (iii) not less than one hundred percent (100%) of the voting control thereof and not less than one hundred percent (100%) of the overall economic equity therein, at the time of which any determination is being made, is owned, directly or indirectly, beneficially and of record by the Borrower; and (f) in Unrestricted Subsidiaries through Dispositions under Section 8.5, designations under Section 8.6 and Acquisitions under ----------- ----------- Section 8.8, provided that such Investments are in compliance with ----------- -------- Sections 8.5, 8.6 and 8.8. ------------ --- --- 59 8.10 Limitation on Transactions with Affiliates. Enter into any ------------------------------------------ transaction, including, without limitation, any purchase, sale, lease or exchange of property or the rendering of any service, with any Affiliate (other than a Restricted Subsidiary) other than transactions (a) otherwise permitted under this Agreement, (b) entered into in the ordinary course of the Borrower's or such Restricted Subsidiary's business, the terms of which are fair and reasonable and in the best interests of the Loan Party which is party to the transaction and which transaction is approved by the Board of Directors of the Borrower or (c) which are existing transactions set forth on Schedule 8.10 and ------------- future transactions which are in renewal or replacement of the transactions set forth in Schedule 8.10 provided that such future transactions are of a type and ------------- -------- upon terms consistent with the transactions set forth on Schedule 8.10. ------------- 8.11 Certain Intercompany Matters. Fail to (i) satisfy customary ---------------------------- formalities with respect to organizational separateness, including, without limitation, (x) the maintenance of separate books and records and (y) the maintenance of separate bank accounts in its own name; (ii) act solely in its own name and through its authorized officers and agents; (iii) commingle any money or other assets of JIC or any Unrestricted Subsidiary with any money or other assets of the Borrower or any of the Restricted Subsidiaries; or (iv) take any action, or conduct its affairs in a manner, which could reasonably be expected to result in the separate organizational existence of JIC, each Unrestricted Subsidiary, the Borrower and the Restricted Subsidiaries being ignored under any circumstance. 8.12 Limitation on Restrictions on Subsidiary Distributions. ------------------------------------------------------ Enter into or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary of the Borrower to (a) pay dividends or make any other distributions in respect of any Capital Stock of such Restricted Subsidiary held by, or pay any Indebtedness owed to, the Borrower or any other Restricted Subsidiary of the Borrower, (b) make loans or advances to the Borrower or any other Restricted Subsidiary of the Borrower or (c) transfer any of its assets to the Borrower or any other Restricted Subsidiary of the Borrower, except for such encumbrances or restrictions existing under or by reason of (i) any restrictions existing under the Loan Documents or any other agreements in effect on the date hereof, or (ii) any restrictions with respect to a Restricted Subsidiary imposed pursuant to an agreement which has been entered into in connection with the sale or disposition of all or substantially all of the Capital Stock or assets of such Restricted Subsidiary or any restrictions arising under Franchise Agreements, Pole Agreements or leases entered into in the ordinary course of business. 8.13 Limitation on Lines of Business. Enter into any business, ------------------------------- either directly or through any Restricted Subsidiary, except for the domestic cable and telecommunications business (each, a "Permitted Line of Business"). -------------------------- 8.14 No Negative Pledge. Covenant or agree with any other lender ------------------ or other Person, not to create, or not to allow to be created or otherwise exist, any Lien upon any asset of the Borrower or any of the Restricted Subsidiaries or covenant or agree with any other lenders or other Persons to any other arrangement that is functionally equivalent or similar to a negative pledge. 60 8.15 Tax Sharing Agreement. Pay any Taxes under the Tax Sharing --------------------- Agreement or other similar agreement greater than the lesser of (i) the amount that would have been payable by the Borrower if there were no Tax Sharing Agreement or other similar agreement and (ii) the amount actually paid by JIC in respect of such Taxes. Amend, supplement or in any manner modify, without the written consent of the Majority Banks, the terms of the Tax Sharing Agreement. 8.16 Limitation on the Borrower's Ownership of Assets. The ------------------------------------------------ Borrower shall not be permitted to own any Cable System or other material asset unless the Borrower either (i) transfers any assets it owns or acquires (other than the Capital Stock of a Subsidiary) to a Restricted Subsidiary or (ii) complies with the provisions of Section 7.9 within 90 days after the date on ----------- which the aggregate fair market value of all Acquired Assets (as defined in Section 7.9(c)) owned by the Borrower exceeds $500,000. - -------------- 8.17 Limitation on Issuance of Capital Stock. Issue, sell, --------------------------------------- assign, pledge or otherwise encumber or dispose of any shares of Capital Stock, except (i) the Restricted Subsidiaries may issue or sell Capital Stock to the Borrower, (ii) the Borrower and the Restricted Subsidiaries may pledge the Capital Stock of the Restricted Subsidiaries pursuant to the Pledge Agreements and (iii) the Borrower can issue shares of its Capital Stock so long as both before and after giving effect to such issuance and any related transactions no Default or Event of Default shall have occurred and be continuing or would result therefrom. SECTION 9. EVENTS OF DEFAULT If any of the following events shall occur and be continuing: (a) The Borrower shall fail to pay any principal of any Loan or Reimbursement Obligation when due in accordance with the terms hereof; or the Borrower shall fail to pay any interest on any Loan or Reimbursement Obligation, or any other amount payable hereunder, on or prior to the date which is five days (or, if later, three Business Days) after any such interest or other amount becomes due in accordance with the terms hereof; or (b) Any representation or warranty made or deemed made by JIC, the Borrower or any other Loan Party herein or in any other Loan Document or which is contained in any Information furnished at any time under or in connection with this Agreement or any such other Loan Document shall prove to have been incorrect in any material respect on or as of the date made or deemed made; or (c) The Borrower or any other Loan Party shall default in the observance or performance of any agreement contained in Section 7.7(a) or ------------- Section 8 of this Agreement or in Section 5(b) of the Pledge Agreements; or --------- 61 (d) The Borrower, JIC or any other Loan Party shall default in the observance or performance of any other agreement contained in this Agreement or any other Loan Document (other than as provided in paragraphs (a) through (c) of this Section), and such default shall continue unremedied for a period of 30 days after the Administrative Agent shall have given the Borrower notice thereof; or (e) (i) JIC, the Borrower or any of the Restricted Subsidiaries shall default in making any payment of any principal of any Indebtedness (including, without limitation, any Guarantee Obligation, but excluding the Loans and Reimbursement Obligations) beyond the period of grace or cure, if any, provided in the instrument or agreement under which such Indebtedness was created; or (ii) JIC, the Borrower or any of the Restricted Subsidiaries shall default in making any payment of any interest on any such Indebtedness beyond the period of grace or cure, if any, provided in the instrument or agreement under which such Indebtedness was created; or (iii) JIC, the Borrower or any of the Restricted Subsidiaries shall default in the observance or performance of any other agreement or condition relating to any such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or beneficiary of such Indebtedness (or a trustee or agent on behalf of such holder or beneficiary) to cause, with the giving of notice if required, such Indebtedness to become due or to be purchased or repurchased prior to its stated maturity (or, in the case of any such Indebtedness constituting a Guarantee Obligation, to become payable prior to the stated maturity of the primary obligation covered by such Guarantee Obligation); provided that a -------- default, event or condition described in clause (i), (ii) or (iii) of this paragraph (e) shall not constitute an Event of Default under this Agreement unless, at the time of such default, event or condition one or more defaults, events or conditions of the type described in clauses (i), (ii) and (iii) of this paragraph (e) shall have occurred with respect to Indebtedness the outstanding principal amount of which exceeds in the aggregate $10,000,000; or (f) (i) JIC, the Borrower or any of the Restricted Subsidiaries shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or JIC, the Borrower or any of the Restricted Subsidiaries shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against JIC, the Borrower or any of the Restricted Subsidiaries any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against JIC, the Borrower or any of the Restricted Subsidiaries any case, 62 proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) JIC, the Borrower or any of the Restricted Subsidiaries shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) JIC, the Borrower or any of the Restricted Subsidiaries shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or (g) (i) Any Person shall engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan or any Lien in favor of the PBGC or a Plan shall arise on the assets of the Borrower or any Commonly Controlled Entity, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or commencement of proceedings or appointment of a trustee is, in the reasonable opinion of the Majority Lenders, likely to result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, (v) the Borrower or any Commonly Controlled Entity shall, or in the reasonable opinion of the Majority Lenders is likely to, incur any liability in connection with a withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan or (vi) any other event or condition shall occur or exist with respect to a Plan; and in each case in clauses (i) through (vi) above, such event or condition, together with all other such events or conditions, if any, could reasonably be expected to have a Material Adverse Effect; or (h) One or more judgments or decrees shall be entered against JIC, the Borrower or any of the Restricted Subsidiaries involving in the aggregate a liability (not paid or fully covered by insurance) of $10,000,000 or more, and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within 60 days after the entry thereof; or (i) (i) Any material provision of the Loan Documents shall cease, for any reason, to be in full force and effect, or the Borrower or any other Loan Party shall so assert or (ii) the Lien created by any of the Security Documents shall cease to be enforceable and of the same effect and priority purported to be created thereby; (j) A Change of Control shall occur; (k) The Capital Stock of the Borrower or any portion thereof or any Intercompany Subordinated Debt shall become subject to or covered by the Lien of any Person; or 63 (l) A default or event of default shall occur under the Tranche B Agreement. then, and in any such event, (A) if such event is an Event of Default specified in clause (i) or (ii) of paragraph (f) of this Section 9 with respect to the --------- Borrower, automatically the Commitments shall immediately terminate and the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the other Loan Documents (including, without limitation, all amounts of L/C Obligations, whether or not the beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder) shall immediately become due and payable, and (B) if such event is any other Event of Default, either or both of the following actions may be taken: (i) with the consent of the Majority Lenders, the Administrative Agent may, or upon the request of the Majority Lenders, the Administrative Agent shall, by notice to the Borrower declare the Commitments to be terminated forthwith, whereupon such Commitments shall immediately terminate; and (ii) with the consent of the Majority Lenders, the Administrative Agent may, or upon the request of the Majority Lenders, the Administrative Agent shall, by notice to the Borrower, declare the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the other Loan Documents (including, without limitation, all amounts of L/C Obligations, whether or not the beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder) to be due and payable forthwith, whereupon the same shall immediately become due and payable. With respect to all Letters of Credit with respect to which presentment for honor shall not have occurred at the time of an acceleration pursuant to this paragraph, the Borrower shall at such time deposit in a cash collateral account opened by the Administrative Agent an amount equal to the aggregate then undrawn and unexpired amount of such Letters of Credit. Amounts held in such cash collateral account shall be applied by the Administrative Agent to the payment of drafts drawn under such Letters of Credit, and the unused portion thereof after all such Letters of Credit shall have expired or been fully drawn upon, if any, shall be applied to repay other Obligations of the Borrower hereunder and under the other Loan Documents. After all such Letters of Credit shall have expired or been fully drawn upon, all Reimbursement Obligations shall have been satisfied, all Loans shall have been paid in full and no other Obligations shall be due and payable, the balance, if any, in such cash collateral account shall be returned to the Borrower (or such other Person as may be lawfully entitled thereto). Except as expressly provided above in this Section, presentment, demand, protest and all other notices of any kind are hereby expressly waived. SECTION 10. THE ADMINISTRATIVE AGENT 10.1 Appointment. Each Lender hereby irrevocably designates and ----------- appoints the Administrative Agent as the agent of such Lender under this Agreement and the other Loan Documents, and each such Lender irrevocably authorizes the Administrative Agent, in such capacity, to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent by the terms of this Agreement and the other Loan Documents, together with 64 such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement or any other Loan Document, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Administrative Agent. 10.2 Delegation of Duties. The Administrative Agent may execute any -------------------- of its duties under this Agreement and the other Loan Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct of any agents or attorneys in-fact selected by it with reasonable care. 10.3 Exculpatory Provisions. Neither the Administrative Agent nor ---------------------- any of its officers, directors, employees, agents, attorneys-in-fact or affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or any other Loan Document (except for its or such Person's own gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by the Borrower or any officer thereof contained in this Agreement or any other Loan Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, this Agreement or any other Loan Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document or for any failure of the Borrower to perform its obligations hereunder or thereunder. The Administrative Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of the Borrower. 10.4 Reliance by the Administrative Agent. The Administrative Agent ------------------------------------ shall be entitled to rely, and shall be fully protected in relying, upon any Note, writing, resolution, notice, consent, certificate, affidavit, letter, facsimile, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Borrower), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Majority Lenders as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this 65 Agreement and the other Loan Documents in accordance with a request of the Majority Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Loans. 10.5 Notice of Default. The Administrative Agent shall not be ----------------- deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Administrative Agent has received notice from a Lender (except in the case of a Default under Section 9(a)) or the Borrower ------------ referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Majority Lenders; provided that unless and until the Administrative Agent -------- shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders. 10.6 Non-Reliance on the Administrative Agent and the Other ------------------------------------------------------ Lenders. Each Lender expressly acknowledges that neither the Administrative - ------- Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates has made any representations or warranties to it and that no act by the Administrative Agent hereinafter taken, including any review of the affairs of the Borrower, shall be deemed to constitute any representation or warranty by the Administrative Agent to any Lender. Each Lender represents to the Administrative Agent that it has, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Borrower and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Borrower. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent hereunder, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of the Borrower which may come into the possession of the Administrative Agent or any of its officers, directors, employees, agents, attorneys-in-fact or affiliates. 10.7 Indemnification. The Lenders agree to indemnify the --------------- Administrative Agent in its capacity as such (to the extent not reimbursed by the Borrower and without limiting the obligation of the Borrower to do so), ratably according to their respective Specified Percentages in effect on the date on which indemnification is sought (or, if indemnification is sought after the date 66 upon which the Loans shall have been paid in full, ratably in accordance with their Specified Percentages immediately prior to such date), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of the Loans) be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of, the Commitments, this Agreement, any of the other Loan Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Administrative Agent under or in connection with any of the foregoing; provided that no Lender shall be liable -------- for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Administrative Agent's gross negligence or willful misconduct. The agreements in this Section shall survive the payment of the Loans and all other amounts payable hereunder. 10.8 The Administrative Agent in Its Individual Capacity. The --------------------------------------------------- Administrative Agent and its affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Borrower as though the Administrative Agent were not the Administrative Agent hereunder and under the other Loan Documents. With respect to the Loans made by it, the Administrative Agent shall have the same rights and powers under this Agreement and the other Loan Documents as any Lender and may exercise the same as though it were not the Administrative Agent, and the terms "Lender" and "Lenders" shall include the Administrative Agent in its individual capacity. 10.9 Successor Administrative Agent. (a) The Administrative ------------------------------ Agent may resign as the Administrative Agent upon 30 days' notice to the Lenders and the appointment of a successor Administrative Agent as hereinafter set forth; provided that concurrently with such resignation the Administrative Agent -------- also resigns as the Administrative Agent for the Tranche B Agreement. If the Administrative Agent shall resign as the Administrative Agent under this Agreement, the other Loan Documents and the Tranche B Agreement, then, unless an Event of Default shall have occurred and be continuing (in which case, the Majority Lenders shall appoint a successor), the Borrower shall appoint from among the Lenders a successor Administrative Agent for the Lenders, which successor Administrative Agent shall be approved by the Majority Lenders (which approval shall not be unreasonably withheld). If no successor Administrative Agent shall have been so appointed by the Borrower (or in the case of an Event of Default, by the Majority Lenders) and such successor Administrative Agent has not accepted such appointment within 30 days after such resignation, then the resigning Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent, which successor Administrative Agent hereunder shall be either a Lender or, if none of the Lenders is willing to serve as successor Administrative Agent, a major international bank having combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as the Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall succeed to the rights, powers and duties of the Administrative Agent, and the term "Administrative Agent" shall mean such successor Administrative Agent effective upon such appointment and approval, and the former Administrative Agent's rights, powers 67 and duties as the Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement or any holders of the Loans. After any retiring Administrative Agent's resignation as the Administrative Agent, the provisions of this Section 10 shall inure to its benefit as to any actions taken or omitted ---------- to be taken by it while it was the Administrative Agent under this Agreement and the other Loan Documents. (b) In the event that the Administrative Agent shall have breached any of its material obligations to the Lenders hereunder, the Majority Lenders may remove the Administrative Agent as the Administrative Agent hereunder and under the Tranche B Agreement, effective on the date specified by them, by written notice to the Administrative Agent and the Borrower. Upon any such removal, the Borrower, provided that no Event of Default shall have occurred and -------- be continuing (in which case the Majority Lenders shall make the appointment), shall have the right to appoint a successor Administrative Agent hereunder and under the Tranche B Agreement, which successor Administrative Agent shall be approved by the Majority Lenders (which approval shall not be unreasonably withheld). If no successor Administrative Agent shall have been so appointed by the Borrower (or in the case of an Event of Default, by the Majority Lenders) and such successor Administrative Agent has not accepted such appointment within 30 days after notification to the Administrative Agent of its removal, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent hereunder and under the Tranche B Agreement, which successor Administrative Agent shall be either a Lender or, if none of the Lenders is willing to serve as successor Administrative Agent, a major international bank having combined capital and surplus of at least $500,000,000. Such successor Administrative Agent, provided that no Event of Default shall -------- have occurred and be continuing, shall be reasonably satisfactory to the Borrower. Upon the acceptance of any appointment as the Administrative Agent hereunder and under the Tranche B Agreement by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement and the Tranche B Agreement. The Borrower and the Lenders shall execute such documents as shall be necessary to effect such appointment. After any retiring Administrative Agent's removal hereunder and under the Tranche B Agreement as the Administrative Agent, the provisions of this Section 10.9 and Section 10.9 of ------------ ------------ the Tranche B Agreement, respectively, shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Administrative Agent under this Agreement, the other Loan Documents and the Tranche B Agreement. If at any time there shall not be a duly appointed and acting Administrative Agent, the Borrower agrees to make each payment due hereunder and under the Notes directly to the Lenders entitled thereto during such time. 10.10 Managing Agents and Co-Agents. No Managing Agent or Co- ----------------------------- Agent in their respective capacities as such shall have any duties or responsibilities hereunder, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise exist against any Managing Agent or Co-Agent in their respective capacities as such. 68 SECTION 11. NEW RESTRICTED SUBSIDIARIES The Borrower and each Restricted Subsidiary hereby agree to promptly, after the creation, acquisition and/or designation of a Restricted Subsidiary, notify the Administrative Agent of the existence thereof and to promptly cause each such new Restricted Subsidiary to execute and deliver to the Administrative Agent a Pledge Agreement in the form of Exhibit F hereto. --------- SECTION 12. MISCELLANEOUS 12.1 Amendments and Waivers. Neither this Agreement nor any ---------------------- other Loan Document, nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of this Section 12.1. The Majority Lenders and each relevant Loan Party may, or, with - ------------ the written consent of the Majority Lenders, the Administrative Agent and each relevant Loan Party may, from time to time, (a) enter into written amendments, supplements or modifications hereto and to the other Loan Documents for the purpose of adding any provisions to this Agreement or the other Loan Documents or changing in any manner the rights of the Lenders or of the Loan Parties hereunder or thereunder or (b) waive, on such terms and conditions as the Majority Lenders or the Administrative Agent, as the case may be, may specify in such instrument, any of the requirements of this Agreement or the other Loan Documents or any Default or Event of Default and its consequences; provided, -------- however, that no such waiver and no such amendment, supplement or modification - ------- shall (i) reduce the amount or extend the scheduled date of maturity of any Loan or of any installment thereof, or reduce the stated rate of any interest or fee payable hereunder or extend the scheduled date of any payment thereof or increase the amount or extend the expiration date of any Commitment of any Lender, or make any change in the method of application of any payment of the Loans specified in Section 4.2 or Section 4.8, (ii) waive, extend or reduce any ----------- ----------- mandatory Commitment reduction pursuant to Section 4.2, (iii) amend, modify or ----------- waive any provision of the Intercompany Subordinated Debt Agreement, this Section 12.1 or reduce any percentage specified in the definition of Majority - ------------ Lenders, or consent to the assignment or transfer by any Loan Party of any of its rights and obligations under this Agreement and the other Loan Documents, (iv) release the Collateral except for any Collateral which is (x) permitted to be disposed of pursuant to Section 8.5(a) or (y) the subject of a transaction -------------- permitted under Sections 8.5(c) or (d), which Collateral may be released by the --------------- --- Administrative Agent pursuant to Section 8.5, (v) amend, modify or waive any ----------- condition precedent to any extension of credit set forth in Section 6, in each case of (i), (ii), (iii), (iv) and (v) above, without the written consent of all of the Lenders, (vi) amend, modify or waive any provision of Section 10 without the written consent of the then Administrative Agent or (vii) amend, modify or waive any provision of Section 3 without the written consent of the then Issuing Lender. Any such waiver and any such amendment, supplement or modification shall apply equally to each of the Lenders and shall be binding upon the Loan Parties, the Lenders, the Administrative Agent and all future holders of the Notes. In the case of any waiver, the Loan Parties, the Lenders and the Administrative Agent shall be restored to their former position and rights hereunder and under the other Loan Documents, and any Default or Event of Default 69 waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. 12.2 Notices. All notices, requests and demands to or upon the ------- respective parties hereto to be effective shall be in writing (including by facsimile transmission) and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made (a) in the case of delivery by hand, when delivered, (b) in the case of delivery by mail, three Business Days after being deposited in the mails, postage prepaid, or (c) in the case of delivery by facsimile transmission, when sent and receipt has been confirmed, addressed as follows in the case of the Borrower, the Restricted Subsidiaries and the Administrative Agent, and as set forth in Schedule 1.1 (or, with respect to any ------------ Lender that is an Assignee, in the applicable Assignment and Acceptance) in the case of the other parties hereto, or to such other address as may be hereafter notified by the respective parties hereto: The Borrower: Jones Cable Holdings II, Inc. 9697 East Mineral Avenue Englewood, Colorado 80112 Attention: Treasurer Fax: (303) 790-7324 (with a copy to General Counsel) Fax: (303) 799-1644 The Restricted Subsidiaries: c/o Jones Cable Holdings II, Inc. 9697 East Mineral Avenue Englewood, Colorado 80112 Attention: Treasurer Fax: (303) 790-7324 (with a copy to General Counsel) Fax: (303) 799-1644 The Administrative Agent: The Bank of Nova Scotia One Liberty Plaza New York, New York 10006 Attention: Margot Bright Fax: (212) 225-5091 provided that any notice, request or demand to or upon the Administrative Agent - -------- or the Lenders pursuant to Section 2 or 3 shall not be effective until received. --------- - 12.3 No Waiver; Cumulative Remedies. No failure to exercise and ------------------------------ no delay in exercising, on the part of the Administrative Agent or any Lender, any right, remedy, power or privilege hereunder or under the other Loan Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other 70 or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 12.4 Survival of Representations and Warranties. All ------------------------------------------ representations and warranties made hereunder, in the other Loan Documents and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the making of the Loans hereunder. 12.5 Payment of Expenses and Taxes. The Borrower agrees (a) to ----------------------------- pay or reimburse the Administrative Agent for all its reasonable out-of-pocket costs and expenses incurred in connection with the development, preparation and execution of, and any amendment, supplement or modification to, this Agreement and the other Loan Documents and any other documents prepared in connection herewith or therewith, and the consummation and administration of the transactions contemplated hereby and thereby, including, without limitation, the reasonable fees and disbursements of counsel to the Administrative Agent, (b) to pay or reimburse each Lender and the Administrative Agent for all its costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement, the other Loan Documents and any such other documents (including costs and expenses incurred in connection with any restructure or workout), including, without limitation, the reasonable fees and disbursements of counsel to each Lender and of counsel to the Administrative Agent, (c) without duplication of amounts payable pursuant to Sections 4.9 and ------------ 4.10, to pay, indemnify, and hold each Lender and the Administrative Agent - ---- harmless from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation or administration of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement, the other Loan Documents and any such other documents, and (d) without duplication of amounts payable pursuant to Sections 4.9 and 4.10, to pay, indemnify, and hold ------------ ---- each Lender, each Issuing Lender and the Administrative Agent, and their respective officers, directors, employees, affiliates, advisors, agents and controlling persons (each, an "indemnitee"), harmless from and against any and ---------- all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement, the other Loan Documents and any such other documents or the use of the proceeds of the Loans (all the foregoing in this clause (d), collectively, the "indemnified liabilities"), provided, that the ----------------------- -------- Borrower shall have no obligation hereunder to any indemnitee with respect to indemnified liabilities arising from the gross negligence or willful misconduct of such indemnitee. The agreements in this Section shall survive repayment of the Loans and all other amounts payable hereunder. 12.6 Successors and Assigns; Participations and Assignments. (a) ------------------------------------------------------ This Agreement shall be binding upon and inure to the benefit of the Borrower, the Lenders, the Administrative Agent and their respective successors and assigns, except that neither the Borrower nor the 71 Restricted Subsidiaries may assign or transfer any of its rights or obligations under this Agreement without the prior written consent of each Lender. (b) Any Lender may, in the ordinary course of its business and in accordance with applicable law, at any time sell to one or more banks or other entities ("Participants") participating interests in any Loan owing to such ------------ Lender or any L/C Obligation of such Lender, any Commitment of such Lender or any other interest of such Lender hereunder and under the other Loan Documents. In the event of any such sale by a Lender of a participating interest to a Participant, such Lender's obligations under this Agreement to the other parties to this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof, such Lender shall remain the holder of any such Loan for all purposes under this Agreement and the other Loan Documents, and the Borrower and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Loan Documents. In no event shall any Participant under any such participation have any right to approve any amendment or waiver of any provision of any Loan Document, or any consent to any departure by any Loan Party therefrom, except to the extent that such amendment, waiver or consent would reduce the principal of, or interest on, the Loans or any fees payable hereunder, or postpone the date of the final scheduled maturity of the Loans, in each case to the extent subject to such participation. The Borrower agrees that if amounts outstanding under this Agreement are due or unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall, to the maximum extent permitted by applicable law, be deemed to have the right of setoff in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement, provided that, in purchasing -------- such participating interest, such Participant shall be deemed to have agreed to share with the Lenders the proceeds thereof as provided in Section 12.7(a) as --------------- fully as if it were a Lender hereunder. The Borrower also agrees that each Participant shall be entitled to the benefits of Sections 4.9, 4.10 and 4.11 ------------ ---- ---- with respect to its participation in the Commitments and the Loans outstanding from time to time as if it were a Lender; provided that, in the case of Section -------- ------- 4.10, such Participant shall have complied with the requirements of said Section - ---- and provided, further, that no Participant shall be entitled to receive any -------- ------- greater amount pursuant to any such Section than the transferor Lender would have been entitled to receive in respect of the amount of the participation transferred by such transferor Lender to such Participant had no such transfer occurred. (c) Any Lender may, in the ordinary course of its business and in accordance with applicable law, at any time and from time to time assign to any Person (an "Assignee") all or any part of its rights and obligations under this -------- Agreement and the other Loan Documents pursuant to an Assignment and Acceptance, substantially in the form of Exhibit A, executed by such Assignee and such --------- assigning Lender and delivered to the Administrative Agent for its acceptance and recording in the Register (with a copy to the Borrower); provided that, (i) -------- no such assignment (other than to any Lender or any affiliate thereof) shall be in an aggregate principal amount of less than $5,000,000 and $1,000,000 multiples thereof, (ii) after giving effect to any such assignment, the assigning Lender (together with any Lender which is an affiliate of such assigning Lender) shall 72 retain no less than 51% of its original Commitment, unless otherwise agreed to by the Borrower, (iii) no such assignment may be made unless such assigning Lender also assigns a percentage of its interest in the Tranche B Agreement equal to the percentage of the Total Commitment being assigned by such Lender under this Agreement and to the same Assignee receiving such percentage of its interest hereunder and (iv) each assignment (other than to any Lender or any affiliate thereof) shall be subject to the prior written consent of the Borrower (which consent shall not be unreasonably withheld). Upon such execution, delivery, acceptance and recording, from and after the effective date determined pursuant to such Assignment and Acceptance, (x) the Assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Lender hereunder with a Commitment as set forth therein, and (y) the assigning Lender thereunder shall, to the extent provided in such Assignment and Acceptance, be released from its obligations under this Agreement. (d) Any Non-U.S. Lender that could become completely exempt from withholding of any tax, assessment or other charge or levy imposed by or on behalf of the United States or any taxing authority thereof ("U.S. Taxes") in ---------- respect of payment of any Obligations due to such Non-U.S. Lender under this Agreement if the Obligations were in registered form for U.S. federal income tax purposes may request the Borrower (through the Administrative Agent), and the Borrower agrees thereupon, to exchange any promissory note(s) evidencing such Obligations for promissory note(s) registered as provided in paragraph (f) below and substantially in the form of Exhibit L (an "Alternative Note"). Alternative --------- ---------------- Notes may not be exchanged for promissory notes that are not Alternative Notes. (e) Each Non-U.S. Lender that could become completely exempt from withholding of U.S. Taxes in respect of payment of any Obligations due to such Non-U.S. Lender if the Obligations were in registered form for U.S. Federal income tax purposes and that holds Alternative Note(s) (an "Alternative ----------- Noteholder") (or, if such Alternative Noteholder is not the beneficial owner - ---------- thereof, such beneficial owner) shall deliver to the Borrower prior to or at the time such Non-U.S. Lender becomes an Alternative Noteholder a Form W-8 (Certificate of Foreign Status of the U.S. Department of Treasury) (or any successor or related form adopted by the U.S. taxing authorities), together with an annual certificate stating that (i) such Alternative Noteholder or beneficial owner, as the case may be, is not a "bank" within the meaning of Section 881(c) of the Code, is not a 10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Code) of the Borrower and is not a controlled foreign corporation related to the Company (within the meaning of Section 864(d)(4) of the Code) and (ii) such Alternative Noteholder or beneficial owner, as the case may be, shall promptly notify the Borrower if at any time such Alternative Noteholder or beneficial owner, as the case may be, determines that it is no longer in a position to provide such certification to the Borrower (or any other form of certification adopted by the U.S. taxing authorities for such purposes). (f) An Alternative Note and the Obligation(s) evidenced thereby may be assigned or otherwise transferred in whole or in part only by registration of such assignment or transfer of such Alternative Note and the Obligation(s) evidenced thereby on the Register (and each Alternative 73 Note shall expressly so provide). Any assignment or transfer of all or part of such Obligation(s) and the Alternative Note(s) evidencing the same shall be registered on the Register only upon surrender for registration of assignment or transfer of the Alternative Note(s) evidencing such Obligation(s), duly endorsed by (or accompanied by a written instrument of assignment or transfer duly executed by) the Alternative Noteholder thereof, and thereupon one or more new Alternative Note(s) in the same aggregate principal amount shall be issued to the designated Assignee(s). No assignment of an Alternative Note and the Obligation(s) evidenced thereby shall be effective unless it has been recorded in the Register as provided in this Section 12.6(f). --------------- (g) The Administrative Agent, on behalf of the Borrower, shall maintain at the address of the Administrative Agent referred to in Section 12.2 ------------ a copy of each Assignment and Acceptance delivered to it and a register (the "Register") for the recordation of the names and addresses of the Lenders - --------- (including Alternative Noteholders) and the Commitments of, and principal amounts of the Loans owing to, each Lender from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrower, the Administrative Agent and the Lenders may (and, in the case of any Loan or other obligation hereunder not evidenced by a Note, shall) treat each Person whose name is recorded in the Register as the owner of a Loan or other obligation hereunder as the owner thereof for all purposes of this Agreement and the other Loan Documents, notwithstanding any notice to the contrary. Any assignment of any Loan or other obligation hereunder not evidenced by a Note shall be effective only upon appropriate entries with respect thereto being made in the Register. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (h) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an Assignee together with payment to the Administrative Agent of a registration and processing fee of $3,000, the Administrative Agent shall (i) promptly accept such Assignment and Acceptance and (ii) on the effective date determined pursuant thereto record the information contained therein in the Register and give notice of such acceptance and recordation to the Lenders and the Borrower. (i) Subject to Section 12.15, the Borrower authorizes each Lender to ------------- disclose to any Participant or Assignee (each, a "Transferee") and any ---------- prospective Transferee, subject to the Transferee agreeing to be bound by the provisions of Section 12.15, any and all financial information in such Lender's ------------- possession concerning the Borrower and the Restricted Subsidiaries which has been delivered to such Lender by or on behalf of the Borrower pursuant to this Agreement or which has been delivered to such Lender by or on behalf of the Borrower in connection with such Lender's credit evaluation of the Borrower and its Restricted Subsidiaries prior to becoming a party to this Agreement. (j) For avoidance of doubt, the parties to this Agreement acknowledge that the provisions of this Section concerning assignments of Loans and Notes relate only to absolute assignments and that such provisions do not prohibit assignments creating security interests, 74 including, without limitation, any pledge or assignment by a Lender of any Loan or Note to any Federal Reserve Bank in accordance with applicable law. 12.7 Adjustments; Set-off. (a) If any Lender (a "benefitted -------------------- ---------- Lender") shall at any time receive any payment of all or part of its Loans, or - ------ interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in Section 9(f), or otherwise), in a greater proportion ------------ than any such payment to or collateral received by any other Lender, if any, in respect of such other Lender's Loans, or interest thereon, such benefitted Lender shall purchase for cash from the other Lenders a participating interest in such portion of each such other Lender's Loan, or shall provide such other Lenders with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such benefitted Lender to share the excess payment or benefits of such collateral or proceeds ratably with each of the Lenders; provided, however, that if all or any portion of such excess payment or benefits - -------- ------- is thereafter recovered from such benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. (b) In addition to any rights and remedies of the Lenders provided by law, each Lender shall have the right, without prior notice to the Borrower, any such notice being expressly waived by the Borrower to the extent permitted by applicable law, upon any amount becoming due and payable by the Borrower hereunder (whether at the stated maturity, by acceleration or otherwise) to set- off and appropriate and apply against such amount, to the extent permitted by applicable law, any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Lender or any branch or agency thereof to or for the credit or the account of the Borrower. Each Lender agrees promptly to notify the Borrower and the Administrative Agent after any such set-off and application made by such Lender, provided that, to the extent permitted by applicable law, the failure to give - -------- such notice shall not affect the validity of such set-off and application. 12.8 Counterparts; When Effective. This Agreement may be ---------------------------- executed by one or more of the parties to this Agreement on any number of separate counterparts (including by facsimile transmission), and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Agreement signed by all the parties shall be lodged with the Borrower and the Administrative Agent. This Agreement shall become effective when the Administrative Agent has received counterparts hereof executed by the Borrower, the Administrative Agent and each Lender (such date herein referred to as the "Effective Date"). -------------- 12.9 Severability. Any provision of this Agreement which is ------------ prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 75 12.10 Integration. This Agreement and the other Loan Documents ----------- represent the agreement of JIC, the Borrower, the Administrative Agent and the Lenders with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Administrative Agent or any Lender relative to subject matter hereof not expressly set forth or referred to herein or in the other Loan Documents. 12.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND ------------- OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 12.12 SUBMISSION TO JURISDICTION; WAIVERS. (a) EACH PARTY HERETO, ----------------------------------- IN EACH CASE FOR ITSELF AND ITS SUCCESSORS AND ASSIGNS, HEREBY IRREVOCABLY AND UNCONDITIONALLY: (i) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS TO WHICH IT IS A PARTY, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, THE COURTS OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE COURTS FROM ANY THEREOF; (ii) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH COURTS AND WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME; (iii) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO IT AT ITS ADDRESS SET FORTH IN SECTION 12.2 OR SCHEDULE 1.1, AS APPLICABLE, OR AT ------------ ------------ SUCH OTHER ADDRESS OF WHICH THE ADMINISTRATIVE AGENT SHALL HAVE BEEN NOTIFIED PURSUANT TO SECTION 12.2; AND ------------ (iv) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION. 76 (b) THE BORROWER AND EACH SUBSIDIARY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY LEGAL ACTION OR PROCEEDING REFERRED TO IN THIS SECTION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES. 12.13 Acknowledgements. The Borrower and each Restricted ---------------- Subsidiary hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents; (b) neither the Administrative Agent nor any Lender has any fiduciary relationship with or duty to the Borrower or any Subsidiary arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between the Administrative Agent and the Lenders, on one hand, and the Borrower or any Subsidiary, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and (c) no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among the Lenders or among the Borrower, the Subsidiaries and the Lenders. 12.14 WAIVERS OF JURY TRIAL. THE BORROWER, THE SUBSIDIARIES, THE --------------------- ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN. 12.15 Confidentiality. Each Lender agrees to keep confidential --------------- all non-public information provided to it by or on behalf of the Borrower or any of the Restricted Subsidiaries pursuant to this Agreement or any other Loan Document; provided that nothing herein shall prevent any Lender from disclosing -------- any such information (i) to the Administrative Agent or any other Lender, (ii) to any Assignee or Participant, (iii) to its employees, directors, agents, attorneys, accountants and other professional advisors, (iv) upon demand of any Governmental Authority having jurisdiction over such Lender, (v) in response to any order of any court or other Governmental Authority or as may otherwise be required pursuant to any Requirement of Law, (vi) which has been publicly disclosed other than in breach of this Agreement, or (vii) in connection with the exercise of any remedy hereunder. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK. SIGNATURE PAGES FOLLOW.] 77 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. JONES CABLE HOLDINGS II, INC. By: /s/ J. Roy Pottle ------------------------------------ Name: J. Roy Pottle ---------------------------------- Title: Treasurer --------------------------------- The Administrative Agent, the Documentation ------------------------------------------- Agent and the Syndication Agent: ------------------------------- THE BANK OF NOVA SCOTIA, as the Administrative Agent By: /s/ Margot C. Bright ------------------------------------ Name: Margot C. Bright ---------------------------------- Title: Authorized Signatory --------------------------------- NATIONSBANK OF TEXAS, N.A., as the Documentation Agent By: /s/ David G. Jamel ------------------------------------ Name: David G. Jamel ---------------------------------- Title: Vice President --------------------------------- SOCIETE GENERALE, as the Syndication Agent By: /s/ Elaine I. Khalil ------------------------------------ Name: Elaine I. Khalil ---------------------------------- Title: Vice President --------------------------------- The Managing Agents and the Lenders: ----------------------------------- THE BANK OF NOVA SCOTIA, as a Managing Agent and as a Lender By: /s/ Margot C. Bright ------------------------------------ Name: Margot C. Bright ---------------------------------- Title: Authorized Signatory --------------------------------- NATIONSBANK OF TEXAS, N.A., as a Managing Agent and as a Lender By: /s/ David B. James ------------------------------------ Name: David B. James ---------------------------------- Title: Vice President --------------------------------- SOCIETE GENERALE, as a Managing Agent and as a Lender By: /s/ Elaine I. Khalil ------------------------------------ Name: Elaine I. Khalil ---------------------------------- Title: Vice President --------------------------------- The Co-Agents and the Lenders: ----------------------------- CORESTATES BANK, N.A., as a Co-Agent and as a Lender By: /s/ Philip D. Harrison ------------------------------------ Name: Philip D. Harrison ---------------------------------- Title: Assistant Vice President --------------------------------- CREDIT LYONNAIS NEW YORK BRANCH, as a Co-Agent and as a Lender By: /s/ James E. Morris ------------------------------------ Name: James E. Morris ---------------------------------- Title: Vice President --------------------------------- PNC BANK, NATIONAL ASSOCIATION, as a Co-Agent and as a Lender By: /s/ Christopher Chaplin ------------------------------------ Name: Christopher Chaplin ---------------------------------- Title: Banking Officer --------------------------------- MELLON BANK, N.A., as a Co-Agent and as a Lender By: /s/ Stephen R. Viehe ------------------------------------ Name: Stephen R. Viehe ---------------------------------- Title: Vice President --------------------------------- ROYAL BANK OF CANADA, as a Co-Agent and as a Lender By: /s/ Edward Salazar ------------------------------------ Name: Edward Salazar ---------------------------------- Title: Senior Manager --------------------------------- THE CHASE MANHATTAN BANK, as a Co-Agent and as a Lender By: /s/ Ann B. Kerns ------------------------------------ Name: Ann B. Kerns ---------------------------------- Title: Vice President --------------------------------- TORONTO DOMINION (TEXAS), INC., as a Co-Agent and as a Lender By: /s/ Lisa Allison ------------------------------------ Name: Lisa Allison ---------------------------------- Title: Vice President --------------------------------- BANQUE PARIBAS, as a Co-Agent and as a Lender By: /s/ Sonia Isaacs ------------------------------------ Name: Sonia Isaacs ---------------------------------- Title: Vice President --------------------------------- BANK OF AMERICA, as a Co-Agent and as a Lender By: /s/ Shannon T. Ward ------------------------------------ Name: Shannon T. Ward ---------------------------------- Title: Vice President --------------------------------- ABN AMRO BANK N.V., as a Lender By: /s/ James J. Johnston ------------------------------------ Name: James J. Johnston ---------------------------------- Title: Vice President --------------------------------- By: /s/ Mary L. Honda ------------------------------------ Name: Mary L. Honda ---------------------------------- Title: Vice President --------------------------------- MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as a Lender By: /s/ Donald H. Patrick ------------------------------------ Name: Donald H. Patrick ---------------------------------- Title: Vice President --------------------------------- CREDIT AGRICOLE, as a Lender By: /s/ David Bauhl ------------------------------------ Name: David Bauhl ---------------------------------- Title: Head of Corporate Banking --------------------------------- THE DAI-ICHI KANGYO BANK, LTD., as a Lender By: /s/ Masatsugu Morishita ------------------------------------ Name: Masatsugu Morishita ---------------------------------- Title: Joint General Manager --------------------------------- FIRST HAWAIIAN BANK, as a Lender By: /s/ ------------------------------------ Name: ----------------------------------- Title: ---------------------------------- THE FIRST NATIONAL BANK OF MARYLAND, as a Lender By: /s/ W. Blake Hampson ------------------------------------ Name: W. Blake Hampson ---------------------------------- Title: Vice President --------------------------------- BANK OF TOKYO-MITSUBISHI TRUST COMPANY, as a Lender By: /s/ Augustine Chance Jr. ------------------------------------ Name: Augustine Chance Jr. ---------------------------------- Title: Vice President --------------------------------- SAKURA BANK, as a Lender By: /s/ Ofusa Sato ------------------------------------ Name: Ofusa Sato ---------------------------------- Title: Senior Vice President --------------------------------- THE LONG-TERM CREDIT BANK OF JAPAN, LTD., LOS ANGELES AGENCY, as a Lender By: /s/ Genchi Imai ------------------------------------- Name: Genchi Imai ---------------------------------- Title: Joint General Manager --------------------------------- THE INDUSTRIAL BANK OF JAPAN, LIMITED, as a Lender By: /s/ Shusai Nagai ------------------------------------ Name: Shusai Nagai ---------------------------------- Title: General Manager --------------------------------- COLORADO NATIONAL BANK, as a Lender By: /s/ Leslie M. Kelly ------------------------------------ Name: Leslie M. Kelly ---------------------------------- Title: Vice President --------------------------------- THE FUJI BANK, LIMITED, LOS ANGELES AGENCY, as a Lender By: /s/ Nobuhiro Umemura ------------------------------------ Name: Nobuhiro Umemura ---------------------------------- Title: Joint General Manager --------------------------------- EX-99.(B)(1) 3 APPRAISAL BY THE STRATEGIS GROUP, INC. EXHIBIT 99(b)(1) APPRAISAL REPORT: FAIR MARKET VALUATION OF CABLE TV FUND 12-BCD VENTURE ALBUQUERQUE, NEW MEXICO As of April 30, 1997 Prepared for: JONES INTERCABLE, INC. Englewood, Colorado Prepared by: THE STRATEGIS GROUP, INC. 1130 Connecticut Avenue, N.W. Suite 325 Washington, D.C. 20036 (202) 530-7500 May 27, 1997 (C) Copyright 1997 The Strategis Group, Inc. APPRAISAL REPORT: FAIR MARKET VALUATION OF CABLE TV FUND 12-BCD VENTURE ALBUQUERQUE, NEW MEXICO TABLE OF CONTENTS ----------------- I. EXECUTIVE SUMMARY................................................... 1 A. Introduction, Purpose, and Methodology........................... 1 B. Conclusions...................................................... 2 II. PURPOSE OF APPRAISAL................................................ 3 III. INDUSTRY OVERVIEW................................................... 4 A. Historical Background............................................ 4 B. Industry Characteristics......................................... 6 1. General Background............................................ 6 2. Regulation.................................................... 8 3. Financial/Economic............................................ 9 4. Competition................................................... 10 IV. SYSTEM DESCRIPTION.................................................. 13 A. History and Market............................................... 13 B. Services......................................................... 16 C. Rates............................................................ 22 D. Subscribers...................................................... 24 E. System Mileage................................................... 25 F. Physical Plant................................................... 25 G. Franchises....................................................... 27 H. Management....................................................... 27 I. Financial History................................................ 28 V. TOTAL SYSTEM VALUE.................................................. 29 A. Valuation Procedure and Methods.................................. 29 B. Discounted Cash Flow Methodology................................. 31 1. Net Cash Flow/Return on Equity................................ 32 2. Net Cash Flow/Return On Investment............................ 33 3. Cash Flow Projections......................................... 33 4. Residual Value................................................ 35 5. Discount Rates................................................ 36 C. Direct Income Methodology........................................ 37 D. Value Conclusions................................................ 38 TABLE OF CONTENTS ----------------- VI. CONTINGENCIES AND LIMITING CONDITIONS............................... 39 VII. STATEMENT OF VALUE.................................................. 41 VIII. QUALIFICATIONS...................................................... 42 A. Qualifications of The Strategis Group, Inc. ..................... 42 B. Qualifications of Andrew R. Gefen................................ 43 C. Qualifications of Susan Donovan.................................. 44 EXHIBITS: A. Valuation Methods and Summary of Values B-1. Profit and Loss/Sources and Uses-Return on Equity - Low Value B-2. Profit and Loss/Sources and Uses-Return on Equity - High Value C-1. Debt Amortization-Return on Equity - Low Value C-2. Debt Amortization-Return on Equity - High Value D. Return on Investment E. Cable Television Subscribers F. Cable Television Service Rates G. Cash Flow Projections H. Capital Expenditures I. Depreciation Schedule J. Assumptions and Inputs APPRAISAL REPORT: FAIR MARKET VALUATION OF CABLE TV FUND 12-BCD VENTURE ALBUQUERQUE, NEW MEXICO I. EXECUTIVE SUMMARY A. INTRODUCTION, PURPOSE, AND METHODOLOGY The Strategis Group, Inc. was retained by Jones Intercable, Inc. ("Jones") to conduct a fair market valuation as of April 30, 1997, of the Cable TV Fund 12-BCD Venture cable television system serving Albuquerque, New Mexico (the "System"). This appraisal will be used by Jones as an independent estimate of the fair market value of the System as of April 30, 1997, with the resulting value to be used in conjunction with the purchase of the System by Jones. Fair market value is the cash price a willing buyer would give a willing seller in an arm's length transaction in order to complete the sale. It is assumed that both buyer and seller have been informed of all relevant facts and neither is under any compulsion to conclude the transaction. The Strategis Group also assumes that the tangible assets will remain in their present location and will continue to be employed in their highest and best use, i.e., the delivery of cable television signals to subscribers. The Strategis Group used five generally accepted cable television valuation methods using the income approach to valuation in establishing the range of total fair market values of the System as a going concern. The first method used a multiple of the past year's operating income derived from comparable asset values of privately-held and publicly-traded cable companies. The second method used a lower multiple of the annualized current month's operating income. The third method applied a slightly lower multiple of next year's projected operating income. The fourth method was a discounted 1 net cash flow analysis in which a purchase price (estimated fair market value) was calculated to achieve a target after-tax return on equity, given particular operating and financing assumptions specific to the System's assets. The fifth method was a discounted cash flow analysis that measured the net present value of the pre-tax operating cash flows (less capital expenditures, plus the residual value of the System) that represent the return on total investment. B. CONCLUSIONS The Strategis Group's conclusions as to the range of values are based upon information and data supplied by System management, an onsite inspection by a representative of The Strategis Group of a representative portion of the System and service area, and general cable industry information. In The Strategis Group's opinion, the data which support the valuations are reliable and sound. Our estimate of the overall fair market value of the System as a business enterprise, free and clear of any encumbrances, is $233,440,000. 2 II. PURPOSE OF APPRAISAL The Strategis Group, Inc. was retained by Jones Intercable, Inc. ("Jones") to conduct a fair market valuation as of April 30, 1997 of the Cable TV Fund 12- BCD Venture cable television system (the "System"), serving Albuquerque, New Mexico. This appraisal will be used by Jones as an independent estimate of the fair market value of the System as of April 30, 1997. Fair market value is the cash price a willing buyer would give a willing seller in an arm's length transaction in order to complete the sale. It is assumed that both buyer and seller have been informed of all relevant facts and neither is under any compulsion to conclude the transaction and that the tangible assets will remain in their present location and will continue to be employed in their highest and best use, i.e., the delivery of cable television signals to subscribers. 3 III. INDUSTRY OVERVIEW A. HISTORICAL BACKGROUND Cable television was born in the late 1940s. The first systems were built during the period 1948 to 1964. Most of these early systems were located in rural areas where off-air television reception was limited and picture quality was poor. The cable system basically provided a reception service, offering up to 12 channels with no unique programming. Systems generally enjoyed high levels of penetration, ranging from approximately 70% to 90% of homes passed. During the period 1965 to 1972, cable systems were built in medium-sized markets, importing distant television signals via terrestrial microwave. Rulings by the Federal Communications Commission (FCC) in 1965 and 1966 initiated a regulatory period that lasted two decades. FCC constraints were placed on importing distant signals which inhibited the construction of systems in the largest 100 markets. The U.S. Supreme Court affirmed the FCC's regulatory authority over the cable television industry. The typical cable television system generally remained a 12- to 24- channel reception service with some additional program selections via imported signals. Programming unique to cable television did not exist. Basic penetrations of between 50% and 60% of homes passed were typical for newly-cabled markets. In 1972, the FCC eased its restrictions on signal importation, thus making it feasible for cable television operators to enter the nation's top 100 markets with differentiated product. Satellite delivered premium television services (HBO, Showtime) and Super Stations (WTBS) were introduced in 1975. Cable exclusive networks, such as ESPN, CNN, USA, and others, soon followed. During the mid- to late-1970's, new 24- to 36-channel cable television systems emerged as a result of these communications satellite services. Significant increases in programming options allowed cable systems to attract ample numbers of subscribers to attain operational profitability even where off-air broadcast reception and leisure-time options were above average. The smallest 50 of the 4 top 100 markets were built first, followed by the larger metropolitan areas. Premium, or pay, services were the primary force behind basic penetration gains reaching 30% to 45% of homes passed in these new markets. During the period 1979 to 1983, the remaining major markets were franchised. Cable channel options increased dramatically, both in pay services (Disney, Cinemax, Bravo, Movie Channel) and basic services (MTV, Lifetime, Nickelodeon, regional sports, CNN, and others). Systems with 54 and more channels were built, offering an abundance of program alternatives. Cable system operators instituted price increases for pay services and established elaborate tiering structures to compensate for local constraints on basic service pricing. In newer cable markets, basic penetrations of homes passed began to edge above the 40% level. In 1984, the U.S. Congress approved and President Reagan signed the Cable Communications Policy Act, the first comprehensive cable legislation to be enacted. The most significant feature of the legislation was the ultimate removal of price controls on basic cable service in all but the very smallest cable systems. Discretionary price increases of up to 5% were allowed in 1985 and 1986, and all price controls were removed in January 1987. During the period 1984 to 1992, the mix of cable offerings and pricing changed as growth in pay subscriptions slowed down and local constraints on basic price increases were removed. Basic penetrations continued to rise in major markets, and nationwide penetration reached 60% of homes passed by cable. New revenue sources emerged in the form of pay-per-view, advertising, and home shopping. The industry emphasized programming quality and marketing in order to increase overall penetration levels above the 60% level. The Cable Television Consumer Protection and Competition Act of 1992 was passed on October 5, 1992, which imposed significant new regulations, particularly on subscriber rates and programming packaging. Generally, programming packages were specifically segregated between the "basic tier" and the "satellite programming tier(s)" since the level of regulation was different for each of them. After the new regulations 5 were implemented, the overall cable industry experienced a slight reduction in revenues in 1993, but learned to cope with the new regulations in 1994 and continued its overall growth due to added services, increased subscriber penetrations and repackaging of programming services. The Telecommunications Act of 1996, passed on February 8, 1996, revised the Communications Act of 1934 and the Cable Act of 1992 in fundamental ways. It highlighted competition in local loop telephone, video distribution, and long distance telephone, and de-regulated cable rates beginning in 1999. The goal was to create a competitive telecommunications marketplace. The FCC is in the process of promulgating regulations to implement the law so its effect is still uncertain. B. INDUSTRY CHARACTERISTICS 1. General Background Cable television is a capital intensive business. The right to operate a cable system is authorized by the local government. Substantial up-front capital is required in plant and equipment with second entrants facing even greater capital construction costs due primarily to space limitations on utility poles. A considerable percentage of total operating costs are fixed. Similar to utilities, once cable television has exceeded its break-even requirements, operating margins grow very rapidly and remain fairly predictable from year to year. Unlike most businesses, market analysis in cable is better pursued on the basis of system type than generic geographic or demographic criteria. The classification of a cable system in any individual market tends to reflect the competitive characteristics and demand dynamics resident in that market. In general, there are two primary categories of cable systems--classic and modern. Classic cable systems are those built in locations where reception of over-the- air television signals has historically been poor or limited. They were the earliest systems built, usually serving communities with lower densities (40 to 90 homes per mile), higher subscriber penetrations (60% to 90% of homes 6 passed), lower average revenues per subscriber ($14 to 20 per month), and higher cash flow margins (45% to 65%) relative to modern systems. They usually were built with fewer channels but may have been upgraded at a later time. Expectations for additional growth in these markets tends to be lower than the industry average. The downside risk of investing in these systems is relatively low. Modern cable systems have been constructed since the introduction of pay and other cable-specific programming in the mid-1970's. They tend to serve urban and suburban communities which have higher densities (70 to 120 and more homes per mile), better quality off-air programming, and more extensive competition for consumers' leisure time. These systems were built with broader channel capacity (36 to 54 or more channels), individual subscriber addressability, local programming capability, and the capacity for advertising sales. They tend to have lower penetration (30% to 55%) than classic systems. More rapid growth has been experienced in these systems than in classic systems because of higher household growth rates, more potential for penetration gains, and greater opportunities for ancillary revenues. They are also more risky because of greater off-air competition and higher overall operating costs. It is estimated that 32,255 communities are served throughout the United States by approximately 13,000 operating cable systems. The industry is structured into over 500 MSOs which manage these systems on a wholly-owned, partially-owned, or management contract basis. Economic forces within the industry are causing significant shifts in the ownership of these companies, resulting in increasing consolidation of the industry into the hands of fewer, larger operators. Management characteristics in the industry vary considerably between the MSO headquarters and system operating levels and between different categories of systems. At the corporate level, nearly all of the mid-to-large sized MSOs have a strong representation of professionally trained and field-seasoned management among their ranks. Strong emphasis is placed on strategic, financial planning and operating control functions at this level, and the staffing reflects those requirements. 7 System-level management requirements vary significantly with the category of system under consideration. Classic cable operations primarily require custodial management to oversee customer service and maintenance functions. Strategic, marketing, and financial management tends to be handled at the corporate level. Billing functions are processed through service bureaus specializing in cable systems. Very little management complexity is left at the system level, and the positions tend to be filled accordingly. Large-scale, urban cable operations are much more dynamic and demanding. They require far more sophisticated and versatile management capabilities. The physical plant, budgets, and operating staffs in these systems are considerably larger. More of the strategic, marketing, and financial planning functions are handled locally. The political liaison requirements with the cities are far more complex. Not surprisingly, the caliber of management found in these systems is substantially higher than that found in classic systems, and tends to be professionally trained, financially aware, and politically astute. 2. Regulation Historically, the extent to which the cable television industry has been regulated at the local, state and federal levels, has varied. Following the deregulation of service prices in the 1984 Cable Communications Policy Act, the next several years saw regulatory constraints on cable reduced at both the local and federal levels. Subsequent public perception of the industry as abusing its newly-won pricing freedom and additional consolidation in the industry led to enactment of the Cable Television Consumer Protection and Competition Act of 1992 on October 5, 1992, ushering in a new period of extensive regulation. Many aspects of such regulation are currently the subject of judicial, administrative or legislative proceedings or proposals. This law required the FCC to regulate the operation of cable television systems in a number of areas, including rates that may be charged by systems. On September 1, 1993, rate changes mandated by the FCC under the 1992 Act went into effect for most systems. The FCC implemented a benchmark rate structure 8 that was intended to reduce the federally regulated portion of the average cable subscriber's monthly bill by 10%. Most of the resulting reductions in subscriber bills were attributable to the decline in equipment and additional outlet charges. However, with the mandated reconfiguration of basic service and the expanded basic tier, some subscribers' bills increased. For cable operators, the effects of the rate change were estimated to reduce revenue by 3% to 5% on an industrywide basis. In February 1994, the FCC announced further rate reductions of 7% in order to fully implement the 1992 Cable Act. As an alternative, cable systems were permitted to file Cost of Service showings if implementation of the mandated rate reductions was not feasible. By yearend 1995, widescale telecommunications reform appeared imminent; although, the extent to which or even whether this reform would entail relief from rate regulation was unclear. The likelihood that providers of cable and telephony services would be allowed engage in both businesses was a near certainty, however, the timetable for these changes was uncertain. The Telecommunications Act of 1996, passed on February 8, 1996, revised the Communications Act of 1934 and the Cable Act of 1992 in fundamental ways. It highlighted competition in local loop telephone, video distribution, and long distance telephone, and de-regulated cable rates beginning in 1999. The goal was to create a competitive telecommunications marketplace. The FCC is in the process of promulgating regulations to implement the law so its effect is still uncertain. 3. Financial/Economic Cable's rapid financial growth and expectations for future growth have drawn the attention of the capital markets and helped fuel consolidation within the industry. With most cable markets already franchised and constructed, growth-oriented MSOs turned to acquisitions as their primary method of expansion. A flurry of acquisitions occurred during the period of 1986 through 1989, with the peak being reached in 1988. Most of these acquisitions were made by companies already in the cable business who were seeking national consolidation or regional clustering of cable television systems to 9 produce greater economies of scale and operating efficiencies. The number of transactions decreased in 1990 due to federal government restrictions on banks pertaining to highly leveraged transactions (HLT), uncertainty about the regulatory environment, and other factors. HLT restrictions caused less money to be available for the expansion, upgrading, and trading of cable systems in 1990 and 1991. These restrictions were subsequently removed in June 1992, and while the number of acquisitions increased, they did not reach the same levels seen in the latter half of the 1980's. Passage of the Cable Television Consumer Protection and Competition Act of 1992 and the resultant rate regulation decreased the overall attractiveness of the cable industry to potential investors. During the early- to mid-1990s, several of the largest MSOs formed or were exploring alliances with both long distance and local telephone companies, as both the cable and telephone industries were planning to enter one another's primary lines of business. Simultaneously, a number of mid-sized MSOs were developing exit strategies based on the belief that success in the evolving cable industry would require a critical mass of subscribers and access to substantial amounts of capital. While the development of voice, video and data delivery technologies holds the promise of substantial new services and revenues for the industry, the near- term outlook based on established programming services continues to be positive. Operators expect to continue to increase operating income by continuing to attract more subscribers, exploit current and additional opportunities for ancillary revenues, and improve operating efficiencies. 4. Competition During the next several years, the cable industry may face additional competition which could emerge in the form of system overbuilds, the introduction of new technologies, and entry into the video distribution business by telephone companies. 10 The long-term viability of overbuilds in most cable markets is questionable at best. An overbuilder splits up the subscriber base, incurring higher costs per subscriber and lower margins overall. Many attempted overbuilders have been bought out by the incumbent or have simply gone out of business. The likelihood of a successful overbuild in all but a few markets is very small. Cable television has begun to face increasing competition from new distribution technologies including direct-broadcast satellite (DBS), satellite master antenna television (SMATV), and multichannel multipoint distribution service (MMDS). The ultimate success or failure of any of these television delivery systems will depend largely on a combination of the three interconnected factors of technology, regulation, and economics. The Strategis Group anticipates that the threat to cable television by these technologies in the next few years will not be material, although various technologies are proving adept at providing services in certain niche markets. MMDS and SMATV typically have little or no effect on mature cable systems, except in large urban areas where a high percentage of homes passed are in multiple dwelling units (MDUs). DBS presents a greater competitive threat. The DBS industry, which is still very young, has thus far focused on building its customer base in areas not wired for cable television. As of 1994, leaders in the DBS industry predicted that between 10% and 20% of television households nationwide would use their service within ten years. However, DBS is hampered by the fact that it does not carry off-air broadcast signals. Telephone companies have long shown an interest in expanding into video distribution. For the most part, this competition has not materialized as a result of existing regulatory restraints and technical limitations. By the end of 1993, there was widespread recognition that technological developments would force dramatic changes in such regulation, as the telecommunications industry entered a consolidation period characterized by mergers, joint ventures, and acquisitions. Fiber optics are increasingly being utilized as telephone and cable companies begin experimenting with `full service' networks with the capability of delivering voice, 11 video and data services to the home. Several of the largest MSOs, in conjunction with telephone companies, have built these experimental systems to determine their feasibility from both technological and marketing perspectives. As of the mid- to late-1990s, the telephone industry is in the experimental stage with regard to using fiber optic cable to deliver services to the home. Cable companies, for their part, are focusing on the delivery of digital program and data services via hybrid fiber and coaxial cable networks. For technological, financial, and regulatory reasons, the full convergence of telecommunications services and service providers is most likely years away. 12 IV. SYSTEM DESCRIPTION A. HISTORY AND MARKET At the time of the appraisal, the System served 112,613 subscribers. Approximately 85% of subscribers resided in the City of Albuquerque, while the remainder resided in surrounding areas of Bernalillo, Sandoval, and Valencia counties. The provision of cable service was governed by nine franchise agreements held with local authorities. As of April 30, 1997, the weighted average remaining life of the nine franchise agreements was 3.4 years. Albuquerque is located in the north central part of New Mexico, approximately 125 miles south of Colorado and 200 miles west of Texas. Much of the land in the region, as throughout the state, is uninhabited desert or has been reserved for the use of Native American tribes. The City of Albuquerque is spread out geographically and its population is roughly 350,000. The nearest community of substantial size in the same region is Santa Fe, with a population of about 100,000, approximately 55 miles to the northeast of Albuquerque. System management indicates that demographic and economic growth in the service area has been steady in the past several years and is projected to continue at a comparable pace. The workforce is comprised of approximately 65% white collar, 20% blue collar, and 15% service-related workers, and an estimated 40% of the population is Hispanic. The metropolitan area's largest employers include: the public school system, with about 11,000 employees; Kirtland Air Force Base (AFB), with 6,000 military and 7,000 civilian employees; the University of New Mexico, with 6,000 employees; and the city government with 6,000 employees. Private sector employers include Sandia National Laboratories (energy and environmental research), with 7,500 employees; Intel (microprocessors), with 4,200 employees; and Motorola (ceramic production), with 2,300 employees. The unemployment rate in the Albuquerque Metropolitan Statistical Area (MSA) was 4.1% in March 1997. This rate compares favorably with statewide 13 unemployment of 6.6% and national unemployment of 5.5% during this period, according to the U.S. Bureau of Labor Statistics. At the time of the appraisal, Direct Broadcast Satellite (DBS) service had been available in Albuquerque for nearly three years, with Direct TV having launched service in the summer of 1994. As of the appraisal date, Echostar and PrimeStar were also active in the market. System management estimated that, as of April 30, 1997, the three DBS operators had a combined penetration of almost 3% of homes in the service area. A survey conducted several months prior to the valuation date of System subscribers who had disconnected their cable service, revealed that 10% of these former customers had purchased equipment to receive DBS service. Other providers of video services in Albuquerque included Sierra Cable, a regional multichannel multipoint Distribution Service (MMDS, or wireless cable) operator with subscribers generally outside the System's service area, and several `shared tenant' service providers. ICS and New Mexico Lightwave offered video, security, and telephone services in multiple dwelling units. System management indicated that one of the two companies was reportedly experiencing difficulty with service delivery. On a combined basis, the two companies had very few customers. Table I presents demographic data published in Marketing Statistics' Demographics USA 1996 for the New Mexico counties of Bernalillo, Sandoval, and Valencia. Data for population, households, and Effective Buying Income (EBI) were estimated for 1995 and projected for 2000. Also presented, for comparison purposes, are data for the state of New Mexico and the nation as a whole. Bernalillo County, which encompassed Albuquerque and the overwhelming majority of System subscribers, had a population of approximately 526,100 in 1995. At the time of the appraisal, its population was forecast to grow at an annual rate of 1.12% through 2000, which was somewhat lower than anticipated statewide growth in population of 1.59%. Population in the U.S. as a whole was forecast to grow by 0.83%. Higher population growth rates were projected for Sandoval and Valencia counties. 14 Sandoval County, with a population of 81,500 in 1995, was forecast to grow by 3.50% annually through 2000 to 96,800. Valencia County's 1995 population of 58,000 was forecast to increase by 3.47% per year to 68,800 over the same period. Average household EBI in Bernalillo County was $38,734 in 1995. While this figure was lower than the national average household EBI of $40,598, it was notably higher than the statewide figure for New Mexico of $34,067. Growth in household EBI was forecast at 4.04% annually in Bernalillo County, and at 3.64% and 2.97% throughout New Mexico and the U.S. as a whole, respectively. Sandoval County's household EBI was comparable, at $38,596, to Bernalillo's household EBI, although it was projected to grow at a more rapid pace of 5.18% per year through 2000. Household EBI in Valencia County was somewhat more modest, at $32,820, with a projected growth rate of 3.16%. This information is presented in Table I.
