-----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, KtRbO822tokcngPixydmBW6o4daBtPDbGwV/u+LBQD/6LbsMTYznYG/YcWsqeFUD sxvNGf8IgqoH1StKw+bJTg== 0000927356-99-000233.txt : 19990219 0000927356-99-000233.hdr.sgml : 19990219 ACCESSION NUMBER: 0000927356-99-000233 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990217 FILER: 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: 10-K SEC ACT: SEC FILE NUMBER: 001-09953 FILM NUMBER: 99544786 BUSINESS ADDRESS: STREET 1: P O BOX 3309 CITY: ENGLEWOOD STATE: CO ZIP: 80155-3309 BUSINESS PHONE: 3037923111 MAIL ADDRESS: STREET 1: 9697 EAST MINERAL AVENUE CITY: ENGLEWOOD STATE: CO ZIP: 80112 10-K 1 FORM 10-K FOR JONES INTERCABLE FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the year ended December 31, 1998 Commission file number: 1-9953 JONES INTERCABLE, INC. ---------------------- (Exact name of registrant as specified in its charter) Colorado 84-0613514 -------- ---------- (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(g) of the Act: ---------------------------------------------------------- Common Stock, $.01 par value Class A Common Stock, $.01 par value 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 ____ --- Aggregate market value as of February 3, 1999 of the voting stock held by non-affiliates: Common Stock $83,491,335 Class A Common Stock $828,862,117 Shares outstanding of each of the registrant's classes of common stock as of February 3, 1999: Common Stock: 5,113,021 Class A Common Stock: 36,226,476 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. _________ JONES INTERCABLE, INC. ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998 TABLE OF CONTENTS
Page No. -------- PART I 1 ITEM 1. BUSINESS 1 The Company 1 Current Principal Shareholders of the Company 1 Comcast Corporation's Planned Acquisition of the Control Shares of the 2 Company The Cable Television Industry 3 System Operations 4 Programming 4 System Revenues 5 The Company's Cable Television Business 5 The Company's Other Businesses and Investments 8 Acquisitions of Cable Television Systems in 1998 and 1999 8 Proposed Acquisitions of Cable Television Systems in 1999 9 Sale of Contract Manufacturing Business 10 Sale of Interest in Jones Customer Service Management, LLC 10 Distribution Agreement with @Home Corporation 10 Sale of 7 5/8% Senior Notes 10 The Company's Credit Facilities 10 Cable Television Franchises 11 Competition 12 Broadcast Television 12 Overbuilds 12 DBS 13 Private Cable 13 MMDS 13 Regulation and Legislation 14 Cable Rate Regulation 14 Cable Entry Into Telecommunications 15 Telephone Company Entry Into Cable Television 16 Electric Utility Entry Into Telecommunications/Cable Television 16 Additional Ownership Restrictions 16 Must Carry/Retransmission Consent 17 Access Channels 17 Access to Programming 17
i Inside Wiring 18 Other FCC Regulations 18 Internet Access 18 Copyright 19 State and Local Regulation 19 Risk Factors 20 ITEM 2. PROPERTIES 20 ITEM 3. LEGAL PROCEEDINGS 25 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY 28 HOLDERS PART II 29 ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND 29 RELATED STOCKHOLDER MATTERS ITEM 6. SELECTED FINANCIAL DATA 32 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 33 FINANCIAL CONDITION AND RESULTS OF OPERATIONS ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY 42 DATA ITEM 9. CHANGES IN AND DISAGREEMENTS WITH 73 ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE PART III 73 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE 73 REGISTRANT ITEM 11. EXECUTIVE COMPENSATION 79 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL 82 OWNERS, DIRECTORS AND MANAGEMENT ITEM 13. CERTAIN TRANSACTIONS 86 PART IV 90 ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K 90
ii Certain information contained in this Form 10-K Report contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, included in this Form 10-K Report that address activities, events or developments that Jones Intercable, Inc. (the "Company") expects, believes or anticipates will or may occur in the future, including such matters as changes in the cable television industry, the Company's acquisition and clustering strategies, capital expenditures, the Company's operating strategies, the liquidation of the Company's managed partnerships, the development of new services and technologies, particularly those in the telecommunications area, the effects of competition, governmental regulation policies, the Company's expansion plans and other such matters, are forward-looking statements. These forward-looking statements are based upon certain assumptions and are subject to a number of risks and uncertainties. Actual events or results may differ materially from those discussed in the forward-looking statements as a result of various factors. As discussed in Item 1, Comcast Corporation's Planned Acquisition of the Control Shares of the Company, it is anticipated that Comcast Corporation ("Comcast") will acquire a controlling interest in the Company during March 1999. As a result of this transaction, it is expected that the current management of the Company and a majority of the Board of Directors of the Company will be replaced by Comcast. Because all of the forward-looking statements in this Form 10-K Report are made by the Company's current management and its current Board of Directors, they are qualified in their entirety by reference to the pending change in control and by changes in the Company's business plans and strategies that may be effected by new management and the new Board of Directors after the change in control. PART I ITEM 1. BUSINESS ----------------- THE COMPANY - ----------- The Company is a Colorado corporation organized in 1970. The Company is primarily engaged in the cable television business. The majority of the Company's cable television systems are owned indirectly by the Company through the Company's wholly owned subsidiaries, Jones Cable Holdings, Inc. ("JCH") and Jones Cable Holdings II, Inc. ("JCH II"). The Company also has a subsidiary that has been engaged in the cable television system brokerage business and a subsidiary that manufacturers and markets data encryption products. The Company also has a minority equity interest in an affiliated company that provides educational programming. See Item 1, The Company's Other Businesses and Investments. At December 31, 1998, the Company had a total of approximately 3,060 employees. The executive offices of the Company currently are located at 9697 E. Mineral Avenue, Englewood, Colorado 80112, and its telephone number is (303) 792-3111. CURRENT PRINCIPAL SHAREHOLDERS OF THE COMPANY - --------------------------------------------- Jones International, Ltd. ("International") beneficially owns approximately 48% of the Common Stock of the Company and approximately 4% of the Class A Common Stock of the 1 Company. Glenn R. Jones, the Chairman of the Board of Directors and Chief Executive Officer of the Company, personally owns approximately 9% of the Company's Common Stock and approximately 3% of the Company's Class A Common Stock. Because of his 100% ownership of International, Mr. Jones is deemed to be the beneficial owner of all shares of the Company owned by International, and his direct and indirect stock ownership gives him voting power over approximately 37% of votes to be cast by all shareholders of the Company on matters not requiring a class vote. BCI Telecom Holdings Inc. ("BTH") owns approximately 36% of the Company's Class A Common Stock and, through such ownership, BTH has an approximate 31% economic interest in the Company. Mr. Jones currently has the right to designate seven members of the Board of Directors, BTH currently has the right to designate three members of the Board of Directors and three members of the Board of Directors currently are jointly designated by Mr. Jones and BTH. See Item 5, Market for Registrant's Common Equity and Related Stockholder Matters, Item 10, Directors and Executive Officers of the Registrant and Item 12, Security Ownership of Certain Beneficial Owners, Directors and Management. In addition, BTH holds options to purchase 2,878,151 shares of Common Stock of the Company (the "Control Shares") from International, Glenn R. Jones and certain of their affiliates which, if and when exercised, would enable BTH to elect a majority of the members of the Board of Directors of the Company. Pursuant to various agreements all dated August 12, 1998 among Mr. Jones, International and certain of its affiliates, BTH and Comcast, Comcast acquired the right to purchase all of the Control Shares. As described below, the Company anticipates that Comcast will acquire a controlling interest in the Company before the end of March 1999. COMCAST CORPORATION'S PLANNED ACQUISITION OF THE CONTROL SHARES OF THE COMPANY - ------------------------------------------------------------------------------ In May 1998, BTH announced its intention to sell approximately half of its shares of the Company's Class A Common Stock to Comcast. At that time, BTH also announced its intention to grant to Comcast the right to acquire the Control Shares if and when BTH exercises its option to purchase such shares and to sell to Comcast at the time that the option is exercised BTH's remaining holdings of the Company's Class A Common Stock. In August 1998, the Company, International, BTH and Comcast announced that agreements had been entered into that will accelerate the exercise of the option for the Control Shares by Comcast, and allowed for the early closing of the transaction between Comcast and BTH. In connection with the early exercise of the option, Comcast will pay to International and certain of its affiliates $200,000,000 for the Control Shares held by them. In addition, the Company has agreed to make certain payments to International and its affiliates in connection with the termination, effective as of the closing of the option exercise, of certain related party agreements between the Company, International and its affiliates, including the termination of Mr. Jones' employment agreement with the Company and the termination of certain programming rights held by International pursuant to the Shareholders Agreement between the Company, International, Mr. Jones and BTH entered into in 1994. Also, in connection with the closing of the option exercise, and conditioned upon such closing occurring, the pending litigation between BTH, International, Mr. Jones and the Company will be dismissed and International and certain of its affiliates will dismiss the appeal which is pending of the order entered against them in such litigation. 2 To facilitate an orderly change in control to Comcast, the Company has initiated a retention and severance program for those corporate associates who may be terminated due to the change in control. The program provides incentives to corporate associates to remain with the Company until the change in control and through the subsequent 90-day transition period. The program provides for cash severance payments to associates that are terminated due to the change in control. Total costs associated with this program are approximately $30,000,000. The Company anticipates incurring $40,600,000 in restructuring costs, which will be recognized upon closing. Such costs include the cost of terminating Mr. Jones' employment agreement, severance payments to corporate personnel, salaries during the 90-day transition period following the change in control and certain professional fees. The closing of the exercise of the option for the Control Shares is expected to occur in March 1999. All necessary regulatory filings associated with this transaction have been made. Following such closing, Comcast would own approximately 12.8 million shares of Class A Common Stock, and approximately 2.9 million shares of Common Stock of the Company, representing approximately 37% of the economic and 47% of the voting interest in the Company. In addition, the Common Stock held by Comcast will allow it to elect 75% of the Board of Directors of the Company, and Comcast is expected to replace a majority of the current Board of Directors with nominees of its choice effective as of the closing of the option exercise. It is also expected that current management of the Company, including all of the senior executive officers of the Company, will be replaced by the new Board of Directors by the end of the 90-day transition period following the change in control. THE CABLE TELEVISION INDUSTRY - ----------------------------- The cable television industry, which started as a technical solution to the problem of delivering television signals to remote areas of rural America, has now become an entertainment staple in a majority of American homes. It is a dynamic, evolving and ever more complex industry. Cable penetration, or the percentage of U.S. television households that subscribe to cable television, now stands at approximately 67%. A cable television system is a facility that receives satellite, broadcast and FM radio signals by means of high antennas, a microwave relay service or earth stations. It then amplifies the signals and distributes them by coaxial and/or fiber-optic cable to the premises of its subscribers, who pay a fee for the service. A cable television system may also originate its own programming for distribution through its cable plant. The physical plant of a cable television system consists of four principal operating components. The first, known as the "headend" facility, receives television and radio signals with microwave relay systems, special antennas and satellite earth stations. The second component, the distribution network, originating at the headend and extending throughout the system, consists of coaxial and/or fiber-optic cables placed on poles or buried underground, and associated electronic equipment. The third component of the system is a "drop cable" that extends from the distribution network into the subscriber's home and connects to the subscriber's television set. The fourth component, a converter, is the home terminal device often necessary to expand channel capacity and to deliver pay-per-view and other premium services. 3 The cable television industry is undergoing significant change. The cable television business is evolving from a traditional coaxial network delivering only video entertainment to a more sophisticated, digital platform environment where cable systems may deliver traditional programming as well as other services, including data, telephone and expanded educational and entertainment services on an interactive basis. See Item 1, The Company's Cable Television Business. System Operations. The operation of cable television systems is generally ----------------- conducted pursuant to the terms of a franchise or similar license granted by the local governing body for the area to be served or by a state agency. Franchises generally are granted on a non-exclusive basis for a period of 5 to 15 years. Joint use or pole rental agreements are normally entered into with electric and/or telephone utilities serving a cable television system's area and annual rentals generally range from $5 to $15 for each pole used. These rates may increase in the future. See Item 1, Cable Television Franchises; Item 1, Competition; and Item 1, Regulation and Legislation. PROGRAMMING. Cable television systems generally offer various types of ----------- programming, which include basic service, tier service, premium services, pay- per-view programs and packages including several of these services at combined rates. Basic cable television service usually consists of signals of all national television networks broadcast by their local affiliates, various independent and educational television stations (both VHF and UHF) and certain signals received from satellites, and 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 Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act") contains signal carriage requirements. Rules promulgated under the 1992 Cable Act allow each commercial television broadcast station to elect every three years whether to require the cable systems in its area to carry its signal or to require the cable systems to negotiate with the station for "retransmission consent" to carry the station. If a local commercial broadcast television station requires a cable system to negotiate with the station for retransmission consent, and the cable system is unable to obtain retransmission consent, the cable system is not permitted to continue carriage of such station. See Item 1, Regulation and Legislation. To date, no broadcast stations that elected retransmission consent in areas served by any of the Company's cable television systems have withheld consent to the retransmission of their signals by a Company-owned cable television system. In most systems, tier services are also offered on an optional basis to subscribers. These channels generally include most of the cable networks such as Entertainment and Sports Programming Network (ESPN), Cable News Network (CNN), Turner Network Television (TNT), The Family Channel, The Discovery Channel and others. Systems also offer a package that includes the basic service channels and the tier services. Cable television systems offer premium services to their subscribers, which consist of feature films, sporting events and other special features that are presented without commercial interruption. The cable television operator buys premium programming from suppliers such as HBO, Showtime, Cinemax, Encore and others at a cost based on the number of subscribers served by the cable 4 operator. The per service cost of premium service programming usually is significantly more expensive for the system operator than the basic service or tier service programming, and consequently the system operator prices premium service separately when sold to subscribers. Cable television 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 recently released motion pictures and major sporting events, and to pay for such service on a program-by-program basis. System Revenues. Monthly service fees for basic, tier and premium services --------------- constitute the major source of revenue for cable television systems. A subscriber to a cable television system generally pays an initial connection charge and a fixed monthly fee for the cable programming services received. The amount of the monthly service fee varies from one area to another, and historically has been a function, in part, of the number of channels and services included in the service package and the cost of such services to the cable television system operator. In most instances, a separate monthly fee for each premium service and certain other specific programming is charged to subscribers, with discounts generally available to subscribers receiving multiple premium services. Cable television operators have been able to generate additional revenue through the sale of commercial spots and channel space to advertisers. As with other forms of advertising, the cable television operator receives a fee from the advertisers that is based on the programming service on which the advertisements appear, the volume of advertising and the time of the day at which it is broadcast. Advertising, as well as fees generated by home shopping and pay-per-view, represent additional sources of revenue for cable television systems. These services are not regulated under the 1992 Cable Act. The 1992 Cable Act mandated a greater degree of regulation of the cable television industry, including rate regulation. Under the 1992 Cable Act's definition of "effective competition," nearly all cable systems in the United States, including almost all of those owned and managed by the Company, are subject to rate regulation with respect to basic cable services. In addition, the FCC is permitted to regulate rates for non-basic service tiers other than premium services in response to local complaints. Rate regulations adopted by the FCC provide for a benchmark and price cap system that is used to regulate basic and non-basic service rates, and cost-of-service showings are available to cable operators to allow them to justify rates above benchmark levels. The 1996 Telecommunications Act (the "1996 Telecom Act") eliminated rate regulation for small cable operators. The 1996 Telecom Act sunsets FCC rate regulation of cable programming service tiers for all cable television systems regardless of size on March 31, 1999. See Item 1, Regulation and Legislation. THE COMPANY'S CABLE TELEVISION BUSINESS - --------------------------------------- The Company is engaged primarily in the cable television business, operating cable systems for itself and for its managed partnerships. The Company owns and manages cable television systems that served approximately 1,200,000 basic subscribers as of December 31, 1998. As of December 31, 1998, on a pro forma basis for all pending acquisitions of cable television systems by the Company 5 and pending sales of cable television systems owned by managed partnerships, the Company served approximately 1,015,000 basic subscribers. The following table shows the cable television systems owned or managed by the Company as of December 31, 1998:
CABLE SYSTEMS OWNED ------------------- CABLE SYSTEMS OWNED BY THE COMPANY BY MANAGED PARTNERSHIPS - ---------------------------------- ----------------------- Albuquerque NM Oxnard CA Barrington IL (1) Alexandria VA Palmdale CA Buffalo MN (1) Augusta GA Panama City Beach FL Calvert County MD (2) Celebration FL Pima County AZ Littlerock CA (3) Chesapeake Bay Group MD Prince Georges County MD Myrtle Creek OR (1) Hinesville GA Prince William County VA Naperville IL (1) Independence MO Savannah GA So. Suburban IL (1) Manitowoc WI Wheaton IL (1)
(1) Systems scheduled to be sold to unaffiliated cable operators in February or March 1999 (2) Sale of system to the Company pending as of February 1999 (3) System sold to the Company in January 1999 As part of the Company's announced plans to simplify its corporate structure, 19 of the 27 cable television systems owned by the Company's managed partnerships were sold during 1998. During the first quarter of 1999, an additional 7 cable television systems owned by the Company's managed partnerships have been or will be sold. The sale of the Calvert County, Maryland system, the only remaining cable television system expected to be owned by a managed partnership beyond the first quarter of 1999, is pending, and the Company anticipates that it will be sold to the Company in April 1999. With respect to certain of the remaining managed partnerships, the only remaining asset of each partnership is a cash amount deposited into an indemnity escrow as security to the buyer regarding certain representations and warranties made under the asset purchase agreements by the partnerships regarding the cable television systems. Provided that there are no pending disputes, these partnerships will be liquidated and dissolved following the expiration of the indemnity escrow periods. With respect to 4 managed partnerships, the partnerships will not be dissolved and liquidated until the resolution and termination of litigation involving the partnerships. Over the last several years, the Company has taken significant steps to simplify its corporate structure. This process has included the above- referenced sales of cable television systems owned by certain managed partnerships either to the Company or to unaffiliated entities and the divestiture of certain of the Company's non-strategic assets. As a result of this strategy, on a pro forma basis for the cable system acquisitions by the Company and cable system sales by the managed partnerships pending as of February 1999, 100% of total subscribers served by the Company would have been owned by the Company as of December 31, 1998, compared to 23% in June 1995. See Item 1, Proposed Acquisitions of Cable Television Systems in 1999. 6 During this process of simplifying its corporate structure, the Company has clustered its owned subscribers in two primary groups of cable systems. The Company's Virginia/Maryland cluster is based primarily on geography. The Company's suburban cluster is based on similar market and operating characteristics, rather than geography. These clusters represent approximately 95% of Company-owned subscribers. The Company believes that its clustering strategy should allow it to obtain both economies of scale and operating efficiencies. The Virginia/Maryland cluster is comprised of cable systems serving approximately 414,600 basic subscribers in communities in Maryland and Virginia surrounding Washington, D.C. On a pro forma basis for the Company's pending acquisition of the Calvert County, Maryland system, the Company's Virginia/Maryland cluster is comprised of cable systems serving approximately 433,400 basic subscribers. The Company's suburban cluster includes the Savannah, Hinesville and Augusta, Georgia systems, the Pima County, Arizona system, the Independence, Missouri system, the Albuquerque, New Mexico system, and the Palmdale and Littlerock, California systems serving approximately 522,300 basic subscribers. See Item 1, Acquisitions of Cable Television Systems in 1998 and 1999 and Item 1, Proposed Acquisitions of Cable Television Systems in 1999. With respect to the systems owned by the Company and its subsidiaries, the Company earns revenues through monthly service rates and related charges to cable television subscribers. The Company's subscribers have the option to choose a limited basic service consisting generally of broadcast stations and a few cable networks ("basic" service) or a package of services consisting of basic service and tier services ("basic plus" service). The basic plus service generally consists of most of the cable networks, including ESPN, USA Network, CNN, Discovery, Lifetime and others. See Item 1, The Cable Television Industry, Programming. Monthly service rates include fees for basic service, basic plus service and premium services. At December 31, 1998, monthly basic service rates ranged from $6.95 to $16.54 for residential subscribers, monthly basic plus service rates ranged from $20.05 to $32.24 for residential subscribers, and monthly premium services ranged from $5.99 to $11.95 per premium service. In addition, the Company earns revenues from pay-per-view programs and advertising fees. Pay-per-view programs, which usually are either unique sporting events or recently released movies, are available on many of the Company's cable television systems. Subscribers are permitted to choose individual movies for a set fee ranging from $3.95 to $10.95 per movie and individual special events for a set fee ranging from $3.95 to $129.95 per event. Related charges may include a nonrecurring installation fee that ranges from $4.95 to $49.95; however, from time to time the Company has followed the common industry practice of reducing 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, subscribers are free to discontinue the service at any time without penalty, and most terminations occur because a subscriber moves to another home or to another city. For the year ended December 31, 1998, of the total subscriber fees received by Company-owned systems, basic and basic plus service fees accounted for approximately 69% of total revenues, premium service fees accounted for approximately 17% of total revenues, pay-per-view fees were approximately 2% of total revenues, advertising fees were approximately 7% of total revenues 7 and the remaining 5% of total revenues came primarily from equipment rentals, installation fees, telephony services and program guide charges. The Company is dependent upon timely receipt of service fees to provide for maintenance and replacement of plant and equipment, current operating expenses and other costs. As the general partner of its managed partnerships, the Company historically has earned management fees that are equal to 5% of the gross revenues of the partnerships, not including revenues from the sale of cable television systems or franchises. The Company also received reimbursement from its managed partnerships for certain allocated overhead and administrative expenses incurred by the Company in its management activities. These management fees and reimbursements have been significantly reduced and will be eliminated after the first quarter of 1999 as the Company completes the planned liquidation of its managed partnerships. The Company's business consists of providing cable television services to a large number of customers, the loss of any one or more of which would have no material effect on the Company's business. Each of the cable television systems owned or operated by the Company has had some subscribers who later terminated the service. Terminations occur primarily because people move to another home or to another city. In other cases, people terminate on a seasonal basis or because they no longer can afford or are dissatisfied with the service. The amount of past due accounts in systems owned or operated by the Company is not significant. The Company's policy with regard to these accounts is basically one of disconnecting service before a past due account becomes material. The Company does not depend to any material extent on the availability of raw materials, it carries no significant amounts of inventory and it has no material backlog of customer orders. The Company has engaged in research and development activities relating to the provision of new services. 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 Company. THE COMPANY'S OTHER BUSINESSES AND INVESTMENTS - ---------------------------------------------- The Intercable Group, Ltd., f/k/a The Jones Group, Ltd., a wholly owned subsidiary of the Company, is a cable television brokerage firm that has earned fees from certain of the Company's managed partnerships when such partnerships have sold cable systems. It is anticipated that this subsidiary will not generate revenues after the partnerships' cable systems are sold. Jones Futurex, Inc., also a wholly owned subsidiary of the Company, manufactures and markets data encryption products. The Company owns an approximate 32% equity interest in Knowledge TV, Inc, which provides educational programming. ACQUISITIONS OF CABLE TELEVISION SYSTEMS IN 1998 AND 1999 - --------------------------------------------------------- Albuquerque System. In June 1998, the Company purchased from Cable TV Fund ------------------ 12-BCD Venture (the "Venture"), a venture comprised of three managed partnerships, the cable television system serving areas in and around Albuquerque, New Mexico (the "Albuquerque System") for 8 $222,963,267, subject to customary closing adjustments. The purchase price represented the average of three independent appraisals of the fair market value of the Albuquerque System. Upon closing, the Company received, from the three partnerships that comprise the Venture, general partner distributions totaling approximately $8,100,000. Hinesville System. In December 1998, the Company purchased the cable ----------------- television system serving communities in and around Hinesville, Georgia (the "Hinesville System") from an unaffiliated party for a purchase price of $48,000,000, subject to customary closing adjustments. The Hinesville System is contiguous to the Company's Savanna, Georgia cable television system. The Company paid Jones Financial Group, Ltd. ("Financial Group"), a subsidiary of International, a fee of $756,000 for acting as the Company's financial advisor in connection with this transaction. Palmdale System. In December 1998, the Company purchased from the Venture --------------- the cable system serving areas in and around Palmdale and Lancaster, California (the "Palmdale System") for a purchase price of $138,205,200, subject to customary closing adjustments. The purchase price represented the average of three separate independent appraisals of the fair market value of the Palmdale System. Upon closing, the Company received, from the three partnerships that comprise the Venture, general partner distributions totaling approximately $22,275,000. See Item 3, Legal Proceedings for a description of a lawsuit brought by a limited partner of two of the partnerships that are partners in the Venture challenging the terms of the sale of the Palmdale System to the Company. Grants System and Socorro System. In December 1998, the Company purchased -------------------------------- from Spacelink Fund 3, Ltd., a managed partnership, the cable television systems serving areas in and around Socorro, New Mexico (the "Socorro System") and Grants, New Mexico (the "Grants System"), for purchase prices of $3,638,791 and $6,420,806, respectively. The purchase prices represented the average of three independent appraisals of the fair market values of the Socorro System and the Grants System, respectively. Littlerock System. In January 1999, the Company purchased from Cable TV ----------------- Fund 14-B, Ltd., a managed partnership, the cable television system serving areas in and around Littlerock, California for a purchase price of $10,720,400, subject to customary closing adjustments. The Littlerock System is contiguous to the Palmdale System. The purchase price represented the average of three separate independent appraisals of the fair market value of the Littlerock System. See Item 3, Legal Proceedings for a description of a lawsuit brought by a limited partner of Cable TV Fund 14-B, Ltd. challenging the terms of the sale of the Littlerock System to the Company. PROPOSED ACQUISITIONS OF CABLE TELEVISION SYSTEMS IN 1999 - --------------------------------------------------------- Calvert County System. In June 1998, the Company entered into an agreement --------------------- with Cable TV Fund 14-A, Ltd., a managed partnership, to purchase the cable television system serving areas in and around Calvert County, Maryland (the "Calvert County System") for a purchase price of $39,388,667, subject to customary closing adjustments. The purchase price represents the average of three independent appraisals of the fair market value of the Calvert County System. The Calvert County System is contiguous to the Company's Virginia/Maryland cluster of cable television systems. The closing of this transaction, which is expected to occur in April 1999, is subject to a number of 9 conditions including the approval of the transaction by the holders of a majority of the limited partnership interests of Fund 14-A, the expiration or termination of all waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 applicable to the agreement or the transactions contemplated thereby, and the receipt of consents of governmental authorities and other third parties. SALE OF CONTRACT MANUFACTURING BUSINESS - --------------------------------------- In May 1998, the Company sold the contract manufacturing business owned by Jones Futurex, Inc. ("Futurex") to a third party for $350,000 in cash. In addition, the buyer entered into a sublease arrangement for certain facilities leased by Futurex. Payments under the sublease agreement total approximately $1.8 million over the next four years. The Company continues to own and operate Futurex's encryption business. SALE OF INTEREST IN JONES CUSTOMER SERVICE MANAGEMENT, LLC - ---------------------------------------------------------- In August 1998, the Company sold its 75% interest in Jones Customer Service Management, LLC to Jones Cyber Solutions, Ltd., an affiliated company, for $3,150,000. The purchase price was paid $2,000,000 in cash and $1,150,000 in a note receivable. The note receivable bears interest at prime + 2%, and is payable in 36 months or upon a change in control of the Company. DISTRIBUTION AGREEMENT WITH @HOME CORPORATION - --------------------------------------------- In June 1998, the Company entered into a Distribution Agreement with At Home Corporation ("@Home"), which provides for the distribution of high speed internet services to the Company's cable television systems. Deployment began in December 1998. In conjunction with this agreement, the Company and @Home entered into a Warrant Purchase Agreement providing for the Company's purchase of up to a maximum of 2,046,100 shares of Series A Common Stock of @Home for $10.50 per share. The Warrant becomes exercisable after March 31, 1999 as the Company launches @Home services in its cable television systems in the future. SALE OF 7 5/8% SENIOR NOTES - --------------------------- In April 1998, the Company issued and sold $200,000,000 of its 7 5/8% Senior Notes due April 15, 2008. Proceeds from the sale of the Senior Notes were used to repay a portion of the amounts outstanding under the revolving credit facilities of the Company's subsidiaries. THE COMPANY'S CREDIT FACILITIES - ------------------------------- The Company's credit facilities consist of two revolving credit facilities, one for JCH and one for JCH II. Each revolving credit facility has maximum available borrowings of $600,000,000. The $600,000,000 JCH revolving credit facility is a reducing revolving credit facility. The entire $600,000,000 commitment is available through March 31, 1999, at which time the commitment will be reduced quarterly with a final maturity date of December 31, 2004. The balance outstanding 10 on JCH's revolving credit facility at December 31, 1998 was $340,000,000. The maximum amount available will be reduced to $555,000,000 at December 31, 1999. The $600,000,000 JCH II revolving credit facility consists of a $300,000,000 reducing revolving credit facility and a $300,000,000 term loan. The reducing revolving credit facility allows for borrowings through the final maturity date of December 31, 2005. The maximum amount available reduces quarterly beginning March 31, 2000 through the final maturity date of December 31, 2005. The term loan is payable in semi-annual installments commencing June 30, 2001 with a final maturity date of December 31, 2005. The balance outstanding on the JCH II revolving credit facility at December 31, 1998 was $370,000,000. Of this amount, $300,000,000 was borrowed under the term loan portion of the facility and $70,000,000 was borrowed under the reducing revolving portion of the facility. CABLE TELEVISION FRANCHISES - --------------------------- The cable television systems owned or managed by the Company are constructed and operated under fixed-term franchises or other types of operating authorities (referred to collectively herein as "franchises") that are generally non-exclusive and are granted by state and/or local governmental authorities. These franchises typically contain many conditions, such as time limitations on commencement and completion of construction, conditions of service, including the number of channels, types of programming and the provision of free service to schools and certain other public institutions, and the maintenance of insurance and indemnity bonds. The provisions of local franchises are subject to federal regulation. The Company holds approximately 175 franchises. These franchises provide for the payment of fees to the issuing authorities and range from 3% to 5% of gross revenues. 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 Company has never had a franchise revoked. The Company's franchises initially had terms of approximately 10 to 15 years. The duration of the Company's outstanding franchises presently varies from a period of months to an indefinite period of time. The Company is currently negotiating the renewal of 16 franchises that are either operating under extensions or will expire prior to December 31, 1999, and also is negotiating the renewal of 22 franchises awarded by communities located in Prince Georges County, Maryland that are either operating under extensions or will expire prior to December 31, 1999. The Prince Georges County communities have joined together with the Prince Georges County Cable Commission for the renewal negotiations. The Company 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. The Company expects that the franchises operating under extensions or expiring prior to December 31, 1999 will be renewed in due course. 11 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. Overbuilds. 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 Company has experienced overbuilds in connection with certain systems that it has owned or managed for limited partnerships, and currently there are overbuilds in both owned and managed systems. Constructing and developing a cable television system is a capital intensive process, and it is often difficult for a new cable system operator to create a marketing edge over the existing system. Generally, an overbuilder would be required to obtain franchises from the local governmental authorities, although in some instances, the overbuilder could be the local government itself. In any case, an overbuilder would be required to obtain programming contracts from entertainment programmers and, in most cases, would have to build a complete cable system, including headends, trunk lines and drops to individual subscribers homes, throughout the franchise areas. The Company anticipates competition in the Augusta franchise area from an unaffiliated cable operator that has been awarded a franchise by Augusta and has commenced service in the franchise area. The Company's Panama City Beach system has lost basic subscribers and commercial units to an overbuilder. This overbuild continues to provide significant competition. A portion of the Company's Chesapeake Bay Group serving Anne Arundel County, Maryland is overbuilt by a competing cable television system. Federal cross-ownership restrictions historically limited entry by local telephone companies into the cable television business. The 1996 Telecom Act eliminated this cross-ownership restriction, making it possible for companies with considerable resources to overbuild existing cable operators and enter the business. Several telephone companies have begun seeking cable television franchises from local governmental authorities and constructing cable television systems. GTE, a local exchange carrier, which provides telephone service in a multi-state region, including California, has obtained a franchise from the City of Oxnard, California and is providing video programming in Oxnard in competition with the Company's Oxnard cable system. In addition, Ameritech, one of the 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 competition with partnership-owned cable systems in Elgin, Glen Ellyn and Naperville, Illinois. The Company cannot predict at this time the extent of telephone company competition that will emerge in areas served by the Company's cable television systems. The entry of telephone companies as direct competitors, however, is likely to continue over 12 the next several years and could adversely affect the profitability and market value of the Company's 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. Several utilities around the country have announced multichannel video ventures, and the local electric utility in the Washington, D.C. area is participating with RCN to provide video competition. 