TABLE I Annual 1995 2000 Growth Rate Estimate Projection 1995-2000 ---------- ----------- --------- Bernalillo County, NM - --------------------- Total Population 526,100 556,300 1.12% Total Households 203,700 218,500 1.41% Median Age 33.7 N/A Effective Buying Income (EBI) Total EBI (000's) $7,890,216 $10,315,727 5.51% Average Household EBI $ 38,734 $ 47,212 4.04% Sandoval County, NM - ------------------- Total Population 81,500 96,800 3.50% Total Households 27,200 32,900 3.88% Median Age 31.9 N/A Effective Buying Income (EBI) Total EBI (000's) $1,049,815 $ 1,634,854 9.26% Average Household EBI $ 38,596 $ 49,692 5.18%
15
TABLE I (CONTINUED) Annual 1995 2000 Growth Rate Estimate Projection 1995-2000 -------------- -------------- --------- Valencia County, NM - ------------------- Total Population 58,000 68,800 3.47% Total Households 19,300 23,300 3.84% Median Age 33.0 N/A Effective Buying Income (EBI) Total EBI (000's) $ 633,420 $ 893,328 7.12% Average Household EBI $ 32,820 $ 38,340 3.16% State of New Mexico - ------------------- Total Population 1,700,400 1,840,200 1.59% Total Households 609,200 668,300 1.87% Median Age 32.7 N/A Effective Buying Income (EBI) Total EBI (000's) $ 20,753,479 $ 27,222,357 5.58% Average Household EBI $ 34,067 $ 40,734 3.64% United States of America - ------------------------ Total Population 264,900,900 276,107,000 0.83% Total Households 97,647,400 102,813,100 1.04% Median Age 34.5 N/A Effective Buying Income (EBI) Total EBI (000's) $3,964,285,118 $4,832,437,673 4.04% Average Household EBI $ 40,598 $ 47,002 2.97%
B. SERVICES Tables II (A)-(C) present programming services offered to System subscribers as of the appraisal date. The majority of subscribers, roughly 110,000, were able to receive the 58 channel program line-up shown in Table II (A). Limited basic service was comprised of 19 channels, ten of which were local off-air broadcast signals, two of which carried local access programming, and seven of which were satellite delivered services. Expanded basic service encompassed 31 satellite delivered services carried on channels 8-10, 17-18, and 29-56. Premium services available included Cinemax, HBO, 16 The Movie Channel, and Showtime. The Encore 1 PLEX channel was available on an a la carte basis to limited basic subscribers. Also offered were two general audience movie/event pay-per-view (PPV) services and Spice for adults.
TABLE II (A) ALBUQUERQUE - ------------------------------------------------------------------------------------------------------ CABLE (OFF-AIR) NAME OR CHANNELS CALL LETTERS SOURCE DESCRIPTION - ------------------------------------------------------------------------------------------------------ 2 (2) KASA Albuquerque, NM Fox - ------------------------------------------------------------------------------------------------------ 3 CINEMAX SATELLITE PAY MOVIES - ------------------------------------------------------------------------------------------------------ 4 (4) KOB-TV Albuquerque, NM NBC - ------------------------------------------------------------------------------------------------------ 5 (5) KNME-TV Albuquerque, NM PBS - ------------------------------------------------------------------------------------------------------ 6 Knowledge TV Satellite Educational - ------------------------------------------------------------------------------------------------------ 7 (7) KOAT-TV Albuquerque, NM ABC - ------------------------------------------------------------------------------------------------------ 8 ESPN Satellite 24-Hour Sports - ------------------------------------------------------------------------------------------------------ 9 CNN Satellite 24-Hour News - ------------------------------------------------------------------------------------------------------ 10 CNN Headline News Satellite 24-Hour News - ------------------------------------------------------------------------------------------------------ 11 (11) KCHF Santa Fe, NM Independent - ------------------------------------------------------------------------------------------------------ 12 WTBS Satellite Independent - Atlanta, GA - ------------------------------------------------------------------------------------------------------ 13 (13) KRQE Albuquerque, NM CBS - ------------------------------------------------------------------------------------------------------ 14 Government Access Local Local Government - ------------------------------------------------------------------------------------------------------ 15 (41) KLUZ-TV Albuquerque, NM Univision - ------------------------------------------------------------------------------------------------------ 16 WGN-TV Satellite Independent - Chicago, IL - ------------------------------------------------------------------------------------------------------ 17 TNT Satellite Movies, Sports, Variety - ------------------------------------------------------------------------------------------------------ 18 USA Network Satellite Sports, Variety - ------------------------------------------------------------------------------------------------------ 19 Teach and Learn Network Satellite Educational - ------------------------------------------------------------------------------------------------------ 20 Prevue Channel Satellite Channel Guide - ------------------------------------------------------------------------------------------------------ 21 HBO SATELLITE PAY MOVIES, SPECIALS - ------------------------------------------------------------------------------------------------------ 22 (32) KAZQ Albuquerque, NM Educational - ------------------------------------------------------------------------------------------------------ 23 (23) KNAT Albuquerque, NM Religious Programming - ------------------------------------------------------------------------------------------------------ 24 Jones Computer Network Satellite Computer Users' Programming - ------------------------------------------------------------------------------------------------------ 25 Galavision Satellite Spanish Programming - ------------------------------------------------------------------------------------------------------ 26 Court TV/ Satellite/ Trial Coverage/ EWTN Satellite Religious Programming - ------------------------------------------------------------------------------------------------------ 27 Public Access Satellite Local Interest - ------------------------------------------------------------------------------------------------------ 28 (50) KASY-TV Albuquerque, NM Independent - ------------------------------------------------------------------------------------------------------ 29 Encore 1 PLEX Satellite Movies - ------------------------------------------------------------------------------------------------------ 30 MTV Satellite Music Videos - ------------------------------------------------------------------------------------------------------
17
TABLE II (A) (CONTINUED) ALBUQUERQUE - ----------------------------------------------------------------------------------------------------- CABLE (OFF-AIR) NAME OR CHANNELS CALL LETTERS SOURCE DESCRIPTION - ----------------------------------------------------------------------------------------------------- 31 A&E Satellite Biographies, Mysteries, Specials - ----------------------------------------------------------------------------------------------------- 32 ESPN II Satellite 24-Hour Sports - ----------------------------------------------------------------------------------------------------- 33 Discovery Channel Satellite Science, Nature - ----------------------------------------------------------------------------------------------------- 34 Lifetime Satellite Women's Programming - ----------------------------------------------------------------------------------------------------- 35 The Family Channel Satellite Family Programming - ----------------------------------------------------------------------------------------------------- 36 Nickelodeon Satellite Childrens' Programming - ----------------------------------------------------------------------------------------------------- 37 The Disney Channel Satellite Movies, Family Shows - ----------------------------------------------------------------------------------------------------- 38 The Weather Channel Satellite 24-Hour Weather - ----------------------------------------------------------------------------------------------------- 39 HSN Satellite Home Shopping - ----------------------------------------------------------------------------------------------------- 40 American Movie Classics Satellite Classic Movies - ----------------------------------------------------------------------------------------------------- 41 CNBC Satellite Consumer, Business News - ----------------------------------------------------------------------------------------------------- 42 VH-1 Satellite Music Videos - ----------------------------------------------------------------------------------------------------- 43 The Nashville Network Satellite Country Music Videos - ----------------------------------------------------------------------------------------------------- 44 Great American Country Satellite Country Music Videos - ----------------------------------------------------------------------------------------------------- 45 C-SPAN Satellite U.S. House Coverage - ----------------------------------------------------------------------------------------------------- 46 E! Television Satellite Entertainment Information - ----------------------------------------------------------------------------------------------------- 47 C-SPAN 2 Satellite U.S. Senate Coverage - ----------------------------------------------------------------------------------------------------- 48 MSNBC Satellite News, Computer Information - ----------------------------------------------------------------------------------------------------- 49 Product Information Network Satellite Infomercial Service - ----------------------------------------------------------------------------------------------------- 52 Comedy Central Satellite Comedy Programming - ----------------------------------------------------------------------------------------------------- 53 Sci-Fi Channel Satellite Science Fiction - ----------------------------------------------------------------------------------------------------- 54 The History Channel Satellite Documentaries, Movies - ----------------------------------------------------------------------------------------------------- 55 fX Satellite Variety, Movies - ----------------------------------------------------------------------------------------------------- 56 Leased Access Local Variety - ----------------------------------------------------------------------------------------------------- 95 THE MOVIE CHANNEL SATELLITE PAY MOVIES - ----------------------------------------------------------------------------------------------------- 96 SHOWTIME SATELLITE PAY MOVIES, SPECIALS - ----------------------------------------------------------------------------------------------------- 97 REQUEST 1 SATELLITE PAY-PER-VIEW - ----------------------------------------------------------------------------------------------------- 98 REQUEST 4 SATELLITE PAY-PER-VIEW - ----------------------------------------------------------------------------------------------------- 99 SPICE SATELLITE ADULT PAY-PER-VIEW - -----------------------------------------------------------------------------------------------------
Table II (B) presents the programming available to the approximately 1,000 subscribers served from the Bernalillo headend in the northern part of the System. Limited basic service included ten local broadcast stations and five satellite-delivered services. The System's expanded basic service was comprised of 23 satellite-delivered 18 services, while available premium services included HBO, Showtime, The Movie Channel, and Cinemax. Pay-per-view channels included two general audience movie/event services.
TABLE II (B) BERNALILLO - ------------------------------------------------------------------------------------------------------ CABLE (OFF-AIR) NAME OR CHANNELS CALL LETTERS SOURCE DESCRIPTION - ------------------------------------------------------------------------------------------------------ 2 (2) KASA Albuquerque, NM Fox - ------------------------------------------------------------------------------------------------------ 3 CINEMAX SATELLITE PAY MOVIES - ------------------------------------------------------------------------------------------------------ 4 (4) KOB-TV Albuquerque, NM NBC - ------------------------------------------------------------------------------------------------------ 5 (5) KNME-TV Albuquerque, NM PBS - ------------------------------------------------------------------------------------------------------ 6 Knowledge TV Satellite Educational - ------------------------------------------------------------------------------------------------------ 7 (7) KOAT-TV Albuquerque, NM ABC - ------------------------------------------------------------------------------------------------------ 8 ESPN Satellite 24-Hour Sports - ------------------------------------------------------------------------------------------------------ 9 CNN Satellite 24-Hour News - ------------------------------------------------------------------------------------------------------ 10 CNN Headline News Satellite 24-Hour News - ------------------------------------------------------------------------------------------------------ 11 (11) KCHF Santa Fe, NM Independent - ------------------------------------------------------------------------------------------------------ 12 WTBS Satellite Independent - Atlanta, GA - ------------------------------------------------------------------------------------------------------ 13 (13) KRQE Albuquerque, NM CBS - ------------------------------------------------------------------------------------------------------ 14 Jones Computer Network Satellite Computer Users' Programming - ------------------------------------------------------------------------------------------------------ 15 (41) KLUZ-TV Albuquerque, NM Univision - ------------------------------------------------------------------------------------------------------ 16 THE MOVIE CHANNEL SATELLITE PAY MOVIES - ------------------------------------------------------------------------------------------------------ 17 TNT Satellite Movies, Sports, Variety - ------------------------------------------------------------------------------------------------------ 18 USA Network Satellite Sports, Variety - ------------------------------------------------------------------------------------------------------ 19 Prevue Channel Satellite Channel Guide - ------------------------------------------------------------------------------------------------------ 20 SHOWTIME SATELLITE PAY MOVIES, SPECIALS - ------------------------------------------------------------------------------------------------------ 21 HBO SATELLITE PAY MOVIES, SPECIALS - ------------------------------------------------------------------------------------------------------ 22 (32) KAZQ Albuquerque, NM Educational - ------------------------------------------------------------------------------------------------------ 23 (23) KNAT Albuquerque, NM Religious Programming - ------------------------------------------------------------------------------------------------------ 24 WGN-TV Satellite Independent - Chicago, IL - ------------------------------------------------------------------------------------------------------ 25 Galavision Satellite Spanish Programming - ------------------------------------------------------------------------------------------------------ 28 (50) KASY-TV Albuquerque, NM Independent - ------------------------------------------------------------------------------------------------------ 29 Encore 1 PLEX Satellite Movies - ------------------------------------------------------------------------------------------------------ 30 MTV Satellite Music Videos - ------------------------------------------------------------------------------------------------------ 31 A&E Satellite Biographies, Mysteries, Specials - ------------------------------------------------------------------------------------------------------ 32 ESPN II Satellite 24-Hour Sports - ------------------------------------------------------------------------------------------------------ 33 Discovery Channel Satellite Science, Nature - ------------------------------------------------------------------------------------------------------ 34 Lifetime Satellite Women's Programming - ------------------------------------------------------------------------------------------------------ 35 The Family Channel Satellite Family Programming - ------------------------------------------------------------------------------------------------------
19
TABLE II (B) (CONTINUED) BERNALILLO - ----------------------------------------------------------------------------------------------------- CABLE (OFF-AIR) NAME OR CHANNELS CALL LETTERS SOURCE DESCRIPTION - ----------------------------------------------------------------------------------------------------- 36 Nickelodeon Satellite Childrens' Programming - ----------------------------------------------------------------------------------------------------- 37 The Disney Channel Satellite Pay Movies, Family Shows - ----------------------------------------------------------------------------------------------------- 38 The Weather Channel Satellite 24-Hour Weather - ----------------------------------------------------------------------------------------------------- 39 American Movie Classics Satellite Classic Movies - ----------------------------------------------------------------------------------------------------- 40 Comedy Central Satellite Comedy Programming - ----------------------------------------------------------------------------------------------------- 41 Great American Country Satellite Country Music Videos - ----------------------------------------------------------------------------------------------------- 42 The Nashville Network Satellite Country Music Videos - ----------------------------------------------------------------------------------------------------- 43 Product Information Network Satellite Infomercial Service - ----------------------------------------------------------------------------------------------------- 44 The History Channel Satellite Documentaries, Movies - ----------------------------------------------------------------------------------------------------- 45 Sci-Fi Channel Satellite Science Fiction - ----------------------------------------------------------------------------------------------------- 46 fX Satellite Variety, Movies - ----------------------------------------------------------------------------------------------------- 97 REQUEST 1 SATELLITE PAY-PER-VIEW - ----------------------------------------------------------------------------------------------------- 98 REQUEST 4 SATELLITE PAY-PER-VIEW - -----------------------------------------------------------------------------------------------------
Table II (C) presents programming available to the remaining subscribers served from the Bosque Farms headend, located in the southern part of the System. The program line-up is similar to the Bernalillo service. Limited basic included the same ten local broadcast stations and six satellite services, while expanded basic included 20 satellite-delivered services. Premium channels included HBO and Cinemax, and pay-per-view services included two general audience movie/event channels and Spice for adults. This information is presented in the following table. 20
TABLE II (C) BOSQUE FARMS - ------------------------------------------------------------------------------------------------------ CABLE (Off-Air) NAME OR CHANNELS CALL LETTERS SOURCE DESCRIPTION - ------------------------------------------------------------------------------------------------------ 2 (2) KASA Albuquerque, NM Fox - ------------------------------------------------------------------------------------------------------ 3 Cinemax SATELLITE PAY MOVIES - ------------------------------------------------------------------------------------------------------ 4 (4) KOB-TV Albuquerque, NM NBC - ------------------------------------------------------------------------------------------------------ 5 (5) KNME-TV Albuquerque, NM PBS - ------------------------------------------------------------------------------------------------------ 6 Knowledge TV Satellite Educational - ------------------------------------------------------------------------------------------------------ 7 (7) KOAT-TV Albuquerque, NM ABC - ------------------------------------------------------------------------------------------------------ 8 ESPN Satellite 24-Hour Sports - ------------------------------------------------------------------------------------------------------ 9 CNN Satellite 24-Hour News - ------------------------------------------------------------------------------------------------------ 10 CNN Headline News Satellite 24-Hour News - ------------------------------------------------------------------------------------------------------ 11 (11) KCHF Santa Fe, NM Independent - ------------------------------------------------------------------------------------------------------ 12 WTBS Satellite Independent - Atlanta, GA - ------------------------------------------------------------------------------------------------------ 13 (13) KRQE Albuquerque, NM CBS - ------------------------------------------------------------------------------------------------------ 14 C-SPAN Satellite U.S. House Coverage - ------------------------------------------------------------------------------------------------------ 15 (41) KLUZ-TV Albuquerque, NM Univision - ------------------------------------------------------------------------------------------------------ 16 C-SPAN 2 Satellite U.S. Senate Coverage - ------------------------------------------------------------------------------------------------------ 17 TNT Satellite Movies, Sports, Variety - ------------------------------------------------------------------------------------------------------ 18 USA Network Satellite Sports, Variety - ------------------------------------------------------------------------------------------------------ 19 Time/Local Messages Local Local Information - ------------------------------------------------------------------------------------------------------ 20 KASY-TV Albuquerque, NM Independent - ------------------------------------------------------------------------------------------------------ 21 HBO SATELLITE PAY MOVIES, SPECIALS - ------------------------------------------------------------------------------------------------------ 22 (32) KAZQ Albuquerque, NM Educational - ------------------------------------------------------------------------------------------------------ 23 (23) KNAT Albuquerque, NM Religious Programming - ------------------------------------------------------------------------------------------------------ 24 WGN-TV Satellite Independent - Chicago, IL - ------------------------------------------------------------------------------------------------------ 25 The Nashville Network Satellite Country Music Videos - ------------------------------------------------------------------------------------------------------ 26 MTV Satellite Music Videos - ------------------------------------------------------------------------------------------------------ 27 The Weather Channel Satellite 24-Hour Weather - ------------------------------------------------------------------------------------------------------ 28 American Movie Classics Satellite Classic Movies - ------------------------------------------------------------------------------------------------------ 29 Lifetime Satellite Women's Programming - ------------------------------------------------------------------------------------------------------ 30 Comedy Central Satellite Comedy Programming - ------------------------------------------------------------------------------------------------------ 31 A&E Satellite Biographies, Mysteries, Specials - ------------------------------------------------------------------------------------------------------ 32 ESPN II Satellite 24-Hour Sports - ------------------------------------------------------------------------------------------------------ 33 Discovery Channel Satellite Science, Nature - ------------------------------------------------------------------------------------------------------ 34 Cartoon Network Satellite Cartoons - ------------------------------------------------------------------------------------------------------ 35 The Family Channel Satellite Family Programming - ------------------------------------------------------------------------------------------------------ 36 Nickelodeon Satellite Childrens' Programming - ------------------------------------------------------------------------------------------------------ 37 The Disney Channel Satellite Movies, Family Shows - ------------------------------------------------------------------------------------------------------ 38 Great American Country Satellite Country Music Videos - ------------------------------------------------------------------------------------------------------ 39 HSN Satellite Home Shopping - ------------------------------------------------------------------------------------------------------ 97 REQUEST 1 SATELLITE PAY-PER-VIEW - ------------------------------------------------------------------------------------------------------ 98 REQUEST 4 SATELLITE PAY-PER-VIEW - ------------------------------------------------------------------------------------------------------ 99 SPICE SATELLITE ADULT PAY-PER-VIEW - ------------------------------------------------------------------------------------------------------
21 C. RATES The average monthly programming rates, equipment rental rates, and installation charges to subscribers for the preceding services as of the date of the appraisal, are outlined in Table III. Comparison data for basic service, pay services, and monthly revenue per subscriber were taken from The Strategis Group publications Cable Trends: 1996 and 1997, which present year end 1995 and 1996 operating and financial data, respectively. As shown in Table III, subscribers paid between $8.77 and $10.49 per month for limited basic service and between $11.97 and $16.13 for expanded basic service. The majority of subscribers to the System were served from the Albuquerque headend and paid a combined basic and expanded basic rate that was higher, at $26.62, than the average combined basic and expanded basic rate for the nation, which was $19.90 as of 1995. A la carte pay service rates in Albuquerque ranged from $6.88 for Showtime and The Movie Channel to $11.50 for HBO. In Bernalillo a la carte rates were uniform at $10.45 with the exception of Cinemax, while in Bosque Farms HBO was $11.49 and Cinemax was $10.45. Subscribers at Kirtland AFB paid a la carte rates ranging from $5.95 for Showtime to $9.95 for HBO. Packages of multiple premium services were available at reduced rates. On a nationwide basis, the average rate per pay unit was $9.70 in 1995, which fell within the range of a la carte rates for pay services charged by the System. Pay-per-view general audience movies were $4.15 throughout the System, with the exception of Kirtland AFB where the rate was $3.95. Adult movies were $6.25 in Albuquerque and Bosque Farms and $5.95 on Kirtland AFB. Addressable converter rentals were $3.57 per month except on Kirtland AFB where they were $3.40 per month. Non-addressable converter monthly rental rates were $1.05 except on Kirtland AFB where they were $1.00. Installation charges were $18.21 22 for subscribers in pre-wired homes, $26.48 in unwired homes, and $31.50 for reconnection of service. Corresponding installation fees for subscribers on Kirtland AFB were $17.34, $25.22, and $30.00. Average revenue per subscriber per month on a nationwide basis was $34.90 as of the end of 1996, according to The Strategis Group research. This figure includes revenues from basic, pay, and PPV services, as well as local advertising, equipment rental, and miscellaneous income. During the twelve months prior to April 30, 1997, the System generated monthly average revenue of $38.25 per subscriber, which was somewhat higher than the nationwide average for 1996.
TABLE III --------------------------------------------------------------------------- BOSQUE KIRTLAND UNITED ALBUQUERQUE BERNALILLO FARMS AFB STATES/1/ --------------------------------------------------------------------------- Basic Service $10.49 $ 8.77 $ 8.98 $ 9.61 $19.90 --------------------------------------------------------------------------- Expanded Basic $16.13 $12.98 $11.97 $14.66 N/A --------------------------------------------------------------------------- Pay Services (a la carte): $ 9.70 HBO $11.50 $10.45 $11.49 $ 9.95 Cinemax $10.45 $ 6.88 $10.45 $ 9.25 Encore PLEX $ 7.30 N/A N/A N/A Showtime $ 6.88 $10.45 N/A $ 5.95 The Movie Channel $ 6.88 $10.45 N/A $ 6.55 --------------------------------------------------------------------------- Pay Per View: Movie $ 4.15 $ 4.15 $ 4.15 $ 3.95 Adult Movie $ 6.25 N/A $ 6.25 $ 5.95 N/A --------------------------------------------------------------------------- Converters: Non-Addressable $ 1.05 $ 1.05 $ 1.05 $ 1.00 Addressable $ 3.57 $ 3.57 $ 3.57 $ 3.40 N/A --------------------------------------------------------------------------- Installation Charges: N/A Pre-Wired $18.21 $18.21 $18.21 $17.34 Unwired $26.48 $26.48 $26.48 $25.22 Reconnect $31.50 $31.50 $31.50 $30.00 --------------------------------------------------------------------------- Revenue/Subscriber/Month $38.25 $34.90 --------------------------------------------------------------------------- /1/Source: The Strategis Group's Cable Trends: 1996 and 1997
23 D. SUBSCRIBERS Table IV presents the number of homes passed, basic subscribers, expanded basic subscribers, pay units, converter rentals, and addressable homes for the System as of April 30, 1997. These figures are compared with similar figures for the United States as a whole, taken from The Strategis Group's Cable Trends: 1997. At the time of the appraisal, the System's basic penetration rate, at 48.1% of homes passed, was lower than the corresponding rate for the nation of 65.8%. Pay penetration for the System stood at 54.1%, which was well below the national rate of 76.4%. Addressable home penetration for the System, at 20.5%, was also lower than the national average of 48.1%.
TABLE IV --------------------------------------- SYSTEM United States/1/ --------------------------------------- Homes Passed 234,101 95,500,000 --------------------------------------- Basic Subscribers 112,613 62,800,000 % of Homes Passed 48.1% 65.8% --------------------------------------- Expanded Basic Subscribers 108,992 N/A % of Basic Subscribers 96.8% N/A --------------------------------------- Total Pay Units 60,912 48,000,000 % of Basic Subscribers 54.1% 76.4% --------------------------------------- Converters 42,728 N/A % of Basic Subscribers 37.9% N/A --------------------------------------- Addressable Homes 23,096 30,200,000 % of Basic Subscribers 20.5% 48.1% --------------------------------------- /1/Source: The Strategis Group's Cable Trends: 1997
24 E. SYSTEM MILEAGE According to System management, mileage figures for the System are based on estimates from System maps. Since a complete walk-out of the current System would be prohibitively expensive, The Strategis Group used the following approach to corroborate the plant mileage: 1. Interviewed knowledgeable System personnel to ascertain the source and reliability of the mileage estimates. 2. Noted the configuration of the System on area maps and the existence and condition of plant in a representative portion of the area served by the System. 3. Related average density of the System to general observations of densities while inspecting the System and service area. Table V presents management's best estimate of the number of route miles of plant as represented by total strand and trench in the System as of the appraisal date. Coaxial mileage was approximately 37.9% aerial and 62.1% underground. Approximately 3.8% of total plant miles were fiber optic cable. Based upon the above procedures and cost limitations, these estimates appear to be reasonable.
TABLE V Aerial Underground Sub-Total ----------- ----------------- -------------- Coaxial Plant 970.7 1,590.4 2,561.1 Fiber Optic Plant 64.2 13.9 78.1 TOTAL MILEAGE 2,639.2
F. PHYSICAL PLANT As of the valuation date, the System's administrative offices were maintained at 4611 Montbel Place, Northeast, Albuquerque. The System's advertising sales department was located in separate office facilities at 1700A Louisiana Street, 25 Albuquerque. Subscribers received signals processed at one of three headends. The main headend, serving roughly 110,000 subscribers, was located at 2633 Tennessee Street, Northeast, Albuquerque. Also maintained at this site were advertising sales and local access production facilities and bench technician repair facilities. In the north portion of the System, a headend serving roughly 1,000 subscribers was maintained at 1429 Camino del Pueblo in Bernalillo. In the southern part of the System a third headend, serving the remaining subscribers, was maintained in Bosque Farms. The System also maintained microwave equipment to transmit signals to subscribers residing west of the Rio Grande River. Overall, the System passed approximately 233,798 homes with an estimated 2,639.2 miles of plant, for an overall density of 89 homes per mile. At the main headend equipment from a variety of manufacturers was in use, however, items made by Scientific-Atlanta (S/A) and General Instruments (GI) were predominant. Among these items were S/A 6150 signal processors, 6350 modulators, and Power Vu digital satellite receivers. GI equipment included M/A-Com Videocipher II's, DSR-4400 MPEG digital satellite receivers, DSR-4500 NTSC satellite receivers, and 1500S satellite receivers. Other items in use included Barco Pulsar TV modulators and Standard Agile IRD-II Videocipher RS units. For the fiber optic portion of the distribution plant, the System used an Antec Laser Link II Plus transmitter and an AT&T LGX distribution frame. For local advertising on 19 channels, a SeaChange Technology Digital Advertising Insertion System and Sony PVW-2800 Betacam equipment was used. Off-air antennas were mounted on a 160-foot self-supporting tower. Three 4.5-meter S/A dishes and one 5-meter Simulsat dish were used for program reception, and emergency power was provided by an Onan 45 kVa propane generator. The coaxial portion of the System's distribution plant fed from the main headend, totaled approximately 2,400 miles. Of this mileage, about 88% was built at a capacity of 450-MHz, while the remainder was built to 750-MHz specifications. Plant fed from the Bernalillo headend, at approximately 90 miles, had a 400-MHz capacity. 26 The 65 miles of plant served from Bosque Farms had approximately 30% built to a 330-MHz capacity and 70% to a 450-MHz capacity. Overall, the System's plant was generally in good condition, with the exception of approximately 340 miles of plant located in the North/South Valley of Albuquerque, which will require a complete rebuild in the near future. Addressable homes totaled 23,096 in the System, and there were a total of 42,728 converters in the field. Converters provided to subscribers included S/A and Panasonic standard set-top models, and Jerrold CFT-2000 addressable models. G. FRANCHISES As of April 30, 1997, the System operated under a total of nine franchise agreements with different local government authorities. Table VI identifies each agreement and its expiration date. As of the appraisal date, the weighted average remaining life of the franchise agreements was 3.4 years.
TABLE VI Franchise Expiration - --------- ---------- City of Albuquerque September 1, 1999 Kirtland AFB August 28, 1999 Bosque Farms September 13, 1999 Bernalillo County August 5, 2011 Sandoval County March 3, 2002 Bernalillo August 17, 2001 Los Ranchos de Albuquerque May 14, 2011 Valencia County January 21, 2000 Corrales April 21, 2006 Weighted Average Remaining Life 3.4 Years
H. MANAGEMENT At the time of the appraisal, the System operated with approximately 252 employees. The largest group of employees were in the technical department. Among the 96 employees in this group, 27 were installers/technicians, 12 were service 27 technicians, and 10 were responsible for maintenance. The second largest group comprised the construction department with 42 employees. Customer service representatives (CSRs) at the System totaled 37, for an average of approximately 3,000 subscribers per CSR. Residential and commercial sales and marketing duties were handled by a staff of 27, including 13 salespersons. Administrative employees, including management, numbered 25 and advertising sales at the System were handled by a staff of 18, including eight account executives. The advertising production staff had seven members, four of which were production technicians. The Strategis Group's representative met and spoke extensively with the System's General Manager and acting Engineering Manager. Both were experienced industry professionals and appeared to be well-versed on the System's characteristics, including strengths and weaknesses. I. FINANCIAL HISTORY Unaudited financial statements for the year ending December 31, 1996, showed that the System earned revenues of $49,487,925. Operating expenses totaled $28,558,232, which resulted in operating income of $20,929,693 and an operating profit margin of 42.3%. Statements for the first four months of 1997 indicated that operating profits of $7,252,729 were generated on revenues of $17,214,712 for an operating margin of 42.1%. On an annualized basis, 1997 revenues would total $51,644,136 and operating profits would be $21,758,187. 28 V. TOTAL SYSTEM VALUE The Strategis Group has estimated the fair market value for the System as a business enterprise to be $233,440,000, as of April 30, 1997. Fair market value is the cash price a willing buyer would give a willing seller in an arm's length transaction in order to complete the sale. It is assumed that both buyer and seller have been informed of all relevant facts and neither is under any compulsion to conclude the transaction and that the tangible assets will remain in their present location and will continue to be employed in their highest and best use, i.e., the delivery of cable television signals to subscribers. A. VALUATION PROCEDURE AND METHODS The Strategis Group used the following basic methodology to determine the overall fair market value of the System: 1. Performed an onsite review to observe a representative portion of the market and homes passed, reviewed the number of subscribers, and determined the quality and attractiveness of the services provided. 2. Made inquiries of management to ascertain and/or verify items relevant to the appraisal. 3. Estimated the availability of additional homes passed and the probability of future growth. 4. Reviewed selected financial records and other documents to verify certain financial data. 5. Estimated the expected changes in operations that a buyer most likely would institute. 6. Applied generally accepted methods of estimating the fair market value of the entity as a whole. 29 A business valuation typically is performed using one or more of three approaches: the cost approach, the market approach, and the income approach. Since the System will be relying to a large degree on intangible assets to generate income, the cost approach is not appropriate in this case. The market, or comparable sales, approach has not been used because of the difficulty in choosing sales that reflect the same profitability, size, and growth as the System. Therefore, this valuation has been based on the income approach to valuation. The income approach is the best approach to valuing the System because it reflects the future earnings potential of the System. There are various established methods of determining a business entity's total fair market value using the income approach. The most commonly accepted methods are as follows: 1. Capitalization of projected net cash flow. 2. Capitalization of single-year operating profit. 3. Dividend capitalization. 4. Market price-to-book equity. 5. Price-earnings multiple. Of the methods listed above, The Strategis Group normally relies primarily upon the capitalization of projected net cash flow, or "discounted cash flow" approach, to estimate total value. The Strategis Group generally favors discounted cash flow methodology because it considers the broadest range of factors that will affect both the present and future income, and therefore value, of a cable television system. Accordingly, The Strategis Group usually gives greater consideration to the discounted cash flow methods in its final judgment concerning the fair market value of a cable television system. The Strategis Group has prepared two discounted cash flow valuations for the System, one which analyzes the projected return on equity and one which analyzes the projected return on investment. The Strategis Group also has considered the second 30 general methodology listed above, i.e., capitalization of operating profit, in conducting its valuation of the System. The methodologies are described in Parts V-B and V-C of this report. The values for the overall fair market value of the System are presented in Exhibit A. The remaining methods listed above, although widely used in other industries, generally are inappropriate for valuing cable television systems. Dividend capitalization, based upon actual dividends or capacity, usually is irrelevant since few publicly-traded cable companies pay dividends and earnings (which should be reflective of a dividend capacity) are not reflective of the capacity to generate operating income. A comparison of market price-to-book equity also is not valid usually since book equity varies widely from one company to another as to how much intangible and tangible value is reflected on the books. Finally, an analysis of price-earnings multiples generally is not appropriate because they also vary widely within the industry and are not representative of the financial position of most cable systems. B. DISCOUNTED CASH FLOW METHODOLOGY The Strategis Group has generated two discounted cash flow models to arrive at a total System value. The return-on-equity model is based upon a hypothetical purchase price that would achieve a target after-tax return on equity based on the present value of the projected net cash flows. The return- on-investment model measures the net present value of the projected pre-tax operating cash flows, less capital expenditures, plus the residual value of the System, that represent the return on total investment. Both the return-on-equity and return-on-investment methods are dependent upon projections of the System's future net cash flow and residual value and on selection of an appropriate discount rate. The Strategis Group's calculations are based on detailed projections of a variety of factors which will affect future cash flow including housing growth, plant mileage, basic and pay subscriber growth, subscriber rates, operating expenditures, and capital expenditures. The projections and assumptions used in The 31 Strategis Group's discounted cash flow models are set forth in Exhibits E, F, G, and H. Exhibit E provides details of The Strategis Group's projections for plant mileage, housing, and subscriber growth. Exhibit F shows the rates subscribers were charged at the time of the appraisal for various services and The Strategis Group's projections for future growth. Exhibit G lists revenues and operating expenses for all years throughout the projection period, and Exhibit H details capital expenditures anticipated for the System. In addition, Exhibit J includes miscellaneous assumptions such as the average remaining life of the franchises under which the System operates, tax rates, the net fair market value of beginning tangible assets, the breakdown between debt and equity and the interest rate anticipated on the debt, and the multiples and discount rates used in the various appraisal methods. The Strategis Group's determination and use of these factors is discussed further below. 1. Net Cash Flow/Return on Equity This method involves the use of multiple year projected operations for the System and a predetermined target after-tax return on equity for a hypothetical outside buyer. The seven-year projection period is based on the average remaining franchise life of the System. A complete discussion of the selection of the projection period is provided in Part V-B-3 of this report. Based on the use of typical debt-to-equity ratios and debt services, The Strategis Group has made certain assumptions concerning the capital structure that a "typical, prudent outside buyer" might experience as well as the probable interest rates that would be applicable in connection with any debt financing that might be incurred, as shown in Exhibit J. To calculate future cash flows, The Strategis Group has projected future subscribers, revenues, operating expenses, and capital expenditures. The Strategis Group has then tested various hypothetical purchase prices, i.e., potential fair market values, to determine a value that yields the desired return on equity, as shown in Exhibits C-1 and C- 2. 32 Using the return-on-equity model, The Strategis Group has generated low and high cash flow projections for the System shown in Exhibits B-1 and B-2. The difference between the two projections reflects the range of potential returns on equity that a buyer could reasonably expect to realize depending upon the initial purchase price paid for the System. 2. Net Cash Flow/Return On Investment This discounted cash flow method, similar to the preceding method, is used to measure the net present value of the pre-tax operating cash flow, less capital expenditures, plus the residual value of the System, that represent the return on the total investment rather than that which could result from an assumed purchase with a predetermined debt-to-equity ratio. To calculate future cash flows, The Strategis Group has used the same projections for future subscribers, revenues, operating expenses, and capital expenditures as in the return-on-equity method. The projected cash flows for the System, plus the last-year residual value of the System, less capital expenditures, are then discounted to their present value using an acceptable discount factor based on the weighted average cost of money, as shown in Exhibit J. The Strategis Group has used the return on investment model, like the return on equity model, to generate low and high values for the System. These values, shown in Exhibit D, represent the present value of the future pre-tax operating cash flows and reflect more conservative and more optimistic assumptions, respectively, as to the likely return on investment that the System will generate over time. 3. Cash Flow Projections There are many factors that affect the projections of a specific cable system's cash flow. With respect to the System, The Strategis Group has analyzed the franchise area, the costs incurred to meet franchise obligations, the length of the franchise period, the degree of competition, and the historic results of the System's operations. The Strategis Group also has examined factors that affect the industry, such as possibility of 33 regulation, competitive threats, rapid technical changes, and the development of additional programming services. These factors have been incorporated into The Strategis Group's projections of the System's future cash flows. The most critical factors in the expected cash flow of a specific cable system are the opportunities for growth in the territory in which it operates, i.e., its franchise area and the duration of the franchise. In making its cash flow projections, The Strategis Group has carefully reviewed the demographics of counties represented in the service area. Demographic information was gathered from direct observation during The Strategis Group's onsite visit, discussion with System management, Marketing Statistics' Demographics USA 1996, U.S. Census Bureau data, and information obtained from the local Chamber of Commerce. The Strategis Group also has reviewed information pertaining to the System's franchises in order to calculate their remaining life and made inquiries of System management personnel to ascertain any relevant terms that may affect the value of the System. The Strategis Group has calculated a weighted average remaining life of 3.4 years for the franchises. The projection period used for the cash flows normally is the weighted average remaining life of the franchises, except when the weighted life of the franchises falls below seven or exceeds ten years. When the franchise life falls below seven years, The Strategis Group uses a seven-year projection period, amortizing the franchises over fifteen years as mandated by the Internal Revenue Service (IRS). When the franchise life exceeds ten years, a ten-year projection period is used, with the franchises amortized over fifteen years. The Strategis Group believes that the cash flows realized from a projection period less than seven years generally are not reflective of the value of a system than an investor would consider when utilizing discounted cash flow methodology. The Strategis Group also believes that the operating income resulting from income and expense projections beyond ten years is increasingly uncertain and might produce less accurate values for the System. 34 The Strategis Group's cash flow projections are also based in part on historical operating data such as subscriber rates, the ratio of subscribers to homes passed, and the age and condition of the System's distribution plant. The Strategis Group also has relied on information provided by System management personnel, discussions with System personnel, and The Strategis Group's familiarity with typical industry expenses and operating trends to project the future financial performance of the System. As shown in Exhibits E through H, The Strategis Group has projected increases in the number of basic and pay subscribers, projected changes in service rates, and estimated expenditures for future installation of cable plant and other future capital requirements. 4. Residual Value Under both the return-on-equity and the return-on-investment approaches, The Strategis Group has calculated a residual value for the System following the seven-year projection period. The residual represents the anticipated value of the System at the end of the projection period. This value is added to the System's cash flow stream in the final year of the projection period and then discounted back to present value. The residual is calculated as a multiple of the projected annual net cash flow in the final year of the discounted cash flow analysis. The multiple used reflects the degree of likelihood that the System will have significant future income, and therefore value, at the end of the projection period. If the franchise is likely to be renewed on the same terms as the current franchise, and if there is a realistic expectation of continued growth in income, a higher multiple will be applied. On the other hand, if the franchise is not likely to be renewed, or is renewed on terms and conditions significantly different from the current franchise, or if competitive or technological factors jeopardize the operator's future income, a lower multiple is appropriate. Based on its experience and familiarity with the cable industry, and its analysis of the System, The Strategis Group has calculated the System's residual value using seventh-year cash flow times a multiple of nine, as shown in Exhibit J. This multiple reflects The Strategis Group's view that the System is likely to have significant value in 35 seven years, but that certain unknowns and uncertainties must be factored into the multiple nonetheless. Currently, the Cable Act of 1984 puts operators in a favorable position in that cable franchises are generally likely to be renewed. However, the 1984 Act provides no guarantee of renewal, and it is expected that the negotiation process required to obtain a renewal will result in new franchises that will be on terms significantly different and probably less favorable than current franchises. In addition, concerns about how re- regulation of the cable industry will affect the Act's renewal provisions could have the effect of reducing or eliminating the operator's expectation of renewal. 5. Discount Rates A critical component of both the return-on-equity and the return-on- investment approaches is the selection of the rate at which future cash flows are discounted to their present value. The discount rate represents the investor's expected return on capital, i.e., the rate of return that reasonably reflects the risk being undertaken by the investor. Considering the relative risk associated with the cable industry in comparison to other industries, and the risk associated with the System in particular, The Strategis Group has adopted a range of discount rates for its discounted cash flow methods. In the after-tax return-on-equity model, The Strategis Group has applied a discount rate of 14.0% for its low valuation, and a rate of 12.0% for its high valuation. In the pre-tax return-on-investment model, the low valuation discount rate is 16.6%, while the high valuation rate is 15.1%. The discount rates used in the two discounted cash flow methods are indicated on Exhibit A and summarized in Exhibit J. The Strategis Group has calculated the discount rate for the return-on- equity model by first establishing a risk-free rate of return (the current rate of return available on Treasury bills or Treasury bonds as of the valuation date) and then adding the historical premium for risk that the market has actually provided the holders of representative cable television stocks. This assumes that using such historical data will provide a reasonable guide to future return expectations after recognition for risk. 36 The discount rate incorporates systematic risk, which is the sensitivity of the return on the subject investment to changes in the return for the market as a whole. The Strategis Group also has considered in our selection of the discount rates unsystematic risk, which is any risk premium directly associated with the industry, particular company, or the subject system. Thus, internal risk factors, such as the possibility of competition, municipal and customer relations, rate structure, franchise stability, etc., have been examined in our selection of the discount rates. The discount rate used in the return-on-investment model is determined by the "band of investment" method. The rate is based on an average of the rate applicable to equity and the cost of debt weighted in the proportions that are utilized for the particular system. C. DIRECT INCOME METHODOLOGY An alternative valuation method to the discounted cash flow method is the direct income method, in which the estimate of the cable system's value is based on current net operating income times a multiple selected by the appraiser. The Strategis Group has applied several alternative versions of this method to the System. In the first model, The Strategis Group used the System's actual annual net operating income for the 12-month period preceding the valuation date, whenever the appropriate data was available. When data was insufficient to ascertain the actual net operating income for the past full year, The Strategis Group estimated the past year's annual net operating income based on available financial information for the past several months. In the second, the System's current cash flow as of the appraisal date was annualized to create a "running rate" net operating income projection. In the third model, The Strategis Group used the System's projected net operating income for the twelve months following the appraisal date. The results of these models are set forth in Exhibit A. The multiples applied to each of these income figures are derived from a variety of cable industry data. First, The Strategis Group has looked at the income and stock 37 value of several publicly traded cable companies as of the appraisal date. From this analysis, The Strategis Group has derived a range of multiples that it believes are applicable to privately held cable systems, which includes adjustments for control and marketability. Taking into account multiples derived from the sale of other cable television systems, The Strategis Group has arrived at a composite figure for each model. In the historical income model, The Strategis Group has applied a low multiple of 10.5 and a high multiple of 11.5. The running rate and projected income models use slightly lower multiples to account for the additional risk and uncertainty of using projections rather than historical data. The multiples used in each of the three direct income approaches are indicated in Exhibit A and summarized again in Exhibit J. D. VALUE CONCLUSIONS The valuations yielded by each of the methods described above are shown in Exhibit A. In arriving at a final System valuation, The Strategis Group considered both discounted cash flow methods, i.e., the return-on-equity and return-on-investment methods, and the direct income methods. Based upon the foregoing analysis and a consideration of the various methods, The Strategis Group concludes that the fair market value of the System as a business enterprise as of April 30, 1997, was $233,440,000. 38 VI. CONTINGENCIES AND LIMITING CONDITIONS Our conclusions as to the value of the System are based upon the following, which to the best of our knowledge and belief are reliable and sound: 1. Information and data obtained during an onsite inspection by a representative of The Strategis Group of a representative portion of the System and communities served. 2. Personal and telephone interviews with the System's employees. 3. Selected documents including: a. Various operating data and maps. b. Miscellaneous internal data and documents. The following limiting conditions apply to the subject appraisal: 1. The Strategis Group is under no obligation to update the appraisal to account for events or additional data subsequent to the appraisal date. The appraisal is based on laws and regulations in place as of April 30, 1997, and does not reflect subsequent changes, if any, in the relevant laws and regulations. 2. Neither this report nor any portions thereof may be used for any purpose other than as stated herein nor may it be reproduced or excerpted without the prior written consent of The Strategis Group. 3. No copies of this report will be furnished to entities other than the client without the client's specific permission or direction unless ordered by a court of competent jurisdiction. 4. The comments and judgments of The Strategis Group as to the physical and terminal state of the cable system were made by representatives who are expert in valuing cable television assets but not by qualified cable television engineers. Consequently, readers should not rely on any 39 statement made herein for any purpose other than those set forth in this appraisal. 5. The Strategis Group did not consider, or factor into the appraisal, any impact on value that might be caused by the presence of toxic waste or hazardous material including electromagnetic radiation or other forms of radio frequency radiation. 40 VII. STATEMENT OF VALUE The Strategis Group certifies that a personal inspection of a representative portion of the communities and System was made by a qualified representative of this firm and that, to the best of our knowledge, the statements contained in this appraisal are correct and that the opinions stated are based on consideration of the relevant factors. In addition, neither The Strategis Group nor any of its representatives have any current interest or contemplated future interest in the entities appraised. In addition, the fee paid for this report by Jones Intercable, Inc. is in no way dependent on the values determined herein. Based on the various analyses, computations, and considerations discussed in this report, it is our professional judgment, subject to the assumptions and limitations stated in this report, that the range of values as stated in this report are true and correct. Therefore, it is the professional opinion of The Strategis Group that the fair market value of the Cable TV Fund 12-BCD Venture cable television system serving Albuquerque, New Mexico as a business enterprise, as of April 30, 1997, free and clear of any encumbrances, is $233,440,000. THE STRATEGIS GROUP, INC. /S/ ANDREW R. GEFEN ------------------------------------ By: Andrew R. Gefen Vice President, Financial Consulting /S/ SUSAN DONOVAN ------------------------------------ By: Susan Donovan Senior Financial Consultant May 27, 1997 41 VIII. QUALIFICATIONS A. QUALIFICATIONS OF THE STRATEGIS GROUP, INC. The Strategis Group (formerly Malarkey-Taylor Associates-EMCI) has served the communications industry for nearly 30 years specializing in the field of cable, cellular, paging, mobile radio, and broadcasting technologies. We have completed thousands of projects for clients in the communications industry and in the financial and investment communities. Our organization is composed of a multi-disciplinary team of professionals who combine academic training in accounting, finance, engineering, marketing, management, economics, and law with many years of experience solving problems for hundreds of clients in both the public and private sectors. A large portion of our financial, engineering, and managerial professionals' time is devoted to the appraisal of cable television systems, cellular telephone systems, paging systems, and broadcast stations. Since 1964, we have appraised hundreds of communications properties for purposes of financing, ownership transfers, property tax assessments, and estate planning and probating. Our appraisal experience has included independent fair market valuations and purchase price allocations, including valuation of both tangible assets and intangible assets such as franchises, licenses, subscriber lists, leases, and contracts. The Strategis Group has supplied expert testimony on cable, cellular, paging, and broadcast property values in court and other legal hearings. 42 B. QUALIFICATIONS OF ANDREW R. GEFEN Andrew R. Gefen is Vice President, Financial Consulting for The Strategis Group. He has provided valuation, financial, accounting and consulting services to numerous cellular telephone, cable television, broadcasting, and paging companies. Mr. Gefen is involved in the fair market valuation and asset appraisal of publicly and privately held cellular telephone systems, cable television systems, broadcast stations, paging systems, programming networks, and Multichannel Multipoint Distribution Service (MMDS) systems. He has valued over 100 cellular telephone systems and over 200 cable television systems with an aggregate value of over $3 billion. Mr. Gefen has provided expert testimony on the valuation of cellular telephone systems, MMDS systems, cable television systems, and paging systems. He has also assisted in the development of a statewide cellular telephone network, and provided consulting services to professional sports leagues, cable television programming networks, and U.S. Government agencies. His work has included valuation and due diligence projects in several countries in Europe and Latin America. He has acquired an in-depth knowledge of the values of cellular systems, cable television systems, broadcast stations, and paging systems, including their market characteristics, growth prospects, construction costs, operating cost structures, and other industry issues. Mr. Gefen has substantial experience in the tax issues arising from the purchase and sale of cable and broadcast properties. In addition, he has supported the taxpayer's values of tangible and intangible assets during Internal Revenue Service reviews. Mr. Gefen was previously with the communications consulting firm of Frazier, Gross & Kadlec, Washington, D.C., as the Manager of the Appraisal Group where he directed and participated in the asset appraisals of over 200 communications properties, primarily in the radio and television industry. EXPERIENCE Vice President, Financial Consulting, The Strategis Group, Inc., Washington, D.C., 1988-present. Business Analyst and Project Manager, American Management Systems, Arlington, VA. Planning Consultant, Panelvision Corporation, Pittsburgh, Pennsylvania. Programmer and Chief Announcer, WBRU (FM), Providence, Rhode Island. EDUCATION M.S., Industrial Administration (M.B.A.), Carnegie-Mellon University, Pittsburgh, Pennsylvania. B.A., Economics, Brown University, Providence, Rhode Island. 43 C. QUALIFICATIONS OF SUSAN DONOVAN Susan Donovan is a Senior Financial Consultant, in Financial Consulting at The Strategis Group. She provides valuation, financial and consulting services to cable television, broadcasting, and wireless companies. Ms. Donovan is involved in the fair market valuation and asset appraisal of publicly and privately held cable television systems, broadcast stations, and paging systems. She has acquired an in-depth knowledge of the values of these properties, including their market characteristics, growth prospects, construction costs, operating cost structures, and other industry issues. Ms. Donovan was previously with the communications consulting firms of Broadcast Investment Analysts, Inc. and Frazier, Gross & Kadlec, both of Washington, D.C., where she participated in asset appraisal and fair market valuations for numerous broadcast properties. EXPERIENCE Senior Financial Consultant, Financial Consulting, The Strategis Group, Inc., Washington, D.C., 1993-present. Financial Analyst, Broadcast Investment Analysts, Inc., Washington, D.C., 1988- 1992. Research Analyst, Frazier, Gross & Kadlec, Washington, D.C., 1986-1988. Assistant Editor and Editorial Coordinator, TV Digest (presently Warren Publishing), Washington, D.C., 1985-1986. EDUCATION M.B.A., George Mason University, Fairfax, Virginia. B.A., Political Science, Trinity College, Washington, D.C. 44 ---------------------------- CABLE TV FUND 12-BCD VENTURE EXHIBIT A ALBUQUERQUE, NEW MEXICO --------- AS OF APRIL 30, 1997 ----------------------------
VALUATION METHODS - ----------------- LOW HIGH --- ---- I. MULTIPLE OF PAST YEAR'S OPERATING INCOME OPERATING INCOME, PER BOOKS (4/30/97) $21,205,858 $21,205,858 VALUATION MULTIPLE 10.5 11.5 ---- ---- ESTIMATED FAIR MARKET VALUE $222,661,506 $243,867,363 ------------ ------------ II. MULTIPLE OF "RUNNING RATE" OPERATING INCOME ESTIMATED OPERATING INCOME TOTAL CURRENT YEAR'S REVENUE $53,564,425 $53,564,425 OPERATING MARGIN, PER BOOKS (4/30/97) 42.3% 42.3% ----- ----- "RUNNING RATE" OPERATING INCOME 22,657,752 22,657,752 VALUATION MULTIPLE 10.0 11.0 ---- ---- ESTIMATED FAIR MARKET VALUE $226,577,517 $249,235,269 ------------ ------------ III. MULTIPLE OF NEXT YEAR'S OPERATING INCOME OPERATING INCOME $24,148,194 $24,148,194 VALUATION MULTIPLE 9.5 10.5 --- ---- ESTIMATED FAIR MARKET VALUE $229,407,846 $253,556,040 ------------ ------------ IV. DISCOUNTED CASH FLOW RETURN ON EQUITY TARGET RETURN ON EQUITY 14.0% 12.0% ESTIMATED FAIR MARKET VALUE $220,489,882 $240,054,504 ------------ ------------ V. DISCOUNTED CASH FLOW RETURN ON INVESTMENT TARGET RETURN ON INVSTMT 16.6% 15.1% ESTIMATED FAIR MARKET VALUE $219,992,327 $238,088,179 ------------ ------------ SUMMARY OF VALUES - ----------------- I. MULTIPLE OF PAST YEAR'S OPERATING INCOME $222,661,506 $243,867,363 II. MULTIPLE OF "RUNNING RATE" OPERATING INCOME 226,577,517 249,235,269 III. MULTIPLE OF NEXT YEAR'S OPERATING INCOME 229,407,846 253,556,040 IV. DISCOUNTED CASH FLOW RETURN ON EQUITY 220,489,882 240,054,504 V. DISCOUNTED CASH FLOW RETURN ON INVESTMENT 219,992,327 238,088,179 ----------- ----------- RANGE OF ESTIMATED FAIR MARKET VALUES $223,146,000 $243,733,000 ESTIMATED FAIR MARKET VALUE $233,440,000 ============
---------------------------- CABLE TV FUND 12-BCD VENTURE EXHIBIT B ALBUQUERQUE, NEW MEXICO LOW ANALYSIS AS OF APRIL 30, 1997 ------------ ----------------------------
RETURN ON EQUITY METHOD PROFIT AND LOSS - LOW VALUE - --------------------------- YEAR ENDING APRIL 30, 1998 1999 2000 2001 2002 2003 2004 TOTAL ---- ---- ---- ---- ---- ---- ---- ----- REVENUES $55,071,766 $60,848,471 $66,840,107 $75,543,056 $84,426,831 $91,603,182 $98,776,702 $533,110,116 OPERATING EXPENSES 30,923,572 33,411,086 36,429,726 40,753,252 44,474,887 48,088,372 51,702,980 285,783,875 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------- OPERATING INCOME $24,148,194 $27,437,385 $30,410,381 $34,789,805 $39,951,944 $43,514,810 $47,073,723 $247,326,241 OPERATING MARGIN 0.44 0.45 0.45 0.46 0.47 0.48 0.48 PARENT SERVICES/MGT FEE (5%) 2,753,588 3,042,424 3,342,005 3,777,153 4,221,342 4,580,159 4,938,835 26,655,506 FRANCHISE AMORTIZATION (15) 6,826,933 6,826,933 6,826,933 6,826,933 6,826,933 6,826,933 6,826,933 47,788,533 SUBSCRIBER LIST (8) 6,530,000 6,530,000 6,530,000 6,530,000 6,530,000 6,530,000 6,530,000 45,710,000 NON-COMPETE COVENANTS (0) 0 0 0 0 0 0 0 0 DEPRECIATION 10,703,257 20,314,998 19,524,367 20,114,171 19,202,616 19,066,868 18,715,048 127,641,325 INTEREST 10,909,398 10,943,908 12,280,395 12,706,767 11,953,801 10,768,646 9,172,451 78,735,367 ---------- ---------- ---------- ---------- ---------- ---------- --------- ---------- PRE-TAX INCOME ($13,574,982)($20,220,878)($18,093,321)($15,165,219) ($8,782,748) ($4,257,797) $890,455 ($79,204,490) INCOME TAX (EXPENSE)/ BENEFIT 4,615,494 6,875,099 6,151,729 5,156,175 2,986,134 1,447,651 (302,755) 26,929,526 --------- --------- --------- --------- --------- --------- -------- ---------- NET INCOME ($8,959,488)($13,345,780)($11,941,592)($10,009,045) ($5,796,614) ($2,810,146) $587,701 ($52,274,963) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME ($13,574,982)($20,220,878)($18,093,321)($15,165,219) ($8,782,748) ($4,257,797) $890,455 ($79,204,490) FRANCHISE AMORTIZATION (15) 6,826,933 6,826,933 6,826,933 6,826,933 6,826,933 6,826,933 6,826,933 47,788,533 SUBSCRIBER LIST (8) 6,530,000 6,530,000 6,530,000 6,530,000 6,530,000 6,530,000 6,530,000 45,710,000 NON-COMPETE COVENANTS (0) 0 0 0 0 0 0 0 0 DEPRECIATION 10,703,257 20,314,998 19,524,367 20,114,171 19,202,616 19,066,868 18,715,048 127,641,325 EQUITY 109,093,984 109,093,984 DEBT 109,093,984 345,096 13,364,875 11,108,859 0 0 0 133,912,814 RESIDUAL VALUE IN YEAR 7 423,663,505 423,663,505 ----------- ---------- ---------- ---------- ---------- ---------- ----------- ----------- TOTAL SOURCES OF CASH $228,673,175 $13,796,149 $28,152,855 $29,414,744 $23,776,802 $28,166,004 $456,625,942 $808,605,671 USES OF CASH - PURCHASE PRICE - CURRENT $220,489,882 $220,489,882 CAPITAL EXPENDITURES 8,080,224 13,799,218 21,307,710 21,885,084 11,925,256 12,204,051 7,591,559 96,793,102 DEBT RETIREMENT 0 0 6,845,145 7,529,660 11,851,546 15,961,953 91,724,510 133,912,814 TAXES PAID ON NET INCOME 0 0 0 0 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) 84,427,402 84,427,402 --------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- TOTAL USES OF CASH $228,570,106 $13,799,218 $28,152,855 $29,414,744 $23,776,802 $28,166,004 $183,743,471 $535,623,200 ANNUAL CASH INCREASE/ (DECREASE) $103,069 ($3,069) $0 $0 $0 $0 $272,882,471 $272,982,471 CUMULATIVE CASH 103,069 100,000 100,000 100,000 100,000 100,000 272,982,471
---------------------------- CABLE TV FUND 12-BCD VENTURE EXHIBIT B ALBUQUERQUE, NEW MEXICO HIGH ANALYSIS AS OF APRIL 30, 1997 ------------- ----------------------------
RETURN ON EQUITY METHOD PROFIT AND LOSS - HIGH VALUE - ---------------------------- YEAR ENDING APRIL 30, 1998 1999 2000 2001 2002 2003 2004 TOTAL ---- ---- ---- ---- ---- ---- ---- ----- REVENUES $55,071,766 $60,848,471 $66,840,107 $75,543,056 $84,426,831 $91,603,182 $98,776,702 $533,110,116 OPERATING EXPENSES 30,923,572 33,411,086 36,429,726 40,753,252 44,474,887 48,088,372 51,702,980 285,783,875 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------- OPERATING INCOME $24,148,194 $27,437,385 $30,410,381 $34,789,805 $39,951,944 $43,514,810 $47,073,723 $247,326,241 OPERATING MARGIN 0.44 0.45 0.45 0.46 0.47 0.48 0.48 PARENT SERVICES/MGT FEE (5%) 2,753,588 3,042,424 3,342,005 3,777,153 4,221,342 4,580,159 4,938,835 26,655,506 FRANCHISE AMORTIZATION (15) 6,826,933 6,826,933 6,826,933 6,826,933 6,826,933 6,826,933 6,826,933 47,788,533 SUBSCRIBER LIST (8) 6,530,000 6,530,000 6,530,000 6,530,000 6,530,000 6,530,000 6,530,000 45,710,000 NON-COMPETE COVENANTS (0) 0 0 0 0 0 0 0 0 DEPRECIATION 10,703,257 20,314,998 19,524,367 20,114,171 19,202,616 19,066,868 18,715,048 127,641,325 INTEREST 11,939,111 12,088,043 13,623,445 14,206,223 13,382,186 12,339,870 10,900,797 88,479,673 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- PRE-TAX INCOME ($14,604,695)($21,365,013)($19,436,370)($16,664,675)($10,211,133) ($5,829,020) ($837,890) ($88,948,796) INCOME TAX (EXPENSE)/ BENEFIT 4,965,596 7,264,104 6,608,366 5,665,989 3,471,785 1,981,867 284,883 30,242,591 --------- --------- --------- --------- --------- --------- ------- ---------- NET INCOME ($9,639,099)($14,100,908)($12,828,004)($10,998,685) ($6,739,348) ($3,847,153) ($553,008) ($58,706,205) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME ($14,604,695)($21,365,013)($19,436,370)($16,664,675)($10,211,133) ($5,829,020) ($837,890) ($88,948,796) FRANCHISE AMORTIZATION (15) 6,826,933 6,826,933 6,826,933 6,826,933 6,826,933 6,826,933 6,826,933 47,788,533 SUBSCRIBER LIST (8) 6,530,000 6,530,000 6,530,000 6,530,000 6,530,000 6,530,000 6,530,000 45,710,000 NON-COMPETE COVENANTS (0) 0 0 0 0 0 0 0 0 DEPRECIATION 10,703,257 20,314,998 19,524,367 20,114,171 19,202,616 19,066,868 18,715,048 127,641,325 EQUITY 119,391,108 119,391,108 DEBT 119,391,108 1,489,318 15,354,021 13,319,021 0 0 0 149,553,468 RESIDUAL VALUE IN YEAR 7 423,663,505 423,663,505 ----------- --------- ---------- ---------- ---------- ---------- ----------- ----------- TOTAL SOURCES OF CASH $248,237,711 $13,796,236 $28,798,952 $30,125,450 $22,348,417 $26,594,781 $454,897,596 $824,799,142 USES OF CASH - PURCHASE PRICE - CURRENT $240,054,504 $240,054,504 CAPITAL EXPENDITURES 8,080,224 13,799,218 21,307,710 21,885,084 11,925,256 12,204,051 7,591,559 96,793,102 DEBT RETIREMENT 0 0 7,491,242 8,240,366 10,423,161 14,390,730 109,007,969 149,553,468 TAXES PAID ON NET INCOME 0 0 0 0 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) 74,462,367 74,462,367 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- TOTAL USES OF CASH $248,134,728 $13,799,218 $28,798,952 $30,125,450 $22,348,417 $26,594,781 $191,061,894 $560,863,441 ANNUAL CASH INCREASE/ (DECREASE) $102,982 ($2,982) $0 $0 $0 $0 $263,835,702 $263,935,702 CUMULATIVE CASH 102,982 100,000 100,000 100,000 100,000 100,000 263,935,702
---------------------------- CABLE TV FUND 12-BCD VENTURE EXHIBIT C ALBUQUERQUE, NEW MEXICO LOW ANALYSIS AS OF APRIL 30, 1997 ------------ ----------------------------
RETURN ON EQUITY METHOD DEBT AMORTIZATION - LOW VALUE - ----------------------------- TOTAL YEAR 1 CASH REQUIREMENTS $218,187,967 YEAR 1 DEBT REQUIREMENTS 109,093,984 YEAR 1 EQUITY REQUIREMENTS 109,093,984 FINANCING AVAILABLE $137,838,075 $156,963,263 $178,343,001 $197,667,475 $226,133,730 $259,687,636 $282,846,262 UNUSED LEVERAGE 28,744,091 47,524,183 62,384,192 78,129,466 118,447,267 167,963,126 215,542,574 SENIOR DEBT: 1998 1999 2000 2001 2002 2003 2004 TOTAL ---- ---- ---- ---- ---- ---- ---- ----- BEGINNING DEBT $0 $109,093,984 $109,093,984 $102,248,839 $94,719,179 $86,436,553 $77,325,665 DEBT ADDED 109,093,984 0 0 0 0 0 0 109,093,984 TOTAL ANNUAL PAYMENTS 10,909,398 10,909,398 17,754,543 17,754,543 17,754,543 17,754,543 17,754,543 110,591,514 INTEREST 10,909,398 10,909,398 10,909,398 10,224,884 9,471,918 8,643,655 7,732,567 68,801,219 PRINCIPAL REPAYMENT 0 0 6,845,145 7,529,660 8,282,626 9,110,888 10,021,977 41,790,295 ENDING BALANCE 109,093,984 109,093,984 102,248,839 94,719,179 86,436,553 77,325,665 67,303,688 LINE OF CREDIT: BEGINNING DEBT $0 $0 $345,096 $13,709,971 $24,818,830 $21,249,910 $14,398,845 $0 BORROWINGS 0 345,096 13,364,875 11,108,859 0 0 0 24,818,830 PRINCIPAL PAYMENTS 0 0 0 0 3,568,920 6,851,065 14,398,845 24,818,830 INTEREST 0 34,510 1,370,997 2,481,883 2,481,883 2,124,991 1,439,884 9,934,148 SENIOR DEBT COVERAGE 4.5 4.0 3.4 2.7 2.2 1.8 1.4 LOC DEBT COVERAGE 0.0 0.0 0.5 0.7 0.5 0.3 0.0 TOTAL DEBT COVERAGE 4.5 4.0 3.8 3.4 2.7 2.1 1.4
---------------------------- CABLE TV FUND 12-BCD VENTURE EXHIBIT C ALBUQUERQUE, NEW MEXICO HIGH ANALYSIS AS OF APRIL 30, 1997 ------------- ----------------------------
RETURN ON EQUITY METHOD DEBT AMORTIZATION - HIGH VALUE - ------------------------------ TOTAL YEAR 1 CASH REQUIREMENTS $238,782,215 YEAR 1 DEBT REQUIREMENTS 119,391,108 YEAR 1 EQUITY REQUIREMENTS 119,391,108 FINANCING AVAILABLE $159,043,933 $181,111,457 $205,780,386 $228,077,856 $260,923,534 $299,639,580 $326,361,072 UNUSED LEVERAGE 39,652,825 60,231,032 77,037,182 94,255,997 137,524,836 215,015,327 252,704,747 SENIOR: 1998 1999 2000 2001 2002 2003 2004 TOTAL ---- ---- ---- ---- ---- ---- ---- ----- BEGINNING DEBT $0 $119,391,108 $119,391,108 $111,899,865 $103,659,499 $94,595,096 $84,624,253 DEBT ADDED 119,391,108 0 0 0 0 0 0 $119,391,108 TOTAL ANNUAL PAYMENTS 11,939,111 11,939,111 19,430,353 19,430,353 19,430,353 19,430,353 19,430,353 121,029,986 INTEREST 11,939,111 11,939,111 11,939,111 11,189,987 10,365,950 9,459,510 8,462,425 75,295,204 PRINCIPAL REPAYMENT 0 0 7,491,242 8,240,366 9,064,403 9,970,843 10,967,928 45,734,783 ENDING BALANCE 119,391,108 119,391,108 111,899,865 103,659,499 94,595,096 84,624,253 73,656,325 LINE OF CREDIT: BEGINNING DEBT $0 $0 $1,489,318 $16,843,339 $30,162,360 $28,803,602 $24,383,716 $0 BORROWINGS 0 1,489,318 15,354,021 13,319,021 0 0 0 30,162,360 PRINCIPAL PAYMENTS 0 0 0 0 1,358,758 4,419,886 24,383,716 30,162,360 INTEREST 0 148,932 1,684,334 3,016,236 3,016,236 2,880,360 2,438,372 13,184,470 SENIOR DEBT COVERAGE 4.9 4.4 3.7 3.0 2.4 1.9 1.6 LOC DEBT COVERAGE 0.0 0.1 0.6 0.9 0.7 0.6 0.0 TOTAL DEBT COVERAGE 4.9 4.4 4.2 3.8 3.1 2.5 1.6
---------------------------- CABLE TV FUND 12-BCD VENTURE EXHIBIT D ALBUQUERQUE, NEW MEXICO --------- AS OF APRIL 30, 1997 ----------------------------
RETURN ON INVESTMENT METHOD PROFIT AND LOSS - --------------- YEAR ENDING APRIL 30, 1998 1999 2000 2001 2002 2003 2004 TOTAL ---- ---- ---- ---- ---- ---- ---- ----- REVENUES $55,071,766 $60,848,471 $66,840,107 $75,543,056 $84,426,831 $91,603,182 $98,776,702 $533,110,116 OPERATING EXPENSES 30,923,572 33,411,086 36,429,726 40,753,252 44,474,887 48,088,372 51,702,980 285,783,875 ------------ ----------- ----------- ----------- ----------- ----------- ----------- ------------ OPERATING INCOME 24,148,194 27,437,385 30,410,381 34,789,805 39,951,944 43,514,810 47,073,723 247,326,241 PLUS: RESIDUAL VALUE 423,663,505 423,663,505 LESS: CAPITAL EXPENDITURES 8,080,224 13,799,218 21,307,710 21,885,084 11,925,256 12,204,051 7,591,559 96,793,102 ------------ ----------- ----------- ----------- ----------- ----------- ----------- ------------ TOTAL CASH FLOW $16,067,970 $13,638,166 $9,102,671 $12,904,721 $28,026,688 $31,310,759 $463,145,669 $574,196,644 NET PRESENT VALUE @ 16.6% $219,992,327 ------------ NET PRESENT VALUE @ 15.1% $238,088,179 ------------
---------------------------- CABLE TV FUND 12-BCD VENTURE EXHIBIT E ALBUQUERQUE, NEW MEXICO --------- AS OF APRIL 30, 1997 ----------------------------
CABLE TELEVISION SUBSCRIBERS - ---------------------------- YEAR ENDING APRIL 30, 1998 1999 2000 2001 2002 2003 2004 ---- ---- ---- ---- ---- ---- ---- BEGINNING MILES 2,639.2 MILES ADDED 99.0 101.4 95.7 97.9 91.4 93.3 95.3 CUMULATIVE MILES 2,738.2 2,839.7 2,935.3 3,033.2 3,124.6 3,217.9 3,313.2 DENSITY OF ADDITIONAL PLANT 59 59 59 59 59 59 59 HOMES PASSED - BEGINNING 233,798 NEW HOMES & EXTENSIONS 5,845 5,991 5,650 5,780 5,398 5,512 5,627 HOMES PASSED - ENDING 239,643 245,634 251,284 257,063 262,461 267,973 273,601 GROWTH IN HOMES 2.5% 2.5% 2.3% 2.3% 2.1% 2.1% 2.1% BASIC - BEGINNING SUBSCRIBERS 112,613 116,627 123,227 129,830 136,672 143,479 149,172 AVERAGE SUBSCRIBERS 114,620 119,927 126,528 133,251 140,076 146,326 152,106 ENDING SUBSCRIBERS 116,627 123,227 129,830 136,672 143,479 149,172 155,041 PENETRATION 48.7% 50.2% 51.7% 53.2% 54.7% 55.7% 56.7% EXPANDED BASIC - BEGINNING 108,992 112,876 119,264 125,656 132,278 138,866 144,376 AVERAGE SUBSCRIBERS 110,934 116,070 122,460 128,967 135,572 141,621 147,215 ENDING SUBSCRIBERS 112,876 119,264 125,656 132,278 138,866 144,376 150,055 PENETRATION 96.8% 96.8% 96.8% 96.8% 96.8% 96.8% 96.8% PAY TV - BEGINNING UNITS 60,912 64,249 69,117 73,470 76,659 79,760 82,178 AVERAGE UNITS 62,581 66,683 71,294 75,065 78,209 80,969 83,407 ENDING UNITS 64,249 69,117 73,470 76,659 79,760 82,178 84,636 PENETRATION 55.1% 56.1% 56.6% 56.1% 55.6% 55.1% 54.6% PAY PER VIEW - BEGINING UNITS/MO 16,747 20,155 26,352 33,503 42,110 51,820 59,673 AVERAGE UNITS 18,451 23,253 29,927 37,807 46,965 55,746 63,230 ENDING UNITS 20,155 26,352 33,503 42,110 51,820 59,673 66,788 AVERAGE BUY RATE/MO 73.5% 75.0% 77.0% 80.0% 83.0% 86.0% 87.0% CONVERTER RENTALS - BEGINNING 42,728 46,583 52,916 60,945 69,624 77,396 84,942 AVERAGE SUBSCRIBERS 44,656 49,750 56,931 65,285 73,510 81,169 88,939 ENDING SUBSCRIBERS 46,583 52,916 60,945 69,624 77,396 84,942 92,935 PENETRATION 39.9% 42.9% 46.9% 50.9% 53.9% 56.9% 59.9% ADDRESSABLE HOMES 23,096 27,418 35,131 43,505 52,631 62,427 69,379 AVERAGE HOMES 25,257 31,274 39,318 48,068 57,529 65,903 73,069 ENDING HOMES 27,418 35,131 43,505 52,631 62,427 69,379 76,759 PENETRATION 23.5% 28.5% 33.5% 38.5% 43.5% 46.5% 49.5% BASIC CHURN RATE 32% 32% 32% 32% 32% 32% 32%
---------------------------- CABLE TV FUND 12-BCD VENTURE EXHIBIT F ALBUQUERQUE, NEW MEXICO --------- AS OF APRIL 30, 1997 ----------------------------
SERVICE RATES - ------------- CURRENT RATES - ------------- BASIC $9.91 EXPANDED BASIC 15.14 PAY 8.78 PAY PER VIEW 8.50 CONVERTER RENTALS 2.66 INSTALLATIONS-NEW 18.21 INSTALLATIONS-CHURN 31.50 YEAR ENDING APRIL 30, 1998 1999 2000 2001 2002 2003 2004 ---- ---- ---- ---- ---- ---- ---- PERCENTAGE RATE INCREASES - ------------------------- BASIC 1% 5% 3% 3% 3% 3% 3% EXPANDED BASIC 2% 6% 3% 10% 9% 3% 3% PAY 0% 1% 1% 1% 1% 1% 1% PAY PER VIEW 0% 3% 3% 3% 3% 3% 3% CONVERTER RENTALS 0% 3% 3% 3% 3% 3% 3% INSTALLATIONS-NEW 0% 3% 3% 3% 3% 3% 3% INSTALLATIONS-CHURN 0% 3% 3% 3% 3% 3% 3% AVERAGE RATES - ------------- BASIC $10.03 $10.49 $10.80 $11.12 $11.46 $11.80 $12.16 EXPANDED BASIC 15.39 16.26 16.75 18.40 20.05 20.65 21.27 PAY 8.78 8.87 8.95 9.04 9.13 9.23 9.32 PAY PER VIEW 8.50 8.76 9.02 9.29 9.57 9.85 10.15 CONVERTERS RENTALS 2.66 2.74 2.82 2.91 3.00 3.09 3.18 INSTALLATIONS-NEW 18.21 18.76 19.32 19.90 20.50 21.11 21.74 INSTALLATIONS-CHURN 31.50 32.45 33.42 34.42 35.45 36.52 37.61
---------------------------- CABLE TV FUND 12-BCD VENTURE EXHIBIT G ALBUQUERQUE, NEW MEXICO --------- AS OF APRIL 30, 1997 ----------------------------
YEAR ENDING APRIL 30, 1998 1999 2000 2001 2002 2003 2004 TOTAL ---- ---- ---- ---- ---- ---- ---- ----- REVENUES: BASIC $13,799,632 $15,090,557 $16,398,913 $17,788,333 $19,260,354 $20,723,306 $22,188,256 $125,249,351 EXPANDED BASIC 20,488,254 22,650,098 24,613,868 28,475,200 32,617,894 35,095,440 37,576,370 201,517,125 PAY TV 6,592,052 7,094,464 7,660,842 8,146,688 8,572,846 8,964,102 9,326,384 56,357,378 PAY PER VIEW 1,881,994 2,442,993 3,238,505 4,213,874 5,391,711 6,591,797 7,701,050 31,461,924 CONVERTER RENTALS 1,426,030 1,636,370 1,928,743 2,278,111 2,642,090 3,004,891 3,391,293 16,307,528 INSTALLATIONS 683,593 761,467 823,661 892,218 961,706 1,018,290 1,089,687 6,230,621 COMMERCIAL 1,498,068 1,543,010 1,589,300 1,636,979 1,686,089 1,736,671 1,788,772 11,478,889 ADVERTISING 4,776,221 5,349,367 5,937,798 6,590,955 7,250,051 7,975,056 8,772,561 46,652,009 MISCELLANEOUS 3,925,922 4,280,145 4,648,477 5,520,698 6,044,090 6,493,629 6,942,329 37,855,290 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ------------ TOTAL REVENUES $55,071,766 $60,848,471 $66,840,107 $75,543,056 $84,426,831 $91,603,182 $98,776,702 $533,110,116 OPERATING EXPENSES: OPERATIONS $8,459,119 $9,143,026 $9,883,296 $10,757,092 $11,671,879 $12,517,825 $13,376,378 $75,808,614 GENERAL & ADMINISTRATIVE 5,174,038 5,544,762 5,960,387 6,456,533 6,972,778 7,447,847 7,924,625 45,480,971 SALES & MARKETING 4,095,245 4,367,893 4,788,564 5,250,166 5,721,397 6,205,869 6,738,518 37,167,652 PROGRAMMING 13,195,170 14,355,405 15,797,479 18,289,461 20,108,833 21,916,831 23,663,460 127,326,638 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ------------ TOTAL OPERATING EXPENSES $30,923,572 $33,411,086 $36,429,726 $40,753,252 $44,474,887 $48,088,372 $51,702,980 $285,783,875 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ------------ OPERATING INCOME $24,148,194 $27,437,385 $30,410,381 $34,789,805 $39,951,944 $43,514,810 $47,073,723 $247,326,241 OPERATING MARGIN 43.8% 45.1% 45.5% 46.1% 47.3% 47.5% 47.7% TOTAL REVENUE/BASIC SUB/MONTH $40.04 $42.28 $44.02 $47.24 $50.23 $52.17 $54.12 CASH FLOW/BASIC SUB/MONTH $17.56 $19.07 $20.03 $21.76 $23.77 $24.78 $25.79 OPERATIONS % OF REVENUE 15% 15% 15% 14% 14% 14% 14% G & A PERCENTAGE OF REVENUE 9% 9% 9% 9% 8% 8% 8% SALES & MARKETING % OF REVENUE 7% 7% 7% 7% 7% 7% 7% PROGRAMMING % OF REVENUE 24% 24% 24% 24% 24% 24% 24%
---------------------------- CABLE TV FUND 12-BCD VENTURE EXHIBIT H ALBUQUERQUE, NEW MEXICO --------- AS OF APRIL 30, 1997 ----------------------------
CAPITAL EXPENDITURES - -------------------- YEAR ENDING APRIL 30, 1998 1999 2000 2001 2002 2003 2004 TOTAL ---- ---- ---- ---- ---- ---- ---- ----- ASSUMPTIONS AND INPUTS: - ----------------------- BV OF EXISTING PLANT $66,820,102 ADDITIONAL MILES OF PLANT 99.0 101.4 95.7 97.9 91.4 93.3 95.3 AERIAL PLANT PER MILE $26,000 $26,520 $27,050 $27,591 $28,143 $28,706 $29,280 UNDERGROUND PLANT PER MILE $33,500 $34,170 $34,853 $35,550 $36,261 $36,987 $37,726 PERCENTAGE OF PLANT AERIAL 15% 15% 15% 15% 15% 15% 15% PERCENTAGE OF PLANT UNDERGROUND 85% 85% 85% 85% 85% 85% 85% AVERAGE COST PER CONVERTER $125 $128 $130 $133 $135 $138 $141 PERCENTAGE CONVERTER USE 40% 43% 47% 51% 54% 57% 60% PERCENTAGE REPLACEMENT 3% 3% 3% 5% 5% 5% 5% INSTALLATION COST PER SUBSCRIBER $35 $36 $36 $37 $38 $39 $39 MISC. CAPITAL PER SUBSCRIBER $5 $5 $5 $5 $5 $6 $6 INFLATION FACTOR FOR CAPITALS 0% 2% 2% 2% 2% 2% 2% 113% ANNUAL COSTS: - ------------- PLANT ADDITIONS - AERIAL $385,989 $403,551 $388,160 $405,029 $385,881 $401,865 $418,510 $2,788,985 - UNDERGROUD 2,818,213 2,946,442 2,834,065 2,957,233 2,817,428 2,934,126 3,055,658 20,363,166 PLANT REBUILD/UPGRADE 2,516,354 7,700,044 15,104,164 15,098,245 5,032,748 5,032,748 0 50,484,304 AVERAGE COST OF NEW CONVERTERS 200,388 361,369 403,132 462,354 496,820 447,375 495,200 2,866,638 CONVERTER REPLACEMENT 168,676 191,564 225,684 438,667 498,759 563,774 629,364 2,716,489 INSTALLATION COSTS 1,417,505 1,584,622 1,694,304 1,816,518 1,935,507 2,016,386 2,136,345 12,601,187 MISC. CAPITAL EXPENDITURES 573,099 611,626 658,201 707,036 758,112 807,777 856,482 4,972,333 ---------- ----------- ----------- ----------- ----------- ----------- ---------- ----------- TOTAL CAPITAL EXPENDITURES $8,080,224 $13,799,218 $21,307,710 $21,885,084 $11,925,256 $12,204,051 $7,591,559 $96,793,102 AS A % OF OPERATING INCOME 33.5% 50.3% 70.1% 62.9% 29.8% 28.0% 16.1%
---------------------------- CABLE TV FUND 12-BCD VENTURE EXHIBIT I ALBUQUERQUE, NEW MEXICO --------- AS OF APRIL 30, 1997 ----------------------------
DEPRECIATION - ------------ YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 ------ ------ ------ ------ ------ ------ ------ ESTIMATED DEPRECIATION RATES 14.3% 24.5% 17.5% 12.5% 8.9% 8.9% 8.9% DEPRECIATION - BEG. & ADTNS. 1998 1999 2000 2001 2002 2003 2004 TOTAL ------ ------ ------ ------ ------ ------ ------ ------- YEAR 1 $10,703,257 $18,343,090 $13,100,067 $9,355,051 $6,688,599 $6,681,109 $6,688,599 $71,559,772 YEAR 2 1,971,908 3,379,429 2,413,483 1,723,522 1,232,270 1,230,890 11,951,503 YEAR 3 3,044,872 5,218,258 3,726,718 2,661,333 1,902,778 16,553,960 YEAR 4 3,127,379 5,359,657 3,827,701 2,733,447 15,048,184 YEAR 5 1,704,119 2,920,495 2,085,727 6,710,342 YEAR 6 1,743,959 2,988,772 4,732,731 YEAR 7 1,084,834 1,084,834 ----------- ----------- ----------- --------- ---------- ---------- ---------- ------------ TOTAL DEPRECIATION $10,703,257 $20,314,998 $19,524,367 $20,114,171 $19,202,616 $19,066,868 $18,715,048 $127,641,325
---------------------------- CABLE TV FUND 12-BCD VENTURE EXHIBIT J ALBUQUERQUE, NEW MEXICO --------- AS OF APRIL 30, 1997 ----------------------------
ASSUMPTIONS AND INPUTS - ---------------------- REMAINING LIFE OF FRANCHISES (YEARS) 3 AVERAGE SUBSCRIBER LIFE (YEARS) 8 INCOME TAX RATE 34% CAPITAL GAIN RATE 34% NET FMV OF EXISTING ASSETS $66,820,102 SUBSCRIBERS IN FRANCHISES 100% LOW HIGH ANALYSIS ANALYSIS -------- -------- DEBT PERCENTAGE 50% 50% EQUITY PERCENTAGE 50% 50% RESIDUAL MULTIPLE (ROE & ROI) 9.0 9.0 MULT OF PAST YEAR'S OPERATING INCOME 10.5 11.5 MULT OF CURRENT YEAR'S OPERATING INCOME 10.0 11.0 MULT OF NEXT YEAR'S OPERATING INCOME 9.5 10.5 TARGET RETURN ON EQUITY 14.0% 12.0% TARGET RETURN ON INVESTMENT 16.6% 15.1%
EX-99.(B)(2) 4 APPRAISAL BY WESTERN CABLESYSTEMS, INC. EXHIBIT 99(b)(2) FAIR MARKET VALUE APPRAISAL FOR THE ALBUQUERQUE, NEW MEXICO CABLE TELEVISION SYSTEM APRIL 30, 1997 PREPARED FOR JONES INTERCABLE, INC. TIMOTHY J. BURKE PREPARED BY WESTERN CABLESYSTEMS, INC R. MICHAEL KRUGER, PRESIDENT CABLE TELEVISION MANAGEMENT, CONSULTING, AND APPRAISALS 513 WILCOX, #230 CASTLE ROCK, CO 80104 303-688-4462 BACKGROUND AND LIMITING CONDITIONS ---------------------------------- Western was asked by Jones to prepare an analysis of the fair market value as a going concern of the assets of the Albuquerque, New Mexico cable television system as of April 30, 1997. This appraisal report is being issued pursuant to the June 20, 1997 engagement letter between Jones and Western. This report presents key data, our analysis and assumptions, and our conclusions. The assets being appraised include, as an assemblage, all of the tangible and intangible assets and personal property necessary to operate the cable television system as a going concern, consistent with past practice and industry norms. The assets include the antennas and signal receiving equipment, strand, conduit, cables, amplifiers, passive devices, drops, converters, tools, test equipment, subscriber records, franchises, pole attachment agreements, easements, supplier and programming contracts, and goodwill. Financial assets such as cash, accounts receivable, and liabilities, are not considered. The appraisal is based on financial data provided by Jones, including Income Statements for the 12 months ended December 31, 1994, 1995, and 1996, and the four months ended April 30, 1997, and the operational data presented herein, such as passings and subscriber counts. The appraiser visited the system on June 24, 1997. The system manager and acting engineer were interviewed to obtain data including subscriber history, technical data, demographics, and local economic information. The appraiser toured representative portions of the general market area. The work herein is based on data provided by Jones, and we assume no responsibility for the accuracy of such data. Western has used customary techniques and industry knowledge available to Western in preparing this report. Western does not warrant or represent that the appraised value is that which would actually be obtained in an open market transaction, or that the value would be upheld in litigation or administrative proceeding. Accordingly, Western (including its officers, employees, and owners) does not indemnify or hold harmless any user of this report in any manner against any costs, losses, or damages arising out of the use of the appraised value or other conclusions contained herein. Albuquerque, NM, 4/97, Page 2 GENERAL DESCRIPTION - ------------------- The company serves substantially all of the Albuquerque, New Mexico metropolitan area. The community is located in north-central New Mexico. Other than Santa Fe, the closest large metro areas are Denver, Phoenix, and El Paso, all several hours distant. As of April 30, 1997, key data are: Homes Passed 233,070 Residential Basic Subs 112,530 (48%) Commercial/Bulk EBU's (14,361 units) 3,940 Total EBU's 116,470 Pay Units 60,912 (54%) Plant Miles 2,561 Homes Per Mile 91 Number of headends 3 Channels in use 56 Plant Channel Capacity 60 The Albuquerque headend serves 94% of the customers; outlying headends in Bosque Farms and Bernalillo serve the balance. The demographics are predominantly middle-class family. The ethnic composition is about 38% Hispanic, of which about half speak Spanish as a primary or exclusive language. There are about 10% Oriental and black, and 52% white. The older "inner" areas consist mostly of commercial and small industrial areas, and smaller homes and apartments in an urban setting. Outlying areas have a number of new subdivisions with more expensive homes and uppper-middle income families, with accompanying malls, commercial areas, and some service-business offices. We did not see any major "poverty" areas, and the number of very high- priced homes, while increasing, is still relatively low. New homes in most areas are priced around $180,000. Older homes, particularly in the central areas, sell at around $110,000. Albuquerque has a stable and diverse economy. Historically, it has had a mix of small industry and service business. In the past 30 years, a "high-tech" community has steadily grown, as a result of nearby advanced government research facilities such as Sandia Labs and Los Alamos. While the stability of this segment has fluctuated due to government spending changes, other high-tech is starting to augment government-oriented facilities. Intel located a chip plant here several years ago, and continues to expand. Other computer-based companies are also relocating and expanding here. There have been several small startups and expansions recently, but no significant reductions. The University of New Mexico is here, and the area serves as a regional center for finance, medicine, etc. Overall, the economy is steady and healthy, but not "explosive". Albuquerque, NM, 4/97, Page 3 PASSINGS GROWTH --------------- The company reported a passing count of 200,483 at 1/1/93, and 233,070 at 4/30/97. Growth over the four year period was fairly steady, at an average of 8,146, at a rate of 3.8%. However, management indicates that a substantial part of this growth came from database correction, audits, changes in definition, etc. Local management estimates that actual growth in homes has been about 3,500 homes per year in the past 12-18 months. The system budget calls for about 4,100 new homes in 1997. We would support this lower estimate, based on our general observations of the extent of housing development that we saw in our visit. We also believe that the housing boom in the Rockies of the past few years may be slowing. We used growth of 4,100 homes for the first year, and 2.5% annual growth in the 10-year projections. New development is coming principally from small builders, and most is on the west side. A few high-end projects are underway in the east. There are no immediate barriers to growth, but in the long term water will be a key issue. Over 90% of the water is from nonrenewable groundwater, and levels are falling. This is becoming an issue, and could eventually slow growth. There are a few unserved areas along the foothills, but they do not have sufficient density to warrant cable. The company presently serves them in a limited fashion using MMDS (see below). In aggregate, ther areas are small and not likely to be served soon. The Rio Rancho system is surrounded by Jones. It has about 8,000 customers, and may be acquired in the future, but there are no discussions underway. Otherwise, there are no potential expansions of the system. SUBSCRIBER PENETRATION ---------------------- Basic penetration has been just under 50% for several years. Management indicates that there is a relative lack of interest in television. The high Hispanic level is a key factor, as this is a tough market across the industry. The availability of good offair signals is also a major factor. Penetration in similar Southwest markets is also similar. Nearby Santa Fe is at 51%. Tucson is around 45%. Carlsbad and Roswell, which have very limited offair, are in the 60%-70% range. El Paso is similar to Albuquerque, but does reach 63%. While the current system performance is reasonable, we believe the proposed changes in service this fall, coupled with a new emphasis on targeted marketing to Hispanics, will slowly increase penetration. Albuquerque, NM, 4/97, Page 4 SUBSCRIBER RATES AND SERVICES ----------------------------- The company offers very traditional programming and packages, at industry-norm rate levels: Channels Rate Basic 19 10.49 Tier 30 16.13 Total 46 $26.62 Pay channels 4 6.88-10.50 Pay-per-view 3 varies Converters 1.05- 3.57 Remote control free Installation 18.21-36.75 Approximately 97% of the customers take the tier, which includes the Disney Channel. Basic includes 10 offair, 3 local/access channels, WTBS, WGN, Spanish-language, and several "filler" channels. The tier is all the better-quality satellite services. Pay includes Cinemax, HBO, Movie Channel, and Showtime. Pay-per-view offerings consist of Viewers Choice and various events. There is no monthly fee for additional outlets. There are a number of small transaction fees, including late charges. Applicable FCC and franchise fees are added as a separate charge on bills. There are package discounts and promotional rates available from time to time. The system took a rate increase of $1.47 in February, 1997. No further increases are planned. The company expects to revise and slightly expand its lineup this fall, and an increase next year seems likely. RATE REGULATION --------------- The City of Albuquerque certified to regulate rates. The company filed a 1994 cost-of-service showing which was not seriously contested. The company believes it has adequate room to continue taking regular annual increases. There are no issues or problems at present with rates, and none are expected. Albuquerque, NM, 4/97, Page 5 NON-SUBSCRIBER REVENUE ---------------------- The company has an extensive advertising sales department. Due to the company's dominance in the market, sales are strong. This area should continue to show steady growth. The company has recently introduced some Sprint long-distance service options, but they are insignificant at present, and not likely to expand quickly. There is no other significant revenue source (fiber rental, tower rental, local phone) at present. It is reasonable to expect that data communication and fiber leasing could be a small source of revenue in the future. STAFF AND OPERATIONS -------------------- The system leases its main office and warehouse in a centrally located industrial park. An older building houses the studio operations, and has room for expansion as needed. The system has a normal complement of test equipment, including fiber testing and splicing. The inventory is at normal 30-60 day levels. Vehicles are in good condition. The office staff is well-equipped, and uses centralized Cabledata billing services. The system offers customary business-day service Monday through Saturday. The Jones national CSR center offers after-hours backup and technicians are dispatched on outages if necessary. Management reports about 32% annual customer turnover, and 25% annual service call volume. Both are normal. System staffing can be summarized as: Item Office Field/Cons Mkt/Ad ---- ------ ---------- ------ Number of employees 68 138 46 Subs/employee 1,647 811 - Average Wages 31,000 29,000 - In addition, the company uses extensive field contract labor; the dollar amounts are equivalent to about 29 field personnel. The office staffing and wage rates appear normal. The field staffing, particularly if one adds in the contract labor, appears to be more extensive than we would expect for the circumstances. Levels are not extraordinarily high, but we believe the system could absorb more growth without field staff expansion. Field wages are reasonable. Albuquerque, NM, 4/97, Page 6 MARKETING --------- The system uses in-house commissioned direct salespeople on a regular basis. Direct mail, special promotions, and newspaper are used regularly, and most nonsubscribers are contacted every 1-2 months. Spanish-language staff and promotions are used regularly. Increasingly, the company is doing targeted marketing toward the Hispanic population. FRANCHISES ---------- The major Albuquerque franchise (85% of the customers) expires in 1999. Eight others expire in 1999 through 2011. Renewal discussions have started with Albuquerque. Management expects that there will be a number of demands for access support, etc., but overall expects that renewal will be accomplished without major problems. COMPETITION ----------- Residents can get good reception on 10 offair signals with standard antennas. The only major concern is that only one offair station has Hispanic broadcasting. There is no cable overbuild, and none is likely. Management stated that US West has not indicated any intent to provide video services here. There are three licensed MMDS systems. Jones owns one, and uses it to serve rural areas. It has about 100 customers. UNM has an 8-channel system used for educational purposes. A third operator offers 16 channels for $25. He markets principally in the outskirts, and is not an issue with only about 100 customers. DBS competition is a factor. DirecTV started national service here, and this continues to be a target market. An outside data service (Skytrends) estimates that about 5% of overall passings are now DBS customers. Since customers have easy access to offair signals, DBS can be a threat here. Albuquerque, NM, 4/97, Page 7 TECHNICAL PROFILE ----------------- Coaxial Strand Mileage: 2,561, 38% aerial, 62% underground Fiber Strand Miles: 78 Headend Electronics: High-quality S-A Plant Electronics: Magnavox Amplifier Cascade: 25 maximum Power: Headend and 95% of system has standby Trunk Cable: Old is 750 P3, new is 875/1000 P3 Distribution Cable: 500 P3; new areas 500/540/715 Pay Security: Addressable and traps Percent of Addressable Subs: 21% Converter Types: Predominantly GI 550 MHZ and Panasonic. The older areas were built in 1978-82. The system has expanded steadily over the years to serve new areas. There has been no major rebuild, but several of the oldest areas were upgraded to 450 Mhz operation. An approximate breakout of the age and capacity of the plant is: Miles Percent ----- -------- 330-400 old plant 111 4% 450 mhz 1982-1992 approx. 1949 77% 450 mhz newer areas 187 7% 750 mhz new plant 291 12% There are a few problems with the oldest electronics and cable, but the company is able to maintain service to high levels with careful maintenance. Management is developing a plan for upgrading to 550 mhz throughout. The industry norm for large markets is generally 550 mhz. The timing is uncertain, but it is likely that an upgrade will follow franchise renewal in 2-3 years. Management's present estimate is $30,000,000 which is in the range of $15,000/mile. Considering the extent of undergound cable, this is reasonable. DETERMINATION OF OPERATING INCOME --------------------------------- Appraising the value of cable television systems involves calculation of historic and projected operating income (commonly called "cashflow"). Operating income is defined as direct operating revenues less expenses, before capital expenditures, depreciation, and management fees. The operating income considered in appraisals is typically that which will be derived by the buyer, using his cost structure and nominal predictable changes in operations. FIRST-YEAR PROJECTION: - ---------------------- We prepared a detailed Projected-Year statement of operating income, attached. Projections are based on the company's historic income statements for 1994, 1995, and 1996. We also calculated and used a "running rate" operating income by multiplying by 3 the results for the first four months of 1997. We used this historic data to prepare an estimate of projected operating income for the first year after April 30, 1997, shown in the last column. Albuquerque, NM, 4/97, Page 8 The Projected-Year subscriber revenues are based on the current subscriber count, plus allowances for growth, and on 1997 rates, plus a small allowance for increases late in 1997 or early in 1998. Other revenue items were based on consideration of past results and trends. Certain Projected-Year expense items such as programming costs which are based on subscribers or revenue have been adjusted to match the subscriber and revenue projections for the projected year, using prior-year unit costs or ratios plus an allowance for increases where appropriate. Overhead items, such as maintenance and property tax have been based principally on longer-term trends. In preparing our detailed analysis, we reviewed key operating ratios, such as programming cost per subscriber, staffing ratios, copyright and bad debt expense levels, etc. and compared them to industry norms and our experience. All were in normal ranges except as mentioned below. A brief discussion of key individual items follows. Passings: Increase by 4,100 (1.8%) in the next 12 months, based on management expectation and our review of housing construction. Basic Penetration: Increase slightly, reflecting target marketing, lineup improvements, and less DBS pressure. Pay Penetration: No change, reflecting recent trends. Average Basic+Tier Revenue/Subscriber: Use current rates plus 2%. Average Pay Revenue/Unit: Has been dropping; use present levels. Pay-Per-View Revenues Per Subscriber: Appears to be growing, but levels are relatively high. Use only a small gain rate. Advertising: Fluctuating; use the 1996 level. Salary: Ratios and wage levels are reasonable, as discussed above, but the system can absorb growth without increases in the field. Increase office payroll by inflation and some growth. Bad Debt: This area is high at 2.5%, and has grown sharply; reduce it somewhat to 2%. Basic Programming: Use the 1997 level plus increases of 10% to cover price hikes and new channels. Premium/PPV Programming: We used the 1997 level of 52%. Marketing/Sales: Industry norms vary from 1% of revenue in classic systems with little need for sales, to 4% in urban markets. This system is at about 4%, but should be able to decline a bit as a percentage, given target marketing and its competitive situation; use 3.9%. Albuquerque, NM, 4/97, Page 9 TEN-YEAR CASHFLOW PROJECTIONS - ----------------------------- Another appraisal technique involves projection of free cashflow for 10 years; free cashflow is equal to operating income less capital expenditures, but still before depreciation and interest, and taxes. Our ten-year projection for this system is shown on the two-page spreadsheet enclosed. We started with the data contained in the first-year projection spreadsheet, and extended it with the variables and assumptions shown. Revenue items used are the same as for the first-year analysis. However, they include forecasts for system growth in areas such as passings, penetration, and revenue/subscriber. The small amount of commercial revenue was converted to EBU's. We have considered the potential for new services not now offered, and have not included either the revenues or the capital and operating costs in our operating income analysis. These items are quite uncertain. Albuquerque does not have any expectations on these items that are more certain or more promising than the industry generally. We thus believe the market multiples (discussed later) adequately reflect the industry's opinions on future revenue streams. Passings growth was assumed to be 2.5% over the long run. Penetration increases: We limited penetration gains until immediately after the rebuild, at which time growth should increase based on the added services coming from the rebuild. Addressable Subs & PPV Revenue/Sub: Management estimates that PPV homes will grow at 8% per year; we used a higher growth rate based on the strong PPV performance. Basic Rate Increases: Rates are at reasonable levels, and in this situation the system should be able to keep pace with inflation for a few years. After the rebuild, it should be possible to exceed inflation. The ten-year model uses summary expense variables which were calculated from the one-year information as follows: Personnel: Salaries, Tax/benefit, Professional services, contract labor, and capitalized labor Per-Subscriber: Office rent, Office Operation, Basic Programming, LO Programming Revenue-related: Franchise fee, copyright, bad debt, marketing, and advertising sales Premium Programming: Pay and pay-per-view Per-Mile: Insurance, Property Tax, Pole Rent, Power, System Maintenance Personnel costs are forecasted based on current personnel costs, plus annual percentage increases to reflect growth and inflation. We calculated the amounts for the other expense categories on a per-sub or per-mile, or percentage of revenue basis, as noted. Albuquerque, NM, 4/97, Page 10 The per-sub and per-mile costs were increased over the 10-year period for inflation. The percentage costs were held to the same percentage of revenue over 10 years, on the assumption that gradual increases in unit costs can be passed on to customers. Capital costs were forecast for several items. New plant costs were calculated using new plant mileage derived from passings growth and an average per-mile cost for new plant. Drops were calculated on the assumption that a certain percentage of existing drops are replaced each year, and new drops are added equal to growth plus a churn allowance. Costs for new addressable (or other advanced) subscriber devices were allowed based on the increase in addressable subscribers. Capitalized labor is based on 1996/97 levels, plus inflation. We did not include the full charge for capitalized labor as a line item, because some of the costs are likely to be included in other capital cost lines. The capital costs for vehicles and miscellaneous is estimated from system size and current vehicle count. We used the rebuild cost estimates discussed earlier in the text. DETERMINATION OF APPRAISED VALUE -------------------------------- GENERAL METHODOLOGY - ------------------- Appraisal of income-producing property typically relies on one or more of three main approaches. Replacement cost, which is the cost to assemble and put the property into operation, is not typically used in the cable television industry for valuing a property as a going concern. In addition to tangible assets, cable television business sales include a very substantial intangible value for franchise, goodwill, and customer lists. Although these intangibles can be valued separately, it is quite difficult. Thus, replacement cost is not used to estimate fair market value of a cable system. Market value as determined by comparable transactions is a very common approach. Transaction value is typically reported on the basis of either per-subscriber cost or operating income multiple. We consider both ratios, but place much more reliance on the income multiple; per-subscriber values can vary widely depending on operating results, but multiples of operating income are more predictable because they tie directly to profitability. The Income Approach is widely used in business valuation. Our method involves determination of the discounted present value of free cashflow generated over ten years, plus an allowance for the terminal value after ten years. INCOME APPROACH - --------------- Ten-year free cashflow was projected, as discussed previously. The annual free cashflow was discounted using an average cost of capital calculated as shown on the spreadsheet. We then added a terminal value based on the resale value of the system in year 10. The terminal value was calculated at 6.0 x year 10 cashflow. The industry will increasingly feel the effects Albuquerque, NM, 4/97, Page 11 of increased competition. Sale multiples on existing income sources (which in part reflect perceived growth opportunities into other areas) will gradually decline as the opportunities for growth into new lines are realized or abandoned. Non-cable businesses currently trade in the 3-7 x cashflow range. Selection of 6 x should reflect the industry's maturity. The terminal value was then discounted to a present value using the same discount rate. The discounted cashflow and discounted terminal values were added, to arrive at the estimate of potential system value shown on the worksheet, which is $205,791,000. MARKET VALUE - ------------ The prices of cable system transactions are frequently evaluated to determine the ratio of operating income (income before depreciation, interest, and management fees) to purchase price; sales results are frequently reported in the trade press. Per-subscriber values are also widely reported. We consider principally the multiple of first year projected operating income. To facilitate our analysis, we compared this system to the overall market with respect to some key factors: Future passing and subscriber growth: Albuquerque in the long run should have average growth rates. Demographics: Demographics are perhaps a bit below average, due to the ethnic mix and relatively less higher-income residents. Competitive situation: Competition from DBS could be a problem, since offair reception is good. The system lineup is somewhat weak. This system may face a bit more than normal pressure. System Capacity/Quality: The need for rebuild/upgrade is a negative. The system will feel pressure for a rebuild during franchise renewal. We believe that buyers paying "market prices" expect at least 450 mhz plant, and many companies indicate that they explicitly consider costs required to take the system to 550 mhz or more. General Operations: With regard to matters such as staff, franchise problems, etc., the system is normal. New Revenues: The system has average potential for these items. System marketability: The system is of an attractive size, but is relatively isolated. It would have average marketability compared to systems of similar size. Overall, Albuquerque would be at or slightly below market norms compared to comparably-sized systems. Albuquerque, NM, 4/97, Page 12 COMPARABLE TRANSACTION DATA We then select an appropriate multiplier from information available about other reasonably similar transactions, and the general state of the cable market. We reviewed announcements in the trade press, information from brokers, recent issues of the Cable TV Investor Newsletter, published by Paul Kagan Associates, ---------------------------- and other private sources. Some of the key transactions we considered are: Minneapolis: US West sold this 290,000-sub system to Charter for $2,069/sub, and a 10 x multiple. The system has 51% penetration. However, it is perhaps a better market with more growth potential. Buffalo/Erie: These 166,000 customers were sold from TCI to a joint venture controlled by Adelphia. The price was reported ast 10 x, or $2,108/sub. Penetration is 60%. Bangor, Maine: This is a somewhat smaller system at 53,000 customers at 62% penetration. Cablevision sold to Frontier at 9 x operating income, and $1,471/sub. Myrtle Beach and Hampton, Virginia (each around 45,000 customers) were traded by Time Warner and Cox; the transactions were valued at 9.5 x, and about $1,600/sub. Hickory, NC was purchased from Prime by Charter for 9.7 x cashflow, and $1,946 per customer. This system is contiguous to numerous other Charter operations, and has been recently upgraded. US West reported a deal to purchase 40,000 customers in Michigan from Booth at the equivalent of about $1,875 per customer. The market has been slow this spring, and generally in the buyer's favor, but has been improving slightly. Concern over competition from DBS has continued, although concerns about phone competition are diminishing a bit. Capital required for system upgrades is a factor. We believe that the multiple for large systems is generally in the range of 9-10 x first-year operating income. Some large systems with unusually good prospects or other favorable factors trade at higher prices. Smaller systems trade in the 7-9 range, with increased variability to reflect buyer interests and system characteristics. Albuquerque can be valued at a multiple of 10.0 x operating income. Our calculation using the market value multiples follows: Projected operating income 22,236,000 Multiple 10.0 Estimated value $222,360,000 Resultant value per EBU $1,909 Albuquerque, NM, 4/97, Page 13 APPRAISED VALUE - --------------- The range of values as calculated by the two different approaches is $205,791,000 to $222,360,000. The values are reasonably consistent, and we place reliance on each. The DCF approach may better reflect the growth prospects for Albuquerque, which are perhaps a bit below some of the "comparable transactions" and the DCF does explicitly consider rebuild costs, which are a factor. We believe a midpoint is appropriate. We find the appraised value to be $214,100,000. The multiples calculated by dividing the appraised value by current subscriber count and projected income are: Appraised Value 214,100,000 Subscriber EBU's at 4/30/97 116,470 Projected operating income 22,236,000 Multiple 9.63 Per-subscriber $1,838 Overall, the foregoing ratios conform to the general market conditions and analysis presented above. The appraised fair market value of the Independence system as of April 30, 1997 is $214,100,000. The appraised value represents the price which a willing buyer would pay to a willing seller, neither being under any prior obligation to complete the transaction, for the assemblage of system assets as a going concern, without any discount imputed for brokers' fees or sale costs. We believe the appraisal reflects the relevant and material general market factors, assumptions, and limitations, all of which are presented in this report. The appraisal was prepared using standard appraisal techniques, and conforms to Standards 7-10 of the Uniform Standards of Professional Appraisal Practice. Albuquerque, NM, 4/97, Page 14 QUALIFICATIONS OF THE APPRAISER ------------------------------- The appraisal was prepared by R. Michael Kruger, owner and President of Western Cablesystems, Inc. Since 1979, he has appraised hundreds of systems for a variety of clients including major MSO's, independent operators, and clients outside the CATV industry. Kruger has extensive background as a CATV executive. From 1974 to 1979, he held various operating positions at ATC, one of the industry's largest operators. In 1979, he joined a small MSO, and until mid- 1986 was president of the 30,000 - subscriber company. There, in addition to his operating duties, Kruger prepared CATV system appraisals. Kruger formed Western Cablesystems, Inc. in 1986, and is its sole owner and principal. Western has been directly involved in all aspects of system operations and finance, including several acquisitions and sales, partnership formation, debt placement, franchising, and system construction and startup. From 1986 through 1996, Western purchased, built, and operated cable systems that served approximately 21,000 customers. In addition to continuing appraisal work, Kruger has performed consulting engagements for a wide range of topics and clients, including the economic feasibility of international cable and restructuring of individual systems to achieve financial improvements. Kruger received a BS/MS in engineering from the Massachusetts Institute of Technology in 1967/68. In 1974, he received a Masters in Business Administration (MBA) from the Stanford University Graduate School of Business. Albuquerque, NM, 4/97, Page 15
ALBUQUERQUE OPERATING INCOME CALCULATION 1994 ACTUAL 1995 ACTUAL 1996 ACTUAL 4/30/97 DATA PROJ. YEAR (Dollars Annualized) SUBSCRIBER BASE: Ending Passings 215,651 223,809 231,709 233,070 237,170 Ending Basic Subs 106,835 109,911 112,460 112,530 116,925 Ending Pay Units 58,838 57,189 60,373 60,912 63,291 Ending Basic Pen. 49.5% 49.1% 48.5% 48.3% 49.3% Ending Pay Pen. 55.1% 52.0% 53.7% 54.1% 54.1% Average Basic Subs 102,779 108,373 111,186 112,495 114,727 Average Pay Units 59,953 58,014 58,781 60,643 62,101 Ending Addr. Homes est. 18,900 20,600 22,400 23,096 24,944 REVENUE/SUB Avg. Basic $/Sub $ 21.52 $ 23.13 $ 24.25 $ 25.14 $ 25.64 Avg. Pay $/Unit $ 9.18 $ 8.91 $ 8.86 $ 8.78 $ 8.78 Avg. PPV $/Addr Home $ 49.57 $ 69.19 $ 69.62 $ 87.92 $ 90.00 Avg. Adv. $/Basic $ 30.54 $ 33.01 $ 36.69 $ 32.98 $ 37.00 REVENUES Basic, Tier, AO, Con 26,540,210 30,081,554 32,350,525 33,938,952 35,304,702 Commercial Basic 890,516 957,015 956,428 1,188,774 1,188,774 Premium Service 6,607,511 6,201,686 6,247,157 6,387,900 6,541,581 Com'l Premium 191,889 211,147 234,533 259,032 259,032 Pay Per View 936,947 1,425,273 1,559,572 2,030,502 2,244,931 Guide Revenue 420,875 388,846 305,524 309,579 309,579 Installation 794,223 774,352 685,577 650,559 625,000 Late/Other/Shop/Equip/Leas 705,829 877,797 1,207,478 1,207,407 1,200,000 Advertising Sales 3,139,269 3,577,614 4,078,980 3,710,124 4,244,914 Fran. Fee Passthru 1,570,763 1,761,254 1,862,151 1,961,307 2,024,822 Total Revenue 41,798,032 46,256,538 49,487,925 51,644,136 53,943,335 EXPENSES Salary-Admin. 1,512,696 1,696,534 1,908,288 2,143,743 2,272,368 Salary-LO 0 0 0 0 0 Salary-Field 3,586,311 3,641,193 4,167,040 4,061,064 4,000,000 Tax/Benefit 1,374,146 1,411,048 1,652,673 1,783,857 1,756,263 T & E 95,121 128,344 147,801 84,618 100,000 Vehicle 379,678 377,357 378,501 314,841 380,000 Labor/OH Capitalize -2,325,050 -3,397,791 -4,010,911 -4,327,809 -3,500,000 Basic Programming 4,569,820 6,180,004 7,468,696 8,350,149 9,361,756 Computer Billing 1,151,002 1,277,058 1,359,867 1,485,990 1,500,000 Franchise/FCC/Dev Fees 1,883,200 2,061,803 2,281,536 2,279,049 2,427,450 Copyright 195,101 197,457 203,187 212,589 225,000 Bad Debt/Coll. 643,913 847,144 920,835 1,269,924 1,078,867 Premium Service 3,185,503 2,523,969 3,032,782 3,312,357 3,392,046 Pay-Per-View 505,724 687,056 885,820 1,081,764 1,196,003 Premium-Com'l 157,161 149,140 189,945 208,980 194,274 Merchandise 56,678 38,951 42,569 51,273 45,000 Real Estate Rent 307,876 300,028 269,404 267,600 270,000 Power 200,504 192,610 217,504 225,960 233,869 Insurance 418,179 578,175 585,009 611,751 550,000 Pole Rent 175,686 180,804 161,963 166,620 170,000 Property Tax 178,988 172,567 272,360 337,980 350,000 System Operation 578,568 421,620 419,078 398,091 400,000 Field Contract Labor 686,200 809,500 907,685 610,944 600,000 Professional Service 123,203 88,519 101,005 132,864 100,000 Office Costs 556,167 562,231 648,319 715,083 675,000 Marketing 2,596,091 2,781,166 2,571,288 2,139,486 2,103,790 Advert. Sales Cost 1,396,163 1,537,684 1,775,988 1,967,181 1,825,313 Total Expenses 24,188,629 25,444,171 28,558,232 29,885,949 31,706,998 0 Op. Income 17,609,403 20,812,367 20,929,693 21,758,187 22,236,337 Margin 42.1% 45.0% 42.3% 42.1% 41.2%
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DISCOUNTED CASHFLOW MODEL FOR APPRAISAL OF ALBUQUERQUE Change Rate Current Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 - ------------------------------------------------------------------------------------------------------------------------------------ Beginning Passings 233,070 237,170 243,099 249,177 255,406 261,791 268,336 Growth 2.50% 4,100 5,929 6,077 6,229 6,385 6,545 6,708 Ending Passings 233,070 237,170 243,099 249,177 255,406 261,791 268,336 275,044 Passings Growth 2.50% 2.50% 2.50% 2.50% 2.50% 2.50% Ending Basic EBU's 116,470 120,788 125,023 129,395 133,907 139,872 146,052 152,454 Ending Pay Units 60,912 63,291 65,510 67,801 70,165 73,291 76,529 79,884 Ending Basic EBU Pen. 49.97% 50.93% 51.43% 51.93% 52.43% 53.43% 54.43% 55.43% Basic Penetration Change 0.50% 0.50% 0.50% 1.00% 1.00% 1.00% Pay/Basic Penetration 0.00% 52.30% 52.40% 52.40% 52.40% 52.40% 52.40% 52.40% 52.40% Average Basic EBU's 118,629 122,906 127,209 131,651 136,889 142,962 149,253 Average Pay Units 62,102 64,401 66,655 68,983 71,728 74,910 78,206 Addr Terminal Sub % 19.80% 20.70% 25.70% 30.70% 35.70% 40.70% 45.70% 50.00% Ending Plant Miles 2,561 2,612 2,686 2,762 2,840 2,920 3,002 3,086 New Miles 80 51 74 76 78 80 82 84 New Drops 1.1 4,750 4,659 4,809 4,963 6,562 6,798 7,042 Rebuild Miles 0 400 600 600 460 0 0 Replace Drops % 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% Basic Revenue/EBU $307.63 $316.86 $326.36 $336.15 $346.24 $363.55 $381.73 Basic Rev/EBU Increase 3.00% 3.00% 3.00% 3.00% 5.00% 5.00% Guide Rev/EBU 2.00% $ 2.61 $ 2.66 $ 2.72 $ 2.77 $ 2.82 $ 2.88 $ 2.94 Pay Revenue/Unit 2.00% $109.51 $111.70 $113.93 $116.21 $118.54 $120.91 $123.32 PPV Rev/Addr. Sub 7.00% $ 91.42 $ 97.82 $104.67 $111.99 $119.83 $128.22 $137.20 Late/Shop/Oth $/EBU 5.00% $ 10.12 $ 10.62 $ 11.15 $ 11.71 $ 12.30 $ 12.91 $ 13.56 Advertising Rev/EBU 7.00% $ 35.14 $ 37.60 $ 40.24 $ 43.05 $ 46.07 $ 49.29 $ 52.74 Personnel Cost Incr. % 3.00% 5.85% 6.17% 6.16% 6.15% 6.63% 6.61% 6.59% Per-Sub Expense 3.50% $ 98.95 $102.41 $106.00 $109.71 $113.55 $117.52 $121.63 % of Rev. Expense % 14.20% 14.20% 14.20% 14.20% 14.20% 14.20% 14.20% Pay/PPV Expense % 52.87% 52.87% 52.87% 52.87% 52.87% 52.87% 52.87% Per-Mile Expense 4.00% $ 652 $ 678 $ 705 $ 734 $ 763 $ 794 $ 825 Capex per drop 2.00% $ 40 $ 41 $ 42 $ 42 $ 43 $ 44 $ 45 Capex per new mile 3.00% $25,000 $25,750 $26,523 $27,318 $28,138 $28,982 $29,851 Capex per rebuild mile $ 0 $15,000 $15,000 $15,000 $13,043 Capex per new adr. sub 1.00% $ 150 $ 152 $ 153 $ 155 $ 156 $ 158 $ 159 REVENUE Basic/Tier/Com'l 36,493,476 38,943,345 41,516,086 44,254,650 47,396,133 51,973,724 56,973,833 Guide 309,579 327,154 345,381 364,589 386,679 411,910 438,637 Pay 6,800,613 7,193,429 7,594,201 8,016,550 8,502,262 9,057,040 9,644,700 Pay-per-view 2,244,931 3,089,800 4,087,571 5,263,616 6,676,378 8,377,186 10,238,540 Installation 3.00% 625,000 643,750 663,063 682,954 703,443 724,546 746,283 Late/Other/Shop 1,200,000 1,305,423 1,418,687 1,541,634 1,683,128 1,845,687 2,023,251 Advertising 4,244,914 4,621,687 5,118,353 5,667,863 6,305,940 7,046,692 7,871,751 Franch. Fee billed 3.90% 2,024,822 2,176,100 2,355,520 2,551,663 2,779,424 3,081,970 3,412,436 Total Revenue 53,943,335 58,300,689 63,098,862 68,343,519 74,433,388 82,518,755 91,349,431 EXPENSES Personnel 5,608,631 5,954,783 6,321,730 6,710,701 7,155,795 7,628,797 8,131,408 Per-Sub costs 11,951,756 12,803,800 13,715,290 14,690,305 15,881,829 17,163,983 18,543,384 Per-mile costs 1,703,869 1,822,300 1,948,787 2,083,870 2,228,128 2,382,175 2,546,669 Percent of Rev. costs 7,660,420 8,279,202 8,960,584 9,705,371 10,570,185 11,718,377 12,972,409 Pay & PPV Costs 4,782,323 5,436,679 6,176,080 7,021,142 8,024,853 9,217,367 10,512,146 Total Expenses 31,706,999 34,296,764 37,122,471 40,211,389 43,860,790 48,110,699 52,706,016 OPERATING INCOME 22,236,336 24,003,924 25,976,391 28,132,131 30,572,599 34,408,056 38,643,415 Operating Ratio 41.22% 41.17% 41.17% 41.16% 41.07% 41.70% 42.30% Change Rate Current Year 8 Year 9 Year 10 - ---------------------------------------------------------------------------------------- Beginning Passings 275,044 281,921 288,969 Growth 2.50% 6,876 7,048 7,224 Ending Passings 233,070 281,921 288,969 296,193 Passings Growth 2.50% 2.50% 2.50% Ending Basic EBU's 116,470 159,085 165,951 173,062 Ending Pay Units 60,912 83,358 86,956 90,682 Ending Basic EBU Pen. 49.97% 56.43% 57.43% 58.43% Basic Penetration Change 1.00% 1.00% 1.00% Pay/Basic Penetration 0.00% 52.3% 52.40% 52.40% 52.40% Average Basic EBU's 155,769 162,518 169,507 Average Pay Units 81,621 85,157 88,819 Addr Terminal Sub % 19.80% 60.00% 70.00% 80.00% Ending Plant Miles 2,561 3,172 3,260 3,350 New Miles 80 86 88 90 New Drops 1.1 7,294 7,553 7,822 Rebuild Miles 0 0 0 Replace Drops % 10.00% 10.00% 10.00% Basic Revenue/EBU $393.18 $404.97 $417.12 Basic Rev/EBU Increase 3.00% 3.00% 3.00% Guide Rev/EBU 2.00% $ 3.00 $ 3.06 $ 3.12 Pay Revenue/Unit 2.00% $125.79 $128.31 $130.87 PPV Rev/Addr. Sub 7.00% $146.80 $157.08 $168.07 Late/Shop/Oth $/EBU 5.00% $ 14.23 $ 14.95 $ 15.69 Advertising Rev/EBU 7.00% $ 56.43 $ 60.38 $ 64.61 Personnel Cost Incr. % 3.00% 6.57% 6.55% 6.53% Per-Sub Expense 3.50% $125.89 $130.30 $134.86 % of Rev. Expense % 14.20% 14.20% 14.20% Pay/PPV Expense % 52.87% 52.87% 52.87% Per-Mile Expense 4.00% $ 858 $ 893 $ 928 Capex per drop 2.00% $ 46 $ 47 $ 48 Capex per new mile 3.00% $30,747 $31,669 $32,619 Capex per rebuild mile Capex per new adr. sub 1.00% $ 161 $ 162 $ 164 REVENUE Basic/Tier/Com'l 61,245,056 65,815,442 70,705,072 Guide 466,943 496,917 528,651 Pay 10,267,088 10,926,146 11,623,923 Pay-per-view 13,720,231 17,869,464 22,791,495 Installation 3.00% 768,671 791,731 815,483 Late/Other/Shop 2,217,162 2,428,881 2,659,997 Advertising 8,790,498 9,813,339 10,951,816 Franch. Fee billed 3.90% 3,783,340 4,198,155 4,662,364 Total Revenue 101,258,989 112,340,076 124,738,801 EXPENSES Personnel 8,665,426 9,232,760 9,835,431 Per-Sub costs 20,027,122 21,622,787 23,338,509 Per-mile costs 2,722,311 2,909,847 3,110,075 Percent of Rev. costs 14,379,652 15,953,262 17,713,988 Pay & PPV Costs 12,681,947 15,224,061 18,195,218 Total Expenses 58,476,457 64,942,717 72,193,222 OPERATING INCOME 42,782,532 47,397,359 52,545,579 Operating Ratio 42.25% 42.19% 42.12%
CAPITAL EXPENDITURES Drops 673,144 700,170 738,604 779,086 889,731 945,244 1,003,966 Addr. Converters 291,308 1,079,869 1,161,873 1,248,799 1,424,064 1,547,813 1,509,661 New plant 1,281,250 1,908,477 2,014,875 2,127,204 2,245,796 2,370,999 2,503,182 Rebuild 0 6,000,000 9,000,000 9,000,000 6,000,000 0 0 Labor capitalized 35.00% 3,500,000 3,500,000 2,212,605 2,348,745 2,504,528 2,670,079 2,845,993 Vehicles 5.00% 250,000 262,500 275,625 289,406 303,877 319,070 335,024 Other 3.00% 50,000 50,000 51,500 53,045 54,636 56,275 57,964 Total Capex 6,045,702 13,501,016 15,455,083 15,846,285 13,422,632 7,909,481 8,255,789 CAPITAL EXPENDITURES Drops 1,066,076 1,131,758 1,201,211 Addr. Converters 3,091,568 3,364,743 3,655,705 New plant 2,642,735 2,790,067 2,945,613 Rebuild 0 0 0 Labor capitalized 35.00% 3,032,899 3,231,466 3,442,401 Vehicles 5.00% 351,775 369,364 387,832 Other 3.00% 59,703 61,494 63,339 Total Capex 10,244,755 10,948,892 11,696,101 DISCOUNTED FREE CASHFLOW Operating Income 22,236,336 24,003,924 25,976,391 28,132,131 30,572,599 34,408,056 38,643,415 Less Capital Expenditures 6,045,702 13,501,016 15,455,083 15,846,285 13,422,632 7,909,481 8,255,789 Free cashflow 16,190,634 10,502,908 10,521,309 12,285,845 17,149,967 26,498,575 30,387,625 DISCOUNTED FREE CASHFLOW Operating Income 42,782,532 47,397,359 52,545,579 Less Capital Expenditures 10,244,755 10,948,892 11,696,101 Free cashflow 32,537,777 36,448,467 40,849,478 Discount Rate 12.70% Discount Rate Calculation Net Present Value of Free Cashflow 110,413,035 Proportion Rate Equity 30.00% 20.00% Senior Debt 60.00% 9.00% Sub. Debt 10.00% 13.00% Blended 12.70% TERMINAL VALUE Year 10 operating income 52,545,579 Multiple 6 Terminal Value 315,273,475 Discounted at 12.70% 95,378,014 POTENTIAL VALUE NPV of Free Cashflow 110,413,035 NPV of Terminal Value 95,378,014 Total Potential Value 205,791,049 RATIOS Starting EBU's 116,470 First-year Op. Income 22,236,336 Value per EBU $1,767 Op. Income Multiple 9.25
EX-99.(B)(3) 5 APPRAISAL BY BOND & PECARO, INC. EXHIBIT 99(b)(3) ================================================================================ CABLE TV FUND 12 CABLE TELEVISION SYSTEM ALBUQUERQUE, NEW MEXICO APPRAISAL OF NON-CURRENT ASSETS AS OF APRIL 30, 1997 PREPARED FOR: THE JONES GROUP, LTD. JUNE 20, 1997 [LOGO OF BOND & PICARO APPEARS HERE] ================================================================================ CABLE TV FUND 12 CABLE TELEVISION SYSTEM ALBUQUERQUE, NEW MEXICO APPRAISAL OF NON-CURRENT ASSETS AS OF APRIL 30, 1997 TABLE OF CONTENTS -----------------
Page ---- Introduction 1 System Background 1 Industry Overview 2 Executive Summary 7 Valuation Method 7 Conclusion 10 Cable TV Fund 12 Cable Television System, Albuquerque, New Mexico System Background 13 Demographic Profile 16 Media Overview 20 Market Analysis 21 Discounted Cash Flow Analysis 26 Comparable Sales Analysis 32 Conclusion 34
Exhibits -------- A. Qualifications of James R. Bond, Jr., Julie A. Kroskin, and Tracy A. Hogan CABLE TV FUND 12 CABLE TELEVISION SYSTEM ALBUQUERQUE, NEW MEXICO APPRAISAL OF NON-CURRENT ASSETS AS OF APRIL 30, 1997 INTRODUCTION ------------ Bond & Pecaro, Inc. has been retained to determine the fair market value of the non-current assets of the Cable TV Fund 12 cable television system in Albuquerque, New Mexico, ("the Albuquerque System") as of April 30, 1997. Among these assets were towers, electronic equipment, office equipment, vehicles, a cable television distribution plant, cable television franchises, and a cable television subscriber base. SYSTEM BACKGROUND - ----------------- The Albuquerque System serves the City of Albuquerque; the Villages of Corrales, Bosque Farms, Los Ranchos de Albuquerque, North Valley, Paradise Hills, Peralta, South Valley, and Taylor Ranch; the Town of Bernalillo; unincorporated portions of the Counties of Bernalillo, Sandoval, and Valencia; and the Kirkland Air Force Base. Most of the system's cable distribution plant operates at 450 mHz with a capacity of up to 63 channels. There were two vacant channels available for use as of April 30, 1997. The system is approximately 25% addressable and provides impulse pay-per- view services to subscribers. The system has approximately 1,604 miles of underground cable -1- distribution plant and 1,035 miles of aerial cable plant. Approximately 233,798 homes are passed by the system's cable distribution plant. As of April 30, 1997, the system had 112,603 basic subscribers, representing a basic subscriber penetration of 48.2%. The system had 60,912 pay subscriptions as of April 30, 1997, yielding a pay to basic ratio of 54.1%. The Albuquerque System operates under the provisions of 10 cable television franchises. The terms of each of the franchises are as follows:
Expiration Franchise Date --------- ---------- City of Albuquerque 09/01/99 Village of Corrales 04/21/06 Village of Bosque Farms 09/13/99 Village of Los Ranchos de Albuquerque 05/14/11 Town of Bernalillo 08/17/01 Bernalillo County 08/05/11 Sandoval County 03/03/02 Valencia County 01/21/00 Kirkland Air Force Base 08/28/99
INDUSTRY OVERVIEW - ----------------- The cable television industry developed in the late 1940s in order to provide television service to communities in rural Pennsylvania that were too isolated to receive over-the-air broadcasts. Since that time, the industry has grown and diversified to provide a broad range of educational, entertainment, cultural, and sports programming to large urban areas and rural communities alike. -2- According to Broadcasting & Cable Yearbook 1997, the cable industry in the ---------------------------------- United States consists of approximately 11,800 operating systems serving over 34,000 communities throughout the United States. Approximately 100 additional cable television franchises have been approved but have yet to be constructed. Each system has been granted a franchise by its local municipal government. Franchises are awarded competitively, and the winning bidder must generally provide guarantees that expensive investments in local employment, local programming, and system technical design will be made. The construction of a cable television system is extremely capital intensive. The cost of installing aerial cable often comprises the single largest investment made by a cable television system operator. Underground cable television installation is even more expensive, when considered on a per- mile basis. Additionally, investments must be made in headend facilities, satellite receiving equipment, office facilities, and subscriber equipment such as converter units, that ultimately deliver cable television service to households. Numerous changes have occurred in the development of cable television technology. Original systems used vacuum tube electronics and provided only a few off-air channels to subscribers. By contrast, modern systems are capable of providing over 100 channels of service, including satellite signals and locally originated programs. These systems use solid state amplifiers and addressable converter equipment to control subscriber service levels. -3- Cable television systems provide entertainment, news, music, and other forms of programming to the public. The cable operator must pay a fee, usually calculated on a per-subscriber basis, to program suppliers. These fees may either be determined on a fixed basis or calculated as a percentage of system revenues. In order to cover the costs of operation, systems sell "basic" services such as local television signals, local origination programs, and some satellite services for a fixed monthly fee to all subscribers. Customers also have the option to subscribe to additional "premium" or "pay" services, such as Home Box Office and Showtime, which offer movies, sports, entertainment, and cultural programming. In some cases, cable systems generate additional revenues by selling advertising time to local and national businesses, government agencies, and political organizations which seek to deliver information to the general public. Given the substantial fixed costs resulting from the capital requirements of the business, as well as high programming costs, cable operators seek to maximize system penetration. Two types of system penetration are of paramount importance in the industry. The first is basic penetration, which is a measure of the number of homes subscribing to cable television as a proportion of the homes which are passed by cable; if 400 homes subscribed to cable service in a community of 1,000 homes, basic penetration would be 40%. The second important measure is pay penetration, which gauges the popularity of pay services among those households which subscribe to basic cable service. If each of the 400 -4- cable households in the example subscribed to two pay services, pay penetration would be 200%. Approximately 67% of all households in the United States are currently served by cable television. The linkage between basic penetration, pay penetration, and customer development is fundamental to the cable industry. Operators constantly seek to provide programming and services that will develop the widest appeal among local households. The more effectively the cable operator is able to meet the preferences of the public, the larger the system's subscriber base will be. This relationship between subscribers and revenues is axiomatic in the cable industry and is the primary determinant of success or failure among system operators. The cable industry has become increasingly competitive in recent years. Overall financial performance of the industry has fallen short of expectations that were developed in the early 1980s, when a large number of cable television facilities were constructed. Traditional broadcast stations continue to be the mainstay of television viewing in the United States. In recent years, the FCC has issued many additional licenses for new independent television stations throughout the country. Moreover, cable operators have come under increasing competitive pressure from videocassette rental outlets, satellite program services, and other competing technologies. In order to build the largest possible subscriber base, systems invest heavily in tangible assets, such as distribution equipment and satellite equipment, and intangible assets such as marketing systems and programming agreements. Similarly, investments in -5- equipment and intangible assets, such as managerial talent, may be oriented toward controlling costs and increasing profitability. It is in this marketplace, one defined by heavy capital investment, the relationship between subscriber base size and revenues, and increasing competition, that the Albuquerque System operates. To inspect the physical plant and gather relevant financial and market data necessary for the appraisal, James R. Bond, Jr. of the firm visited the offices and technical facilities of the system in Albuquerque on May 15 and 16, 1997. In performing this analysis, various sources were employed. These include 1997 Broadcasting & Cable Yearbook; 1997 Television and Cable Factbook; Market - ---------------------------------- ---------------------------------- Statistics Demographics USA 1996, County Edition; the National Association of ------------------------------------- Broadcasters and Bond & Pecaro, Inc. The Television Industry: 1997 Television ----------------------------------------- Market-by-Market Review; Paul Kagan Associates Cable TV Investor; other industry - ----------------------- ----------------- publications; internal financial statements and reports provided by the Albuquerque System; and financial information and projections supplied by The Jones Group, Ltd. Additionally, the appraiser relied upon information furnished by system management relative to the age, condition, and adequacy of the system's physical plant. These materials are assumed to be accurate with respect to factual matters. -6- CABLE TV FUND 12 CABLE TELEVISION SYSTEM ALBUQUERQUE, NEW MEXICO APPRAISAL OF NON-CURRENT ASSETS AS OF APRIL 30, 1997 EXECUTIVE SUMMARY ----------------- An analysis to determine the fair market value of the non-current assets of the Albuquerque System has been made. Fair market value is defined as the price in cash or cash equivalents that would be paid by a willing buyer to a willing seller in an arm's length transaction in which neither party acts under any compulsion to buy or sell. The effective date of this analysis is April 30, 1997. VALUATION METHOD - ---------------- In order to determine the fair market value of the non-current assets of the Albuquerque System, a discounted cash flow projection was developed. This income approach measures the expected economic benefits these assets bring to their holder. The fair market value of the assets of the system may therefore be expressed by discounting these future benefits. It is generally accepted that the value of a telecommunications business lies in the fact that it is a "going concern." That is, its value reflects the revenues and, ultimately, the after-tax cash flow that the business may reasonably be expected to generate over a period of years. The potential resale value of the business at the end of that period is also -7- an important factor in the valuation of such properties. A number of factors contribute to going concern value, including the formation of a business plan; the construction of the system headend facility; the development of a functional general, administrative, and technical organization; establishment of a sales and marketing organization; and the coordination of all of these functions into a well defined and efficient operating organization. The market, or comparable sales, approach provides a useful means by which assumptions made in the development of the discounted cash flow analysis can be tested against marketplace transactions. The discounted cash flow model incorporates variables such as capital expenditures, homes passed by the system, basic penetration, pay penetration, system revenue projections, anticipated system operating expenses and profits, and various discount rates. The variables used in the analysis reflect historical system and market growth trends as well as anticipated system performance and market conditions. The capital expenditures provision reflects the amount of investment required to expand and maintain a competitive cable television business in the Albuquerque, New Mexico area. The discounted cash flow projection period of ten years was judged to be an appropriate time horizon for the analysis. Cable operators and investors typically expect to recover their investments within a ten year period. It is over this period that projections -8- regarding market demographics, system basic and pay penetration, and operating profit margins can be made with the highest degree of accuracy. Over this ten year period, household growth in the Albuquerque area, anticipated market penetration percentages, and system operating performance expectations were used to project the system's operating profits. Income taxes were deducted from the projected operating profits to determine after-tax net income. Depreciation and amortization expenses were added back to the after-tax income stream and projected capital expenditures were subtracted to calculate the system's net after-tax cash flow. The stream of annual cash flow was adjusted to present value using a discount rate appropriate for the cable television industry. The discount rate used is based upon an after-tax rate calculated for the cable television industry. Additionally, it was necessary to project the system's residual value at the end of the ten year projection period. In order to determine this value, an operating cash flow multiple was applied to the system's 2007 operating cash flow projection. The terminal value represents the hypothetical value of the system at the end of the projection period. Taxes were deducted from the indicated terminal value. The net terminal value was then discounted to present value. The results of these approaches are considered and given appropriate weight in the consolidation portion of the analysis. In order to verify the results of the discounted cash flow analysis, the appraiser also utilized a comparable sales approach, relying upon an -9- analysis of subscriber multiples. The results of this analysis support the conclusion resulting from application of the income approach. CONCLUSION - ---------- Based upon the application of the income and market approaches, the indicated fair market value of the non-current assets of the Albuquerque System as of April 30, 1997 is determined to be $221,349,800. Recipients of this report agree that all of the information contained herein is of a confidential nature. This report may not, in whole or in part, be reproduced or distributed to others. Each recipient agrees to treat it in a confidential manner, and will not, directly or indirectly, disclose or permit its agents or affiliates to disclose any such information without the consent of Bond & Pecaro, Inc. This analysis is based upon a number of projections. Projections are inherently subject to varying degrees of uncertainty. Their accuracy depends, among other things, upon the reliability of the underlying assumptions and the occurrence of events beyond the control of Bond & Pecaro, Inc. Certain information and assumptions are based upon historical industry data. Some of the assumptions set forth inevitably will prove not to have been correct. Consequently, the results of operations will vary from those set forth in the projections and such variations may be material. -10- Bond & Pecaro, Inc. makes no representations or warranties as to the accuracy or completeness of the information or projections and assumptions contained herein, or otherwise furnished in connection with this analysis. Neither Bond & Pecaro, Inc. nor its personnel assume any liability for damages, direct or indirect, arising out of or related to this report, the information or assumptions or projections contained herein, any omissions from this report, or any information otherwise provided regarding this report. Neither this firm nor any of its employees has any present or anticipated economic interest in the Cable TV Fund 12 cable television system or The Jones Group, Ltd. The compensation received by the firm was in no way contingent upon the values or the conclusions developed herein. This appraisal was prepared for The Jones Group, Ltd. in connection with internal management requirements. The report is not to be otherwise cited or disseminated without the prior written consent of Bond & Pecaro, Inc. -11- All information and conclusions contained in this report are based upon the best knowledge and belief of the undersigned, whose qualifications are attached hereto. BOND & PECARO, INC. 1201 Connecticut Ave., N.W. BY /s/ James R. Bond, Jr. Suite 450 ----------------------- Washington, D.C. 20036 James R. Bond, Jr. (202) 775-8870 June 20, 1997 BY /s/ Julie A. Kroskin ----------------------- Julie A. Kroskin BY /s/ Tracy A. Hogan ----------------------- Tracy A. Hogan -12- CABLE TV FUND 12 CABLE TELEVISION SYSTEM ALBUQUERQUE, NEW MEXICO APPRAISAL OF NON-CURRENT ASSETS AS OF APRIL 30, 1997 CABLE TV FUND 12 CABLE TELEVISION SYSTEM ---------------------------------------- SYSTEM BACKGROUND - ----------------- The Albuquerque System serves the City of Albuquerque; the Villages of Corrales, Bosque Farms, Los Ranchos de Albuquerque, North Valley, Paradise Hills, Peralta, South Valley, and Taylor Ranch; the Town of Bernalillo; unincorporated portions of the Counties of Bernalillo, Sandoval, and Valencia; and the Kirkland Air Force Base, in New Mexico. The technical operations of the Albuquerque System are conducted at five sites. These consist of an office facility located at 4611 Montbell Place in Albuquerque, an advertising office at 1700 Louisiana Street in Albuquerque, and headend facilities located in Albuquerque, Bernalillo, and Bosque Farms, New Mexico. CABLE TV FUND 12 HISTORICAL PERFORMANCE - --------------------------------------- The Albuquerque System financial statements were provided for the years ending 1994, 1995, 1996, and projections for 1997. As shown in Table 1, the system's net revenues increased from approximately $41.8 million in 1994 to $49.5 million in 1996, reflecting a compound annual growth rate of approximately 8.8%. System revenues are projected to be $55.6 million in 1997. -13- Operating cash flow at the Albuquerque System increased at an average annual rate of approximately 9% during the 1994 to 1996 period. The system's operating profit margin remained relatively constant between 1994 and 1996, varying between 42.1% and 45.0%. -14- TABLE 1 ------- HISTORICAL CABLE TV FUND 12 FINANCIAL PERFORMANCE (Dollar Amounts Shown in Thousands)