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 recently announced mergers should strengthen the surviving companies. Companies offering DBS service use video compression technology to increase channel capacity of their systems to 100 or more channels and to provide packages of movies, satellite network and other program services which are competitive to those of cable television systems. DBS faces technical and legal obstacles to offering its customers local broadcast programming. At least one DBS provider, however, is now attempting to do so, and the FCC and Congress are considering proposals that would enhance the ability of DBS companies to provide broadcast programming, including broadcast network programming. In addition to emerging high-powered DBS competition, cable television systems face competition from 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 Company 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 availability of equipment at reasonable prices, and the relative attractiveness of the programming options offered by the cable television industry and DBS competitors. 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 Company 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 Company 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. In late 1995, the Company launched a competitive telephone service in selected apartments and condominium units in its Alexandria, Virginia System, and began providing such service in the first half of 1997 in Maryland as well. The Company has been granted Competitive Local Exchange Carrier status in the states of Maryland and Virginia. The Company faces considerable competition in providing telephony service from incumbent local exchange carriers and a host of alternative carriers. MMDS. Cable television systems also compete with wireless program ---- distribution services such as multichannel, multipoint distribution service ("MMDS") systems, commonly called wireless 13 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 Company's system in Pima County, Arizona. To date, the Company has not lost a significant number of subscribers, nor a significant amount of revenue, to MMDS operators competing with the Company's cable television systems. Cable television systems are also in competition, in various degrees with other communications and entertainment media, including motion pictures, home video cassette recorders, internet data delivery and internet video delivery. REGULATION AND LEGISLATION - -------------------------- The operation of cable television systems is extensively regulated by the FCC, some state governments and most local governments. The Telecommunications Act of 1996 ("1996 Telecom Act") alters the regulatory structure governing the nation's telecommunications providers. It removes barriers to competition in both the cable television market and the local telephone market. Among other things, it also reduces the scope of cable rate regulation. The 1996 Telecom Act requires the FCC to undertake a host of implementing rulemakings, the final outcome of which cannot yet be determined. Moreover, Congress and the FCC have frequently revisited the subject of cable regulation. Future legislative and regulatory changes could adversely affect the Company's operations, and there has been a recent increase in calls to maintain or even tighten cable regulation in the absence of widespread effective competition. This section briefly summarizes key laws and regulations affecting the operation of the Company's cable systems and does not purport to describe all present, proposed, or possible laws and regulations affecting the Company. 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. The FCC has officially recognized that the Anne Arundel System and the Panama City Beach System face "effective competition," and a similar petition is now pending at the FCC concerning portions of the Pima County, Arizona system. 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 14 cable equipment rates. Under federal law, charges for various types of cable equipment must be unbundled from each other and from monthly charges for programming services. The 1996 Telecom Act allows operators to aggregate costs for broad categories of equipment across geographic and functional lines. This change should facilitate the introduction of new technology. The FCC itself directly administers rate regulation of any cable programming service tiers ("CPST"), which typically contain satellite-delivered programming. Under the 1996 Telecom Act, the FCC can regulate CPST rates only if an LFA first receives at least two rate complaints from local subscribers and then files a formal complaint with the FCC. When new CPST rate complaints are filed, the FCC now considers only whether the incremental increase is justified and will not reduce the previously established CPST rate. Under the FCC's rate regulations, most cable systems were required to reduce their BST and CPST rates in 1993 and 1994, and have since had their rate increases governed by a complicated price cap scheme that allows for the recovery of inflation and certain increased costs, as well as providing some incentive for expanding channel carriage. The FCC has modified its rate adjustment regulations to allow for annual rate increases and to minimize previous problems associated with regulatory lag. Operators also have the opportunity of bypassing this "benchmark" regulatory scheme in favor of traditional "cost-of-service" regulation in cases where the latter methodology appears favorable. Premium cable services offered on a per-channel or per- program basis remain unregulated, as do affirmatively marketed packages consisting entirely of new programming product. Federal law requires that the BST be offered to all cable subscribers, but limits the ability of operators to require purchase of any CPST before purchasing premium services offered on a per-channel or per-program basis. The 1996 Telecom Act sunsets FCC regulation of CPST rates for all systems (regardless of size) on March 31, 1999. Certain critics of the cable television industry, however, have called for a delay in the regulatory sunset and some have even urged more rigorous rate regulation, including limits on operators passing through to their customers increased programming costs and bundling together multiple programming services. The 1996 Telecom Act also relaxes existing uniform rate requirements by specifying that uniform rate requirements do not apply where the operator faces "effective competition," and by exempting bulk discounts to multiple dwelling units, although complaints about predatory pricing still may be made to the FCC. Cable Entry Into Telecommunications. The 1996 Telecom Act provides that ----------------------------------- no state or local laws or regulations may prohibit or have the effect of prohibiting any entity from providing any interstate or intrastate telecommunications service. States are authorized, however, to impose "competitively neutral" requirements regarding universal service, public safety and welfare, service quality, and consumer protection. State and local governments also retain their authority to manage the public rights-of-way and may require reasonable, competitively neutral compensation for management of the public rights-of-way when cable operators provide telecommunications service. The favorable pole attachment rates afforded cable operators under federal law can be gradually increased by utility companies owning the poles (beginning in 2001) if the operator provides telecommunications service, as well as cable service, over its plant. 15 Cable entry into telecommunications will be affected by the regulatory landscape now being fashioned by the FCC and state regulators. One critical component of the 1996 Telecom Act to facilitate the entry of new telecommunications providers (including cable operators) is the interconnection obligation imposed on all telecommunications carriers. In July 1997, the Eighth Circuit Court of Appeals vacated certain aspects of the FCC's initial interconnection order, but that decision was reversed by the U.S. Supreme Court in January 1999. The Company has already secured authorization to provide local exchange service in Maryland and portions of Virginia and has begun offering some telecommunications services to customers in both jurisdictions. 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 Company 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. RCN and affiliates of local power companies recently have been certified to provide OVS service in areas encompassing the Company's cable systems in suburban Maryland and Virginia. This potential OVS competition is not yet operational. The Fifth Circuit Court of Appeals recently reversed certain of the FCC's OVS rules, including the FCC's preemption of local franchising. Although LECs and cable operators can now expand their offerings across traditional service boundaries, the general prohibition 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 16 cable systems. The 1996 Telecom Act also eliminates the three year holding period required under the 1992 Cable Act's "anti-trafficking" provision. The 1996 Telecom Act leaves in place existing restrictions on cable cross-ownership with SMATV and MMDS facilities, but lifts those restrictions where the cable operator is subject to effective competition. In January 1995, however, the FCC adopted regulations which permit cable operators to own and operate SMATV systems within their franchise area, provided that such operation is consistent with local cable franchise requirements. Pursuant to the 1992 Cable Act, the FCC adopted rules precluding a cable system from devoting more than 40% of its activated channel capacity to the carriage of affiliated national program services. A companion rule establishing a nationwide ownership cap on any cable operator equal to 30% of all domestic cable subscribers has been stayed pending further judicial review, although the FCC recently expressed an interest in reviewing and reimposing this limit. There are no federal restrictions on non-U.S. entities having an ownership interest in cable television systems or the FCC licenses commonly employed by such systems. Section 310(b)(4) of the Communications Act does, however, prohibit foreign ownership of FCC broadcast and telephone licenses, unless the FCC concludes that such foreign ownership is consistent with the public interest. 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 Company's business. Additionally, cable systems are required to obtain retransmission consent for all "distant" commercial television stations (except for satellite-delivered independent "superstations" such as WGN). The burden associated with "must carry" may increase substantially if broadcasters proceed with planned conversion to digital transmission and the FCC determines that cable systems must carry all analog and digital broadcasts in their entirety. A rulemaking is now pending at the FCC regarding the imposition of dual digital and analog must carry. 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 mandating a modest rate reduction. The reduction sparked some increase in part-time use, but did not make commercial leased access substantially more attractive to third party programmers. The D.C. Court of Appeals recently rejected a challenge to the revised rules by dissatisfied leased access 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 17 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. There recently has been increased interest in further restricting the marketing practices of cable programmers, including subjecting programmers who are not affiliated with cable operators to all of the existing program access requirements In addition, some cable critics have argued that vertically integrated, non-satellite programming (such as certain regional sports networks) which is now exempt from the ban on exclusive programming, should be subjected to this prohibition. Inside Wiring. The FCC determined that an incumbent cable operator can be ------------- required by the owner of a multiple dwelling unit ("MDU") complex to remove, abandon or sell the "home run" wiring it initially provided. In addition, the FCC is reviewing the enforceability of contracts to provide exclusive video service within a MDU complex. The FCC has proposed abrogating all such contracts held by incumbent cable operators, but allowing such contracts when held by new entrants. These changes, and others now being considered by the FCC, would, if implemented, make it easier for an MDU complex owner to terminate service from an incumbent cable operator in favor of a new entrant and leave the already competitive MDU sector even more challenging for incumbent operators. In a separate proceeding, the FCC has preempted restrictions on the deployment of private antennas on rental property within the exclusive use a tenant (such as balconies and patios). 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. New federal requirements governing Emergency Alert Systems and Closed Captioning adopted in 1997 will impose additional costs on the operation of cable systems. The FCC recently stated that cable customers must be allowed to purchase cable converters from third party vendors, and established a multi-year phase-in during which security functions (which would remain in the operator's exclusive control) would be unbundled from basic converter functions (which could then be satisfied by third party vendors). Details regarding this phase-in are still under FCC review. The FCC has the authority to enforce its regulations through the imposition of substantial fines, the issuance of cease and desist orders and/or the imposition of other administrative sanctions, such as the revocation of FCC licenses needed to operate certain transmission facilities used in connection with cable operations. Internet Access. Many cable operators have begun offering high speed --------------- internet service to their customers. At this time, there is no significant federal or local regulation of this service. However, as internet services develop, it is possible that new regulations could be imposed. The FCC recently declined requests to impose common-carrier type regulation on cable operators that would have 18 required an "unbundling" of broadband facilities. The FCC indicated, nevertheless, that it would continue to monitor broadband deployment. 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 Company's ability to obtain desired broadcast programming. In addition, the cable industry pays music licensing fees to BMI and is negotiating a similar arrangement with ASCAP. Copyright clearances for nonbroadcast programming services are arranged through private negotiations. State and Local Regulation. Cable television systems generally are -------------------------- operated pursuant to nonexclusive franchises granted by a municipality or other state or local government entity in order to cross public rights-of-way. Federal law now prohibits franchise authorities from granting exclusive franchises or from unreasonably refusing to award additional franchises. Cable franchises generally are granted for fixed terms and in many cases include monetary penalties for non-compliance and may be terminable if the franchisee fails to comply with material provisions. The terms and conditions of franchises vary materially from jurisdiction to jurisdiction. Each franchise generally contains provisions governing cable operations, service rates, franchise fees, system construction and maintenance obligations, system channel capacity, design and technical performance, customer service standards, and indemnification protections. 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. 19 RISK FACTORS - ------------ Shares of the Company's Class A Common Stock and Common Stock are available for purchase in the market. The purchase of shares of the Company's Class A Common Stock and Common Stock involves certain risks. Prospective purchasers of the Company's securities should consider carefully the risks related to: (i) the Company's history of net losses, (ii) its substantial leverage, (iii) the probability that most of the Company's remaining managed partnerships will not make distributions to their limited partners in amounts sufficient to provide the returns on investment originally anticipated by the limited partners and, in some cases, will not provide the limited partners with a return of all of their initial capital contributions, (iv) the fact that the Company engages in certain transactions with its affiliates, (v) the significant governmental regulation of the cable television industry, (vi) current and threatened competition from various sources, (viii) the planned change in control of the Company from its founder, Glenn R. Jones, to Comcast in March 1999 and (ix) other information about the Company set forth in this Form 10-K Report. ITEM 2. PROPERTIES ------------------- The Company leases a portion of its executive offices from Jones Properties, Inc., a subsidiary of International. The offices consist of a 101,500 square foot office building located at 9697 East Mineral Avenue, Englewood, Colorado. The lease has a 15-year term expiring in July 2000 with three 5-year renewal options at market rates existing at the beginning of the option period. The annual rent is currently $24.00 per square foot, plus operating expenses, and will not, by the terms of the lease, exceed such amount during the remainder of the term. The Company subleases approximately 44% of the building to International and certain other affiliates on the same terms and conditions as the primary lease. The Company, through Jones Panorama Properties, Inc., a wholly owned subsidiary of the Company, owns a 60,000 square foot office building (the "Panorama Falls Building") located at 9085 E. Mineral Avenue, Englewood, Colorado. The Company leases a portion of the Panorama Falls Building from its subsidiary for a lease price of $12.00 per square foot. The Panorama Falls Building houses additional executive offices of the Company. The Company has subleased approximately 45% of the Panorama Falls Building to International and others on the same terms and conditions as the primary lease. Given the pending change of control of the Company from Mr. Jones to Comcast, it is anticipated that the above-described lease arrangements will be renegotiated and/or terminated during 1999. CABLE TELEVISION SYSTEMS OWNED BY THE COMPANY - --------------------------------------------- A majority of the Company's cable television systems are owned by the Company's wholly owed subsidiaries JCH and JCH II. JCH owns and operates cable television systems located in Maryland and Virginia (the "Virginia/Maryland Systems"). The Virginia/Maryland Systems are comprised of the Chesapeake Bay Group of cable systems that serve customers in communities in and 20 around Anne Arundel County and Charles County, Maryland, including the City of Annapolis; the Prince Georges County, Maryland system that services all of Prince Georges County, Maryland; the Alexandria, Virginia system; and the Prince William County system that serves the communities of Dale City, Manassas and Reston, Virginia. JCH II owns and operates the Company's suburban cable systems serving areas in and around Augusta, Hinesville and Savannah, Georgia, Pima County, Arizona, Independence, Missouri, Albuquerque, Grants and Socorro, New Mexico, Palmdale and Littlerock, California. The Company directly owns and operates the cable television systems serving Manitowoc, Wisconsin, Oxnard, California and Panama City Beach and Celebration, Florida. The following table sets forth (i) the monthly basic plus service rates charged to subscribers and (ii) the number of basic subscribers and pay units for the cable television systems owned by the Company. The monthly basic plus service rates set forth herein represent, with respect to systems with multiple headends, the basic plus 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, 1998, cable television systems owned by the Company passed approximately 1,596,000 homes, representing an approximate 62% penetration rate. The figures in the following table are compiled from the Company's records and may be subject to adjustments. SYSTEMS OWNED BY JONES CABLE HOLDINGS, INC. - -------------------------------------------
CHESAPEAKE BAY GROUP, MARYLAND * At 12/31 - ------------------------------ ---------------------------------------- 1998 1997 1996 ---- ---- ---- Monthly basic plus service rate $ 27.27 $ 24.96 $ 24.15 Basic subscribers 104,506 102,209 74,252 Pay units 108,695 108,335 80,339
* The Chesapeake Bay Group includes the Anne Arundel County system, the Charles County system and the Annapolis system. The Annapolis system was acquired in April 1997.
PRINCE GEORGES COUNTY, MARYLAND * At 12/31 - ------------------------------- ---------------------------------------- 1998 1997 1996 ---- ---- ---- Monthly basic plus service rate $ 31.57 $ 29.13 $ 25.89 Basic subscribers 168,388 165,846 73,852 Pay units 235,718 216,708 134,975
* The Prince Georges County, Maryland system includes the South Prince Georges County system (acquired in February 1996) and the North Prince Georges County system (acquired in January 1997). 21
ALEXANDRIA, VIRGINIA At 12/31 - -------------------- --------------------------------------- 1998 1997 1996 ---- ---- ---- Monthly basic plus service rate $ 30.88 $ 27.93 $ 24.98 Basic subscribers 43,097 41,137 40,525 Pay units 34,299 31,926 33,387
PRINCE WILLIAM COUNTY, VIRGINIA * At 12/31 - ------------------------------- --------------------------------------- 1998 1997 1996 ---- ---- ---- Monthly basic plus service rate $ 30.97 $ 28.17 $ 25.57 Basic subscribers 98,651 95,725 92,951 Pay units 101,730 97,042 91,007
* The Prince William County, Virginia system includes the Dale City system (acquired in November 1995), the Manassas system (acquired in January 1996) and the Reston system (acquired in February 1996). SYSTEMS OWNED BY JONES CABLE HOLDINGS II, INC. - ----------------------------------------------
PIMA COUNTY, ARIZONA At 12/31 - -------------------- ------------------------------------- 1998 1997 1996 ---- ---- ---- Monthly basic plus service rate $ 27.25 $ 26.45 $ 25.80 Basic subscribers 64,641 62,364 59,434 Pay units 31,919 35,532* 38,898*
* The Pima County system had a successful promotion of pay channels in late 1996, resulting in a significant increase in pay units in 1996. The promotion was discontinued in 1997, and the system was unable to maintain the increase experienced in 1996.
PALMDALE, CALIFORNIA* At 12/31 - --------------------- -------- 1998 ---- Monthly basic plus service rate $ 19.00 Basic subscribers 65,465 Pay units 56,640
* The Palmdale System was acquired in December 1998. 22
AUGUSTA, GEORGIA At 12/31 - ---------------- ---------------------------------------- 1998 1997 1996 ---- ---- ---- Monthly basic plus service rate $ 29.63 $ 27.68 $ 25.73 Basic subscribers 91,557 89,170 85,816 Pay units 74,867 73,307 70,619
HINESVILLE, GEORGIA* At 12/31 - -------------------- -------- 1998 ---- Monthly basic plus service rate $ 28.31 Basic subscribers 22,964 Pay units 13,145
* The Hinesville System was acquired in December 1998.
SAVANNAH, GEORGIA* At 12/31 - ------------------ -------------------------------------- 1998 1997 1996 ---- ---- ---- Monthly basic plus service rate $ 26.29 $ 24.17 $ 23.94 Basic subscribers 66,999 66,184 62,780 Pay units 42,818 40,428 36,629
* The Savannah System was acquired in April 1996.
INDEPENDENCE, MISSOURI* At 12/31 - ----------------------- ------------------------- 1998 1997 ---- ---- Monthly basic plus service rate $ 26.92 $ 25.92 Basic subscribers 90,623 87,070 Pay units 70,420 63,481
* The Independence System was acquired in August 1997.
ALBUQUERQUE, NEW MEXICO* At 12/31 - ------------------------ -------- 1998 ---- Monthly basic plus service rate $ 28.98 Basic subscribers 113,751 Pay units 60,885
* The Albuquerque System was acquired in June 1998. 23
GRANTS, NEW MEXICO* At 12/31 - ------------------- -------- 1998 ---- Monthly basic plus service rate $28.02 Basic subscribers 3,921 Pay units 1,376
* The Grants System was acquired in December 1998.
SOCORRO, NEW MEXICO* At 12/31 - -------------------- -------- 1998 ---- Monthly basic plus service rate $22.95 Basic subscribers 2,342 Pay units 1,256
* The Socorro System was acquired in December 1998. SYSTEMS OWNED BY JONES INTERCABLE, INC. - -----------------------------------------
OXNARD, CALIFORNIA* At 12/31 - ------------------- ------------------------------------- 1998 1997 1996 ---- ---- ---- Monthly basic plus service rate $ 25.45 $ 23.40 $ 21.15 Basic subscribers* 32,449 35,985 40,134 Pay units* 18,135 24,234 28,701
* The reduction in the number of basic subscribers and pay units is due to an ongoing overbuild of the system.
CELEBRATION, FLORIDA* At 12/31 - --------------------- ------------------------------------ 1998 1997 1996 ---- ---- ---- Monthly basic plus service rate $22.44 $20.94 $20.94 Basic subscribers 709 428 186 Pay units 417 281 108
* The system is being constructed concurrently with the construction of the community. 24
PANAMA CITY BEACH, FLORIDA At 12/31 - -------------------------- ----------------------------------- 1998 1997 1996 ---- ---- ---- Monthly basic plus service rate $23.10 $23.10 $21.10 Basic subscribers* 7,119 7,072 7,248 Pay units* 6,853 7,076 7,251
* The reduction in the number of basic subscribers and pay units is due to an ongoing overbuild of the system.
MANITOWOC, WISCONSIN* At 12/31 - --------------------- -------- 1998 1997 ---- ---- Monthly basic plus service rate $ 24.40 $ 22.61 Basic subscribers 12,094 11,954 Pay units 6,680 7,151
* The Manitowoc system was acquired in June 1997. ITEM 3. LEGAL PROCEEDINGS -------------------------- Tampa Litigation - ---------------- The Company is a defendant in a now-consolidated civil action filed by limited partners of Cable TV Fund 12-D, Ltd., one of the Company's managed partnerships. The case, styled David Hirsch, Marty, Inc. Pension Plan (by its ---------------------------------------------- trustee and beneficiary, Martin Ury) and Jonathan 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., plaintiffs 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 (District Court, Arapahoe - ------------------------------------------------ County, State of Colorado, Case No. 95-CV-1800, Division 3), is a derivative action filed on behalf of 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"). The consolidated complaint generally alleges that the Company breached its fiduciary duty to the plaintiffs and to the other limited partners of Fund 12-B, Fund 12-C and Fund 12-D and the Cable TV Fund 12-BCD Venture (the "Venture") in connection with the Venture's sale of the Tampa, Florida cable television system (the "Tampa System") to a subsidiary of the Company and the subsequent trade of the Tampa System 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. 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 Company 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 25 partnership agreements of Fund 12-B, Fund 12-C 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 Company 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 Company intends to defend this lawsuit vigorously. In August 1997, the Company moved for summary judgment in its favor on the ground that plaintiffs did not make demand on the Company for the relief they seek before commencing their lawsuits or show that such a demand would have been futile. In January 1998, the Court (1) held that plaintiffs did not make demand before commencing their lawsuits or show that such demand would have been futile, (2) stayed the consolidated case and vacated the February 1998 trial date, (3) ordered that plaintiffs make a demand on the Company and that the Company appoint an independent counsel to review, consider and report on that demand, (4) ordered that the independent counsel be appointed at the March 1998 meeting of the Company's Board of Directors and (5) ordered that the independent counsel be subject to the approval of the court. The court set a new trial date for October 1998 in the event that the case was not resolved through the independent counsel process or otherwise. In March 1998, the Company's Board of Directors appointed an independent counsel. The plaintiffs did not object to the Company's choice, and the Court approved the Company's choice of independent counsel. During the period March through May 1998, the independent counsel met several times with the attorneys representing the plaintiffs and the Company, and he also reviewed a great quantity of written materials. The independent counsel issued his report on August 3, 1998, which concluded that the plaintiffs' claims are not meritorious and are not supported by a preponderance of the evidence. The independent counsel further determined that the Company "did not breach a fiduciary duty" owed to the plaintiffs or to the partnerships and the Venture and that the Company "did not commit any impropriety in connection with" the Venture's sale of the Tampa System. The independent counsel specifically found that the three appraisals of the Tampa System were independent and objective and met the requirements of the partnership agreements. He further noted that the Company had met its fiduciary duties of fairness and full disclosure to the partnerships and the Venture. On August 5, 1998, the Company moved to dismiss or for summary judgment in its favor based on the report of independent counsel, a motion the plaintiffs opposed. On September 11, 1998, the Court denied the Company's motion to dismiss or for summary judgment based on the report of independent counsel. The Court then set a new trial date for May 3, 1999. The Company subsequently submitted a motion for reconsideration of the Court's denial of the Company's motion to dismiss or for summary judgment based on the report of the independent counsel. The Court has denied such motion. The Company then filed an interlocutory appeal of the Court's rulings to the Colorado Supreme Court. On February 1, 1999, the Colorado Supreme Court issued an Order requiring the plaintiffs to show cause why the Company's request for dismissal or summary judgment should not be granted, and staying all proceedings in the trial court until the Company's appeal is resolved. 26 Palmdale Litigation - ------------------- In December 1998, City Partnership Co. ("Plaintiff"), a limited partner of Fund 12-C and Fund 12-D, filed a class action complaint in the District Court, Arapahoe County, State of Colorado (Case No. 98-CV-4493) naming the Company as defendant. Plaintiff, on its behalf and on behalf of all other persons who are limited partners of Fund 12-B, Fund 12-C and Fund 12-D, is challenging the terms of sale of the cable television system serving the communities in and around Palmdale and Lancaster, California (the "Palmdale System") to an affiliate of the Company. This case is in a very preliminary stage, but the Company believes that the terms of the sale were in accordance with the requirements of relevant limited partnership agreement provisions. The Company intends to defend this lawsuit vigorously. Littlerock Litigation - --------------------- In January 1999, City Partnership Co. ("Plaintiff"), a limited partner of Cable TV Fund 14-B, Ltd., filed a class action complaint in the District Court, Arapahoe County, State of Colorado (Case No. 99-CV-0150) naming the Company as defendant. Plaintiff, on its behalf and on behalf of all other persons who are limited partners of Cable TV Fund 14-B, Ltd., is challenging the terms of sale of the cable television system serving Littlerock, California (the "Littlerock System") to an affiliate of the Company. This case is in a very preliminary stage, but the Company believes that the terms of the sale were in accordance with the requirements of relevant limited partnership agreement provisions. The Company intends to defend this lawsuit vigorously. Shareholder Litigation - ---------------------- In February 1998, BTH, the Company's largest shareholder, filed a lawsuit in the United States District Court for the District of Colorado against the Company, Jones International, Ltd. ("International"), Jones Internet Channel, Inc. ("JICI") and Glenn R. Jones. BCI Telecom Holding, Inc., plaintiff v. Jones --------------------------------------------- Intercable, Inc., Jones International, Ltd., Jones Internet Channel, Inc. and - ----------------------------------------------------------------------------- Glenn R. Jones, defendants (U.S. District Court for the District of Colorado, - -------------------------- Civil Action No. 98-M-224). Mr. Jones is the Company's Chairman and Chief Executive Officer. International is owned by Mr. Jones, and it also is one of the Company's largest shareholders. JICI is a wholly owned subsidiary of International. BTH, the Company, International and Mr. Jones are parties to a Shareholders Agreement dated as of December 20, 1994 (the "Shareholders Agreement"). In its complaint, BTH alleged that the defendants violated the Shareholders Agreement and certain duties allegedly owed to BTH, and conspired with each other to do so. More specifically, BTH claimed that under the Shareholders Agreement, the offering of the service known as the "Internet Channel" to the Company's subscribers, and any affiliation agreement between the Company and JICI for the provision of the Internet Channel service, could not proceed without approval of a specific group of directors of the Company, including the three directors designated by BTH. BTH also maintained, in connection with the relationship and proposed affiliate agreement between the Company and JICI, that the defendants breached a provision of the Shareholders Agreement defining the "core business" of the Company. In addition to damages, BTH sought an injunction prohibiting the Company from making the Internet Channel available to additional subscribers and from entering 27 into an affiliate agreement with JICI for the Internet Channel, as well as other equitable relief. On May 5, 1998, the Court permanently enjoined the Company and the other defendants in this civil action from proceeding further with any expansion of the Internet Channel, or any similar internet service provider business, without the approval of the unrelated directors of the Company. All defendants except the Company appealed the decision to the U.S. Tenth Circuit Court of Appeals. In connection with the agreements entered into among the Company, International, BTH and Comcast relating to the acquisition and exercise by Comcast of BTH's option to acquire 2.9 million shares of the Company's Common Stock, the parties have agreed to dismiss the pending litigation between BTH, International, Mr. Jones and the Company, and International and certain of its affiliates have agreed to dismiss the appeal which is pending of the Order entered against them in such litigation. In March 1998, Leslie Susser, a minority shareholder of the Company, filed a shareholder derivative action in the United States District Court for the District of Colorado against Glenn R. Jones and seven other directors of the Company. Leslie Susser, plaintiff v. Glenn R. Jones, James J. Krejci, James B. -------------------------------------------------------------------- O'Brien, Howard O. Thrall, Raphael M. Solot, Robert E. Cole, Sanford Zisman and - ------------------------------------------------------------------------------- Donald L. Jacobs, defendants and Jones Intercable, Inc., nominal defendant (U.S. - -------------------------------------------------------------------------- District Court for the District of Colorado, Civil Action No. 98-M-616). In its complaint, the plaintiff alleges that the defendants have violated certain fiduciary and other duties allegedly owed to the Company and its shareholders in connection with the Company's offering of the Internet Channel service. The allegations raised in this complaint are similar to those raised by BTH in its complaint. The plaintiff seeks certain equitable relief and damages. In connection with this litigation, the Company has determined, based on the opinion of outside legal counsel, that all of the statutory requirements for the advancement of reasonable legal fees and expenses to the defendants have been met. Notice of such determination was previously given to all shareholders. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ------------------------------------------------------------ The annual meeting of the shareholders of the Company was held on October 20, 1998. Proxies for the meeting were solicited pursuant to Regulation 14A under the Exchange Act. As of the close of business on September 15, 1998, the record date for the determination of stockholders to vote at the meeting, the total number of shares of the Company's Common Stock issued and outstanding and entitled to vote at the meeting was 5,113,021, and the total number of shares of the Company's Class A Common Stock issued and outstanding and entitled to vote at the meeting was 35,985,642. Proposal 1. Election of Directors - ---------------------------------- There was no solicitation in opposition to the nominees for director listed in the proxy statement and all of such nominees were elected at the meeting. Each share of Common Stock and Class A Common Stock had one vote in the election of the directors to be elected by that class. Following is a tabulation of the vote with respect to each nominee to the office: 28 Class A Directors - ----------------- Nominee Votes For Votes Against - ------- --------- ------------- William E. Frenzel 29,647,350 379,963 Donald L. Jacobs 29,647,555 379,758 Robert Kearney 29,647,603 379,710 Robert B. Zoellick 29,647,455 379,858 Common Directors - ---------------- Nominee Votes For Votes Against - ------- --------- ------------- Glenn R. Jones 4,307,232 146,085 Josef J. Fridman 4,307,932 145,385 Robert E. Cole 4,307,632 145,685 James J. Krejci 4,307,632 145,685 James B. O'Brien 4,307,632 145,685 Raphael M. Solot 4,307,632 145,685 Howard O. Thrall 4,307,592 145,785 Siim A. Vanaselja 4,307,932 145,385 Sanford Zisman 4,307,632 145,685 Proposal 2. Ratification of the Selection of Auditors - ------------------------------------------------------ Holders of Common Stock and holders of Class A Common Stock voted as a single class; the holders of Common Stock had one vote for each share and the holders of Class A Common Stock had one-tenth of a vote for each share held. Following is a tabulation of the vote: Votes For Votes Against Abstentions - --------- ------------- ----------- 7,350,827 4,857 2,236 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED ---------------------------------------------------------- STOCKHOLDER MATTERS ------------------- The Company's Common Stock and Class A Common Stock are traded in the over-the-counter market and authorized for quotation on the National Market System operated by the National Association of Securities Dealers, Inc. (NASDAQ) under the following symbols: Common Stock - JOIN Class A Common Stock - JOINA The following table shows the high and low prices as quoted on the NASDAQ National Market 29 System for each quarterly period of the years ended December 31, 1997 and 1998 for each class of the Company's stock:
Common Stock Class A Common Stock ------------ -------------------- Year Ended 12/31/97 High Low High Low ---- --- ---- --- First Quarter 10 7/8 9 1/2 11 9 1/8 Second Quarter 13 7/8 9 1/4 13 3/8 8 1/4 Third Quarter 13 1/2 10 3/4 13 11/16 10 1/2 Fourth Quarter 17 1/2 12 1/8 18 1/8 12 3/8
Common Stock Class A Common Stock ------------ -------------------- Year Ended 12/31/98 High Low High Low ---- --- ---- --- First Quarter 17 3/4 13 7/8 18 1/4 14 3/8 Second Quarter 26 3/8 17 1/8 26 7/8 17 1/8 Third Quarter 31 1/8 22 31 1/4 21 1/8 Fourth Quarter 35 7/16 22 1/4 35 7/8 21 7/8
At December 31, 1998, the Common Stock and Class A Common Stock of the Company were held of record by 590 and 1,251 shareholders, respectively. The Company has never paid a cash dividend with respect to its shares of Common Stock or Class A Common Stock, and it has no present intention to pay cash dividends in the foreseeable future. The current policy of the Company's Board of Directors is to retain earnings to provide funds for the operation and expansion of its business. Future dividends, if any, will be determined by the Board of Directors in light of the circumstances then existing, including the Company's earnings and financial requirements and general business conditions. If cash dividends are paid in the future, the holders of the Class A Common Stock will be paid $.005 per share per quarter in addition to the amount payable per share of Common Stock. Such additional dividends on the Class A Common Stock are not cumulative but would be adjusted appropriately if cash dividends are declared with respect to a period other than a quarterly period. Certain of the Company's debt arrangements restrict the right of the Company to declare and pay cash dividends. Holders of Class A Common Stock have limited voting rights compared to the holders of Common Stock. In all circumstances where the shareholders vote together as a single class, the holders of Class A Common Stock are entitled to one-tenth of a vote per share and the holders of Common Stock are entitled to one vote per share. In addition, the Company's Articles of Incorporation provide that the holders of Class A Common Stock, voting as a separate class, are entitled to elect 25% of the membership of the Board of Directors, and that the holders of Common Stock, voting as a separate class, are entitled to elect 75% of the membership of the Board of Directors. Glenn R. Jones, the Chairman and Chief Executive Officer of the Company, beneficially owns 57% of the voting power of the outstanding Common Stock and 37% of the total voting power of the outstanding Class A Common Stock and Common Stock combined. Thus, Mr. Jones has the power to elect the majority of the members of the Company's Board of Directors and to otherwise effectively control all matters requiring shareholder approval. In addition, BTH beneficially owns 30 36% of the voting power of the outstanding Class A Common Stock and 15% of the voting power of the Class A Common Stock and Common Stock combined. Also, BTH holds options to purchase the Control Shares from Mr. Jones and certain of his affiliates, which, if and when exercised, would afford BTH effective control of the Company. Pursuant to various agreements all dated August 12, 1998 among Mr. Jones, International and certain of its affiliates, BTH and Comcast, Comcast acquired the right to purchase the Control Shares. See Item 1, Comcast Corporation's Planned Acquisition of the Control Shares of the Company. 31 Item 6. Selected Financial Data - -------------------------------- The following table sets forth selected financial data regarding the Company's financial position and operating results. This data should be read in conjunction with the Company's consolidated financial statements and the notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing in Item 7.
1998 1997 1996 1995 1994 ----------- ----------- ------------ ----------- ----------- (in thousands except per share data) REVENUES: Cable Television Revenue Subscriber service fees $ 401,371 $ 333,826 $ 248,626 $ 135,350 $ 103,335 Management fees 12,284 17,253 19,104 21,462 17,952 Distributions and Brokerage Fees 41,780 2,768 15,483 - - Non-cable Revenue 5,294 8,741 28,497 32,026 10,602 ----------- ----------- ------------ ----------- ----------- TOTAL REVENUES 460,729 362,588 311,710 188,838 131,889 ----------- ----------- ------------ ----------- ----------- COSTS AND EXPENSES: Cable Television Expenses Operating expenses 200,739 174,967 131,529 77,638 55,196 General and administrative 25,843 19,642 16,586 8,284 8,120 Non-cable operating, general and administrative 6,009 9,297 28,410 32,382 11,810 Depreciation and amortization 204,746 175,839 131,186 55,805 45,585 ----------- ----------- ------------ ----------- ----------- OPERATING INCOME (LOSS) $ 23,392 $ (17,157) $ 3,999 $ 14,729 $ 11,178 =========== =========== ============ =========== =========== LOSS BEFORE INCOME TAXES AND EXTRAORDINARY ITEMS $ (80,418) $ (41,764) $ (62,660) $ (21,024) $ (8,691) INCOME TAX BENEFIT - 3,275 - - - ----------- ----------- ------------ ----------- ----------- LOSS BEFORE EXTRAORDINARY ITEMS (80,418) (38,489) (62,660) (21,024) (8,691) Extraordinary items- Loss on early extinguishment of debt, net of tax - (13,459) - (692) - ----------- ----------- ------------ ----------- ----------- NET LOSS $ (80,418) $ (51,948) $ (62,660) $ (21,716) $ (8,691) =========== =========== ============ =========== =========== LOSS PER SHARE: Loss before extraordinary items $ (1.96) $ (1.11) $ (2.00) $ (.67) $ (.45) Extraordinary items - (.39) - (.02) - ----------- ----------- ------------ ----------- ----------- $ (1.96) $ (1.50) $ (2.00) $ (.69) $ (.45) =========== =========== ============ =========== =========== LOSS PER SHARE - assuming dilution Loss before extraordinary items $ (1.96) $ (1.11) $ (2.00) $ (.67) $ (.45) Extraordinary items - (.39) - (.02) - ----------- ----------- ------------ ----------- ----------- $ (1.96) $ (1.50) $ (2.00) $ (.69) $ (.45) =========== =========== ============ =========== =========== WEIGHTED AVERAGE SHARES OUTSTANDING 40,933 34,610 31,372 31,270 19,517 =========== =========== ============ =========== =========== TOTAL ASSETS $ 1,731,093 $ 1,371,371 $ 1,134,129 $ 860,499 $ 608,289 =========== =========== ============ =========== =========== TOTAL DEBT $ 1,462,707 $ 1,024,732 $ 806,147 $ 492,714 $ 281,578 =========== =========== ============ =========== =========== SHAREHOLDERS' INVESTMENT $ 155,605 $ 228,518 $ 235,307 $ 292,795 $ 271,284 =========== =========== ============ =========== ===========
32 Item 7. Management's Discussion and Analysis of Financial Condition and Results - -------------------------------------------------------------------------------- of Operations - ------------- FINANCIAL CONDITION The Company is engaged primarily in the cable television business, operating cable systems for itself and for its managed partnerships. The Company owns and manages cable television systems totaling approximately 1,200,000 basic subscribers. As of December 31, 1998, on a pro forma basis for all pending acquisitions of cable television systems by the Company and pending sales of cable television systems owned by managed partnerships, the Company served approximately 1,015,000 basic subscribers. The pending sales and acquisitions are expected to be completed by April 1999. Key elements of the Company's operating strategy include increasing the number of owned subscribers clustered in attractive demographic areas and increasing penetration and revenues per subscriber by targeted marketing, superior customer service and the maintenance of high technical standards. Over the last several years, the Company has taken significant steps to simplify its corporate structure. This process has included the sale of cable television systems owned by certain managed partnerships to either the Company or to third parties and the divestiture of certain of the Company's non- strategic assets. As a result of this strategy, on a pro forma basis for all pending cable television system acquisitions and sales, 100% of total subscribers would have been owned by the Company as of December 31, 1998, compared to 23% in June 1995. During this process, the Company has also made significant progress in clustering its owned subscribers in two primary groups of cable systems. The Company's Virginia/Maryland cluster, owned by JCH, is based primarily on geography. The Company's suburban cluster, owned by JCH II, is based on similar market and operating characteristics, rather than geography. These clusters represent approximately 95% of Company-owned subscribers. The Company believes that its clustering strategy should allow it to obtain both economies of scale and operating efficiencies, for example in areas such as marketing, administrative and capital expenditures. The Company is in the final stages of liquidating its managed partnerships as such partnerships have achieved their investment objectives and as opportunities for sales of partnership cable television systems have arisen in the marketplace. In accordance with this strategy, nineteen partnership-owned cable television systems serving approximately 494,000 subscribers were sold during 1998 (including the Albuquerque System, the Palmdale System, the Socorro System and the Grants System, which in total serve approximately 185,000 subscribers, that were purchased by the Company). In addition, all remaining partnership-owned cable television systems serving approximately 206,000 subscribers (including the Littlerock System which was purchased by the Company in January 1999 and the Calvert County System which is to be purchased by the Company in April 1999) are currently under contract to be sold. The Company expects to complete its transformation from a management company to an operating company in April 1999. The Company also intends to maintain and enhance the value of its current cable television systems through capital expenditures. Such expenditures will include, among others, cable television plant extensions and the upgrade and rebuild of certain systems. The Company also intends to institute new services as they are developed and become economically viable. In implementing the Company's acquisition strategy, the Company acquired the Albuquerque System in June 1998 for $214,863,267, which was funded from borrowings under JCH II's credit facility. The Albuquerque System's operating characteristics are similar to the other systems owned by JCH II. The Company acquired the Palmdale System in December 1998 for $115,929,950, which was funded by borrowings under JCH II's credit facility. The Palmdale System's operating characteristics are similar to the other systems owned by JCH II. The Company acquired the Hinesville System in December 1998 for $48,000,000, which was funded by borrowings under JCH II's credit facility, because it is contiguous to the Company's Savannah System. Also in December 1998, the Company acquired the Grants System and the Socorro System for a total of $8,344,097, because they are in relatively close proximity to the Albuquerque System. The purchase of the Grants System 33 and the Socorro System was funded by borrowings under JCH II's credit facility. In January 1999, the Company acquired the Littlerock System for $10,720,400 because it is contiguous to the Palmdale System. The purchase of the Littlerock System was funded by borrowings under JCH II's credit facility. In addition, the Company has entered into an agreement to purchase the Calvert County System for $39,388,667 because it is contiguous to the Company's Virginia/Maryland Cluster. This transaction is expected to close in April 1999. Funding for this acquisition is expected to be provided by borrowings under the JCH's credit facility. These acquisitions are described in detail in Note 2 of the Notes to Consolidated Financial Statements. The Company purchased property, plant and equipment totaling approximately $174,099,000 during 1998. Of the capital expenditures, $160,577,000 is principally for the upgrade and rebuild of the cable plant in the Company's cable television systems in Virginia/Maryland; Savannah, Georgia; Independence, Missouri and Oxnard, California and new extension projects, drop materials, converters and various maintenance projects in all of the Company's cable television systems. Approximately $13,522,000 of the expenditures was for the deployment of telephone service in the Virginia/Maryland Cluster. Funding for these capital expenditures was provided by cash generated from operations and borrowings available under the Company's credit facilities. Estimated capital expenditures for 1999 are approximately $200,000,000. Funding for such expenditures is expected to be provided by cash generated from operations and borrowings available under the Company's credit facilities, as discussed below. Sources of Funds ---------------- The Company's main sources of capital consist of cash generated from operations and borrowings available under two revolving credit facilities, one for JCH and one for JCH II. Each revolving credit facility has maximum available borrowings of $600 million. In addition, the Company has an effective registration statement which allows the Company to access the public debt and equity markets at its discretion. The $600 million JCH revolving credit facility is a reducing revolving credit facility. The entire $600 million commitment is available through March 31, 1999, at which time the commitment will be reduced quarterly with a final maturity date of December 31, 2004. The maximum amount available will be reduced to $555,000,000 at December 31, 1999. The balance outstanding on JCH's revolving credit facility at December 31, 1998 was $340,000,000. The $600 million JCH II Revolving Credit Facility consists of a $300 million reducing revolving credit facility and a $300 million term loan. The reducing revolving credit facility allows for borrowings through the final maturity date of December 31, 2005. The maximum amount available reduces quarterly beginning March 31, 2000 through the final maturity date of December 31, 2005. The term loan is payable in semi-annual installments commencing June 30, 2001 with a final maturity date of December 31, 2005. The balance outstanding on the JCH II Revolving Credit Facility at December 31, 1998 was $370,000,000. Of this amount $300,000,000 was borrowed under the term loan portion of the facility and $70,000,000 was borrowed under the reducing revolving portion of the facility. In April 1998, the Company issued and sold $200,000,000 of its 7 5/8% Senior Notes due April 15, 2008. Proceeds from the sale of the Senior Notes were used to repay amounts then outstanding under the revolving credit facilities of the Company's subsidiaries. The Company, in its capacity as the general partner of its managed partnerships, may from time to time receive general partner distributions upon the sale of cable television systems owned by such partnerships. The Company received general partner distributions totaling $8,100,000 from Cable TV Funds 12-B, 12-C and 12-D related to the sale of the Cable TV Fund 12-BCD Venture's Albuquerque System in June 1998. In July 1998, the Company received a general partner distribution of $13,713,600 from Cable TV Fund 12-A related to the sale of the Fort Myers System by Cable TV Fund 12-A. In September 1998, the Company received a general partner distribution of $1,976,400 from Jones Cable Income Fund 1-A related to the sale of the Owatonna, Minnesota 34 system by Jones Cable Income Fund 1-A. In December 1998, the Company received general partner distributions of $22,275,250 from Cable TV Funds 12-B, 12-C and 12-D related to the sale of the Cable TV Fund 12-BCD Venture's Palmdale System, $15,931,000 from Cable TV Fund 12-A relating to the sale of the Orland Park and Park Forest, Illinois cable television systems, $1,005,000 for IDS/Jones Growth Partners 87-A relating to the sale of the Roseville, California cable television system and $1,715,500 from Spacelink Fund 3 relating to the sale of the Socorro and Grants, New Mexico cable television systems. In addition, the Company, through The Intercable Group, Ltd., f/k/a The Jones Group, Ltd., a wholly owned subsidiary, has earned brokerage fees upon the sale of the managed partnerships' cable television systems to third parties. During 1998, the Company earned brokerage fees, net of expenses, of $9,154,000. The Company has sufficient sources of capital available, consisting of cash generated from operations and available borrowings from its credit facilities, to fund its committed acquisition requirements and to meet its operational needs. Anticipated Change In Control ----------------------------- On August 12, 1998, the Company, International, BTH and Comcast announced that agreements have been entered into that will accelerate the exercise of the option to purchase controlling interest in the Company by Comcast. Details of these agreements and costs associated with the change in control are described in Note 1 of the Notes to Consolidated Financial Statements. The closing of the exercise of the option is expected to occur in March 1999. Impact of the Year 2000 Issue ----------------------------- The Year 2000 issue is the result of many computer programs being written such that they will malfunction when reading a year of "00". This problem could cause system failure or miscalculations causing disruptions of business processes. The Company is undertaking an assessment of its computer applications to determine the extent of the problem. Based on this assessment, the Company has determined that the majority of its computer applications supporting business processes, including accounting and billing, are designed to handle the Year 2000 appropriately. The Company is currently focusing its efforts on the impact of the Year 2000 issue on service delivery. The Company has established an internal team to address this issue. The Company is identifying and testing all date-sensitive equipment involved in delivering service to its customers. In addition, the Company will assess its options regarding repair or replacement of affected equipment during this testing. The Company believes that the financial impact from the Year 2000 issue will be less than $3,000,000. 35 RESULTS OF OPERATIONS Year Ended December 31, 1998 Compared to Year Ended December 31, 1997 --------------------------------------------------------------------- Revenues The Company derives its revenues from four sources: subscriber service fees from Company-owned cable television systems, management fees from managed partnerships, fees and distributions paid upon the sale of certain cable television properties owned by managed partnerships and revenues from non-cable television subsidiaries. Total revenues for the year ended December 31, 1998 totaled $460,729,000, an increase of $98,141,000, or 27%, over the total of $362,588,000 for the year ended December 31, 1997. This increase reflects the Company's acquisition of the following cable television systems: the North Prince Georges County System on January 31, 1997; the Annapolis System on April 15, 1997; the Manitowoc System on June 30, 1997; the Independence System on August 31, 1997 and the Albuquerque System on June 30, 1998 (the "Acquired Systems") as well as an increase in general partner distributions and brokerage fees relating to the sale of partnership-owned cable television systems. The increase in revenues would have been greater but for the following: (i) the reduction in 1998 non-cable revenue due to the sale of a non-cable subsidiary in 1998; (ii) a decrease in management fees due to the sales of certain cable television systems owned by managed partnerships; and (iii) the sale of the Walnut Valley System in August 1997. Adjusting for the effect of the Acquired Systems, the general partner distributions and brokerage fees, the sale of the non-cable subsidiary, the decrease in management fees and the sale of the Walnut Valley System (the "Pro Forma Adjustments"), total revenues would have increased $23,832,000, or 6%. The Company's subscriber service fees for the year ended December 31, 1998 totaled $401,371,000, an increase of $67,545,000, or 20%, over the total of $333,826,000 for the year ended December 31, 1997. The acquisition of the Acquired Systems accounted for $44,286,000, or 66%, of the increase in subscriber service fees. With the Pro Forma Adjustments, subscriber service fees would have increased $23,259,000, or 6%. This increase was due primarily to an increase in the number of basic subscribers and basic service rate adjustments in the cable television systems owned by the Company. Disregarding the effect of acquisitions made by the Company during 1998, basic subscribers increased 14,500, an increase of 1.9%. The Company receives management fees generally equal to 5% of the gross operating revenues of its managed limited partnerships. Management fees totaled $12,284,000 in 1998, a decrease of $4,969,000, or 29%, over the total of $17,253,000 reported in 1997. The sale of certain systems owned by managed partnerships during 1998 and 1997 caused this decrease. When the Company completes the liquidation of its managed partnerships in April 1999, management fees will no longer be a source of revenue for the Company. On a pro forma basis, management fees would have increased $520,000, or 4%. This increase was due to the revenue growth from basic rate adjustments and increases in the subscriber base of the remaining systems owned by managed partnerships. This source of revenue will be eliminated after the sale of all systems owned by managed partnerships. In its capacity as the general partner of its managed partnerships, the Company may receive general partner distributions upon the sale of certain cable television properties owned by such partnerships. The Company received general partner distributions totaling $32,626,000 upon the sales of cable television systems by Cable TV Fund 12-A, Jones Cable Income Fund 1-A and IDS/Jones Growth Partners 87-A. In addition, the Company received general partner distributions totaling $32,090,000 in 1998 relating to systems purchased by the Company from Cable TV Fund 12-BCD Venture and Spacelink Fund 3 which reduced the Company's basis in the assets acquired. No such revenue was received in 1997. In addition, The Intercable Group, Ltd., has earned brokerage fees upon the sale of certain managed cable television systems to third parties. The Company earned brokerage fees, net of expenses, of $9,154,000 during 1998. Brokerage fees, net of expenses, of 36 $2,768,000 were earned in 1997. Both of these sources of revenue will be eliminated after the liquidation of the managed partnerships is complete. The Company also operates Jones Futurex, Inc. ("Futurex"), a manufacturer of various electronic components. Futurex revenues totaled $5,294,000 in 1998, a decrease of $3,447,000, or 39%, over the $8,741,000 recognized in 1997. This decrease was primarily due to the sale of the contract manufacturing division of Futurex in May 1998. Costs and Expenses Operating, general and administrative expenses consist primarily of costs associated with the operation and administration of Company-owned cable television systems, the administration of managed partnerships and the operation and administration of Futurex. The Company is reimbursed by its managed partnerships for costs associated with the administration of the partnerships. The principal administrative cost components are salaries paid to corporate and system personnel, programming expenses, consumer marketing expenses, professional fees, subscriber billing costs, data processing costs, rent for leased facilities and cable system maintenance expenses. Cable operating expenses totaled $200,739,000 for the year ended December 31, 1998, an increase of $25,772,000, or 15%, over the total of $174,967,00 for the year ended December 31, 1997. The acquisition of the Acquired Systems accounted for $25,395,000, or 99%, of this increase. With the Pro Forma Adjustments, cable operating expenses would have increased $377,000, or less than 1%, for 1998 compared to 1997. This increase was due primarily to increases in basic and tier programming costs which was offset, in part, by reductions in expenses due to operating efficiencies. Cable general and administrative expenses totaled $25,843,000 for the year ended December 31, 1998, an increase of $6,201,000, or 32%, over the total of $19,642,000 for the year ended December 31, 1997. This increase was due to the effect of the Acquired Systems. With the Pro Forma Adjustments, cable general and administrative expenses would have increased $3,587,000, or 16%, for 1998. As the Company has acquired cable television systems for its own account and has sold cable television systems owned by managed partnerships, and thereby has transitioned from a management company to an operating company, the Company's proportionate percentage of total general and administrative expenses has increased. Non-cable operating, general and administrative expenses totaled $6,009,000 for the year ended December 31, 1998, a decrease of $3,288,000, or 35%, over the total of $9,297,000 for the year ended December 31, 1997. This decrease was primarily due to the sale of Futurex's contract manufacturing business. Depreciation and amortization expense totaled $204,746,000 for the year ended December 31, 1998, an increase of $28,907,000, or 16%, over the total of $175,839,000 for the year ended December 31, 1997. Depreciation and amortization relating to the Acquired Systems was primarily responsible for this increase. Operating Income The Company recognized operating income of $23,392,000 for the year ended December 31, 1998 compared to an operating loss of $17,157,000 for the year ended December 31, 1997. This change was due primarily to the increase in general partner distributions in 1998 as compared to 1997. The cable television industry generally measures the performance of a cable television company in terms of cash flow or operating income before depreciation and amortization. The value of a cable television company is often expressed using multiples of cable television system cash flow. 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 37 an industry standard. Operating income before depreciation and amortization totaled $228,138,000 for the year ended December 31, 1998, an increase of $69,456,000, or 44%, over the total of $158,682,000 for the year ended December 31, 1997. The effect of the Acquired Systems as well as the general partner distributions were primarily responsible for this increase. Other Income (Expense) Interest expense totaled $94,865,000 for the year ended December 31, 1998, an increase of $8,101,000, or 9%, over the total of $86,764,000 for the year ended December 31, 1997. This increase was due to higher outstanding balances on the Company's interest bearing obligations. Borrowings were used to fund the acquisition of the Acquired Systems. Interest income totaled $2,424,000 for the year ended December 31, 1998, an increase of $973,000, or 67%, over the total of $1,451,000 for the year ended December 31, 1997. This increase was due to interest received on a note from one of the Company's managed partnerships. Equity in income of affiliated entities totaled $1,372,000 for the year ended December 31, 1998. Equity in losses of affiliated entities totaled $3,804,000 for the year ended December 31, 1997. This change was due primarily to the recognition of income of the managed partnerships, due to the sale of certain managed systems. The Company recognized losses on the sale of assets totaling $3,616,000 for the year ended December 31, 1998 related to the sale of the contract manufacturing division of Futurex. The Company recognized gains totaling $70,232,000 in 1997, including the $44,563,000 gain on the sale of its Cable & Wireless Communications plc ("CWC") shares, the $2,979,000 gain on the redemption of Jones Global Group shares, the $1,854,000 gain from insurance and sale proceeds relating to the Company's aircraft and the $20,836,000 gain from the sale of the Walnut Valley System. The Company recognized a loss on the early extinguishment of debt totaling $13,459,000 in 1997 related to the redemption of its 11.5% Debentures. No similar losses were recorded in 1998. Net loss totaled $80,418,000 for the year ended December 31, 1998, an increase of $28,470,000, or 55%, over the total loss of $51,948,000 for the year ended December 31, 1997. This increase was due to the gains on the sale of assets recognized in 1997. The Company anticipates the continued recognition of operating income prior to depreciation and amortization charges, but net losses resulting from depreciation, amortization and interest expenses are expected to occur in the future. 38 Year Ended December 31, 1997 Compared to Year Ended December 31, 1996 --------------------------------------------------------------------- Revenues Total revenues for the year ended December 31, 1997 totaled $362,588,000, an increase of $50,878,000, or 16%, over the total of $311,710,000 for the year ended December 31, 1996. This increase reflects the Company's acquisition of the following cable television systems: the Manassas System on January 10, 1996; the South Prince Georges County System on February 29, 1996; the Reston System on February 29, 1996; the Savannah System on April 12, 1996; the North Prince Georges County System, on January 31, 1997; the Annapolis System on April 15, 1997; the Manitowoc System on June 30, 1997 and the Independence System on August 31, 1997 (the "Acquired Systems"). The increase in revenues would have been greater but for the following: (i) the receipt of a general partner distribution and brokerage fee totaling $15,483,000 in 1996 compared to brokerage fees of $2,768,000 in 1997; (ii) the reduction in 1997 non-cable revenue due to the sale of two non-cable subsidiaries in 1996; (iii) a decrease in management fees due to the sale of certain cable television systems owned by managed partnerships; and (iv) the sale of the Walnut Valley System in August, 1997. Adjusting for the effect of the Acquired Systems, the second quarter 1996 general partner distribution and brokerage fee, the sale of the non-cable subsidiaries, the decrease in management fees and the sale of the Walnut Valley System (the "Pro Forma Adjustments"), total revenues would have increased $25,185,000, or 8%. The Company's subscriber service fees for the year ended December 31, 1997 totaled $333,826,000, an increase of $85,200,000 or 34%, over the total of $248,626,000 for the year ended December 31, 1996. The acquisition of the Acquired Systems accounted for $61,397,000, or 72%, of the increase in subscriber service fees. With the Pro Forma Adjustments, subscriber service fees would have increased $23,803,000, or 8%. This increase was due primarily to an increase in the number of basic subscribers and basic service rate adjustments in the cable television systems owned by the Company. Disregarding the effect of acquisitions during 1997, basic subscribers increased 15,116, an increase of 3.1%. The Company receives management fees generally equal to 5% of the gross operating revenues of its managed limited partnerships. Management fees totaled $17,253,000 in 1997, a decrease of $1,851,000, or 10%, over the total of $19,104,000 reported in 1996. The sale of certain systems owned by managed partnerships during 1997 and 1996 caused this decrease. As the Company liquidates its managed partnerships, management fees will continue to decrease. On a pro forma basis, management fees would have increased $1,076,000, or 7%. This increase was due to the revenue growth from basic rate adjustments and increases in the subscriber base of the remaining systems owned by managed partnerships. In its capacity as the general partner of its managed partnerships, the Company may receive general partner distributions upon the sale of certain cable television properties owned by such partnerships. The Company received a distribution of $14,000,000 upon the sale of Cable TV Fund 11-B, Ltd.'s Lancaster, New York System in April 1996. No such revenue was received in 1997. In addition, The Jones Group, Ltd., a wholly owned subsidiary of the Company, may earn brokerage fees upon the sale of certain managed cable television systems to third parties. The Company earned brokerage fees of $3,695,000 less expenses of $927,000 during 1997. A brokerage fee of $2,100,000, less expenses of $617,000, was earned in 1996. The Company operates Jones Futurex, Inc. ("Futurex"), a manufacturer of various electronic components. In addition, the Company owned and operated Jones Galactic Radio, Inc. ("Galactic Radio"), until its sale on June 14, 1996 and Jones Satellite Programming, Inc. ("JSP"), a distributor of satellite programming to satellite dish owners, until the sale of its assets on July 31, 1996. Non-cable revenues totaled $8,741,000 in 1997, a decrease of $19,756,000, or 69%, over the $28,497,000 recognized in 1996. This decrease was primarily due to the sales of Galactic Radio and JSP. 39 Costs and Expenses Cable operating expenses totaled $174,967,00 for the year ended December 31, 1997, an increase of $43,438,000, or 33%, over the total of $131,529,000 for the year ended December 31, 1996. The acquisition of the Acquired Systems accounted for $33,024,000, or 76%, of this increase. With the Pro Forma Adjustments, cable operating expenses would have increased $10,414,000, or 6%, for 1997 compared to 1996. This increase was due primarily to increases in basic and tier programming costs. Cable general and administrative expenses totaled $19,642,000 for the year ended December 31, 1997, an increase of $3,056,000, or 18%, over the total of $16,586,000 for the year ended December 31, 1996. This increase was due to the effect of the Acquired Systems. As the Company acquires cable television systems for its own account and sells cable television systems owned by managed partnerships, and thereby transitions from a management company to an operating company, the Company's proportionate percentage of total general and administrative expenses will increase. With the Pro Forma Adjustments, cable general and administrative expenses would have decreased $1,491,000, or 7%, for 1997. This decrease was due to effective cost controls relating to general and administrative expenses. Non-cable operating, general and administrative expenses totaled $9,297,000 for the year ended December 31, 1997, a decrease of $19,113,000, or 67%, over the total of $28,410,000 for the year ended December 31, 1996. This decrease was primarily due to the sales of Galactic Radio and JSP during 1996. Depreciation and amortization expense totaled $175,839,000 for the year ended December 31, 1997, an increase of $44,653,000, or 34%, over the total of $131,186,000 for the year ended December 31, 1996. Depreciation and amortization relating to the Acquired Systems and the $14,228,000 write-off of costs associated with the development of a billing system by an affiliate were primarily responsible for this increase. Operating Income The Company recognized an operating loss of $17,157,000 for the year ended December 31, 1997 compared to operating income of $3,999,000 for the year ended December 31, 1996. This change was due to the increase in depreciation and amortization expense. The cable television industry generally measures the performance of a cable television company in terms of cash flow or operating income before depreciation and amortization. The value of a cable television company is often expressed using multiples of cable television system cash flow. 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 totaled $158,682,000 for the year ended December 31, 1997, an increase of $23,497,000, or 17%, over the total of $135,185,000 for the year ended December 31, 1996. The effect of the Acquired Systems, which was offset, in part, by the general partner distribution received in 1996, was primarily responsible for this increase. Other Income (Expense) Interest expense totaled $86,764,000 for the year ended December 31, 1997, an increase of $18,982,000, or 28%, over the total of $67,782,000 for the year ended December 31, 1996. This increase was due to higher outstanding balances on the Company's interest bearing obligations. Borrowings were used to fund the acquisition of the Acquired Systems. Interest income totaled $1,451,000 for the year ended December 31, 1997, a decrease of $2,307,000, or 61%, over the total of $3,758,000 for the year ended December 31, 1996. This decrease was due to lower average balances of receivables from managed partnerships and lower effective interest rates. 40 Equity in losses of affiliated entities totaled $3,804,000 for the year ended December 31, 1997 an increase of $331,000, or 10%, over the total of $3,473,000 for the year ended December 31, 1996. This increase was due primarily to an increase in the recognition of losses of the managed partnerships. The Company recognized gains on the sale of assets in 1997 totaling $70,232,000, including the $44,563,000 gain on the sale of its CWC shares, the $2,979,000 gain on the redemption of Global Group Shares, the $1,854,000 gain from insurance and sale proceeds from the Company aircraft and the $20,836,000 gain from the sale of the Walnut Valley System. The Company recognized gains on the sales of assets of $5,262,000 during 1996 from the sale of JSP's assets and the Company's sale of certain marketable securities of an unaffiliated company. Net loss totaled $51,948,000 for the year ended December 31, 1997, a decrease of $10,712,000, or 17%, over the total loss of $62,660,000 for the year ended December 31, 1996. This decrease was due primarily to the gains on the sale of assets recognized in 1997. Item 7a. Quantitative and Qualitative Disclosures About Market Risk - ------------------------------------------------------------------- Interest Rate Risk The Company uses fixed and variable rate long term debt to partially finance capital expenditures. These debt arrangements expose the Company to market risk related to changes in interest rates. The Company manages this risk by issuing fixed rate debt when business conditions and market conditions are favorable. In addition, the Company enters into interest rate swap agreements in order to fix the interest rate for the duration of the contract as a hedge against interest rate volatility. As of December 31, 1998, the Company had interest rate swap agreements covering notional principal of $400,000,000 that expire between January 2000 and March 2008 that fix the interest rate between 5.3% and 7.64%. The Company believes that such swap agreements have no significant fair value at December 31, 1998. The table below provides information on the Company's long term debt.
Expected Maturity ------------------------------------------------------------------------------------------ 1999 2000 2001 2002 2003 Thereafter Total Fair Value ------ ------ ------- -------- -------- ---------- -------- ---------- (stated in thousands) Fixed rate $2,237 $2,217 $ 2,217 $200,739 $ - $545,297 $752,707 $807,548 Weighted average interest rate 8.9% 8.9% 8.9% 9.6% 8.7% 8.9% Variable Rate $ - $ - 30,000 160,000 180,000 340,000 $710,000 $710,000 Weighted average interest rate 6.1% 6.1% 6.1% 6.1% 6.1%
41 Item 8. Financial Statements and Supplementary Data ------------------------------------------- INDEX TO FINANCIAL STATEMENTS
Page ---- Report of Independent Public Accountants 43 Consolidated Balance Sheets 44 Consolidated Statements of Operations 46 Consolidated Statements of Shareholders' Investment 47 Consolidated Statements of Cash Flows 48 Notes to Consolidated Financial Statements 49
42 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO JONES INTERCABLE, INC.: We have audited the accompanying consolidated balance sheets of JONES INTERCABLE, INC. (a Colorado corporation) and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of operations, shareholders' investment and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Jones Intercable, Inc. and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Denver, Colorado February 17, 1999 ARTHUR ANDERSEN LLP 43
CONSOLIDATED BALANCE SHEETS Jones Intercable, Inc. As of December 31, 1998 and 1997 and Subsidiaries - --------------------------------------------------------------------------------------------------- ASSETS 1998 1997 (Stated in Thousands) - --------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS $ 2,586 $ 3,595 RECEIVABLES: Trade receivables, net of allowance for doubtful accounts of $2,822,000 in 1998 and $1,692,000 in 1997 26,884 28,686 Affiliated entities 5,568 7,783 INVESTMENT IN CABLE TELEVISION PROPERTIES: Property, plant and equipment, at cost 1,005,080 745,115 Less - Accumulated depreciation (311,655) (224,893) ---------- --------- 693,425 520,222 Franchise costs and other intangible assets, net of accumulated amortization of $376,339,000 in 1998 and $285,212,000 in 1997 913,853 721,336 Investments in affiliates and domestic cable television partnerships 19,724 24,568 ---------- --------- TOTAL INVESTMENT IN CABLE TELEVISION PROPERTIES 1,627,002 1,266,126 ---------- --------- DEFERRED TAX ASSET, net of valuation allowance of $88,436,000 in 1998 and $84,473,000 in 1997 7,137 7,137 DEPOSITS, PREPAID EXPENSES AND OTHER ASSETS 61,916 58,044 ---------- --------- TOTAL ASSETS $1,731,093 $1,371,371 ========== ==========
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. 44
CONSOLIDATED BALANCE SHEETS Jones Intercable, Inc. As of December 31, 1998 and 1997 and Subsidiaries - ----------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' INVESTMENT 1998 1997 (Stated in Thousands) - ----------------------------------------------------------------------------------------------- LIABILITIES: Accounts payable and accrued liabilities $ 109,599 $ 115,189 Subscriber prepayments and deposits 3,182 2,932 Subordinated debentures and other debt 752,707 553,732 Credit facilities 710,000 471,000 --------- --------- TOTAL LIABILITIES 1,575,488 1,142,853 --------- --------- COMMITMENTS AND CONTINGENCIES (Notes 2, 4 and 11) SHAREHOLDERS' INVESTMENT: Class A Common Stock, $.01 par value, 60,000,000 shares authorized; 36,143,054 and 35,554,223 shares issued at December 31, 1998 and 1997, respectively 361 356 Common Stock, $.01 par value, 5,550,000 shares Authorized; 5,113,021 shares issued at December 31, 1998 and 1997 51 51 Additional paid-in capital 495,116 487,616 Accumulated deficit (339,923) (259,505) --------- --------- TOTAL SHAREHOLDERS' INVESTMENT 155,605 228,518 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $ 1,731,093 $ 1,371,371 ========= =========
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. 45
CONSOLIDATED STATEMENTS OF OPERATIONS Jones Intercable, Inc. For the years ended December 31, 1998, 1997 and 1996 and Subsidiaries - ------------------------------------------------------------------------------------------------------ 1998 1997 1996 (In Thousands Except Per Share Data) - ------------------------------------------------------------------------------------------------------ REVENUES FROM OPERATIONS: Cable Television Revenue Subscriber service fees $ 401,371 $ 333,826 $ 248,626 Management fees 12,284 17,253 19,104 Distributions and Brokerage Fees 41,780 2,768 15,483 Non-cable Revenue 5,294 8,741 28,497 ------- ------- ------- TOTAL REVENUES 460,729 362,588 311,710 COSTS AND EXPENSES: Cable Television Expenses Operating expenses 200,739 174,967 131,529 General and administrative expenses (including approximately $6,646,000, $4,925,000 and $4,309,000 of related party expenses during the years ended December 31, 1998, 1997 and 1996, respectively) 25,843 19,642 16,586 Non-cable operating, general and administrative 6,009 9,297 28,410 Depreciation and amortization 204,746 175,839 131,186 ------- ------- ------- OPERATING INCOME (LOSS) 23,392 (17,157) 3,999 OTHER INCOME (EXPENSE): Interest expense (94,865) (86,764) (67,782) Interest income 2,424 1,451 3,758 Equity in income (loss) of affiliated entities 1,372 (3,804) (3,473) Gain (Loss) on sale of assets (3,616) 70,232 5,262 Other, net (9,125) (5,722) (4,424) ------- ------- ------- LOSS BEFORE INCOME TAXES AND EXTRAORDINARY ITEM (80,418) (41,764) (62,660) Income tax benefit - 3,275 - ------- ------- ------- LOSS BEFORE EXTRAORDINARY ITEM (80,418) (38,489) (62,660) EXTRAORDINARY ITEM: Loss on early extinguishment of debt, net of related income taxes - (13,459) - ------- ------- ------- NET LOSS $ (80,418) $ (51,948) $ (62,660) ======= ======= ======= Changes to arrive at Comprehensive Loss - (47,272) 4,768 ------- ------- ------- COMPREHENSIVE LOSS $ (80,418) $ (99,220) $ (57,892) ======= ======= ======= LOSS PER SHARE: LOSS BEFORE EXTRAORDINARY ITEM $ (1.96) $ (1.11) $ (2.00) EXTRAORDINARY ITEM - (.39) - ------- ------- ------- NET LOSS $ (1.96) $ (1.50) $ (2.00) ======= ======= ======= LOSS PER SHARE-ASSUMING DILUTION LOSS BEFORE EXTRAORDINARY ITEM $ (1.96) $ (1.11) $ (2.00) EXTRAORDINARY ITEM - (.39) - ------- ------- ------- NET LOSS $ (1.96) $ (1.50) $ (2.00) ======= ======= ======= WEIGHTED AVERAGE NUMBER OF CLASS A COMMON AND COMMON SHARES OUTSTANDING 40,933 34,610 31,372 ======= ======= =======
The accompanying notes to consolidated financial statements are an integral part of these statements. 46
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT Jones Intercable, Inc. For the years ended December 31, 1998, 1997 and 1996 and Subsidiaries - ------------------------------------------------------------------------------------------------------------------------------------ Unrealized Holding Class A Common Stock Common Stock Additional Gain on -------------------- -------------------- Paid-In Marketable Accumulated Shares Amount Shares Amount Capital Securities Deficit (Stated in Thousands) - ------------------------------------------------------------------------------------------------------------------------------------ BALANCES, December 31, 1995 26,212 $ 262 5,113 $ 51 $ 394,875 $ 42,504 $ (144,897) Proceeds from stock options exercised 52 1 - - 142 - - Class A Common Stock Grants - - - - 261 - - Unrealized holding gain on marketable securities - - - - - 4,768 - Net loss - - - - - - (62,660) ------- ------- ------- ------ ---------- -------- ------------ BALANCES, December 31, 1996 26,264 263 5,113 51 395,278 47,272 (207,557) Proceeds from stock options exercised 90 1 - - 567 - - Proceeds from Class A stock offering 9,200 92 - - 91,510 - - Class A Common Stock Grants - - - - 261 - - Gain realized on marketable securities - - - - - (47,272) - Net loss - - - - - - (51,948) ------- ------- ------- ------ ---------- -------- ------------ BALANCES, December 31, 1997 35,554 356 5,113 51 487,616 - (259,505) Proceeds from stock options exercised 589 5 - - 7,283 - - Class A Stock Option Grants - - - - 217 - - Net loss - - - - - - (80,418) ------- ------- ------- ------ ---------- -------- ------------ BALANCES, December 31, 1998 36,143 $ 361 5,113 $ 51 $ 495,116 $ - $ (339,923) ======= ======= ======= ====== ========== ======== ============
The accompanying notes to consolidated financial statements are an integral part of these statements. 47
CONSOLIDATED STATEMENTS OF CASH FLOWS Jones Intercable, Inc. For the years ended December 31, 1998, 1997 and 1996 and Subsidiaries - ------------------------------------------------------------------------------------------------------------------------------------ 1998 1997 1996 (Stated in Thousands) - ------------------------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (80,418) $ (51,948) $ (62,660) Adjustments to reconcile net loss to net cash provided by operating activities: Extraordinary loss on early extinguishment of debentures, net of related income taxes - 13,459 - Class A Common Stock option expense 218 261 261 Loss (Gain) on sale of assets 3,616 (70,232) (5,262) Deferred income tax benefit - (3,275) - Depreciation and amortization 204,746 175,839 131,186 Equity in (income) losses of affiliated entities (1,372) 3,804 3,473 Decrease (Increase) in restricted cash - 1,016 5,341 Decrease (Increase) in trade receivables 1,802 (10,941) 1,418 Increase in receivables, deposits, prepaid expenses and other assets (13,832) (4,107) (18,529) Increase (Decrease) in accounts payable, accrued liabilities and subscriber prepayments and deposits (6,340) 25,446 17,672 -------- -------- -------- Net cash provided by operating activities 108,420 79,322 72,900 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of cable television systems (387,646) (379,393) (298,929) Deposit on cable television systems - - (12,000) Proceeds from sale of assets 350 142,991 5,262 Purchase of property and equipment (174,099) (133,598) (95,900) Other, net 4,489 932 4,133 -------- -------- -------- Net cash used in investing activities (556,906) (369,068) (397,434) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings 793,000 570,500 506,000 Repayment of debt (554,000) (442,500) (193,000) Proceeds from issuance of Class A Common Stock - 91,602 - Proceeds from Senior Note Offering, net 196,346 244,102 - Proceeds from Class A Common Stock options 7,287 568 143 Decrease (increase) in accounts receivable from affiliated entities 2,215 (3,787) 10,315 Redemption of debentures - (170,800) - Other, net 2,629 1,985 433 -------- -------- -------- Net cash provided by financing activities 447,477 291,670 323,891 -------- -------- -------- Increase (decrease) In Cash and Cash Equivalents (1,009) 1,924 (643) Cash and Cash Equivalents, beginning of year 3,595 1,671 2,314 -------- -------- -------- Cash and Cash Equivalents, end of year $ 2,586 $ 3,595 $ 1,671 ======== ======== ========