Projected 1997 1996 1995 1994 ---------- ---------- ---------- ---------- System Net Revenue $55,571.2 $49,488.0 $46,256.5 $41,798.1 Total Operating Expenses $32,199.1 $28,558.2 $25,444.2 $24,188.6 Operating Cash Flow $23,372.1 $20,929.8 $20,812.3 $17,609.5 Operating Cash Flow Margin 42.1% 42.3% 45.0% 42.1%
Source: The Jones Group, Ltd. financial statements for years ending 1994, 1995, 1996, and projections for the year 1997. -15- DEMOGRAPHIC PROFILE - ------------------- According to Broadcasting & Cable Yearbook 1997, the Albuquerque System is ---------------------------------- located within the Albuquerque-Santa Fe DMA,/1/ which ranks 48th in the country by Nielsen. Population, income, retail sales, employment composition, and other economic characteristics of the Albuquerque-Santa-Fe market were considered in this analysis. POPULATION GROWTH - ----------------- The current and projected populations of the Albuquerque-Santa-Fe market are shown in Table 2. In 1995, the Albuquerque-Santa-Fe market population was approximately 665,600. The population of the market area is projected to increase at an annual rate of 1.6% through the year 2000, based upon forecasts contained in Market Statistics Demographics USA 1996, County Edition. This ------------------------------------- mirrors the projected annual rate of population growth for the State of New Mexico, and is above the 0.8% annual increase projected for the United States. - --------------------------- /1/ Nielsen Media Research defines a DMA as a "group of counties in which stations in the metro area receive the largest audience share. DMAs are non-overlapping areas used for planning, buying, and evaluating television audiences. Each county in the United States is assigned to only one DMA." -16- INCOME GROWTH - ------------- Summary income data for the Albuquerque-Santa-Fe market are also contained in Table 2. Current income levels and projected growth rates for the market are compared with averages for the State of New Mexico and for the United States. Total Effective Buying Income ("EBI")/1/ in the Albuquerque-Santa-Fe market during the 1995-2000 period is projected to increase from approximately $9.6 billion to $12.8 billion. Per capita EBI is projected to increase from $14,383 to $17,792 over the same period. EBI per household is approximately 12.3% higher than the average for the State of New Mexico but almost 5.8% lower than the national average. The projected income growth rate for the Albuquerque-Santa-Fe market is well above that of the state and nation. The per capita and per household income growth rates for the Albuquerque-Santa-Fe market are also higher than state and national levels. RETAIL SALES GROWTH - ------------------- Retail sales data provide additional information regarding economic activity in the Albuquerque-Santa-Fe market. As reflected in Table 2, total, per capita, and per household retail sales for the market are projected to grow at compound annual rates of 6.0%, 4.3%, and 4.0%, respectively, during the 1995- 2000 period. - -------------------------- /1/ EBI is defined by Market Statistics Demographics USA 1996, County ----------------------------- Edition as "personal income less personal tax and non-tax payments." ------- -17- Projected retail sales in the area are compared to those for the State of New Mexico and the United States. Using these measures, the total retail sales growth in the Albuquerque-Santa-Fe market exceeds state and national averages. For example, total retail sales growth during the 1995-2000 period is expected to average 6.0% in the Albuquerque-Santa-Fe market, compared to 5.6% in the State of New Mexico, and 4.0% in the United States as a whole. Retail sales per capita of $10,015 in the market are well above the national average of $8,891 and also the New Mexico average of $8,606. EMPLOYMENT COMPOSITION - ---------------------- Major employers in the Albuquerque DMA include the Albuquerque Public Schools (10,596 employees), the University of New Mexico (6,228 employees), and Sandia National Labs (7,488 employees). The estimated unemployment rate in the Albuquerque-Santa-Fe market as of April 1997 was 4.0%, representing a significant decline from a 5.0% level at the end of 1996./1/ The current rate is considerably lower than the 6.3% unemployment rate for the State of New Mexico and the 4.9% national average. - ----------------------- /1/ Unemployment data from the Bureau of Labor Statistics. -18- TABLE 2 ------- DEMOGRAPHIC AND ECONOMIC PROJECTIONS FOR THE ALBUQUERQUE-SANTA FE DMA, THE STATE OF NEW MEXICO, AND THE UNITED STATES
Annual 1995 2000 Change ---- ---- ------ POPULATION (THOUSANDS) Albuquerque 665.6 721.9 1.6% New Mexico 1,700.4 1,840.2 1.6% U.S. 264,900.9 276,107.0 0.8% HOUSEHOLDS (THOUSANDS) Albuquerque 250.2 274.7 1.9% New Mexico 609.2 668.3 1.9% U.S. 97,647.4 102,813.1 1.0% AVERAGE HOUSEHOLD SIZE Albuquerque 2.7 2.6 -0.8% New Mexico 2.8 2.8 0.0% U.S. 2.7 2.7 0.0% TOTAL EFFECTIVE BUYING INCOME (MILLIONS) Albuquerque $ 9,573.5 $ 12,843.9 6.1% New Mexico 20,753.5 27,222.4 5.6% U.S. 3,964,285.1 4,832,437.7 4.0% EBI PER CAPITA Albuquerque $ 14,383 $ 17,792 4.3% New Mexico 12,205 14,793 3.9% U.S. 14,965 17,502 3.2% EBI PER HOUSEHOLD Albuquerque $ 38,263 $ 46,756 4.1% New Mexico 34,067 40,734 3.6% U.S. 40,598 47,002 3.0% TOTAL RETAIL SALES (MILLIONS) Albuquerque $ 6,666.2 $ 8,921.1 6.0% New Mexico 14,633.7 19,171.5 5.6% U.S. 2,355,241.6 2,871,024.8 4.0% RETAIL SALES PER CAPITA Albuquerque $ 10,015 $ 12,358 4.3% New Mexico 8,606 10,418 3.9% U.S. 8,891 10,398 3.2% RETAIL SALES PER HOUSEHOLD Albuquerque $ 26,644 $ 32,476 4.0% New Mexico 24,021 28,687 3.6% U.S. 24,120 27,925 3.0%
Source: Market Statistics Demographics USA 1996, County Edition. ------------------------------------- -19- MEDIA OVERVIEW - -------------- The Albuquerque System faces competition from area television stations, local radio stations, newspapers, direct broadcast satellite systems (DBS), and videocassette rental outlets for audience share and advertising revenues. There are 10 commercial television stations operating in the Albuquerque- Santa-Fe market:
- ------------------------------------------------------------------- Call Letters Channel Affiliation - ------------ ------- ----------- KKTO 2 Fox KOB-TV 4 NBC KOAT-TV 7 ABC KCHF 11 Independent KRQE 13 CBS KNAT 23 Independent KRPV 27 Independent KHFT 29 Independent KLUZ-TV 41 Independent KASC 50 Independent - -------------------------------------------------------------------
Of the radio stations licensed to the Albuquerque-Santa-Fe market, 24 achieved a measurable audience share in the last Arbitron rating period, as reported in Duncan's American Radio, Fall 1996. These include six AM radio ------------------------- stations and 18 FM radio stations. The Albuquerque-Santa-Fe market is also served by the following cable television operators: TCI Cablevision of New Mexico, Inc. (17,218 subscribers) and Santa Fe Cablevision Co., (16,973 subscribers). The major daily newspaper serving the area is the -20- Albuquerque Journal, with a total circulation of 113,235 daily and 164,021 on - ------------------- Sundays. Three DBS systems are active in the Albuquerque-Santa-Fe market: DirecTV, EchoStar, and PrimeStar. Additionally, there are 69 videocassette rental outlets in the Albuquerque area. MARKET ANALYSIS - --------------- HOMES PASSED - ------------ The initial parameter upon which the discounted cash flow projection is based is homes passed, or "passings." Two factors affect the number of homes passed, new plant construction and household growth. Plant expansion improves system coverage by allowing the system to offer service to previously unserved areas. Household growth is the result of new construction and occupancies in areas that are already served by the system. It has been assumed that the number of households in the Albuquerque System franchise area will increase at a rate equivalent to the average growth projected for the areas served by the system as a whole, or approximately 1.9% per year. BASIC AND EXPANDED BASIC PENETRATION - ------------------------------------ Basic and expanded basic subscriber penetration at the system are currently 48.2% and 96.8% (expressed as a ratio of basic subscribers), respectively. System basic penetration has shown modest but consistent growth during the past three years. It is likely -21- that basic and expanded basic penetration will continue to demonstrate a modest growth trend over the projected 10 year period. For the purpose of this analysis, the appraiser has assumed that basic subscriber penetration will gradually increase from its current level to approximately 71.6% by 2007, as shown in Table 3. Basic subscribers at the system are projected to increase at an annual rate of 6.0% through the year 2007. Expanded basic subscriber penetration has been projected to remain at a 96.8% ratio of basic subscribers through 2007. These rates are derived from the historical and anticipated performance of the system, as reflected in management projections, and expectations for the cable television industry in general. PAY PENETRATION - --------------- As of April 30, 1997, pay penetration at the Albuquerque System attained a level of 54.1%. Pay penetration is projected to increase from 55% at the end of 1997 to approximately 64.0% by 2007, as indicated in Table 3. This estimate is reasonable in light of the historical performance of the system, as reflected in management projections, and expectations for the anticipated performance of the cable television industry in general. RATES - ----- System service rates are projected in Table 4. These are based upon prevailing rates in the Albuquerque System with provisions for anticipated increases, where appropriate. -22- As of April 30, 1997, monthly service rates ranged from $8.77 to $10.49 for basic service, $11.97 to $16.13 for expanded basic service, $5.95 to $11.50 for each pay service, and $3.40 to $3.57 for each addressable converter (with remote control unit rentals). Installation fees ranged from $17.34 to $36.75, depending upon the type of installation service performed. Due to regulatory and competitive restrictions, service rates for basic and expanded basic services are expected to grow with inflation, while premium channel service rates are expected to remain relatively flat. These assumptions are consistent with industry expectations for service rate growth. -23- TABLE 3 ------- CABLE TV FUND 12 CABLE TELEVISION SYSTEM SUBSCRIBER PROJECTIONS 1997 1998 1999 2000 2001 2002 2003 2004 2005 ---- ---- ---- ---- ---- ---- ---- ---- ---- Subscribers Homes Passed/1/ 238,240 242,767 247,379 252,080 256,869 261,750 266,723 271,791 276,955 Basic Subscribers: Beginning of Year 112,603 117,157 124,186 131,637 139,535 147,907 156,781 166,188 176,159 Net Additions 4,554 7,029 7,451 7,898 8,372 8,874 9,407 9,971 10,570 End of Year 117,157 124,186 131,637 139,535 147,907 156,781 166,188 176,159 186,729 Average Basic 114,880 120,672 127,912 135,586 143,721 152,344 161,485 171,174 181,444 Subscribers/2/ Tier 1 Subscribers 113,408 120,212 127,425 135,070 143,174 151,764 160,870 170,522 180,754 (EOY)/2/ Premium Subscribers (EOY) 64,436 69,420 74,770 80,512 86,674 93,285 100,378 107,985 116,145 Basic Service Penetration 49.2% 51.2% 53.2% 55.4% 57.6% 59.9% 62.3% 64.8% 67.4% Tier 1 Penetration (% Subs.) 96.8% 96.8% 96.8% 96.8% 96.8% 96.8% 96.8% 96.8% 96.8% Premium Penetration (% Subs.) 55.0% 55.9% 56.8% 57.7% 58.6% 59.5% 60.4% 61.3% 62.2% 2006 2007 ---- ---- Subscribers Homes Passed/1/ 282,217 287,579 Basic Subscribers: Beginning of Year 186,729 197,933 Net Additions 11,204 8,004 End of Year 197,933 205,937 Average Basic Subscribers/2/ 192,331 201,935 Tier 1 Subscribers (EOY)/2/ 191,599 199,347 Premium Subscribers (EOY) 124,896 131,800 Basic Service Penetration 70.1% 71.6% Tier 1 Penetration (% Subs.) 96.8% 96.8% Premium Penetration (% Subs.) 63.1% 64.0% Note: 1997 projections adjusted for a partial year. - ------------------------------------
/1/ Number of households in the Albuquerque area are projected to increase at 1.9% per year. See text. /2/ Basic and expanded subscribers are projected to increase at an annual rate of 6.0%. See text. -24- TABLE 4 ------- CABLE TV FUND 12 CABLE TELEVISION SYSTEM REVENUE PROJECTIONS (Dollar Amounts Shown in Thousands) 1997 1998 1999 2000 2001 2002 2003 2004 ---- ---- ---- ---- ---- ---- ---- ---- Service Revenue: Basic Service Revenue $14,130.2 $15,219.1 $16,531.3 $17,962.4 $19,523.1 $21,206.3 $23,040.6 $25,039.3 Tier 1 Service Revenue 20,763.3 22,357.4 24,293.2 26,396.5 28,681.4 31,163.1 33,858.3 36,784.5 Basic Commercial & Pay Revenue/1/ 1,220.7 1,251.2 1,282.5 1,314.6 1,347.5 1,381.2 1,415.7 1,451.1 Premium Service Revenue 6,716.1 7,172.0 7,725.7 8,320.0 8,957.8 9,642.2 10,376.5 11,164.1 Pay Per View Revenue/2/ 1,754.6 1,973.9 2,220.6 2,498.2 2,810.5 3,161.8 3,557.0 4,001.6 --------- --------- --------- --------- --------- --------- --------- --------- Subtotal Service Revenue $44,584.9 $47,973.6 $52,053.3 $56,491.7 $61,320.3 $66,554.6 $72,248.1 $78,440.6 Other Revenue: Advertising Revenue $ 4,588.9 $ 5,162.5 $ 5,807.8 $ 6,533.8 $ 7,350.5 $ 8,269.3 $ 9,303.0 $10,465.9 Installation 702.7 720.3 738.3 756.8 775.7 795.1 815.0 835.4 Equipment Rentals 1,483.6 1,632.0 1,795.2 1,974.7 2,172.2 2,389.4 2,628.3 2,891.1 Franchise Fees/3/ 1,910.5 2,025.2 2,146.7 2,275.5 2,412.0 2,556.7 2,710.1 2,872.8 FCC Pass Thru Revenue/3/ 63.4 67.2 71.2 75.5 80.0 84.8 89.9 95.3 Other Revenue 1,672.6 1,839.9 2,023.9 2,226.3 2,448.9 2,693.8 2,963.2 3,259.5 --------- --------- --------- --------- --------- --------- --------- --------- Subtotal Other Revenue $10,421.7 $11,447.1 $12,583.1 $13,842.6 $15,239.3 $16,789.2 $18,509.6 $20,420.0 Total Revenue $55,006.6 $59,420.7 $64,636.4 $70,334.3 $76,559.6 $83,343.8 $90,757.7 $98,860.6 2005 2006 2007 ---- ---- ---- Service Revenue: Basic Service Revenue $27,194.8 $29,542.0 $31,792.6 Tier 1 Service Revenue 39,961.2 43,408.9 46,725.9 Basic Commercial & Pay Revenue/1/ 1,487.4 1,524.6 1,562.7 Premium Service Revenue 12,008.9 12,915.0 13,753.8 Pay Per View Revenue/2/ 4,501.8 5,064.5 5,697.6 --------- --------- --------- Subtotal Service Revenue $85,154.1 $92,455.0 $99,532.6 Other Revenue: Advertising Revenue $11,774.1 $13,245.9 $14,901.6 Installation 856.3 877.7 899.6 Equipment Rentals 3,180.2 3,498.2 3,848.0 Franchise Fees 3,045.1 3,227.8 3,421.5 FCC Pass Thru Revenue 101.0 107.1 113.5 Other Revenue 3,585.5 3,944.1 4,338.5 ---------- --------- ---------- Subtotal Other Revenue $ 22,542.2 $24,900.8 $27,522.7 Total Revenue $107,696.3 $117,355.8 $127,055.3 - ------------------------------------
/1/ Basic commercial and pay revenue projected to increase at a 2.5% annual rate. /2/ Pay Per View revenue projected to increase at a 12.5% annual rate. /3/ Franchise Fees and FCC Pass Through Revenue projected to increase based upon a subscriber growth rate of 6%. See text. -25- THE CABLE TV FUND 12 CABLE TELEVISION SYSTEM DISCOUNTED CASH FLOW ANALYSIS - ------------------------------------------------------------------------- SYSTEM REVENUE PROJECTIONS - -------------------------- Most of the revenue projections appearing in Table 4 are calculated by multiplying the number of subscribers to a particular level of service by the projected rate. Commercial service revenue is projected to increase at an annual rate of 2.5%, based upon management expectations for the system. Similarly, pay-per- view service revenue is projected to increase at a 12.5% annual rate through 2007, based upon management's projections. Commercial advertising revenue is projected to increase at a 12.5% annual rate through 2007. Annual installation revenue was projected to grow at a compound annual rate of 2.5% during the projection period. Equipment rental revenues, as well as other revenues, are also projected to increase by 10% annually through 2007. As indicated in Table 4, total system revenues are projected to increase from $55.0 million in 1997 to $127.1 million in 2007. OPERATING PROFIT MARGINS - ------------------------ Operating profit margins are based upon historical operating performance of the Albuquerque System. Operating profits are defined as profit before interest, depreciation, tax, and corporate allocation charges. During the past three years, system operating profit -26- margins have been within the 42.1% to 45.0% range. For the purposes of this analysis, the system's 1996 operating profit margin of 42.3% has been used. DEPRECIATION - ------------ Depreciation expense for each year has been determined using the MACRS schedule for Five, Seven, 15, and 39 Year Property, based upon the reported cost of fixed assets present at the system. FEDERAL, STATE, AND LOCAL TAX RATES - ----------------------------------- An estimated tax rate of 38.1% was applied to the projected taxable income of the system. This estimated rate reflects the effective combined federal, state, and local tax rates in effect on April 30, 1997. SUBSEQUENT CAPITAL EXPENDITURES - ------------------------------- Subsequent annual capital expenditures were estimated to approximate $13.4 million annually, based upon management projections. These expenditures are necessary in order to replace assets that become irreparable, technically obsolete, or for other reasons are no longer useful to the system. In addition, as the system matures, additional equipment and facilities will be necessary to improve and expand its productive capacity. -27- NET AFTER-TAX CASH FLOW - ----------------------- Net after-tax cash flow was determined in two steps. After taxes were subtracted from the system's taxable income, non-cash depreciation expenses were added back to net income to yield after-tax cash flow. From the after-tax cash flow, the provision for subsequent capital expenditures was deducted to calculate net after-tax cash flows. DISCOUNT RATE - ------------- A discount rate of 12% was used to calculate the present value of the net after-tax cash flows. In order to account for the risk associated with investments in the cable television industry and the system in particular, a premium was added to a base discount rate to develop the 12% rate employed in this analysis. The base rate reflects application of the Weighted Average Cost of Capital ("WACC") model. RESIDUAL CASH FLOW MULTIPLE - --------------------------- The residual cash flow multiple refers to the factor used to estimate the system's value at the end of the projection period. A multiplier of 10 was applied to the Year 10 operating cash flow. Generally, multiples used in the valuation of cable television systems of this type range from 8.0 to 12.0 times operating cash flow, depending upon market conditions and profit potential. Exceptional circumstances will warrant multiples outside of this range. -28- The selected multiple of 10 was used to estimate the value of the system at the end of the investment period. This multiple reflects the state of the market for cable television systems as of April 30, 1997, tempered by the economic conditions of the system's franchise service area, the necessity for a system rebuild, the uncertainty introduced by re-regulation of the cable television industry, and the prospects for increased competition from wireless cable companies and DBS operators. PRESENT VALUE OF RESIDUAL - ------------------------- In the analysis, capital gains taxes were deducted from the discounted terminal value at a rate of 38.1%. This result was then discounted for present value using a rate of 12%. The results of the discounted cash flow analysis are summarized in Tables 5 and 6. Based upon the assumptions outlined above, the indicated fair market value of the system's non-current assets is $221,349,800. This value incorporates the cumulative present value of the net after-tax cash flow of $102,873,500 and the discounted residual value of $118,476,300. -29- TABLE 5 ------- CABLE TV FUND 12 CABLE TELEVISION SYSTEM DISCOUNTED CASH FLOW ANALYSIS (Dollar Amounts Shown in Thousands) 1997 1998 1999 2000 2001 2002 2003 ---- ---- ---- ---- ---- ---- ---- Projected System Revenues/1/ $55,006.60 $59,420.70 $64,636.40 $70,334.30 $76,559.60 $83,343.80 $90,757.70 Operating Profit Margin/2/ 42.3% 42.3% 42.3% 42.3% 42.3% 42.3% 42.3% Operating Cash Flow/3/ $ 23,267.8 $ 25,135.0 $ 27,341.2 $ 29,751.4 $ 32,384.7 $ 35,254.4 $ 38,390.5 Less: Depreciation 21,157.9 30,540.4 28,365.1 26,924.4 26,331.5 27,065.6 27,813.4 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Taxable Income $ 2,109.9 ($5,405.4) ($1,023.9) $ 2,827.0 $ 6,053.2 $ 8,188.8 $ 10,577.1 Taxes 803.9 (2,059.5) (390.1) 1,077.1 2,306.3 3,119.9 4,029.9 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net Income $ 1,306.0 ($3,345.9) ($633.8) $ 1,749.9 $ 3,746.9 $ 5,068.9 $ 6,547.2 Add Back: Depreciation 21,157.9 30,540.4 28,365.1 26,924.4 26,331.5 27,065.6 27,813.4 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net After-Tax Cash Flow $ 15,140.7 $ 27,194.5 $ 27,731.3 $ 28,674.3 $ 30,078.4 $ 32,134.5 $ 34,360.6 Capital Expenditures/4/ 9,031.6 13,400.0 13,400.0 13,400.0 13,400.0 13,400.0 13,400.0 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net After-Tax Cash Flow $ 6,109.1 $ 13,794.5 $ 14,331.3 $ 15,274.3 $ 16,678.4 $ 18,734.5 $ 20,960.6 Present Value Net After-Tax Cash Flow $ 5,880.2 $ 12,076.0 $ 11,201.7 $ 10,659.7 $ 10,392.5 $ 10,422.9 $ 10,411.9 Cumulative Present Value Net After-Tax Cash Flow $ 5,880.2 $ 17,956.2 $ 29,157.9 $ 39,817.6 $ 50,210.1 $ 60,633.0 $ 71,044.9 Cumulative Present Value Net After-Tax Cash Flow $102,873.5 ========== 2004 2005 2006 2007 ---- ---- ---- ---- Projected System Revenues/1/ $98,860.60 $107,696.30 $117,355.80 $127,055.30 Operating Profit Margin/2/ 42.3% 42.3% 42.3% 42.3% Operating Cash Flow/3/ $ 41,818.0 $ 45,555.5 $ 49,641.5 $ 53,744.4 Less: Depreciation 26,170.1 23,934.3 23,934.2 22,643.6 ---------- ----------- ----------- ----------- Taxable Income $ 15,647.9 $ 21,621.2 $ 25,707.3 $ 31,100.8 Taxes 5,961.8 8,237.7 9,794.5 11,849.4 ---------- ----------- ----------- ----------- Net Income $ 9,686.1 $ 13,383.5 $ 15,912.8 $ 19,251.4 Add Back: Depreciation 26,170.1 23,934.3 23,934.2 22,643.6 ---------- ----------- ----------- ----------- Net After-Tax Cash Flow $ 35,856.2 $ 37,317.8 $ 39,847.0 $ 13,657.8 Capital Expenditures/4/ 13,400.0 13,400.0 13,400.0 4,368.4 ---------- ----------- ----------- ----------- Net After-Tax Cash Flow $ 22,456.2 $ 23,917.8 $ 26,447.0 $ 9,289.4 Present Value Net After-Tax Cash Flow $ 9,959.7 $ 9,471.4 $ 9,350.8 $ 3,046.7 Cumulative Present Value Net After-Tax Cash Flow $ 81,004.6 $ 90,476.0 $ 99,826.8 $ 102,873.5
- ------------------------------------------ /1/ See Table 4. /2/ Based upon actual year end 1996 system operating cash flow margin. See text. /3/ 1997 and 2007 net after-tax cash flows adjusted for partial years. /4/ 1997 and 2007 capital expenditures adjusted for partial years. -30- TABLE 6 ------- VALUATION OF CABLE TV FUND 12 CABLE TELEVISION SYSTEM (INCOME APPROACH) (Dollar Amounts Shown in Thousands)
Year 10 Operating Cash Flow/1/ $ 53,744.4 10 X Cash Flow Multiple/2/ 537,444.0 Capital Gains Tax 169,474.7 ---------- Future Residual Value $367,969.3 Discounted to Present Value @ 12% $118,476.3 Plus: Cumulative Present Value Net After-Tax Cash Flow/1/ 102,873.5 ---------- Valuation of Albuquerque System (Income Approach) $221,349.8 ==========
- --------------------------------------- /1/ See Table 5. /2/ See text. -31- COMPARABLE SALES ANALYSIS - ------------------------- The value of $221.3 million yielded by the discounted cash flow analysis of the Albuquerque System corresponds to a 10.6 times multiple of the system's 1996 cash flow. This multiple is slightly above the range of prices paid by purchasers of similar cable properties but is consistent with the expectation of increased revenues in the Albuquerque area and continued above average market growth. In recent years, there have been many sales of cable television systems in the United States. Table 7 identifies six cable television system sales which occurred within the past year. These sales have been selected based upon their comparability to the Albuquerque System. The prices paid for these comparable systems range from $5.5 million to $171.2 million. As shown in Table 7, the price per subscriber has been computed for each of these sales. This measure is calculated by dividing the reported purchase price of the cable television system by the total number of basic subscribers. The average price per subscriber paid for the six comparable cable television system sales transactions listed in Table 7 is approximately $1,971. -32- TABLE 7 ------- CABLE TELEVISION SYSTEM COMPARABLE SALES
Price Price Per Sub Date Location Seller Buyer (mil.) (000) - ---- -------- ------ ----- ----- ------- Oct. 96 Roseville, CA Jones 87-A Roseville Cable $ 31.0 $1,938 Sept. 96 Rosenburg, TX Jones Spacelink TCI 5.5 1,896 Jan. 97 Palo Alto, CA Palo Alto Co-Op. Sun Country Cable 54.1 2,042 Jan. 97 Jonesburo, AR TCI TCA 41.0 2,000 Feb. 97 Independence, MO Jones Intercable Jones Intercable 171.2 2,004 Feb. 97 Hickory, NC Prime Cable Charter Communications, Inc. 68.1 1,946 ------ ------ Average $ 61.8 $1,971 ====== ======
Source: Announced cable television sales data from Paul Kagan Associates Cable TV Investor. ----------------- Note: Price per subscriber calculations may show slight rounding discrepancy. -33- CABLE TV FUND 12 CABLE TELEVISION SYSTEM ALBUQUERQUE, NEW MEXICO APPRAISAL OF NON-CURRENT ASSETS AS OF APRIL 30, 1997 CONCLUSION ----------- Based upon the application of the income approach, employing a discounted cash flow analysis, the fair market value of the non-current assets of the Cable TV Fund 12 cable television system was determined to be $221,349,800. Assumptions employed in this analysis include subscriber growth, system revenue projections, and operating profit margins. These assumptions and the results of the discounted cash flow analysis were confirmed through an independent analysis of comparable sales transactions. -34- EXHIBIT A QUALIFICATIONS OF JAMES R. BOND, JR., JULIE A. KROSKIN, AND TRACY A. HOGAN PROFESSIONAL EXPERIENCE AND QUALIFICATIONS ------------------------------------------ JAMES R. BOND, JR. ------------------ James R. Bond, Jr. is a principal in the consulting firm of Bond & Pecaro, Inc., a Washington based consulting firm specializing in valuations, asset appraisals, and related financial services for the communications industry. In this capacity, he is routinely retained to examine and study economic issues which affect media businesses. Before the formation of Bond & Pecaro, Inc., Mr. Bond was a Vice President with Frazier, Gross & Kadlec, Inc. Mr. Bond joined that firm in 1978, was appointed Manager of Asset Appraisal Services in 1979, and in 1982 was named Vice President. In this capacity he engaged in the development and preparation of asset appraisal reports for owners of broadcast and cable television properties. Mr. Bond has been retained to appraise, for a fee, the assets of over 1,500 radio, television, radio common carrier, and cable television properties. He is a member of the Society of Broadcast Engineers (SBE), the Cable Television Tax Professionals Institute (CTTPI), and the Society of Cable Television Engineers (SCTE). He is a member and director of the Broadcast and Cable Television Financial Management Association (BCFM), and serves on the National Association of Broadcasters (NAB) Tax Advisory Panel and Depreciation Task Force. Mr. Bond is a Certified Senior Radio Broadcast Engineer (SBE), a Certified Senior Television Broadcast Engineer (SBE), and holds an FCC First Class Radiotelephone Operator License. He has testified as an expert witness in connection with numerous telecommunications valuation matters before federal, state, and local courts. Mr. Bond received a Bachelor of Arts degree in Radio, Television, and Motion Pictures for the University of North Carolina at Chapel Hill in 1976. Mr. Bond also holds a Masters Degree in Business Administration for the University of Virginia in Charlottesville, Virginia. PROFESSIONAL EXPERIENCE AND QUALIFICATIONS ------------------------------------------ JULIE A. KROSKIN ---------------- Julie A. Kroskin is an associate in the firm of Bond & Pecaro, Inc., a Washington based consulting firm specializing in valuations, asset appraisals, and related financial services for the communications industry. Ms. Kroskin received a Bachelor of Arts degree in Radio, Television and Film from the University of Maryland at College Park. Prior to her association with Bond & Pecaro, Inc., Ms. Kroskin worked as a customer and technical support representative at American Cablecom in Beltsville, Maryland. PROFESSIONAL EXPERIENCE AND QUALIFICATIONS ------------------------------------------ TRACY A. HOGAN -------------- Tracy A. Hogan is an associate with the consulting firm of Bond & Pecaro, Inc., a Washington based consulting firm specializing in valuations, asset appraisals, and related financial services for the communications industry. Ms. Hogan received a Bachelor of Arts degree Cum Laude in German, with distinction in her major field of study, from the University of Wisconsin at Eau Claire. Additionally, she minored in Telecommunications and Radio/Television Production. Prior to her association with Bond & Pecaro, Inc., Ms. Hogan was station manager for the campus cable television station at the University of Wisconsin at Eau Claire. She has also worked in television and radio production. EX-99.(D)(1) 6 PROXY FOR CABLE TV FUND 12-C, LTD. Exhibit 99(d)(1) [LOGO OF JONES INTERCABLE, INC. APPEARS HERE] 9697 EAST MINERAL AVENUE ENGLEWOOD, COLORADO 80112 NOTICE OF VOTE OF THE LIMITED PARTNERS OF CABLE TV FUND 12-C, LTD. To the Limited Partners of Cable TV Fund 12-C, Ltd.: A special vote of the limited partners of Cable TV Fund 12-C, Ltd. (the "Partnership") is being conducted through the mails on behalf of the Partnership by Jones Intercable, Inc., the general partner of the Partnership, for the purpose of obtaining limited partner approval of the sale of the Albuquerque, New Mexico cable television system (the "Albuquerque System") owned by the Cable TV Fund 12-BCD Venture, a joint venture in which the Partnership has a 9 percent ownership interest, for $222,963,267 in cash, subject to normal closing adjustments. The Albuquerque System is proposed to be sold to Jones Communications of New Mexico, Inc., an indirect wholly owned subsidiary of the General Partner. Information relating to this matter is set forth in the accompanying Proxy Statement. If the limited partners approve the proposed sale of the Albuquerque System and if the transaction is closed, the Cable TV Fund 12-BCD Venture will repay a portion of its debt and $125,000,000 of net sale proceeds will be distributed to the three constituent partnerships of the Cable TV Fund 12-BCD Venture in proportion to their ownership interests. The Partnership accordingly will receive 15 percent of such proceeds, estimated to total approximately $19,097,217, and the Partnership will distribute this portion of the net sale proceeds to its partners of record as of the closing date of the sale of the Albuquerque System. Of this amount, approximately $18,175,163 will be distributed to the limited partners and approximately $922,054 will be distributed to the general partner. It is estimated that the limited partners will receive $382 for each $500 limited partnership interest, or $763 for each $1,000 invested in the Partnership. Once the distribution of the net proceeds from the sale of the Albuquerque System has been made, limited partners will have received a total of $555 for each $500 limited partnership interest, or $1,109 for each $1,000 invested in the Partnership, taking into account the prior distribution to limited partners made in 1996. Only limited partners of record at the close of business on October 31, 1997 are entitled to notice of, and to participate in, this vote of limited partners. It is very important that all limited partners participate in the voting. The Cable TV Fund 12-BCD Venture's ability to complete the transaction discussed in the Proxy Statement and the Partnership's ability to make a distribution to its partners of its portion of the net proceeds of the sale of the Albuquerque System pursuant to the terms of the Partnership's limited partnership agreement (the "Partnership Agreement") are dependent upon the approval of the transaction by the holders of a majority of the Partnership's limited partnership interests. The proposal that is the subject of this proxy solicitation will be adopted only if approved by the holders of a majority of the limited partnership interests. Each limited partnership interest entitles the holder thereof to one vote on the proposal. Because the Partnership Agreement requires that the proposal to sell the Albuquerque System be approved by the holders of a majority of the limited partnership interests, abstentions and non-votes will be treated as votes against the proposal. A properly executed consent returned to the general partner on which a limited partner does not mark a vote will be counted as a vote for the proposed sale of the Albuquerque System. Because limited partners do not have dissenters' or appraisal rights in connection with the proposed sale of the Albuquerque System, if the holders of a majority of the limited partnership interests approve the proposal, all limited partners will receive a distribution of the net sale proceeds in accordance with the procedures prescribed by the Partnership Agreement regardless of how or whether they vote on the proposal. Jones Intercable, Inc., as the general partner of the Partnership, urges you to sign and return the enclosed proxy card as promptly as possible. The proxy card should be returned in the enclosed envelope. JONES INTERCABLE, INC. General Partner [SIGNATURE OF ELIZABETH M. STEELE APPEARS HERE] Elizabeth M. Steele Secretary Dated: November 10, 1997 [LOGO OF JONES INTERCABLE, INC. APPEARS HERE] 9697 EAST MINERAL AVENUE ENGLEWOOD, COLORADO 80112 PROXY STATEMENT VOTE OF THE LIMITED PARTNERS OF CABLE TV FUND 12-C, LTD. This Proxy Statement is being furnished in connection with the solicitation of the written consents of the limited partners of Cable TV Fund 12-C, Ltd. (the "Partnership") by Jones Intercable, Inc., the general partner of the Partnership (the "General Partner"), on behalf of the Partnership, for the purpose of obtaining limited partner approval of the sale of the Albuquerque, New Mexico cable television system (the "Albuquerque System") owned by the Cable TV Fund 12-BCD Venture (the "Venture"), a joint venture in which the Partnership has a 15 percent ownership interest, for $222,963,267 in cash, subject to normal working capital closing adjustments. The Albuquerque System is proposed to be sold to Jones Communications of New Mexico, Inc., an indirect wholly owned subsidiary of the General Partner. Proxies in the form enclosed, properly executed and duly returned, will be voted in accordance with the instructions thereon. Limited partners are urged to sign and return the enclosed proxy as promptly as possible. Proxies cannot be revoked except by delivery of a proxy dated as of a later date. Officers and other employees of the General Partner may solicit proxies by mail, by fax, by telephone or by personal interview. The deadline for the receipt of proxy votes is December 15, 1997, unless extended, but the vote of the Partnership's limited partners will be deemed to be concluded on the date that the General Partner, on behalf of the Partnership, is in receipt of proxies executed by the holders of a majority of the limited partnership interests either consenting to or disapproving of the proposed transaction. The General Partner may extend the deadline for receipt of proxy votes if a majority of the limited partners fail to express an opinion on the transaction by December 15, 1997. If the General Partner extends the deadline for receipt of proxy votes, the limited partners will be informed by mail of the reason for the extension and the new deadline. The cost of the proxy solicitation will be paid by the General Partner. The Partnership has only one class of limited partners and no limited partner has a right of priority over any other limited partner. The participation of the limited partners is divided into limited partnership interests and each limited partner owns one limited partnership interest for each $500 of capital contributed to the Partnership. THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. As of September 15, 1997, the Partnership had 47,626 limited partnership interests outstanding held by approximately 3,424 persons. There is no established trading market for such interests. To the best of the General Partner's knowledge, no person or group of persons beneficially own more than five percent of the limited partnership interests. During late 1996 and early 1997, Smithtown Bay, LLC and Madison Partnership Liquidity Investors XIII, LLC, two firms unaffiliated with the Partnership, the General Partner and each other, conducted tender offers for interests in the Partnership. As of September 15, 1997, Smithtown Bay, LLC and its affiliates owned 1,941 limited partnership interests, or 4.1 percent of the limited partnership interests. As of such date, Madison Partnership Liquidity Investors XIII, LLC and its affiliates owned 431 limited partnership interests, or 0.9 percent of the limited partnership interests. Pursuant to the terms of agreements between the Partnership and the General Partner and such firms, all of the limited partnership interests held by these firms will be voted in the same manner as the majority of all other limited partners who vote on the sale of the Albuquerque System. Thus, for example, if the limited partnership interests voted in favor of the transaction constitute a majority of all limited partnership interests voted but not a majority of all limited partnership interests, these firms will be required to vote their limited partnership interests in favor of the transaction, and in such event the votes of these firms could be sufficient to cause the transaction to be approved by a majority of all limited partnership interests, which is the vote necessary to cause the transaction to be approved. The General Partner owns no limited partnership interests. Officers and directors of the General Partner own no limited partnership interests. Only limited partners of record at the close of business on October 31, 1997 will be entitled to notice of, and to participate in, the vote. As of the date of this Proxy Statement, the Partnership's only asset is its 15 percent ownership interest in the Venture. Cable TV Fund 12-B, Ltd. ("Fund 12-B") has a 9 percent ownership interest in the Venture and Cable TV Fund 12- D, Ltd. ("Fund 12-D") has a 76 percent ownership interest in the Venture. As of the date of this Proxy Statement, the Venture owns the Albuquerque System and the cable television system serving areas in and around Palmdale and Lancaster, California (the "Palmdale/Lancaster System"). The Venture sold its cable television system serving Houghton and Hancock, Michigan (the"Houghton/Hancock System") in 1987, the Venture sold its cable television system serving California City, California (the "California City System") in 1992 and the Venture sold its cable television system serving Tampa, Florida (the "Tampa System") in 1996. Upon the consummation of the proposed sale of the Albuquerque System, the Venture will repay its outstanding Senior Notes balance of $48,959,637 plus a make whole premium that, based on current market interest rates, is estimated to total approximately $3,125,000 and, subject to an amendment to the Venture's credit facility, the Venture will repay approximately $45,002,980 of the then outstanding balance of its credit facility, and then the remaining $125,000,000 of net sale proceeds will be distributed to the three constituent partnerships of the Venture in proportion to their ownership interests in the Venture. The Partnership accordingly will receive 15 percent of such proceeds, estimated to total approximately $19,097,217, and the Partnership will distribute this portion of the net sale proceeds to its partners of record as of the closing date of the sale of the Albuquerque System. Based upon pro forma financial information as of June 30, 1997, as a result of the Albuquerque System's sale, the limited partners of the Partnership, as a group, will receive approximately $18,175,163 and the General Partner will receive approximately $922,054. Limited partners will receive $382 for each $500 limited partnership interest, or $763 for each $1,000 invested in the Partnership, from the Partnership's portion of the net proceeds of the Albuquerque System's sale. Once the Partnership has completed the distribution of its portion of the net proceeds from the sale of the Albuquerque System, limited partners of the Partnership will have received a total of $555 for each $500 limited partnership interest, or $1,109 for each $1,000 invested in the Partnership, taking into account the prior distribution to limited partners made in 1996 from the net proceeds of the sale of the Tampa System. Although the General Partner expects that the Palmdale/Lancaster System will be sold in the next few years, the General Partner cannot predict when this remaining asset of the Venture will be sold and thus the General Partner cannot predict when the Partnership will be terminated and dissolved. Thus, after the sale of the Albuquerque System by the Venture, the Partnership will continue to be a public entity subject to the informational reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange 2 Act"). A vote of the limited partners will be required in the future to approve the sale of the Palmdale/Lancaster System prior to its sale regardless of the entity to which it is sold. Limited partners should note that there are certain income tax consequences of the proposed sale of the Albuquerque System, which are outlined herein under the caption "Federal Income Tax Consequences." The Board of Directors of the General Partner has approved the proposed sale of the Albuquerque System and the General Partner recommends approval of the transaction by the holders of the Partnership's limited partnership interests. In determining the fairness of the proposed transaction, the General Partner followed the procedures mandated by Section 2.3(b)(iv)(b) of the Partnership's limited partnership agreement (the "Partnership Agreement"), which provides that the Partnership's cable television systems may be sold to the General Partner or to one of its affiliates if the price paid by the General Partner or such affiliate is determined by the average of three separate, independent appraisals of the fair market value of the system to be sold. Because the purchase price to be paid to the Venture is equal to the average of three separate, independent appraisals of the fair market value of the Albuquerque System, the Board of Directors of the General Partner has concluded that the consideration to be paid to the Venture for the Albuquerque System is fair to all unaffiliated limited partners of the Partnership. The proposal that is the subject of this proxy solicitation will be adopted only if approved by the holders of a majority of the limited partnership interests. Each limited partnership interest entitles the holder thereof to one vote on the proposal. Because the Partnership Agreement requires that the proposal to sell the Albuquerque System be approved by the holders of a majority of the limited partnership interests, abstentions and non-votes will be treated as votes against the proposal. A properly executed consent returned to the General Partner on which a limited partner does not mark a vote will be counted as a vote for the proposed sale of the Albuquerque System. Because limited partners do not have dissenters' or appraisal rights in connection with the proposed sale of the Albuquerque System, if the holders of a majority of the limited partnership interests approve the proposal, all limited partners will receive a distribution of the Partnership's portion of the net sale proceeds in accordance with the procedures prescribed by the Partnership Agreement regardless of how or whether they vote on the proposal. The General Partner has also prepared proxy statements that are being delivered to the limited partners of Fund 12-B and Fund 12-D in connection with their votes to approve the sale of the Albuquerque System by the Venture. The closing of the sale of the Albuquerque System will occur only if the transaction is approved by the holders of a majority of the limited partnership interests of each of the three constituent partnerships of the Venture. Copies of the proxy statements being delivered to the limited partners of the Venture's two other constituent partnerships have been filed with the Securities and Exchange Commission (the "Commission") and can be obtained either from the Commission or from the General Partner upon written request to Elizabeth M. Steele, Secretary, Jones Intercable, Inc., 9697 East Mineral Avenue, Englewood, Colorado 80112, (303) 792-3111. See also "Certain Information About the Partnership and the General Partner." The approximate date on which this Proxy Statement and Form of Proxy are being sent to limited partners is November 10, 1997. SPECIAL FACTORS THE PARTNERSHIP'S INVESTMENT OBJECTIVES The Partnership was formed to acquire, develop, operate and, ultimately, sell cable television systems. The primary objectives of the Partnership have been to obtain capital appreciation in the value of the Partnership's cable television properties; to generate tax losses that could be used to offset taxable income of limited partners from other sources; and to obtain equity build-up through debt reduction. It was contemplated from the outset of the Partnership's existence that capital appreciation in Partnership cable television properties would be converted to cash by a sale of such properties at such time as the General Partner determined that the Partnership's 3 investment objectives had substantially been achieved and after a holding period of approximately five to seven years. It also was contemplated from the outset of the Partnership's existence that the General Partner or one of its affiliates could be the purchaser of the Partnership's cable television properties. The Venture was formed to pool the financial resources of three public partnerships sponsored by the General Partner with identical investment objectives and to enable them to acquire a greater number of and/or larger cable television systems than any one of the partnerships could acquire on their own. The Venture acquired the Albuquerque System in August 1986. Based upon the track record of prior public partnerships sponsored by the General Partner that had liquidated or were in the process of liquidating their assets during the period that limited partnership interests in the Partnership were being sold and based upon disclosures made to prospective investors about the Partnership's investment objectives in the Cable TV Fund 12 prospectus and accompanying sales brochure, investors in the Partnership reasonably could have anticipated that the Partnership's investment objectives would be achieved and its assets liquidated after a holding period of approximately five to seven years. Due to the uncertain and then adverse regulatory environment that developed in the early 1990s for the cable television industry, the resultant decline in the prices for cable television systems and the subsequent inactivity in the cable television system marketplace, the General Partner determined that it would be prudent to delay the sale of the Albuquerque System until market conditions improved, and as a result the Albuquerque System has been held by the Venture for more than 11 years. The purpose of the sale of the Albuquerque System, from the Partnership's perspective, is to attain the Partnership's primary investment objective with respect to the Albuquerque System, i.e., to convert the Partnership's capital appreciation in the Albuquerque System to cash. The sale proceeds will be used to repay a substantial portion of the Venture's debt, and the remaining sale proceeds will be distributed to the three constituent partnerships of the Venture. The Partnership in turn will distribute its portion of the net sale proceeds to the partners of the Partnership in accordance with the distribution procedures established by the Partnership Agreement. The sale of the Albuquerque System is thus the necessary final step in the Partnership's accomplishment of its investment objectives with respect to the Albuquerque System. PRIOR ACQUISITIONS AND SALES The Partnership was formed in October 1985 as a Colorado limited partnership in connection with a public offering of its limited partnership interests. In March 1986, the Partnership invested all of its limited partner capital contributions in the Venture, through which it acquired a 15 percent ownership interest in the Venture. The Venture ultimately acquired five cable television systems: the Houghton/Hancock System was acquired in May 1986, the California City System was acquired in April 1986, the Albuquerque System was acquired in August 1986, the Palmdale/Lancaster System was acquired in April 1986 and the Tampa System was acquired in December 1986. The Houghton/Hancock System was sold in August 1987 to an unaffiliated cable television system operator for a sales price of $5,000,000 and the California City System was sold in April 1992 to an unaffiliated cable television system operator for a sales price of $2,608,000. The sale proceeds from the Venture's sales of the Houghton/Hancock System and the California City System were used to reduce the Venture's indebtedness. None of the sale proceeds were distributed to the Venture's three constituent partnerships and thus none of the sale proceeds were distributed to the Partnership or its partners. No vote of the limited partners of the Partnership was required in connection with the sale of either of these systems because neither of these systems constituted all or substantially all of the Partnership's assets. The Venture sold the Tampa System in February 1996 to a subsidiary of the General Partner for a sales price of $110,395,667, which price was determined by the average of three separate, independent appraisals of the fair market value of the Tampa System. Because the Venture's debt arrangements did not allow the Venture to make distributions on the sale of Venture assets, in February 1996 the Venture's debt arrangements were amended to permit a $55,000,000 distribution to the Venture's three constituent partnerships from the Tampa System's sale proceeds, and the balance of the Tampa System's sale proceeds was used to reduce Venture indebtedness. The Partnership's portion of this distribution was $8,404,000, all of which was distributed to the 4 limited partners. No vote of the limited partners of the Partnership was required in connection with the sale of the Tampa System because the assets of the Tampa System did not constitute all or substantially all of the Partnership's assets. Immediately following its acquisition of the Tampa System, the subsidiary of the General Partner that had acquired the Tampa System conveyed the Tampa System, along with certain other cable television systems owned by the subsidiary of the General Partner, and cash in the amount of $3,500,000, to Time Warner Entertainment Advance/Newhouse Partnership ("Time Warner"), an unaffiliated cable television system operator, in exchange for cable television systems owned by Time Warner serving communities in Prince Georges County, Maryland and Reston, Virginia. The Venture's sale of the Tampa System and the subsequent exchange of the Tampa System for Time Warner systems are the subject of litigation filed by several limited partners of Fund 12-D. See "Special Factors, Legal Proceedings." Limited partners of the Partnership received a distribution from the Tampa System sale totaling $8,404,000. All distributions to date have given the Partnership's limited partners an approximate return of $173 for each $500 limited partnership interest, or $346 for each $1,000 invested in the Partnership. The Partnership intends to make a distribution of the Partnership's portion of the net proceeds of the sale of the Venture's Albuquerque System to its partners. Following this distribution, the Partnership will continue to own its 15 percent interest in the Venture, and the Venture will continue to own and operate the Palmdale/Lancaster System until it too is sold. A vote of the limited partners of the Partnership will be required in the future to approve the sale of the Palmdale/Lancaster System prior to its sale regardless of the entity to which it is sold. THE GENERAL PARTNER'S OBJECTIVES The purpose of the transaction from the General Partner's perspective is to enable the Venture to sell the Albuquerque System at a fair price and to enable the General Partner through an indirect wholly owned subsidiary to acquire a cable television system operating in a marketplace in which the General Partner itself desires to own and operate a cable television system. The General Partner currently is one of the ten largest cable television system operators in the United States, with owned and managed systems totaling approximately 1.4 million basic subscribers. A key element of the General Partner's strategy is to increase the number of owned subscribers clustered in attractive demographic areas. The General Partner is making progress in clustering its owned subscribers in two primary groups of cable systems. The General Partner's Maryland/Virginia cluster is based primarily on geography. The General Partner's suburban cluster is based on similar market and operating characteristics, rather than geography. The General Partner believes that its clustering strategy may allow it to obtain both economies of scale and operating efficiencies, for example in areas such as marketing, administration and capital expenditures. The General Partner desires to add the Albuquerque System to its suburban cluster, which currently includes the cable systems serving the communities of Savannah and Augusta, Georgia, Pima County, Arizona and Independence, Missouri. In contrast to the Partnership, which is a Colorado limited partnership with a finite term and which sought cable television properties with high growth potential during a holding period of approximately five to seven years, the General Partner, a Colorado corporation with perpetual existence, is seeking to acquire cable television systems that can generate a steady stream of income and may appreciate in value over a longer holding period. The Albuquerque System satisfies this objective of the General Partner. The General Partner also may be in a better position than the Partnership and the Venture to access both debt and equity to finance the long-term development of the Albuquerque System. The General Partner may be able to leverage the Albuquerque System at a higher level than the Venture has done and, accordingly, the General Partner may be able to generate a greater return on its investment in the Albuquerque System than the Partnership and the Venture would be able to do within the same time. Because the General Partner's investment horizon is much longer term than the Partnership's investment horizon, and the General Partner will not need to sell the Albuquerque System to achieve its investment objectives, it can better withstand the costs associated with meeting the competition and the regulatory risks inherent in long-term holding and development of the Albuquerque System. 