The accompanying notes to consolidated financial statements are an integral part of these statements. 48 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Jones Intercable, Inc. was formed in 1970 to own, operate and manage cable television systems. Jones Intercable, Inc. and its subsidiaries are referred to herein as the "Company." As of December 31, 1998, through a total of 23 owned and managed cable television systems, the Company served approximately 1.2 million subscribers in the United States. A majority of the Company's cable television systems are owned by the Company's wholly owned subsidiaries Jones Cable Holdings, Inc. ("JCH") and Jones Cable Holdings II, Inc. ("JCH II"). JCH owns and operates the cable television systems that comprise the Company's Virginia/Maryland cluster. The Virginia/Maryland cluster is comprised of: the Chesapeake Bay Group of cable systems that serve customers in communities in and around Anne Arundel County and Charles County, Maryland, including the City of Annapolis; the Prince Georges County, Maryland system that services all of Prince Georges County, Maryland; the Alexandria, Virginia system; and the Prince William County system that serves the communities of Dale City, Manassas and Reston, Virginia. JCH II owns and operates the Company's suburban cluster of cable systems serving areas in and around Augusta, Savannah and Hinesville, Georgia, Pima County, Arizona, Independence, Missouri, Albuquerque, New Mexico and Palmdale and Littlerock, California. The Company directly owns and operates the cable television systems serving Manitowoc, Wisconsin, Oxnard, California and Panama City Beach and Celebration, Florida. Glenn R. Jones, the Chairman of the Board of Directors and Chief Executive Officer of the Company, beneficially owns approximately 57% of the Common Stock of the Company. Through this ownership of the Company's supervoting Common Stock, Mr. Jones is entitled to elect a majority of the members of the Company's Board of Directors and he otherwise controls the Company. The Company's current other major shareholder is BCI Telecom Holding Inc. ("BTH"). BTH owns an approximate 31% economic interest in the Company through its ownership of approximately 36% of the Class A Common Stock of the Company. Through rights granted to it under a shareholders agreement among Mr. Jones and his affiliates, BTH and the Company, BTH has the ability to nominate several persons to the Company's Board of Directors. In addition, BTH holds an option to purchase Mr. Jones' Common Stock of the Company. In May 1998, BTH announced its intention to sell approximately half of its shares of the Company's Class A Common Stock to Comcast Corporation ("Comcast"). Comcast ranks among the top five multiple system cable television operators in the United States serving approximately 4 million basic subscribers. BTH also announced its intention to grant to Comcast the right to acquire all of the Common Stock held by Jones International, Ltd. and its affiliates ("International") from BTH if and when BTH exercises its option to purchase such shares. BTH also announced its intention to sell to Comcast at the time that the option is exercised its remaining holdings of the Company's Class A Common Stock. On August 12, 1998, the Company, International, BTH and Comcast announced that agreements had been entered into that will accelerate the exercise of the option by Comcast, and allow for the early closing of the transaction between Comcast and BTH. In connection with the early exercise of the option, Comcast will pay to International and certain of its affiliates $200,000,000 for the approximately 2.9 million shares of Common Stock of the Company held by them. In addition, the Company has agreed to make certain payments to International and its affiliates in connection with the termination, effective as of the closing of the option exercise, of certain related party agreements between the Company, International, and its affiliates, including the termination of Mr. Jones' employment agreement with the Company and the termination of certain programming rights held by International pursuant to the Shareholders Agreement between the Company, International, Mr. Jones and BTH entered into in 1994. Also, in connection with the closing of the option exercise, and conditioned upon such closing occurring, the pending litigation between BTH, International, Mr. Jones and the Company will be 49 dismissed and International and certain of its affiliates will dismiss the appeal which is pending of the order entered against them in such litigation. To facilitate an orderly change in control to Comcast, the Company has initiated a retention and severance program for its corporate associates who may be terminated due to change in control. The program provides incentives to corporate associates to remain with the Company until the change in control and through the subsequent 90-day transition period. The program provides for cash severance payments to associates that are terminated due to the change in control. Total costs associated with this program are expected to be approximately $30,000,000. The Company anticipates incurring $40,600,000 in restructuring costs, which will be recognized upon closing. Such costs include the cost of terminating Mr. Jones' employment contract, severance payments to corporate personnel, salaries during the 90-day transition period following the change in control and certain professional fees. The closing of the exercise of the option is expected to occur in March 1999. All necessary regulatory filings associated with this transaction have been made. Following such closing, Comcast would own approximately 12.8 million shares of Class A Common Stock, and approximately 2.9 million shares of Common Stock of the Company, representing approximately 37% of the economic and 47% of the voting interest in the Company. In addition, the Common Stock held by Comcast will allow it to elect 75% of the Board of Directors of the Company, and Comcast is expected to replace a majority of the existing Board of Directors with nominees of its choice effective as of the closing of the option exercise. Effective Registration Statement The Company has an effective registration statement relating to the sale of $500 million of senior debt securities, senior subordinated debt securities, subordinated debt securities and Class A Common Stock. The Company, from time to time, may issue securities not to exceed $500 million pursuant to this registration statement. In April 1998 the Company issued and sold $200,000,000 of its 7 5/8% Senior Notes due April 15, 2008 pursuant to this registration statement. Summary of Significant Accounting Policies Basis of Presentation The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The Company's investments in affiliates and domestic cable television partnerships (Note 4) are carried at cost plus equity in profits and losses. All significant intercompany transactions have been eliminated in consolidation. 50 Statements of Cash Flows The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Income taxes and interest paid during the periods presented are as follows:
December 31, ---------------------------------------------- 1998 1997 1996 ---------------------------------------------- (Stated in Thousands) Income taxes $ - $ - $ - ======== ======== ======== Interest $ 90,820 $ 86,584 $ 67,441 ======== ======== ========
Non-cash transactions: As described in Note 4, on April 25, 1997, the Company tendered its Bell Cablemedia plc ("Bell Cablemedia") shares in exchange for shares of Cable & Wireless Communications plc ("CWC"). As described in Note 4, on December 23, 1996, the Company redeemed 225 shares of Jones Global Group, Inc. ("Global Group") in exchange for a $8,950,188 note receivable. As described in Note 2, on June 14, 1996, the Company sold Jones Galactic Radio, Inc. ("Galactic Radio") to Global Group. The sales price of $17.2 million was paid in the form of 984,968 American Depositary Shares ("ADSs") of Bell Cablemedia. During 1998, 1997 and 1996, the Company recorded $217,000, $261,000 and $261,000, respectively, of Additional Paid-in Capital related to Class A Common Stock option grants as discussed in Note 9. Property, Plant and Equipment Depreciation of property, plant and equipment is provided using the straight-line method over the following estimated service lives: Distribution systems including capitalized interest and operating expenses 5-15 years Buildings 10-30 years Equipment and tools 3-5 years Premium service equipment 5 years Earth receive stations 5-15 years Vehicles 3-4 years Other property, plant and equipment 3-5 years Franchise Costs Costs incurred in obtaining cable television franchises and other operating authorities are initially deferred and amortized over the lives of the franchises. Franchise rights acquired through purchase of cable television systems are stated at estimated fair value at the date of acquisition and amortized over the remaining terms of the franchises. Amortization is determined using the straight-line method over lives of one to 15 years. Cost in Excess of Interests in Net Assets Purchased The cost of acquisitions in excess of the fair values of net assets acquired is being amortized using the straight-line method over a 40-year life. The Company assesses the realizability of these assets through periodic independent appraisals. Any impairments are recognized as an expense in the Company's Consolidated Statements of Operations. 51 Deferred Financing Costs Costs incurred in connection with the issuance of notes and debentures and the execution of revolving credit agreements are deferred and amortized using the effective interest method over the life of such issues and agreements. Distributions from Managed Partnerships Distributions earned by the Company as general partner of its managed partnerships from cable television properties sold by such partnerships to unaffiliated parties are recorded as revenues when received. Distributions earned by the Company as general partner of its managed partnerships from cable television properties sold by such partnerships to the Company are treated as a reduction of the purchase price of the cable television systems. Distributions earned by the Company as general partner of its managed partnerships from cable television properties sold by such partnerships to entities in which the Company has a continuing equity interest are treated as a reduction in the basis of the investment in the cable television system. Comprehensive Income The Company has adopted Statement of Financial Accounting Standards No. 130 ("SFAS 130") "Reporting Comprehensive Income" in 1998. SFAS 130 establishes standards for the reporting and display of comprehensive income and its components. An unaudited reconciliation of the Company's net loss and comprehensive loss follows:
For the year ended December 31, ------------------------------------- (stated in thousands) 1998 1997 1996 ---- ---- ---- Net loss, as reported $ (80,418) $ (51,948) $ (62,660) Adjustments to arrive at comprehensive net loss Change in unrealized holding gain on marketable securities - - 4,768 Reclassification of comprehensive loss - (47,272) - ------- ------- ------- Comprehensive loss $ (80,418) $ (99,220) $ (57,892) ======= ======= =======
Earnings Per Share of Class A Common Stock and Common Stock Net loss per share of Class A Common Stock and Common Stock is based on the weighted average number of shares outstanding during the periods presented. Approximately 400,000, 71,000 and 95,000 common stock equivalents, respectively, were not included in the computation of loss per share - assuming dilution for the years ended December 31, 1998, 1997 and 1996, because the effect of such common stock equivalents was antidilutive. Treasury Stock Shares held in treasury have been retired and classified as authorized but unissued shares in accordance with the Colorado Business Corporation Act. SFAS 133 In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 established accounting and reporting standards that require derivative instruments to be recorded as assets or liabilities in the balance sheet. SFAS 133 is effective for fiscal years beginning after June 15, 1999. The Company has not yet quantified the impacts of adopting SFAS 133 and has not yet determined the timing or method of adopting SFAS 133. 52 2. ACQUISITIONS, EXCHANGES AND SALES Acquisitions by the Company --------------------------- In January 1999, the Company, through JCH II, purchased from Cable TV Fund 14-B, Ltd. ("Fund 14-B"), a managed partnership, the cable television system serving areas in and around Littlerock, California (the "Littlerock System") for a purchase price of $10,720,400. The Littlerock System is contiguous to the Palmdale System. The purchase price represented the average of three separate independent appraisals of the fair market value of the Littlerock System. Funding for this transaction was provided by borrowings under JCH II's credit facility. See Note 11 for a description of pending litigation related to this transaction. In December 1998, the Company, through JCH II, purchased from Cable TV Fund 12BCD Venture (the "Venture"), a venture comprised of three managed partnerships, the cable television systems serving areas in and around Palmdale and Lancaster, California (the "Palmdale System") for a purchase price of $138,205,200. The purchase price represented the average of three separate independent appraisals of the fair market value of the Palmdale System. The Company received, from the three partnerships that comprise the Venture, general partner distributions totaling $22,275,250, which reduced the Company's basis in the assets of the Palmdale System. Funding of the net purchase price of $115,929,950 was provided by borrowings under JCH II's credit facility. See Note 11 for a description of pending litigation relating to this transaction. In December 1998, the Company, through JCH II, purchased from an unaffiliated party the cable television system serving areas in and around Hinesville, Georgia (the "Hinesville System") for $48,000,000. The Hinesville System is contiguous to the Company's Savannah, Georgia system. The Company paid Jones Financial Group, Ltd. ("Financial Group"), a subsidiary of Jones International, Ltd., a fee of $756,000 upon closing of this transaction for acting as the Company's financial advisor in connection with this transaction. All fees paid to Financial Group by the Company are based upon 90% of the estimated commercial rate charged by unaffiliated financial advisors. Funding for this transaction was provided by borrowings available under JCH II's credit facility. In December 1998, the Company, through JCH II, purchased from Spacelink Fund 3, Ltd., a managed partnership, the cable television systems serving areas in and around Socorro, New Mexico (the "Socorro System") and Grants, New Mexico (the "Grants System"), for purchase prices of $3,638,791 and $6,420,806, respectively. The purchase prices represented the average of three separate independent appraisals of the fair market values of the Socorro System and the Grants System, respectively. The Company received general partner distributions totaling approximately $1,715,500 related to this transaction, which reduced the Company's basis in the assets of the Socorro System and the Grants System. The Socorro System and the Grants System are in relatively close proximity to the Company's Albuquerque System. Funding for the net purchase price of $8,344,054 was provided by borrowings under JCH II's credit facility. In June 1998, the Company, through JCH II, purchased from the Venture the cable television system serving areas in and around Albuquerque, New Mexico (the "Albuquerque System") for $222,963,267. The purchase price represented the average of three separate independent appraisals of the fair market value of the Albuquerque System. Upon closing, the Company received, from the three partnerships that comprise the Venture, general partner distributions totaling approximately $8,100,000, which reduced the Company's basis in the assets of the Albuquerque System. Funding for the net purchase price of $214,863,267 was provided by borrowings from JCH II's credit facility. In August 1997, the Company, through JCH II, purchased from Jones Intercable Investors, L.P. (the "Partnership"), a managed partnership, the cable television system serving communities in and around Independence, Missouri (the "Independence System") for a purchase price of $171,213,667, which represented the average of three independent appraisals of the fair market value of the Independence System. The Company received a limited partner distribution totaling $25,721,000 from the sale by the Partnership of the Independence 53 System because of the Company's equity interest in the Partnership, which reduced the Company's basis in the assets of the Independence System. The Partnership paid The Intercable Group, Ltd., a wholly owned subsidiary of the Company, a $4,280,000 brokerage fee in connection with this transaction, which reduced the Company's basis in the assets of the Independence System. Funding of the net purchase price of approximately $141,200,000 for the Independence System was provided by all of the net proceeds from the Company's August 1997 Class A Common Stock offering and borrowings from JCH II's credit facility. In June 1997, the Company purchased from Cable TV Joint Fund 11 ("Joint Fund 11"), a venture comprised of four managed partnerships, the cable television system serving the City of Manitowoc, Wisconsin (the "Manitowoc System"). The purchase price for the Manitowoc System was $16,122,333. The purchase price represented the average of three separate independent appraisals of the fair market value of the Manitowoc System. The Company received, from the four managed partnerships that comprised Joint Fund 11, general partner distributions totaling approximately $4,556,000 upon the closing of the sale of the Manitowoc System. Funding of the net purchase price of approximately $11,566,000 was provided by borrowings under the Company's credit facilities. In January 1997, the Company, through JCH, purchased from Maryland Cable Partners, L.P., an unaffiliated party, the cable television system serving the communities of Berwyn Heights, Bladensburg, Bowie, Brentwood, Cheverly, College Park, Colmar Manor, Cottage City, Edmonston, Glenarden, Greenbelt, Hyattsville, Landover Hills, Laurel, Mt. Rainer, New Carrollton, North Brentwood, Riverdale, Takoma Park, University Park and unincorporated portions of northern Prince Georges County, all in the State of Maryland (the "North Prince Georges County System"). The purchase price was $231,367,000 and was funded by borrowings under JCH's revolving credit facility. The Company paid Financial Group a fee of $2,082,000 upon closing of this transaction for acting as the Company's financial advisor in connection with this transaction. All fees paid to Financial Group by the Company are based upon 90% of the estimated commercial rate charged by unaffiliated financial advisors. The North Prince Georges County System was contiguous to the South Prince Georges County System which was already owned by the Company. The Company has combined the North Prince Georges County System and the South Prince Georges County System and thus the Company now serves all of Prince Georges County, Maryland in the northern suburbs of Washington, D.C. The Prince Georges County System is operated as part of the Virginia/Maryland Cluster. In April 1996, the Company purchased from Jones Spacelink Income/Growth Fund 1-A, Ltd., a Colorado limited partnership managed by the Company, the cable television system serving the areas in and around Lake Geneva, Wisconsin (the "Lake Geneva System"). The purchase price was $6,345,667, which was the average of three separate independent appraisals of the fair market value of the Lake Geneva System. The purchase of the Lake Geneva System was funded by borrowings available under JCH's revolving credit facility. In April 1996, the Company purchased from Jones Spacelink Income/Growth Fund 1-A, Ltd., a Colorado limited partnership managed by the Company, the cable television system serving the areas in and around Ripon, Wisconsin (the "Ripon System"). The purchase price was $3,712,667, which was the average of three separate independent appraisals of the fair market value of the Ripon System. The purchase of the Ripon System was funded by borrowings available under JCH's revolving credit facility. In April 1996, the Company purchased from Jones Spacelink Income Partners 87-1, L.P., a Colorado limited partnership managed by the Company, the cable television systems serving the communities of Lodi, Burbank, Lafayette Township, New London, Bailey Lakes, Savannah, Shreve, Jeromesville, West Lafayette, Loudonville, Perrysville, Creston, Gloria Glens, Sterling, Seville, Westfield Center, Chippewa, Lake Area, Rittman, West Salem, Bloomville, Spencer, Polk and Congress, all in the State of Ohio (the "Lodi System"). The purchase price was $25,706,000, which was the average of three separate independent appraisals of the fair market value of the Lodi System. The purchase of the Lodi System was funded by borrowings available under JCH's revolving credit facility. 54 In February 1996, the Company purchased from IDS/Jones Growth Partners 87- A, Ltd., a Colorado limited partnership managed by the Company, the cable television system serving areas in and around Carmel, Indiana (the "Carmel System"). The purchase price was $44,235,333, which was the average of three separate independent appraisals of the fair market value of the Carmel System. The purchase of the Carmel System was funded by borrowings available under JCH's revolving credit facility. In February 1996, the Company purchased from Jones Cable Income Fund 1-B, Ltd., a Colorado limited partnership managed by the Company, the cable television system serving areas in and around Orangeburg, South Carolina (the "Orangeburg System"). The purchase price was $18,347,667, which was the average of three separate independent appraisals of the fair market value of the Orangeburg System. The purchase of the Orangeburg System was funded by borrowings available under JCH's revolving credit facility. In February 1996, the Company purchased from Cable TV Fund 12-BCD Venture (the "Venture"), a joint venture of three of the Company's managed limited partnerships, the cable television system serving areas in and around Tampa, Florida (the "Tampa System"). The purchase price was $110,395,667, which was the average of three separate independent appraisals of the fair market value of the Tampa System. The purchase of the Tampa System was funded by borrowings available under JCH's revolving credit facility. See Note 11 for a description of pending litigation relating to this transaction. In January 1996, the Company purchased the cable television systems serving Manassas, Manassas Park, Haymarket and portions of unincorporated Prince William County, all in the State of Virginia (the "Manassas System") from an unaffiliated party. The purchase price of the Manassas System was $71,100,000. The purchase was funded by borrowings available under JCH's revolving credit facility. The Company paid Financial Group a fee of $896,000 upon closing of this transaction for acting as the Company's financial advisor in connection with this transaction. All fees paid to Financial Group by the Company are based upon 90% of the estimated commercial rate charged by unaffiliated financial advisors. The Manassas System is now operated as part of the Prince William County System in the Virginia/Maryland Cluster. Exchanges --------- In April 1997, the Company, through JCH, conveyed to an affiliate of Tele- Communications, Inc. the cable television systems serving areas in and around Evergreen, Idaho Springs and portions of Jefferson County, Colorado in exchange for the cable television system serving areas in and around Annapolis, Maryland (the "Annapolis System") and cash in the amount of $2,500,000. The Company paid Financial Group a $695,250 fee upon completion of this exchange as compensation to it for acting as the Company's financial advisor in connection with this transaction. All fees paid to Financial Group by the Company are based upon 90% of the estimated commercial rate charged by unaffiliated financial advisors. The Annapolis System is now operated as part of the Company's Chesapeake Bay Group in the Virginia/Maryland cluster. In April 1996, the Company, pursuant to an asset exchange agreement (the "Time Warner Exchange Agreement") with Time Warner Entertainment Company, L.P. ("Time Warner"), an unaffiliated cable television operator, conveyed to Time Warner the cable television systems serving Hilo, Hawaii (the "Hilo System") and Kenosha, Wisconsin (the "Kenosha System") as well as the Lodi System, the Ripon System, the Lake Geneva System and cash in the amount of $11,735,667. In return, the Company received from Time Warner the cable television systems serving the communities in and around Savannah, Georgia (the "Savannah System"). This transaction was considered a non-monetary exchange of similar productive assets for accounting purposes and the Savannah System was recorded at the historical cost of the assets given up plus the $11,735,667 cash consideration, which was funded by borrowings available under JCH's revolving credit facility. The Company paid Financial Group a $1,286,000 fee upon the completion of this transaction as compensation to it for acting as 55 the Company's financial advisor. All fees paid to Financial Group by the Company are based upon 90% of the estimated commercial rate charged by unaffiliated financial advisors. In February 1996, the Company, pursuant to an asset exchange agreement (the "TWEAN Exchange Agreement") with Time Warner Entertainment-Advance/Newhouse Partnership ("TWEAN"), an unaffiliated cable television system operator, conveyed to TWEAN the Carmel System, the Orangeburg System and the Tampa System and cash in the amount of $3,500,000. In return, the Company received from TWEAN 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 Georges County, all in Maryland (the "South Prince Georges County System"), and portions of Fairfax County, Virginia (the "Reston System"). See Note 11 for a description of pending litigation relating to this transaction. This transaction was considered a non-monetary exchange of similar productive assets for accounting purposes and the South Prince Georges County System and the Reston System were recorded at the historical cost of the assets given up plus the $3,500,000 cash consideration, which was funded by borrowings available under JCH's revolving credit facility. The Company paid Financial Group a $1,668,000 fee upon the completion of this transaction as compensation to it for acting as the Company's financial advisor. All fees paid to Financial Group by the Company are based upon 90% of the estimated commercial rate charged by unaffiliated financial advisors. The South Prince Georges County System is now operated as part of the Prince Georges County System in the Virginia/Maryland Cluster. The Reston System is now operated as part of the Chesapeake Bay Group in the Virginia /Maryland Cluster. Sales ----- In May 1998, the Company sold the contract manufacturing business owned by Jones Futurex, Inc. ("Futurex") to a third party for $350,000 in cash. In addition, the buyer entered into a sublease arrangement for certain facilities leased by Futurex. Payments under the sublease agreement total approximately $1.8 million over the next 4 years. In connection with this transaction, the Company recognized a loss of approximately $3,616,000. The Company continues to own and operate Futurex's encryption business. In August 1998, the Company sold its 75% interest in Jones Customer Service Management, LLC to Jones Cyber Solutions, Ltd., an affiliated company, for $3,150,000. The purchase price was paid $2,000,000 in cash and $1,150,000 in a note receivable. The note receivable bears interest at prime +2%, and is payable in 36 months or upon a change in control of the Company. The proceeds from this transaction were used to offset the remaining assets related to the Company's customer billing venture. In October 1997, the Company sold the cable television system serving areas in and around Walnut Valley, California (the "Walnut Valley System") for $32,493,000 to Century Communications Corp., an unaffiliated party. The sales price represented the contract price of $33,493,000, less a purchase price adjustment of $1,000,000. The Company recognized a pre-tax gain of approximately $20,836,000 related to this sale in the fourth quarter of 1997. Proceeds from the sale were used to reduce outstanding indebtedness under the Company's credit facilities. The Company paid Financial Group a fee of $678,000 upon completion of the sale for acting as the Company's financial advisor in connection with this transaction. All fees paid to Financial Group by the Company are based upon 90% of the estimated commercial rate charged by unaffiliated financial advisors. In April 1997, the Company tendered all of its shares of Bell Cablemedia plc to Cable & Wireless Communications plc ("CWC") in exchange for 25,017,385 shares of CWC. During April and May 1997, the Company sold all of its shares of CWC for an aggregate sales price of $109,276,000. The Company recognized a pre- tax gain on this transaction of $44,563,000. Proceeds from the sale were used to reduce outstanding indebtedness under the Company's credit facilities. 56 In July 1996, the Company sold the assets of Jones Satellite Programming, Inc. ("JSP"), a wholly owned subsidiary, to an unaffiliated party for $2,873,871. The Company recorded a gain of approximately $2,873,000 upon the closing of this sale. JSP provided satellite programming to satellite dish owners. In June 1996, the Company completed the sale of Galactic Radio to Global Group for $17.2 million. Global Group subsequently sold Galactic Radio to another affiliate of International. The Company's Board of Directors requested and received a fairness opinion related to this sale from an unaffiliated investment banking firm. The sales price was paid in the form of 984,968 ADSs of Bell Cablemedia. The number of ADSs represented the purchase price of $17.2 million divided by the 30-day average closing price of an ADS for the 30-day period immediately preceding the closing date. Due to the related party nature of this transaction, no gain was reflected in the accompanying financial statements. The pro forma effect of the above-described acquisitions, exchanges and sales of cable television properties and the sales of non-strategic subsidiaries on the Company's results of operations for the years ended December 31, 1998 and 1997 as if the transactions occurred on January 1 of the years presented in the following unaudited tabulation:
For the year ended December 31, 1998: ---------------------------------------------- (In Thousands) As Reported Acquisitions Pro Forma ----------- ------------ --------- Revenues $ 460,729 $ 67,726 $ 528,455 ======= ======= ======== Operating Income (Loss) $ 23,392 $ (3,181) $ 20,211 ======= ======= ======== Net Loss $ (80,418) $ (22,028) $ (102,446) ======= ======= ======== Loss Per Share $ (1.96) $ (2.50) ======= ========
For the year ended December 31, 1997: -------------------------------------------------- (In Thousands) Acquisitions/ As Reported Exchanges Sales Pro Forma ----------- ------------- ----- --------- Revenues $ 362,588 $ 113,000 $ (7,408) $ 468,180 ======= ======= ======= ========= Operating Income (Loss) $ (17,157) $ (8,126) $ (1,416) $ (26,699) ======= ======= ======= ========= Net Loss $ (51,948) $ (41,544) $ (64,865) $ (158,357) ======= ======= ======= ========= Loss Per Share $ (1.50) $ (4.58) ======= =========
In June 1998, the Company entered into an agreement with Cable TV Fund 14- A, Ltd. ("Fund 14-A"), a managed partnership, to purchase the cable television system serving areas in and around Calvert County, Maryland (the "Calvert County System") for a purchase price of $39,388,667, subject to customary closing adjustments. The purchase price represents the average of three independent appraisals of the fair market value of the Calvert County System. The Calvert County System is contiguous to the Company's Virginia/Maryland 57 cluster of cable television systems. Funding for this transaction is expected to be provided by borrowings available under JCH's credit facility. The closing of this transaction, which is expected to occur in April 1999, is subject to a number of conditions including the approval of the transaction by the holders of a majority of the limited partnership interests of Fund 14-A; the expiration or termination of all waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 applicable to the agreement or the transactions contemplated thereby; and the receipt of consents of governmental authorities and other third parties. 3. TRANSACTIONS WITH RELATED PARTIES The Company and the managed partnerships for which the Company is general partner (see Note 5) have had, and will continue to have, certain transactions with International and its other subsidiaries. The Company may continue to have certain transactions with International and its other subsidiaries in the future. Principal recurring transactions are as follows: Costs Shared by the Company and Managed Partnerships Jones Interactive, Inc. ("Jones Interactive"), a wholly owned subsidiary of International, provides information management and data processing services for operating companies affiliated with International. Charges to the various operating companies are based on usage of computer time by each entity. Amounts charged to the Company and its managed partnerships for the years ended December 31, 1998, 1997 and 1996 totaled $6,089,000, $5,454,000, and $5,784,000, respectively. The Company is party to a lease with Jones Properties, Inc., a wholly owned subsidiary of International, under which the Company has leased a 101,500 square foot office building in Englewood, Colorado. The lease agreement, as amended, has a 15-year term, expiring July 2000, with three 5-year renewal options. The annual rent is not to exceed $24.00 per square foot plus operating expenses. The Company has subleased approximately 44% of the building to International and certain affiliates of International on the same terms and conditions as the above described lease. Rent payments to Jones Properties, Inc., net of subleasing reimbursements, for the three years ended December 31, 1998, 1997 and 1996 were $1,390,000, $1,345,000 and $1,467,000, respectively. Upon the closing of BTH's investment in the Company in December 1994, the Company entered into a Secondment Agreement with BTH. Pursuant to the Secondment Agreement, BTH provided a total of 8 secondees during 1998. These secondees worked for the Company and its managed partnerships. The Company reimbursed BTH for the full employment costs of such individuals. The Company reimbursed BTH $719,000, $1,180,000 and $1,138,000 during the years ended December 31, 1998, 1997 and 1996, respectively. The Company paid approximately 63%, 47% and 40% of the above-described data processing, rental and secondment expenses during the years ended December 31, 1998, 1997 and 1996, respectively. The remainder of the expenses were allocated to and paid by the managed partnerships. Costs Borne and Payments Received by the Company The Company receives satellite programming from Knowledge TV, an affiliate of International in which the Company also has a significant ownership interest. See Note 4. Payments made to Knowledge TV for programming provided to the Company's owned cable television systems for the years ended December 31, 1998, 1997 and 1996 totaled approximately $622,800, $411,200 and $302,600, respectively. The Company received satellite programming from Jones Computer Network, Ltd., an affiliate of International, through April 1997. See Note 4. Payments made to Jones Computer Network, Ltd. for programming provided to the Company's owned cable television systems for the years ended December 31, 1998, 1997 and 1996 totaled approximately $-0-, $222,800 and $515,400, respectively. 58 The Company receives satellite programming from Great American Country, Inc., an affiliate of International. Payments made to Great American Country, Inc. for programming provided to the Company's owned cable television systems for the years ended December 31, 1998, 1997 and 1996 totaled approximately $517,000, $313,000 and $281,000, respectively. The Company also receives satellite programming from Superaudio, an affiliate of Galactic Radio. The Company sold Galactic Radio to an affiliate of International on June 14, 1996. See Note 2. Payments made to Galactic Radio for programming provided to the Company's owned cable television systems for the year ended December 31, 1998, 1997 and for the period from June 15, 1996 to December 31, 1996 totaled approximately $348,000, $244,000 and $119,000, respectively. The Product Information Network Venture ("PIN") is an affiliate of International that provides a satellite programming service. PIN airs product infomercials 24 hours a day, seven days a week. A portion of the revenues generated by PIN are paid to the cable television systems that carry PIN's programming. Most of the Company's owned cable television systems carry PIN for all or part of each day. Aggregate payments received by the Company from PIN relating to the Company's owned cable television systems totaled approximately $1,008,000, $705,000 and $466,000 for the years ended December 31, 1998, 1997 and 1996, respectively. Effective upon the closing of BTH's investment in the Company in December 1994, the Company entered into a Supply and Services Agreement with BTH. Pursuant to the Supply and Services Agreement, BTH provides the Company with access to the expert advice of personnel from BTH and its affiliates for the equivalent of three man-years on an annual basis. The Company pays an annual fee of $2,000,000 to BTH during the term of the agreement. Payments to BTH under the Supply and Services Agreement during the years ended December 31, 1998, 1997 and 1996 totaled $2,000,000, $2,000,000 and $2,000,000, respectively. Financial Group performs services for the Company as its agent in connection with negotiations regarding various financial arrangements of the Company. In December 1994, the Company entered into a Financial Services Agreement for eight years with Financial Group pursuant to which Financial Group has agreed to render financial advisory and related services to the Company for a fee equal to 90% of the fees that would be charged to the Company by unaffiliated third parties for the same or comparable services. The Company will pay Financial Group an annual $1,000,000 retainer as an advance against payments due pursuant to this agreement and will reimburse Financial Group for its reasonable out-of-pocket expenses. The Company paid fees totaling $756,000 in 1998 relating to the purchase of the Hinesville System. The Company paid fees totaling $3,456,000 in 1997 related to the acquisition of the North Prince Georges County System, the acquisition of the Annapolis System and the sale of the Walnut Valley System. The Company paid fees totaling $3,850,000 in 1996 related to the acquisition of the Manassas System, the South Prince Georges County System, the Reston System and the Savannah System. 4. INVESTMENTS @Home Corporation In June 1998, the Company entered into a Distribution Agreement with At Home Corporation ("@Home"), which provides for the distribution of high speed internet services to the Company's cable television systems. Deployment began in December 1998. In conjunction with this agreement, the Company and @Home entered into a Warrant Purchase Agreement providing for the Company's purchase of up to a maximum of 2,046,100 shares of Series A Common Stock of @Home at $10.50 per share. The Warrant becomes exercisable after March 31 each year, beginning in 1999, as the Company launches @Home services in its cable television systems. 59 Jones Global Group, Inc. On December 23, 1996, the Company redeemed 225 of its 380 shares of Global Group in exchange for a $8,950,188 note receivable from Global Group. The note was repaid in the first quarter of 1997. As a result of this transaction, the Company recognized a gain of $2,979,000 and now owns a 20% interest in Global Group. The Company accounts for its investment in Global Group using the equity method. Knowledge TV, Inc. During 1992, the Company invested $10,000,000 in Knowledge TV, an affiliate of International that provides educational programming, for 25% of the stock of Knowledge TV, which also received certain advertising avails and administrative and marketing considerations from the Company. The number of shares of Class A Common Stock of Knowledge TV issued to the Company was based on the average of two separate independent appraisals of Knowledge TV. Through its acquisition of the assets of Jones Spacelink, Ltd., the Company obtained an additional 13% interest in Knowledge TV in December 1994. Spacelink had acquired such interest for $3,135,000. In 1996, additional issuances of Knowledge TV's Class A Common Stock reduced the Company's investment in Knowledge TV to 26%. The Company accounts for this investment using the equity method and, as of December 31, 1998, had recognized equity losses equal to its investment of $13,135,000. As described below, in January 1999 the Company acquired an additional 6% interest in Knowledge TV. Jones Education Company On April 11, 1995, the Company converted $20,000,000 in advances to Knowledge TV into shares of Class A Common Stock of Jones Education Company ("JEC"), the parent company of Knowledge TV, for an approximate 17% equity interest in JEC. In 1996, subsequent issuances of JEC's Class A Common Stock reduced the Company's investment in JEC to 16%. The Company has accounted for this investment using the equity method. The net investment as of December 31, 1998 was $12,789,000. In January 1999, the Board of Directors of the Company approved the exchange of the Company's shares of JEC for additional shares of Knowledge TV. Such exchange increases the Company's ownership percentage in Knowledge TV to approximately 32%. The Company's Board of Directors obtained an independent opinion regarding the fairness of this transaction. Bell Cablemedia plc On April 25, 1997, the Company tendered all of its shares of Bell Cablemedia to CWC in exchange for 25,017,385 shares of CWC. During April and May 1997, the Company sold all of its shares of CWC for an aggregate sales price of $109,276,000. The Company recognized a pre-tax gain on this transaction of $44,563,000. Proceeds from the sale were used to reduce outstanding indebtedness under the Company's credit facilities. The Company now owns no shares of Bell Cablemedia or CWC. Jones Intercable Investors, L.P. The Company was the General Partner and a 19% limited partner of Jones Intercable Investors, L.P., a managed partnership. Jones Intercable Investors, L.P. owned the Independence System until it was purchased by the Company on August 31, 1997. See Note 2. The Company received a limited partner distribution of $25,721,000 as a result of the sale of the Independence System, which reduced the Company's basis in the Independence System. Subsequent to the sale of the Independence System and the distribution of the net sales proceeds, Jones Intercable Investors, L.P. was liquidated and dissolved. 60 Jones Customer Service Management, L.L.C. In 1995, the Company and Jones Cyber Solutions, Ltd. ("JCS"), an indirect subsidiary of International, formed a venture known as Jones Customer Service Management, LLC for the purpose of developing a subscriber billing and management system. As of December 31, 1998, the Company had invested $5,200,000 in the venture. The Company accounts for this investment using the equity method and, as of December 31, 1998, had recognized equity losses equal to its investment of $5,200,000. In August 1998, the Company sold its 75% interest in Jones Customer Service Management, LLC to JCS for $3,150,000. The purchase price was paid $2,000,000 in cash and $1,150,000 in a note receivable. The note receivable bears interest at prime +2%, and is payable in 36 months or upon a change in control of the Company. The proceeds from this transaction were used to offset the remaining assets related to the Company's customer billing venture. JCS performed the basic system development work for the venture and was paid periodically beginning in 1995 on a time and materials basis, plus 10% of the amount charged, for its own service. The venture's subscriber billing and management system was trialed in one of the Company's cable systems during 1997. The Company determined, in late 1997, not to pursue the implementation of the subscriber billing and management system. As a result of this decision, the Company incurred a write-off of $14,228,000 in the fourth quarter of 1997 related to the write-off of costs associated with the planned implementation of the billing system in Company-owned cable systems. Such write-off was included in 1997 depreciation and amortization expense. 5. MANAGED PARTNERSHIPS Organization The Company is general partner for 17 Colorado limited partnerships formed to acquire, construct, develop and operate cable television systems. Partnership capital was raised principally through a series of public offerings of limited partnership interests. The Company generally made a capital contribution of $1,000 to each partnership and is allocated 1% of all partnership profits and losses. The Company also purchased limited partner interests in certain of the partnerships and generally participates with respect to such interests on the same basis as other limited partners. Management Fees As general partner, the Company manages the managed partnerships and receives a fee for its services generally equal to 5% of the gross revenues of the managed partnerships, excluding revenues from the sale of cable television systems or franchises. Distributions For the managed partnerships formed by the Company, any partnership distributions made from cash flow, as defined, are generally allocated 99% to the limited partners and 1% to the general partner. The general partner is also entitled to partnership distributions other than from cash flow, such as from the sale or refinancing of cable television systems or upon dissolution of the partnership, generally equal to 25% of the net remaining assets of the partnership after payment of the partnership's debts and after investors have received an amount equal to their original capital contributions plus, in many cases, a preferential return on their investments. The Company received distributions from managed partnerships totaling $64,716,000, $4,556,000 and $14,000,000 for the years ended December 31, 1998, 1997 and 1996, respectively. Distributions totaling $32,090,000 received during 1998 were recorded as reductions in the Company's cost basis of cable systems 61 acquired from managed partnerships. The $4,556,000 distribution received during 1997 was recorded as a reduction in the Company's cost basis in the assets of the Manitowoc System. Allocations The Company's managed limited partnerships reimburse the Company for certain allocated overhead and administrative expenses. These expenses generally consist of salaries and related benefits paid to corporate personnel (including secondees of BTH), rent, data processing services and other corporate facilities costs. The Company provides engineering, marketing, administrative, accounting, information management, legal, investor relations and other services to the partnerships. Allocations of personnel costs have been based primarily on actual time spent by Company employees with respect to each partnership managed. Remaining overhead costs 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 Company. Company-owned systems are also allocated a proportionate share of these expenses under the allocation formulas described above. The Company believes that such allocation methods are reasonable. Amounts charged to managed partnerships and other affiliated companies have directly offset the Company's general and administrative expenses by approximately $15,226,000, $21,091,000 and $25,322,000 for the years ended December 31, 1998, 1997 and 1996, respectively. Advances The Company has made advances to certain of the managed partnerships primarily to accommodate expansion and other financing needs of the partnerships. Such advances bear interest at rates equal to the Company's weighted average cost of borrowing which, for the year ended December 31, 1998 was 7.19%. Interest charged to the limited partnerships for the years ended December 31, 1998, 1997 and 1996 was $212,000, $363,000 and $1,713,000 respectively. Certain condensed financial information regarding managed partnerships, on a combined basis, is as follows:
December 31, ------------------------------- 1998 1997 1996 -------- -------- -------- (Stated in Thousands) Total assets $250,211 $521,554 $ 651,053 Debt 172,126 476,849 591,564 Amounts due general partner 5,568 7,783 3,996 Partners' capital (Net of accumulated deficit) 72,426 19,649 24,172 Revenues 244,357 343,655 380,865 Depreciation and amortization 70,532 106,130 128,095 Operating income (loss) 4,447 7,261 (11,896) Net income (loss) 666,897 190,227 123,263
The fair market values of the partnerships' assets, as determined by independent appraisals, exceed the combined amounts due the Company and other outstanding indebtedness for each individual partnership. The amount reported as combined net income (loss) for all managed limited partnerships for the years ended December 31, 1998, 1997 and 1996 included gains on sales and liquidations recognized by certain partnerships which totaled approximately $689,466,000, $228,918,000 and $181,632,000, respectively. 62 6. NOTES RECEIVABLE FROM AFFILIATES In August 1998, the Company received a promissory note from JCS in conjunction with the sale of the Company's interest in Jones Customer Service Management, LLC to JCS. The principal sum is $1,150,000. Interest on the principal is at the prime rate +2. The note matures in 36 months or upon a change in control of the Company. Pursuant to a tax sharing agreement with International, Spacelink was allocated tax benefits based on its pro rata share of taxable loss generated as part of the consolidated group. The tax sharing agreement was terminated effective June 1, 1993. The allocated benefits are to be paid no later than five years from the date they were created. The benefits accrue interest at the prime rate in effect at the time they were created. The Company, through its acquisition of Spacelink's assets, acquired a receivable from International relating to this tax sharing agreement. The balance of this receivable at December 31, 1998 was $380,000. On December 19, 1994, Spacelink received a promissory note from Jones Earth Segment, Inc. ("Earth Segment"), then an affiliate of Spacelink, in conjunction with the transfer of Earth Segment to International. The Company acquired this note as part of the acquisition of Spacelink's assets. The principal sum was $6,554,500. Interest on the principal was at the prime rate plus one percent. The note was repaid in March 1998. 7. DEBT