5 RELEVANT PROVISIONS OF THE PARTNERSHIP AGREEMENT Section 2.2(k) of the Partnership Agreement provides that the sale of all or substantially all of the Partnership's assets is subject to the approval of the holders of a majority of the Partnership's limited partnership interests. Because its investment in the Venture is the Partnership's sole asset and because the Albuquerque System represents 63.9 percent of the Venture's assets and 64.3 percent of the Venture's revenues, the sale of the Albuquerque System is being submitted for limited partner approval to the limited partners of the Partnership, Fund 12-B and Fund 12-D. Section 2.3(b)(iv)(b) of the Partnership Agreement permits the Partnership to sell any or all of its cable television systems directly to the General Partner or one or more of its affiliates if the system to be sold has been held by the Partnership for at least three years, or if it is part of, or related to, another system that has been held for three years, and provided that the price paid to the Partnership by the General Partner or any such affiliate is determined by the average of three separate, independent appraisals of the particular cable television system or systems being sold, and that the cost of such appraisals is not borne by the Partnership. Because the Albuquerque System has been held by the Venture for at least three years and the purchase price to be paid to the Venture is equal to the average of three separate, independent appraisals of the fair market value of the Albuquerque System obtained at the General Partner's expense, these requirements of the Partnership Agreement have been satisfied. LEGAL PROCEEDINGS The General Partner is a defendant in a now consolidated civil action filed by limited partners of Fund 12-D derivatively on behalf of the Partnership, Fund 12-B and Fund 12-D. The consolidated complaint generally alleges that the General Partner breached its fiduciary duty to the plaintiffs and to the other limited partners of the Partnership, Fund 12-B and Fund 12-D and the Venture in connection with the Venture's sale of the Tampa System to a subsidiary of the General Partner and the subsequent trade of the Tampa System to Time Warner. The consolidated complaint also sets forth a claim for breach of contract and a claim for breach of the implied covenant of good faith and fair dealing. Among other things, the plaintiffs assert that the subsidiary of the General Partner that acquired the Tampa System paid an inadequate price for the Tampa System. The price paid for the Tampa System was determined by the average of three separate, independent appraisals of the Tampa System's fair market value as required by the limited partnership agreements of the Partnership, Fund 12-B and Fund 12-D. The plaintiffs have challenged the adequacy and independence of the appraisals. The consolidated complaint seeks damages in an unspecified amount and an award of attorneys' fees, and the complaint also seeks punitive damages and certain equitable relief. The General Partner has filed its answer to the consolidated complaint and has generally denied the substantive allegations in the complaint and has asserted a number of affirmative defenses. The General Partner believes that the price paid to the Venture for the Tampa System was fair, that it represented the fair market value of the Tampa System as determined by the processes dictated by the partnership agreements of the Venture's three constituent partnerships and that it has meritorious defenses to this litigation. The General Partner intends to defend this lawsuit vigorously. The case is pending in Arapahoe County District Court in the State of Colorado. Discovery in the case is continuing and depositions of the parties and their experts have been or are being taken. A trial is set for February 1998. Pursuant to the indemnification provisions of the limited partnership agreements of the three constituent partnerships of the Venture, the General Partner may be entitled to indemnification from the partnerships for its legal fees and expenses, and for any amounts paid in settlement, in defending the above-described lawsuit. Such amounts may be significant. In voting on the proposed sale of the Albuquerque System, limited partners should consider that the General Partner determined both the sales price of the Tampa System and the sales price of the Albuquerque System in a substantially similar way, i.e., both prices were determined by averaging three separate, independent appraisals 6 of the fair market value of the respective systems obtained in accordance with the provisions of Section 2.3(b)(iv)(b) of the three partnerships' limited partnership agreements. Limited partners should be aware that The Strategis Group, Inc. and Western Cablesystems, Inc., two of the three appraisal firms that rendered appraisals of the Tampa System, also rendered appraisals of the Albuquerque System for purposes of determining the Albuquerque System's sale price. Limited partners should also consider that Bond & Pecaro, Inc., the other firm that rendered an appraisal of the Albuquerque System for purposes of determining the Albuquerque System's sale price, also serves as the General Partner's expert witness in the Tampa litigation, aiding the General Partner in the defense of this litigation. REASONS FOR THE TIMING OF THE SALE The Partnership has a finite legal existence of 17 years, 12 of which have passed. It was not intended or expected, however, that the Partnership would hold its cable systems for 17 years. Although it was not possible at the outset of the Partnership to determine precisely how quickly the investment objectives with respect to any particular system would be achieved, investors were informed that the General Partner's past experience with prior partnerships had shown that five to seven years was the average length of time from the acquisition of a cable system to its sale. Investors in the Partnership also were able to examine the track record of the General Partner's prior partnerships because such track record was set forth in the prospectus delivered in connection with the Partnership's initial public offering. At the time of the formation of the Partnership, the track record showed that prior partnerships had rarely held their cable systems for any longer than six years. When investing in the Partnership, by virtue of the provisions of the Partnership Agreement, the limited partners vested in the General Partner the right and responsibility to determine when the Partnership's investment objectives had been substantially achieved. The Albuquerque System was acquired by the Venture because, in the opinion of the General Partner at the time of the Albuquerque System's acquisition, it had the potential for capital appreciation within a reasonable period of time. It is the General Partner's opinion that during the more than 11 years that the Albuquerque System has been held by the Venture, the Partnership's investment objectives with respect to the Albuquerque System have been achieved. The General Partner used no specific benchmarks or measurement tools in determining that the Partnership's investment objectives have been achieved. The General Partner conducted a subjective evaluation of a variety of factors including the length of the holding period, the prospect for future growth as compared to the potential risks, the cash on cash return to investors, the after-tax internal rate of return to limited partners and the amount of gain to be recognized on the sale of assets. The Albuquerque System was acquired by the Venture in August 1986 for an aggregate purchase price of approximately $84,625,700. In addition, an affiliate of the General Partner received a brokerage fee of approximately $3,217,200 from the Venture in connection with the Albuquerque System's acquisition. At acquisition, the Albuquerque System consisted of approximately 1,770 miles of cable plant passing approximately 160,000 homes and serving approximately 57,500 basic subscribers. As of April 30, 1997, the date of the three appraisals of the Albuquerque System's fair market value discussed below, the Albuquerque System consisted of approximately 2,640 miles of cable plant passing approximately 232,200 homes and serving approximately 112,440 basic subscribers. The increase in the value of the Albuquerque System during the holding period is demonstrated by the fact that the Albuquerque System was purchased for $84,625,700 and is proposed to be sold for $222,963,267, a difference of $138,337,567. In evaluating whether now was the time for the Venture to sell the Albuquerque System, the General Partner generally considered the benefits to the limited partners that might be derived by the Venture's holding the Albuquerque System for an additional period of time. The General Partner assumed that the Albuquerque System might continue to appreciate in value and, if so, the Albuquerque System would be able to be sold for a greater sales price in the future. The General Partner weighed these assumptions about the Albuquerque System's continuing growth against the risks to investors from a longer holding period, i.e., the risks that regulatory, technology and/or competitive developments could cause the Albuquerque System to decline in value, which would result in a lesser sales price in the future. A longer holding period would expose investors to the risk that competition from direct broadcast satellite companies, telephone companies and/or neighboring cable companies could diminish the number of subscribers to the Albuquerque System's basic and premium services, thereby 7 decreasing the value of the Albuquerque System. A longer holding period also would expose investors to the risk that changes in the regulations promulgated by the governmental agencies that oversee cable operations could make cable systems a less desirable investment, thereby decreasing the value of the Albuquerque System. The General Partner's decision to sell the Albuquerque System was greatly influenced by the fact that the originally contemplated holding period had been exceeded. The General Partner is in a better position than the Partnership to bear the risks of investment in the Albuquerque System. The Partnership is limited in its ability to obtain additional equity financing, in part because the limited partnership interests are non-assessable. The Partnership Agreement also contains limits on the amounts that the Partnership can borrow. And the Partnership has only one asset, its interest in the Venture, and the Venture's only assets are the Albuquerque System and the Palmdale/Lancaster System, all of which gives the Partnership limited collateral for borrowings. The General Partner, on the other hand, is one of the nation's largest cable television companies with longer term investment objectives. For example, if significant competition to the Albuquerque System were to develop, the General Partner would be in a better position than the Partnership and the Venture to finance the marketing campaigns or technological improvements necessary to meet such competition. Therefore, in light of all of the above factors, the General Partner has determined that now is the appropriate time for the Partnership to convert its capital appreciation in the Albuquerque System to cash through the sale of the Venture's Albuquerque System. CERTAIN EFFECTS OF THE SALE Upon consummation of the sale of the Albuquerque System, the proceeds of the sale will be used to repay a substantial portion of the Venture's debts and then the Venture will distribute the remaining sale proceeds to the three constituent partnerships of the Venture in proportion to their ownership interests in the Venture, and then the Partnership will distribute its portion of the net sale proceeds to its partners of record as of the closing date pursuant to the terms of the Partnership Agreement. Based upon the Venture's pro forma financial information as of June 30, 1997, as a result of the Albuquerque System's sale, the limited partners of the Partnership, as a group, will receive approximately $18,175,163 and the General Partner will receive approximately $922,054. Limited partners will receive $382 for each $500 limited partnership interest, or $763 for each $1,000 invested in the Partnership, from the Partnership's portion of the net proceeds of the Albuquerque System's sale. Once the distributions of the net proceeds from the sale of the Albuquerque System have been made, limited partners will have received a total of $555 for each $500 limited partnership interest, or $1,109 for each $1,000 invested in the Partnership, taking into account the prior distribution to limited partners made in 1996 from the net proceeds of the sale of the Tampa System. Both the limited partners and the General Partner will be subject to federal income tax on the income resulting from the sale of the Albuquerque System. See the detailed information below under the caption "Federal Income Tax Consequences. After the sale of the Albuquerque System, the Partnership will continue to own a 15 percent interest in the Venture until such time as the Venture's remaining system is sold. No specific date or terms have been set for the sale of the Palmdale/Lancaster System. Based upon the most recent appraisal of the current fair market value of the Palmdale/Lancaster System, the General Partner estimates that limited partners of the Partnership would receive a distribution on the Venture's sale of the Palmdale/Lancaster System equal to approximately $195 per $500 limited partnership interest, or $390 for each $1,000 invested in the Partnership. A vote of the limited partners of the Partnership will be required in the future to approve the sale of the Palmdale/Lancaster System prior to its sale. After the Palmdale/Lancaster System is sold, the Venture and the Partnership will be liquidated and dissolved. Another effect of the sale is that it will result in an indirect wholly owned subsidiary of the General Partner acquiring the Albuquerque System. Thus, as a result of this transaction, the General Partner will make a substantial equity investment in the Albuquerque System and it will have a greater equity ownership interest in the Albuquerque System than it does now as the general partner of the three partnerships that comprise the Venture. Instead of the residual 25 percent interest in the net proceeds from the sale of the Albuquerque System 8 that the General Partner will receive as the general partner of the three partnerships that comprise the Venture, the General Partner will have a 100 percent interest in any future capital appreciation of the Albuquerque System. The General Partner's acquisition of the Albuquerque System will advance its goal of increasing the number of owned subscribers in attractive demographic areas and may allow the General Partner to obtain economies of scale and operating efficiencies by adding the Albuquerque System to its suburban cluster of systems with similar market and operating characteristics. The General Partner also will bear 100 percent of the risk of system losses and any diminution in system value. As the general partner of the three partnerships that comprise the Venture, the General Partner earns management fees and receives reimbursement of its direct and indirect expenses allocable to the operation of the Albuquerque System. The General Partner's right to receive such fees and reimbursements related to the Albuquerque System will terminate on the Venture's sale of the Albuquerque System. Neither Colorado law nor the Partnership Agreement afford dissenters' or appraisal rights to limited partners in connection with the proposed sale of the Albuquerque System. If the proposed transaction is approved by the holders of a majority of limited partnership interests, all limited partners will receive a distribution in accordance with the procedures prescribed by the Partnership Agreement regardless of how or whether they vote on the proposal. RECOMMENDATION OF THE GENERAL PARTNER AND FAIRNESS OF THE PROPOSED SALE OF ASSETS The General Partner believes that the proposed sale of the Albuquerque System and the distribution of the net proceeds therefrom are both procedurally and substantively fair to all unaffiliated limited partners of the Partnership, and it recommends that the limited partners approve the transaction. The General Partner's recommendation that the limited partners approve the sale of the Albuquerque System and its fairness determination should not be deemed to be free from potential conflicts of interest, however, in light of the fact that one of its subsidiaries is the proposed purchaser of the Albuquerque System. Because the purchaser of the Albuquerque System would benefit from a lower sales price, the General Partner has an economic interest in conflict with the economic interest of the limited partners. In determining the substantive and procedural fairness of the proposed transaction, the General Partner's Board of Directors on August 5, 1997 considered each of the following factors, all of which had a positive effect on its fairness determination. The factors are listed in descending order of importance, i.e., the first factor listed was given the most weight in the determination that the proposed transaction is fair, although, as a practical matter, this is an approximation of the weight given to each factor because each factor is relevant and the General Partner's Board of Directors was not able to weigh the relative importance of each factor precisely: (i) The limited partnership interests are at present illiquid and the cash to be distributed to limited partners as a result of the proposed sale of the Albuquerque System will provide limited partners with liquidity and with the means to realize the appreciation in the value of the Albuquerque System; (ii) The purchase price represents a fair market valuation of the Albuquerque System as determined by the average of three separate, independent appraisals of the Albuquerque System by qualified independent appraisers; (iii) The Venture has held the Albuquerque System for over 11 years, a holding period beyond that originally anticipated; (iv) The conditions and prospects of the cable television industry in which the Venture is engaged, including the developing threat of competition from DBS services and telephone companies, and the working capital and other financial needs of the Venture if it were to continue to own the Albuquerque System; (v) The terms and conditions of the purchase and sale agreement, including the fact that the purchase price will be paid in cash, the fact that the Venture was not required to make many of the representations and warranties about the Albuquerque System or give indemnities that are customarily given in transactions of this nature, the fact that the purchaser's obligation to close is not contingent upon its ability to obtain financing, and the fact that the Venture will pay no brokerage fees upon the sale of the Albuquerque System, 9 which it likely would have paid if the Albuquerque System were being sold to an unaffiliated party; and (vi) The sale is being conducted in accordance with the terms of the Partnership Agreement, including the fact that the proposed transaction will not occur unless it is approved by the holders of at least a majority of the limited partnership interests. Certain officers of the General Partner worked with each of the three independent appraisers hired to prepare fair market value appraisals of the Albuquerque System, providing them with current and historical profit and loss statements for the Albuquerque System and with current subscriber reports. The officers and directors of the General Partner received the final appraisal reports. The members of the Board of Directors of the General Partner adopted the analyses and conclusions of Bond & Pecaro, Inc., which valued the Albuquerque System at $221,349,800, because such firm's valuation procedures, assumptions and methodologies most closely approximate the valuation procedures, assumptions and methodologies used by the General Partner's management in evaluating cable television systems. The General Partner's Board of Directors did not specifically adopt the $221,349,800 value placed on the Albuquerque System by Bond & Pecaro, Inc., but the Board did consider the fact that the value determined by this appraisal firm was close to the average of the three appraisals and concluded that this fact supported its fairness determination. The General Partner considered the fact that the $222,963,267 purchase price to be paid to the Venture for the Albuquerque System was determined by the average of three independent appraisals of the fair market value of the Albuquerque System to be very persuasive evidence of the fairness of the proposed transaction. The fair market valuations of the Albuquerque System were done by respected industry appraisers using customary measures of value. Based upon the General Partner's knowledge of and experience in the cable television industry, and its review and consideration of the appraisals, it has concluded that the values for the Albuquerque System determined by the three appraisals are fair and within the range of values seen in the marketplace for comparable cable television systems in similar condition. The $222,963,267 purchase price represents the current fair market value of the Albuquerque System on a going concern basis. The $222,963,267 purchase price for the Albuquerque System also compares favorably to the approximately $74,980,444 net book value of the Albuquerque System at June 30, 1997. The liquidation value of a cable television system, i.e., the sale of the system on other than a going concern basis, is not usually considered to be an accurate indicator of the value of a cable television system, primarily because the assets of a cable television system typically are worth less when considered separately than when considered as a going concern. The assets of a cable television system consequently are not normally sold or purchased separately. A fair market valuation of a system should, in the General Partner's view, be a valuation of the system as a going concern. The liquidation value of the Albuquerque System therefore was not considered by the General Partner in reaching its determination of fairness. Because there has never been an established trading market for the Partnership's limited partnership interests, the General Partner does not have access to any reliable, official information about the historical or current market prices for the Partnership's limited partnership interests in the very limited secondary market where such interests from time to time have been sold. The General Partner believes that such secondary market deeply discounts the underlying value of the limited partnership interests due to their highly illiquid nature. Therefore, even if trading information were available, the historical or current market prices for the Partnership's limited partnership interests would not necessarily be indicative of the value of the Partnership's 9 percent ownership of the Venture's cable television system assets. For these reasons, the General Partner did not consider the historical or current market prices for the limited partnership interests when reaching its fairness determination. During the second half of 1996 and the first half of 1997, however, several limited partners of the Partnership who are not in any way affiliated with the Partnership or with the General Partner conducted tender offers for interests in the Partnership at prices ranging from $316 to $332 per $500 limited partnership interest. 10 The $382 per $500 limited partnership interest to be distributed to limited partners from the Partnership's portion of the net proceeds of the Albuquerque System's sale compares favorably to these tender offer prices, especially in light of the fact that the tender offer prices theoretically reflect the distribution to be received by limited partners from the Partnership's portion of the net proceeds from both the Albuquerque System sale and the future sale of the Palmdale/Lancaster System. Based upon the most recent appraisal of the current fair market value of the Palmdale/Lancaster System, the General Partner estimates that limited partners of the Partnership should receive a distribution on the Venture's sale of the Palmdale/Lancaster System equal to approximately $195 per $500 limited partnership interest. The fact that the Venture has held the Albuquerque System for a period beyond that originally anticipated was another important factor in the General Partner's fairness determination--the General Partner believes that the transaction is fair because a sale at this time will convert an illiquid investment into a liquid one for all partners. And the current state of the cable television industry also was considered by the General Partner in making its fairness determination because the General Partner believes that it is fair to investors that someone other than the Partnership and the Venture take on the uncertainties and risks involved in continuing to own and operate the Albuquerque System. The fairness of the transaction is also demonstrated in an analysis of certain of the terms and conditions of the purchase and sale agreement, which generally are more favorable to the Venture than reasonably could be expected if the purchaser were not an affiliated company. There is no financing contingency to closing. Because of the General Partner's existing extensive knowledge about the Albuquerque System, the Venture has not been required to make many of the representations and warranties about the quality of the Albuquerque System's tangible assets, the quantity of the Albuquerque System's subscribers or the validity of the Albuquerque System's intangible assets customarily found in cable television system transactions. The Venture likely would have been required to give such representations and warranties to an unaffiliated party if the Albuquerque System were being sold to an unaffiliated party. In addition, the Venture is not required to indemnify the purchaser for defects discovered by the purchaser after the closing. This frees the Venture from having to reserve a portion of the sale proceeds to cover typical indemnification obligations. The Venture also will pay no brokerage fee in connection with the sale of the Albuquerque System, which it likely would have paid if the Albuquerque System were being sold to an unaffiliated party. This will result in more funds from the sale being available for distribution to the Venture's three constituent partnerships and thus to their partners. The General Partner is aware and considered that although consummation of this transaction will result in a distribution to the Partnership's limited partners of approximately $763 per $1,000 of limited partnership capital invested in the Partnership, there are several potential negative consequences of the transaction to limited partners. For example, the proposed sale will require the limited partners to recognize, for federal income tax purposes, a gain resulting from the sale. And although the three fair market valuations established by the independent appraisals took into account the present value of the projected future growth of the Albuquerque System and the sales price (the average of the three appraisals) thus takes into account the present value of the projected future growth of the Albuquerque System, the proposed sale will deprive the limited partners of an opportunity to participate in the actual future growth of the Albuquerque System, if any. The General Partner nevertheless concluded that the cash distributions to the limited partners of the Partnership from the sale of the Albuquerque System outweighed these consequences. As disclosed above, the proposed transaction is subject to various potential conflicts of interest arising out of the Partnership's relationships with the General Partner. Because the General Partner and its affiliates are engaged in the ownership and operation of cable television systems, they are generally in the market to purchase cable television systems for their own account. A potential conflict thus arises from the General Partner's fiduciary duty as general partner of the Partnership and its management's fiduciary duty to the General Partner's shareholders when it determines that Partnership cable television systems will be sold to the General Partner or one of its affiliates and not to an unaffiliated third party. This potential conflict of interest was disclosed to limited partners in the prospectus delivered to investors at the time of the public offering of interests in the Partnership. Prior to the Partnership's public offering, the General Partner entered into negotiations with certain state 11 securities administrators as part of the process of clearing the offering in the "merit" states, i.e., those states that permit the sale of securities only if the state securities administrator deems the offering as a whole to be fair, just and equitable. Several of the merit state securities administrators focused on the potential conflicts of interest in the event that the Partnership were to sell one or more of its cable television systems to the General Partner or one of its affiliates. The General Partner agreed to include the provision in the Partnership Agreement that permits the Partnership to sell its cable television systems directly to the General Partner or one of its affiliates only after a three-year holding period and only if the General Partner or such affiliate pays a purchase price that is not less than the average of three separate independent appraisals of the particular cable television system being sold. The General Partner has concluded that the mechanisms for determining the purchase price to be paid to the Partnership provide sufficient procedural safeguards to minimize the effects of the potential conflicts of interest inherent in any such transaction. The fact that these procedures have been carried out in connection with the Venture's proposed sale of the Albuquerque System, together with the fact that the transaction also is conditioned upon receipt of the approval of the holders of a majority of the limited partnership interests in the three partnerships that comprise the Venture, enable the General Partner to conclude that the proposed transaction is both procedurally and financially fair to all partners. The directors of the General Partner who are not employees of the General Partner did not vote separately to approve the transaction, nor did the outside directors retain an unaffiliated representative to act solely on behalf of the limited partners for the purposes of negotiating the terms of the proposed sale of the Albuquerque System and/or preparing a report concerning the fairness of the proposed sale. While the directors of the General Partner who approved the sale recognized that the interests of the General Partner and the limited partners may not in all respects necessarily be the same, they recognized also that the purchase price was determined in accordance with the terms of the Partnership Agreement, that is, by averaging three separate independent appraisals of the Albuquerque System's fair market value. The members of the Board of Directors who approved the sale relied on the specific right of the General Partner under Section 2.3(b)(iv)(b) of the Partnership Agreement to purchase the Albuquerque System. The members of the Board of Directors who approved the sale reviewed and considered the appraisals and, based upon their general knowledge of cable television system transactions undertaken by the General Partner and its affiliates and by unaffiliated cable television companies, concluded that the values for the Albuquerque System determined by the appraisers were fair and were within the industry norms for comparable transactions. All 13 directors of the General Partner participated in the August 5, 1997 meeting to discuss and vote on the Partnership's sale of the Albuquerque System to the General Partner. Each of Messrs. Glenn R. Jones, James B. O'Brien, James J. Krejci, William E. Frenzel, Donald L. Jacobs, Howard O. Thrall, Robert E. Cole, Raphael M. Solot, Sanford Zisman and Robert B. Zoellick voted to approve the transaction. Messrs. Derek H. Burney and Siim A. Vanaselja abstained on the vote and Mr. Robert Kearney voted against the transaction. To the best of the General Partner's knowledge and belief, the abstentions and negative vote were based on opposition to the General Partner's acquisition of the Albuquerque System on the grounds that the Albuquerque System does not fit within the General Partner's overall strategic plan. No director of the General Partner raised any questions or expressed any reservations about the fairness of the transaction to the Venture, to its three constituent partnerships or to the limited partners of the Partnership. It is anticipated that if the proposed transaction is not consummated, the General Partner's current management team will continue to manage the Albuquerque System on behalf of the Venture until such time as the Albuquerque System could be sold. No other alternatives currently are being considered. THE APPRAISALS In determining the price that the General Partner would offer for the Albuquerque System, in the spring of 1997 the General Partner retained The Strategis Group, Inc., Kagan Media Appraisals Inc. and Bond & Pecaro, Inc. to prepare separate appraisals of the fair market value of the Albuquerque System as of April 30, 1997. Each of the appraisers were asked to determine the cash price a willing buyer would give a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts, in an arm's-length transaction to acquire the Albuquerque System. Upon receipt of the appraisal prepared by Kagan Media Appraisals, Inc., which appraised the Albuquerque System at only $206,600,000, management of the General 12 Partner analyzed it and, based upon management's experience in and knowledge of the cable television industry, management deemed this appraisal to be too low and rejected it. The General Partner then retained a fourth appraisal firm, Western Cablesystems, Inc., to prepare an appraisal of the fair market value of the Albuquerque System as of April 30, 1997. Upon receipt of the appraisals prepared by The Strategis Group, Inc., Bond & Pecaro, Inc. and Western Cablesystems, Inc., management of the General Partner examined each of them and discussed among themselves the merits of the appraisals' assumptions, methodologies and conclusions, and, based on their experience in and knowledge of the cable television industry, they found each of them to be fair and reasonable. The appraisal reports prepared by The Strategis Group, Inc., Bond & Pecaro, Inc. and Western Cablesystems, Inc. were then submitted to the Board of Directors of the General Partner for review. As disclosed above, a majority of the Board of Directors of the General Partner approved the transaction based upon a price determined by averaging these three appraisals. The written appraisal reports of The Strategis Group, Inc., Bond & Pecaro, Inc. and Western Cablesystems, Inc. are available for inspection and copying at the offices of the General Partner during regular business hours by any interested limited partner of the Partnership or by his or her authorized representative. Copies of such appraisals will be mailed by the General Partner to any interested limited partner or to his or her authorized representative upon written request to the General Partner at the expense of the requesting limited partner. Copies of these three appraisals also have been publicly filed with the Securities and Exchange Commission and may be inspected at the Commission's public reference facilities and at its World Wide Web site. The General Partner provided each of the appraisers with the same current and historical profit and loss statements for the Albuquerque System and with the same current subscriber reports. The appraisers also gathered information about the Albuquerque System's subscribers, channel line-up, technology, cable plant, penetration rates and the local economy from questionnaires that each individual appraisal firm prepared and provided to the general manager of the Albuquerque System and from conversations with the Albuquerque System's management team. From this information, the appraisers used their independent analyses to project cash flow, determine growth of homes passed, the Albuquerque System's future penetration and possible rate adjustments. The appraisals thus reflect the application of the appraisers' expertise to the data about the Albuquerque System supplied by the General Partner. The General Partner's $222,963,267 offer for the Albuquerque System was based on the three separate, independent appraisals of the Albuquerque System prepared by The Strategis Group, Inc., Bond & Pecaro, Inc. and Western Cablesystems, Inc. as of April 30, 1997. The Strategis Group, Inc. concluded that the Albuquerque System's overall fair market value as of April 30, 1997 was $233,440,000. Bond & Pecaro, Inc. concluded that the Albuquerque System's overall fair market value as of April 30, 1997 was $221,349,800. Western Cablesystems, Inc. concluded that the Albuquerque System's overall fair market value as of April 30, 1997 was $214,100,000. In the General Partner's view, the assumptions regarding system operations and the cable television system marketplace underlying the three appraisals have generally remained unchanged since the date of the appraisals. The Strategis Appraisal The Strategis Group, Inc. ("Strategis") has served the communications industry for nearly 30 years. Its team of financial, engineering and managerial professionals devotes a substantial portion of its time to the appraisal of cable television systems, cellular telephone systems, paging systems, mobile radio and broadcast stations. Strategis was selected by the General Partner to render an opinion as to the fair market value of the Albuquerque System in light of such overall qualifications. No limitations were imposed with respect to the appraisal to be rendered by Strategis. The firm was selected by the General Partner to prepare an independent appraisal of the Albuquerque System because of the General Partner's familiarity with the firm and its good reputation in the cable television industry. Strategis has prepared independent appraisals of other cable television systems owned and/or managed by the General Partner. The principals of Strategis are not affiliated in any way with the General Partner. 13 Strategis used five generally accepted cable television valuation methods using the income approach to valuation in establishing the range of fair market values of the Albuquerque System as a going concern. The first method used a multiple of the past year's operating income derived from comparable asset values of privately held and publicly traded cable companies. (The appraisal report did not disclose and the General Partner did not inquire as to the identities of the companies Strategis used in determining the multiple.) The second method used a lower multiple of the Albuquerque System's annualized current month's operating income. The third method applied a slightly lower multiple of next year's projected operating income. The fourth method was a discounted net cash flow analysis in which a purchase price (estimated fair market value) was calculated to achieve a target after-tax return on equity, given particular operating and financing assumptions unique to the Albuquerque System's assets. The fifth method was a discounted cash flow analysis that measured the net present value of the pre-tax operating cash flows (less capital expenditures, plus the residual value of the Albuquerque System) that represent the return on total investment. For each valuation method, Strategis established a "high" and a "low" estimated fair market value. The General Partner did not inquire as to the specific details of how each high and low estimated fair market value for each valuation methodology was determined because, given Strategis' expertise, the General Partner concluded that it could rely upon Strategis' analyses and judgment. The first valuation method used a multiple of the past year's operating income of the Albuquerque System derived from comparable asset values of privately held and publicly traded cable companies. Strategis determined, based upon its expertise and knowledge of the cable television industry, a "low" multiple of 10.5 and a "high" multiple of 11.5, concluding that a system comparable to the Albuquerque System would be unlikely to sell for less than 10.5 times its past year's operating income and would be unlikely to sell for more than 11.5 times its past year's operating income. While the appraisal report does not disclose the assumptions of the appraiser in determining these multiples, the General Partner has no reason to believe that they are not reasonable. This method resulted in an estimated fair market value ranging from a low of $222,661,506 to a high of $243,867,363 for the Albuquerque System. The second valuation method used a lower multiple of the Albuquerque System's annualized current month's operating income. Strategis determined, again based on its expertise and knowledge of the cable television industry, a "low" multiple of 10 and a "high" multiple of 11, concluding that a system comparable to the Albuquerque System would be unlikely to sell for less than 10 times the dollar amount of its annualized current month's operating income and would be unlikely to sell for more than 11 times the dollar amount of its annualized current month's operating income. These multiples are slightly lower than those used in the previous methodology because of the increased risk and time factors involved in using current as compared to historical information. While the appraisal report does not disclose the assumptions of the appraiser in determining these multiples, the General Partner has no reason to believe that they are not reasonable. This method resulted in an estimated fair market value ranging from a low of $226,577,517 to a high of $249,235,269 for the Albuquerque System. The third valuation method applied a slightly lower multiple of next year's operating income of the Albuquerque System. For this valuation, Strategis first estimated, through its own analyses of current financial and operating data provided by the General Partner, next year's operating income for the Albuquerque System and then, based on its expertise and knowledge of the cable television industry, set a "low" multiple of 9.5 and a "high" multiple of 10.5 concluding that a system comparable to the Albuquerque System would be unlikely to sell for less than 9.5 times the system's projected operating income for the following year and would be unlikely to sell for more than 10.5 times the system's projected operating income for the following year. These multiples are slightly lower than those used in the previous methodologies because of the increased risk and time factors involved in using projected as compared to historical and current information. While the appraisal report does not disclose the assumptions of the appraiser in determining these multiples, the General Partner has no reason to believe that they are not reasonable. This method resulted in an estimated fair market value ranging from a low of $229,407,846 to a high of $253,556,040 for the Albuquerque System. The fourth valuation method was a discounted net cash flow analysis in which a purchase price (estimated fair market value) was calculated to achieve a target after-tax return on equity given particular operating and 14 financing assumptions specific to the Albuquerque System. This method involved the use of projected operations for the Albuquerque System and a pre- determined target return on equity for a hypothetical buyer. Based on the firm's use of typical debt-to-equity ratios and debt services, it tested various purchase prices, i.e., potential fair market values, to determine a value that yielded the desired return on equity. Based on system information made available to Strategis by the General Partner and on information generally available to Strategis about the cable television industry, the firm made assumptions and projections of a variety of factors that will affect future cash flow including housing growth, plant mileage, growth in the number of subscribers for basic and pay television, adjustments in subscriber rates, increases in operating expenses and capital expenditures. Strategis also made specific assumptions concerning the capital structure that a typical, prudent buyer might experience, as well as the probable interest rates that would be applicable in connection with any debt financing that might be incurred. Strategis did a "high" and a "low" analysis. In its "high" analysis, Strategis projected that the Albuquerque System's revenues would grow from $55,071,766 in 1998 to $98,776,702 in 2004; that the Albuquerque System's operating expenses would grow from $30,923,572 in 1998 to $51,702,980 in 2004; and that net loss would decrease from $(9,639,099) in 1998 to $(553,008) in 2004. In Strategis' "low" analysis, revenues and operating expenses are projected to increase to the same levels by 2004, but net loss of $(8,959,488) in 1998 is projected to become net income of $587,701 in 2004. Strategis projected that the Albuquerque System would add approximately 97 miles of cable plant per year between 1998 and 2004, resulting in growth of the Albuquerque System's cable plant from 2,639 miles in 1997 to 3,313 miles in 2004. Strategis projected that the number of homes passed by the Albuquerque System would grow from 233,798 in 1997 to 273,601 in 2004. Strategis projected that basic subscribers would grow from 112,613 in 1997 to 155,041 in 2004. Strategis projected penetration of the Albuquerque System increasing from 48.7 percent in 1998 to 56.7 percent in 2004. Strategis projected that premium television subscriptions would grow from 60,912 in 1997 to 84,636 in 2004. Strategis estimated that the Albuquerque System would take moderate rate increases between 1998 and 2004, with, for example, a 1 percent increase in basic rates in 1998, a 5 percent increase in basic rates in 1999 and 3 percent increases in basic rates each year thereafter, and a 2 percent increase in expanded basic rates in 1998, a 6 percent increase in such rates in 1999, a 3 percent increase in such rates in 2000, a 10 percent increase in such rates in 2001, a 9 percent increase in such rates in 2002 and a 3 percent increase in such rates each year thereafter. Strategis estimated that rate increases for pay television subscriptions would average 1 percent per year. Strategis estimated that rate increases for pay-per-view showings, converter rentals and installations would average 3 percent per year. These projections, if true, would result in an increase in basic rates from $10.03 in 1998 to $12.16 in 2004, and an increase in the rates for the expanded basic tier from $15.39 in 1998 to $21.27 in 2004. The "low" value was determined using a 14 percent return on equity and the "high" value was determined using a 12 percent return on equity. This method resulted in an estimated fair market value ranging from a low of $220,489,882 to a high of $240,054,504 for the Albuquerque System. The fifth valuation method was a discounted cash flow analysis that measured the net present value of the pre-tax operating cash flows (less capital expenditures, plus the residual value of the Albuquerque System) that represent the return on the total investment rather than those that could result from an assumed "purchase" with a pre-determined debt to equity ratio. The same set of financial projections that the firm prepared and used in the fourth valuation methodology were used for growth in subscribers, revenues, operating expenses and capital expenditures. The projected pre-tax operating cash flows for the Albuquerque System, plus the last-year residual value of the Albuquerque System less capital expenditures, were discounted to the present time at an acceptable current cost of money. This method indicated the present value of the future pre-tax operating cash flows, using an acceptable discounted factor based on the weighted average cost of money. The "high" value was determined using a 15.1 percent target return on investment and the "low" value was determined using a 16.6 percent target return on investment. This method resulted in an estimated fair market value ranging from a low of $219,992,327 to a high of $238,088,179 for the Albuquerque System. Strategis' valuation methodologies resulted in differing values for the Albuquerque System. The reason for this is grounded in the basic approach that the firm takes. The five different methods allow five different views of a system's value. The first method looks at past performance, but allows nothing for future performance. The second method looks at the system as it is as of the date of the appraisal. The third method looks at the system's projected operating income in the first year following the proposed sale. Both discounted cash flow methods fully consider the future value of the system by recognizing projected operating income and expenses, including 15 capital expenditures. Based upon all of the available information about a system being appraised, the appraiser decides how to weight each of the five methods. The final estimated fair market value is not a straight average of all of the methods. Although the weighting is not shown in the appraisal report, Strategis generally prefers the discounted cash flow methods since they consider a broader range of factors that represent all sources of value, present and future. Strategis accordingly generally gives greater consideration to the discounted cash flow methods in its final judgment concerning the fair market value of a cable television system. Strategis' conclusions as to the range of values were based upon information and data supplied by the General Partner, Strategis' onsite inspection of the Albuquerque System in April 1997, interviews with the Albuquerque System's onsite management team and general cable television industry information. The fair market value appraisal of $233,440,000 reached by Strategis was based on the various valuations generated by it, and Strategis' general knowledge and expertise in the cable television industry. As compensation for rendering an opinion as to the fair market value of the Albuquerque System, the General Partner paid Strategis a fee of $7,500. Such fee was not contingent upon the conclusion reached by Strategis in its opinion. As compensation for rendering opinions as to the fair market value of other cable television systems owned and/or managed by the General Partner and its affiliates, and completing the analysis of the allocations of purchase prices between tangible and intangible assets for various cable television systems owned and/or managed by the General Partner and its affiliates, Strategis has received fees and expense reimbursements totalling $241,470 during the two years prior to the date hereof. The Bond & Pecaro Appraisal Bond & Pecaro, Inc. ("Bond & Pecaro") is a consulting firm specializing in valuations, asset appraisals and related financial services for the communications industry. The firm has appraised assets of more than 1,500 media properties. Bond & Pecaro was selected by the General Partner to render an opinion as to the fair market value of the Albuquerque System in light of such overall qualifications. No limitations were imposed with respect to the appraisal to be rendered by Bond & Pecaro. The firm was selected by the General Partner to prepare an independent appraisal of the Albuquerque System because of the firm's reputation in the industry. Bond & Pecaro has prepared independent appraisals of other cable television systems owned and/or managed by the General Partner. Bond & Pecaro also is serving as the General Partner's expert witness aiding the General Partner in its defense of the litigation filed by limited partners of Fund 12-D challenging the terms of the Venture's sale of the Tampa System to a subsidiary of the General Partner. See "Special Factors, Legal Proceedings." The principals of Bond & Pecaro are not affiliated in any way with the General Partner. Bond & Pecaro used both the income and the market methodologies to determine the fair market value of the Albuquerque System as of April 30, 1997. The firm developed a discounted cash flow analysis to determine the value of the Albuquerque System based upon its economic potential. The results of this analysis indicated that the value of the Albuquerque System as of April 30, 1997 was $221,349,800. In order to verify the results of the discounted cash flow analysis, Bond & Pecaro also utilized a comparable sales approach, relying upon an analysis of subscriber multiples. The results of this analysis supported the firm's conclusions about valuation resulting from application of the income approach. Bond & Pecaro reported that the initial parameter upon which its discounted cash flow projection is based is homes passed. Two factors affect the number of homes passed: new plant construction and household growth. In preparing its projection, Bond & Pecaro assumed that the number of households in the Albuquerque System's franchise area will increase at a rate equivalent to the average growth projected for the areas served by the system as a whole, or approximately 1.9 percent per year. Bond & Pecaro concluded that the basic penetration rate would grow substantially over the 10-year projected period from the current 49.2 percent to approximately 71.6 percent by 2007. The firm projected that pay penetration of the Albuquerque System will increase from a level of 54.1 percent in April 1997 to approximately 64.0 percent by 2007. Bond & Pecaro concluded that due to regulatory and competitive restrictions, service rates for basic and expanded basic services are expected to grow with inflation while premium channel service rates are expected to remain relatively flat throughout the 10-year projected period. Bond & Pecaro estimated that pay-per-view service revenue will increase at a 12.5 percent annual rate through 2007, that commercial advertising will increase at a 12.5 percent annual rate through 2007 16 and that annual installation revenue would grow at a compound annual rate of 2.5 percent during the projection period. The firm concluded that equipment rental revenues as well as other revenues also should increase by 10 percent annually through 2007. Bond & Pecaro concluded that total system revenues would increase from $55,000,000 in 1997 to $127,100,000 in 2007. For purposes of its appraisal, Bond & Pecaro assumed that the Albuquerque System would maintain an operating profit margin of 42.3 percent, which was the system's operating profit margin in 1996. Bond & Pecaro used an estimated tax rate of 38.1 percent to project the taxable income of the Albuquerque System because the estimated rate reflects the combined federal, state and local tax rates in effect on April 30, 1997. Capital expenditures were projected at approximately $13,400,000 annually during the ten-year period. Bond & Pecaro then determined the net after-tax cash flow for the Albuquerque System. After taxes were subtracted from the system's taxable income, non-cash depreciation and amortization expense was added back to net income to yield after-tax cash flow. From the after-tax cash flow, the provision for subsequent capital expenditures was deducted to calculate the net after-tax cash flows. Bond & Pecaro used a discount rate of 12 percent to calculate the present value of the net after-tax cash flows. In order to account for the risks associated with investments in the cable television industry and in the Albuquerque System in particular, Bond & Pecaro added a premium to a base discount rate to develop the 12 percent rate employed in its analysis. Bond & Pecaro then applied a multiplier of 10 to the Albuquerque System's 2007 operating cash flow. Bond & Pecaro's appraisal noted that multiples used in the valuation of cable television systems of a type similar to the Albuquerque System range from 8 to 12 times operating cash flow, depending on market conditions and a system's profit potential. Bond & Pecaro noted also that exceptional circumstances will warrant multiples outside of this range. The appraisal report indicated that the selected multiple of 10 was used to estimate the value of the system at the end of the investment period. According to Bond & Pecaro, this multiple reflects the state of the market for cable television systems as of April 30, 1997, tempered by the economic conditions of the system's franchise service area, the necessity for a system rebuild, the uncertainty introduced by re-regulation of the cable television industry and the prospects for increased competition from wireless cable companies and direct broadcast satellite operators. The 10-year discounted cash flow projection of Bond & Pecaro yielded a value of $221,349,800 for the Albuquerque System. In order to correlate this statistical valuation with the realities of the marketplace, Bond & Pecaro analyzed the sale of six comparable cable television systems that took place between September 1996 and February 1997. The sales examined by Bond & Pecaro were selected based upon their comparability to the Albuquerque System. The prices paid for these comparable systems ranged from $5.5 million to $171.2 million. With this analysis, Bond & Pecaro concluded that the average price per subscriber paid for the six comparable cable television systems sales was approximately $1,971. Bond & Pecaro concluded that the Albuquerque System's overall fair market value was $221,349,800. This $221,349,800 value reflects a subscriber multiple of approximately $1,966 per subscriber, which is consistent with prevailing subscriber multiples of comparable sales. A representative of Bond & Pecaro visited the offices and technical facilities of the Albuquerque System in May 1997 as part of its preparation of the appraisal report. The firm's representative consulted with system management regarding market factors and system-specific issues that impacted the value of the system's tangible and intangible assets. Specific data provided by the system and the General Partner included historical audited financial statements for fiscal years 1994 through 1996, 1997 year to date unaudited financial statements, operating statistical summaries, system technical data, market demographic data and related materials. Other sources consulted in the preparation of the appraisal included industry factbooks, government publications and similar reference materials. Bond & Pecaro also relied upon information furnished by the Albuquerque System's management relating to the age, condition and adequacy of the system's physical plant. As compensation for rendering an opinion as to the fair market value of the Albuquerque System, the General Partner paid Bond & Pecaro a fee of $11,789. Such fee was not contingent upon the conclusions reached by Bond & Pecaro in its opinion. As compensation for rendering opinions as to the fair market value of other cable television systems owned and/or managed by the General Partner and its affiliates, Bond & Pecaro has received fees totaling $17,122 during the two years prior to the date hereof. 17 The Western Cablesystems Appraisal R. Michael Kruger, the owner and president of Western Cablesystems, Inc. ("Western Cablesystems"), has since 1979 appraised hundreds of cable television systems for a variety of clients including major multiple system cable operators, independent operators and clients outside the cable television industry, according to information provided by Western Cablesystems. In addition to appraising cable television systems, Western Cablesystems presently operates several small cable television systems and it is currently active in the cable television system acquisition marketplace. Western Cablesystems was selected by the General Partner to render an opinion as to the fair market value of the Albuquerque System in light of such overall qualifications. No limitations were imposed with respect to the appraisal to be rendered by Western Cablesystems. The firm was selected by the General Partner to prepare an independent appraisal of the Albuquerque System because of the General Partner's familiarity with the firm and Western Cablesystems' knowledge of the cable television industry. Western Cablesystems has prepared independent appraisals of other cable television systems owned and/or managed by the General Partner. Western Cablesystems has informed the General Partner that it owns 500 shares of the General Partner's common stock purchased approximately 15 years ago. The General Partner believes that Western Cablesystems' equity holdings in the General Partner are not material and do not compromise Western Cablesystems' status as an independent appraiser of the Albuquerque System's value. The principals of Western Cablesystems are not affiliated in any way with the General Partner. Western Cablesystems used two appraisal methodologies in determining the fair market value of the Albuquerque System. Western Cablesystems first examined the market value of the Albuquerque System as determined by comparable transactions in the cable television system marketplace. Western Cablesystems' appraisal report states that transaction values are typically reported on the basis of either a value-per-subscriber or an operating income multiple. Western Cablesystems considered both but placed more reliance in its determination of the fair market value of the Albuquerque System on the operating income multiples of comparable sales. Western Cablesystems also used what it termed the "income" approach to value the Albuquerque System. This methodology involved the determination of the discounted present value of free cash flow generated over ten years, plus an allowance for the terminal value of the Albuquerque System after ten years. Western Cablesystems looked at the Albuquerque System's future growth in the number of homes passed and the number of subscribers (determining that the Albuquerque System will have average growth rates in the long run), the system's demographics (determining that the system's demographics are somewhat below average due to the system's relatively fewer higher-income residents), the competitive situation (determining that the Albuquerque System may face slightly more than normal competition, particularly from DBS, given that the off-air reception in the Albuquerque area is good and the system's channel lineup is somewhat weak), the system's channel capacity and quality (concluding that the Albuquerque System is below average in capacity and quality and that there will be a need for a rebuild and upgrade of the system prior to franchise renewal negotiations), the system's general operations (concluding that the system is normal with respect to matters such as staff and franchise issues), the system's potential for new revenues (concluding that the Albuquerque System has average potential for new revenue sources) and the system's marketability (concluding that although the system is of an attractive size it is relatively isolated and would therefore have average marketability compared to systems of similar size). Western Cablesystems concluded that overall the Albuquerque System would be at or slightly below market norms compared to comparably sized systems. The appraisal report does not specifically disclose how the Albuquerque System's future growth prospects, demographics, competitive situation, marketability and channel capacity and quality were determined to be average, above average or below average. The General Partner did not inquire about how Western Cablesystems made its determinations because the General Partner concluded that, given Western Cablesystems' expertise, it could rely upon Western Cablesystems' analyses and judgment in making such determinations. Western Cablesystems then examined several reasonably similar transactions involving the sale of cable television systems. These transactions involved the sales of cable television systems at cash flow multiples ranging from a low of 9 times cash flow to a high of 10 times cash flow. These transactions had value-per-subscriber rates ranging from a low of $1,471 to a high of $2,108. Given all of this data, Western Cablesystems 18 concluded that the Albuquerque System should command an average multiple of ten times cash flow which would give the system a value of $222,360,000. At this price, the value per subscriber for the Albuquerque System would be $1,909, within the range of reported comparable transaction prices. For purposes of its income approach analysis, Western Cablesystems projected the Albuquerque System's ten year free cash flow by making its own assumptions about growth in basic and pay revenues, other revenue items, salaries, labor costs, taxes and other expenses including programming costs, pole rent, office costs, marketing costs and advertising sales costs. The annual free cash flow was then discounted using an average cost of capital which Western Cablesystems determined was 12.7 percent. Western Cablesystems then added a discounted terminal value which was calculated at 6 times the tenth year's cash flow. Using this income approach, Western Cablesystems estimated the potential value of the Albuquerque System at $205,791,000. The range of values as calculated by the two different approaches taken by Western Cablesystems is $205,791,000 to $222,360,000. The values are reasonably consistent and Western Cablesystems placed reliance on each valuation. Western Cablesystems concluded that the discounted cash flow approach may better reflect the growth prospects for the Albuquerque System which, in Western Cablesystems' opinion, are somewhat below some of the comparable transactions examined. Western Cablesystems noted that the discounted cash flow analysis also explicitly considers the rebuild costs, which it deemed to be an important factor in valuation. Western Cablesystems concluded that a midpoint of the two valuations was appropriate and thus concluded that the appraised value of the Albuquerque System at April 30, 1997 was $214,100,000. Western Cablesystems' appraisal is based on system financial and operating data provided to Western Cablesystems by the General Partner. The appraiser also visited the Albuquerque System in June 1997 for the purpose of inspecting the general market and system data. As compensation for rendering an opinion as to the fair market value of the Albuquerque System, the General Partner paid Western Cablesystems a fee of $7,500. Such fee was not contingent upon the conclusion reached by Western Cablesystems in its opinion. As compensation for rendering opinions as to the fair market value of other cable television systems owned and/or managed by the General Partner and its affiliates and for other services provided, Western Cablesystems has received fees and expense reimbursements totaling $65,724 during the two years prior to the date hereof. COSTS OF THE TRANSACTION The following is a reasonably itemized estimate of all expenses incurred or to be incurred in connection with the proposed sale of the Albuquerque System, all of which will be paid by the General Partner, including without limitation the cost of soliciting the votes of the holders of limited partnership interests: Filing fees $ 6,689 Legal fees $10,000 Accounting fees $10,000 Appraisal fees $26,789 Printing costs $30,000 Postage and miscellaneous costs $ 5,000
PROPOSED SALE OF ASSETS THE PURCHASE AND SALE AGREEMENT Pursuant to the terms and conditions of a purchase and sale agreement dated as of July 28, 1997 (the "Purchase and Sale Agreement") by and between the Venture as seller and the General Partner as purchaser, the Venture agreed to sell the Albuquerque System to the General Partner or to a subsidiary of the General Partner. The General Partner has assigned its rights and obligations as purchaser to Jones Communications of New Mexico, Inc., an indirect wholly owned subsidiary. The purchaser intends to finance the acquisition of the Albuquerque System using cash on hand and borrowings available under credit facilities dated as of October 29, 1996 among Jones Cable Holdings II, Inc., as the borrower, and several lenders, including The Bank of Nova Scotia, 19 NationsBank of Texas, N.A. and Societe Generale as the managing agents. The maximum amount available under the credit facilities is $600 million. One $300 million facility reduces quarterly beginning March 31, 2000 through the final maturity date and the lenders' commitment under the other $300 million facility terminates on October 27, 1998. Interest on amounts outstanding under the credit facilities varies from the "base rate," which generally approximates the prime rate, to the base rate plus 1/4 percent or LIBOR plus 1/2 percent to 1 1/4 percent depending on certain financial covenants. The effective interest rate on the $58,500,000 outstanding at June 30, 1997 was 6.28 percent. The credit facilities are secured by a pledge of the stock of all of the subsidiaries of the borrower. Jones Communications of New Mexico, Inc. is a wholly owned subsidiary of Jones Cable Holdings II, Inc., which in turn is a wholly owned subsidiary of the General Partner. Based upon amounts estimated as of June 30, 1997, the aggregate cost of the acquisition of the Albuquerque System to the purchaser, including working capital adjustments, will be approximately $224,347,025. Amounts borrowed by the purchaser to acquire the Albuquerque System will be repaid from cash generated by the operations of the Albuquerque System and other systems owned by Jones Cable Holdings II, Inc., and from other sources of funds, including possible future refinancings. The closing of the sale will occur on a date upon which the Venture and the purchaser mutually agree. It is anticipated that the closing will occur within a few weeks after receipt of the approval of the sale by the limited partners of the Venture's three constituent partnerships. Because the closing is conditioned upon, among other things, the approval of the limited partners of the Venture's three constituent partnerships and the consent of governmental franchising authorities and other third parties, there can be no assurance that the proposed sale will occur. If all conditions precedent to the purchaser's obligation to close are not eventually satisfied or waived, the purchaser's obligation to purchase the Albuquerque System will terminate. THE ALBUQUERQUE SYSTEM The assets to be acquired consist primarily of the real and personal, tangible and intangible assets of the Venture's Albuquerque System. The purchaser will purchase all of the tangible assets of the Albuquerque System, including, among other things, the headend equipment, underground and aboveground cable distribution systems, towers, earth satellite receive stations, and furniture and fixtures of the Albuquerque System. The purchaser also will acquire certain of the intangible assets of the Albuquerque System, including, among other things, all of the franchises, leases, agreements, permits, licenses and other contracts and contract rights of the Albuquerque System. Also included in the sale are any parcels of real estate owned by the Albuquerque System, the subscriber accounts receivable of the Albuquerque System and all of the Albuquerque System's engineering records, files, schematics, maps, reports, promotional graphics, marketing materials and reports filed with federal, state and local regulatory agencies. Certain of the Albuquerque System's assets will be retained by the Venture, including cash or cash equivalents on hand and in banks, certain insurance policies and rights and claims thereunder, and any federal or state income tax refunds to which the Venture may be entitled. SALES PRICE Subject to the working capital adjustments described below, the sales price for the Albuquerque System is $222,963,267. The sales price will be reduced by any accounts payable and accrued expenses and vehicle lease obligations existing on the closing date. The sales price will be increased by any accounts receivable existing on the closing date. The sales price for the Albuquerque System also will be adjusted as of the closing date with respect to all items of income and expense associated with the operation of the Albuquerque System. This adjustment will reflect, in accordance with generally accepted accounting principles, that all expenses and income attributable to the period on or after the closing date are for the account of the purchaser and those prior to the closing date are for the account of the seller. Please see Note 4 of the Notes to Unaudited Pro Forma Financial Statements for a detailed accounting of the estimated closing adjustments. CONDITIONS TO CLOSING The purchaser's obligations under the Purchase and Sale Agreement are subject to the following conditions: (a) the Venture shall have obtained all material consents and approvals from governmental authorities and third parties with whom the Venture has contracted that are necessary for the transfer of the Albuquerque System, (b) all 20 representations and warranties of the Venture shall be true and correct in all material respects as of the closing date and (c) termination or expiration of the statutory waiting period applicable to the Purchase and Sale Agreement and the transactions contemplated thereby under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"). The Venture must obtain the consent of the City of Albuquerque and other franchising authorities to the transfer of the Albuquerque System's cable franchises. It is anticipated that the Venture will not experience any significant difficulty in obtaining the necessary consents and approvals to the currently proposed sale. If, however, the Venture fails to obtain certain non-material consents and approvals of third parties with whom the Albuquerque System has contracted, the purchaser likely will waive this condition to closing. In such circumstances, the purchaser would agree to indemnify the Venture for any liabilities incurred in connection with a closing without prior receipt of all necessary consents. The Venture's obligations under the Purchase and Sale Agreement are subject to the following conditions: (a) the receipt of the purchase price for the Albuquerque System, (b) the limited partners of the Partnership, Fund 12-B and Fund 12-D shall have approved the Venture's sale of the Albuquerque System and (c) the statutory waiting periods applicable to the Purchase and Sale Agreement and the transactions contemplated thereby under the HSR Act shall have terminated or shall have expired. FEDERAL INCOME TAX CONSEQUENCES The purpose of the following discussion of the income tax consequences of the proposed transaction is to inform the limited partners of the Partnership of the federal income tax consequences to the Partnership and to its partners arising from the sale of the Albuquerque System. The tax information included herein was prepared by the tax department of the General Partner. The tax information is taken from tax data compiled by the General Partner in its role as the Partnership's tax administrator and is not based upon the advice or formal opinion of counsel. The tax discussion that follows is merely intended to inform the limited partners of factual information and should not be considered tax advice. By the expected date of the Albuquerque System's sale, the limited partners will have received certain tax benefits from their investment in the Partnership. Assuming maximum federal income tax rates and no other sources of passive income, limited partners will have received $3,548,137 in tax benefits from Partnership losses ($149 per $1,000 invested). The sale of the Albuquerque System will result in a gain for federal income tax purposes. The amount of this gain allocated to limited partners is approximately $12,189,341. The General Partner estimates that $8,525,263 ($358 per $1,000 invested) of this gain will be treated as ordinary income. This amount of ordinary income results from the recapture of depreciation on personal property under Section 1245. The ordinary income amount represents the netting of ordinary income from the sale of $23,286,984 ($978 per $1,000 invested) and limited partner passive loss carryforwards of $14,761,721 ($620 per $1,000 invested). The carryforward balance assumes that limited partners have not previously utilized partnership losses limited by the passive loss limitation. The limited partners that have utilized partnership losses will have results that vary accordingly. The General Partner estimates that the remainder of the gain, $3,664,078 ($154 per $1,000 invested), will be treated as long term capital gain under Section 1231. Assuming the 31 percent rate applies to ordinary income and the 20 percent rate applies to long term capital gain income, as a result of the sale of the Albuquerque System, a limited partner will be subject to federal income taxes of $142 per $1,000 invested in the Partnership. The taxable income will be recognized in the year of the closing of the sale, which is expected to be 1998. Limited partners who are non-resident aliens or foreign corporations ("foreign persons") are subject to a withholding tax on their share of the Partnership's income from the sale of the Albuquerque System. The withholding rates are 39.6 percent for individual partners and 35 percent for corporate partners. The tax withheld will be remitted to the Internal Revenue Service and the foreign person will receive a credit on their U.S. tax return for the amount of the tax withheld by the Partnership. The tax withheld will be treated as a distribution to the limited partner. 21 CERTAIN INFORMATION ABOUT THE PARTNERSHIP AND THE GENERAL PARTNER The General Partner acquires, develops and operates cable television systems for itself and for its managed limited partnerships. Based on the number of basic subscribers served by the General Partner's owned and managed cable television systems, the General Partner is one of the ten largest cable television system operators in the United States serving approximately 1.4 million basic subscribers. The principal executive offices of the Partnership and the General Partner are located at 9697 East Mineral Avenue, Englewood, Colorado 80112, and their telephone number is (303) 792-3111. The limited partnership interests of the Partnership are registered pursuant to Section 12(g) of the Exchange Act. As such, the Partnership currently is subject to the informational reporting requirements of the Exchange Act and, in accordance therewith, is obligated to file periodic reports, proxy statements and other information with the Commission relating to its business, financial condition and other matters. Reports and other information filed by the Partnership can be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the following regional offices of the Commission: 7 World Trade Center, Suite 1300, New York, New York 10048 and Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The Commission also maintains a World Wide Web site that contains reports, proxy statements and information statements of registrants (including the Partnership) that file electronically with the Commission at http://www.sec.gov. The Partnership will continue in existence and will continue to be subject to the informational reporting requirements of the Exchange Act after the sale of the Albuquerque System. The Partnership's registration and reporting requirements under the Exchange Act will not be terminated until the dissolution of the Partnership after the sale of the Venture's Palmdale/Lancaster System. The General Partner also is subject to the informational filing requirements of the Exchange Act and, in accordance therewith, files periodic reports, proxy statements and other financial information with the Securities and Exchange Commission relating to its business, financial condition and other matters. Information, as of particular dates, concerning the General Partner's directors and officers, their compensation, options granted to them, the principal holders of the General Partner's securities and any material interest of such persons in transactions with the General Partner is required to be disclosed in certain documents filed with the Commission. Such reports, proxy statements and other information may be inspected at the above-listed public reference facilities maintained by the Commission and at the Commission's World Wide Web site. Copies of such materials may be obtained upon payment of the Commission's prescribed charges by writing to the Commission's principal office at 450 Fifth Street, N.W., Washington, D.C. 20549. The name, business address and principal occupation and employment for the past five years of each of the directors and executive officers of the General Partner are set forth in Schedule 1 to this Proxy Statement. To the best knowledge of any of the persons listed on Schedule 1 hereto, except as disclosed on such schedule, no persons listed on such schedule beneficially own any limited partnership interests in the Partnership. Except as disclosed herein, neither the General Partner nor, to the best of its knowledge, any of the persons listed on Schedule 1 hereto, has any contract, arrangement, understanding or relationship with any other person with respect to any limited partnership interest of the Partnership, including, but not limited to, any contract, arrangement, understanding or relationship concerning the transfer or the voting of any of such interests, joint ventures, loan or option arrangements, puts or calls, guaranties of loans, guaranties against loss or the giving or withholding of proxies. CERTAIN RELATED PARTY TRANSACTIONS The General Partner and its affiliates engage in certain transactions with the Venture. The General Partner believes that the terms of such transactions are generally as favorable as could be obtained by the Venture from unaffiliated parties. This determination has been made by the General Partner in good faith, but none of the terms were or will be negotiated at arm's- length and there can be no assurance that the terms of such transactions have been or will be as favorable as those that could have been obtained by the Venture from unaffiliated parties. 22 The purchase price for the Albuquerque System was determined in accordance with the provisions of the Partnership Agreement but the proposed sale of the Albuquerque System by the Venture to the General Partner or to one of the General Partner's subsidiaries was not negotiated at arm's-length and thus there can be no assurance that the terms of such transaction have been or will be as favorable as those that could have been obtained by the Venture from an unaffiliated purchaser. The General Partner charges the Venture a management fee relating to the General Partner's management of the Venture's cable television systems, and the Venture reimburses the General Partner for certain allocated overhead and administrative expenses in accordance with the terms of the Partnership Agreement. These expenses consist primarily of salaries and benefits paid to corporate personnel, rent, data processing services and other facilities costs. Such personnel provide engineering, marketing, administrative, accounting, legal and investor relations services to the Venture. Allocations of personnel costs are based primarily on actual time spent by employees of the General Partner with respect to cable television systems managed. Systems owned by the General Partner and its subsidiaries and all other systems owned by partnerships for which Jones Intercable, Inc. or one of its subsidiaries is the general partner are also allocated a proportionate share of these expenses. No duplicate management or other fees or reimbursements are charged to the Partnership. The General Partner from time to time also advances funds to the Venture and charges interest on the balances payable by the Venture. The interest rate charged the Venture approximates the General Partner's weighted average cost of borrowing. Jones Education Company is an affiliate of the General Partner that, through a subsidiary, owns and operates Knowledge TV, a network that provides programming related to computers and technology; business, careers and finance; health and wellness; and global culture and languages. Jones Education Company sells its programming to certain cable television systems owned or managed by the General Partner, including the Venture's systems. The Great American Country network provides country music video programming to certain cable television systems owned or managed by the General Partner, including the Venture's systems. This network is owned and operated by Great American Country, Inc., a subsidiary of Jones International Networks, Ltd., an affiliate of the General Partner. Jones Galactic Radio, Inc. is a company owned by Jones International Networks, Ltd. Superaudio, a joint venture between Jones Galactic Radio, Inc. and an unaffiliated entity, provides satellite programming to certain cable television systems owned or managed by the General Partner, including the Venture's systems. The Product Information Network Venture (the "PIN Venture") is a venture among a subsidiary of Jones International Networks, Ltd. and two unaffiliated cable system operators. The PIN Venture operates the Product Information Network ("PIN"), which is a 24-hour network that airs long-form advertising generally known as "infomercials." The PIN Venture generally makes incentive payments of approximately 60 percent of its net advertising revenue to the cable systems that carry its programming. Most of the General Partner's owned or managed systems carry PIN for all or part of each day. Revenues received by the Venture from the PIN Venture relating to the Venture's owned cable television systems totaled $93,246 for the six months ended June 30, 1997 and $191,011 for the year ended December 31, 1996. 23 The charges to the Venture for related party transactions were as follows for the periods indicated:
FOR THE YEAR ENDED DECEMBER 31, FOR THE SIX MONTHS -------------------------------- ENDED JUNE 30, 1997 1996 1995 1994 ------------------- ---------- ---------- ---------- Management fees....... $2,042,495 $4,118,188 $5,069,985 $4,461,154 Allocation of expenses............. 2,383,486 5,491,265 7,183,663 6,951,110 Interest expense...... 0 0 220,743 33,627 Amount of notes and advances outstanding. 0 0 4,198,739 616,810 Highest amount of notes and advances outstanding.......... 0 0 4,574,572 929,508 Programming fees: Jones Education Company............ 172,847 374,709 428,937 196,004 Great American Country............ 90,360 141,753 0 0 Superaudio.......... 77,741 116,710 135,861 135,346
USE OF PROCEEDS FROM ALBUQUERQUE SYSTEM SALE The following is a brief summary of the Venture's estimated use of the proceeds and of the Partnership's estimated use of its portion of the proceeds from the Venture's sale of the Albuquerque System. All of the following selected financial information is based upon amounts as of June 30, 1997 and certain estimates of liabilities at closing. Final results may differ from these estimates. A more detailed discussion of the financial consequences of the sale of the Albuquerque System is set forth below under the caption "Unaudited Pro Forma Financial Information." All limited partners are encouraged to review carefully the unaudited pro forma financial statements and notes thereto. 24 If the holders of a majority of limited partnership interests of the three partnerships that comprise the Venture approve the proposed sale of the Albuquerque System and the transaction is closed, the Venture will repay its outstanding Senior Notes balance of $47,479,874 plus a make whole premium that, based on current market interest rates, is estimated to total approximately $3,125,000 and, subject to an amendment to the Venture's credit facility, the Venture will repay approximately $48,959,637 of the then outstanding balance of its credit facility, and then the $125,000,000 net sale proceeds will be distributed to the three constituent partnerships of the Venture in proportion to their ownership interests in the Venture. Because the make whole premium will be calculated as of the closing date using the then- current market interest rates, the exact amount of the make whole premium cannot be determined precisely until the closing date. The Partnership will receive 15 percent of such proceeds, estimated to total approximately $19,097,217, and the Partnership will distribute this portion of the net sale proceeds to its partners of record as of the closing date of the sale of the Albuquerque System and pursuant to the terms of the Partnership Agreement. The estimated uses of the sale proceeds are as follows: Contract Sales Price of the Albuquerque System................. $222,963,267 Add: Cash on Hand............................................. 217,486 Estimated Net Closing Adjustments........................ 1,383,758 Less: Repayment of Debt........................................ (96,439,511) Make Whole Premium....................................... (3,125,000) ------------ Cash Available for Distribution to Joint Venturers..... 125,000,000 Cash Distributed to Fund 12-B and Fund 12-D............ 105,902,783 ------------ Cash Available for Distribution by the Partnership..... 19,097,217 Return of Limited Partners' Initial Capital............ 15,409,000 ------------ Estimated Residual Proceeds............................ $ 3,688,217 ============ Limited Partners' Share (75%).......................... $ 2,766,163 ============ General Partner's Share (25%).......................... $ 922,054 ============
Based upon financial information available at June 30, 1997, below is an estimate of all cash distributions that will have been made to limited partners after the distribution of the proceeds from the sale of the Albuquerque System is completed. Summary of Estimated Cash Distributions to Limited Partners: Return of Limited Partners' Initial Capital on the 1996 Sale of the Venture's Tampa System.............................. $ 8,404,000 Repayment of amount due the Venture from Distribution Proceeds................................................... (159,137) Return of Limited Partners' Initial Capital on the 1998 Sale of the Venture's Albuquerque System........................ 15,409,000 Limited Partners' Share of Residual Proceeds on the 1998 Sale of the Venture's Albuquerque System................... 2,766,163 ----------- Total Estimated Cash Received by Limited Partners........... $26,420,026 =========== Total Cash Received per $1,000 of Limited Partnership Capital.................................................... $ 1,109 =========== Total Cash Received per $500 Limited Partnership Interest .. $ 555 ===========
The estimated after-tax internal rate of return on an investment in the Partnership is approximately 1 percent. This internal rate of return includes the distribution to be made on the sale of the Albuquerque System and the prior distribution of the net proceeds from the sale of the Venture's Tampa System. 25 Based on financial information available at June 30, 1997, the following table presents the estimated results of the Partnership when the Venture has completed the sale of the Albuquerque System: Dollar Amount Raised........................................ $ 23,813,000 Number of Cable Television Systems Purchased Directly....... None Number of Cable Television Systems Purchased Indirectly..... Five Date of Closing of Offering................................. December 1985 Date of First Sale of Properties............................ August 1987 Tax and Distribution Data per $1,000 of Limited Partnership Capital: Federal Income Tax Results Ordinary Income (Loss) --from operations....................................... $ (1,532) --from recapture........................................ $ 1,486 Capital Gain (Loss)..................................... $ 161 Cash Distributions to Investors Source (on GAAP basis) --investment income..................................... $ 109 --return of capital..................................... $ 1,000 Source (on cash basis) --sales................................................. $ 1,109
26 UNAUDITED PRO FORMA FINANCIAL INFORMATION OF CABLE TV FUND 12-C, LTD. The following unaudited pro forma financial statements assume that as of June 30, 1997, the Venture had sold the Albuquerque System for $222,963,267. The funds available to the Venture, adjusting for the estimated net closing adjustments of the Albuquerque System, are expected to total approximately $224,347,025. Such funds plus cash on hand will be used to repay indebtedness and to distribute $125,000,000 to the three constituent partnerships of the Venture pursuant to the percentage ownership interests in the Venture of each partnership and then each partnership will distribute its share of the distribution pursuant to the terms of their partnership agreements. The Partnership will receive $19,097,217 from such distribution. Pursuant to the terms of the Partnership Agreement, the Partnership will return to the limited partners the remaining $15,409,000 of capital initially contributed to the Partnership and the remainder will be allocated 75 percent to the limited partners ($2,766,163) and 25 percent to the General Partner ($922,054). The total limited partner distribution of $18,175,163 represents $382 per each $500 limited partnership interest or $763 for each $1,000 invested in the Partnership. The unaudited pro forma financial statements should be read in conjunction with the appropriate notes to the unaudited pro forma financial statements. ALL OF THE FOLLOWING UNAUDITED PRO FORMA FINANCIAL INFORMATION IS BASED UPON AMOUNTS AS OF JUNE 30, 1997 AND CERTAIN ESTIMATES OF LIABILITIES AT CLOSING. FINAL RESULTS MAY DIFFER FROM SUCH INFORMATION. 27 CABLE TV FUND 12-C, LTD. UNAUDITED PRO FORMA BALANCE SHEET JUNE 30, 1997
PRO FORMA PRO FORMA AS REPORTED ADJUSTMENTS BALANCE ----------- ----------- ----------- ASSETS Distribution receivable from cable television joint venture................ $ -- $19,097,217 $19,097,217 ---------- ----------- ----------- Total Assets......................... $ -- $19,097,217 $19,097,217 ========== =========== =========== LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) Liabilities: Loss in excess of investment in cable television joint venture.............. $3,824,141 $ (259,666) $ 3,564,475 Accrued distribution to Limited Partners.............................. -- 18,175,163 18,175,163 Accrued distribution to General Partner............................... -- 922,054 922, 054 ---------- ----------- ----------- Total Liabilities.................... 3,824,141 18,837,551 22,661,692 ---------- ----------- ----------- Partners' Capital (Deficit): General Partner........................ (17,065) 2,597 (14,468) Limited Partners....................... (3,807,076) 257,069 (3,550,007) ---------- ----------- ----------- Total Partners' Capital (Deficit).... (3,824,141) 259,666 (3,564,475) ---------- ----------- ----------- Total Liabilities and Partners' Capital (Deficit)............................. $ -- $19,097,217 $19,097,217 ========== =========== ===========
The accompanying notes to unaudited pro forma financial statements are an integral part of this unaudited balance sheet. 28 CABLE TV FUND 12-C, LTD. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996
PRO FORMA PRO FORMA AS REPORTED ADJUSTMENTS BALANCE ----------- ----------- ----------- EQUITY IN NET INCOME OF CABLE TELEVISION JOINT VENTURE............................. $9,525,374 $814,668 $10,340,042 ---------- -------- ----------- NET INCOME ................................ $9,525,374 $814,668 $10,340,042 ========== ======== =========== NET INCOME PER LIMITED PARTNERSHIP INTEREST.................................. $ 195.00 $ 211.67 ========== ===========
The accompanying notes to unaudited pro forma financial statements are an integral part of this unaudited statement. 29 CABLE TV FUND 12-C, LTD. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997
PRO FORMA PRO FORMA AS REPORTED ADJUSTMENTS BALANCE ----------- ----------- --------- EQUITY IN NET INCOME (LOSS) OF CABLE TELEVISION JOINT VENTURE............................... $(243,416) $259,666 $16,250 --------- -------- ------- NET INCOME (LOSS) ........................... $(243,416) $259,666 $16,250 ========= ======== ======= NET INCOME (LOSS) PER LIMITED PARTNERSHIP INTEREST.................................... $ (5.06) $ .33 ========= =======
The accompanying notes to unaudited pro forma financial statements are an integral part of this unaudited statement. 30 CABLE TV FUND 12-C, LTD. NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS 1) The Partnership has a 15 percent ownership interest in the Venture through capital contributions made during 1986 of $20,700,000. The following calculations present the sale of the Albuquerque System and the resulting estimated distributions to be received by the Partnership. 2) The unaudited pro forma balance sheet of the Partnership assumes that the Venture had sold the Albuquerque System for $222,963,267 as of June 30, 1997. The unaudited statements of operations of the Partnership assumes that the Venture had sold the Albuquerque System as of January 1, 1996. 3) The Partnership will receive $19,097,217 from the Venture. Pursuant to the terms of the Partnership Agreement, the Partnership will return to the limited partners the remaining $15,409,000 of capital initially contributed to the Partnership and the remainder will be allocated 75 percent to the limited partners ($2,766,163) and 25 percent to the General Partner ($922,054). The total limited partner distribution of $18,175,163 represents $382 per each $500 limited partnership interest or $763 for each $1,000 invested in the Partnership. 4) The estimated gain recognized from the sale of the Albuquerque System and corresponding estimated distribution to limited partners as of June 30, 1997 has been computed as follows: GAIN ON SALE OF ASSETS: Contract sales price............................................. $222,963,267 Less: Net book value of investment in cable television properties at June 30, 1997........................................... (74,980,444) Make whole premium......................................... (3,125,000) ------------ Gain on sale of assets........................................... $144,857,823 ============ Partnership's share of gain on sale of assets.................... $ 22,134,884 ============ DISTRIBUTIONS TO PARTNERS: Contract sales price............................................. $222,963,267 Add: Trade receivables, net...................................... 2,107,358 Prepaid expenses............................................ 1,881,434 Less:Accrued liabilities......................................... (2,378,866) Subscriber prepayments...................................... (226,168) ------------ Adjusted cash received........................................... 224,347,025 Less:Outstanding debt to third parties........................... (96,439,511) Make whole premium.......................................... (3,125,000) Add: Cash on hand................................................ 217,486 ------------ Cash available for distribution to joint venturers............... 125,000,000 Cash distributed to Fund 12-B and Fund 12-D...................... 105,902,783 ------------ Cash available for distribution by the Partnership............... 19,097,217 Return of limited partners' initial capital...................... 15,409,000 ------------ Residual proceeds................................................ $ 3,688,217 ============ Limited Partners' share (75%).................................... $ 2,766,163 ============ General Partner's share (25%).................................... $ 922,054 ============
31 AVAILABLE INFORMATION The Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 and the Partnership's Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 1997 and June 30, 1997 are being mailed to the limited partners of the Partnership together with this Proxy Statement. Copies of the three independent appraisals of the fair market value of the Albuquerque System and copies of the Purchase and Sale Agreement between the Venture and the General Partner have been publicly filed with the Securities and Exchange Commission and may be inspected at the Commission's public reference facilities and at its World Wide Web site, and such documents also are available to each limited partner of the Partnership upon written request to Elizabeth M. Steele, Secretary, Jones Intercable, Inc., 9697 East Mineral Avenue, Englewood, Colorado 80112, (303) 792-3111. Copies of these documents will be provided at the expense of the requesting limited partner. A Rule 13e-3 Transaction Statement furnishing certain additional information with respect to the transaction described herein has been jointly filed by the Partnership and the General Partner with the Securities and Exchange Commission. This document may be inspected at the Commission's public reference facilities and at its World Wide Web site. INCORPORATION BY REFERENCE The Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 and the Partnership's Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 1997 and June 30, 1997 are incorporated by reference in their entirety in this Proxy Statement. 32 SCHEDULE 1 EXECUTIVE OFFICERS AND DIRECTORS OF THE GENERAL PARTNER Set forth below is the name, residence or business address, present principal occupation or employment and five-year employment history of the executive officers and directors of the General Partner. Also set forth is the aggregate number of limited partnership interests of the Partnership beneficially owned by each such person. The present principal occupation of each executive officer of the General Partner is as an executive officer of the General Partner. The Partnership has no officers or employees. All persons listed except for Messrs. Burney, Kearney and Vanaselja are citizens of the United States. Messrs. Burney, Kearney and Vanaselja are citizens of Canada.
AGGREGATE NUMBER OF LIMITED PARTNERSHIP INTERESTS NAME AND ADDRESS OCCUPATION OR EMPLOYMENT BENEFICIALLY OWNED ---------------- ------------------------ --------------------- Glenn R. Jones Mr. Jones has served as Chairman of the Board of 0 c/o Jones Intercable, Directors and Chief Executive Officer of the Inc. 9697 E. Mineral General Partner since its formation in 1970. He Avenue Englewood, CO served as President of the General Partner from 80112 1984 to 1988. Mr. Jones has been involved in the cable television business in various capacities since 1961. Christopher J. Bowick Mr. Bowick is the General Partner's Group Vice 0 c/o Jones Intercable, President/Technology and its Chief Technical Inc. 9697 E. Mineral Officer. Prior to joining the General Partner Avenue Englewood, CO in 1991, Mr. Bowick worked as Vice President of 80112 Engineering of Scientific Atlanta's transmission systems business division. Derek H. Burney Mr. Burney was appointed a Director of the 0 c/o Bell Canada General Partner in December 1994 and he became International Inc. Vice Chairman of the General Partner's Board of 1000 rue de la Directors in January 1995. Mr. Burney joined Gauchetiere Bureau 1100 BCE Inc., Canada's largest telecommunications Montreal (PQ) company, in January 1993, and he is Chairman Canada H3B 4Y8 and Chief Executive Officer of Bell Canada International Inc., a subsidiary of BCE Inc. Prior to joining BCE Inc., Mr. Burney was Canada's ambassador to the United States from 1989 to 1992. Robert E. Cole Mr. Cole was appointed a Director of the General 0 c/o Jones Intercable, Partner in March 1996. Mr. Cole is currently Inc. self-employed as a partner of First Variable 9697 E. Mineral Avenue Insurance Marketing and is responsible for Englewood, CO 80112 marketing to National Association of Securities Dealers, Inc. firms in northern California, Oregon, Washington and Alaska. From 1993 to 1995, Mr. Cole was the director of marketing for Lamar Life Insurance Company; from 1992 to 1993, Mr. Cole was senior vice president of PMI Inc., a third party lender serving the special needs of corporate owned life insurance (COLI); and from 1988 to 1992, Mr. Cole was the principal of a specialty investment banking firm that provided services to finance the ownership and growth of emerging companies, productive assets and real property.
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AGGREGATE NUMBER OF LIMITED PARTNERSHIP INTERESTS NAME AND ADDRESS OCCUPATION OR EMPLOYMENT BENEFICIALLY OWNED ---------------- ------------------------ --------------------- Kevin P. Coyle Mr. Coyle, Group Vice President/Finance of the 0 c/o Jones Intercable, General Partner, has been the General Partner's Inc. 9697 E. Mineral Chief Financial Officer since 1990. Mr. Coyle Avenue Englewood, CO has been an associate of the finance department 80112 of the General Partner since 1981. William E. Frenzel Mr. Frenzel was appointed a Director of the 0 1775 Massachusetts General Partner in April 1995. He has been a Avenue, NW Guest Scholar since 1991 with the Brookings Washington, DC 20036 Institution, a research organization located in Washington, DC. Until his retirement in January 1991, Mr. Frenzel served for twenty years in the United States House of Representatives. Donald L. Jacobs Mr. Jacobs was appointed a Director of the 0 60435 Tekampe Road General Partner in April 1995. Mr. Jacobs is a Bend, OR 97702 retired executive officer of TRW. Prior to his retirement in 1992, he was Vice President and Deputy Manager of the Space and Defense Sector; prior to that appointment, he was the Vice President and General Manager of the Defense Systems Group; and prior to that appointment, he was President of ESL, Inc., a subsidiary of TRW. Larry Kaschinske Mr. Kaschinske has been the Controller and Chief 0 c/o Jones Intercable, Accounting Officer of the General Partner since Inc. 9697 E. Mineral 1994. Mr. Kaschinske has been an associate of Avenue Englewood, CO the finance department of the General Partner 80112 since 1984. Robert Kearney Mr. Kearney was appointed a Director of the 0 c/o Bell Canada General Partner in July 1997. Mr. Kearney is a International Inc. retired executive officer of Bell Canada. Prior 1000 rue de la to his retirement in December 1993, Mr. Kearney Gauchetiere was the President and Chief Executive Officer Bureau 1100 of Bell Canada. He served as Chairman of BCE Montreal (PQ) Canadian Telecom Group in 1994 and as Deputy Canada H3B 4Y8 Chairman of BCI Management Limited in 1995. James J. Krejci Mr. Krejci has been a Director of the General 0 3100 Arapahoe Avenue Partner since 1987. Mr. Krejci is President and Boulder, CO 80303 CEO of Imagelink Technologies, Inc., a privately financed company with leading technology in the desktop or personal computer videoconferencing market. Prior to joining Imagelink Technologies in July 1996, he was the President of the International Division of International Gaming Technology headquartered in Reno, Nevada. Prior to joining International Gaming Technology in May 1994, Mr. Krejci had been a Group Vice President of the General Partner since 1987.
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AGGREGATE NUMBER OF LIMITED PARTNERSHIP INTERESTS NAME AND ADDRESS OCCUPATION OR EMPLOYMENT BENEFICIALLY OWNED ---------------- ------------------------ --------------------- James B. O'Brien Mr. O'Brien has been President and a Director of 0 c/o Jones Intercable, the General Partner since 1989 and a member of Inc. the Executive Committee of the General 9697 E. Mineral Avenue Partner's Board of Directors since 1993. Englewood, CO 80112 Mr. O'Brien has been with the General Partner since 1982 in various operational management positions. Raphael M. Solot Mr. Solot was appointed a Director of the 0 501 South Cherry Street General Partner in March 1996. Mr. Solot is an Denver, CO 80222 attorney in private practice. He has practiced law for 32 years with an emphasis on franchise, corporate and partnership law and complex litigation. Elizabeth M. Steele Ms. Steele joined the General Partner in 1987 as 0 c/o Jones Intercable, Vice President/General Counsel and Secretary. Inc. Prior to that time, Ms. Steele was a partner at 9697 E. Mineral Avenue Davis, Graham & Stubbs, a Denver, Colorado law Englewood, CO 80112 firm that serves as counsel to the General Partner. Howard O. Thrall Mr. Thrall was appointed a director of the 0 c/o Jones Intercable, General Partner in March 1996 and he had Inc. previously served as a director of the General 9697 E. Mineral Avenue Partner from December 1988 to December 1994. Englewood, CO 80112 Mr. Thrall is Senior Vice President-Corporate Development for First National Net, Inc., a leading service provider for the mortgage banking industry. From September 1993 through July 1996, Mr. Thrall served as Vice President of Sales, Asian Region, for World Airways, Inc. From 1984 until August 1993, Mr. Thrall was with the McDonnell Douglas Corporation, where he was a Regional Vice President, Commercial Marketing with the Douglas Aircraft Company subsidiary. Siim A. Vanaselja Mr. Vanaselja was appointed a Director of the 0 c/o Bell Canada General Partner in August 1996. Mr. Vanaselja International Inc. joined BCE, Inc., Canada's largest 1000 rue de la telecommunications company, in February 1994 Gauchetiere and he has served in various capacities with Bureau 1100 that company and its subsidiaries since that Montreal (PQ) time. He currently serves as Chief Financial Canada H3B 4Y8 Officer of Bell Canada International Inc., a BCE Inc. subsidiary. Prior to joining BCE Inc., Mr. Vanaselja was a partner in the Toronto office of KPMG Peat Marwick Thorne. Ruth E. Warren Ms. Warren has been Group Vice 0 c/o Jones Intercable, President/Operations of the General Partner Inc. since 1990. Ms. Warren has been with the 9697 E. Mineral Avenue General Partner in various operational Englewood, CO 80112 management positions since 1980.
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AGGREGATE NUMBER OF LIMITED PARTNERSHIP INTERESTS NAME AND ADDRESS OCCUPATION OR EMPLOYMENT BENEFICIALLY OWNED ---------------- ------------------------ --------------------- Cynthia A. Winning Ms. Winning joined the General Partner as Group 0 c/o Jones Intercable, Vice President/Marketing in December 1994. Inc. Prior to joining the General Partner, Ms. 9697 E. Mineral Avenue Winning served in 1994 as the President of PRS Englewood, CO 80112 Inc., a Denver, Colorado sports and event marketing company. From 1979 to 1981 and from 1986 to 1994, Ms. Winning served as the Vice President and Director of Marketing for Citicorp Retail Services, Inc. Sanford Zisman Mr. Zisman was appointed a Director of the 0 3773 Cherry Creek North Drive- General Partner in June 1996. Mr. Zisman is a Denver, CO 80209 member of the law firm Zisman & Ingraham, P.C. of Denver, Colorado. He has practiced law for 32 years, with an emphasis on tax, business and estate planning and probate administration. Robert L. Zoellick Mr. Zoellick was appointed a Director of the 0 3900 Wisconsin General Partner in April 1995. Mr. Zoellick is Avenue, NW Executive Vice President for Housing and Law of Washington, DC 20016 Fannie Mae, a federally chartered and stockholder-owned corporation that is the largest housing finance investor in the United States. From August 1992 to January 1993, Mr. Zoellick served as Deputy Chief of Staff of the White House and Assistant to the President. From May 1991 to August 1992, Mr. Zoellick served concurrently as the Under Secretary of State for Economic and Agricultural Affairs and as Counselor of the Department of State. From 1985 to 1988, Mr. Zoellick served at the Department of Treasury in a number of capacities, including Counselor to the Secretary.
S-4 ================================================================================ [LOGO OF JONES INTERCABLE APPEARS HERE] 9697 EAST MINERAL AVENUE ENGLEWOOD, COLORADO 80112 PROXY THIS PROXY IS SOLICITED ON BEHALF OF THE PARTNERSHIP BY THE GENERAL PARTNER The undersigned Limited Partner of Cable TV Fund 12-C, Ltd., a Colorado limited partnership, hereby votes on the sale of Cable TV Fund 12-BCD Venture's Albuquerque, New Mexico cable television system to Jones Communications of New Mexico, Inc., an indirect wholly owned subsidiary of Jones Intercable, Inc., for a sales price of $222,963,267 in cash, subject to normal closing adjustments, pursuant to the terms and conditions of that certain Purchase and Sale Agreement dated as of July 28, 1997, as follows: [_] CONSENTS [_] WITHHOLDS CONSENT [_] ABSTAINS (YOU MUST SIGN ON THE REVERSE SIDE OF THIS PROXY CARD FOR YOUR VOTE TO COUNT.) ================================================================================ ================================================================================ THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED LIMITED PARTNER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE PROPOSED SALE TRANSACTION. PLEASE SIGN EXACTLY AS NAME APPEARS ON LABEL. DATED: ______________________, 199 ___________________________________ Beneficial Owner Signature (Investor) ___________________________________ Authorized Trustee/Custodian Signature PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. ================================================================================ ================================================================================ [LOGO OF JONES INTERCABLE APPEARS HERE] 9697 EAST MINERAL AVENUE ENGLEWOOD, COLORADO 80112 PROXY THIS PROXY IS SOLICITED ON BEHALF OF THE PARTNERSHIP BY THE GENERAL PARTNER The undersigned Limited Partner of Cable TV Fund 12-C, Ltd., a Colorado limited partnership, hereby votes on the sale of Cable TV Fund 12-BCD Venture's Albuquerque, New Mexico cable television system to Jones Communications of New Mexico, Inc., an indirect wholly owned subsidiary of Jones Intercable, Inc., for a sales price of $222,963,267 in cash, subject to normal closing adjustments, pursuant to the terms and conditions of that certain Purchase and Sale Agreement dated as of July 28, 1997, as follows: [_] CONSENTS [_] WITHHOLDS CONSENT [_] ABSTAINS (YOU MUST SIGN ON THE REVERSE SIDE OF THIS PROXY CARD FOR YOUR VOTE TO COUNT.) ================================================================================ ================================================================================ THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED LIMITED PARTNER(S). IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE PROPOSED SALE TRANSACTION. ALL OWNERS MUST SIGN EXACTLY AS NAME(S) APPEAR ON LABEL. When limited partnership interests are held by more than one person, all owners must sign. When signing as attorney, as executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporation name by authorized officer. If a partnership, please sign in partnership name by authorized person. DATED: ______________________, 199 ___________________________________ Signature - Investor 1 ___________________________________ Signature - Investor 2 ___________________________________ Signature - Investor 3 PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. ================================================================================ EX-99.(D)(2) 7 1996 10-K FOR CABLE TV FUND 12-C Exhibit 99(d)(2) FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from to ------ ------ Commission file number: 0-13964 CABLE TV FUND 12-C, LTD. ------------------------ (Exact name of registrant as specified in its charter) Colorado 84-0970000 -------- ---------- (State of Organization) (IRS Employer Identification No.) P.O. Box 3309, Englewood, Colorado 80155-3309 (303) 792-3111 - --------------------------------------------- -------------- (Address of principal executive office and Zip Code) (Registrant's telephone no. including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Limited Partnership Interests Indicate by check mark whether the registrants, (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days: Yes x No ----- ----- Aggregate market value of the voting stock held by non-affiliates of the registrant: N/A Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K ((S)229.405) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X ----- DOCUMENTS INCORPORATED BY REFERENCE: None (27620) Information contained in this Form 10-K Report contains "forward- looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, included in this Form 10-K Report that address activities, events or developments that the Partnership, the Venture or the General Partner expects, believes or anticipates will or may occur in the future are forward-looking statements. These forward-looking statements are based upon certain assumptions and are subject to a number of risks and uncertainties. Actual results could differ materially from the results predicted by these forward-looking statements. PART I. ------- ITEM 1. BUSINESS ----------------- THE PARTNERSHIP. Cable TV Fund 12-C, Ltd. (the "Partnership") is a Colorado limited partnership that was formed pursuant to the public offering of limited partnership interests in the Cable TV Fund 12 Limited Partnership Program (the "Program"), which was sponsored by Jones Intercable, Inc. (the "General Partner"). Cable TV Fund 12-A, Ltd. ("Fund 12-A"), Cable TV Fund 12-B, Ltd. ("Fund 12-B") and Cable TV Fund 12-D, Ltd. ("Fund 12-D") are the other partnerships that were formed pursuant to that Program. In 1986, the Partnership, Fund 12-B and Fund 12-D formed a general partnership known as Cable TV Fund 12-BCD Venture (the "Venture"), in which the Partnership owns a 15 percent interest, Fund 12-B owns a 9 percent interest and Fund 12-D owns a 76 percent interest. The Partnership and the Venture were formed for the purpose of acquiring and operating cable television systems. The Partnership does not directly own any cable television systems. The Partnership's sole asset is its 15 percent interest in the Venture. The Venture owns the cable television systems serving Palmdale, Lancaster and Rancho Vista and the military installation of Edwards Air Force Base, all in California (the "Palmdale System") and Albuquerque, New Mexico (the "Albuquerque System"). See Item 2. The Palmdale System and the Albuquerque System may collectively be referred to as the "Systems." DISPOSITION OF CABLE TELEVISION SYSTEM. On February 28, 1996, the Venture sold the cable television system serving areas in and around Tampa, Florida (the "Tampa System") to Jones Cable Holdings, Inc. ("JCH"), a subsidiary of the General Partner, for a sales price of $110,395,667. This price represented the average of three separate, independent appraisals of the fair market value of the Tampa System. Because the Venture's debt arrangements did not allow the Venture to make distributions on the sale of Venture assets, in February 1996 the Venture's debt arrangements were amended to permit a $55,000,000 distribution to the Venture's partners from the sale proceeds, and the balance of the sale proceeds were used to reduce Venture indebtedness. The Partnership's portion of this distribution was $8,404,000. A portion of the Partnership's distribution was used to repay an amount due the Venture, leaving $8,244,863 to be distributed to the limited partners. Because the limited partners have not yet received distributions in an amount equal to 100 percent of the capital initially contributed to the Partnership by them, the entire portion of the Partnership's distribution was distributed to the limited partners in March 1996. This distribution gave the Partnership's limited partners an approximate return of $346 for each $1,000 invested in the Partnership. Because the Tampa System did not constitute all or substantially all of the Venture's assets, no vote of the limited partners of the Partnership was required in connection with this transaction. On February 29, 1996, JCH consummated an agreement with Time Warner Entertainment-Advance/Newhouse Partnership ("TWEAN"), an unaffiliated cable television system operator, pursuant to which JCH conveyed the Tampa System, along with certain other cable television systems owned by JCH, and cash in the amount of $3,500,000 to TWEAN in exchange for the cable television systems serving Andrews Air Force Base, Capitol Heights, Cheltenham, District Heights, Fairmount Heights, Forest Heights, Morningside, Seat Pleasant, Upper Marlboro, and portions of Prince George's County, all in Maryland, and a portion of Fairfax County, Virginia. 2 CABLE TELEVISION SERVICES. The Systems offer to subscribers various types of programming, which include basic service, tier service, premium service, pay-per-view programs and packages including several of these services at combined rates. Basic cable television service usually consists of signals of all four national television networks, various independent and educational television stations (both VHF and UHF) and certain signals received from satellites. Basic service also usually includes programs originated locally by the system, which may consist of music, news, weather reports, stock market and financial information and live or videotaped programs of a public service or entertainment nature. FM radio signals are also frequently distributed to subscribers as part of the basic service. The Systems offer tier services on an optional basis to its subscribers. A tier generally includes most of the cable networks such as Entertainment and Sports Programming Network (ESPN), Cable News Network (CNN), Turner Network Television (TNT), Family Channel, Discovery and others, and the cable television operators buy tier programming from these networks. The Systems also offer a package that includes the basic service channels and the tier services. The Systems also offer premium services to subscribers, which consist of feature films, sporting events and other special features that are presented without commercial interruption. The cable television operators buy premium programming from suppliers such as HBO, Showtime, Cinemax or others at a cost based on the number of subscribers the cable operator serves. Premium service programming usually is significantly more expensive than the basic service or tier service programming, and consequently cable operators price premium service separately when sold to subscribers. The Systems also offer to subscribers pay-per-view programming. Pay- per-view is a service that allows subscribers to receive single programs, frequently consisting of motion pictures that have recently completed their theatrical exhibitions and major sporting events, and to pay for such service on a program-by-program basis. REVENUES. Monthly service fees for basic, tier and premium services constitute the major source of revenue for the Systems. At December 31, 1996, the Systems' monthly basic service rates ranged from $7.99 to $19.80, monthly basic and tier ("basic plus") service rates ranged from $3.00 to $12.95 and monthly premium services ranged from $16.50 to $24.77 per premium service. In addition, the Venture earns revenues from the Systems' pay-per-view programs and advertising fees. Related charges may include a nonrecurring installation fee that ranges from $3.00 to $12.95; however, from time to time the Systems have followed the common industry practice of reducing or waiving the installation fee during promotional periods. Commercial subscribers such as hotels, motels and hospitals are charged a nonrecurring connection fee that usually covers the cost of installation. Except under the terms of certain contracts with commercial subscribers and residential apartment and condominium complexes, the subscribers are free to discontinue the service at any time without penalty. For the year ended December 31, 1996, of the total fees received by the Systems, basic service and tier service fees accounted for approximately 64% of total revenues, premium service fees accounted for approximately 13% of total revenues, pay-per-view fees were approximately 3% of total revenues, advertising fees were approximately 9% of total revenues and the remaining 11% of total revenues came principally from equipment rentals, installation fees and program guide sales. The Venture is dependent upon the timely receipt of service fees to provide for maintenance and replacement of plant and equipment, current operating expenses and other costs of the Systems. FRANCHISES. The Systems are constructed and operated under non- exclusive, fixed-term franchises or other types of operating authorities (referred to collectively herein as "franchises") granted by local governmental authorities. These franchises typically contain many conditions, such as time limitations on commencement and completion of construction, conditions of service, including the number of channels, types of programming and the provision of free service to schools and certain other public institutions, and the maintenance of insurance and indemnity bonds. The provisions of local franchises are subject to federal regulation. 3 The Venture holds 9 franchises relating to the Systems. These franchises provide for the payment of fees to the issuing authorities and generally range from 3% to 5% of the gross revenues of a cable television system. The 1984 Cable Act prohibits franchising authorities from imposing annual franchise fees in excess of 5% of gross revenues and also permits the cable television system operator to seek renegotiation and modification of franchise requirements if warranted by changed circumstances. The Venture has never had a franchise revoked. The Venture does not have any franchises that will expire prior to December 31, 1997. The General Partner recently has experienced lengthy negotiations with some franchising authorities for the granting of franchise renewals. Some of the issues involved in recent renewal negotiations include rate regulation, customer service standards, cable plant upgrade or replacement and shorter terms of franchise agreements. COMPETITION. Cable television systems currently experience competition from several sources. Broadcast Television. Cable television systems have traditionally --------------------- competed with broadcast television, which consists of television signals that the viewer is able to receive directly on his television without charge using an "off-air" antenna. The extent of such competition is dependent in part upon the quality and quantity of signals available by such antenna reception as compared to the services provided by the local cable system. Accordingly, it has generally been less difficult for cable operators to obtain higher penetration rates in rural areas where signals available off-air are limited, than in metropolitan areas where numerous, high quality off-air signals are often available without the aid of cable television systems. Traditional Overbuild. Cable television franchises are not exclusive, --------------------- so that more than one cable television system may be built in the same area (known as an "overbuild"), with potential loss of revenues to the operator of the original cable television system. The General Partner has experienced overbuilds in connection with certain systems that it has owned or managed for limited partnerships, and currently there are overbuilds in the systems owned or managed by the General Partner. Constructing and developing a cable television system is a capital intensive process, and it is often difficult for a new cable system operator to create a marketing edge over the existing system. Generally, an overbuilder would be required to obtain franchises from the local governmental authorities, although in some instances, the overbuilder could be the local government itself. In any case, an overbuilder would be required to obtain programming contracts from entertainment programmers and, in most cases, would have to build a complete cable system, including headends, trunk lines and drops to individual subscribers homes, throughout the franchise areas. DBS. High-powered direct-to-home satellites have made possible the --- wide-scale delivery of programming to individuals throughout the United States using small roof-top or wall-mounted antennas. Several companies began offering direct broadcast satellite ("DBS") service over the last few years and additional entrants are expected. Companies offering DBS service use video compression technology to increase channel capacity of their systems to 100 or more channels and to provide packages of movies, satellite network and other program services which are competitive to those of cable television systems. DBS cannot currently offer its subscribers local programming, although at least one future DBS entrant is attempting to offer customers regional delivery of local broadcast signals. In addition to emerging high-powered DBS competition, cable television systems face competition from a major medium-powered satellite distribution provider and several low-powered providers, whose service requires use of much larger home satellite dishes. Not all subscribers terminate cable television service upon acquiring a DBS system. The General Partner has observed that there are DBS subscribers that also elect to subscribe to cable television service in order to obtain the greatest variety of programming on multiple television sets, including local programming not available through DBS service. The ability of DBS service providers to compete successfully with the cable television industry will depend on, among other factors, the ability of DBS providers to overcome certain legal and technical hurdles and the availability of equipment at reasonable prices. Telephone. Federal cross-ownership restrictions historically limited --------- entry by local telephone companies into the cable television business. The 1996 Telecommunications Act (the "1996 Telecom Act") eliminated this 4 cross-ownership restriction, making it possible for companies with considerable resources to overbuild existing cable operators and enter the business. Several telephone companies have begun seeking cable television franchises from local governmental authorities and constructing cable television systems. Ameritech, one of the seven regional Bell Operating Companies ("BOCs"), which provides telephone service in a multi-state region including Illinois, has been the most active BOC in seeking local cable franchises within its service area. It has already begun cable service in Naperville, Illinois and has also obtained franchises for Glen Ellyn and Vernon Hills, Illinois, all of which are currently served by cable systems owned by three partnerships managed by the General Partner. The General Partner cannot predict at this time the extent of telephone company competition that will emerge to owned or managed cable television systems. The entry of telephone companies as direct competitors, however, is likely to continue over the next several years and could adversely affect the profitability and market value of the General Partner's owned and managed systems. The entry of electric utility companies into the cable television business, as now authorized by the 1996 Telecom Act, could have a similar adverse effect. Private Cable. Additional competition is provided by private cable ------------- television systems, known as Satellite Master Antenna Television (SMATV), serving multi-unit dwellings such as condominiums, apartment complexes, and private residential communities. These private cable systems may enter into exclusive agreements with apartment owners and homeowners associations, which may preclude operators of franchised systems from serving residents of such private complexes. Private cable systems that do not cross public rights of way are free from the federal, state and local regulatory requirements imposed on franchised cable television operators. In some cases, the Venture has been unable to provide cable television service to buildings in which private operators have secured exclusive contracts to provide video and telephony services. The Venture is interested in providing these same services, but expects that the market to install and provide these services in multi-unit buildings will continue to be highly competitive. MMDS. Cable television systems also compete with wireless program ---- distribution services such as multichannel, multipoint distribution service ("MMDS") systems, commonly called wireless cable, which are licensed to serve specific areas. MMDS uses low-power microwave frequencies to transmit television programming over-the-air to paying subscribers. The MMDS industry is less capital intensive than the cable television industry, and it is therefore more practical to construct MMDS systems in areas of lower subscriber penetration. Wireless cable systems are now in direct competition with cable television systems in several areas of the country, including the system in Pima County, Arizona owned by the General Partner. Telephone companies have recently acquired or invested in wireless companies, and may use MMDS systems to provide services within their service areas in lieu of wired delivery systems. Enthusiasm for MMDS has waned in recent months, however, as Bell Atlantic and NYNEX have suspended their investment in two major MMDS companies. To date, the Venture has not lost a significant number of subscribers, nor a significant amount of revenue, to MMDS operators competing with the Venture's cable television systems. A series of actions taken by the FCC, however, including reallocating certain frequencies to the wireless services, are intended to facilitate the development of wireless cable television systems as an alternative means of distributing video programming. The FCC recently held auctions for spectrum that will be used by wireless operators to provide additional channels of programming over larger distances. In addition, an emerging technology, Local Multipoint Distribution services ("LMDS"), could also pose a significant threat to the cable television industry, if and when it becomes established. LMDS, sometimes referred to as cellular television, could have the capability of delivering more than 100 channels of video programming to a subscriber's home. The potential impact, however, of LMDS is difficult to assess due to the newness of the technology and the absence of any current fully operational LMDS systems. 5 Cable television systems are also in competition, in various degrees with other communications and entertainment media, including motion pictures and home video cassette recorders. REGULATION AND LEGISLATION - -------------------------- The operation of cable television systems is extensively regulated by the FCC, some state governments and most local governments. The new 1996 Telecom Act alters the regulatory structure governing the nation's telecommunications providers. It removes barriers to competition in both the cable television market and the local telephone market. Among other things, it also reduces the scope of cable rate regulation. The 1996 Telecom Act requires the FCC to undertake a host of implementing rulemakings, the final outcome of which cannot yet be determined. Moreover, Congress and the FCC have frequently revisited the subject of cable regulation. Future legislative and regulatory changes could adversely affect the Venture's operations. This section briefly summarizes key laws and regulations affecting the operation of the Venture's cable systems and does not purport to describe all present, proposed, or possible laws and regulations affecting the Venture. 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. The 1996 Telecom Act allows operators to aggregate costs for broad categories of equipment across geographic and functional lines. This change should facilitate the introduction of new technology. The FCC itself directly administers rate regulation of any cable programming service tiers ("CPST"), which typically contain satellite-delivered programming. Under the 1996 Telecom Act, the FCC can regulate CPST rates only if an LFA first receives at least two rate complaints from local subscribers and then files a formal complaint with the FCC. When new CPST rate complaints are filed, the FCC now considers only whether the incremental increase is justified and will not reduce the previously established CPST rate. Under the FCC's rate regulations, most cable systems were required to reduce their BST and CPST rates in 1993 and 1994, and have since had their rate increases governed by a complicated price cap scheme that allows for the recovery of inflation and certain increased costs, as well as providing some incentive for expanding channel carriage. The FCC has modified its rate adjustment regulations to allow for annual rate increases and to minimize previous problems associated with regulatory lag. Operators also have the opportunity of bypassing this "benchmark" regulatory scheme in favor of traditional "cost-of-service" regulation in cases where the latter methodology appears favorable. Premium cable services offered on a per-channel or per- program basis remain unregulated, as do affirmatively marketed packages consisting entirely of new programming product. Federal law requires that the BST be offered to all cable subscribers, but limits the ability of operators to require purchase of any CPST before purchasing premium services offered on a per-channel or per-program basis. The 1996 Telecom Act sunsets FCC regulation of CPST rates for all systems (regardless of size) on March 31, 1999. It also relaxes existing uniform rate requirements by specifying that uniform rate requirements 6 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 telecommunications carriers. Review of the FCC's initial interconnection order is now pending before the Eighth Circuit Court of Appeals. Telephone Company Entry Into Cable Television. The 1996 Telecom Act --------------------------------------------- allows telephone companies to compete directly with cable operators by repealing the historic telephone company/cable cross-ownership ban. Local exchange carriers ("LECs"), including the BOCs, can now compete with cable operators both inside and outside their telephone service areas. Because of their resources, LECs could be formidable competitors to traditional cable operators, and certain LECs have begun offering cable service. As described above, the General Partner is now witnessing the beginning of LEC competition in a few of its cable communities. Under the 1996 Telecom Act, a LEC providing video programming to subscribers will be regulated as a traditional cable operator (subject to local franchising and federal regulatory requirements), unless the LEC elects to provide its programming via an "open video system" ("OVS"). To qualify for OVS status, the LEC must reserve two-thirds of the system's activated channels for unaffiliated entities. Although LECs and cable operators can now expand their offerings across traditional service boundaries, the general prohibition remains on LEC buyouts (i.e., any ownership interest exceeding 10 percent) of co-located cable systems, cable operator buyouts of co-located LEC systems, and joint ventures between cable operators and LECs in the same market. The 1996 Telecom Act provides a few limited exceptions to this buyout prohibition, including a carefully circumscribed "rural exemption." The 1996 Telecom Act also provides the FCC with the limited authority to grant waivers of the buyout prohibition (subject to LFA approval). Electric Utility Entry Into Telecommunications/Cable Television. The --------------------------------------------------------------- 1996 Telecom Act provides that registered utility holding companies and subsidiaries may provide telecommunications services (including cable television) notwithstanding the Public Utilities Holding Company Act. Electric utilities must establish separate subsidiaries, known as "exempt telecommunications companies" and must apply to the FCC for operating authority. Again, because of their resources, electric utilities could be formidable competitors to traditional cable systems. Additional Ownership Restrictions. The 1996 Telecom Act eliminates --------------------------------- statutory restrictions on broadcast/cable cross-ownership (including broadcast network/cable restrictions), but leaves in place existing FCC regulations prohibiting local cross-ownership between co-located television stations and cable systems. The 1996 Telecom Act also eliminates the three year holding period required under the 1992 Cable Act's "anti-trafficking" provision. The 1996 Telecom Act leaves in place existing restrictions on cable cross-ownership with SMATV and MMDS facilities, but lifts those restrictions where the cable operator is subject to effective competition. In January 1995, however, the FCC adopted regulations which permit cable operators to own and operate SMATV 7 systems within their franchise area, provided that such operation is consistent with local cable franchise requirements. Pursuant to the 1992 Cable Act, the FCC adopted rules precluding a cable system from devoting more than 40% of its activated channel capacity to the carriage of affiliated national program services. A companion rule establishing a nationwide ownership cap on any cable operator equal to 30% of all domestic cable subscribers has been stayed pending further judicial review. There are no federal restrictions on non-U.S. entities having an ownership interest in cable television systems or the FCC licenses commonly employed by such systems. Section 310(b)(4) of the Communications Act does, however, prohibit foreign ownership of FCC broadcast and telephone licenses, unless the FCC concludes that such foreign ownership is consistent with the public interest. BCI's investment in the General Partner could, therefore, adversely affect any plan to acquire FCC broadcast or common carrier licenses. The Partnership, however, does not currently plan to acquire such licenses. Must Carry/Retransmission Consent. The 1992 Cable Act contains --------------------------------- broadcast signal carriage requirements that allow local commercial television broadcast stations to elect once every three years between requiring a cable system to carry the station ("must carry") or negotiating for payments for granting permission to the cable operator to carry the station ("retransmission consent"). Less popular stations typically elect "must carry," and more popular stations typically elect "retransmission consent." Must carry requests can dilute the appeal of a cable system's programming offerings, and retransmission consent demands may require substantial payments or other concessions. Either option has a potentially adverse affect on the Venture's business. Additionally, cable systems are required to obtain retransmission consent for all "distant" commercial television stations (except for satellite-delivered independent "superstations" such as WTBS). The constitutionality of the must carry requirements has been challenged and is awaiting a decision from the U.S. Supreme Court. Access Channels. LFAs can include franchise provisions requiring --------------- cable operators to set aside certain channels for public, educational and governmental access programming. Federal law also requires cable systems to designate a portion of their channel capacity (up to 15% in some cases) for commercial leased access by unaffiliated third parties. The FCC has adopted rules regulating the terms, conditions and maximum rates a cable operator may charge for use of the designated channel capacity, but use of commercial leased access channels has been relatively limited. The FCC released revised rules in February 1997 which mandate a modest rate reduction and could make commercial leased access a more attractive option to third party programmers. Access to Programming. To spur the development of independent cable --------------------- programmers and competition to incumbent cable operators, the 1992 Cable Act imposed restrictions on the dealings between cable operators and cable programmers. Of special significance from a competitive business posture, the 1992 Cable Act precludes video programmers affiliated with cable companies from favoring cable operators over competitors and requires such programmers to sell their programming to other multichannel video distributors. This provision limits the ability of vertically integrated cable programmers to offer exclusive programming arrangements to cable companies. Other FCC Regulations. In addition to the FCC regulations noted --------------------- above, there are other FCC regulations covering such areas as equal employment opportunity, subscriber privacy, programming practices (including, among other things, syndicated program exclusivity, network program nonduplication, local sports blackouts, indecent programming, lottery programming, political programming, sponsorship identification, and children's programming advertisements), registration of cable systems and facilities licensing, maintenance of various records and public inspection files, frequency usage, lockbox availability, antenna structure notification, tower marking and lighting, consumer protection and customer service standards, technical standards, and consumer electronics equipment compatibility. The FCC is expected to impose new Emergency Alert System requirements on cable operators this year. The FCC has the authority to enforce its regulations through the imposition of substantial fines, the issuance of cease and desist orders and/or the imposition of other administrative sanctions, such as the revocation of FCC licenses needed to operate certain transmission facilities used in connection with cable operations. 8 Two pending FCC proceedings of particular competitive concern involve inside wiring and navigational devices. The former rulemaking is considering ownership of cable wiring located inside multiple dwelling unit complexes. If the FCC concludes that such wiring belongs to, or can be unilaterally acquired by the complex owner, it will become easier for complex owners to terminate service from the incumbent cable operator in favor of a new entrant. The latter rulemaking is considering whether cable customers must be allowed to purchase cable converters from third party vendors. If the FCC concludes that such distribution is required, and does not make appropriate allowances for signal piracy concerns, it may become more difficult for cable operators to combat theft of service. Copyright. Cable television systems are subject to federal copyright --------- licensing covering carriage of television and radio broadcast signals. In exchange for filing certain reports and contributing a percentage of their revenues to a federal copyright royalty pool (that varies depending on the size of the system and the number of distant broadcast television signals carried), cable operators can obtain blanket permission to retransmit copyrighted material on broadcast signals. The possible modification or elimination of this compulsory copyright license is the subject of continuing legislative review and could adversely affect the Venture's ability to obtain desired broadcast programming. In addition, the cable industry pays music licensing fees to BMI and is negotiating a similar arrangement with ASCAP. Copyright clearances for nonbroadcast programming services are arranged through private negotiations. State and Local Regulation. Cable television systems generally are -------------------------- operated pursuant to nonexclusive franchises granted by a municipality or other state or local government entity in order to cross public rights-of-way. Federal law now prohibits franchise authorities from granting exclusive franchises or from unreasonably refusing to award additional franchises. Cable franchises generally are granted for fixed terms and in many cases include monetary penalties for non-compliance and may be terminable if the franchisee fails to comply with material provisions. The terms and conditions of franchises vary materially from jurisdiction to jurisdiction. Each franchise generally contains provisions governing cable operations, service rates, franchise fees, system construction and maintenance obligations, system channel capacity, design and technical performance, customer service standards, and indemnification protections. A number of states subject cable television systems to the jurisdiction of centralized state governmental agencies, some of which impose regulation of a character similar to that of a public utility. Although LFAs have considerable discretion in establishing franchise terms, there are certain federal limitations. For example, LFAs cannot insist on franchise fees exceeding 5% of the system's gross revenues, cannot dictate the particular technology used by the system, and cannot specify video programming other than identifying broad categories of programming. Federal law contains renewal procedures designed to protect incumbent franchisees against arbitrary denials of renewal. Even if a franchise is renewed, the franchise authority may seek to impose new and more onerous requirements such as significant upgrades in facilities and services or increased franchise fees as a condition of renewal. Similarly, if a franchise authority's consent is required for the purchase or sale of a cable system or franchise, such authority may attempt to impose more burdensome or onerous franchise requirements in connection with a request for consent. Historically, franchises have been renewed for cable operators that have provided satisfactory services and have complied with the terms of their franchises. GENERAL. The Venture's business consists of providing cable television services to a large number of customers, the loss of any one of which would have no material effect on the Venture's business. The Systems have had some subscribers who later terminated the service. Terminations occur primarily because people move to another home or to another city. In other cases, people terminate on a seasonal basis or because they no longer can afford or are dissatisfied with the service. The amount of past due accounts in the Systems is not significant. The Venture's policy with regard to past due accounts is basically one of disconnecting service before a past due account becomes material. 9 The Venture does not depend to any material extent on the availability of raw materials; it carries no significant amounts of inventory and it has no material backlog of customer orders. Neither the Venture nor the Partnership has any employees because all properties are managed by employees of the General Partner. The General Partner has engaged in research and development activities relating to the provision of new services but the amount of the Venture's funds expended for such research and development has never been material. Compliance with federal, state and local provisions that have been enacted or adopted regulating the discharge of materials into the environment or otherwise relating to the protection of the environment has had no material effect upon the capital expenditures, earnings or competitive position of the Venture. ITEM 2. PROPERTIES ------------------- The cable television systems owned by the Venture are described below:
Ownership SYSTEM ACQUISITION DATE --------- ------ ---------------- Cable TV Fund 12-B, Ltd., Cable TV Fund Palmdale System April 1986 12-C, Ltd. and Cable TV Fund 12-D, Albuquerque System August 1986 Ltd. own a 9%, 15% and 76% interest, respectively, through their interest in Cable TV Fund 12-BCD Venture
The following sets forth (i) the monthly basic plus service rates charged to subscribers and (ii) the number of basic subscribers and pay units for the Systems. The monthly basic service rates set forth herein represent, with respect to systems with multiple headends, the basic service rate charged to the majority of the subscribers within the system. In cable television systems, basic subscribers can subscribe to more than one pay TV service. Thus, the total number of pay services subscribed to by basic subscribers are called pay units. As of December 31, 1996, the Palmdale System operated cable plant passing approximately 92,900 homes, with an approximate 68% penetration rate, and the Albuquerque System operated cable plant passing approximately 231,300 homes, with an approximate 48% penetration rate. Figures for numbers of subscribers and homes passed are compiled from the General Partner's records and may be subject to adjustments.