Debt consists of the following: December 31, --------------------------- 1998 1997 ------------ ----------- (Stated in Thousands) LENDING INSTITUTIONS: JCH Revolving Credit Facility $ 340,000 $ 343,000 JCH II Credit Facility 370,000 128,000 SENIOR NOTES: Senior Notes due April 15, 2008, interest payable semi-annually at 7 5/8% 196,533 - Senior Notes due April 1, 2007, interest payable at 8 7/8%, net of unamortized discount of $1,333,000 248,766 248,667 Senior Notes due March 15, 2002, interest payable semi-annually at 9 5/8% 200,000 200,000 SUBORDINATED DEBENTURES: Debentures due March 1, 2008, interest payable semi-annually at 10.5%, redeemable at the Company's option on or after March 1, 2000 at 105.25% of par, declining to par by March 1, 2005 100,000 100,000 OTHER: Capitalized equipment lease obligations due in installments through 2002 and other debt 7,408 5,065 --------- --------- Total debt $ 1,462,707 $ 1,024,732 ========= =========
63 On October 31, 1995, the Company, through JCH, a wholly owned subsidiary, entered into a $500 million reducing revolving credit facility with a group of commercial banks (the "JCH Credit Facility"). On September 17, 1996, JCH amended this revolving credit facility to allow for borrowings up to $600 million and to reduce by 1/8% the rates of interest charged on any amounts outstanding. This credit facility required the transfer of certain of the Company's cable television properties to JCH. The entire $600 million commitment is available through March 31, 1999, at which time the commitment will be reduced quarterly with a final maturity of December 31, 2004. As of December 31, 1998, $340,000,000 was outstanding under this agreement. Interest on outstanding obligations ranges from Base Rate (which generally approximates the prime rate) to Base Rate plus 1/8% or LIBOR plus 1/2% to LIBOR plus 1% based on certain leverage covenants. In addition, a commitment fee of 3/16% to 3/8% on the unused commitment is also required. The effective interest rate on amounts outstanding at December 31, 1998 was 6.4%. On October 29, 1996, the Company, through JCH II, a wholly owned subsidiary, entered into an additional $600 million credit facility. The credit facility consists of a $300 million reducing revolving credit facility and a $300 million 364 day term loan (the "JCH II Credit Facility"). The reducing revolving credit facility allows for borrowing through the final maturity date of December 31, 2005. The maximum amount available reduces quarterly beginning March 31, 2000 through the final maturity date of December 31, 2005. The term loan facility allowed for borrowings through October 1998, at which time any outstanding borrowings automatically converted to a term loan payable in semi- annual installments commencing June 30, 2001 with final maturity date of December 31, 2005. As of December 31, 1998, $370,000,000 was outstanding under this agreement, of which $300,000,000 was borrowed under the term loan portion and $70,000,000 was borrowed under the reducing revolving credit facility. Interest on amounts outstanding varies from the Base Rate (which generally approximates the prime rate) to Base Rate plus 1/4% or LIBOR plus 1/2% to 1 1/4%, depending on certain financial covenants. A commitment fee of 1/8% to 3/8% per year on available, but unborrowed, amounts is also required. The effective interest rate on amounts outstanding at December 31, 1998 was 5.9%. The Company has entered into various interest rate swap agreements in order to manage interest costs on its outstanding debt. The Company has entered into such agreements in order to fix the interest rate for the duration of the contract as a hedge against volatility in interest rates. Any amounts paid or received due to the swap arrangements are recorded as an adjustment to interest expense. As of December 31, 1998, the Company had entered into interest rate swap agreements with notional principal totaling $300,000,000 that fixed the interest rate in a range of 5.3% to 6.5% and mature between July 2000 and January 2003. The Company believes there is no significant fair value associated with these swap agreements. In addition to the swap agreements described above, the Company has entered into a series of interest rate swaps that effectively fixes the rate on the Company's $100,000,000 of 10.5% Debentures at 7.64% through their maturity in March 2008. The swap agreements are accounted for consistent with the Company's policy described above. The Company believes there is no significant fair value associated with these swap agreements. On April 1, 1998, the Company issued and sold $200,000,000 of its 7 5/8% Senior Notes due April 15, 2008 at 98.173% of par value. The Senior Notes bear interest at 7 5/8% per annum payable at April 15 and October 15 of each year. The Notes mature on April 15, 2008 and are not redeemable prior to maturity. The discount to par will be amortized over the live of the votes. The Company paid fees of approximately $87,000 related to this transaction. Such fees will be amortized over the lives of the loan. Proceeds from the sale of the Senior Notes were used to repay amounts then outstanding under the revolving credit facilities of the Company's subsidiaries. On March 18, 1997, the Company issued and sold $250,000,000 of its 8 7/8% Senior Notes due April 1, 2007 at 99.44% of par value. The Senior Notes bear interest at 8 7/8% per annum payable at April 1 and October 1 of each year. The notes are redeemable on or after April 1, 2004 at the option of the Company at 101% of par declining to par on April 1, 2005. The discount to par will be amortized over the life of the notes. The Company paid fees of $4,498,000 relating to this transaction. Such fees will be amortized over the life of the notes. 64 On March 23, 1995, the Company sold $200 million of 9 5/8% Senior Notes due March 15, 2002. The Senior Notes bear interest from the date of issuance at the rate of 9 5/8% per annum, payable semi-annually on March 15 and September 15 of each year. The Senior Notes are not redeemable prior to maturity and are not subject to any sinking fund. The Company paid fees of $3,500,000 relating to this transaction. Such fees will be amortized over the life of the notes. There are no sinking fund requirements related to the 10.5% Senior Subordinated Debentures due March 1, 2008. On July 15, 1997, the Company redeemed its $160 million 11.5% Subordinated Debentures (the "11.5% Debentures") due 2004 at 106.75% of par value, plus accrued interest. The Company recognized an extraordinary loss of $13,459,000 related to this redemption. The 11.5% Debentures were redeemed using proceeds from the $250,000,000 Senior Notes issued and sold on March 18, 1997. The Company has never paid a cash dividend with respect to its shares of Common Stock or Class A Common Stock, and it has no present intention to pay cash dividends in the foreseeable future. The current policy of the Company's Board of Directors is to retain earnings to provide funds for the operation and expansion of its business. Certain of the Company's debt arrangements restrict the right of the Company to declare and pay cash dividends without the consent of the holders of the debt. At December 31, 1998, the carrying amount of the Company's debt was $1,462,707,000 and the estimated fair value was $1,517,548,000. The fair value of the Company's debt is estimated based on the quoted market prices for the same issues. Installments due on debt principal for each of the five years in the period ending December 31, 2003 and thereafter are: $2,237,000, $2,217,000, $32,217,000, $360,739,000, $180,000,000 and $885,297,000, respectively. 8. INCOME TAXES Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Deferred tax expense or benefit is the result of changes in the liability or asset recorded for deferred tax purposes. During 1998, 1997, and 1996, changes in the Company's temporary differences and losses from operations, which result primarily from depreciation and amortization, resulted in deferred tax benefits which were offset, in part, by a valuation allowance. A deferred income tax benefit of $3,275,000 was recognized for the year ended December 31, 1997. No current or deferred federal income tax expense or benefit was recorded from continuing operations during the years ended December 31, 1998 and 1996. 65 Income tax expense attributable to income or loss from continuing operations differs from the amounts computed by applying the Federal income tax rate of 35% in 1998, 1997, and 1996 as a result of the following:
Year Ended December 31, ----------------------------------------- 1998 1997 1996 ----------------------------------------- (Stated in Thousands) Computed "expected" tax benefit $ (28,146) $ (13,471) $ (21,931) State and local taxes, net of federal income tax benefit (2,614) (1,688) (2,036) Dividends excluded for income tax purposes (138) (102) (89) Amortization not deductible for tax purposes 942 876 752 Adjustment to book/tax difference of intangible assets 25,836 - - Other 157 116 (449) ------- ------- ------- Total income tax benefit from operations (3,963) (14,269) (23,753) Tax effect of extraordinary operations - (4,711) - Valuation allowance 3,963 15,705 23,753 ------- ------- ------- Total income tax benefit $ - $ 3,275 $ - ======= ======= =======
The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1998, and 1997 are presented below:
December 31, -------------------------- 1998 1997 ------------ --------- (Stated in Thousands) Deferred Tax Assets Net operating loss carryforwards $ 96,522 $ 76,543 Investment tax credit carryforwards 1,013 1,024 Alternative minimum tax credit carryforwards 1,116 1,116 Investment in affiliates and domestic television partnerships 11,464 9,597 Future deductible amounts associated with other assets and liabilities 5,027 4,331 -------- -------- Total gross deferred tax assets 115,142 92,611 Valuation allowance on deferred tax assets (88,436) (84,473) Deferred Tax Liabilities Property and equipment, due to differences in depreciation methods for financial statement and tax purposes (19,569) (1,001) -------- -------- Net Deferred Tax Asset $ 7,137 $ 7,137 ======== ========
At December 31, 1998, the Company had net operating loss carryforwards for income tax purposes aggregating approximately $106,388,000 for alternative minimum tax ("AMT") and $252,344,000 for regular tax which expire $43,126,000 in 2005, $26,203,000 in 2007, $40,809,000 in 2008, $30,216,000 in 2009, $14,732,000 in 2010, $12,689,000 in 2011, $26,859,000 in 2012 and $57,710,000 in 2013. The Company also had investment tax credit carryforwards of $1,013,000 expiring in 1999 through 2005. 66 The Company entered into transactions during 1994 which resulted in a change in greater than 50% of the ownership interests of the Company shares. Tax statutes limit the utilization of existing tax NOLs when this occurs to a specified amount each year plus the amount of existing built-in gain in corporate assets at the ownership change. Management believes that the application of the limitation will not likely cause taxable income to occur in a future period due to unavailability of limited NOLs. Management has established a valuation allowance for all net operating losses and for all investment tax credits and alternative minimum tax credit carryforwards. 9. STOCK OPTIONS The Company has a stock option plan, the 1992 stock option plan (the "1992 Plan"). The Company accounts for this plan under APB Opinion No. 25, under which no compensation cost has been recognized for option grants that equal market price at time of grant. The Company has adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123) for disclosure purposes. In accordance with SFAS 123, the fair value of each option grant has been estimated as of the date of grant using the Black- Scholes option pricing model using the following weighted-average assumptions for the years ended December 31, 1997 and 1996: risk-free interest rates of 5.68% to 7.58%; expected dividend yield of 0%; expected lives of 7 years; and expected volatility of 45.06%. There were no stock-options granted during the year end December 31, 1998. Had compensation cost for this plan been determined consistent with SFAS 123, the Company's net loss and net loss per share would have been increased to the following pro forma amounts:
For the Year Ended December 31, ------------------------------- 1998 1997 1996 ----------- --------- -------- (Stated in Thousands) Net loss: As Reported $(80,418) $(51,948) $ (62,660) Pro Forma $(83,908) $(53,820) $ (64,092) Loss Per Share: As Reported $ (1.96) $ (1.50) $ (2.00) Pro Forma $ (2.05) $ (1.57) $ (2.06)
Because the method of accounting required by SFAS 123 has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. The 1992 Plan was approved by the Company's shareholders in August 1992. Under the terms of the 1992 Plan, as amended in 1997, a maximum of 2,583,455 shares of Class A Common Stock and 200,000 shares of Common Stock are available for grant. All employees of the Company, its parent or any participating subsidiary, including directors of the Company who are also employees, are eligible to participate in the 1992 Plan. Options generally become exercisable in equal installments over a four-year period commencing on the first anniversary of the date of grant. In August 1998, the Board of Directors, in conjunction with the anticipated change in control from Mr. Jones to Comcast and consistent with the terms of the 1992 Plan, voted to accelerate the vesting of all options granted under the 1992 Plan to September 1998. The average life of the outstanding options is 6.8 years, however the average life could be shorter given the anticipated change in control to Comcast. The options expire, to the extent not exercised, on the tenth anniversary of the date of grant, or upon the recipient's earlier termination of employment with the Company. Options can be incentive stock options or non-statutory stock options. The exercise price may not be less than 100% of the fair market value for incentive stock options, but may be less than fair market value for non-statutory options. Stock appreciation rights may be granted in tandem with the grant of stock options. The Board of Directors may, in its discretion, establish provisions for the exercise of options different from those described above. In 1998, 1997, and 1996, the Company recognized approximately $217,000, $261,000 and $261,000, respectively, of non-cash compensation expense related to stock options granted on November 9, 1993 under the 1992 Plan. As of 67 December 31, 1998, options to purchase 1,839,980 shares of Class A Common Stock had been granted, of which options to purchase 679,916 shares had been exercised and 358,523 shares had been terminated or forfeited upon resignation of the holders. As of December 31, 1998, all 200,000 of the Common Stock options authorized by the 1992 Plan had been granted and exercised. Information concerning Class A Common Stock options is as follows:
Year Ended December 31, ----------------------------------------------------------------------------------------------- 1998 1997 1996 ---------------------------- ---------------------------- ----------------------------- Weighted Weighted Weighted Average Average Average Shares Exercise Price Shares Exercise Price Shares Exercise Price ------ -------------- ------ -------------- ------ -------------- Outstanding at beginning of year 1,449,848 $12.08 1,329,162 $12.19 1,508,362 $11.93 Granted - - 365,433 9.27 3,540 13.25 Exercised (602,881) 12.30 (89,700) 6.34 (52,468) 2.85 Canceled (45,426) 10.79 (155,047) 11.88 (130,272) 12.98 ----------- ----------- ------------ Outstanding at end of year 801,541 $11.99 1,449,848 $12.08 1,329,162 $12.19 =========== =========== ============ Exercisable at end of year 801,541 820,290 676,414 Range of exercise prices $9.00-13.81 $9.25-13.81 $5.625-13.81 Weighted-average fair value of options granted during the year $ - $ 5.26 $ 7.56
10. CLASS A COMMON STOCK The Class A Common Stock has certain preferential rights with respect to cash dividends and upon liquidation of the Company. In the case of cash dividends, the holders of the Class A Common Stock will be paid one-half cent per share per quarter in addition to any amount payable per share for each share of Common Stock. In the event of liquidation, holders of the Class A Common Stock are entitled to a preference of $1 per share. After such amount is paid, holders of the Common Stock are entitled to receive $1 per share for each share of Common Stock outstanding. Any remaining amount would be distributed to the holders of the Class A Common Stock and the Common Stock on a pro rata basis. In general, with respect to the election of directors, the holders of Class A Common Stock, voting as a separate class, are entitled to elect that number of directors which constitutes 25% of the total membership of the Board of Directors. Holders of common stock, voting as a separate class, are entitled to elect the remaining directors. Pursuant to the terms of the Shareholders Agreement dated as of December 20, 1994 among Glenn R. Jones, International, BTH and the Company (the "Shareholders Agreement"), the Company's Board of Directors consists of 13 Directors. The parties to the Shareholders Agreement have agreed that of the four Class A Directors, BTH will be entitled, but not required, to designate one Director and the remaining three directors, which shall be Independent Directors (as such term is defined in the Shareholders Agreement), will be jointly designated by Glenn R. Jones and BTH. The parties to the Shareholders Agreement also have agreed that Mr. Jones will be entitled, but not required, to designate seven of the nine Common Directors and that BTH will be entitled, but not required, to designate two of the Common Directors. In all other matters not requiring a class vote, the holders of the Common Stock and the holders of Class A Common Stock vote as a single class provided that holders of Class A Common Stock have one-tenth of a vote for each share held and the holders of the Common Stock have one vote for each share held. 68 11. COMMITMENTS AND CONTINGENCIES The Company rents office facilities and equipment under various long-term lease arrangements. Minimum commitments under noncancelable operating leases for the five years ending December 31, 2003 and thereafter are as follows:
Building Facilities Equipment Lease Leases Leases Total ----- ------ ------ ----- (Stated in Thousands) 1999 1,365 4,718 654 6,737 2000 797 3,710 365 4,872 2001 - 3,044 185 3,229 2002 - 2,252 55 2,307 2003 - 1,578 11 1,589 Thereafter - 6,267 - 6,267 ----- ------ ------ ------ Total commitments $ 2,162 $ 21,569 $ 1,270 $ 25,001 ===== ====== ====== ======
Rent, net of sublease reimbursements, paid during the years ended December 31, 1998, 1997 and 1996, totaled $5,623,000, $4,452,000 and $4,195,000, respectively. Certain amounts included in lease commitments will be allocated to managed limited partnerships using the method discussed in Note 5. Litigation Tampa Litigation - ---------------- The Company is a defendant in a now-consolidated civil action filed by limited partners of Cable TV Fund 12-D, Ltd., one of the Company's managed partnerships. The case, styled David Hirsch, Marty, Inc. Pension Plan (by its ---------------------------------------------- trustee and beneficiary, Martin Ury) and Jonathan 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., plaintiffs 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 (District Court, Arapahoe - ------------------------------------------------ County, State of Colorado, Case No. 95-CV-1800, Division 3), is a derivative action filed on behalf of 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"). The consolidated complaint generally alleges that the Company breached its fiduciary duty to the plaintiffs and to the other limited partners of Fund 12-B, Fund 12-C and Fund 12-D and the Cable TV Fund 12-BCD Venture (the "Venture") in connection with the Venture's sale of the Tampa, Florida cable television system (the "Tampa System") to a subsidiary of the Company and the subsequent trade of the Tampa System 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. 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 Company 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 Fund 12-B, Fund 12-C 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. 69 The Company 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 Company intends to defend this lawsuit vigorously. In August 1997, the Company moved for summary judgment in its favor on the ground that plaintiffs did not make demand on the Company for the relief they seek before commencing their lawsuits or show that such a demand would have been futile. In January 1998, the Court (1) held that plaintiffs did not make demand before commencing their lawsuits or show that such demand would have been futile, (2) stayed the consolidated case and vacated the February 1998 trial date, (3) ordered that plaintiffs make a demand on the Company and that the Company appoint an independent counsel to review, consider and report on that demand, (4) ordered that the independent counsel be appointed at the March 1998 meeting of the Company's Board of Directors and (5) ordered that the independent counsel be subject to the approval of the court. The court set a new trial date for October 1998 in the event that the case was not resolved through the independent counsel process or otherwise. In March 1998, the Company's Board of Directors appointed an independent counsel. The plaintiffs did not object to the Company's choice, and the Court approved the Company's choice of independent counsel. During the period March through May 1998, the independent counsel met several times with the attorneys representing the plaintiffs and the Company, and he also reviewed a great quantity of written materials. The independent counsel issued his report on August 3, 1998, which concluded that the plaintiffs' claims are not meritorious and are not supported by a preponderance of the evidence. The independent counsel further determined that the Company "did not breach a fiduciary duty" owed to the plaintiffs or to the partnerships and the Venture and that the Company "did not commit any impropriety in connection with" the Venture's sale of the Tampa System. The independent counsel specifically found that the three appraisals of the Tampa System were independent and objective and met the requirements of the partnership agreements. He further noted that the Company had met its fiduciary duties of fairness and full disclosure to the partnerships and the Venture. On August 5, 1998, the Company moved to dismiss or for summary judgment in its favor based on the report of independent counsel, a motion the plaintiffs opposed. On September 11, 1998, the Court denied the Company's motion to dismiss or for summary judgment based on the report of independent counsel. The Court then set a new trial date for May 3, 1999. The Company subsequently submitted a motion for reconsideration of the Court's denial of the Company's motion to dismiss or for summary judgment based on the report of the independent counsel. The Court denied such motion. The Company then filed an interlocutory appeal of the Court's rulings to the Colorado Supreme Court. On February 1, 1999, the Colorado Supreme Court issued an order requiring the plaintiffs to show cause why the Company's request for dismissal or summary judgment should not be granted, and staying all proceedings in the trial court until the Company's appeal is resolved. Palmdale Litigation - ------------------- In December 1998, City Partnership Co. ("Plaintiff"), a limited partner of Fund 12-C and Fund 12-D, filed a class action complaint in the District Court, Arapahoe County, State of Colorado (Case No. 98-CV-4493) naming the Company as defendant. Plaintiff, on its behalf and on behalf of all other persons who are limited partners of Fund 12-B, Fund 12-C and Fund 12-D, is challenging the terms of sale of the cable television system serving the communities in and around Palmdale and Lancaster, California (the "Palmdale System") to an affiliate of the Company. This case is in a very preliminary stage, but the Company believes that the terms of the sale were in accordance with the requirements of relevant limited partnership agreement provisions. The Company intends to defend this lawsuit vigorously. 70 Littlerock Litigation - --------------------- In January 1999, City Partnership Co. ("Plaintiff"), a limited partner of Cable TV Fund 14-B, Ltd., filed a class action complaint in the District Court, Arapahoe County, State of Colorado (Case No. 99-CV-0150) naming the Company as defendant. Plaintiff, on its behalf and on behalf of all other persons who are limited partners of Cable TV Fund 14-B, Ltd., is challenging the terms of sale of the cable television system serving Littlerock, California (the "Littlerock System") to an affiliate of the Company. This case is in a very preliminary stage, but the Company believes that the terms of the sale were in accordance with the requirements of relevant limited partnership agreement provisions. The Company intends to defend this lawsuit vigorously. Shareholder Litigation - ---------------------- In February 1998, BTH, the Company's largest shareholder, filed a lawsuit in the United States District Court for the District of Colorado against the Company, Jones International, Ltd. ("International"), Jones Internet Channel, Inc. ("JICI") and Glenn R. Jones. BCI Telecom Holding, Inc., plaintiff v. Jones --------------------------------------------- Intercable, Inc., Jones International, Ltd., Jones Internet Channel, Inc. and - ----------------------------------------------------------------------------- Glenn R. Jones, defendants (U.S. District Court for the District of Colorado, - -------------------------- Civil Action No. 98-M-224). Mr. Jones is the Company's Chairman and Chief Executive Officer. International is owned by Mr. Jones, and it also is one of the Company's largest shareholders. JICI is a wholly owned subsidiary of International. BTH, the Company, International and Mr. Jones are parties to a Shareholders Agreement dated as of December 20, 1994 (the "Shareholders Agreement"). In its complaint, BTH alleged that the defendants violated the Shareholders Agreement and certain duties allegedly owed to BTH, and conspired with each other to do so. More specifically, BTH claimed that under the Shareholders Agreement, the offering of the service known as the "Internet Channel" to the Company's subscribers, and any affiliation agreement between the Company and JICI for the provision of the Internet Channel service, could not proceed without approval of a specific group of directors of the Company, including the three directors designated by BTH. BTH also maintained, in connection with the relationship and proposed affiliate agreement between the Company and JICI, that the defendants breached a provision of the Shareholders Agreement defining the "core business" of the Company. In addition to damages, BTH sought an injunction prohibiting the Company from making the Internet Channel available to additional subscribers and from entering into an affiliate agreement with JICI for the Internet Channel, as well as other equitable relief. On May 5, 1998, the Court permanently enjoined the Company and the other defendants in this civil action from proceeding further with any expansion of the Internet Channel, or any similar internet service provider business, without the approval of the unrelated directors of the Company. All the defendants except the Company appealed the decision to the U.S. Tenth Circuit Court of Appeals. In connection with the agreements entered into among the Company, International, BTH and Comcast relating to the acquisition and exercise by Comcast of BTH's option to acquire 2.9 million shares of the Company's Common Stock, the parties have agreed to dismiss the pending litigation between BTH, International, Mr. Jones and the Company, and International and certain of its affiliates have agreed to dismiss the appeal which is pending of the Order entered against them in such litigation. In March 1998, Leslie Susser, a minority shareholder of the Company, filed a shareholder derivative action in the United States District Court for the District of Colorado against Glenn R. Jones and seven other directors of the Company. Leslie Susser, plaintiff v. Glenn R. Jones, James J. Krejci, James B. --------------------------------------------------------------------- O'Brien, Howard O. Thrall, Raphael M. Solot, Robert E. Cole, Sanford Zisman and - ------------------------------------------------------------------------------- Donald L. Jacobs, defendants and Jones Intercable, Inc., nominal defendant (U.S. - -------------------------------------------------------------------------- District Court for the District of Colorado, Civil Action No. 98-M-616). In its complaint, the plaintiff alleges that the defendants have violated certain fiduciary and other duties allegedly owed to the Company and its shareholders in connection with the Company's offering of the Internet Channel service. The allegations raised in this complaint are similar to those raised by BTH in its complaint. The plaintiff seeks certain equitable relief and damages. 71 In connection with this litigation, the Company has determined, based on the opinion of outside legal counsel, that all of the statutory requirements for the advancement of reasonable legal fees and expenses to the defendants have been met. Notice of such determination was previously given to all shareholders. 12. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment as of December 31, 1998 and 1997, consisted of the following:
December 31, -------------------- 1998 1997 ---- ---- Distribution systems $ 800,130 $ 579,544 Buildings 19,768 18,331 Land 5,521 4,762 Equipment and tools 12,922 12,322 Premium service equipment 69,831 54,790 Earth receive stations 3,820 3,701 Vehicles 6,113 4,160 Leasehold improvements and office furniture 26,634 21,466 Other 60,341 46,039 --------- -------- 1,005,080 745,115 Accumulated depreciation (311,655) (224,893) --------- -------- $ 693,425 $ 520,222 ========= ========
13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
1998 ----------------------------------------------------------- Three Months Ended ----------------------------------------------------------- March 31 June 30 September 30 December 31 --------- ------- ------------ ----------- (In Thousands Except Per Share Data) Revenues $ 101,330 $ 98,848 $ 129,573 $ 130,978 Depreciation and amortization 44,755 47,085 52,310 60,596 Operating income (loss) 1,405 (3,009) 16,074 8,922 Net income (loss) (20,747) (32,644) (14,404) (12,623) Net income (loss) per share $ (.51) $ (.80) $ (.35) $ (.31)
1997 ----------------------------------------------------------- Three Months Ended ----------------------------------------------------------- March 31 June 30 September 30 December 31 -------- ------- ------------ ----------- (In Thousands Except Per Share Data) Revenues $ 83,502 $ 90,934 $ 91,945 $ 96,207 Depreciation and amortization 35,532 34,901 36,147 69,259 Operating income (loss) 2,384 4,096 4,110 (27,747) Net income (loss) (15,481) 22,554 (30,755) (27,906) Net income (loss) per share $ (.50) $ .72 $ (.88) $ (.69)
72 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 Company's Articles of Incorporation provide that, with respect to the election of Directors, the holders of Class A Common Stock, voting as a separate class, are entitled to elect that number of Directors constituting 25% of the total membership of the Board of Directors. If such 25% is not a whole number, holders of Class A Common Stock are entitled to elect the nearest higher whole number of Directors constituting 25% of the membership of the Board of Directors. Holders of Common Stock, voting as a separate class, are entitled to elect the remaining Directors. Directors of the Company serve until the next annual meeting of the Company and until their successors shall be elected and qualified. Pursuant to the terms of the Shareholders Agreement dated as of December 20, 1994 among Glenn R. Jones, Jones International, Ltd., BCI Telecom Holding Inc. and the Company (the "Shareholders Agreement"), the Company's Board of Directors consists of thirteen members. Four members of the Board of Directors are to be elected by holders of Class A Common Stock, and nine members of the Board of Directors are to be elected by holders of Common Stock. The parties to the Shareholders Agreement have agreed that, of the four Class A Directors, BTH will be entitled, but not required, to designate one Director and the remaining three Directors, which shall be Independent Directors (as such term is defined in the Shareholders Agreement), will be jointly designated by Glenn R. Jones and BTH. The parties to the Shareholders Agreement also have agreed that Mr. Jones will be entitled, but not required, to designate seven of the nine Common Directors and that BTH will be entitled, but not required, to designate two of the nine Common Directors. Of the thirteen persons serving as members of the Company's Board of Directors, William E. Frenzel, Donald L. Jacobs, Robert Kearney and Robert B. Zoellick are serving as the Class A Directors. Mr. Kearney was designated by BTH. Messrs. Frenzel, Jacobs and Zoellick were jointly designated by Glenn R. Jones and BTH, and they serve as Independent Directors. Glenn R. Jones, Robert E. Cole, Josef J. Fridman, James J. Krejci, James B. O'Brien, Raphael M. Solot, Howard O. Thrall, Siim A. Vanaselja and Sanford Zisman are serving as the Common Directors. Messrs. Jones, Cole, Krejci, O'Brien, Solot, Thrall and Zisman have been designated by Mr. Jones. Messrs. Fridman and Vanaselja have been designated by BTH. As a result of Comcast's agreement in August 1998 to acquire all of the shares of the Company's Class A Common Stock owned by BTH and to purchase the Control Shares, the Company anticipates that Comcast will acquire a controlling interest in the Company before the end of March 1999. See Item 1, Current Principal Shareholders of the Company and Comcast Corporation's 73 Planned Acquisition of the Control Shares of the Company. Following Comcast's acquisition of BTH's Class A Common Stock and the Control Shares, Comcast will own approximately 38% of the economic interest and approximately 48% of the voting interest in the Company. In addition, the Common Stock to be held by Comcast would allow it to elect approximately 75% of the Board of Directors of the Company. Pursuant to the terms of related agreements executed in August 1998, upon the closing of the sale of the Control Shares to Comcast, the Directors of the Company, other than the three Independent Directors jointly designed by Mr. Jones and BTH (Messrs. Frenzel, Jacobs and Zoellick), will resign seriatim from the Board of Directors of the Company and will be replaced by individuals designated by Comcast. Certain information concerning the directors and executive officers of the Company is set forth below. Glenn R. Jones 68 Chairman of the Board and Chief Executive Officer James B. O'Brien 49 President and Director Ruth E. Warren 49 Group Vice President/Operations Kevin P. Coyle 47 Group Vice President/Finance Cynthia A. Winning 47 Group Vice President/Marketing Elizabeth M. Steele 47 Vice President/General Counsel/Secretary Wayne H. Davis 45 Vice President/Engineering Larry W. Kaschinske 38 Vice President/Controller Robert E. Cole 66 Director William E. Frenzel 70 Director Josef J. Fridman 53 Director Donald L. Jacobs 60 Director Robert Kearney 62 Director James J. Krejci 57 Director Raphael M. Solot 65 Director Howard O. Thrall 51 Director Siim A. Vanaselja 42 Director Sanford Zisman 59 Director Robert B. Zoellick 45 Director Mr. Glenn R. Jones has served as Chairman of the Board of Directors and Chief Executive Officer of the Company 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 Company and of certain other affiliates of the Company. Mr. Jones has been involved in the cable television business in various capacities since 1961, and he is a member of the Board of Directors and of the Executive Committee of the National Cable Television Association. In addition, Mr. Jones is a member of the Board and 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 74 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 Company'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 Denver chapter of the Achievement Rewards for College Scientists; and in 1994 Mr. Jones was inducted into Broadcasting and Cable's Hall of Fame. Mr. James B. O'Brien, the Company's President, joined the Company in January 1982. Prior to being elected President and a director of the Company 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 Company'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 Company. 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 Chairman of the Board of Directors of CTAM: The Marketing Society for the Cable Telecommunications Industry and as an executive director of the Walter Kaitz Foundation, a foundation that places people of ethnic minority groups in positions with cable television systems, networks and vendor companies. Mr. O'Brien's numerous industry recognitions include a CTAM Tami Award for marketing excellence, a Women In Cable and Telecommunications Accolade Award recognizing his leadership efforts on behalf of women in the telecommunications industry, The President's Award for Leadership from the Illinois Cable and Telecommunications Association and a Lifetime Achievement Award from The National Association of Minorities in Communications. Additionally, Mr. O'Brien is a member of The Society of UK Cable Pioneers. Ms. Ruth E. Warren joined the Company in August 1980 and has served in various operational capacities, including system marketing manager, director of marketing, assistant division manager, regional vice president and Fund Vice President, since then. Ms. Warren was elected Group Vice President/Operations of the Company in September 1990. Ms. Warren is a past president of Women in Cable & Telecommunications and past Chairman of the Women in Cable Foundation. She serves as the Vice Chair of Five Points Media Center Board and on the Corporate Advisory Board of Planned Parenthood of the Rocky Mountains and the Advisory Board for Girls Count. In 1995, Ms. Warren received the Corporate Business Woman of the Year Award from the Colorado Women's Chamber of Commerce, and in 1998 Ms. Warren received the Vanguard Award for Distinguished Leadership from the National Cable Television Association. 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 Company in August 1987, Vice President/Treasurer in April 1988 and Group Vice President/Finance and Chief Financial Officer in October 1990. From 1978 to 1981 Mr. Coyle 75 was employed by American Television and Communications (now Time Warner Cable), and from 1974 to 1978 he was an associate at Haskins & Sells (now Deloitte & Touche LLP). Ms. Cynthia A. Winning joined the Company as Group Vice President/Marketing in December 1994. Previous to joining the Company, Ms. Winning served since 1994 as the President of PRS Inc., Denver, Colorado, a sports and event marketing company. From 1979 to 1981 and from 1986 to 1994, Ms. Winning served as the Vice President and Director of Marketing for Citicorp Retail Services, Inc., a provider of private-label credit cards for ten national retail department store chains. From 1981 to 1986, Ms. Winning was the Director of Marketing Services for Daniels & Associates cable television operations, as well as the Western Division Marketing Director for Capital Cities Cable. Ms. Elizabeth M. Steele joined the Company in August 1987 as Vice President/General Counsel and Secretary. From August 1980 until joining the Company, Ms. Steele was an associate and then a partner at the Denver law firm of Davis, Graham & Stubbs, which serves as counsel to the Company. Mr. Wayne H. Davis joined the Company in August 1983 and has served in various technical operations positions, including System Engineering Manager, Fund Engineering Manager, Senior Director/Technical Operations, and Vice President/Technical Operations since then. Mr. Davis was elected Vice President/Engineering in June 1998. He is past Vice President of the Upstate New York Chapter of the Society of Cable Telecommunications Engineers. Mr. Davis has received certification from the Society of Cable Telecommunications Engineers, Broadband Cable Telecommunications Engineering Program and the National Cable Television Institute's Technology Program. Mr. Larry Kaschinske joined the Company in 1984 as a staff accountant in the Company'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 Company 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 Company 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 Vice Chairman of the Eurasia Foundation, a Board Member of the U.S.-Japan Foundation, the Close-Up Foundation, Sit Mutual Funds, Logistics Management Institute and Chairman of the Japan-America Society of Washington. 76 Mr. Josef J. Fridman was appointed a director of the Company in February 1998. Mr. Fridman is currently Chief Legal Officer of Bell Canada and of BCE Inc., Canada's largest telecommunications company. Mr. Fridman joined Bell Canada, a wholly owned subsidiary of BCE Inc., in 1969, and has held increasingly senior positions with Bell Canada and BCE Inc. since such time. Mr. Fridman has held his current position since March 1998. Mr. Fridman's directorships include Alouette Telecommunications Inc., Telesat Canada, TMI Communications, Inc., Telebec Itee, BCI Telecom Holding Inc. and BCE Corporate Services Inc. He is a member of the Quebec Bar Association, the Canadian, American and International Bar Associations and the Lord Reading Law Society. Mr. Fridman is a governor of the Quebec Bar Foundation. Mr. Donald L. Jacobs was appointed a director of the Company in April 1995. Mr. Jacobs is a retired executive officer of TRW. Prior to his retirement, he was Vice President and Deputy Manager of the Space and Defense Sector; prior to that appointment, he was the Vice President and General Manager of the Defense Systems Group and prior to his appointment as Group General Manager, he was President of ESL, Inc., a wholly owned subsidiary of TRW. During his career, Mr. Jacobs served on several corporate, professional and civic boards. Mr. Robert Kearney was appointed a director and a member of the Executive Committee of the Company in July 1997. Mr. Kearney is a retired executive officer of Bell Canada. Prior to his retirement in December 1993, Mr. Kearney was the President and Chief Executive Officer of Bell Canada. He served as Chairman of BCE Canadian Telecom Group in 1994 and as Deputy Chairman of BCI Management Limited in 1995. He currently serves as a Director of MPACT, a Canadian electronic commerce company. During his career, Mr. Kearney served in a variety of capacities in the Canadian, American and International Standards organizations, and he has served on several corporate, professional and civic boards. Mr. James J. Krejci is President and CEO of Comtect International, Inc., a company in the specialized mobile radio services business, headquartered in Denver, Colorado. Prior to joining Comtec International, Inc. in February 1998, Mr. Krejci was President and CEO of Imagelink Technologies, Inc., headquartered in Boulder, Colorado, from June 1996 to February 1998, and prior to that, he was President of the International Division of International Gaming Technology, the world's largest gaming equipment manufacturer, with headquarters in Reno, Nevada from May 1994 to February 1995. Prior to joining IGT, Mr. Krejci was Group Vice President of Jones International, Ltd. and was Group Vice President of the Company. He also served as an officer of subsidiaries of Jones International, Ltd. until leaving the Company in May 1994. Mr. Krejci has been a director of the Company since August 1987. Mr. Raphael M. Solot was appointed a director of the Company in March 1996 and he was elected Vice Chairman of the Board of Directors in November 1997. Mr. Solot is an attorney and has 77 practiced law for 34 years with an emphasis on franchise, corporate and partnership law and complex litigation. Mr. Howard O. Thrall was appointed a director of the Company in March 1996. Mr. Thrall had previously served as a Director of the Company from December 1988 to December 1994. Mr. Thrall is a management and international marketing consultant, having active assignments with First National Net, Inc., LEP Technologies, Cheong Kang Associates (Korea), Aero Investment Alliance, Inc. and Western Real Estate Partners, among others. From September 1993 through July 1996, Mr. Thrall served as Vice President of Sales, Asian Region, for World Airways, Inc. headquartered at the Washington Dulles International Airport. From 1984 until August 1993, Mr. Thrall was with the McDonnell Douglas Corporation, where he concluded as a Regional Vice President, Commercial Marketing with the Douglas Aircraft Company subsidiary. Mr. Siim A. Vanaselja was appointed a director of the Company in August 1996. He is the Chief Financial Officer of BCI Telecom Holding Inc. Mr. Vanaselja joined BCE Inc., Canada's largest telecommunications company, in February 1994 as Assistant Vice-President, International Taxation. In June 1994, he was appointed Assistant Vice-President and Director of Taxation, and in February 1995, Mr. Vanaselja was appointed Vice-President, Taxation. On August 1, 1996, Mr. Vanaselja was appointed the Executive Vice President and Chief Financial Officer of Bell Canada International Inc., a subsidiary of BCE Inc. Prior to joining BCE Inc. and since August 1989, Mr. Vanaselja was a partner in the Toronto office of KPMG Peat Marwick Thorne. Mr. Vanaselja has been a member of the Institute of Chartered Accountants of Ontario since 1982 and is a member of the Canadian Tax Foundation, the Tax Executives Institute and the International Fiscal Association. Mr. Sanford Zisman was appointed a director of the Company in June 1996. Mr. Zisman is a principal in the law firm of Zisman & Ingraham, P.C. of Denver, Colorado and he has practiced law for 33 years, specializing in the areas of tax, business and estate planning and probate administration. Mr. Zisman was a member of the Board of Directors of Saint Joseph Hospital, the largest hospital in Colorado, from 1991 to 1997, serving at various times as Chairman of the Board, Chairman of the Finance Committee and Chairman of the Strategic Planning Committee. Since 1982, he has also served on the Board of Directors of Maxim Series Fund, Inc., a subsidiary of Great-West Life Assurance Company. Mr. Robert B. Zoellick was appointed a director of the Company in April 1995. Mr. Zoellick is the President and CEO of the Center for Strategic and International Studies (CSIS), an independent, non-profit policy institution with a staff of 180 people and a $17 million budget. He was the John M. Olin Professor at the U.S. Naval Academy for the 1997-1998 term. From 1993 through 1997, he was Executive Vice President at Fannie Mae, a federally chartered and stockholder-owned corporation that is the largest housing finance investor in the United States. From August 1992 to January 1993, Mr. Zoellick served as Deputy Chief of Staff of the White House and Assistant to the President. From May 1991 to August 1992, Mr. Zoellick served concurrently as the Under Secretary of State for Economic and Agricultural Affairs and as Counselor of the Department of State, a post he assumed in March 1989. From 1985 to 1988, Mr. Zoellick served at the Department of Treasury in a number of capacities, including Counselor to the Secretary. Mr. Zoellick currently serves on the boards of Alliance Capital and Said Holdings and the Advisory Council of Enron Corp. 78 ITEM 11. EXECUTIVE COMPENSATION - -------------------------------- SUMMARY COMPENSATION TABLE The following table sets forth certain information relating to the compensation paid by the Company during the Company's fiscal years ended December 31, 1998, 1997 and 1996, to those persons who were, at December 31, 1998, the Chief Executive Officer and the other four most highly compensated executive officers of the Company.
LONG TERM --------- COMPENSATION ------------ ANNUAL COMPENSATION AWARDS ------------------- ------ NAME AND ALL OTHER -------- PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(1) ------------------ ---- ------ ----- ------- --------------- Glenn R. Jones YE 12/31/98 $2,806,714 $ 0 0 $168,403 Chairman of the Board YE 12/31/97 2,714,425 0 110,937 (2) 162,865 and Chief Executive Officer YE 12/31/96 2,620,102 0 0 157,380 James B. O'Brien(3) YE 12/31/98 $ 275,028 $213,011 0 $ 38,407 President and Director YE 12/31/97 252,045 175,000 17,000 (2) 28,661 YE 12/31/96 240,961 163,366 0 25,978 Kevin P. Coyle (3) YE 12/31/98 $ 200,021 $127,005 0 $ 24,621 Group Vice President/ YE 12/31/97 191,552 100,000 10,000 (2) 17,493 Finance YE 12/31/96 184,185 72,750 0 15,558 Ruth E. Warren (3) YE 12/31/98 $ 195,007 $130,567 0 $ 22,082 Group Vice YE 12/31/97 177,273 70,906 10,000 (2) 12,764 President/Operations YE 12/31/96 170,454 77,327 0 12,558 Cynthia A. Winning YE 12/31/98 $ 180,010 $ 87,001 0 $ 16,035 Group Vice YE 12/31/97 167,101 76,838 10,000 (2) 12,469 President/Marketing YE 12/31/96 160,674 63,464 0 11,334
_________________ (1) The Company's employees are entitled to participate in a 401(k) profit sharing plan. Certain senior employees of the Company are also eligible to participate in a deferred compensation plan. The amounts shown in the column reflect the Company's contributions pursuant to these plans for the benefit of the named person's account. (2) Represents the number of shares of the Company's Class A Common Stock underlying the options granted. (3) During the first quarter of 1999, Mr. O'Brien, Mr. Coyle, Ms. Warren and Ms. Winning will receive payments from the Company which will in no event exceed $4,000,000, $3,250,000, 79 $2,500,000 and $493,682, respectively. Such amounts will be paid in recognition of the contributions of such persons over a number of years of past service and in connection with services rendered and to be rendered during the transition period leading to the anticipated acquisition of control of the Company by Comcast. Other officers and employees of the Company will also receive payments in recognition of such contributions and services. OPTION GRANTS IN 1998 No stock options were granted during 1998 to the Executive Officers named in the Summary Compensation Table. AGGREGATED OPTION EXERCISES IN 1998 AND OPTION VALUES AT DECEMBER 31, 1998 The following table sets forth information with respect to stock option exercises during 1998 by the Executive Officers named in the Summary Compensation Table. Note that because of action taken by the Company's Board of Directors in September 1998, all unexercised options have fully vested, and therefore all unexercised options were exercisable at December 31, 1998. All of the unexercised options held by the persons named in the table will expire if not exercised by such persons within ten days following the termination of their employment with the Company. It is currently anticipated that each of the persons named in the table will terminate their employment with the Company during the first half of 1999 in connection with Comcast's acquisition of a controlling interest in the Company in March 1999.
NUMBER OF NUMBER OF SECURITIES CLASS A UNDERLYING COMMON STOCK UNEXERCISED VALUE OF UNEXERCISED SHARES ACQUIRED VALUE OPTIONS AT IN-THE-MONEY OPTIONS AT NAME ON EXERCISE REALIZED 12/31/98 12/31/98 ----- ----------- -------- -------- -------- Glenn R. Jones 300,000 $3,275,418 477,851 $11,200,780 James B. O'Brien 0 -- 60,694 $ 1,435,438 Kevin P. Coyle 0 -- 30,855 $ 735,964 Ruth E. Warren 8,000 $ 149,520 25,278 $ 613,551 Cynthia A. Winning 0 -- 19,500 $ 480,663
Compensation of Directors - ------------------------- In November 1998, the Board of Directors, pursuant to the recommendations of an ad hoc committee of non-employee directors of the Company, and a report from an independent 80 compensation consultant, adopted new policies relating to the compensation of non-employee directors of the Company effective as of January 1, 1998. In 1998, non-employee directors of the Company were compensated as follows: (i) $10,000 for services rendered during 1998, (ii) $5,000 per quarter for services rendered as a director of the Company, (iii) $1,250 for each meeting of the Board of Directors attended in person and $750 for each meeting of the Board of Directors attended via teleconference, (iv) for each director who serves on a standing committee of the Board, $750 for each standing committee meeting of the Board of Directors (currently being the Audit Committee, the Compensation Committee and the Executive Committee) attended in person and $500 for each standing committee meeting attended via teleconference; and (v) $1,000 for any meeting of a special committee established by the Board of Directors, whether attended in person or via teleconference. No compensation for director service is paid to directors who are full-time employees of the Company or any of its affiliates. Compensation for director service by employees of BTH is paid to BTH rather than to the BTH-employee directors themselves. Section 16(a) Beneficial Ownership Reporting Compliance - ------------------------------------------------------- Section 16(a) of the Exchange Act requires certain persons, including directors and officers of the Company, to file reports of ownership and changes in ownership of the Company's securities with the Securities and Exchange Commission. The Company is required to disclose in this Form 10-K Report any late or missed filings of those reports during 1998 by its officers (as such term is defined in the rules promulgated under Section 16 of the Exchange Act), directors and 10% shareholders. Based upon the Company's review of the reporting forms received by it and representations from certain persons that no Form 5 reports were required to be filed by those persons, the Company believes that all filing requirements applicable to its officers, directors and 10% shareholders were complied with during 1998 except that: (i) Christine J. Marocco filed a report on Form 5 in February 1999 that reflected her sale of 20,000 shares of the Company's Class A Common Stock in January 1998; a Form 4 was not filed in February 1998 reflecting this sale; and (ii) Cynthia A. Winning filed a report on Form 5 in February 1999 reflecting the acquisition of beneficial ownership of 4 shares of the Company's Class A Common Stock in January 1997; a Form 4 was not filed in February 1997 reflecting this acquisition. Employment Agreement - -------------------- On December 20, 1994, the Company entered into an Employment Agreement with Glenn R. Jones (the "Employment Agreement") pursuant to which the Company agreed to employ Mr. Jones as Chief Executive Officer of the Company for a period of up to eight years from December 20, 1994. Under the terms of the Employment Agreement, Mr. Jones received a base salary of $2,500,000 in fiscal year 1995 (which approximated his fiscal year 1994 combined compensation from the Company and Jones Spacelink, Ltd.), and in the years thereafter he has received an annual cost of living index based salary adjustments. In addition, Mr. Jones is entitled to participate in the Company's employee benefit plans at a level generally commensurate with his participation prior to December 1994. No other employee of the Company has an employment agreement with the Company. On August 12, 1998, the Company and Mr. Jones agreed to terminate the Employment Agreement effective on the closing of Comcast's acquisition of the Control Shares of the Company. 81 In connection with the termination of the Employment Agreement, the Company has agreed to pay Mr. Jones an amount equal generally to the discounted value of the payments that would be due him for the remaining term of the Employment Agreement as of the date of the closing of Comcast's acquisition of the Control Shares. If the closing of Comcast's acquisition of the Control Shares occurs on March 31, 1999, Mr. Jones would receive a payment of approximately $8,300,000 pursuant to his agreement to terminate the Employment Agreement. Compensation Committee Interlocks and Insider Participation - ----------------------------------------------------------- In January 1995, the Board of Directors established a Compensation Committee to provide oversight review of all compensation plans and, in accordance with those plans, provided guidance on certain executive compensation matters. The members of the Compensation Committee during the first half of 1998 were Mr. Jones, Robert Kearney and Donald L. Jacobs. Robert E. Cole replaced Mr. Jones as a member of the Compensation Committee effective June 16, 1998. Robert E. Cole, Robert Kearney and Donald L. Jacobs, the current members of the Compensation Committee, are non-employee directors of the Company. Glenn R. Jones, James B. O'Brien and Elizabeth M. Steele, executive officers of the Company, serve as officers and directors of certain of the Company's affiliates. As individuals, these executive officers had no transactions with the Company other than as disclosed herein with respect to executive compensation. Companies that Mr. Jones controls have engaged in transactions with the Company. See Item 13, Certain Transactions. ITEM 12. SECURITY OWNERSHIP OF CERTAIN --------------------------------------- BENEFICIAL OWNERS, DIRECTORS AND MANAGEMENT ------------------------------------------- The following table sets forth certain information as of February 3, 1999, regarding ownership of the Company's Common Stock or Class A Common Stock by persons (including any group) known to the Company to be beneficial owners of more than 5% of either class of stock, the individual directors of the Company, each of the executive officers named in the Summary Compensation Table and the executive officers and directors of the Company as a group. Under the rules of the Securities and Exchange Commission, a person (or group of persons) is deemed to be a "beneficial owner" of a security if he or she, directly or indirectly, has or shares the power to vote or to direct the voting of such security, or the power to dispose of or to direct the disposition of such security. Accordingly, 82 more than one person may be deemed to be a beneficial owner of the same security. A person is also deemed to be a beneficial owner of any security which that person has the right to acquire within 60 days.
AMOUNT AND NATURE NAME AND ADDRESS OF OF BENEFICIAL BENEFICIAL OWNER (1) TITLE OF CLASS OWNERSHIP (2) PERCENT OF CLASS -------------------- -------------- ------------- ---------------- Jones International, Ltd. Common Stock 2,441,751 (3)(4) 47.76 9697 East Mineral Avenue Englewood, CO 80112 Class A 1,497,373 (3) 4.13 Common Stock Glenn R. Jones Common Stock 2,916,151 (3)(5) 57.03 9697 East Mineral Avenue Englewood, CO 80112 Class A 2,502,117 (3)(6) 6.82 Common Stock Kevin P. Coyle Common Stock 345 (7) .01 9697 East Mineral Avenue Englewood, CO 80112 Class A 30,924 (8) .09 Common Stock William E. Frenzel Class A 1,000 (9) less than .01 1775 Massachusetts Ave., N.W. Common Stock Washington, D.C. 20036 James B. O'Brien Class A 70,694 (10) .19 9697 East Mineral Avenue Common Stock Englewood, CO 80112 Raphael M. Solot Common Stock 300 .01 501 South Cherry Street Denver, CO 80222 Ruth E. Warren Common Stock 208 less than .01 9697 East Mineral Avenue Englewood, CO 80112 Class A 32,042 .09 Common Stock Cynthia W. Winning Class A 19,500 (11) .05 9697 East Mineral Avenue Common Stock Englewood, CO 80112 Sanford Zisman Common Stock 500 (12) .01 3773 Cherry Creek North Drive Denver, CO 80209 Robert B. Zoellick Class A 300 less than .01 627 Chain Bridge Road Common Stock McLean, VA 22101
83 All executive officers and directors Common Stock 2,917,514 57.06 as a group (19 persons) Class A 2,656,581 (13) 7.22 Common Stock Christine Jones Marocco Common Stock 2,726,543 (14) 53.33 25 East End Avenue, #14F New York NY 10288 Class A 55,083 (15) .15 Common Stock BTH (Intercable) Limited Common Stock 2,878,151 (16)(17)(21) 56.29 (f/k/a Bell Canada International BVI VI Limited) Arawak Chamber Road Town Tortola, BVI BTH (U.S. Cable) Limited Class A 12,782,500 (18)(19)(21) 35.28 (f/k/a Bell Canada International Common Stock BVI III Limited) Arawak Chamber Road Town Tortola, BVI Capital Research and Management Class A 3,230,000 (20)(21) 8.92 Company Common Stock 333 South Hope Street Los Angeles, CA 90071
(1) Directors who are not listed in the table do not beneficially own any of the Company's shares. Shares shown as subject to options means that such options are exercisable within 60 days. (2) Unless otherwise noted, all persons indicated in the table have full voting and investment power with respect to the share ownership described. (3) Glenn R. Jones, Chairman of the Board of Directors and Chief Executive Officer of the Company, owns all of the outstanding shares of Jones International, Ltd. ("International") and is deemed to be the beneficial owner of all shares of the Company owned by International. By virtue of this ownership, Mr. Jones controls approximately 36% of the total votes to be cast by all shareholders of the Company's shares on matters not requiring a class vote, because, with regard to such matters, a share of Common Stock has one vote and a share of Class A Common Stock has 1/10th of a vote. The holders of Class A Common Stock, as a class, are able to elect the greater of 25% or the next highest whole number of the Company's Board of Directors. Thus, holders of the Class A Common Stock, as a class, are presently entitled to elect four directors, and the holders of the Common Stock, as a class, are presently entitled to elect nine directors. Due to his beneficial ownership of 57% of the Common Stock of the Company, Mr. Jones controls the election of the nine directors to be elected by the holders of the Common Stock. (4) Includes 38,000 shares held by International; 2,239,416 shares held by the Jones International Grantor Business Trust; 100,400 shares held by Jones Entertainment Group, Ltd.; 35,707 shares held by Jones Space Segment, Inc.; 27,585 shares held by Jones Global Group, Inc.; and 643 shares held by Jones Interdigital, Inc. International may be deemed to be the beneficial owner of all shares of Common Stock owned by Jones Entertainment Group, Ltd., Jones Space Segment, Inc., Jones Global Group, Inc. and Jones Interdigital, Inc. 84 (5) Includes 474,400 shares held by the Glenn Jones Grantor Business Trust; 38,000 shares held by International; 2,239,416 shares held by the Jones International Grantor Business Trust; 100,400 shares held by Jones Entertainment Group, Ltd.; 35,707 shares held by Jones Space Segment, Inc.; 27,585 shares held by Jones Global Group, Inc.; and 643 shares held by Jones Interdigital, Inc. (6) Includes 526,893 shares owned by Mr. Jones; 477,851 shares deemed to be held by Mr. Jones pursuant to exercisable stock options; and 1,497,373 shares held by International. (7) Includes 320 shares held by Mr. Coyle's wife. (8) Includes 30,855 shares deemed to be held by Mr. Coyle pursuant to exercisable stock options. (9) Represents shares held by the William E. Frenzel Revocable Trust. (10) Includes 60,694 shares deemed to be held by Mr. O'Brien pursuant to exercisable stock options. (11) Represents shares deemed to be held by Ms. Winning pursuant to exercisable stock options. (12) Represents shares held by the Sanford Zisman PC Profit Sharing Trust. (13) Includes 588,900 shares deemed to be held by various executive officers and directors pursuant to exercisable stock options. (14) Includes 12,370 shares held by Mrs. Marocco; 357 shares held by the Joseph Michael Marocco Irrevocable Trust; 2,239,416 shares held by the Jones International Grantor Business Trust in which Mrs. Marocco has shared voting power; and 474,400 shares held by the Glenn Jones Grantor Business Trust in which Mrs. Marocco has shared voting power. (15) Includes 44,113 shares held by Mrs. Marocco; 970 shares held by the Joseph Michael Marocco Irrevocable Trust; and 10,000 shares held by Mrs. Marocco's husband. Mrs. Marocco disclaims beneficial ownership of the shares held by her husband. Mrs. Marocco's husband is a principal in a firm that may from time to time invest in the Company's securities. Mrs. Marocco disclaims beneficial ownership of any securities of the Company that said firm purchases or in which Mr. Marocco may therefor have an interest. (16) BCI Telecom Holding Inc. ("BTH"), the sole shareholder of BTH (Intercable) Limited (f/k/a Bell Canada International BVI VI Limited), is deemed to have beneficial ownership of the 2,878,151 shares of Common Stock covered by Option Agreements dated December 20, 1994 among The Bank of New York, acting as agent for BTH, and the Glenn Jones Grantor Business Trust, the Jones International Grantor Business Trust, Jones Entertainment Group, Ltd., Jones Space Segment, Inc., Jones Global Group, Inc. and Jones Interdigital, Inc. (17) Pursuant to various agreements all dated August 12, 1998 among Mr. Jones, International and certain of its affiliates, BTH and Comcast Corporation ("Comcast"), Comcast has the right to purchase all of the shares of Common Stock covered by the Option Agreements referred to in Note 16 above. Comcast's address is 1500 Market Street, Philadelphia, PA 19102-2148. (18) BTH is deemed to be the beneficial owner of the 12,782,500 shares of Class A Common Stock owned by its wholly owned subsidiary, BTH (U.S. Cable) Limited (f/k/a Bell Canada International BVI III Limited). (19) Pursuant to various agreements all dated August 12, 1998 among Mr. Jones, International and certain of its affiliates, BTH and Comcast, Comcast has the right to purchase all of BTH's shares of Class A Common Stock referred to in Note 18 above. 85 (20) Capital Research and Management Company has no sole or shared voting power and has sole dispositive power over 3,230,000 shares. (21) This information is based upon filings made by the shareholders with the Securities and Exchange Commission, copies of which were provided to the Company. ITEM 13. CERTAIN TRANSACTIONS ------------------------------ The Company has engaged in certain transactions with its affiliates. These transactions have involved affiliation agreements for the distribution of programming owned by affiliated companies on cable television systems owned or managed by the Company, lease agreements related to real estate, and lease agreements and service agreements related to certain technical, computer, financial and administrative services provided to the Company by affiliates. For the year ended December 31, 1998, approximately $1,008,000, or less than 1%, of the Company's total revenue and approximately $6,646,000, or 3.3%, of its total operating, general and administrative expenses were a result of related party transactions. Because certain officers and directors of the Company are also officers and directors of affiliated companies, the terms of any agreements between the Company and such affiliates generally are not the result of arm's length negotiations. There can be no assurance that the terms of any transactions between the Company and its affiliates have been or will be as favorable as the Company could obtain from unrelated parties. Set forth below is a description of the Company's transactions with Jones International, Ltd. ("International"), certain of its subsidiaries and certain other affiliates of the Company, including BTH, during the year ended December 31, 1998. In some instances the dollar amounts of transactions have been rounded to the nearest thousand. Most of the transactions described below are expected to continue during the current fiscal year. JONES INTERNATIONAL, LTD. Jones International, Ltd. and certain of its subsidiaries provide various services to the Company and its managed limited partnerships, including information and data processing services, office space and programming services, as described below. The costs of these services are charged to the Company, and the Company reimburses International accordingly. In some cases, a portion of certain of these expenses are reallocated to the Company's managed partnerships pursuant to the terms of the limited partnership agreements of such limited partnerships. JONES GALACTIC RADIO, INC. Jones Galactic Radio, Inc. is a subsidiary of Jones International Networks, Ltd., an affiliate of International. The Company's cable systems receive audio programming from Superaudio, a joint venture between Jones Galactic Radio, Inc. and an unaffiliated entity. Payments made by the Company to Jones Galactic Radio, Inc. for programming provided to Company-owned cable systems for the year ended December 31, 1998 totaled $348,800. 86 KNOWLEDGE TV, INC. Knowledge TV, Inc., a company jointly owned by Mr. Jones, affiliates of International, BTH and the Company, operates the television network Knowledge TV. Knowledge TV provides programming related to computers and technology; business, careers and finance; health and wellness; and global culture and languages. Knowledge TV, Inc. sells its programming to certain cable television systems owned by the Company. Payments made by the Company to Knowledge TV, Inc. with respect to programming provided to cable television systems owned by the Company for the year ended December 31, 1998 totaled $622,800. JONES FINANCIAL GROUP, LTD. Jones Financial Group, Ltd. ("Financial Group") performs services for the Company as its agent in connection with negotiations regarding various financial arrangements of the Company. Financial Group is owned 81% by International and 19% by Glenn R. Jones. In December 1994, the Company entered into a Financial Services Agreement with Financial Group pursuant to which Financial Group has agreed to render financial advisory and related services to the Company for a fee equal to 90% of the fees that would be charged to the Company by unaffiliated third parties for the same or comparable purposes. The Company pays Financial Group an annual $1,000,000 retainer as an advance against payments due pursuant to this agreement and reimburses Financial Group for its reasonable out-of-pocket expenses. The term of the Financial Services Agreement is for eight years from December 1994. Financial Group and BTH have entered into a separate agreement pursuant to which BTH is entitled to receive one-half of the net fees earned (gross fees less reasonable and customary operating expenses) by Financial Group under the Financial Services Agreement. During the year ended December 31, 1998, the Company paid Financial Group fees totaling $756,000 for acting as the Company's financial advisor in connection with the Company's acquisition of the Hinesville System in 1998. JONES INTERACTIVE, INC. Jones Interactive, Inc. ("Interactive"), a wholly owned subsidiary of International, provides information management and data processing services for operating companies affiliated with International. Charges to the various operating companies are based on usage of computer time by each entity. The amount charged to the Company and its managed partnerships by Interactive for the year ended December 31, 1998 totaled $6,089,000. Approximately 63% of this amount was paid by the Company, and the remainder was allocated to and paid by the Company's managed partnerships. JONES PROPERTIES, INC. Jones Properties, Inc. is a wholly owned subsidiary of International. The Company is a party to a lease with Jones Properties, Inc. under which the Company has leased a 101,500 square foot office building in Englewood, Colorado. The lease agreement, as amended, has a 15-year term expiring July 2000, with three 5-year renewal options. The annual rent is not to exceed $24.00 per square foot, plus operating expenses. The Company has subleased approximately 44% of the building to International and certain other affiliates on the same terms and conditions of the above-mentioned 87 lease. Rent payments to Jones Properties, Inc. by the Company, net of subleasing reimbursements, for the year ended December 31, 1998 totaled $1,390,000. Approximately 63% of this amount was paid by the Company, and the remainder was allocated to and paid by the Company's managed partnerships. PRODUCT INFORMATION NETWORK 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." PIN has an affiliation agreement with the Company that expires on February 1, 2005. The PIN Venture generally makes incentive payments equal to a percentage of its net advertising revenue to the cable systems that carry its programming. Most of the Company's owned cable television systems carry PIN for all or part of each day. Aggregate payments received by the Company from the PIN Venture relating to the Company's owned cable television systems totaled $1,008,000 for the year ended December 31, 1998. GREAT AMERICAN COUNTRY, INC. The Great American Country network provides country music video programming to certain of the Company's owned systems. This network is owned and operated by Great American Country, Inc., a subsidiary of Jones International Networks, Ltd., an affiliate of International. During the year ended December 31, 1998, the Company paid Great American Country, Inc. a total of $517,000 for programming provided by Great American Country to Company-owned cable television systems. SUPPLY AND SERVICES AGREEMENT WITH BTH The Company entered into a Supply and Services Agreement with BTH in December 1994. Pursuant to the Supply and Services Agreement, BTH provides the Company with access to the expert advice of personnel from BTH and its affiliates on an annual basis. The Company has agreed to pay an annual fee of $2,000,000 to BTH during the term of the agreement. Payments made by the Company under the Supply and Services Agreement during the year ended December 31, 1998 totaled $2,000,000. SECONDMENT AGREEMENT WITH BTH The Company entered into a Secondment Agreement with BTH in December 1994. Pursuant to the Secondment Agreement, BTH provided a total of 8 secondees during 1998. These secondees worked for the Company and its managed partnerships. The Company reimbursed BTH for the full employment costs of such individuals. The Company reimbursed BTH $719,000 during the year ended December 31, 1998. Approximately 63% of this amount was paid by the Company, and the remainder was allocated to and paid by the Company's managed partnerships. 88 SALE OF INVESTMENT IN JONES CUSTOMER SERVICE MANAGEMENT, L.L.C. In 1995, the Company and Jones Cyber Solutions, Ltd. ("JCS"), an indirect subsidiary of International, formed a venture, known as Jones Customer Service Management, L.L.C., for the purpose of developing a subscriber billing and management system. As of December 31, 1998, the Company had invested $5,200,000 in the venture. The Company accounts for this investment using the equity method and, as of December 31, 1998, had recognized equity losses equal to its investment of $5,200,000. In August 1998, the Company sold its 75% interest in Jones Customer Service Management, L.L.C. to JCS for $3,150,000. The purchase price was paid $2,000,000 in cash and $1,150,000 in a note receivable. This note receivable bears interest at prime +2%, and is payable in 36 months or upon a change in control of the Company. The proceeds from this transaction were used to offset the remaining assets related to the Company's customer billing venture. JCS performed the basic system development work for the venture and was paid periodically on a time and materials basis, plus 10% of the amount charged, for its own service. The venture's subscriber billing and management system was trialed in one of the Company's cable systems during 1997. The Company determined, in late 1997, not to pursue the implementation of the subscriber billing and management system. As a result of this decision, the Company incurred a write-off of $14,228,000 in the fourth quarter of 1997 related to the write-off of costs associated with the planned implementation of the billing system in Company-owned cable systems. 89 PART IV ITEM 14. EXHIBITS AND REPORTS ON FROM 8-K ------------------------------------------- (A)(1) FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS. (A)(2) SCHEDULES. (A)(3) EXHIBITS. The following exhibits, which are numbered in accordance with Item 601 of Regulation S-K, are filed herewith or, as noted, incorporated by reference herein: 2.1 Stock Purchase Agreement dated as of May 31, 1994, between Bell Canada International Inc. and the Company. (1) 2.2 Transaction Agreement dated as of May 31, 1994, among Glenn R. Jones, Jones International, Ltd., Bell Canada International Inc. and Jones Spacelink, Ltd. (1) 2.3 Purchase and Sale Agreement (Albuquerque) dated as of July 28, 1997 between the Company and Cable TV Fund 12-BCD Venture. (17) 2.3 Purchase and Sale Agreement (Palmdale) dated as of February 25, 1998, between the Company and Cable TV Fund 12-BCD Venture. (18) 2.4 Purchase and Sale Agreement (Littlerock) dated as of February 25, 1998, between the Company and Cable TV Fund 14-B, Ltd. (18) 2.5 Asset Purchase Agreement (Hinesville) dated August 24, 1998 between Jones Communications of Georgia/South Carolina, Inc. and Bresnan Communications Company, L.P. 2.6 Purchase and Sale Agreement (Grants) dated June 16, 1998 between Spacelink Fund 3, Ltd. and Jones Communications of New Mexico, Inc. 2.7 Purchase and Sale Agreement (Socorro) dated June 16, 1998 between Spacelink Fund 3, Ltd. and Jones Communications of New Mexico, Inc. 3.1 Articles of Incorporation and amendments thereto of the Company. (4) 90 3.2 Amendment to Articles of Incorporation of Company filed July 24, 1995. (2) 3.3 Amendment to Articles of Incorporation of Company filed September 18, 1996. (15) 3.4 Bylaws of the Company. (2) 4.1 Indenture, dated as of July 15, 1992, between the Company and First Trust National Association. (5) 4.2 Second Supplemental Indenture, dated as of March 1, 1993, between the Company and First Trust National Association. (6) 4.3 Indenture dated March 23, 1995 with respect to the Senior Notes, between the Company and U.S. Trust Company of California, N.A. (7) 4.4 First Supplemental Indenture dated as of March 23, 1995 with respect to $200,000,000 aggregate principal amount of the Company's 9 5/8% Senior Notes due 2002, between the Company and U.S. Trust Company of California, N.A. (7) 4.5 Second Supplemental Indenture dated as of March 21, 1997 with respect to $250,000,000 aggregate principal amount of the Company's 8 7/8% Senior Notes due 2007, between the Company and U.S. Trust Company of California, N.A. (16) 4.6 Third Supplemental Indenture dated as of April 6, 1998 with respect to $200,000,000 aggregate principal amount of the Company's 7 5/8% Senior Notes due 2008, between the Company and U.S. Trust Company of California, N.A. (19) 4.6 Form of Shareholders Agreement among Glenn R. Jones, Jones International, Ltd., Bell Canada International Inc. and the Company. (1) 4.7 Agreement and Amendment No. 1 to Shareholders Agreement dated as of August 12, 1998, amending the Shareholders Agreement. (20) 10.1.1 Form of Financial Services Agreement between Jones Financial Group, Ltd. and the Company. (1) 10.1.2 Form of Employment Agreement between Glenn R. Jones and the Company. (1) 91 10.1.3 Termination Agreement dated as of August 12, 1998, between the Company and Mr. Jones. (20) 10.1.4 Form of Supply and Services Agreement between Bell Canada International Inc. and the Company. (1) 10.1.5 Form of Secondment Agreement between Bell Canada International Inc. and the Company. (1) 10.1.6 Form of Option Agreement for Glenn R. Jones and Jones International, Ltd. between Bell Canada International Inc. and Newco. (1) 10.1.7 Amendment to Option Agreements dated as of August 12, 1998, between The Bank of New York, as successor agent to Morgan Guaranty Trust Company of New York (as agent for BTH and Comcast) and the Jones Entities. (20) 10.1.8 Agreement dated as of August 12, 1998, among the Jones Entities and Comcast. (20) 10.1.6 Affiliate Agreement dated August 1, 1994 between the Company and Jones Infomercial Networks, Inc. (2) 10.2.1 1992 Stock Option Plan. (8) 10.2.2 Form of Basic Incentive Stock Option Agreement. (8) 10.2.3 Form of Basic Non-Qualified Stock Option Agreement. (8) 10.3.1 Office Lease, dated June 8, 1984, between the Company and Jones Properties, Inc., regarding office space at 9697 East Mineral Avenue, Englewood, Colorado. (9) 10.3.2 Office Building Lease dated December 9, 1994 between Jones Panorama Properties, Inc. and the Company regarding Lot 4, Panorama Office Park. (2) 10.4.1 Partnership Agreement for Cable TV Fund 12. (9) 10.4.2 Partnership Agreement for Cable TV Fund 14. (10) 10.4.3 Partnership Agreement for Jones Cable Income Fund 1. (11) 10.4.4 Partnership Agreement for IDS/Jones Growth Partners. (12) 10.4.5 Partnership Agreement for Cable TV Fund 15. (13) 92 10.4.6 Partnership Agreement for IDS/Jones Growth Partners II, L.P. (14) 10.5.1 Credit Agreement dated October 31, 1995 among Jones Cable Holdings, Inc. and NationsBank of Texas, N.A. and The Bank of Nova Scotia, as lenders and as managing agents and various other lenders. (3) 10.5.2 First Amendment dated as of September 17, 1996 to Credit Agreement dated October 31, 1995 among Jones Cable Holdings, Inc. and NationsBank of Texas, N.A., individually and as agent for various other lenders. (15) 10.5.3 Credit Agreement dated as of October 29, 1996 among Jones Cable Holdings II, Inc. and The Bank of Nova Scotia, NationsBank of Texas, N.A. and Societe Generale, as managing agents for various lenders. (15) 21 List of Subsidiaries of the Company. 23 Consent of Arthur Andersen & LLP, independent public accountants, to the incorporation by reference of its report into the Company's Form S-8 and Form S-3 Registration Statements. 27 Financial Data Schedule ___________ (1) Incorporated by reference from the Company's Current Report on Form 8-K, filed on June 6, 1994. (2) Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1995. (3) Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1995. (4) Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1988. (5) Incorporated by reference from the Company's Registration Statement No. 33-47030 on Form S-3, filed on April 8, 1992, and Amendment Nos. 1 and 2 thereof, filed on April 24, 1992 and June 4, 1992, respectively, and Post-Effective Amendment No. 1 thereof, filed on July 15, 1992. (6) Incorporated by reference from the Company's Current Report on Form 8-K, filed on March 1, 1993. 93 (7) Incorporated by reference from the Company's Current Report on form 8-K dated March 23, 1995. (8) Incorporated by reference from the Company's Registration No. 33-54596 on Form S-8, filed on November 16, 1992. (9) Incorporated by reference from the Company's Registration Statement No. 2-94127. (10) Incorporated by reference from the Company's Registration Statement No. 33-6976, filed on July 3, 1986, and Amendment No. 1 thereto, filed on November 17, 1986. (11) Incorporated by reference from the Company's Registration Statement No. 33-00968 on Form S-1, filed on October 18, 1985. (12) Incorporated by reference from the Company's Registration Statement No. 33-12473. (13) Incorporated by reference from the Company's Registration Statement No. 33-24358. (14) Incorporated by reference from the Company's Registration Statement on Form 8-A No. 0-18133, dated November 16, 1989. (15) Incorporated by reference from the Company's Annual Report on Form 10-K for year ended December 31, 1996. (16) Incorporated by reference from the Company's Current Report on Form 8-K dated March 21, 1997 (17) Incorporated by reference from the Company's Current Report on Form 8-K dated August 1, 1997. (18) Incorporated by reference from the Company's Annual Report on Form 10-K for year ended December 31, 1997. (19) Incorporated by reference from the Company's Current Report on Form 8-K dated April 6, 1998. 94 (20) Incorporated by reference from Mr. Jones' and International's Amendment No. 2 to Schedule 13D, electronically filed on August 14, 1998, and identified as Exhibits 3 through 6, respectively, to said Schedule 13D. (b) Reports on Form 8-K None. 95 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. JONES INTERCABLE, INC. By: /s/ Glenn R. Jones -------------------------------- Glenn R. Jones Chairman of the Board and Dated: February 17, 1999 Chief 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: February 17, 1999 (Principal Executive Officer) By: /s/ Kevin P. Coyle -------------------------------- Kevin P. Coyle Group Vice President/Finance Dated: February 17, 1999 Principal Financial Officer) By: /s/ Larry W. Kaschinske -------------------------------- Larry W. Kaschinske Controller Dated: February 17, 1999 (Principal Accounting Officer) By: /s/ James B. O'Brien -------------------------------- James B. O'Brien Dated: February 17, 1999 President and Director 96 By: /s/ Robert E. Cole -------------------------------- Robert E. Cole Dated: February 17, 1999 Director By: /s/ William E. Frenzel -------------------------------- William E. Frenzel Dated: February 17, 1999 Director By: ________________________________ Josef J. Fridman Dated: Director By: ________________________________ Donald L. Jacobs Dated: Director By: /s/ Robert Kearney -------------------------------- Robert Kearney Dated: February 17, 1999 Director By: /s/ James J. Krejci -------------------------------- James J. Krejci Dated: February 17, 1999 Director By: /s/ Raphael M. Solot -------------------------------- Raphael M. Solot Dated: February 17, 1999 Director By: /s/ Howard O. Thrall -------------------------------- Howard O. Thrall Dated: February 17, 1999 Director By: ________________________________ Siim A. Vanaselja Dated: Director 97 By: /s/ Sanford Zisman -------------------------------- Sanford Zisman Dated: February 17, 1999 Director By: /s/ Robert B. Zoellick -------------------------------- Robert B. Zoellick Dated: February 17, 1999 Director 98 EX-2.5 2 ASSET PURCHASE AGREEMENT DATED 8/24/98 EXHIBIT 2.5 ASSET PURCHASE AGREEMENT BY AND BETWEEN BRESNAN COMMUNICATIONS COMPANY, L.P. AND JONES COMMUNICATIONS OF GEORGIA/SOUTH CAROLINA, INC. DATED AS OF AUGUST 24, 1998
TABLE OF CONTENTS Page ---- Section 1. Definitions.............................................................. 1 1.1 Affiliate........................................................ 1 1.2 Assets........................................................... 1 1.3 Basic Service.................................................... 1 1.4 Business......................................................... 1 1.5 Business Day..................................................... 1 1.6 Closing.......................................................... 2 1.7 Encumbrance...................................................... 2 1.8 Environmental Law................................................ 2 1.9 Equipment........................................................ 2 1.10 Equivalent Basic Subscribers (or EBSs)........................... 2 1.11 Expanded Basic Service........................................... 3 1.12 GAAP............................................................. 3 1.13 Governmental Authority........................................... 3 1.14 Governmental Permits............................................. 3 1.15 Hazardous Substances............................................. 3 1.16 Intangibles...................................................... 4 1.17 Knowledge........................................................ 4 1.18 Legal Requirement................................................ 4 1.19 Losses........................................................... 4 1.20 Pay TV........................................................... 4 1.21 Permitted Encumbrances........................................... 4 1.22 Person........................................................... 4 1.23 Real Property.................................................... 4 1.24 Required Consents................................................ 4 1.25 Seller Contracts................................................. 5 1.26 Service Area..................................................... 5 1.27 System........................................................... 5 1.28 Taxes............................................................ 5 1.29 Other Definitions................................................ 5 SECTION 2. SALE OF ASSETS........................................................... 6 SECTION 3. CONSIDERATION............................................................ 6 3.1 Deposit.......................................................... 6 3.2 Base Purchase Price.............................................. 6 3.3 Adjustments to Base Purchase Price............................... 7 3.4 Determination of Adjustments..................................... 8 3.5 Allocation of Consideration...................................... 9