At December 31, ------------------------- PALMDALE SYSTEM 1996 1995 1994 - --------------- ---- ---- ---- Monthly basic plus service rate $ 24.77 $ 23.27 $ 21.77 Basic subscribers 63,188 61,993 59,702 Pay units 45,108 46,699 46,214
10
At December 31, ---------------------------- ALBUQUERQUE SYSTEM 1996 1995 1994 - ------------------ ---- ---- ---- Monthly basic plus service rate $ 23.95 $ 22.85 $ 21.35 Basic subscribers 112,460 109,911 106,835 Pay units 61,210 57,189 58,838
ITEM 3. LEGAL PROCEEDINGS -------------------------- David Hirsch, derivatively on behalf of Cable TV Fund 12-B, Ltd., ----------------------------------------------------------------- Cable TV Fund 12-C, Ltd. and Cable TV Fund 12-D, Ltd. v. Jones Intercable, Inc. - ------------------------------------------------------------------------------- (Arapahoe County District Court, Colorado, Case No. 95-CV-1800, Division 3) ("Hirsch"); Jonathan Fussner and Eileen Fussner, derivatively on behalf of Cable - -------- -------------------------------------------------------------------- TV Fund 12-B, Ltd., Cable TV Fund 12-C, Ltd. and Cable TV Fund 12-D, Ltd. v. - ---------------------------------------------------------------------------- Jones Intercable, Inc. (Arapahoe County District Court, Colorado, Case No. 96- - ---------------------- CV-1672, Division 3) ("Fussner"). ------- On September 20, 1995, the General Partner was named as a defendant in a Complaint filed by David Hirsch, who is a limited partner in Fund 12-D. On January 25, 1996, the General Partner was served with an Amended Class Action Complaint and Request for Jury Trial. On February 19, 1996, the General Partner filed a Motion to Dismiss the Amended Complaint arguing that the action was improperly brought as a class action. The General Partner argued that the plaintiff could only bring the action as a derivative claim and that because the elements of a derivative claim had not been properly pleaded, the Amended Complaint should be dismissed. After briefing on this motion, the Court entered an Order on June 24, 1996 granting the General Partner's Motion to Dismiss, and on July 25, 1996, the Court entered a further Order allowing plaintiff to file another Amended Complaint. On July 31, 1996, plaintiff Hirsch filed a Second Amended Complaint. Plaintiff Hirsch's Second Amended Complaint alleges that he is a limited partner in Fund 12-D and that he now purports to bring this case as a derivative action on behalf of the Partnership, Fund 12-B and Fund 12-D. The suit relates to the purchase by JCH from the Venture of the Tampa System and subsequent trade of the Tampa System, along with other cable systems, to Time Warner for certain of Time Warner's cable systems. JCH was authorized to purchase the Tampa System from the Venture pursuant to the terms of the limited partnership agreements of the Partnership, Fund 12-B and Fund 12-D. Also on July 31, 1996, the same lawyers who represent Mr. Hirsch filed a Verified Complaint on behalf of Jonathan Fussner and Eileen Fussner as referenced above. The Fussners are joint owners of limited partnership interests in Fund 12-D and their Verified Complaint is identical in all substantive respects to the Hirsch Second Amended Complaint. On December 13, ------ 1996, the Court consolidated the Hirsch and Fussner actions. ------ ------- The Second Amended Complaint in Hirsch and the Verified Complaint in ------ Fussner allege that the General Partner breached its fiduciary duty to the - ------- plaintiffs and the other limited partners of the Partnership, Fund 12-B, and Fund 12-D and the Venture in connection with JCH's purchase of the Tampa System and the trade of that system to Time Warner. The Hirsch and Fussner Complaints ------ ------- also set forth a claim for unjust enrichment and for breach of the implied covenant of good faith and fair dealing. Among other things, the plaintiffs assert that JCH paid an inadequate price for the Tampa System, even though the agreed-upon price was the average of three separate appraisals, as required by the applicable partnership agreements. The Hirsch and Fussner cases are now ------ ------- styled as derivative actions and also seek a trial by jury. The plaintiffs in Hirsch and Fussner seek an unspecified amount of damages, including punitive - ------ ------- damages, an award of attorneys' fees and certain equitable relief. On August 13, 1996, the General Partner filed a Motion to Dismiss the breach of fiduciary duty and unjust enrichment claims in the Hirsch and Fussner ------ ------- actions. On February 6, 1997, after briefing on this motion, the Court denied the General Partner's Motion to Dismiss. The General Partner's Answer to the Complaints in 11 Hirsch and Fussner was filed on February 25, 1997 and generally - ------ ------- denied the substantive allegations in the Complaint and asserted a number of affirmative defenses. There is no trial date set in these cases, and there has been no discovery conducted by the parties to date. Martin Ury, derivatively on behalf of Cable TV Fund 12-B, Ltd., Cable --------------------------------------------------------------------- TV Fund 12-C, Ltd. and Cable TV Fund 12-D, Ltd. v. Jones Intercable, Inc., - -------------------------------------------------------------------------- Defendant, and Cable TV Fund 12-BCD Venture, Cable TV Fund 12-B, Ltd., Cable TV - ------------------------------------------------------------------------------- Fund 12-C, Ltd. and Cable TV Fund 12-D, Ltd., Nominal Defendants (Arapahoe - ---------------------------------------------------------------- County District Court, Colorado, Case No. 95-CV-2212, Division 5) ("Ury"). --- On November 17, 1995, plaintiff Martin Ury filed a Complaint against the General Partner in the above-referenced action in Arapahoe County District Court. Plaintiff Ury is a limited partner in Fund 12-D. He purports to bring this case as a derivative action on behalf of the Partnership, Fund 12-B and Fund 12-D. As in Hirsch and Fussner, discussed above, this case relates to ------ ------- JCH's purchase of the Tampa System and the Time Warner exchange. The substantive allegations of the Ury Complaint are substantially --- similar to the allegations in the Hirsch Second Amended Complaint and the ------ Fussner Verified Complaint. The plaintiff in Ury alleges that the General - ------- --- Partner breached its fiduciary duties to the limited partnerships and their limited partners in connection with JCH's purchase of the Tampa System from the Venture. Specifically, the plaintiff alleges that JCH paid an inadequate price for the Tampa System, even though the agreed upon price was the average of three separate appraisals, as required by the applicable limited partnership agreements. The Complaint seeks damages in an unspecified amount on behalf of the three limited partnerships and an award of attorneys' fees. The Complaint does not seek a jury trial or punitive damages. On February 1, 1996, the General Partner filed a Motion to Dismiss the Complaint on the ground that it fails to state a claim against the General Partner upon which relief can be granted. The thrust of the General Partner's motion was that the General Partner cannot be liable for breach of fiduciary duty because it acted in accordance with the terms of the limited partnership agreements in arranging for JCH's purchase of the Tampa System. The General Partner also argued that plaintiff does not have standing to assert a derivative claim on behalf of the Partnership or Fund 12-B, since he is only a limited partner in Fund 12-D. On July 12, 1996, the Court denied the General Partner's Motion to Dismiss. The General Partner filed its Answer in this case on July 29, 1996, generally denying the substantive allegations in the Complaint, asserting a number of affirmative defenses and requesting a trial by jury. A Case Management Order has been entered by the Court, setting the case for a two- week jury trial commencing on September 22, 1997. The parties have made certain voluntary disclosures pursuant to Rule 26 of the Colorado Rules of Civil Procedure, and discovery has begun, although no depositions have been taken to date. Because these cases are in their very early stages, it is not possible at this time to present a realistic evaluation of the probability of a favorable or unfavorable outcome. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ------------------------------------------------------------ None. 12 PART II. -------- ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK ------------------------------------------------- AND RELATED SECURITY HOLDER MATTERS ----------------------------------- While the Partnership is publicly held, there is no public market for the limited partnership interests, and it is not expected that a market will develop in the future. During 1996, a limited partner of the Partnership conducted a "limited tender offer" for interests in the Partnership at a price of $316 per interest. As of February 14, 1997, the number of equity security holders in the Partnership was 3,489. 13 Item 6. Selected Financial Data - -------------------------------
For the Year Ended December 31, ---------------------------------------------------------------------------- Cable TV Fund 12-C, Ltd./(a)/ 1996 1995 1994 1993 1992 - ------------------------------------- ---------------- ------------- ------------- ------------- ------------- Revenues $ - $ - $ - $ - $ - Operating Income - - - - - Equity in Net Imcome (Loss) of Cable Television Joint Venture 9,525,374 (1,699,611) (1,967,232) (1,769,867) (2,274,033) Net Income (Loss) 9,525,374/(b)/(1,699,611) (1,967,232) (1,769,867) (2,274,033) Net Income (Loss) per Limited Partnership Unit 195.00/(b)/ (35.33) (40.89) (36.79) (47.27) Weighted Average Number of Limited Partnership Units Outstanding 47,626 47,626 47,626 47,626 47,626 General Partner's Deficit (14,631) (253,008) (236,012) (216,340) (198,641) Limited Partners' Capital (Deficit) (3,566,094) (4,608,228) (2,925,613) (978,053) 774,115 Total Assets - - - - - Debt - - - - - General Partner Advances - - - - - For the Year Ended December 31, ------------------------------------------------------------------------ Cable TV Fund 12-BCD Venture 1996 1995 1994 1993 1992 - ------------------------------------- ------------ ------------ ------------ ------------ ------------ Revenues $ 82,363,752 $101,399,697 $ 92,823,076 $ 89,131,530 $ 83,567,527 Depreciation & Amortization 21,993,546 26,666,735 24,809,654 25,772,299 26,764,820 Operating Income (Loss) 2,029,571 4,127,622 289,904 779,887 (1,087,963) Net Income (Loss) 62,338,836/(b)/(11,124,567) (12,876,242) (11,584,416) (14,884,365) Partners' Capital (Deficit) (22,391,482) (29,730,318) (18,605,751) (5,729,509) 5,854,907 Total Assets 120,899,336 163,486,029 170,675,914 169,670,552 175,554,620 Debt 138,345,878 180,770,267 180,402,748 167,698,697 160,440,488 Jones Intercable, Inc. Advances - 4,198,739 616,810 188,430 511,646
(a) Activity in Cable TV Fund 12-C, Ltd. is limited to its equity interest in Cable TV Fund 12-BCD Venture. (b) Net income resulted primarily from the sale of the Tampa System by Cable TV Fund 12-BCD Venture in February 1996. 13 Item 7. Management's Discussion and Analysis of Financial Condition and Results - -------------------------------------------------------------------------------- of Operations - ------------- The following discussion of the financial condition and results of operations of Cable TV Fund 12-C, Ltd. (the "Partnership") and Cable TV Fund 12- BCD Venture (the "Venture") contain, in addition to historical information, forward-looking statements that are based upon certain assumptions and are subject to a number of risks and uncertainties. The Partnership's and Venture's actual results may differ significantly from the results predicted in such forward-looking statements. FINANCIAL CONDITION - ------------------- Cable TV Fund 12-C, Ltd. - - ------------------------ The Partnership owns a 15 percent interest in the Venture. The investment in cable television joint venture is accounted for under the equity method. The Partnership's share of losses generated by the Venture have exceeded the Partnership's initial investment in the Venture; therefore, the investment is classified as a liability. This liability decreased by $1,121,374, which represents the Partnership's share of income generated by the Venture for the year ended December 31, 1996, reduced by the distribution from the Venture. On February 28, 1996, the Venture sold the cable television system serving areas in and around Tampa, Florida (the "Tampa System") to Jones Cable Holdings, Inc. ("JCH"), a wholly owned subsidiary of the General Partner, for the sales price of $110,395,667, subject to normal working capital closing adjustments. This price represented the average of three separate, independent appraisals of the fair market value of the Tampa System. Because the Venture's debt arrangements did not allow the Venture to make distributions on the sale of Venture assets, in February 1996 the Venture's existing debt arrangements were amended to permit a $55,000,000 distribution to the Venture's partners from the sale proceeds, and the balance of the sale proceeds were used to reduce Venture indebtedness. The Partnership's portion of this distribution is $8,404,000. A portion of the Partnership's distribution was used to repay an amount due the Venture, leaving $8,244,863 to be distributed to the Partnership's partners. Because the limited partners have not yet received distributions in an amount equal to 100 percent of the capital initially contributed to the Partnership by them, the entire portion of the Partnership's distribution was distributed to the limited partners in March 1996. This distribution gave the Partnership's limited partners an approximate return of $346 for each $1,000 invested in the Partnership. Because the Tampa System did not constitute all or substantially all of the Venture's assets, no vote of the limited partners of the Partnership was required in connection with this transaction. Cable TV Fund 12-BCD Venture - - ---------------------------- It is the General Partner's publicly announced policy that it intends to liquidate its managed limited partnerships, including the partnerships that comprise the Venture, as opportunities for sales of partnership cable television systems arise in the marketplace over the next several years. In accordance with the General Partner's policy, the Venture sold the Tampa System in February 1996. No specific dates or terms have yet been set for the sale of the remainder of the Venture's systems. On February 28, 1996, the Venture sold the Tampa System to JCH. The sales price of the Tampa System was $110,395,667, subject to normal working capital closing adjustments. This price represented the average of three separate, independent appraisals of the fair market value of the Tampa System. In February 1996, the Venture's debt arrangements were amended to permit a $55,000,000 distribution to the Venture's partners from the sale proceeds, and the balance of the sale proceeds were used to reduce Venture indebtedness. The net sales proceeds were distributed as follows: the Partnership received $5,049,000; Fund 12-C received $8,404,000 and Fund 12-D received $41,547,000. For the year ended December 31, 1996, the Venture generated net cash from operating activities totaling 4,632,835 which was available to fund capital expenditures and non-operating costs. Capital expenditures for the Venture totaled approximately $17,474,000 during 1996. New plant construction accounted for approximately 46 percent of the capital expenditures. Service drops to homes accounted for approximately 29 percent of the capital expenditures. The remaining expenditures related to various system enhancements. These capital expenditures were funded primarily from cash generated from operations, advances from Jones Intercable, Inc. and borrowings from the Venture's credit facility. Expected capital expenditures for 1997 are approximately $16,052,000. Service drops to homes are anticipated to account for approximately 27 percent. Rebuild construction is anticipated to account for 21 percent. New plant construction is anticipated to account for 17 percent. The remainder of the expenditures are for various system enhancements in all of the 14 Venture's systems. These capital expenditures are necessary to maintain the value of the Venture's systems. Funding for these expenditures is expected to be provided by cash on hand, cash generated from operations and borrowings from the Venture's credit facility. The Venture's debt arrangements at December 31, 1996 consisted of $55,393,187 of Senior Notes placed with a group of institutional lenders and a $120,000,000 credit facility with a group of commercial bank lenders. The Senior Notes and credit facility are equal in standing with the other, and both are equally secured by the assets of the Venture. The Senior Notes have a fixed interest rate of 8.64 percent and a final maturity date of March 31, 2000. The Senior Notes required payments of interest only to March 1996, with interest and accelerating principal payments required for the four years thereafter, payable semi-annually in March and September. Principal payments of approximately $7,385,758 due in 1997 are expected to be funded from cash on hand, cash generated from operations and borrowings from the Venture's credit facility. In February 1996, the Venture was required to make a principal repayment of approximately $33,650,000 from proceeds received from the sale of the Tampa System. The Senior Notes carry a "make-whole" payment, which is a prepayment penalty, in the event the notes are prepaid prior to maturity. The make-whole payment protects the lenders in the event that prepaid funds are reinvested at a rate below 8.64 percent. The Venture was required to pay a make- whole payment in February 1996 of approximately $2,217,000. In February 1996, the Venture was required by the terms of its then-existing $87,000,000 credit facility to make a principal repayment of $22,000,000 from proceeds received from the sale of the Tampa System. Simultaneously with the sale of the Tampa System, the Venture amended this credit facility to increase the amount available to $120,000,000 to meet the Venture's long-term financing requirements. The balance outstanding on the Venture's amended credit facility at December 31, 1996 was $82,130,620, leaving $37,869,380 available for future needs. At the Venture's option, the credit facility is payable in full on December 31, 1999 or converts to a term loan that matures on December 31, 2004 payable in consecutive quarterly amounts. Interest on the amended credit facility is at the Venture's option of the London Interbank Offered Rate plus 1.25 percent, the Prime Rate plus .125 percent or the Certificate of Deposit Rate plus 1.125 percent. The effective interest rates on amounts outstanding on the Venture's credit facility as of December 31, 1996 and 1995 were 6.90 percent and 7.41 percent, respectively. The Venture has sufficient sources of capital available through its ability to generate cash from operations and borrowings under its credit facility to meet its presently anticipated operating needs. RESULTS OF OPERATIONS - --------------------- Cable TV Fund 12-C, Ltd - - ----------------------- All of the Partnership's operations are represented by its 15 percent interest in the Venture. Thus, Management's Discussion and Analysis of Financial Condition and Results of Operations of the Venture should be consulted for pertinent comments regarding the Partnership's performance. Cable TV Fund 12-BCD Venture - - ---------------------------- 1996 compared to 1995 --------------------- Revenues of the Venture decreased $19,035,945, or approximately 19 percent, to $82,363,752 in 1996 from $101,399,697 in 1995. This decrease was due to the sale of the Tampa System. Disregarding the effect of the Tampa System sale, revenues increased $4,778,991, or approximately 7 percent, to $77,478,560 in 1996 from $72,699,569 in 1995. Basic service rate increases implemented in the Venture's systems combined with an increase in the number of basic service subscribers primarily accounted for the increase in revenues. Basic service rate increases accounted for approximately 39 percent of the increase in basic service revenues in 1996. An increase in the number of basic service subscribers in the Albuquerque System and the Palmdale System accounted for approximately 31 percent of the increase in basic service revenues for 1996. The number of basic service subscribers increased by 3,744 subscribers, or approximately 2 percent, to 175,648 subscribers in 1996 from 171,904 subscribers in 1995. No other individual factors were significant to the increases in revenues. Operating expenses consist primarily of costs associated with the operation and administration of the Venture's cable television systems. The principal cost components are salaries paid to system personnel, programming expenses, 15 professional fees, subscriber billing costs, rent for leased facilities, cable system maintenance expenses and marketing expenses. Operating expenses decreased $9,620,510, or approximately 17 percent, to $48,731,182 in 1996 from $58,351,692 in 1995. This decrease was due to the sale of the Tampa System. Disregarding the effect of this sale, operating expenses increased $3,608,831, or approximately 9 percent, to $44,278,384 in 1996 from $40,669,553 in 1995. Operating expenses represented 57 percent and 56 percent, respectively, of revenues for 1996 and 1995. An increase in programming fees primarily accounted for the increase in operating expenses. No other factor contributed significantly to the increase in operating expenses. Management fees and allocated overhead from Jones Intercable, Inc. decreased $2,644,195, or approximately 22 percent, to $9,609,453 in 1996 from $12,253,648 in 1995. This decrease was due to the sale of the Tampa System. Disregarding the effect of this sale, management fees and allocated overhead from Jones Intercable, Inc. increased $230,923, or approximately 3 percent, to $9,032,388 in 1996 from $8,801,465 in 1995. This increase was due to the increase in revenues, upon which such management fees are based. Depreciation and amortization expense decreased $4,673,189, or approximately 18 percent, to $21,993,546 in 1996 from $26,666,735 in 1995. This decrease was due to the sale of the Tampa System. Disregarding the effect of this sale, depreciation and amortization expense increased $810,250, or approximately 4 percent, to $21,001,808 in 1996 from $20,191,558 in 1995. This increase was due to capital additions in 1996. The Venture's operating income decreased $2,098,051, or approximately 51 percent, to $2,029,571 in 1996 from $4,127,622 in 1995. This decrease was due to the sale of the Tampa System. Disregarding the effect of this sale, operating income increased $128,987, or approximately 4 percent, to $3,165,980 in 1996 from $3,036,993 in 1995. This increase was due to the increase in revenues exceeding the increases in operating expenses, management fees and allocated overhead from Jones Intercable, Inc. and depreciation and amortization expense. The cable television industry generally measures the financial performance of a cable television system in terms of operating income before depreciation and amortization. This measure is not intended to be a substitute or improvement upon the items disclosed on the financial statements, rather it is included because it is an industry standard. Operating income before depreciation and amortization decreased $6,771,240, or approximately 22 percent, to $24,023,117 in 1996 from $30,794,357 in 1995. This decrease was due to the sale of the Tampa System. Disregarding the effect of this sale, operating income before depreciation and amortization increased $939,237, or approximately 4 percent, to $24,167,788 in 1996 from $23,228,551 in 1995. This increase was due to the increase in revenue exceeding the increases in operating expenses and management fees and allocated overhead from Jones Intercable, Inc. Interest expense decreased $4,127,956, or approximately 27 percent, to $11,219,294 in 1996 from $15,347,250 in 1995. This decrease in interest expense was primarily due to the lower outstanding balance and lower effective interest rates on the Venture's interest bearing obligations. A portion of the proceeds from the sale of the Tampa System was used to repay a portion of the Venture's debt. The Venture recognized a gain of $71,914,391 related to the sale of the Tampa System in February 1996. No similar gain was recognized in 1995. The Venture recognized net income of $62,338,836 in 1996 compared to a net loss of $11,124,567 in 1995. This changes was due to the gain on the sale of the Tampa System. 1995 compared to 1994 --------------------- Revenues increased $8,576,621, or approximately 9 percent, to $101,399,697 in 1995 from $92,823,076 in 1994. At December 31, 1995, the Venture's systems had 236,866 basic subscribers compared to 227,950 basic subscribers at December 31, 1994, an increase of approximately 4 percent. This increase in basic subscribers accounted for approximately 39 percent of the increase in revenues. Basic service rate increases accounted for approximately 37 percent of the increase in revenues. No other single factor significantly affected the increase in revenues. Operating expenses in the Venture's systems increased $2,220,438, or approximately 4 percent, to $58,351,692 in 1995 from $56,131,254 in 1994. Operating expenses represented approximately 57 percent and approximately 60 percent 16 of revenues in 1995 and in 1994, respectively. The increase in operating expenses was due to increases in subscriber related costs, programming fees, property tax expenses and advertising related costs, which were partially offset by decreases in personnel related costs. No other single factor significantly affected the increase in operating expenses. Management fees and allocated overhead from Jones Intercable, Inc. increased $661,384, or approximately 6 percent, to $12,253,648 in 1995 from $11,592,264 in 1994 due to the increase in revenues, upon which such fees and allocations are based. Depreciation and amortization expense increased $1,857,081, or approximately 7 percent, to $26,666,735 in 1995 from $24,809,654 in 1994. This increase was due to the increase in the Venture's depreciable asset base. The Venture's operating income increased $3,837,718 to $4,127,622 in 1995 from $289,904 in 1994. This increase was the result of the increase in revenue exceeding the increases in operating expenses, management fees and allocated overhead from Jones Intercable, Inc. and depreciation and amortization expenses. Operating income before depreciation and amortization increased $5,694,799, or approximately 23 percent, to $30,794,357 in 1995 from $25,099,558 in 1994. This increase was due to the increase in revenues exceeding the increase in operating expenses and management fees and allocated overhead from Jones Intercable, Inc. Interest expense increased $2,190,557, or approximately 17 percent, to $15,347,250 in 1995 from $13,156,693 in 1994 due to higher interest rates and higher outstanding balances on interest bearing obligations in 1995. Net loss decreased $1,751,675, or approximately 14 percent, to $11,124,567 in 1995 from $12,876,242 in 1994 due to the factors discussed above. 17 Item 8. Financial Statements ----------------------------- CABLE TV FUND 12-C, LTD. AND ---------------------------- CABLE TV FUND 12-BCD VENTURE ---------------------------- FINANCIAL STATEMENTS -------------------- AS OF DECEMBER 31, 1996 AND 1995 -------------------------------- INDEX ----- Page ------------ 12-C 12-BCD ---- ------ Report of Independent Public Accountants 19 28 Balance Sheets 20 29 Statements of Operations 21 31 Statements of Partners' Deficit 22 32 Statements of Cash Flows 23 33 Notes to Financial Statements 24 34 18 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ---------------------------------------- To the Partners of Cable TV Fund 12-C, Ltd.: We have audited the accompanying balance sheets of CABLE TV FUND 12-C, LTD. (a Colorado limited partnership) as of December 31, 1996 and 1995, and the related statements of operations, partners' deficit and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the General Partner's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Cable TV Fund 12-C, Ltd. as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Denver, Colorado, March 7, 1997. 19 CABLE TV FUND 12-C, LTD. ------------------------ (A Limited Partnership) BALANCE SHEETS --------------
December 31, --------------------------- 1996 1995 ------------ ------------ ASSETS $ - $ - ------ ============ ============ LIABILITIES AND PARTNERS' DEFICIT --------------------------------- LIABILITIES: Loss in excess of investment in cable television joint venture $ 3,580,725 $ 4,702,099 Accounts payable-affiliated entities - 159,137 ------------ ------------ Total liabilities 3,580,725 4,861,236 ------------ ------------ PARTNERS' DEFICIT: General Partner- Contributed capital 1,000 1,000 Accumulated deficit (15,631) (254,008) ------------ ------------ (14,631) (253,008) ------------ ------------ Limited Partners- Net contributed capital (47,626 units outstanding at December 31, 1996 and 1995) 19,998,049 19,998,049 Accumulated deficit (15,319,280) (24,606,277) Distributions (8,244,863) - ------------ ------------ (3,566,094) (4,608,228) ------------ ------------ Total liabilities and partners' deficit $ - $ - ============ ============
The accompanying notes to financial statements are an integral part of these balance sheets. 20 CABLE TV FUND 12-C, LTD. ------------------------ (A Limited Partnership) STATEMENTS OF OPERATIONS ------------------------
For the Year Ended December 31, -------------------------------------- 1996 1995 1994 ---------- ------------ ------------ EQUITY IN NET INCOME (LOSS) OF CABLE TELEVISION JOINT VENTURE $9,525,374 $(1,699,611) $(1,967,232) ---------- ----------- ----------- NET INCOME (LOSS) $9,525,374 $(1,699,611) $(1,967,232) ========== =========== =========== ALLOCATION OF NET INCOME (LOSS): General Partner $ 238,377 $ (16,996) $ (19,672) ========== =========== =========== Limited Partners $9,286,997 $(1,682,615) $(1,947,560) ========== =========== =========== NET INCOME (LOSS) PER LIMITED PARTNERSHIP UNIT $195.00 $(35.33) $ (40.89) ========== =========== =========== WEIGHTED AVERAGE NUMBER OF LIMITED PARTNERSHIP UNITS OUTSTANDING 47,626 47,626 47,626 ========== =========== ===========
The accompanying notes to financial statements are an integral part of these statements. 21 CABLE TV FUND 12-C, LTD. ------------------------ (A Limited Partnership) STATEMENTS OF PARTNERS' DEFICIT -------------------------------
For the Year Ended December 31, ---------------------------------------- 1996 1995 1994 ------------ ------------ ------------ GENERAL PARTNER: Balance, beginning of year $ (253,008) $ (236,012) $ (216,340) Net income (loss) for year 238,377 (16,996) (19,672) ----------- ----------- ----------- Balance, end of year $ (14,631) $ (253,008) $ (236,012) =========== =========== =========== LIMITED PARTNERS: Balance, beginning of year $(4,608,228) $(2,925,613) $ (978,053) Net income (loss) for year 9,286,997 (1,682,615) (1,947,560) Distributions (8,244,863) - - ----------- ----------- ----------- Balance, end of year $(3,566,094) $(4,608,228) $(2,925,613) =========== =========== ===========
The accompanying notes to financial statements are an integral part of these statements. 22 CABLE TV FUND 12-C, LTD. ------------------------ (A Limited Partnership) STATEMENTS OF CASH FLOWS ------------------------
For the Year Ended December 31, ---------------------------------------- 1996 1995 1994 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 9,525,374 $(1,699,611) $(1,967,232) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Equity in net income (loss) of cable television joint venture (9,525,374) 1,699,611 1,967,232 ----------- ----------- Net cash provided by operating activities - - - ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Distributions from Joint Venture 8,404,000 - - Distributions to Limited Partners (8,244,863) - - Repayment of debt (159,137) - - ----------- ----------- ----------- Net cash provided by financing activities - - - ----------- ----------- ----------- Cash, beginning of year - - - ----------- ----------- ----------- Cash, end of year $ - $ - $ - =========== =========== ===========
The accompanying notes to financial statements are an integral part of these statements. 23 CABLE TV FUND 12-C, LTD. ------------------------ (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS ----------------------------- (1) ORGANIZATION AND PARTNERS' INTERESTS ------------------------------------ Formation and Business ---------------------- Cable TV Fund 12-C, Ltd. ("Fund 12-C"), a Colorado limited partnership, was formed on October 9, 1985, under a public program sponsored by Jones Intercable, Inc. Fund 12-C was formed to acquire, construct, develop and operate cable television systems. Jones Intercable, Inc. is the "General Partner" and manager of Fund 12-C. The General Partner and its subsidiaries also own and operate cable television systems. In addition, the General Partner manages cable television systems for other limited partnerships for which it is general partner and, also, for affiliated entities. Fund 12-C owns an interest of 15 percent in Cable TV Fund 12-BCD Venture (the "Venture"), through capital contributions made in 1986 of $20,700,000. The Venture acquired certain cable television systems in New Mexico, California, and Florida during 1986. The Venture recognized net income of $62,338,836 in 1996 and incurred losses of $11,124,567 and $12,876,242 in 1995 and 1994, respectively, of which income of $9,525,374 and losses of $1,699,611 and $1,967,232, respectively, were allocated to Fund 12-C. Sale of Cable Television System ------------------------------- On February 28, 1996, the Venture sold the cable television system serving areas in and around Tampa, Florida (the "Tampa System") to Jones Cable Holdings, Inc., a wholly owned subsidiary of the General Partner, for the sales price of $110,395,667, subject to normal working capital closing adjustments. This price represented the average of three separate, independent appraisals of the fair market value of the Tampa System. Because the Venture's debt arrangements did not allow the Venture to make distributions on the sale of Venture assets, in February 1996 the Venture's existing debt arrangements were amended to permit a $55,000,000 distribution to the Venture's partners from the sale proceeds, and the balance of the sale proceeds were used to reduce Venture indebtedness. The Partnership's portion of this distribution is $8,404,000. A portion of Fund 12-C's distribution was used to repay an amount due the Venture, leaving $8,244,863 to be distributed to Fund 12-C's partners. Because the limited partners have not yet received distributions in an amount equal to 100 percent of the capital initially contributed to the Partnership by them, the entire portion of the Partnership's distribution was distributed to the limited partners in March 1996. This distribution gave the Partnership's limited partners an approximate return of $346 for each $1,000 invested in the Partnership. Because the Tampa System did not constitute all or substantially all of the Venture's assets, no vote of the limited partners of the Partnership was required in connection with this transaction. Contributed Capital ------------------- The capitalization of Fund 12-C is set forth in the accompanying Statements of Partners' Deficit. No limited partner is obligated to make any additional contributions to partnership capital. The General Partner purchased its interest in Fund 12-C by contributing $1,000 to partnership capital. All profits and losses of Fund 12-C are allocated 99 percent to the limited partners and 1 percent to the General Partner, except for income or gain from the sale or disposition of cable television properties, which will be allocated to the partners based upon the formula set forth in the Partnership Agreement, and interest income earned prior to the first acquisition by Fund 12- C of a cable television system, which was allocated 100 percent to the limited partners. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------ Accounting Records ------------------ The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with generally accepted accounting principles. Fund 12-C's tax returns are also prepared on the accrual basis. 24 The preparation of financial statements in conformity with generally accepted accounting principles requires the General Partner's management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Investment in Cable Television Joint Venture -------------------------------------------- The investment in the Venture is accounted for under the equity method due to Fund 12-C's influence on the Venture as a general partner. The operations of the Venture are significant to Fund 12-C and should be reviewed in conjunction with these financial statements. Reference is made to the accompanying financial statements of the Venture on pages 29 to 39. (3) TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES ---------------------------------------------------- Management Fees and Distribution Ratios --------------------------------------- The General Partner manages Fund 12-C and the Venture and receives a fee for its services equal to 5 percent of the gross revenues of the Venture, excluding revenues from the sale of cable television systems or franchises. Any partnership distributions made from cash flow (defined as cash receipts derived from routine operations, less debt principal and interest payments and cash expenses) are allocated 99 percent to the limited partners and 1 percent to the General Partner. Any distributions other than interest income on limited partnership subscriptions earned prior to the acquisition of Fund 12- C's first cable television system or from cash flow, such as from the sale or refinancing of a system or upon dissolution of Fund 12-C, will be made as follows: first, to the limited partners in an amount which, together with all prior distributions, will equal the amount initially contributed by the limited partners; the balance, 75 percent to the limited partners and 25 percent to the General Partner. (4) INCOME TAXES ------------ Income taxes have not been recorded in the accompanying financial statements because they accrue directly to the partners. The federal and state income tax returns of Fund 12-C are prepared and filed by the General Partner. Fund 12-C's tax returns, the qualification of the Partnership as such for tax purposes, and the amount of distributable partnership income or loss are subject to examination by federal and state taxing authorities. If such examinations result in changes with respect to the Partnership's qualification as such, or in changes with respect to Fund 12-C's recorded income or loss, the tax liability of the general and limited partners would likely be changed accordingly. Taxable loss reported to the partners is different from that reported in the statements of operations due to the difference in depreciation recognized under generally accepted accounting principles and the expense allowed for tax purposes under the Modified Accelerated Cost Recovery System (MACRS). There are no other significant differences between taxable loss and the net loss reported in the statements of operations. (5) COMMITMENTS AND CONTINGENCIES ----------------------------- David Hirsch, derivatively on behalf of Cable TV Fund 12-B, Ltd., Cable ----------------------------------------------------------------------- TV Fund 12-C, Ltd. and Cable TV Fund 12-D, Ltd. v. Jones Intercable, Inc. - ------------------------------------------------------------------------ (Arapahoe County District Court, Colorado, Case No. 95-CV-1800, Division 3) ("Hirsch"); Jonathan Fussner and Eileen Fussner, derivatively on behalf of Cable - -------- -------------------------------------------------------------------- TV Fund 12-B, Ltd., Cable TV Fund 12-C, Ltd. and Cable TV Fund 12-D, Ltd. v. - ---------------------------------------------------------------------------- Jones Intercable, Inc. (Arapahoe County District Court, Colorado, Case No. 96- - ---------------------- CV-1672, Division 3) ("Fussner"). ------- On September 20, 1995, Intercable was named as a defendant in a Complaint filed by David Hirsch, who is a limited partner in Cable TV Fund 12-D, Ltd. On January 25, 1996, Intercable was served with an Amended Class Action Complaint and Request for Jury Trial. On February 19, 1996, Intercable filed a Motion to Dismiss the Amended Complaint arguing that the action was improperly brought as a class action. Intercable argued that the plaintiff could only bring the action as a derivative claim and that because the elements of a derivative claim had not been properly pleaded, the Amended Complaint should be dismissed. After briefing on this motion, the Court entered an Order on June 24, 1996 25 granting Intercable's Motion to Dismiss, and on July 25, 1996, the Court entered a further Order allowing plaintiff to file another Amended Complaint. On July 31, 1996, plaintiff Hirsch filed a Second Amended Complaint. Plaintiff Hirsch's Second Amended Complaint alleges that he is a limited partner in Fund 12-D and that he now purports to bring this case as a derivative action on behalf of the Partnership, Fund 12-B and Fund 12-D. The suit relates to the purchase by JCH from the Venture of the Tampa System and trade of the Tampa System, along with other cable systems, to Time Warner for certain of Time Warner's cable systems. Intercable was authorized to purchase the Tampa System from the Venture pursuant to the terms of the limited partnership agreements of the Partnership, Fund 12-B and Fund 12-D. Also on July 31, 1996, the same lawyers who represent Mr. Hirsch filed a Verified Complaint on behalf of Jonathan Fussner and Eileen Fussner as referenced above. The Fussners also are joint owners of limited partnership units in Fund 12-D and their Verified Complaint is identical in all substantive respects to the Hirsch Second Amended Complaint. On December 13, 1996, the ------ Court consolidated the Hirsch and Fussner actions. ------ ------- The Second Amended Complaint in Hirsch and the Verified Complaint in ------ Fussner allege that Intercable breached its fiduciary duty to the plaintiff and - ------- the other limited partners of the Partnership, Fund 12-B and Fund 12-D and the Venture in connection with JCH's purchase of the Tampa System and the trade of that system to Time Warner. The Hirsch and Fussner Complaints also set forth a ------ ------- claim for unjust enrichment and for breach of the implied covenant of good faith and fair dealing. Among other things, the plaintiffs assert that JCH paid an inadequate price for the Tampa System, even though the agreed-upon price was the average of three separate appraisals, as required by the applicable partnership agreements. The Hirsch and Fussner cases are now styled as derivative actions ------ ------- and also seek a trial by jury. The plaintiffs in Hirsch and Fussner seek an ------ ------- unspecified amount of damages, including punitive damages, an award of attorneys' fees, and certain equitable relief. On August 13, 1996, Intercable filed a Motion to Dismiss the breach of fiduciary duty and unjust enrichment claims in the Hirsch and Fussner actions. ------ ------- On February 6, 1997, after briefing on this motion, the Court denied Intercable's Motion to Dismiss. Intercable's Answer to the Complaints in Hirsch ------ and Fussner was filed on February 25, 1997 and generally denied the substantive ------- allegations in the Complaint and asserted a number of affirmative defenses. There is no trial date set in these cases, and there has been no discovery conducted by the parties to date. Martin Ury, derivatively on behalf of Cable TV Fund 12-B, Ltd., Cable TV ------------------------------------------------------------------------ Fund 12-C, Ltd. and Cable TV Fund 12-D, Ltd. v. Jones Intercable, Inc., - ----------------------------------------------------------------------- Defendant and Cable TV Fund 12-BCD Venture, Cable TV Fund 12-B, Ltd., Cable TV - ------------------------------------------------------------------------------ Fund 12-C, Ltd. and Cable TV Fund 12-D, Ltd., Nominal Defendants (Arapahoe - ---------------------------------------------------------------- County District Court, Colorado, Case No. 95-CV-2212, Division 5) ("Ury"). --- On November 17, 1995, plaintiff Martin Ury filed a Complaint against Intercable in the above-referenced action in Arapahoe County District Court. Plaintiff Ury is a limited partner in Fund 12-D. He purports to bring this case as a derivative action on behalf of Fund 12-B, the Partnership and Fund 12-D. As in Hirsch and Fussner, discussed above, this case relates to JCH's purchase ------ ------- of the Tampa System and the Time Warner exchange. The substantive allegations of the Ury Complaint are substantially --- similar to the allegations in the Hirsch Second Amended Complaint and Fussner ------ ------- Verified Complaint. The plaintiff in Ury alleges that Intercable breached its --- fiduciary duties to the limited partnership and its limited partners in connection with JCH's purchase of the Tampa System from the Venture. Specifically, the plaintiff alleges that JCH paid an inadequate price for the Tampa System, even though the agreed upon price was the average of three separate appraisals, as required by the applicable limited partnership agreements. The Complaint seeks damages in an unspecified amount on behalf of the three limited partnerships and an award of attorneys fees. The Complaint does not seek a jury trial or punitive damages. On February 1, 1996, Intercable filed a Motion to Dismiss the Complaint on the ground that it fails to state a claim against Intercable upon which relief can be granted. The thrust of Intercable's motion was that Intercable cannot be liable for breach of fiduciary duty because it acted in accordance with the terms of the limited partnership agreements in arranging for JCH's purchase of the Tampa System. Intercable also argued that plaintiff does not have standing to assert a derivative claim on behalf of the Partnership or Fund 12-B, since he is only a limited partner in Fund 12-D. On July 12, 1996, the Court denied Intercable's Motion to Dismiss. Intercable filed its Answer in this case on July 29, 1996, generally 26 denying the substantive allegations in the Complaint, asserting a number of affirmative defenses, and requesting a trial by jury. A Case Management Order has been entered by the Court, setting the case for a two-week jury trial commencing on September 22, 1997. The parties have made certain voluntary disclosures pursuant to Rule 26 of the Colorado Rules of Civil Procedure, and discovery is at the very early stages, although no depositions have been taken to date. Pursuant to the indemnification provisions of Section 9.6 of the limited partnership agreements of each of the three partnerships that comprise the Venture, Intercable may be entitled to indemnification from the partnerships for its legal fees and expenses, and for any amounts paid in settlement, in defending the above-described lawsuits. Intercable cannot determine at this time whether such amounts will be material. 27 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ---------------------------------------- To the Partners of Cable TV Fund 12-BCD Venture: We have audited the accompanying balance sheets of CABLE TV FUND 12-BCD VENTURE (a Colorado general partnership) as of December 31, 1996 and 1995, and the related statements of operations, partners' deficit and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the General Partners' management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Cable TV Fund 12-BCD Venture as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Denver, Colorado, March 7, 1997. 28 CABLE TV FUND 12-BCD VENTURE ---------------------------- (A General Partnership) BALANCE SHEETS --------------
December 31, ---------------------------- ASSETS 1996 1995 ------ ------------ ------------- CASH AND CASH EQUIVALENTS $ 1,514,773 $ 1,384,794 RECEIVABLES: Trade receivables, less allowance for doubtful receivables of $417,017 and $486,392 at December 31, 1996 and 1995, respectively 2,676,246 4,464,773 Affiliated entity - 159,137 INVESTMENT IN CABLE TELEVISION PROPERTIES: Property, plant and equipment, at cost 198,322,316 294,472,892 Less- accumulated depreciation (95,040,023) (155,826,572) ------------ ------------- 103,282,293 138,646,320 Franchise costs and other intangible assets, net of accumulated amortization of $60,652,010 and $56,248,743 at December 31, 1996 and 1995, respectively 10,389,144 16,856,328 ------------ ------------- Total investment in cable television properties 113,671,437 155,502,648 DEPOSITS, PREPAID EXPENSES AND DEFERRED CHARGES 3,036,880 1,974,677 ------------ ------------- Total assets $120,899,336 $ 163,486,029 ============ =============
The accompanying notes to financial statements are an integral part of these balance sheets. 29 CABLE TV FUND 12-BCD VENTURE ---------------------------- (A General Partnership) BALANCE SHEETS --------------
December 31, ----------------------------- LIABILITIES AND PARTNERS' DEFICIT 1996 1995 --------------------------------- ------------- ------------- LIABILITIES: Debt $ 138,345,878 $ 180,770,267 Advances from Jones Intercable, Inc. - 4,198,739 Trade accounts payable and accrued liabilities 4,499,549 7,729,433 Subscriber prepayments 445,391 517,908 ------------- ------------- Total liabilities 143,290,818 193,216,347 ------------- ------------- COMMITMENTS AND CONTINGENCIES (Note 7) PARTNERS' DEFICIT: Contributed capital 135,490,944 135,490,944 Distributions (55,000,000) - Accumulated deficit (102,882,426) (165,221,262) ------------- ------------- (22,391,482) (29,730,318) ------------- ------------- Total liabilities and partners' deficit $ 120,899,336 $ 163,486,029 ============= =============
The accompanying notes to financial statements are an integral part of these balance sheets. 30 CABLE TV FUND 12-BCD VENTURE ---------------------------- (A General Partnership) STATEMENTS OF OPERATIONS ------------------------
For the Year Ended December 31, ------------------------------------------- 1996 1995 1994 ------------- ------------- ------------- REVENUES $ 82,363,752 $101,399,697 $ 92,823,076 COSTS AND EXPENSES: Operating expenses 48,731,182 58,351,692 56,131,254 Management fees and allocated overhead from Jones Intercable, Inc. 9,609,453 12,253,648 11,592,264 Depreciation and amortization 21,993,546 26,666,735 24,809,654 ------------ ------------ ------------ OPERATING INCOME 2,029,571 4,127,622 289,904 ------------ ------------ ------------ OTHER INCOME (EXPENSE): Interest expense (11,219,294) (15,347,250) (13,156,693) Gain on sale of cable television system 71,914,391 - - Other, net (385,832) 95,061 (9,453) ------------ ------------ ------------ Total other income (expense), net 60,309,265 (15,252,189) (13,166,146) ------------ ------------ ------------ NET INCOME (LOSS) $ 62,338,836 $(11,124,567) $(12,876,242) ============ ============ ============
The accompanying notes to financial statements are an integral part of these statements. 31 CABLE TV FUND 12-BCD VENTURE ---------------------------- (A General Partnership) STATEMENTS OF PARTNERS' DEFICIT -------------------------------
For the Year Ended December 31, ------------------------------------------- 1996 1995 1994 ------------- ------------- ------------- CABLE TV FUND 12-B, LTD. (9%): Balance, beginning of year $ (2,825,362) $ (1,804,126) $ (622,087) Net income for year 5,722,705 (1,021,236) (1,182,039) Distributions (5,049,000) - - ------------ ------------ ------------ Balance, end of year $ (2,151,657) $ (2,825,362) $ (1,804,126) ============ ============ ============ CABLE TV FUND 12-C, LTD. (15%): Balance, beginning of year $ (4,702,099) $ (3,002,488) $ (1,035,256) Net income for year 9,525,374 (1,699,611) (1,967,232) Distributions (8,404,000) - - ------------ ------------ ------------ Balance, end of year $ (3,580,725) $ (4,702,099) $ (3,002,488) ============ ============ ============ CABLE TV FUND 12-D, LTD. (76%): Balance, beginning of year $(22,202,857) $(13,799,137) $ (4,072,166) Net income for year 47,090,757 (8,403,720) (9,726,971) Distributions (41,547,000) - - ------------ ------------ ------------ Balance, end of year $(16,659,100) $(22,202,857) $(13,799,137) ============ ============ ============ TOTAL: Balance, beginning of year $(29,730,318) $(18,605,751) $ (5,729,509) Net income for year 62,338,836 (11,124,567) (12,876,242) Distributions (55,000,000) - - ------------ ------------ ------------ Balance, end of year $(22,391,482) $(29,730,318) $(18,605,751) ============ ============ ============
The accompanying notes to financial statements are an integral part of these statements. 32 CABLE TV FUND 12-BCD VENTURE ---------------------------- (A General Partnership) STATEMENTS OF CASH FLOWS ------------------------
For the Year Ended December 31, -------------------------------------------- 1996 1995 1994 -------------- ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 62,338,836 $(11,124,567) $(12,876,242) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 21,993,546 26,666,735 24,809,654 Gain on sale of cable television system (71,914,391) - - Decrease (increase) in trade receivables 1,788,527 (657,502) (852,784) Increase in deposits, prepaid expenses and deferred charges (2,072,543) (351,579) (694,816) Increase (decrease) in trade accounts payable and accrued liabilities and subscriber prepayments (3,302,401) (14,766) 749,173 Increase (decrease) in amount due Jones Intercable, Inc. (4,198,739) 3,581,929 428,380 ------------- ------------ ------------ Net cash provided by operating activities 4,632,835 18,100,250 11,563,365 ------------- ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment, net (17,474,134) (21,474,577) (21,338,471) Proceeds from sale of cable television system 110,395,667 - - Franchise costs - - (500,000) ------------- ------------ ------------ Net cash provided by (used in) investing activities 92,921,533 (21,474,577) (21,838,471) ------------- ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings 72,365,824 882,431 16,268,610 Repayment of debt (114,790,213) (514,912) (3,564,559) Distributions to Joint Venture Partners (55,000,000) - - ------------- ------------ ------------ Net cash provided by (used in) financing activities (97,424,389) 367,519 12,704,051 ------------- ------------ ------------ Increase (decrease) in cash and cash equivalents 129,979 (3,006,808) 2,428,945 Cash and cash equivalents, beginning of year 1,384,794 4,391,602 1,962,657 ------------- ------------ ------------ Cash and cash equivalents, end of year $ 1,514,773 $ 1,384,794 $ 4,391,602 ============= ============ ============ SUPPLEMENTAL CASH FLOW DISCLOSURE: Interest paid $ 12,370,892 $ 15,331,071 $ 12,450,869 ============= ============ ============
The accompanying notes to financial statements are an integral part of these statements. 33 CABLE TV FUND 12-BCD VENTURE ---------------------------- (A General Partnership) NOTES TO FINANCIAL STATEMENTS ----------------------------- (1) ORGANIZATION AND PARTNERS' INTERESTS ------------------------------------ Formation and Business ---------------------- On March 17, 1986, Cable TV Fund 12-B, Ltd. ("Fund 12-B"), Cable TV Fund 12-C, Ltd. ("Fund 12-C") and Cable TV Fund 12-D, Ltd. ("Fund 12-D") (collectively, the "Venture Partners") formed Cable TV Fund 12-BCD Venture (the "Venture"). The Venture was formed for the purpose of acquiring certain cable television systems serving Tampa, Florida; Albuquerque, New Mexico; and Palmdale, California. Jones Intercable, Inc. ("Intercable"), the "General Partner" of each of the Venture Partners, manages the Venture. Intercable and its subsidiaries also own and operate cable television systems. In addition, Intercable manages cable television systems for other limited partnerships for which it is general partner and, also, for affiliated entities. Contributed Capital ------------------- The capitalization of the Venture is set forth in the accompanying statements of partners' deficit. All Venture distributions, including those made from cash flow, from the sale or refinancing of Partnership property and on dissolution of the Venture, shall be made to the Venture Partners in proportion to their approximate respective interests in the Venture as follows: Cable TV Fund 12-B, Ltd. 9% Cable TV Fund 12-C, Ltd. 15% Cable TV Fund 12-D, Ltd. 76% ---- 100% ==== Venture Sale of Cable Television System --------------------------------------- On February 28, 1996, the Venture sold the Tampa System to Jones Cable Holdings, Inc., a wholly owned subsidiary of Intercable. The sales price of the Tampa System was $110,395,667, subject to normal working capital closing adjustments. This price represented the average of three separate, independent appraisals of the fair market value of the Tampa System. In February 1996, the Venture's debt arrangements were amended to permit a $55,000,000 distribution to the Venture's partners from the sale proceeds, and the balance of the sale proceeds were used to reduce Venture indebtedness. The net sales proceeds were distributed as follows: Fund 12-B received $5,409,000; Fund 12-C received $8,404,000 and Fund 12-D received $41,547,000. The pro forma effect of the sale of the Tampa System on the results of the Venture's operations for the years ended December 31, 1996 and 1995, assuming the transaction had occurred at the beginning of the years, is presented in the following unaudited tabulation: For the Year Ended December 31, 1996 --------------------------------------- Unaudited Pro Forma Unaudited As Reported Adjustments Pro Forma ----------- ------------- ----------- Revenues $82,363,752 $ (4,885,192) $77,478,560 =========== ============ =========== Operating Income $ 2,029,571 $ 1,136,409 $ 3,165,980 =========== ============ =========== Net Income (Loss) $62,338,836 $(66,983,544) $(4,644,708) =========== ============ =========== 34 For the Year Ended December 31, 1995 ----------------------------------------- Unaudited Pro Forma Unaudited As Reported Adjustments Pro Forma ------------- ------------- ----------- Revenues $101,399,697 $(28,700,128) $72,699,569 ============ ============ =========== Operating Income $ 4,127,622 $ (1,090,629) $ 3,036,993 ============ ============ =========== Net Loss $(11,124,567) $ 2,947,184 $(8,177,383) ============ ============ =========== (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------ Accounting Records ------------------ The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with generally accepted accounting principles. The Venture's tax returns are also prepared on the accrual basis. The preparation of financial statements in conformity with generally accepted accounting principles requires the General Partner's management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Purchase Price Allocation ------------------------- The Venture's acquisitions were accounted for as purchases with the individual purchase prices allocated to tangible and intangible assets based upon an independent appraisal. The method of allocation of purchase price was as follows: first, to the fair value of the net tangible assets acquired; second, to the value of subscriber lists; third, to franchise costs; and fourth, to costs in excess of interests in net assets purchased. Brokerage fees paid to an affiliate of Intercable and other system acquisition costs were capitalized and included in the cost of intangible assets. Property, Plant and Equipment ----------------------------- Depreciation is provided using the straight-line method over the following estimated service lives: Cable distribution systems 5 - 15 years Equipment and tools 3 - 5 years Office furniture and equipment 5 years Buildings 20 years Vehicles 3 years Replacements, renewals and improvements are capitalized and maintenance and repairs are charged to expense as incurred. Property, plant and equipment and the corresponding accumulated depreciation are written off as certain assets become fully depreciated and are no longer in service. Intangible Assets ----------------- Costs assigned to franchises and costs in excess of interests in net assets purchased are amortized using the straight-line method over the following remaining estimated useful lives: Franchise costs 1 - 4 years Costs in excess of interests in net assets purchased 29 - 30 years 35 Revenue Recognition ------------------- Subscriber prepayments are initially deferred and recognized as revenue when earned. Cash and Cash Equivalents ------------------------- For purposes of the Statements of Cash Flows, the Venture considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Reclassifications ----------------- Certain prior year amounts have been reclassified to conform to the 1996 presentation. (3) TRANSACTIONS WITH JONES INTERCABLE, INC. AND AFFILIATES ------------------------------------------------------- Management Fees and Reimbursements ---------------------------------- Intercable manages the Venture and receives a fee for its services equal to 5 percent of the gross revenues of the Venture, excluding revenues from the sale of cable television systems or franchises. Management fees paid to Intercable for the years ended December 31, 1996, 1995 and 1994 were $4,118,188, $5,069,985 and $4,641,154, respectively. The Venture reimburses Intercable for certain allocated overhead and administrative expenses. These expenses represent the salaries and related benefits paid for corporate personnel, rent, data processing services and other corporate facilities costs. Such personnel provide engineering, marketing, administrative, accounting, legal and investor relations services to the Venture. Such services, and their related costs, are necessary to the operations of the Venture and would have been incurred by the Venture if it was a stand alone entity. Allocations of personnel costs are based primarily on actual time spent by employees of Intercable with respect to each entity managed. Remaining expenses are allocated based on the pro rata relationship of the Venture's revenues to the total revenues of all systems owned or managed by Intercable and certain of its subsidiaries. Systems owned by Intercable and all other systems owned by partnerships for which Intercable is the general partner are also allocated a proportionate share of these expenses. Intercable believes that the methodology used in allocating overhead and administrative expenses is reasonable. Overhead and administrative expenses allocated to the Venture by Intercable during the years ended December 31, 1996, 1995 and 1994 were $5,491,265, $7,183,663 and $6,951,110, respectively. The Venture was charged interest during 1996 at an average interest rate of 8.58 percent on the amounts due the General Partner, which approximated the General Partner's weighted average cost of borrowing. Total interest charged to the Venture by the General Partner was $-0-, $220,743 and $33,627 in 1996, 1995 and 1994, respectively. Payments to/from Affiliates for Programming Services ---------------------------------------------------- The Venture receives programming from Superaudio, Jones Education Company, Great American Country, Inc. and Product Information Network, all of which are affiliates of Intercable. Payments to Superaudio totaled $116,710, $135,861 and $135,346 in 1996, 1995, and 1994, respectively. Payments to Jones Education Company totaled $374,709, $428,937 and $196,004 in 1996, 1995 and 1994, respectively. Payments to Great American Country, Inc., which initiated service in 1996, totaled $141,753 in 1996. The Venture receives a commission from Product Information Network based on a percentage of advertising sales and number of subscribers. Product Information Network paid commissions to the Venture totaling $191,011, $212,844 and $81,592 in 1996, 1995 and 1994, respectively. 36 (4) PROPERTY, PLANT AND EQUIPMENT ----------------------------- Property, plant and equipment as of December 31, 1996 and 1995, consisted of the following: December 31, ---------------------------- 1996 1995 ------------ ------------- Cable distribution system $182,058,124 $ 267,586,574 Equipment and tools 4,853,010 8,630,758 Office furniture and equipment 2,189,497 3,402,683 Buildings 5,925,072 8,262,351 Vehicles 2,345,643 5,639,556 Land 950,970 950,970 ------------ ------------- 198,322,316 294,472,892 Less-accumulated depreciation (95,040,023) (155,826,572) ------------ ------------- $103,282,293 $ 138,646,320 ============ ============= (5) DEBT ---- Debt consists of the following: December 31, ---------------------------- 1996 1995 ------------ ------------- Lending institutions- Revolving credit and term loan $ 82,130,620 $ 87,000,000 Senior secured notes 55,393,187 93,000,000 Capital lease obligations 822,071 770,267 ------------ ------------- $138,345,878 $ 180,770,267 ============ ============= The Venture's debt arrangements at December 31, 1996 consisted of $55,393,187 of Senior Notes placed with a group of institutional lenders and a $120,000,000 credit facility with a group of commercial bank lenders. The Senior Notes and credit facility are equal in standing with the other, and both are equally secured by the assets of the Venture. The Senior Notes have a fixed interest rate of 8.64 percent and a final maturity date of March 31, 2000. The Senior Notes required payments of interest only to March 1996, with interest and accelerating principal payments required for the four years thereafter, payable semi-annually in March and September. In February 1996, the Venture was required to make a principal repayment of approximately $33,650,000 from proceeds received from the sale of the Tampa System. The Senior Notes carry a "make-whole" payment, which is a prepayment penalty, in the event the notes are prepaid prior to maturity. The make-whole payment protects the lenders in the event that prepaid funds are reinvested at a rate below 8.64 percent. The Venture was required to pay a make-whole payment in February 1996 of approximately $2,217,000. Principal payments due for each of the five years in the period ending December 31, 2001 and thereafter, are: $7,385,758, $11,078,637, $36,928,792, $-0-, $-0-, and $-0-, respectively. In February 1996, the Venture was required by the terms of its then-existing $87,000,000 credit facility to make a principal repayment of $22,000,000 from proceeds received from the sale of the Tampa System. Simultaneously with the sale of the Tampa System, the Venture amended this credit facility to increase the amount available to $120,000,000 to meet the Venture's long-term financing requirements. The balance outstanding on the Venture's amended credit facility at December 31, 1996 was $82,130,620, leaving $37,869,380 available for future needs. At the Venture's option, the credit facility is payable in full on December 31, 1999 or converts to a term loan that matures on December 31, 2004 payable in consecutive quarterly amounts. Installments due on debt principal of the credit facility for each of the five years in the period ending December 31, 2001 and thereafter, respectively, are: $-0-, $-0-, $-0-, $8,213,062, $20,532,655 and $53,384,903, respectively. Interest on the amended credit facility is at the Venture's option of the London Interbank 37 Offered Rate plus 1.25 percent, the Prime Rate plus .125 percent or the Certificate of Deposit Rate plus 1.125 percent. The effective interest rates on amounts outstanding on the Venture's credit facility as of December 31, 1996 and 1995 were 6.90 percent and 7.41 percent, respectively. Both lending facilities are equal in standing with the other, and both are equally secured by the assets of the Venture. During 1992, 1994 and 1996, the Venture incurred costs associated with renegotiating its debt arrangements. These costs were capitalized and are being amortized using the straight-line method over the life of the debt agreements. At December 31, 1996, the carrying amount of the Venture's long-term debt did not differ significantly from the estimated fair value of the financial instruments. The fair value of the Venture's long-term debt is estimated based on the discounted amount of future debt service payments using rates of borrowing for a liability of similar risk. (6) INCOME TAXES ------------ Income taxes have not been recorded in the accompanying financial statements because they accrue directly to the partners of Fund 12-B, Fund 12-C and Fund 12-D. The Venture's tax returns, the qualification of the Venture as such for tax purposes, and the amount of distributable income or loss, are subject to examination by federal and state taxing authorities. If such examinations result in changes with respect to the Venture's qualification as such, or in changes with respect to the Venture's recorded loss, the tax liability of the Venture's general partners would likely be changed accordingly. Taxable losses reported to the partners is different from that reported in the statements of operations due to the difference in depreciation allowed under generally accepted accounting principles and the expense allowed for tax purposes under the Modified Accelerated Cost Recovery System (MACRS). There are no other significant differences between taxable income or losses and the net losses reported in the statements of operations. (7) COMMITMENTS AND CONTINGENCIES ----------------------------- Office and other facilities are rented under various long-term lease arrangements. Rent paid under such lease arrangements totaled $373,169, $331,963 and $345,531, respectively, for the years ended December 31, 1996, 1995 and 1994. Minimum commitments under operating leases for the five years in the period ending December 31, 2001 and thereafter are as follows: 1997 $ 518,779 1998 531,324 1999 396,315 2000 345,715 2001 345,046 Thereafter 911,200 ---------- $3,048,379 ========== 38 (8) SUPPLEMENTARY PROFIT AND LOSS INFORMATION ----------------------------------------- Supplementary profit and loss information for the respective years is presented below: For the Year Ended December 31, ------------------------------------- 1996 1995 1994 ----------- ----------- ----------- Maintenance and repairs $ 1,104,878 $ 1,182,963 $ 1,214,978 =========== =========== =========== Taxes, other than income and payroll taxes $ 895,669 $ 1,286,357 $ 1,380,350 =========== =========== =========== Advertising $ 1,183,565 $ 1,298,497 $ 1,275,772 =========== =========== =========== Depreciation of property, plant and equipment $15,727,639 $20,285,166 $18,362,998 =========== =========== =========== Amortization of intangible assets $ 6,265,907 $ 6,381,569 $ 6,446,656 =========== =========== =========== 39 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON --------------------------------------------------------- ACCOUNTING AND FINANCIAL DISCLOSURE ----------------------------------- None. PART III. --------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ------------------------------------------------------------ The Partnership itself has no officers or directors. Certain information concerning the directors and executive officers of the General Partner is set forth below. Directors of the General Partner serve until the next annual meeting of the General Partner and until their successors shall be elected and qualified. Glenn R. Jones 67 Chairman of the Board and Chief Executive Officer Derek H. Burney 57 Vice Chairman of the Board James B. O'Brien 47 President and Director Ruth E. Warren 47 Group Vice President/Operations Kevin P. Coyle 45 Group Vice President/Finance Christopher J. Bowick 41 Group Vice President/Technology George H. Newton 62 Group Vice President/Telecommunications Raymond L. Vigil 50 Group Vice President/Human Resources Cynthia A. Winning 45 Group Vice President/Marketing Elizabeth M. Steele 45 Vice President/General Counsel/Secretary Larry W. Kaschinske 37 Vice President/Controller Robert E. Cole 64 Director William E. Frenzel 68 Director Donald L. Jacobs 58 Director James J. Krejci 55 Director John A. MacDonald 43 Director Raphael M. Solot 63 Director Howard O. Thrall 49 Director Siim A. Vanaselja 40 Director Sanford Zisman 57 Director Robert B. Zoellick 43 Director Mr. Glenn R. Jones has served as Chairman of the Board of Directors and Chief Executive Officer of the General Partner since its formation in 1970, and he was President from June 1984 until April 1988. Mr. Jones is the sole shareholder, President and Chairman of the Board of Directors of Jones International, Ltd. He is also Chairman of the Board of Directors of the subsidiaries of the General Partner and of certain other affiliates of the General Partner. Mr. Jones has been involved in the cable television business in various capacities since 1961, is a member of the Board of Directors and the Executive Committee of the National Cable Television Association. Additionally, Mr. Jones is a member of the Board of Governors for the American Society for Training and Development, and a member of the Board of Education Council of the National Alliance of Business. Mr. Jones is also a founding member of the James Madison Council of the Library of Congress. Mr. Jones has been the recipient of several awards including the Grand Tam Award in 1989, the highest award from the Cable Television Administration and Marketing Society; the President's Award from the Cable Television Public Affairs Association in recognition of Jones International's educational efforts through Mind Extension University (now Knowledge TV); the Donald G. McGannon Award for the advancement of minorities and women in cable from the United Church of Christ Office of Communications; the STAR Award from American Women in Radio and Television, Inc. for exhibition of a commitment to the issues and concerns of women in television and radio; the Cableforce 2000 Accolade awarded by Women in Cable in recognition of the General Partner's innovative employee programs; the Most Outstanding Corporate Individual Achievement Award from the International Distance Learning Conference for his contributions to distance education; the Golden Plate Award from the American Academy of Achievement for his advances in distance education; the Man of the Year named by the 41 Denver chapter of the Achievement Rewards for College Scientists; and in 1994 Mr. Jones was inducted into Broadcasting and Cable's Hall of Fame. Mr. Derek H. Burney was appointed a Director of the General Partner in December 1994 and Vice Chairman of the Board of Directors on January 31, 1995. Mr. Burney joined BCE Inc., Canada's largest telecommunications company, in January 1993 as Executive Vice President, International. He has been the Chairman of Bell Canada International Inc., a subsidiary of BCE, since January 1993 and, in addition, has been Chief Executive Officer of BCI since July 1993. Prior to joining BCE, Mr. Burney served as Canada's ambassador to the United States from 1989 to 1992. Mr. Burney also served as chief of staff to the Prime Minister of Canada from March 1987 to January 1989 where he was directly involved with the negotiation of the U.S. - Canada Free Trade Agreement. In July 1993, he was named an Officer of the Order of Canada. Mr. Burney is also a director of Bell Cablemedia plc, Mercury Communications Limited, Videotron Holdings plc, Tele-Direct (Publications) Inc., Teleglobe Inc., Bimcor Inc., Maritime Telegraph and Telephone Company, Limited, Moore Corporation Limited, Northbridge Programming Inc. and certain subsidiaries of Bell Canada International. Mr. James B. O'Brien, the General Partner's President, joined the General Partner in January 1982. Prior to being elected President and a Director of the General Partner in December 1989, Mr. O'Brien served as a Division Manager, Director of Operations Planning/Assistant to the CEO, Fund Vice President and Group Vice President/Operations. Mr. O'Brien was appointed to the General Partner's Executive Committee in August 1993. As President, he is responsible for the day-to-day operations of the cable television systems managed and owned by the General Partner. Mr. O'Brien is a board member of Cable Labs, Inc., the research arm of the U.S. cable television industry. He also serves as the Vice Chairman and a director of the Cable Television Administration and Marketing Association and as a director and a member of the Executive Committee of the Walter Kaitz Foundation, a foundation that places people of ethnic minority groups in positions with cable television systems, networks and vendor companies. Ms. Ruth E. Warren joined the General Partner in August 1980 and has served in various operational capacities, including system manager and Fund Vice President, since then. Ms. Warren was elected Group Vice President/Operations of the General Partner in September 1990. Mr. Kevin P. Coyle joined The Jones Group, Ltd. in July 1981 as Vice President/Financial Services. In September 1985, he was appointed Senior Vice President/Financial Services. He was elected Treasurer of the General Partner in August 1987, Vice President/Treasurer in April 1988 and Group Vice President/Finance and Chief Financial Officer in October 1990. Mr. Christopher J. Bowick joined the General Partner in September 1991 as Group Vice President/Technology and Chief Technical Officer. Previous to joining the General Partner, Mr. Bowick worked for Scientific Atlanta's Transmission Systems Business Division in various technical management capacities since 1981, and as Vice President of Engineering since 1989. Mr. George H. Newton joined the General Partner in January 1996 as Group Vice President/Telecommunications. Prior to joining the General Partner, Mr. Newton was President of his own consulting business, Clear Solutions, and since 1994 Mr. Newton has served as a Senior Advisor to Bell Canada International. From 1990 to 1993, Mr. Newton served as the founding Chief Executive Officer and Managing Director of Clear Communications, New Zealand, where he established an alternative telephone company in New Zealand. From 1964 to 1990, Mr. Newton held a wide variety of operational and business assignments with Bell Canada International. Mr. Raymond L. Vigil joined the General Partner in June 1993 as Group Vice President/Human Resources. Previous to joining the General Partner, Mr. Vigil served as Executive Director of Learning with USWest. Prior to USWest, Mr. Vigil worked in various human resources posts over a 14-year term with the IBM Corporation. Ms. Cynthia A. Winning joined the General Partner as Group Vice President/Marketing in December 1994. Previous to joining the General Partner, Ms. Winning served since 1994 as the President of PRS Inc., 42 Denver, Colorado, a sports and event marketing company. From 1979 to 1981 and from 1986 to 1994, Ms. Winning served as the Vice President and Director of Marketing for Citicorp Retail Services, Inc., a provider of private-label credit cards for ten national retail department store chains. From 1981 to 1986, Ms. Winning was the Director of Marketing Services for Daniels & Associates cable television operations, as well as the Western Division Marketing Director for Capital Cities Cable. Ms. Winning also serves as a board member of Cities in Schools, a dropout intervention/prevention program. Ms. Elizabeth M. Steele joined the General Partner in August 1987 as Vice President/General Counsel and Secretary. From August 1980 until joining the General Partner, Ms. Steele was an associate and then a partner at the Denver law firm of Davis, Graham & Stubbs, which serves as counsel to the General Partner. Mr. Larry Kaschinske joined the General Partner in 1984 as a staff accountant in the General Partner's former Wisconsin Division, was promoted to Assistant Controller in 1990, named Controller in August 1994 and was elected Vice President/Controller in June 1996. Mr. Robert E. Cole was appointed a Director of the General Partner in March 1996. Mr. Cole is currently self-employed as a partner of First Variable Insurance Marketing and is responsible for marketing to National Association of Securities Dealers, Inc. firms in northern California, Oregon, Washington and Alaska. From 1993 to 1995, Mr. Cole was the Director of Marketing for Lamar Life Insurance Company; from 1992 to 1993, Mr. Cole was Senior Vice President of PMI Inc., a third party lender serving the special needs of Corporate Owned Life Insurance (COLI) and from 1988 to 1992, Mr. Cole was the principal and co- founder of a specialty investment banking firm that provided services to finance the ownership and growth of emerging companies, productive assets and real property. Mr. Cole is a Certified Financial Planner and a former United States Naval Aviator. Mr. William E. Frenzel was appointed a Director of the General Partner in April 1995. Mr. Frenzel has been a Guest Scholar since 1991 with the Brookings Institution, a research organization located in Washington D. C. Until his retirement in January 1991, Mr. Frenzel served for twenty years in the United States House of Representatives, representing the State of Minnesota, where he was a member of the House Ways and Means Committee and its Trade Subcommittee, the Congressional Representative to the General Agreement on Tariffs and Trade (GATT), the Ranking Minority Member on the House Budget Committee and a member of the National Economic Commission. Mr. Frenzel also served in the Minnesota Legislature for eight years. He is a Distinguished Fellow of the Tax Foundation, Vice Chairman of the Eurasia Foundation, a Board Member of the U.S.