-i- Page ---- SECTION 4. ASSUMED LIABILITIES AND EXCLUDED ASSETS............................... 9 4.1 Assignment and Assumption........................................ 9 4.2 Excluded Assets.................................................. 9 SECTION 5. REPRESENTATIONS AND WARRANTIES OF SELLER.............................. 10 5.1 Organization and Qualification................................... 10 5.2 Authority and Validity........................................... 10 5.3 No Conflict; Required Consents................................... 10 5.4 Assets........................................................... 11 5.5 Governmental Permits............................................. 11 5.6 Seller Contracts................................................. 11 5.7 Real Property.................................................... 12 5.8 Environmental Matters............................................ 12 5.9 Compliance with Legal Requirements............................... 13 5.10 Patents, Trademarks and Copyrights............................... 15 5.11 Financial Statements............................................. 15 5.12 Absence of Certain Changes....................................... 15 5.13 Legal Proceedings................................................ 15 5.14 Tax Returns; Other Reports....................................... 16 5.15 Employment Matters............................................... 16 5.16 Systems Information.............................................. 17 5.17 Bonds............................................................ 17 5.18 Finders and Brokers.............................................. 18 Section 6. Buyer's Representations and Warranties................................ 18 6.1 Organization and Qualification................................... 18 6.2 Authority and Validity........................................... 18 6.3 No Conflicts; Required Consents.................................. 18 6.4 Finders and Brokers.............................................. 19 6.5 Legal Proceedings................................................ 19 Section 7. Additional Covenants.................................................. 19 7.1 Access to Premises and Records................................... 19 7.2 Continuity and Maintenance of Operations; Financial Statements... 19 7.3 Employee Matters................................................. 21 7.4 Leased Vehicles; Other Capital Leases............................ 22 7.5 Required Consents; Estoppel Certificates......................... 22 7.6 [Intentionally Omitted].......................................... 23 7.7 Title Commitments and Surveys.................................... 23 7.8 HSR Notification................................................. 24 7.9 No Shopping...................................................... 24
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Page ---- 7.10 Lien and Judgment Searches....................................... 24 7.11 Transfer Taxes................................................... 25 7.12 Distant Broadcast Signals........................................ 25 7.13 Letter to Programmers............................................ 25 7.14 Updated Schedules................................................ 25 7.15 Use of Names and Logos........................................... 25 7.16 Subscriber Billing Services...................................... 25 7.17 Satisfaction of Conditions....................................... 26 7.18 Confidentiality and Publicity.................................... 26 7.19 Bulk Transfers................................................... 26 7.20 Environmental Reports............................................ 26 SECTION 8. CONDITIONS PRECEDENT.................................................... 26 8.1 Conditions to the Obligations of Buyer and Seller................ 26 8.2 Conditions to the Obligations of Buyer........................... 27 8.3 Conditions to Obligations of Seller.............................. 28 8.4 Waiver of Conditions............................................. 28 SECTION 9. CLOSING................................................................. 29 9.1 The Closing; Time and Place...................................... 29 9.2 Seller's Delivery Obligations.................................... 29 9.3 Buyer's Delivery Obligations..................................... 30 Section 10. Termination............................................................. 30 10.1 Termination Events............................................... 30 10.2 Effect of Termination............................................ 31 SECTION 11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION............. 31 11.1 Survival of Representations and Warranties....................... 31 11.2 Indemnification by Seller........................................ 32 11.3 Indemnification by Buyer......................................... 33 11.4 Third Party Claims............................................... 33 11.5 Limitations on Indemnification -- Seller......................... 34 11.6 Limitations on Indemnification -- Buyer.......................... 34 SECTION 12. MISCELLANEOUS........................................................... 34 12.1 Parties Obligated and Benefited.................................. 34 12.2 Notices.......................................................... 35 12.3 Attorneys' Fees.................................................. 36 12.4 Waiver........................................................... 36 12.5 Captions......................................................... 36 12.6 Choice of Law.................................................... 36
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Page ---- 12.7 Terms............................................................ 36 12.8 Rights Cumulative................................................ 36 12.9 Further Actions.................................................. 36 12.10 Time............................................................. 36 12.11 Late Payments.................................................... 37 12.12 Counterparts..................................................... 37 12.13 Entire Agreement................................................. 37 12.14 Severability..................................................... 37 12.15 Construction..................................................... 37 12.16 Expenses......................................................... 37 12.17 Risk of Loss; Condemnation....................................... 37
-iv- LIST OF EXHIBITS AND SCHEDULES EXHIBITS - -------- A - Indemnity Escrow Agreement B - Bill of Sale C - Assignment and Assumption of Contracts D - Assignment of Leases E - Letter to Programmers F - FIRPTA Affidavit G - Opinion of Seller's Counsel H - Opinion of Buyer's Counsel SCHEDULES - --------- 1.9 - Owned Equipment and Vehicles 4.2 - Excluded Assets 5.3 - Required Consents 5.4 - Encumbrances to Be Discharged Prior to Closing 5.5 - Governmental Permits 5.6 - Seller Contracts 5.7 - Real Property 5.8 - Environmental Matters 5.9 - Cost of Service Filings 5.11 - Financial Statements 5.13 - Proceedings and Judgments 5.14 - Tax Matters 5.15 - Employee Matters 5.16 - The Business/Systems Information (including Rate Schedule) 5.17 - Bonds -v- ASSET PURCHASE AGREEMENT ------------------------ This Asset Purchase Agreement ("Agreement") is made as of August 24, 1998, by and between Bresnan Communications Company, L.P., a Michigan limited partnership ("Seller") and Jones Communications of Georgia/South Carolina, Inc., a Colorado corporation ("Buyer"). RECITALS -------- Seller is engaged in the business of providing cable television service to subscribers in and around the Service Area. Buyer desires to purchase and Seller desires to sell substantially all the assets of Seller used or useful in connection with that business. AGREEMENT --------- In consideration of the above recitals and the mutual agreements stated in this Agreement, the parties agree as follows: Section 1. Definitions. In addition to terms defined elsewhere in this Agreement, the following capitalized terms, when used in this Agreement, will have the meanings set forth below: 1.1 Affiliate. With respect to any Person, any other Person controlling, --------- controlled by or under common control with such Person, with "control" for such purpose meaning the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities or voting interests, by contract or otherwise. 1.2 Assets. All properties, privileges, rights, interests and claims, ------ real and personal, tangible and intangible, of every type and description that are owned, leased, held, used or useful in the Business in which Seller has any right, title or interest or in which Seller acquires any right, title or interest on or before the Closing Date, including Governmental Permits, Intangibles, Seller Contracts, Equipment, Real Property and deposits relating to the Business that are held by third parties for the account of Seller or for security for Seller's performance of its obligations, but excluding any Excluded Assets. 1.3 Basic Service. The lowest tier of service offered to subscribers of a ------------- System. 1.4 Business. The cable television business conducted by Seller on the -------- date of this Agreement through one or more Systems, as described on SCHEDULE 5.16. 1.5 Business Day. Any day other than Saturday, Sunday or a day on which ------------ banking institutions in Denver, Colorado are required or authorized to be closed. 1.6 Closing. The consummation of the transactions contemplated by this ------- Agreement, as described in SECTION 9, the date of which is referred to as the Closing Date. 1.7 Encumbrance. Any security interest, security agreement, financing ----------- statement filed with any Governmental Authority, conditional sale or other title retention agreement, any lease, consignment or bailment given for purposes of security, any mortgage, lien, indenture, pledge, option, encumbrance, adverse interest, constructive trust or other trust, claim, attachment, exception to or defect in title or other ownership interest (including but not limited to reservations, rights of entry, possibilities of reverter, encroachments, easements, rights-of-way, restrictive covenants, leases and licenses) of any kind, which constitutes an interest in or claim against property, whether arising pursuant to any Legal Requirement, Governmental Permit, Seller Contract or otherwise. 1.8 Environmental Law. Any Legal Requirement relating to pollution or ----------------- protection of public health, safety or welfare or the environment, including those relating to emissions, discharges, releases or threatened releases of Hazardous Substances into the environment (including ambient air, surface water, ground water or land), or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Substances. 1.9 Equipment. All electronic devices, trunk and distribution coaxial and --------- optical fiber cable, amplifiers, power supplies, conduit, vaults and pedestals, grounding and pole hardware, subscriber's devices (including converters, encoders, transformers behind television sets and fittings), headend hardware (including origination, earth stations, transmission and distribution system), test equipment, vehicles and other tangible personal property owned, leased, used or held for use in the Business, the principal items of which are described on SCHEDULE 1.9 (and, with respect to leased Equipment, on SCHEDULE 5.6). 1.10 Equivalent Basic Subscribers (or EBSs). An active customer for Basic -------------------------------------- Service either in a single household, a commercial establishment or in a multi- unit dwelling (including a hotel unit); provided, however, that the number of customers in a multi-unit dwelling or commercial establishment that obtain service on a "bulk-rate" basis will be determined on a System by System basis by dividing the gross bulk-rate billings for Basic Service and Expanded Basic Service (but not billings from a la carte tiers or premium services, installation or other non-recurring charges, converter rental or from any outlet or connection other than the first outlet or connection or from any pass-through charge for sales taxes, line-itemized franchise fees, fees charged by the FCC and the like), attributable to such multi-unit dwelling or commercial establishment during the most recent billing period ended prior to the date of calculation (but excluding billings in excess of a single month's charge) by the rate charged at the time of determination to individual households for the highest level of Basic Service and Expanded Basic Service offered by such System, such rate not to be less than the rate for such System set forth on SCHEDULE 5.16 (excluding a la carte tiers or premium services, installation or other non-recurring charges, converter rental, pass-through charges for sales taxes, line-itemized franchise fees charged by the FCC and the like). For purposes of this definition, an "active customer" will mean any person, commercial establishment or multi-unit dwelling at any given time that is paying for and receiving Basic Service from the System who has -2- an account that is not more than 60 days past due (except for past due amounts of $5 or less, provided such account is otherwise current). For purposes of this definition, an "active customer" does not include any person, commercial establishment or multi-unit dwelling that as of the date of calculation has not paid in full the charges for at least one month of the services ordered or any subscriber whose service is pending disconnection for any reason. For purposes of this definition, the number of days past due of a customer account will be determined from the first day of the period for which the applicable billing relates. 1.11 Expanded Basic Service. Any video programming provided over a cable ---------------------- television system, regardless of service tier other than (a) Basic Service, (b) any new product tier and (c) video programming offered on a per channel or per program basis. 1.12 GAAP. Generally accepted accounting principles as in effect from ---- time to time in the United States of America. 1.13 Governmental Authority. The United States of America, any state, ---------------------- commonwealth, territory or possession of the United States of America and any political subdivision or quasi-governmental authority of any of the same, including any court, tribunal, department, commission, board, bureau, agency, county, municipality, province, parish or other instrumentality of any of the foregoing. 1.14 Governmental Permits. All franchises (the "Franchises"), approvals, -------------------- authorizations, permits, licenses, easements, registrations, qualifications, leases, variances and similar rights obtained with respect to the Business or Assets from any Governmental Authority, including those set forth on SCHEDULE 5.5. 1.15 Hazardous Substances. Any pollutant, contaminant, chemical, -------------------- industrial, toxic, hazardous or noxious substance or waste which is regulated by any Governmental Authority, including (a) any petroleum or petroleum compounds (refined or crude), flammable substances, explosives, radioactive materials or any other materials or pollutants which pose a hazard or potential hazard to the Real Property or to Persons in or about the Real Property or cause the Real Property to be in violation of any laws, regulations or ordinances of federal, state or applicable local governments, (b) asbestos or any asbestos-containing material of any kind or character, (c) polychlorinated biphenyls ("PCBs"), as regulated by the Toxic Substances Control Act, 15 U.S.C. (S) 2601 et seq., (d) -- ---- any materials or substances designated as "hazardous substances" pursuant to the Clean Water Act, 33 U.S.C. (S) 1251 et seq., (e) "economic poison," as defined -- ---- in the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. (S) 135 et -- seq., (f) "chemical substance," "new chemical substance" or "hazardous chemical - --- substance or mixture" pursuant to the Toxic Substances Control Act, 15 U.S.C. (S) 2601 et seq., (g) "hazardous substances" pursuant to the Comprehensive -- ---- Environmental Response, Compensation, and Liability Act, 42 U.S.C. (S) 9601 et -- seq. and (h) "hazardous waste" pursuant to the Resource Conservation and - ---- Recovery Act, 42 U.S.C. (S) 6901 et seq. ------- -3- 1.16 Intangibles. All intangible assets, including subscriber lists, ----------- accounts receivable, claims (excluding any claims relating to Excluded Assets), patents, copyrights and goodwill, if any, owned, used or held for use in the Business. 1.17 Knowledge. The actual collective knowledge of a particular matter --------- of one or more of the executive officers of a Person or the general manager or one or more of the managers of such Person's Systems. 1.18 Legal Requirement. Applicable common law and any statute, ordinance, ----------------- code, or other law, rule, regulation, order, technical or other written standard or procedure enacted, adopted or applied by any Governmental Authority, including judicial decisions applying common law or interpreting any other Legal Requirement. 1.19 Losses. Any claims, losses, liabilities, damages, penalties, costs ------ and expenses, including interest that may be imposed in connection therewith, expenses of investigation, reasonable fees and disbursements of counsel and other experts, and the cost to any Person making a claim or seeking indemnification under this Agreement with respect to funds expended by such Person by reason of the occurrence of any event with respect to which indemnification is sought. 1.20 Pay TV. Premium programming services selected by and sold to ------ subscribers on a per channel or per program basis. 1.21 Permitted Encumbrances. The following Encumbrances: (a) liens ---------------------- securing Taxes, assessments and governmental charges not yet due and payable, (b) any zoning law or ordinance or any similar Legal Requirement, (c) any right reserved to any Governmental Authority to regulate the affected property and (d) as to Real Property interests, any Encumbrance reflected in the public records and that does not individually or in the aggregate interfere with the right or ability to own, use or operate the Real Property or to convey good, marketable and indefeasible fee simple title to such Real Property, provided that "Permitted Encumbrances" will not include any Encumbrance which could prevent or inhibit in any way the conduct of the business of the affected System and provided further that classification of any Encumbrance as a "Permitted Encumbrance" will not affect any liability Seller may have for such Encumbrance, including pursuant to any indemnity obligation under this Agreement. 1.22 Person. Any natural person, corporation, partnership, trust, ------ unincorporated organization, association, limited liability company, Governmental Authority or other entity. 1.23 Real Property. All assets held by Seller related to the Business ------------- consisting of realty, including appurtenances, improvements and fixtures located on such realty, and any other interests in real property, including fee interests, leasehold interests and easements, wire crossing permits and rights of entry (except agreements related to multiple dwelling units) described on SCHEDULE 5.7. 1.24 Required Consents. All franchises, licenses, authorizations, ----------------- approvals and consents required under Governmental Permits, Seller Contracts or otherwise for (a) Seller to transfer the -4- Assets and the Business to Buyer, (b) Buyer to conduct the Business and to own, lease, use and operate the Assets at the places and in the manner in which the Business is conducted as of the date of this Agreement and on the Closing Date and (c) Buyer to assume and perform the Governmental Permits, Seller Contracts and the other Assumed Liabilities. 1.25 Seller Contracts. All contracts and agreements, other than ---------------- Governmental Permits and those relating to Real Property, pertaining to the ownership, operation and maintenance of the Assets or the Business or used or held for use in the Business, as described on SCHEDULE 5.6 or, in the case of contracts and agreements relating to Real Property, on SCHEDULE 5.7. 1.26 Service Area. The area in which Seller operates the Business, ------------ specifically in the communities of Riceboro, City of Jesup, Brantley County, Liberty County, McIntosh County, Camden County, City of Screven, City of Odum, Bryan County, City of Flemington, City of Gum Branch, Fort Stewart, City of Woodbine, City of Hinesville, City of Richmond Hill, City of Walthourville, City of Midway, Long County, Town of Allenhurst, Charlton County, and Wayne County, all in the State of Georgia. 1.27 System. A complete cable television reception and distribution system ------ operated in the conduct of the Business, consisting of one or more headends, subscriber drops and associated electronic and other equipment, and which is, or is capable of being without modification, operated as an independent system without interconnections to other systems. Any systems which are interconnected or which are served in total or in part by a common headend will be considered a single System. 1.28 Taxes. All levies and assessments of any kind or nature imposed by ----- any Governmental Authority, including all income, sales, use, ad valorem, value added, franchise, severance, net or gross proceeds, withholding, payroll, employment, excise or property taxes and levies or assessments related to unclaimed property, together with any interest thereon and any penalties, additions to tax or additional amounts applicable thereto. 1.29 Other Definitions. The following terms are defined in the Sections ----------------- indicated: Term Section ---- ------- Action 11.4 Antitrust Division 7.8 Assumed Liabilities 4.1 Base Purchase Price 3.2 Buyer Damages 11.5 CLI 5.9.5 Closing Date 1.8 Code 5.15.2 Collective Bargaining Agreement 4.2 Cost of Service Election 5.9.4 -5- Deposit 3.1 Employee Benefit Plans 5.15.2 ERISA 5.15.1 Escrow Agent 3.1.1 Excluded Assets 4.2 FCC 1.10 Final Adjustments Report 3.4.2 Financial Statements 5.11 Franchises 1.14 FTC 7.8 GP 5.1 HSR Act 7.8 Indemnified Party 11.4 Indemnifying Party 11.4 Indemnity Escrow Agreement 3.1(a) 1992 Cable Act 5.9.4 Outside Closing Date 10.1.4 PCB 1.15 Preliminary Adjustments Report 3.4.1 Rate Regulation Documents 5.9.4 Seller Damages 11.6 Survival Period 11.1 Taking 12.17.2 Transaction Documents 5.2 Unreflected Liabilities 5.11 Section 2. Sale of Assets. Subject to the terms and conditions set forth in this Agreement, at the Closing, Seller will sell to Buyer, and Buyer will purchase from Seller, all of Seller's rights, titles and interests in, to and under the Assets. Except as otherwise specifically provided in this Agreement, all the Assets are intended to be transferred to Buyer, whether or not described in the Schedules. Section 3. Consideration. 3.1 Deposit. Upon execution and delivery of this Agreement by Seller ------- and Buyer, Buyer shall deliver Two Million Dollars ($2,000,000) (the "Deposit") to U.S. Bank National Association (the "Escrow Agent"), to be held in an interest bearing account in accordance with a Deposit Escrow Agreement, dated the date hereof, by and among Seller, Buyer and Escrow Agent. 3.2 Base Purchase Price. Buyer will pay to Seller total cash ------------------- consideration of $48,000,000 (the "Base Purchase Price"), subject to adjustment as provided in SECTIONS 3.2 and 3.3. Such consideration will be paid at Closing as follows: -6- 3.2.1 Buyer shall wire to Escrow Agent the amount of Two Million Dollars ($2,000,000), which will secure payment by Seller of post-Closing adjustments and indemnification obligations of Seller to Buyer, in accordance with an Indemnity Escrow Agreement in substantially the form attached as EXHIBIT A (the "Indemnity Escrow Agreement"); and 3.2.2 Buyer shall wire to Seller Forty-six Million Dollars ($46,000,000) in immediately available funds pursuant to wire instructions delivered no later than two Business Days prior to the Closing Date by Seller to Buyer. Buyer shall receive credit for the Deposit, plus interest thereon, toward this amount. 3.3 Adjustments to Base Purchase Price. The Base Purchase Price will be ---------------------------------- adjusted as follows: 3.3.1 If the number of EBSs as of the Closing Date is less than 23,500, the Base Purchase Price will be reduced by an amount equal to $2,043 multiplied by the number by which 23,500 exceeds the greater of 23,200 or the number of EBSs as of the Closing Date. 3.3.2 Adjustments on a pro rata basis as of the Closing Date will be made for all prepaid expenses (but only to the extent the full benefit thereof will be realizable by Buyer within 12 months after the Closing Date), accrued expenses (including real and personal property Taxes and the economic value of all accrued vacation time permitted by Buyer's policies to be taken after the Closing Date by Seller's System employees hired by Buyer), prepaid income, subscriber prepayments and accounts receivable related to the Business, all as determined in accordance with GAAP consistently applied, and to reflect the principle that all expenses and income attributable to the Business for the period prior to the Closing Date are for the account of Seller, and all expenses and income attributable to the Business for the period on and after the Closing Date are for the account of Buyer. The Purchase Price will be increased by an amount equal to the sum of (a) 100% of the face amount of all accounts receivable (other than from advertising sales) that are current or 30 days or less past due as of the Closing Date, plus (b) 80% of the face amount of all accounts receivable (other than from advertising sales) that are between 31 days and 60 days past due as of the Closing Date, plus (c) 100% of the face amount of all direct-billed advertising accounts receivable that are current or 60 days or less past due as of the Closing Date, plus (d) 50% of the face amount of all direct-billed advertising accounts receivable that are between 61 and 90 days past due as of the Closing Date, plus (e) 100% of the face amount of all agency advertising accounts receivable that are current or 90 days or less past due as of the Closing Date, plus (f) 50% of all agency advertising accounts receivable that are between 91 and 120 days past due as of the Closing Date; provided, that Seller will not receive credit for any accounts receivable (a) any portion of which is 60 days or more past due as of the Closing Date (other than accounts receivable from advertising sales), (b) from subscribers whose accounts are inactive or whose service is pending disconnection for any reason as of the Closing Date or (c) resulting from advertising sales any portion of which is 120 days or more past due as of the Closing Date. 3.3.3 Buyer's account will be credited for the amount of all advance payments to, or funds of third parties on deposit with, Seller as of the Closing Date, relating to the Business, -7- including advance payments and deposits by subscribers served by the Business for converters, encoders, decoders, cable television service and related sales, and the liability therefor will be assumed by Buyer. 3.4 Determination of Adjustments. Preliminary and final adjustments to ---------------------------- the Base Purchase Price will be determined as follows: 3.4.1 Not later than a date Seller reasonably believes is at least 10 Business Days prior to the expected Closing Date, Seller will deliver to Buyer a report (the "Preliminary Adjustments Report"), certified as to completeness and accuracy by an authorized officer of Jones Intercable, Inc., showing in detail the preliminary determination of the adjustments referred to in SECTION 3.3, which are calculated as of the Closing Date (or as of any other date agreed by the parties) and any documents substantiating the adjustments proposed in the Preliminary Adjustments Report. The Preliminary Adjustments Report will include a complete list of subscribers, a detailed calculation of the number of Equivalent Basic Subscribers and a schedule setting forth advance payments made to or by Seller and deposits made by Seller, as well as accounts receivable information relating to the Business (showing sums due and their respective aging as of the Closing Date). Seller also will furnish to Buyer its billing report for the most current period as of the Closing Date. Following receipt of such Preliminary Adjustments Report and supporting information, Buyer will have five Business Days to review such Preliminary Adjustments Report and supporting information and to notify Seller of any disagreements with Seller's estimates. If Buyer provides a notice of disagreement with Seller's estimates of the adjustments referred to in SECTION 3.3 within such five Business Day period, Buyer and Seller will negotiate in good faith to resolve any such dispute and to reach an agreement prior to the Closing Date on such estimated adjustments as of the Closing Date. The basis for determining the Base Purchase Price to be paid at Closing will be (a) the estimate so agreed upon by Buyer and Seller or (b) if no notice of disagreement is provided, or if such notice is provided but the parties do not reach such an agreement prior to the Closing Date, the estimate of such adjustments set forth in the Preliminary Adjustments Report. 3.4.2 Within 90 days after the Closing, Seller will deliver to Buyer a report (the "Final Adjustments Report"), similarly certified by Seller, showing in detail the final determination of all adjustments which were not calculated as of the Closing Date and containing any corrections to the Preliminary Adjustments Report, together with any documents substantiating the adjustments proposed in the Final Adjustments Report. Buyer will provide Seller with reasonable access to all records which Buyer has in its possession and which are necessary for Seller to prepare the Final Adjustments Report. 3.4.3 Within 30 days after receipt of the Final Adjustments Report, Buyer will give Seller written notice of Buyer's objections, if any, to the Final Adjustments Report. If Buyer makes any such objection, the parties will agree on the amount, if any, which is not in dispute within 30 days after Seller's receipt of Buyer's notice of objections to the Final Adjustments Report. If Seller makes any such objection, the parties will agree on the amount, if any, which is not in dispute within 30 days after Buyer's receipt of Seller's objections. Any disputed amounts will be determined within 120 days after the Closing Date by the accounting firm of Price Waterhouse, -8- whose determination will be conclusive; provided, however, that if at the time of such dispute, Price Waterhouse is the accounting firm for either Seller or Buyer, the parties shall select a different accounting firm of national standing acceptable to both parties to determine the dispute. Seller and Buyer will bear equally the fees and expenses payable to such firm in connection with such determination. The payment required after such determination will be made by the responsible party by wire transfer of immediately available funds to the other party within three Business Days after the final determination. 3.5 Allocation of Consideration. The consideration payable by Buyer --------------------------- under this Agreement will be allocated among the Assets as set forth in a schedule to be prepared not later than 180 days after the Closing Date (or April 1 of the year following the Closing Date if earlier) by an independent appraiser with significant experience in the cable television industry. Such appraiser will be selected by the mutual agreement of Buyer and Seller within 30 days after the date of this Agreement, and the fees of such appraiser will be shared equally by Buyer and Seller; provided, however, that if the parties so agree, the appraisal and preparation of the schedule described above may occur prior to Closing. Buyer and Seller agree to be bound by the allocation and will not take any position inconsistent with such allocation and will file all returns and reports with respect to the transactions contemplated by this Agreement, including all federal, state and local Tax returns, on the basis of such allocation. Section 4. Assumed Liabilities and Excluded Assets. 4.1 Assignment and Assumption. Seller will assign, and Buyer will ------------------------- assume and after the Closing will pay, discharge and perform the following (the "Assumed Liabilities"): (a) Seller's obligations to subscribers of the Business for (i) subscriber deposits held by Seller as of the Closing Date and which are refundable, in the amount for which Buyer received credit under SECTION 3.3, (ii) subscriber advance payments held by Seller as of the Closing Date for services to be rendered by a System after the Closing Date, in the amount for which Buyer received credit under SECTION 3.3 and (iii) the delivery of cable television service to subscribers of the Business after the Closing Date; and (b) obligations accruing and relating to periods after the Closing Date under Governmental Permits listed on SCHEDULE 5.5 (to the extent that such Governmental Permits are transferable) and Seller Contracts. Buyer will not assume or have any responsibility for any liabilities or obligations of Seller other than the Assumed Liabilities. In no event will Buyer assume or have any responsibility for any liabilities or obligations associated with the Excluded Assets. 4.2 Excluded Assets. The Excluded Assets, which will be retained by --------------- Seller, will consist of the following: (a) programming contracts, retransmission consent agreements and pole attachment agreements (except for those set forth on SCHEDULE 5.7); (b) Employee Benefit Plans; (c) insurance policies and rights and claims thereunder (except as otherwise provided in SECTION 12.17); (d) bonds, letters of credit, surety instruments and other similar items; (e) cash and cash equivalents and notes receivable; (f) Seller's trademarks, trade names, service marks, service names, logos and similar proprietary rights (subject to Buyer's rights under SECTION 7.15); (g) Seller's rights under any agreement governing or evidencing an obligation of Seller for borrowed money; (h) Seller Contracts for subscriber billing and equipment; (i) Seller's rights and obligations -9- under any contract, license, authorization, agreement or commitment other than those creating or evidencing Assumed Liabilities; (j) the Collective Bargaining Agreement between Seller and International Association of Machinists and Aerospace Workers South Atlantic District No. 96 and all related agreements (together the "Collective Bargaining Agreement"); and (k) the assets described on SCHEDULE 4.2. Section 5. Representations and Warranties of Seller. To induce Buyer to enter into this Agreement, Seller represents and warrants to Buyer, as of the date of this Agreement and as of the Closing, as follows: 5.1 Organization and Qualification. Seller is a limited ------------------------------ partnership duly organized and validly existing under the laws of the State of Michigan and has all requisite partnership power and authority to own, lease and use the Assets owned, leased or used by it and to conduct the Business as it is currently conducted. Seller is duly qualified to do business in the State of Georgia, and under the laws of each jurisdiction in which the ownership, leasing or use of the Assets owned, leased or used by it or the nature of Seller's activities makes such qualification necessary, except in any such jurisdiction where the failure to be so qualified and in good standing would not have a material adverse effect on the Business, the Assets or the Systems or on the ability of Seller to perform its obligations under this Agreement. The general partner of Seller is BCI (USA), L.P. ("GP"). 5.2 Authority and Validity. Seller has all requisite partnership ---------------------- power and authority to execute and deliver, to perform its obligations under, and to consummate the transactions contemplated by, this Agreement and all other documents and instruments to be executed and delivered in connection with the transactions contemplated by this Agreement (collectively, the "Transaction Documents") to which Seller is a party. Subject to approval by the partners of Seller, the execution and delivery by Seller of, the performance by Seller of its obligations under, and the consummation by Seller of the transactions contemplated by, this Agreement and the Transaction Documents to which Seller is a party have been duly and validly authorized by all necessary action by or on behalf of Seller and the general partner of Seller. This Agreement has been, and when executed and delivered by Seller the Transaction Documents will be, duly and validly executed and delivered by Seller and the valid and binding obligations of Seller, enforceable against Seller in accordance with their terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws now or hereafter in effect relating to the enforcement of creditors' rights generally or by principles governing the availability of equitable remedies. 5.3 No Conflict; Required Consents. Except for the Required ------------------------------ Consents, all of which are listed on SCHEDULE 5.3, the execution and delivery by Seller, the performance of Seller under, and the consummation of the transactions contemplated by, this Agreement and the Transaction Documents to which Seller is a party do not and will not: (a) violate any provision of the Partnership Agreement of Seller; (b) violate any Legal Requirement; (c) require any consent, approval or authorization of, or filing of any certificate, notice, application, report or other document with any Governmental Authority or other Person; or (d) (i) violate or result in a breach of or default -10- under (without regard to requirements of notice, lapse of time, or elections of any Person, or any combination thereof), (ii) permit or result in the termination, suspension or modification of, (iii) result in the acceleration of (or give any Person the right to accelerate) the performance of Seller under, or (iv) result in the creation or imposition of any Encumbrance under any Seller Contract or any other instrument evidencing any of the Assets or by which Seller or any of its assets is bound or affected, except for purposes of this clause (d) such violations, conflicts, breaches, defaults, terminations, suspensions, modifications, and accelerations as would not, individually or in the aggregate, have a material adverse effect on any System, the Business or Seller, the validity, binding effect or enforceability of this Agreement or on the ability of Seller to perform its obligations under this Agreement or the Transaction Documents to which Seller is a party. 5.4 Assets. Seller has exclusive, good and marketable title to (or, ------ in the case of Assets that are leased, valid leasehold interests in) the Assets (other than Real Property, as to which the representations and warranties in SECTION 5.7 apply). The Assets are free and clear of all Encumbrances, except (a) Permitted Encumbrances and (b) Encumbrances described on SCHEDULE 5.4, all of which will be terminated, released or, in the case of rights of refusal listed on SCHEDULE 5.4, waived, as appropriate, at or prior to the Closing. Except as described on SCHEDULE 5.6, none of the Equipment is leased by Seller from any other Person. All the Equipment is in good operating condition and repair (ordinary wear and tear excepted). Except for items included in the Excluded Assets, the Assets constitute all the assets necessary to permit Buyer to (i) conduct the Business and to operate the Systems substantially as they are being conducted and operated on the date of this Agreement and in compliance in all material respects with all Legal Requirements, Governmental Permits and Seller Contracts and (ii) perform all the Assumed Liabilities. 5.5 Governmental Permits. All Governmental Permits are listed on -------------------- SCHEDULE 5.5. Complete and correct copies of all Governmental Permits have been delivered by Seller to Buyer. Each Governmental Permit is in full force and effect and Seller is not and, to Seller's Knowledge, the other party thereto is not, in breach or default of any material terms or conditions thereunder, and is valid under all applicable Legal Requirements according to its terms. There is no legal action, governmental proceeding or investigation, pending or, to Seller's Knowledge threatened, to terminate, suspend or modify any Governmental Permit and Seller is in compliance with the material terms and conditions of all the Governmental Permits and with other material applicable requirements of all Governmental Authorities (including the FCC and the Register of Copyrights) relating to the Governmental Permits, including all requirements for notification, filing, reporting, posting and maintenance of logs and records. As of the date of this Agreement, to Seller's Knowledge, no third party has been granted or has applied for a cable television franchise or is providing or intending to provide cable television services in any of the communities or unincorporated areas currently served by the Business other than Buyer in the City of Midway. 5.6 Seller Contracts. All Seller Contracts (other than those ---------------- constituting Excluded Assets) are described on SCHEDULE 5.6 or 5.7. Complete and correct copies of all Seller Contracts have been delivered by Seller to Buyer. Each Seller Contract is in full force and effect and constitutes the -11- valid, legal, binding and enforceable obligation of Seller, and Seller is not and to Seller's Knowledge each other party thereto is not, in breach or default of any material terms or conditions thereunder. 