-Japan Foundation, the Close-Up Foundation, Sit Mutual Funds and Chairman of the Japan-America Society of Washington. Mr. Donald L. Jacobs was appointed a Director of the General Partner in April 1995. Mr. Jacobs is a retired executive officer of TRW. Prior to his retirement, he was Vice President and Deputy Manager of the Space and Defense Sector; prior to that appointment, he was the Vice President and General Manager of the Defense Systems Group and prior to his appointment as Group General Manager, he was President of ESL, Inc., a wholly owned subsidiary of TRW. During his career, Mr. Jacobs served on several corporate, professional and civic boards. Mr. James J. Krejci was President of the International Division of International Gaming Technology, International headquartered in Reno, Nevada, until March 1995. Prior to joining IGT in May 1994, Mr. Krejci was Group Vice President of Jones International, Ltd. and was Group Vice President of the General Partner. He also served as an officer of subsidiaries of Jones International, Ltd. until leaving the General Partner in May 1994. Mr. Krejci has been a Director of the General Partner since August 1987. 43 Mr. John A. MacDonald was appointed a Director of the General Partner in November 1995. Mr. MacDonald is Executive Vice President of Business Development and Chief Technology Officer of Bell Canada International Inc. Prior to joining Bell Canada in November 1994, Mr. MacDonald was President and Chief Executive Officer of The New Brunswick Telephone Company, Limited, a post he had held since March of that year. Prior to March 1994, Mr. MacDonald was with NBTel for 17 years serving in various capacities, including Market Planning Manager, Corporate Planning Manager, Manager of Systems Planning and Development and General Manager, Chief Engineer and General Manager of Engineering and Information Systems and Vice President of Planning. Mr. MacDonald was the former Chairman of the New Brunswick section of the Institute of Electrical and Electronic Engineers and also served on the Federal Government's Information Highway Advisory Council. Mr. MacDonald is Chairman of MediaLinx Interactive Inc. and Stentor Canadian Network Management and is presently a Governor of the Montreal Exchange. He also serves on the Board of Directors of Tele-Direct (Publications) Inc., Bell-Northern Research, Ltd., SRCI, Bell Sygma, Canarie Inc., and is a member of the University of New Brunswick Venture Campaign Cabinet. Mr. Raphael M. Solot was appointed a Director of the General Partner in March 1996. Mr. Solot is an attorney and has practiced law for 31 years with an emphasis on franchise, corporate and partnership law and complex litigation, of Colorado. Mr. Howard O. Thrall was appointed a Director of the General Partner in March 1996. Mr. Thrall had previously served as a Director of the General Partner from December 1988 to December 1994. Mr. Thrall is Senior Vice President - -Corporate Development for First National Net, Inc., a leading service provider for the mortgage banking industry, and he heads First National Net's Washington, D.C. regional office. From September 1993 through July 1996, Mr. Thrall served as Vice President of Sales, Asian Region, for World Airways, Inc. headquartered at the Washington Dulles International Airport. From 1984 until August 1993, Mr. Thrall was with the McDonnell Douglas Corporation, where he concluded as a Regional Vice President, Commercial Marketing with the Douglas Aircraft Company subsidiary. Mr. Thrall is also an active management and international marketing consultant, having completed assignments with McDonnell Douglas Aerospace, JAL Trading, Inc., Technology Solutions Company, Cheong Kang Associated (Korea), Aero Investment Alliance, Inc. and Western Real Estate Partners, among others. Mr. Siim A. Vanaselja was appointed a Director of the General Partner in August 1996. Mr. Vanaselja joined BCE Inc., Canada's largest telecommunications company, in February 1994 as Assistant Vice-President, International Taxation. In June 1994, he was appointed Assistant Vice-President and Director of Taxation, and in February 1995, Mr. Vanaselja was appointed Vice-President, Taxation. On August 1, 1996, Mr. Vanaselja was appointed the Chief Financial Officer of Bell Canada International Inc., a subsidiary of BCE Inc. Prior to joining BCE Inc. and since August 1989, Mr. Vanaselja was a partner in the Toronto office of KPMG Peat Marwick Thorne. Mr. Vanaselja has been a member of the Institute of Chartered Accountants of Ontario since 1982 and is a member of the Canadian Tax Foundation, the Tax Executives Institute and the International Fiscal Association. Mr. Sanford Zisman was appointed a director of the General Partner in June 1996. Mr. Zisman is a member of the law firm, Zisman & Ingraham, P.C. of Denver, Colorado and has practiced law for 31 years, with an emphasis on tax, business and estate planning and probate administration. Mr. Zisman currently serves as a member of the Board of Directors of Saint Joseph Hospital, the largest hospital in Colorado, and he has served as Chairman of the Board, Chairman of the Finance Committee and Chairman of the Strategic Planning Committee of the hospital. Since 1992, he has also served on the Board of Directors of Maxim Series Fund, Inc., a subsidiary of Great-West Life Assurance Company. Mr. Robert B. Zoellick was appointed a Director of the General Partner in April 1995. Mr. Zoellick is Executive Vice President for Housing and Law of Fannie Mae, a federally chartered and stockholder-owned corporation that is the largest housing finance investor in the United States. From August 1992 to January 1993, Mr. Zoellick served as Deputy Chief of Staff of the White House and Assistant to the President. From May 1991 to August 1992, Mr. Zoellick served concurrently as the Under Secretary of State for Economic and Agricultural Affairs and as Counselor of the Department of State, a post he assumed in March 1989. From 1985 to 1988, Mr. Zoellick served at the Department of Treasury in a number of capacities, including Counselor to the Secretary. Mr. Zoellick received the Alexander Hamilton and Distinguished Service Awards, highest honors of the Departments of Treasury and State, respectively. The German Government awarded him the Knight Commanders Cross for his work on Germany unification. Mr. Zoellick currently serves on the boards of Alliance Capital, Said 44 Holdings, the Council on Foreign Relations, the Congressional Institute, the German Marshall Fund of the U.S., the European Institute, the National Bureau of Asian Research, the American Council on Germany, the American Institute for Contemporary German Studies and the Overseas Development Council. ITEM 11. EXECUTIVE COMPENSATION -------------------------------- The Partnership has no employees; however, various personnel are required to operate the Systems. Such personnel are employed by the General Partner and, pursuant to the terms of the limited partnership agreement of the Partnership, the cost of such employment is charged by the General Partner to the Partnership as a direct reimbursement item. See Item 13. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGERS ---------------------------------------------------------------------- As of March 4, 1997, no person or entity owned more than 5 percent of the limited partnership interests of the Partnership. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -------------------------------------------------------- The General Partner and its affiliates engage in certain transactions with the Venture. The General Partner believes that the terms of such transactions are generally as favorable as could be obtained by the Venture from unaffiliated parties. This determination has been made by the General Partner in good faith, but none of the terms were or will be negotiated at arm's-length and there can be no assurance that the terms of such transactions have been or will be as favorable as those that could have been obtained by the Venture from unaffiliated parties. TRANSACTIONS WITH THE GENERAL PARTNER The General Partner charges a management fee, and the General Partner is reimbursed for certain allocated overhead and administrative expenses. These expenses represent the salaries and benefits paid to corporate personnel, rent, data processing services and other corporate facilities costs. Such personnel provide engineering, marketing, administrative, accounting, legal and investor relations services to the Venture. Allocations of personnel costs are based primarily on actual time spent by employees of the General Partner with respect to each partnership managed. Remaining expenses are allocated based on the pro rata relationship of the Venture's revenues to the total revenues of all systems owned or managed by the General Partner and certain of its subsidiaries. Systems owned by the General Partner and all other systems owned by partnerships for which Jones Intercable, Inc. is the general partner are also allocated a proportionate share of these expenses. The General Partner also advances funds and charges interest on the balance payable. The interest rate charged approximates the General Partner's weighted average cost of borrowing. TRANSACTIONS WITH AFFILIATES Jones Education Company ("JEC") is owned 63% by Jones International, Ltd. ("International"), an affiliate of the General Partner, 9% by Glenn R. Jones, 12% by Bell Canada International Inc. ("BCI") and 16% by the General Partner. JEC operates two television networks, JEC Knowledge TV and Jones Computer Network. JEC Knowledge TV provides programming related to computers and technology; business, careers and finance; health and wellness; and global culture and languages. Jones Computer Network provides programming focused primarily on computers and technology. JEC sells its programming to certain cable television systems owned or managed by the General Partner. 45 The Great American Country network provides country music video programming to certain cable television systems owned or managed by the General Partner. This network is owned and operated by Great American Country, Inc., a subsidiary of Jones International Networks, Ltd., an affiliate of International. Jones Galactic Radio, Inc. is a company now owned by Jones International Networks, Ltd., an affiliate of International. Superaudio, a joint venture between Jones Galactic Radio, Inc. and an unaffiliated entity, provides satellite programming to certain cable television systems owned or managed by the General Partner. The Product Information Network Venture (the "PIN Venture") is a venture among a subsidiary of Jones International Networks, Ltd., an affiliate of International, and two unaffiliated cable system operators. The PIN Venture operates the Product Information Network ("PIN"), which is a 24-hour network that airs long-form advertising generally known as "infomercials." The PIN Venture generally makes incentive payments of approximately 60% of its net advertising revenue to the cable systems that carry its programming. Most of the General Partner's owned and managed systems carry PIN for all or part of each day. Revenues received by the Venture from the PIN Venture relating to the Venture's owned cable television systems totaled approximately $191,011 for the year ended December 31, 1996. The charges to the Venture for related party transactions are as follows for the periods indicated: For the Year Ended December 31, ------------------------------------ Cable TV Fund 12-BCD 1996 1995 1994 - -------------------- ---------- ---------- ---------- Management fees $4,118,188 $5,069,985 $4,461,154 Allocation of expenses 5,491,265 7,183,663 6,951,110 Interest expense 0 220,743 33,627 Amount of advances outstanding 0 4,198,739 616,810 Highest amount of advances outstanding 0 4,574,572 929,508 Programming fees: Jones Education Company 374,709 428,937 196,004 Great American Country 141,753 0 0 Superaudio 116,710 135,861 135,346 46 PART IV. -------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K ------------------------------------------------------------------------- (a) 1. See index to financial statements for list of financial statements and exhibits thereto filed as a part of this report. 3. The following exhibits are filed herewith. 4.1 Limited Partnership Agreement for Cable TV Fund 12-C. (1) 4.2 Joint Venture Agreement of Cable TV Fund 12-BCD Venture dated as of March 17, 1986, among Cable TV Fund 12-B, Ltd., Cable TV Fund 12-C, Ltd. and Cable TV Fund 12-D, Ltd. (2) 10.1.1 Copy of a franchise and related documents thereto granting a community antenna television system franchise for Edwards Air Force Base, California (Fund 12-BCD). (3) 10.1.2 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the City of Lancaster, California (Fund 12-BCD). (4) 10.1.3 Copy of a franchise and related documents thereto granting a community antenna television system franchise for Unincorporated portions of Los Angeles County, California (Fund 12-BCD). (4) 10.1.4 Copy of Los Angeles County Code regarding cable tv system franchises (Fund 12-BCD). (5) 10.1.5 Copy of Ordinance 90-0118F dated 10/29/90 granting a cable television franchise to Fund 12-BCD (Fund 12-BCD). (5) 10.1.6 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the Green Valley/Elizabeth Lake/Leona Valley unincorporated areas of Los Angeles County, California (Fund 12-BCD). (2) 10.1.7 Ordinance 88-0166F dated 10/4/88 amending the franchise described in 10.1.5 (Fund 12-BCD). (5) 10.1.8 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the City of Palmdale, California (Fund 12-BCD). (5) 10.1.9 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the City of Albuquerque, New Mexico (Fund 12-BCD). (4) 10.1.10 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the County of Bernalillo, New Mexico (Fund 12-BCD). (4) 10.1.11 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the Town of Bernalillo, New Mexico (Fund 12-BCD). (4) 47 10.1.12 Resolution No. 12-14-87 dated 12/14/87 authorizing the assignment of the franchise to Fund 12-BCD. (5) 10.1.13 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the Village of Bosque Farms, New Mexico (Fund 12-BCD). (4) 10.1.14 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the Village of Corrales, New Mexico (Fund 12-BCD). (4) 10.1.15 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the Kirtland Air Force Base, New Mexico (Fund 12-BCD). (5) 10.1.16 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the Village of Los Ranchos, New Mexico (Fund 12-BCD). (4) 10.1.17 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the County of Sandoval, New Mexico (Fund 12-BCD). (4) 10.1.18 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the County of Valencia, New Mexico (Fund 12-BCD). (4) 10.1.19 Resolution No. 88-23 dated 2/14/88 authorizing assignment of the franchise to Fund 12-BCD. (5) 10.2.1 Note Purchase Agreement dated as of March 31, 1992 between Cable TV Fund 12-BCD Venture and the Noteholders (9) 10.2.2 Amendment No. 1 dated as of March 31, 1994 to the Note Purchase Agreement dated as of March 31, 1992 between Cable TV Fund 12-BCD Venture and the Noteholders (9) 10.2.3 Amendment No. 2 dated as of September 30, 1994 to the Note Purchase Agreement dated as of March 31, 1992 between Cable TV Fund 12-BCD Venture and the Noteholders (9) 10.2.4 Amendment No. 3 dated as of February 12, 1996 to the Note Purchase Agreement dated as of March 31, 1992 between Cable TV Fund 12-BCD Venture and the Noteholders. (9) 10.2.5 Second Amended and Restated Credit Agreement by and among Cable TV Fund 12-BCD Venture, various banks, Corestates Bank, N.A. and Societe Generale, as Managing Agents and Corestates Bank, N.A., as Administrative Agent dated February 12, 1996. (9) 10.3.1 Purchase and Sale Agreement dated as of March 29, 1988 by and between Cable TV Fund 12-BCD Venture as Buyer and Video Company as Seller. (6) 48 10.3.2 Purchase and Sale Agreement dated 9/20/91 and amendments thereto between Cable TV Fund 12-BCD Venture as Seller and Falcon Classic Cable Income Properties, L.P. (Fund 12-BCD). (7) 10.3.3 Purchase and Sale Agreement dated as of August 11, 1995 between Cable TV Fund 12-BCD Venture and Jones Intercable, Inc. (8) 27 Financial Data Schedule __________ (1) Incorporated by reference from Registrant's Report on Form 10-K for the fiscal year ended December 31, 1985 (Commission File Nos. 0-13193, 0-13807, 0-13964 and 0-14206). (2) Incorporated by reference from Registrant's Report on Form 10-K for the fiscal year ended December 31, 1987 (Commission File Nos. 0-13193, 0-13807, 0-13964 and 0-14206). (3) Incorporated by reference from Registrant's Report on Form 10-K for the fiscal year ended December 31, 1994 (Commission File No. 0-13193). (4) Incorporated by reference from Registrant's Report on Form 10-K for the fiscal year ended December 31, 1986 (Commission File Nos. 0-13193, 0-13807, 0-13964 and 0-14206). (5) Incorporated by reference from Registrant's Report on Form 10-K for the fiscal year ended December 31, 1992 (Commission File Nos. 0-13193, 0-13807, 0-13964 and 0-14206). (6) Incorporated by reference from Registrant's Report on Form 10-K for the fiscal year ended December 31, 1988 (Commission File Nos. 0-13193, 0-13807, 0-13964 and 0-14206). (7) Incorporated by reference from the Forms 8-K of Fund 12-B, Fund 12-C and Fund 12-D dated 4/6/92 (Commission File Nos. 0- 13193, 0-13964 and 0-14206, respectively). (8) Incorporated by reference from the Annual Report on Form 10-K for fiscal year ended May 31, 1995 of Jones Intercable, Inc. (Commission File No. 1-9953). (9) Incorporated by reference from Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1995. (b) Reports on Form 8-K. None. 49 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. CABLE TV FUND 12-C, LTD. a Colorado limited partnership By: Jones Intercable, Inc. By: /s/ Glenn R. Jones ________________________________ Glenn R. Jones Chairman of the Board and Chief Dated: March 24, 1997 Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Glenn R. Jones ________________________________ Glenn R. Jones Chairman of the Board and Chief Executive Officer Dated: March 24, 1997 (Principal Executive Officer) By: /s/ Kevin P. Coyle ________________________________ Kevin P. Coyle Group Vice President/Finance Dated: March 24, 1997 (Principal Financial Officer) By: /s/ Larry Kaschinske ________________________________ Larry Kaschinske Vice President/Controller Dated: March 24, 1997 (Principal Accounting Officer) By: /s/ James B. O'Brien ________________________________ James B. O'Brien Dated: March 24, 1997 President and Director By: /s/ Derek H. Burney ________________________________ Derek H. Burney Dated: March 24, 1997 Director By: /s/ Robert E. Cole ________________________________ Robert E. Cole Dated: March 24, 1997 Director 50 By:/s/ William E. Frenzel ________________________________________ William E. Frenzel Dated: March 24, 1997 Director By:/s/ Donald L. Jacobs ________________________________________ Donald L. Jacobs Dated: March 24, 1997 Director By:/s/ James J. Krejci ________________________________________ James J. Krejci Dated: March 24, 1997 Director By:________________________________________ John A. MacDonald Dated: March 24, 1997 Director By:/s/ Raphael M. Solot ________________________________________ Raphael M. Solot Dated: March 24, 1997 Director By:________________________________________ Howard O. Thrall Dated: March 24, 1997 Director By:/s/ Siim A. Vanaselja ________________________________________ Siim A. Vanaselja Dated: March 24, 1997 Director By:/s/ Sanford Zisman ________________________________________ Sanford Zisman Dated: March 24, 1997 Director By:/s/ Robert B. Zoellick ________________________________________ Robert B. Zoellick Dated: March 24, 1997 Director 51 EX-99.(D)(3) 8 10-Q FOR CABLE TV FUND 12-C (MARCH 31, 1997) Exhibit (d)(3) FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [x] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 1997 -------------- [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ______________ to ______________. Commission File Number: 0-13964 CABLE TV FUND 12-C, LTD. - ------------------------------------------------------------------------------- Exact name of registrant as specified in charter Colorado 84-0970000 - ------------------------------------------------------------------------------- State of organization I.R.S. employer I.D.# 9697 East Mineral Avenue, P.O. Box 3309, Englewood, Colorado 80155-3309 ------------------------------------------------------------------------ Address of principal executive office (303) 792-3111 ----------------------------- Registrant's telephone number Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --------- ------- CABLE TV FUND 12-C, LTD. ------------------------ (A Limited Partnership) UNAUDITED BALANCE SHEETS ------------------------
March 31, December 31, 1997 1996 ------------- ------------ ASSETS $ - $ - ------ ============ ============ LIABILITIES AND PARTNERS' DEFICIT --------------------------------- LIABILITIES: Loss in excess of investment in cable television joint venture $ 3,727,493 $ 3,580,725 ------------ ------------ Total liabilities 3,727,493 3,580,725 ------------ ------------ PARTNERS' DEFICIT: General Partner- Contributed capital 1,000 1,000 Accumulated deficit (17,099) (15,631) ------------ ------------ (16,099) (14,631) ------------ ------------ Limited Partners- Net contributed capital (47,626 units outstanding at March 31, 1997 and December 31, 1996) 19,998,049 19,998,049 Accumulated deficit (15,464,580) (15,319,280) Distributions (8,244,863) (8,244,863) ------------ ------------ (3,711,394) (3,566,094) ------------ ------------ Total liabilities and partners' deficit $ - $ - ============ ============
The accompanying notes to unaudited financial statements are an integral part of these unaudited balance sheets. 2 CABLE TV FUND 12-C, LTD. ------------------------ (A Limited Partnership) UNAUDITED STATEMENTS OF OPERATIONS ----------------------------------
For the Three Months Ended March 31, -------------------------- 1997 1996 ------------ ------------ EQUITY IN NET INCOME (LOSS) OF CABLE TELEVISION JOINT VENTURE $(146,768) $10,525,683 --------- ----------- NET INCOME (LOSS) $(146,768) $10,525,683 ========= =========== ALLOCATION OF NET INCOME (LOSS): General Partner $ (1,468) $ (4,969) ========= =========== Limited Partners $(145,300) $10,530,652 ========= =========== NET INCOME (LOSS) PER LIMITED PARTNERSHIP UNIT $(3.05) $ 221.11 ========= =========== WEIGHTED AVERAGE NUMBER OF LIMITED PARTNERSHIP UNITS OUTSTANDING 47,626 47,626 ========= ===========
The accompanying notes to unaudited financial statements are an integral part of these unaudited statements. 3 CABLE TV FUND 12-C, LTD. ------------------------ (A Limited Partnership) UNAUDITED STATEMENTS OF CASH FLOWS ----------------------------------
For the Three Months Ended March 31, --------------------------- 1997 1996 ------------ ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $(146,768) $ 10,525,683 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Equity in net (income) loss of cable television joint venture 146,768 (10,525,683) --------- ------------ Net cash provided by operating activities - - --------- ------------ Net change in cash - - Cash, beginning of period - - --------- ------------ Cash, end of period $ - $ - ========= ============ SUPPLEMENTAL CASH FLOW DISCLOSURE: Interest paid $ - $ - ========= ============
The accompanying notes to unaudited financial statements are an integral part of these unaudited statements. 4 CABLE TV FUND 12-C, LTD. ------------------------ (A Limited Partnership) NOTES TO UNAUDITED FINANCIAL STATEMENTS --------------------------------------- (1) This Form 10-Q is being filed in conformity with the SEC requirements for unaudited financial statements and does not contain all of the necessary footnote disclosures required for a fair presentation of the Balance Sheets and Statements of Operations and Cash Flows in conformity with generally accepted accounting principles. However, in the opinion of management, this data includes all adjustments, consisting only of normal recurring accruals, necessary to present fairly the financial position of Cable TV Fund 12-C, Ltd. (the "Partnership") at March 31, 1997 and December 31, 1996 and its Statements of Operations and Cash Flows for the three month periods ended March 31, 1997 and March 31, 1996. Results of operations for these periods are not necessarily indicative of results to be expected for the full year. The Partnership owns a 15 percent interest in Cable TV Fund 12-BCD Venture (the "Venture"). The Venture owns and operates the cable television systems serving Albuquerque, New Mexico ("the Albuquerque System") and Palmdale, California (the "Palmdale System"). The Venture sold the cable television system serving the areas in and around Tampa, Florida (the "Tampa System") on February 28, 1996. (2) Jones Intercable, Inc., a publicly held Colorado corporation (the "General Partner"), manages the Venture and receives a fee for its services equal to 5 percent of the gross revenues of the Venture, excluding revenues from the sale of cable television systems or franchises. Management fees paid by the Venture to the General Partner during the three month periods ended March 31, 1997 and 1996 attributable to the Partnership's 15 percent interest in the Venture were $150,594 and $179,886, respectively. The Venture reimburses the General Partner for certain allocated overhead and administrative expenses. These expenses represent the salaries and related benefits paid for corporate personnel, rent, data processing services, and other corporate facilities costs. Such personnel provide engineering, marketing, administrative, accounting, legal and investor relations services to the Venture. Such services, and their related costs, are necessary to the operation of the Venture and would have been incurred by the Venture if it was a stand alone entity. Allocations of personnel costs are based on actual time spent by employees of the General Partner with respect to each partnership managed. Remaining expenses are allocated based on the pro rata relationship of the Partnership's revenues to the total revenues of all systems owned or managed by the General Partner and certain of its subsidiaries. Systems owned by the General Partner and all other systems owned by partnerships for which Jones Intercable, Inc. is the general partner are also allocated a proportionate share of these expenses. The General Partner believes that the methodology used in allocating overhead and administrative expenses is reasonable. Reimbursements made by the Venture to the General Partner for allocated overhead and administrative expenses during the three month periods ended March 31, 1997 and 1996 attributable to the Partnership's 15 percent interest in the Venture were $203,301 and $244,645, respectively. See Note 4 for disclosure of the total management fees and allocated overhead and administrative expenses paid by the Venture. 5 (3) Summarized financial information regarding the Venture is presented below. UNAUDITED BALANCE SHEETS ------------------------
ASSETS March 31, 1997 December 31, 1996 ------ --------------- ------------------ Cash and accounts receivable $ 4,861,303 $ 4,191,019 Investment in cable television properties 114,111,729 113,671,437 Other assets 4,571,563 3,036,880 ------------- ------------- Total assets $ 123,544,595 $ 120,899,336 ============= ============= LIABILITIES AND PARTNERS' CAPITAL --------------------------------- Debt $ 140,721,622 $ 138,345,878 Payables and accrued liabilities 6,175,104 4,944,940 Partners' contributed capital 135,490,944 135,490,944 Accumulated deficit (103,843,075) (102,882,426) Distributions (55,000,000) (55,000,000) ------------- ------------- Total liabilities and partners' capital $ 123,544,595 $ 120,899,336 ============= ============= UNAUDITED STATEMENTS OF OPERATIONS ---------------------------------- For the Three Months Ended March 31, --------------------------- 1997 1996 ------------ ------------ Revenues $ 19,711,225 $ 23,545,320 Operating expenses (10,953,865) (14,741,425) Management fees and allocated overhead from General Partner (2,316,066) (2,778,348) Depreciation and amortization (4,798,547) (6,117,468) Operating income (loss) 1,642,747 (91,921) Interest expense, net (2,691,262) (3,161,193) Gain on sale of cable television system - 72,137,615 Other, net 87,866 862 ------------ ------------ Consolidated income (loss) $ (960,649) $ 68,885,363 ============ ============
Management fees and reimbursements for overhead and administrative expenses paid to Jones Intercable, Inc. by the Venture totaled $985,561 and $1,330,505, respectively, for the three month period ended March 31, 1997, and $1,177,266 and $1,601,082, respectively, for the three month period ended March 31, 1996. 6 CABLE TV FUND 12-C, LTD. ------------------------ (A Limited Partnership) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND --------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- FINANCIAL CONDITION - ------------------- It is the General Partner's publicly announced policy that it intends to liquidate its managed limited partnerships, including the partnerships that comprise the Venture, as opportunities for sales of partnership cable television systems arise in the marketplace over the next several years. In accordance with the General Partner's policy, the Venture sold the Tampa System in February 1996. No specific dates or terms have yet been set for the sale of the remainder of the Venture's systems. The Partnership owns a 15 percent interest in the Venture. The investment in cable television joint venture is accounted for under the equity method. The Partnership's share of losses generated by the Venture have exceeded the Partnership's initial investment in the Venture; therefore, the investment is classified as a liability. This liability increased by $146,768, which represents the Partnership's share of losses generated by the Venture for the three months ended March 31, 1997. For the three months ended March 31, 1997, the Venture generated net cash from operating activities totaling $2,619,786, which was available to fund capital expenditures and non-operating costs. Capital expenditures for the Venture totaled approximately $5,010,000 during the first quarter of 1997. Service drops to homes accounted for approximately 42 percent of the capital expenditures. New plant construction accounted for approximately 29 percent of the capital expenditures. Converters accounted for approximately 19 percent of the capital expenditures. The remaining expenditures related to various system enhancements. These capital expenditures were funded primarily from cash on hand, cash generated from operations and borrowings from the Venture's credit facility. Expected capital expenditures for the remainder of 1997 are approximately $15,300,000. Service drops to homes are anticipated to account for approximately 52 percent. Approximately 14 percent of budgeted capital expenditures is for new plant construction. Plant rebuild is anticipated to account for approximately 14 percent. The remainder of the expenditures are for various system enhancements in all of the Venture's systems. These capital expenditures are necessary to maintain the value of the Venture's systems. Funding for these expenditures is expected to be provided by cash on hand, cash generated from operations and borrowings from the Venture's credit facility. The Venture's debt arrangements at March 31, 1997 consisted of $51,436,531 of Senior Notes placed with a group of institutional lenders and a $120,000,000 credit facility with a group of commercial bank lenders. The Senior Notes and the credit facility are equal in standing with the other, and both are equally secured by the assets of the Venture. The Senior Notes have a fixed interest rate of 8.64 percent and a final maturity date of March 31, 2000. The Senior Notes require payments of interest and accelerating principal payments through maturity, payable semi-annually in March and September. A principal payment of $3,956,656 was made in March 1997. A principal payment of approximately $3,956,656 is due in September 1997 and is expected to be funded from cash on hand, cash generated from operations and borrowings from the Venture's credit facility. The balance outstanding on the Venture's $120,000,000 credit facility at March 31, 1997 was $88,530,620, leaving $31,469,380 available for future needs. At the Venture's option, the credit facility is payable in full on December 31, 1999 or converts to a term loan that matures on December 31, 2004 payable in consecutive quarterly amounts. Interest on the amended credit facility is at the Venture's option of the London Interbank Offered Rate plus 1.125 percent, the Prime Rate plus .125 percent or the Certificate of Deposit Rate plus 1.25 percent. The effective interest rates on amounts outstanding on the Venture's credit facility as of March 31, 1997 and 1996 were 7.66 percent and 8.35 percent, respectively. The Venture has sufficient sources of capital available through its ability to generate cash from operations and borrowings under its credit facility to meet its presently anticipated operating needs. 7 RESULTS OF OPERATIONS - --------------------- Revenues in the Venture's systems decreased $3,834,095, or approximately 16 percent, to $19,711,225 for the three months ended March 31, 1997 from $23,545,320 for the similar period in 1996. This decrease was a result of the sale of the Tampa System. Disregarding the effect of the Tampa System sale, revenues would have increased $1,051,296, or approximately 6 percent, to $19,711,225 for the three months ended March 31, 1997 from $18,659,929 for the similar period in 1996. The increase in revenue was due primarily to basic service rate increases and an increase in advertising activity. Basic service rate increases accounted for approximately 59 percent of the increase in revenues for the three months ended March 31, 1997. Advertising activity accounted for approximately 18 percent of the increase in revenues for the three months ended March 31, 1997. No other individual factor significantly affected the increase in revenues. Operating expenses consist primarily of costs associated with the operation and administration of the Venture's cable television systems. The principal cost components are salaries paid to system personnel, programming expenses, professional fees, subscriber billing costs, rent for leased facilities, cable system maintenance expenses and marketing expenses. Operating expenses in the Venture's systems decreased $3,785,992, or approximately 26 percent, to $10,953,865 for the three months ended March 31, 1997 from $14,739,857 for the similar period in 1996. This decrease was a result of the sale of the Tampa System. Disregarding the effect of the Tampa System sale, operating expenses would have increased $60,612, or approximately 1 percent, to $10,953,865 for the three months ended March 31, 1997 from $10,893,253 for the similar period in 1996. Operating expenses represented 56 percent and 58 percent, respectively, of revenues for the three months ended March 31, 1997 and 1996. The increase in operating expenses was primarily due to increases in programming costs. No other individual factor contributed significantly to the increase in operating expenses. The cable television industry generally measures the financial performance of a cable television system in terms of operating cash flow (revenues less operating expense). This measure is not intended to be a substitute or improvement upon the items disclosed on the financial statements, rather it is included because it is an industry standard. Operating cash flow increased $48,103, or approximately 1 percent, to $8,757,360 for the three months ended March 31, 1997 from $8,805,463 for the similar period in 1996. Disregarding the effect of the Tampa System sale, operating cash flow would have increased $990,684, or approximately 13 percent, to $8,757,360 for the three months ended March 31, 1997 from $7,766,676 for the similar 1996 period. This increase was due to the increase in revenues exceeding the increases in operating expenses. Management fees and allocated overhead from the General Partner decreased $462,282, or approximately 17 percent, to $2,316,066 for the three months ended March 31, 1997 from $2,778,348 for the similar period in 1996. This decrease was a result of the sale of the Tampa System. Disregarding the effect of the Tampa System sale, management fees and allocated overhead from the General Partner would have increased $114,194, or approximately 5 percent, to $2,316,066 for the three months ended March 31, 1997 from $2,201,872 for the similar period in 1996. This increase was primarily due to the increase in revenues, upon which such management fees are based. This increase was partially offset by a decrease in allocated overhead from the General Partner. Depreciation and amortization expense decreased $1,320,489, or approximately 22 percent, to $4,798,547 for the three months ended March 31, 1997 from $6,119,036 for the similar period in 1996. This decrease was a result of the sale of the Tampa System. Disregarding the effect of the Tampa System sale, depreciation and amortization expense would have decreased $241,046, or approximately 5 percent, to $4,798,547 for the three months ended March 31, 1997 from $5,039,593 for the similar period in 1996. This decrease was due to the maturation of the Venture's asset base. The Venture recognized operating income of $1,642,747 for the three months ended March 31, 1997 compared to an operating loss of $91,921 for the similar period in 1996. Disregarding the effect of the Tampa System sale, the Venture's operating income would have increased $1,117,536, to $1,642,747 for the three month period ended March 31, 1997 from $525,211 for the similar period in 1996. This increase was due to the increase in revenues and the decrease in depreciation and amortization expenses exceeding the increases in operating expenses and management fees and allocated overhead expenses from the General Partner. Interest expense decreased $469,931, or approximately 15 percent, to $2,691,262 for the three months ended March 31, 1997 from $3,161,193 for the similar period in 1996. This decrease in interest expense was primarily due to the lower outstanding balances and lower effective interest rates on the Venture's interest bearing obligations. 8 The Venture recognized a gain of $72,137,615 related to the sale of the Tampa System in February 1996. No similar gain was recognized in 1997. The Venture reported a net loss of $960,649 for the three months ended March 31, 1997 compared to net income of $68,885,363 for the similar period in 1996. This change was due to the gain on the sale of the Tampa System in February 1996. 9 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K a) Exhibits 27) Financial Data Schedule b) Reports on Form 8-K None. 10 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CABLE TV FUND 12-C, LTD. BY: JONES INTERCABLE, INC. General Partner By: /S/ Kevin P. Coyle ----------------------------- Kevin P. Coyle Group Vice President/Finance (Principal Financial Officer) Dated: May 13, 1997 11 EX-99.(D)(4) 9 10-Q FOR CABLE TV FUND 12-C (JUNE 30, 1997) Exhibit (d)(4) FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 1997 ------------- [_] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to ---------------- ---------------- Commission File Number: 0-13964 CABLE TV FUND 12-C,LTD. - ----------------------------------------------------------------------------- Exact name of registrant as specified in charter Colorado 84-0970000 - -------------------------------------------------------------------------------- State of organization I.R.S. employer I.D.# 9697 East Mineral Avenue, P.O. Box 3309, Englewood, Colorado 80155-3309 ------------------------------------------------------------------------ Address of principal executive office (303) 792-3111 ----------------------------- Registrant's telephone number Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- CABLE TV FUND 12-C, LTD. ------------------------ (A Limited Partnership) UNAUDITED BALANCE SHEETS ------------------------
June 30, December 31, 1997 1996 ------------- ------------- ASSETS $ - $ - ------ ============ ============ LIABILITIES AND PARTNERS' DEFICIT --------------------------------- LIABILITIES: Loss in excess of investment in cable television joint venture $ 3,824,141 $ 3,580,725 ------------ ------------ Total liabilities 3,824,141 3,580,725 ------------ ------------ PARTNERS' DEFICIT: General Partner- Contributed capital 1,000 1,000 Accumulated deficit (18,065) (15,631) ------------ ------------ (17,065) (14,631) ------------ ------------ Limited Partners- Net contributed capital (47,626 units outstanding at June 30, 1997 and December 31, 1996) 19,998,049 19,998,049 Accumulated deficit (15,560,262) (15,319,280) Distributions (8,244,863) (8,244,863) ------------ ------------ (3,807,076) (3,566,094) ------------ ------------ Total liabilities and partners' deficit $ - $ - ============ ============
The accompanying notes to unaudited financial statements are an integral part of these unaudited balance sheets. 2 CABLE TV FUND 12-C, LTD. ------------------------ (A Limited Partnership) UNAUDITED STATEMENTS OF OPERATIONS ----------------------------------
For the Three Months Ended For the Six Months Ended June 30, June 30, -------------------------- ------------------------ 1997 1996 1997 1996 --------- ----------- --------- ----------- EQUITY IN NET INCOME (LOSS) OF CABLE TELEVISION JOINT VENTURE $(96,648) $(383,917) $(243,416) $9,803,525 -------- --------- --------- ---------- NET INCOME (LOSS) $(96,648) $(383,917) $(243,416) $9,803,525 ======== ========= ========= ========== ALLOCATION OF NET INCOME (LOSS): General Partner $ (966) $ 106,387 $ (2,434) $ 98,035 ======== ========= ========= ========== Limited Partners $(95,682) $(490,304) $(240,982) $9,705,490 ======== ========= ========= ========== NET INCOME (LOSS) PER LIMITED PARTNERSHIP UNIT $ (2.01) $ (10.30) $ (5.06) $ 203.79 ======== ========= ========= ========== WEIGHTED AVERAGE NUMBER OF LIMITED PARTNERSHIP UNITS OUTSTANDING 47,626 47,626 47,626 47,626 ======== ========= ========= ==========
The accompanying notes to unaudited financial statements are an integral part of these unaudited statements. 3 CABLE TV FUND 12-C, LTD. ------------------------ (A Limited Partnership) UNAUDITED STATEMENTS OF CASH FLOWS ----------------------------------
For the Six Months Ended June 30, -------------------------- 1997 1996 ---------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $(243,416) $ 9,803,525 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Equity in net (income) loss of cable television joint venture 243,416 (9,803,525) ---------- ------------ Net cash provided by operating activities - - ---------- ------------ Net change in cash - - Cash, beginning of period - - ---------- ------------ Cash, end of period $ - $ - ========== ============ SUPPLEMENTAL CASH FLOW DISCLOSURE: Interest paid $ - $ - ========== ============
The accompanying notes to unaudited financial statements are an integral part of these unaudited statements. 4 CABLE TV FUND 12-C, LTD. ------------------------ (A Limited Partnership) NOTES TO UNAUDITED FINANCIAL STATEMENTS --------------------------------------- (1) This Form 10-Q is being filed in conformity with the SEC requirements for unaudited financial statements and does not contain all of the necessary footnote disclosures required for a fair presentation of the Balance Sheets and Statements of Operations and Cash Flows in conformity with generally accepted accounting principles. However, in the opinion of management, this data includes all adjustments, consisting only of normal recurring accruals, necessary to present fairly the financial position of Cable TV Fund 12-C, Ltd. (the "Partnership") at June 30, 1997 and December 31, 1996, its results of operations for the three and six month periods ended June 30, 1997 and 1996 and its cash flows for the six month periods ended June 30, 1997 and 1996. Results of operations for these periods are not necessarily indicative of results to be expected for the full year. The Partnership owns a 15 percent interest in Cable TV Fund 12-BCD Venture (the "Venture"). The Venture owns and operates the cable television systems serving Albuquerque, New Mexico ("the Albuquerque System") and Palmdale, California (the "Palmdale System"). The Venture sold the cable television system serving the areas in and around Tampa, Florida (the "Tampa System") on February 28, 1996. (2) On July 28, 1997, the Venture entered into a purchase and sale agreement to sell the Albuquerque System to the General Partner for a sales price of $222,963,267, which price represents the average of three separate independent appraisals of the fair market value of the Albuquerque System. The closing of this sale is subject to a number of conditions, including the approval of the holders of a majority of the limited partnership interests in each of the three partnerships that comprise the Venture and necessary governmental and other third party consents. Closing is expected to occur during the first quarter of 1998. Upon the consummation of the sale of the Albuquerque System, the Venture must repay its outstanding Senior Notes balance of $51,436,531 plus a make whole premium and, subject to an amendment to the Venture's credit facility, it will repay approximately $40,000,000 of the then outstanding balance of its credit facility. The Venture then anticipates, again subject to an amendment to the Venture's credit facility, making a distribution of approximately $125,000,000 to the Venture's partners. The Partnership's portion of this distribution would be approximately $19,097,217, of which approximately $18,175,163 would be distributed to the limited partners and approximately $922,054 would be distributed to the General Partner. This distribution of the Albuquerque System's sale proceeds will give the Partnership's limited partners an approximate return of $763 for each $1,000 invested in the Partnership. Taking into account the 1996 distribution made on the sale of the Tampa System and the anticipated distribution to be made on the sale of the Albuquerque System in 1998, the limited partners will have received a total of $1,109 for each $1,000 invested in the Partnership. (3) Jones Intercable, Inc., a publicly held Colorado corporation (the "General Partner"), manages the Venture and receives a fee for its services equal to 5 percent of the gross revenues of the Venture, excluding revenues from the sale of cable television systems or franchises. Management fees paid by the Venture to the General Partner during the three and six month periods ended June 30, 1997 attributable to the Partnership's 15 percent interest in the Venture were $161,478 and $312,053, respectively, compared to $148,453 and $328,315, respectively, for the comparable period in 1996. The Venture reimburses the General Partner for certain allocated overhead and administrative expenses. These expenses represent the salaries and related benefits paid for corporate personnel, rent, data processing services, and other corporate facilities costs. Such personnel provide engineering, marketing, administrative, accounting, legal and investor relations services to the Venture. Such services, and their related costs, are necessary to the operation of the Venture and would have been incurred by the Venture if it was a stand alone entity. Allocations of personnel costs are based on actual time spent by employees of the General Partner with respect to each partnership managed. Remaining expenses are allocated based on the pro rata relationship of the Partnership's revenues to the total revenues of all systems owned or managed by the General Partner and certain of its subsidiaries. Systems owned by the General Partner and all other systems owned by partnerships for which Jones Intercable, Inc. is the general partner are also allocated a proportionate share of these expenses. The General Partner believes that the methodology used in allocating overhead and administrative expenses is reasonable. Reimbursements made by the Venture to the General Partner for allocated overhead and administrative expenses during the three and six month periods ended June 30, 1997 attributable to the Partnership's 15 percent interest in the Venture were $160,874 and $364,149, respectively, compared to $203,210 and $447,824, respectively, for the comparable period in 1996. See Note 4 for disclosure of the total management fees and allocated overhead and administrative expenses paid by the Venture. 5 (4) Summarized financial information regarding the Venture is presented below. UNAUDITED BALANCE SHEETS ------------------------
ASSETS June 30, 1997 December 31, 1996 - ------ -------------- ------------------ Cash and accounts receivable $ 6,273,875 $ 4,191,019 Investment in cable television properties 113,043,796 113,671,437 Other assets 4,833,665 3,036,880 ------------- ------------- Total assets $ 124,151,336 $ 120,899,336 ============= ============= LIABILITIES AND PARTNERS' CAPITAL --------------------------------- Debt $ 142,024,854 $ 138,345,878 Payables and accrued liabilities 6,111,212 4,944,940 Partners' contributed capital 135,490,944 135,490,944 Accumulated deficit (104,475,674) (102,882,426) Distributions (55,000,000) (55,000,000) ------------- ------------- Total liabilities and partners' capital $ 124,151,336 $ 120,899,336 ============= =============
UNAUDITED STATEMENTS OF OPERATIONS ----------------------------------
For the Three Months Ended For the Six Months Ended June 30, June 30, ---------------------------- --------------------------- 1997 1996 1997 1996 ------------- ------------ ------------ ------------- Revenues $ 21,138,684 $ 19,433,518 $ 40,849,909 $ 42,978,838 Operating expenses (11,733,343) (11,682,207) (22,687,208) (26,423,632) Management fees and allocated overhead from General Partner (2,109,915) (2,301,759) (4,425,981) (5,080,107) Depreciation and amortization (4,866,372) (5,141,927) (9,664,919) (11,260,963) ------------ ------------ ------------ ------------ Operating income 2,429,054 307,625 4,071,801 214,136 Interest expense, net (2,729,243) (2,713,581) (5,420,505) (5,874,774) Gain on sale of cable television system - - - 71,914,391 Other, net (332,410) (94,909) (244,544) 130,745 ------------ ------------ ------------ ------------ Net income (loss) $ (632,599) $ (2,500,865) $ (1,593,248) $ 66,170,362 ============ ============ ============ ============
6 Management fees paid to Jones Intercable, Inc. by the Venture totaled $1,056,934 and $2,042,495, respectively, for the three and six month periods ended June 30, 1997, and $971,676 and $2,148,942, respectively, for the comparable periods in 1996. Reimbursements for overhead and administrative expenses paid to Jones Intercable, Inc. by the Venture totaled $1,052,981 and $2,383,486, respectively, for the three and six month periods ended June 30, 1997, and $1,330,083 and $2,931,165, respectively, for the comparable periods in 1996. 7 CABLE TV FUND 12-C, LTD. ------------------------ (A Limited Partnership) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND --------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- FINANCIAL CONDITION - ------------------- It is the General Partner's publicly announced policy that it intends to liquidate its managed partnerships, including the partnerships that comprise the Venture, as opportunities for sales of partnership cable television systems arise in the marketplace over the next several years. In accordance with the General Partner's policy, the Venture has entered into a purchase and sale agreement to sell the Albuquerque System. No specific dates or terms have yet been set for the sale of the remainder of the Venture's systems. On July 28, 1997, the Venture entered into a purchase and sale agreement to sell the Albuquerque System to the General Partner for a sales price of $222,963,267, which price represents the average of three separate independent appraisals of the fair market value of the Albuquerque System. The closing of this sale is subject to a number of conditions, including the approval of the holders of a majority of the limited partnership interests in each of the three partnerships that comprise the Venture and necessary governmental and other third party consents. Closing is expected to occur during the first quarter of 1998. Upon the consummation of the sale of the Albuquerque System, the Venture must repay its outstanding Senior Notes balance of $51,436,531 plus a make whole premium and, subject to an amendment to the Venture's credit facility, it will repay approximately $40,000,000 of the then outstanding balance of its credit facility. The Venture then anticipates, again subject to an amendment to the Venture's credit facility, making a distribution of approximately $125,000,000 to the Venture's partners. The Partnership's portion of this distribution would be approximately $19,097,217, of which approximately $18,175,163 would be distributed to the limited partners and approximately $922,054 would be distributed to the General Partner. This distribution of the Albuquerque System's sale proceeds will give the Partnership's limited partners an approximate return of $763 for each $1,000 invested in the Partnership. Taking into account the 1996 distribution made on the sale of the Tampa System and the anticipated distribution to be made on the sale of the Albuquerque System in 1998, the limited partners will have received a total of $1,109 for each $1,000 invested in the Partnership. The Partnership owns a 15 percent interest in the Venture. The investment in cable television joint venture is accounted for under the equity method. The Partnership's share of losses generated by the Venture have exceeded the Partnership's initial investment in the Venture; therefore, the investment is classified as a liability. The Partnership expects to recover such losses upon the sale of the Albuquerque System and the Palmdale System. This liability increased by $243,416, which represents the Partnership's share of losses generated by the Venture for the six months ended June 30, 1997. For the six months ended June 30, 1997, the Venture generated net cash from operating activities totaling $6,209,233, which was available to fund capital expenditures and non-operating costs. Capital expenditures for the Venture totaled approximately $8,633,000 during the first six months of 1997. Service drops to homes accounted for approximately 40 percent of the capital expenditures. New plant construction accounted for approximately 31 percent of the capital expenditures. The purchase of converters accounted for approximately 11 percent of the capital expenditures. The remaining expenditures related to various system enhancements. These capital expenditures were funded primarily from cash on hand, cash generated from operations and borrowings from the Venture's credit facility. Expected capital expenditures for the remainder of 1997 are approximately $11,656,000. Service drops to homes are anticipated to account for approximately 56 percent. Plant rebuild is anticipated to account for approximately 15 percent. Approximately 7 percent of budgeted capital expenditures is for new plant construction. The remainder of the expenditures is for various system enhancements in all of the Venture's systems. Funding for these expenditures is expected to be provided by cash on hand, cash generated from operations and borrowings from the Venture's credit facility. As a result of the pending sale of the Albuquerque System, remaining budgeted capital expenditures for the Albuquerque System for 1997 will be only for various enhancements necessary to maintain the value of the Albuquerque System until it is sold. The Venture's debt arrangements at June 30, 1997 consisted of $51,436,531 of Senior Notes placed with a group of institutional lenders and a $120,000,000 credit facility with a group of commercial bank lenders. The Senior Notes and the credit facility are equal in standing with the other, and both are equally secured by the assets of the Venture. 8 The Senior Notes have a fixed interest rate of 8.64 percent and a final maturity date of March 31, 2000. The Senior Notes require payments of interest and accelerating principal through maturity, payable semi-annually in March and September. A principal payment of $3,956,656 was made in March 1997. A principal payment of approximately $3,956,656 is due in September 1997 and is expected to be funded from cash on hand, cash generated from operations and borrowings from the Venture's credit facility. Upon the sale of the Albuquerque System, the Senior Notes will be repaid in full together with a make whole premium. The balance outstanding on the Venture's $120,000,000 credit facility at June 30, 1997 was $89,630,620, leaving $30,369,380 available for future needs. Upon the sale of the Albuquerque System and subject to an amendment to the Venture's credit facility, the Venture anticipates repaying approximately $40,000,000 of the then outstanding balance of the credit facility and that there will be a reduction in the maximum amount available for borrowing. At the Venture's option, the credit facility will be payable in full on December 31, 1999 or will convert to a term loan that matures on December 31, 2004 payable in consecutive quarterly amounts. Interest on the credit facility is at the Venture's option of the London Interbank Offered Rate plus 1.125 percent, the Prime Rate plus .125 percent or the Certificate of Deposit Rate plus 1.25 percent. The effective interest rates on amounts outstanding on the Venture's credit facility as of June 30, 1997 and 1996 were 7.61 percent and 7.62 percent, respectively. The Venture has sufficient sources of capital available through its ability to generate cash from operations and borrowings under its credit facility to meet its presently anticipated needs. RESULTS OF OPERATIONS - --------------------- As a result of the sale of the Tampa System in February 1996, the following discussion of the Venture's results of operations, through operating income, pertains only to the results of operations of the Albuquerque System and the Palmdale System for all periods discussed. Revenues in the Albuquerque System and the Palmdale System increased $1,705,166, or approximately 9 percent, to $21,138,684 for the three months ended June 30, 1997 from $19,433,518 for the comparable period in 1996. Revenues increased $2,756,262, or approximately 7 percent, to $40,849,909 for the six months ended June 30, 1997 from $38,093,647 for the comparable period in 1996. These increases in revenues were due primarily to basic service rate increases, an increase in basic subscribers and an increase in pay per view revenues. Basic service rate increases accounted for approximately 46 percent and 51 percent of the increase in revenues for the three and six months ended June 30, 1997. The increase in the number of basic subscribers accounted for approximately 12 percent and 20 percent of the increases in revenues for the three and six months ended June 30, 1997. The increase in pay per view revenues accounted for approximately 26 percent and 18 percent of the increase in revenues for the three and six months ended June 30, 1997. No other individual factor significantly affected the increase in revenues. Operating expenses consist primarily of costs associated with the operation and administration of the Venture's cable television systems. The principal cost components are salaries paid to system personnel, programming expenses, professional fees, subscriber billing costs, rent for leased facilities, cable system maintenance expenses and marketing expenses. Operating expenses in the Albuquerque System and the Palmdale System increased $51,136, or less than 1 percent, to $11,733,343 for the three months ended June 30, 1997 from $11,682,207 for the comparable period in 1996. Operating expenses increased $632,040, or approximately 3 percent, to $22,687,208 for the six months ended June 30, 1997 from $22,055,168 for the comparable period in 1996. Operating expenses represented 56 percent of revenues for the three and six months ended June 30, 1997 and 59 percent and 58 percent, respectively, of revenues for the three and six months ended June 30, 1996. The increases in operating expenses were primarily due to increases in programming costs. No other individual factor contributed significantly to the increase in operating expenses. The cable television industry generally measures the financial performance of a cable television system in terms of operating cash flow (revenues less operating expenses). This measure is not intended to be a substitute or improvement upon the items disclosed on the financial statements, rather it is included because it is an industry standard. Operating cash flow increased $1,654,030, or approximately 21 percent, to $9,405,341 for the three months ended June 30, 1997 from $7,751,311 for the comparable period in 1996. Operating cash flow increased $2,124,222, or approximately 13 percent, to $18,162,701 for the six months ended June 30, 1997 from $16,038,479 for the comparable period in 1996. These increases were due to the increases in revenues exceeding the increases in operating expenses. 9 Management fees and allocated overhead from the General Partner decreased $191,844, or approximately 8 percent, to $2,109,915 for the three months ended June 30, 1997 from $2,301,759 for the comparable period in 1996. Management fees and allocated overhead from the General Partner decreased $77,269, or approximately 2 percent, to $4,425,981 for the six months ended June 30, 1997 from $4,503,250 for the comparable period in 1996. These decreases were primarily due to decreases in allocated overhead from the General Partner, which was partially offset by an increase in management fees. Depreciation and amortization expense decreased $275,555, or approximately 5 percent, to $4,866,372 for the three months ended June 30, 1997 from $5,141,927 for the comparable period in 1996. Depreciation and amortization expense decreased $604,306, or approximately 6 percent, to $9,664,919 for the six months ended June 30, 1997 from $10,269,225 for the comparable period in 1996. These decreases were due to the maturation of the Venture's asset base. The Venture recognized operating income of $2,429,054 for the three months ended June 30, 1997 compared to $307,625 for the comparable period in 1996. The Venture recognized operating income of $4,071,801 for the six months ended June 30, 1997 compared to $1,266,004 for the comparable period in 1996. These increases were due to the increases in revenues and the decreases in depreciation and amortization expense and management fees and allocated overhead from the General Partner exceeding the increases in operating expenses. Interest expense increased $15,662, or less than 1 percent, to $2,729,243 for the three months ended June 30, 1997 from $2,713,581 for the comparable period in 1996. Interest expense decreased $454,269, or approximately 8 percent, to $5,420,505 for the six months ended June 30, 1997 from $5,874,774 for the comparable period in 1996. This decrease was primarily due to lower outstanding balances on the Venture's interest bearing obligations. The Venture recognized a gain of $71,914,391 related to the sale of the Tampa System in February 1996. No similar gain was recognized in the first six months of 1997. The Venture reported a net loss of $477,878 for the three months ended June 30, 1997 compared to $1,889,153 for the comparable period in 1996. This change was a result of the factors discussed above. The Venture reported a net loss of $1,203,571 for the six months ended June 30, 1997 compared to net income of $50,146,850 for the comparable period in 1996. This change was due to the Venture reporting a gain on the sale of the Tampa System during the six months ended June 30, 1996, while no similar gain was recognized for the comparable 1997 period. 10 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K a) Exhibits 27) Financial Data Schedule b) Reports on Form 8-K None. 11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CABLE TV FUND 12-C, LTD. BY: JONES INTERCABLE, INC. General Partner By: /S/ Kevin P. Coyle ------------------------------- Kevin P. Coyle Group Vice President/Finance (Principal Financial Officer) Dated: August 13, 1997 12 -----END PRIVACY-ENHANCED MESSAGE-----