5.7 Real Property. ------------- 5.7.1 All the Assets consisting of Real Property interests are described on SCHEDULE 5.7. Except as otherwise disclosed on SCHEDULE 5.7, Seller holds good, marketable and indefeasible fee simple title to the Real Property shown as being owned by Seller on SCHEDULE 5.7 and the valid and enforceable right to use and possess such Real Property, subject only to the Permitted Encumbrances. Seller has valid and enforceable leasehold interests in Real Property shown as being leased by Seller on SCHEDULE 5.7 and, with respect to other Real Property not owned or leased by Seller, Seller has the valid and enforceable right to use all such other Real Property pursuant to the easements, licenses, rights-of-way or other rights described on SCHEDULE 5.7, subject only to Permitted Encumbrances. Except for routine repairs, all of the material improvements, leasehold improvements and the premises of the Real Property are in good condition and repair and are suitable for the purposes used. The current use and occupancy of the Real Property do not constitute nonconforming uses under any applicable zoning Legal Requirements. 5.7.2 The documents delivered by Seller to Buyer as evidence of each Seller Contract that is a lease of Real Property constitute the entire agreement with the landlord in question. There are no leases or other agreements, oral or written, granting to any Person other than Seller the right to occupy or use any Real Property, except as described on SCHEDULE 5.7. All easements, rights-of-way and other rights appurtenant to, or which are necessary for Seller's current use of, any Real Property are valid and in full force and effect, and Seller has not received any notice with respect to the termination, breach or impairment of any of those rights. Each parcel of Real Property, any improvements constructed thereon and their current use (a) has access to and over all public streets, or private streets for which Seller has a valid right of ingress and egress, (b) conforms in its current use and occupancy to all zoning requirements without reliance upon a variance issued by a Governmental Authority or a classification of the parcel in question as a nonconforming use, and (c) conforms in all material respects in its use to all restrictive covenants, if any, or other Encumbrances affecting all or part of such parcel. 5.8 Environmental Matters. --------------------- 5.8.1 The Real Property currently complies in all material respects with and, to Seller's Knowledge, has previously been operated in compliance in all material respects with, all Environmental Laws. Seller has not directly or indirectly (a) generated, released, stored, used, treated, handled, discharged or disposed of any Hazardous Substances at, on, under, in or about, or in any other manner affecting, any Real Property, (b) transported any Hazardous Substances to or from any Real Property or (c) undertaken or caused to be undertaken any other activities relating to the Real Property which could reasonably give rise to any liability under any Environmental Law, and, to Seller's Knowledge, no other present or previous owner, tenant, occupant or user of any Real Property or any other Person has committed or suffered any of the foregoing. To Seller's Knowledge, (i) no release of Hazardous Substances outside the Real Property has entered or -12- threatens to enter any Real Property, nor (ii) is there any pending or threatened claim based on Environmental Laws which arises from any condition of the land surrounding any Real Property. No litigation based on Environmental Laws which relates to any Real Property or any operations on conditions on it (A) has been asserted or conducted in the past or is currently pending against or with respect to Seller or, to Seller's Knowledge, any other Person, or (B) to Seller's Knowledge is threatened or contemplated. 5.8.2 To Seller's Knowledge, other than as described on SCHEDULE 5.8, (a) no aboveground or underground storage tanks are currently or have been located on any Real Property, (b) no Real Property has been used at any time as a gasoline service station or any other facility for storing, pumping, dispensing or producing gasoline or any other petroleum products or wastes and (c) no building or other structure on any Real Property contains asbestos- containing material. 5.8.3 Seller has provided Buyer with complete and correct copies of (a) all studies, reports, surveys or other materials in Seller's possession or, to Seller's Knowledge to which it has access, relating to the presence or alleged presence of Hazardous Substances at, on or affecting the Real Property, (b) all notices or other materials in Seller's possession or, to Seller's Knowledge to which it has access, that were received from any Governmental Authority having the power to administer or enforce any Environmental Laws relating to current or past ownership, use or operation of the Real Property or activities at the Real Property and (c) all materials in Seller's possession or, to Seller's Knowledge to which it has access, relating to any litigation or allegation by any Person concerning any Environmental Law. 5.9 Compliance with Legal Requirements. ---------------------------------- 5.9.1 The ownership, leasing and use of the Assets as they are currently owned, leased and used and the conduct of the Business and the operation of the Systems as they are currently conducted and operated do not violate or infringe, in any material respect, any Legal Requirements currently in effect (other than the Legal Requirements described in SECTION 5.9.4, as to which the provisions of SECTION 5.9.4 will apply, and other than as referenced in Schedule 5.5 with respect to the City of Midway). Seller has received no notice of any violation by Seller or the Business of any Legal Requirement applicable to the Business or the Systems as currently conducted, and to Seller's Knowledge, there is no basis for the allegation of any such a violation. 5.9.2 A valid request for renewal has been duly and timely filed under Section 626 of the Cable Communications Policy Act of 1984 with the proper Governmental Authority with respect to applicable Governmental Permits with franchising authorities that have expired prior to, or will expire within 30 months after, the date of this Agreement. 5.9.3 Seller has complied, and the Business is in compliance, in all material respects, with the specifications set forth in Part 76, Subpart K of the rules and regulations of the FCC, Section 111 of the U.S. Copyright Act of 1976 and the applicable rules and regulations thereunder and the applicable rules and regulations of the U.S. Copyright Office, the Register of Copyrights, the Copyright Royalty Tribunal and the Communications Act of 1934, including -13- provisions of any thereof pertaining to signal leakage, to utility pole make ready and to grounding and bonding of cable television systems (in each case as the same is currently in effect), and all other applicable Legal Requirements relating to the construction, maintenance, ownership and operation of the Assets, the Systems and the Business. 5.9.4 Notwithstanding the foregoing, to Seller's Knowledge, each System is in compliance in all material respects with the provisions of the Cable Television Consumer Protection and Competition Act of 1992 and the FCC rules and regulations promulgated thereunder (the "1992 Cable Act") as such Legal Requirements relate to the operation of the Business; provided, however, that Seller does not hereby make any representation about rates charged to subscribers, other than the representation regarding the rates charged to subscribers set forth below. Seller has complied in all material respects with the must carry and retransmission consent provisions of the 1992 Cable Act and has all must carry elections and retransmission consent agreements necessary for the operation of the Business. Seller has used reasonable good faith efforts to establish rates charged to subscribers, effective since September 1, 1993, that are or were allowable under the 1992 Cable Act and any authoritative interpretation thereof now or then in effect, whether or not such rates are or were subject to regulation at that date by any Governmental Authority, including any local franchising authority and/or the FCC, unless such rates were not subject to regulation pursuant to a specific exemption from rate regulation contained in the 1992 Cable Act other than the failure of any franchising authority to have been certified to regulate rates. Notwithstanding the foregoing, Seller makes no representation or warranty that the rates charged to subscribers (a) are allowable under any rules and regulations of the FCC or any authoritative interpretation thereof, or (b) would be allowable under any rules and regulations of the FCC or any authoritative interpretation thereof promulgated after the date of the Closing. Seller has delivered to Buyer complete and correct copies of all FCC Forms 393, 1200, 1205, 1210, 1215, 1220, 1225, 1235 and 1240 filed with respect to the Systems and copies of all other FCC Forms filed by Seller and of all correspondence with any Governmental Authority relating to rate regulation generally or specific rates charged to subscribers with respect to the Systems, including copies of any complaints (attached hereto as SCHEDULE 5.9.4) filed with the FCC with respect to any rates charged to subscribers of the Systems, and any other documentation supporting an exemption from the rate regulation provisions of the 1992 Cable Act claimed by Seller with respect to any of the Systems (collectively, "Rate Regulation Documents"). As of the date of this Agreement, Seller has received no notice from any Governmental Authority with respect to an intention to enforce customer service standards pursuant to the 1992 Cable Act and Seller has not agreed with any Governmental Authority to establish customer service standards that exceed the customer service standards promulgated pursuant to the 1992 Cable Act. In addition, Seller has also delivered to Buyer documentation for each of the Systems in which the franchising authority has not certified to regulate rates as of the date of this Agreement showing a determination of allowable rates using a benchmark methodology. Except as described in SCHEDULE 5.9.4, Seller has not made any election with respect to any cost of service proceeding conducted in accordance with Part 76.922 of Title 47 of the Code of Federal Regulations or any similar proceeding (a "Cost of Service Election") with respect to any of the Systems. 5.9.5 CLI. Seller has conducted all system and microwave --- performance tests and all Cumulative Leakage Index ("CLI") related tests applicable to the System. Seller has -14- (i) maintained appropriate log books and other record keeping which accurately and completely reflect in all material respects all results required to be shown thereon; (ii) to the extent required by the rules and regulations of the FCC, corrected any radiation leakage of the System required to be corrected in connection with Seller's monitoring obligations under the rules and regulations of the FCC; and (iii) otherwise complied in all material respects with all applicable CLI rules and regulations in connection with the operation of the System. 5.10 Patents, Trademarks and Copyrights. Seller has timely and ---------------------------------- accurately made all requisite filings and payments with the Register of Copyrights with respect to the Business. Seller has delivered to Buyer complete and correct copies of all current reports and filings, and all reports and filings for the past three years, made or filed pursuant to copyright rules and regulations with respect to the Business. Seller does not possess any patent, patent right, trademark or copyright material to the operation of the Business and Seller is not a party to any license or royalty agreement with respect to any patent, trademark or copyright except for licenses respecting program material and obligations under the Copyright Act of 1976 applicable to cable television systems generally. The Business and the System have been operated in such a manner so as not to violate or infringe upon the rights of, or give rise to any rightful claim of any Person for copyright, trademark, service mark, patent, license, trade secret infringement or the like. 5.11 Financial Statements. A correct copy of the unaudited -------------------- financial statements for the Systems as of December 31, 1997, including an unaudited income statement and balance sheet which fairly present the financial condition of the Systems, is attached as SCHEDULE 5.11 (collectively, the "Financial Statements"). At the date of the Financial Statements, Seller had no liability or obligation, whether accrued, absolute, fixed or contingent (including liabilities for Taxes or unusual forward or long-term commitments), required by GAAP to be reflected or reserved against therein that were not fully reflected or reserved against on the balance sheet included in the Financial Statements, other than liabilities included in current liabilities, and none of which was or would be material to the Business (collectively, the "Unreflected Liabilities"). As of the date of this Agreement, since the date of the Financial Statements, there has not existed or developed, and Seller is not aware of, any additional Unreflected Liabilities. 5.12 Absence of Certain Changes. Since December 31, 1997 (a) -------------------------- Seller has not incurred any obligation or liability (contingent or otherwise), except normal trade or business obligations incurred in the ordinary course of business, the performance of which would be reasonably likely, individually or in the aggregate, to have a material adverse effect on the financial condition or results of operations of the Business, (b) there has been no material adverse change (except any change affecting the United States cable industry as a whole, including any change arising from (i) legislation, litigation, rulemaking or regulation or (ii) competition caused by or arising from other multiple channel distribution services) in the business, condition (financial or otherwise) or liabilities of the Business, and (c) the Business has been conducted only in the ordinary course of business. 5.13 Legal Proceedings. Except as set forth in SCHEDULE 5.13: ----------------- (a) there is no claim, investigation or litigation pending or, to Seller's Knowledge, threatened, by or before any -15- Governmental Authority or private arbitration tribunal against Seller which, if adversely determined, would materially adversely affect the financial condition or operations of the Business, the Systems, the Assets or the ability of Seller to perform its obligations under this Agreement, or which, if adversely determined, would result in the modification, revocation, termination, suspension or other limitation of any of the Governmental Permits, Seller Contracts or leases or other documents evidencing the Real Property; and (b) there is not in existence any judgment requiring Seller to take any action of any kind with respect to the Assets or the operation of the Systems, or to which Seller (with respect to the Systems), the Systems or the Assets are subject or by which they are bound or affected. 5.14 Tax Returns; Other Reports. Seller has duly and timely filed -------------------------- in correct form all federal, state and local Tax returns and all other Tax reports required to be filed by Seller and has timely paid all Taxes which have become due and payable, whether or not shown on any such report or return, the failure of which to be filed or paid could adversely affect the Assets or result in the imposition of an Encumbrance upon the Assets, except such amounts as are being contested diligently and in good faith and are not in the aggregate material. Except as specifically identified on SCHEDULE 5.14, Seller has received no notice of, nor does Seller have any Knowledge of, any deficiency, assessment or audit, or proposed deficiency, assessment or audit from any taxing Governmental Authority which could affect or result in the imposition of an Encumbrance upon the Assets. 5.15 Employment Matters. ------------------ 5.15.1 SCHEDULE 5.15 contains a complete and correct list of names and positions of all employees of Seller engaged in the Business as of the date set forth in such SCHEDULE. Seller has no employment agreements, either written or oral, with any employee of the Business. Seller has complied in all material respects with applicable Legal Requirements relating to the employment of labor, including WARN, the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), continuation coverage requirements with respect to group health plans, and those relating to wages, hours, collective bargaining, unemployment insurance, worker's compensation, equal employment opportunity, age and disability discrimination, immigration control and the payment and withholding of Taxes. 5.15.2 Each "employee benefit plan" or "multiemployer plan" (as those terms are defined in ERISA) with respect to which Seller or any ERISA Affiliate (as defined in ERISA) of Seller has any liability is set forth on SCHEDULE 5.15 (the "Employee Benefit Plans"). Neither Seller nor its ERISA Affiliates nor any Employee Benefit Plan is in material violation of any provision of ERISA. No "reportable event," as defined in Section 4043 of ERISA, has occurred and is continuing with respect to any Employee Benefit Plan. No "prohibited transaction," within the meaning of Section 406 of ERISA, has occurred with respect to any such Employee Benefit Plan, and no "accumulated funding deficiency" or "withdrawal liability" (both as defined in Section 302 of ERISA) exists with respect to any such Employee Benefit Plan. After the Closing, Buyer will not be required, under ERISA, the Internal Revenue Code of 1986, as amended (the "Code") or any collective bargaining agreement, to establish, maintain or continue any Employee Benefit Plan -16- currently maintained by Seller or any of its ERISA Affiliates, nor will Buyer have any liabilities of any nature whatsoever under any Employment Benefit Plans. 5.15.3 Except as set forth on SCHEDULE 5.15, Seller is not a party to any collective bargaining agreements and Seller has not recognized or agreed to recognize and has no duty to bargain with any labor organization or collective bargaining unit. There are not pending any unfair labor practice charges against Seller, any demand for recognition or any other request or demand from a labor organization for representative status with respect to any Person employed by Seller. Except as set forth on SCHEDULE 5.15, and to Seller's Knowledge, Seller's employees are not engaged in organizing activity with respect to any labor organization. Seller has no employment agreement, either written or oral, express or implied, that would require Buyer to employ any Person after the Closing Date. Seller has made no representations to any of its employees regarding future employment with Buyer following consummation of the transactions contemplated hereby. 5.16 Systems Information. SCHEDULE 5.16 sets forth a materially true ------------------- and accurate description of the following information relating to the Business as of the most recent monthly report generated by Seller in the ordinary course of business containing the information required to prepare such SCHEDULE (provided that such date is no earlier than two months prior to the date of this Agreement): 5.16.1 the approximate number of miles of plant included in the Assets; 5.16.2 the number of subscribers and EBS's served by the Systems for each Franchise; 5.16.3 the approximate number of single family homes and residential dwelling units passed by the Systems; 5.16.4 a description of basic and optional or tier services available from the Systems, the rates charged by Seller for each and the number of subscribers and subscriber equivalents receiving each optional or tier service; 5.16.5 the stations and signals carried by the Systems and the channel position of each such signal and station; and 5.16.6 the cities, towns, villages, townships, boroughs and counties served by the Systems. 5.17 Bonds. Except as set forth on SCHEDULE 5.17, as of the date of ----- this Agreement, there are no franchise, construction, fidelity, performance, or other bonds or letters of credit posted by Seller in connection with its operation or ownership of any of the Systems or Assets. -17- 5.18 Finders and Brokers. Seller has not employed any financial advisor, ------------------- broker or finder or incurred any liability for any financial advisory, brokerage, finder's or similar fee or commission in connection with the transactions contemplated by this Agreement for which Buyer could be liable. Section 6. Buyer's Representations and Warranties. To induce Seller to enter into this Agreement, Buyer represents and warrants to Seller, as of the date of this Agreement and as of the Closing, as follows: 6.1 Organization and Qualification. Buyer is a corporation duly ------------------------------ organized, validly existing and in good standing under the laws of the State of Colorado and has all requisite corporate power and authority to own, lease and use the assets owned, leased or used by it and to conduct its business as it is currently conducted. Buyer is duly qualified to do business and is in good standing under the law of Georgia, and of each jurisdiction in which the ownership, leasing or use of the assets owned, leased or used by it or the nature of Buyer's activities makes such qualification necessary, except in any such jurisdiction where the failure to be so qualified and in good standing would not have a material adverse effect on Buyer or on the ability of Buyer to perform its obligations under this Agreement. 6.2 Authority and Validity. Buyer has all requisite corporate power and ---------------------- authority to execute and deliver, to perform its obligations under, and to consummate the transactions contemplated by, this Agreement and the Transaction Documents to which Buyer is a party. The execution and delivery by Buyer of, the performance by Buyer of its obligations under, and the consummation by Buyer of the transactions contemplated by, this Agreement and the Transaction Documents to which Buyer is a party have been duly and validly authorized by all necessary action by or on behalf of Buyer. This Agreement has been, and when executed and delivered by Buyer the Transaction Documents will be, duly and validly executed and delivered by Buyer and the valid and binding obligations of Buyer, enforceable against Buyer in accordance with their terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws now or hereafter in effect relating to the enforcement of creditors' rights generally or by principles governing the availability of equitable remedies. 6.3 No Conflicts; Required Consents. Except for the Required Consents, ------------------------------- the execution and delivery by Buyer, the performance of Buyer under, and the consummation of the transactions contemplated by, this Agreement and the Transaction Documents to which Buyer is a party do not and will not (a) violate any provision of the articles of incorporation or bylaws of Buyer, (b) violate any Legal Requirement, (c) require any consent, approval or authorization of, or filing of any certificate, notice, application, report or other document with any Governmental Authority or other Person or (d) (i) violate or result in a breach of or constitute a default under (without regard to requirements of notice, lapse of time or elections of any Person or any combination thereof), (ii) permit or result in the termination, suspension, modification of, (iii) result in the acceleration of (or give any Person the right to accelerate) the performance of Buyer under, or (iv) result in the creation or imposition of any Encumbrance under, any instrument or other agreement to which Buyer is a party or by which Buyer or any of its assets is bound or affected, except for purposes of -18- this clause (d) such violations, conflicts, breaches, defaults, terminations, suspensions, modifications and accelerations as would not, individually or in the aggregate, have a material adverse effect on the validity, binding effect or enforceability of this Agreement or on the ability of Buyer to perform its obligations under this Agreement or the Transaction Documents to which it is a party. 6.4 Finders and Brokers. Buyer has not employed any financial advisor, ------------------- broker or finder or incurred any liability for any financial advisory, brokerage, finder's or similar fee or commission in connection with the transactions contemplated by this Agreement for which Seller could be liable. 6.5 Legal Proceedings. There are no claims, actions, suits, proceedings ----------------- or investigations pending or, to Buyer's Knowledge, threatened, by or before any Governmental Authority, or any arbitrator, by or against or affecting or relating to Buyer which, if adversely determined, would restrain or enjoin the consummation of the transactions contemplated by this Agreement or declare unlawful the transactions or events contemplated by this Agreement or cause any of such transactions to be rescinded. Section 7. Additional Covenants. 7.1 Access to Premises and Records. Between the date of this Agreement ------------------------------ and the Closing Date, Seller will give Buyer and its counsel, accountants and other representatives full access during normal business hours upon reasonable notice to all the premises and books and records of the Business and to all the Assets and to the System personnel and will furnish to Buyer and such representatives all such documents, financial information, and other information regarding the Business and the Assets as Buyer from time to time reasonably may request; provided that no such investigation will affect or limit the scope of any of Seller's representations, warranties, covenants and indemnities in this Agreement or any Transaction Document or limit liability for any breach of any of the foregoing. 7.2 Continuity and Maintenance of Operations; Financial Statements. Except -------------------------------------------------------------- as Buyer may otherwise consent in writing, between the date of this Agreement and the Closing: 7.2.1 Seller will (a) conduct the Business and operate the Systems only in the usual, regular and ordinary course consistent with past practices (including fulfilling installation requests and making budgeted capital expenditures; provided, however, that to the extent that any assumption underlying any of Seller's budgeted capital expenditure(s) turns out to have been untrue, and such capital expenditure(s) is no longer reasonably necessary for the operation of the Business, Seller will not be required to make such capital expenditure(s)) and (b) use commercially reasonable efforts to (i) preserve its current business intact, including preserving existing relationships with franchising authorities, suppliers, customers and others having business dealings with Seller relating to the Business unless Buyer requests otherwise, (ii) keep available the services of its employees and agents providing services in connection with the Business and (iii) continue making marketing, advertising and promotional expenditures with respect to the Business consistent with past practices. -19- 7.2.2 Seller will maintain the Assets in good repair, order and condition (ordinary wear and tear excepted), will maintain equipment and inventory at historical levels consistent with past practices, will maintain in full force and effect, policies of insurance with respect to the Business in such amounts and with respect to such risks as customarily maintained by operators of cable television systems of the size and geographic location as the Systems and will maintain its books, records and accounts in the usual, regular and ordinary manner on a basis consistent with past practices. Seller will not itself, and will not permit any of its partners, agents or employees to, pay any of Seller's subscriber accounts receivable (other than for their own residences) prior to the Closing Date. Seller will continue to implement its procedures for disconnection and discontinuance of service to subscribers whose accounts are delinquent in accordance with those in effect on the date of this Agreement. 7.2.3 Without the prior approval of Buyer, Seller will not (a) change the rate charged for Basic Service, Expanded Basic Service or Pay TV or add, delete, retier or repackage any programming services except to the extent required under the 1992 Cable Act or any other Legal Requirement, provided however if Seller changes such rates in order to so comply, Seller will provide Buyer with copies of any FCC forms (even if not filed with any Governmental Authority) that Seller used to determine that the new rates were allowable, (b) sell, transfer or assign any portion of the Assets other than sales in the ordinary course of business or permit the creation of any Encumbrance on any Asset other than a Permitted Encumbrance or any Encumbrance which will be released at or prior to Closing, (c) modify in any material respect, terminate, suspend or abrogate any Governmental Permits, Seller Contracts or any other contract or agreement (other than those constituting Excluded Assets), (d) enter into any contract or commitment or incur any indebtedness or other liability or obligation of any kind relating to any System or the Business involving an expenditure in excess of $25,000, other than contracts or commitments which are cancelable on 30 days' notice or less without penalty, (e) take or omit to take any action that would result in any of its representations or warranties in this Agreement or in any Transaction Document not being true and correct when made or as of the Closing, (f) engage in any marketing, subscriber installation or collection practices that are inconsistent with past practices, or (g) enter into any agreement with or commitment to any competitive access providers with respect to the Systems. 7.2.4 Seller promptly will deliver to Buyer true and complete copies of monthly and quarterly financial statements and operating reports and any reports with respect to the operations of the Business prepared by or for Seller at any time between the date of this Agreement and the Closing Date. All financial statements so delivered will be prepared in accordance with GAAP on a basis consistent with the Financial Statements. 7.2.5 Seller will give or cause to be given to Buyer as soon as reasonably possible but in any event no later than 5 Business Days prior to the date of submission to the appropriate Governmental Authority, copies of all Rate Regulation Documents prepared with respect to any of the Systems, and Seller will make a good faith effort to address any specific concerns raised by Buyer with respect to such documents. -20- 7.2.6 Seller will duly and timely file a valid notice of renewal under Section 626 of the Cable Communications Policy Act of 1984 with the appropriate Governmental Authority with respect to all cable television franchises of the Business that will expire within 36 months after any date between the date of this Agreement and the Closing Date. 7.2.7 Seller will promptly notify Buyer of any fact, circumstance, event or action by it or otherwise (a) which, if known at the date of this Agreement, would have been required to be disclosed in or pursuant to this Agreement or (b) the existence, occurrence or taking of which would result in any of Seller's representations and warranties in this Agreement or any Transaction Document not being true, complete and correct when made or at the Closing, and, with respect to clause (b) use its best efforts to remedy the same; provided, however, that nothing in this SECTION 7.2.7 shall be deemed to limit Buyer's rights under SECTION 10.1.2. 7.3 Employee Matters. ---------------- 7.3.1 Buyer will have no obligation to employ or offer employment to any of the employees of Seller. Seller agrees that it will not make any representations to any of its employees regarding future employment with Buyer following consummation of the transactions contemplated hereby. Seller acknowledges that it has no authority to bind Buyer to any employment arrangement with any of Seller's employees. Seller hereby represents and warrants that it has not represented itself as having any such authority and agrees that it will not make any such representations. As of the Closing Date, Seller will terminate the employment of all its employees who were employed incidental to the conduct of the Business whose employment will not continue with Seller after the Closing and will promptly pay to all such employees all compensation, including salaries, commissions, bonuses, deferred compensation, severance, insurance, pensions, profit sharing, vacation (except for accrued vacation included in the adjustments pursuant to SECTION 3.3), sick pay and other compensation or benefits to which they are entitled for periods prior to the Closing, including all amounts, if any, payable on account of the termination of their employment. Seller agrees to cooperate in all reasonable respects with Buyer to allow Buyer to evaluate and interview employees of the Business to make hiring decisions. Such cooperation will include but not be limited to allowing Buyer to contact employees during work time and, with the consent of the employee, making personnel records available. Buyer will give Seller written notice on or before 60 days after the date hereof of the name of all employees of the System to whom Buyer desires to offer employment on and after the Closing Date (subject to satisfaction of Buyer's conditions for employment). Seller will not, without the prior written consent of Buyer, change the compensation or benefits of any employees of the Business except in accordance with past practice. 7.3.2 All claims and obligations under, pursuant to or in connection with any welfare, medical, insurance, disability or other employee benefit plans of Seller or arising under any Legal Requirement affecting employees of Seller incurred on or before the Closing Date or resulting or arising from events or occurrences occurring or commencing on or before the Closing Date will remain the responsibility of Seller, whether or not such employees are hired by Buyer after the Closing. -21- 7.3.3 In no event shall Purchaser by virtue of anything express or implied, or anything done or not done pursuant to this Agreement, assume, or be responsible for any liabilities or obligations of any kind with respect to Seller's relationship with its employees at the time of termination of employment of such employees, including without limitation any liabilities or obligations described below. Seller will remain solely responsible for, and will indemnify and hold harmless Buyer from and against all Losses arising from or with respect to, all salaries and all severance, vacation (except for accrued vacation included in the adjustments pursuant to SECTION 3.3), medical, sick, holiday, continuation coverage and other compensation or benefits (including any pension, retirement, savings and profit sharing plans and all expenses attributable thereto) to which Seller's employees (whether or not hired by Buyer) may be entitled as a result of their employment by Seller prior to the Closing, the termination of their employment prior to the Closing, the consummation of the transactions contemplated hereby or pursuant to any applicable Legal Requirement (including without limitation WARN) or otherwise relating to their employment prior to the Closing. 7.3.4 Nothing in this Agreement shall be interpreted to require Buyer to adopt the Collective Bargaining Agreement, and/or any agreements, memoranda, programs or employee benefit plans contained therein or contemplated thereby. The Assumed Liabilities in no event shall include any collective bargaining agreement or other labor agreement. Buyer shall not be obligated or responsible, by virtue of this Agreement or anything done or not done pursuant to this Agreement, for performance of any terms of any collective bargaining agreement or other labor agreement applicable to any of Seller's employees, salaried or hourly, at any of the Seller's facilities. Seller agrees that following the Closing it will honor all of its continuing obligations under the Collective Bargaining Agreement, if any. 7.3.5 Seller represents and warrants that it has not and shall not make any representations to anyone, including without limitation any union representing Seller's employees or to Seller's employees, that Buyer will, may, or is considering adopting any collective bargaining agreement or other labor agreement. 7.4 Leased Vehicles; Other Capital Leases. Seller will pay the remaining ------------------------------------- balances on any leases for vehicles or capital leases included in the Equipment and will deliver title to such vehicles and other Equipment free and clear of all Encumbrances (other than Permitted Encumbrances) to Buyer at the Closing. 7.5 Required Consents; Estoppel Certificates. ---------------------------------------- 7.5.1 Seller will use commercially reasonable efforts to obtain in writing, as promptly as possible and at its expense, all the Required Consents, the approval of its partners for the consummation of the transactions contemplated hereby, and any other consent, authorization or approval required to be obtained by Seller in connection with the transactions contemplated by this Agreement, in form and substance reasonably satisfactory to Buyer and deliver to Buyer copies of such Required Consents and such other consents, authorizations or approvals promptly after they are obtained by Seller; provided, however, that nothing in this SECTION 7.5 will limit the rights of -22- Buyer to terminate the Agreement pursuant to SECTION 10.1.2 hereof if the condition specified in SECTION 8.2.4 has not been met by the Outside Closing Date. Such Required Consents will be proposed in a form that provides confirmation from the third party of the continued existence of and the absence of defaults under the applicable Seller Contract or Governmental Permit. Buyer will cooperate with Seller to obtain all Required Consents, but Buyer will not be required to accept or agree or accede to any modifications or amendments to, or changes in, or the imposition of any condition to the transfer to Buyer of (in each case other than inconsequential matters with no adverse effect on Buyer), any Seller Contract or Governmental Permit that are not acceptable to Buyer in its sole discretion. Notwithstanding the foregoing, Seller will complete, execute and deliver to the appropriate Governmental Authority, the FCC Forms 394 prepared by Buyer with respect to each franchise as to which such Form 394 is required within two Business Days after it receives each such Form 394 from Buyer. 7.5.2 Seller will use commercially reasonable efforts to obtain for each lease that has not been recorded in the public records, execution of a document suitable for recording in the public records and sufficient after recording to constitute a memorandum of lease. 7.6 [Intentionally Omitted]. 7.7 Title Commitments and Surveys. ----------------------------- 7.7.1 After the execution of this Agreement, Buyer will order at Seller's expense (a) commitments for owner's title insurance policies on all Real Property owned by Seller and on easements which provide access to each such parcel of real property, (b) commitments for lessee's title insurance policies for all Real Property leased by Seller which is used for headend or tower sites and on easements which provide access to each such site and (c) an ALTA survey (including such items on Table A of the Minimum Standard Detail Requirements and Classifications thereto that Buyer in its reasonable judgment determines are desirable or necessary) on each parcel of Real Property for which a title insurance policy is to be obtained. The title commitments will evidence a commitment to issue an ALTA title insurance policy insuring good, marketable and indefeasible fee simple title or leasehold interest, in the case of leased Real Property, if applicable) to each parcel of such Real Property, subject only to Permitted Encumbrances, for such amount as Buyer directs and will contain no exceptions except for items which in Buyer's reasonable opinion do not adversely affect (other than in an immaterial way as to any individual parcel) the good, marketable and indefeasible title to or Buyer's access or quiet use or enjoyment of such Real Property in the manner the Real Property is presently used or in the normal conduct of the Business. At the Closing, Seller will cause Buyer to receive, at Seller's expense, title commitments redated to the date and time of Closing. In the event Seller has not eliminated or caused to be eliminated all unacceptable exceptions from such policies or commitments prior to Closing, and Buyer elects to proceed with the Closing, Buyer will be entitled to indemnification with respect to such exceptions as provided in SECTION 11.2. 7.7.2 Title insurance policies on all Real Property in such amounts as Buyer directs will be delivered to Buyer at Seller's expense within 30 days after the Closing Date -23- evidencing title to the Real Property vested in Buyer consistent with the commitments delivered at the Closing pursuant to SECTION 7.7.1. 7.8 HSR Notification. As soon as practicable after the execution of this ----------------- Agreement, but in any event no later than 30 days after such execution, Seller and Buyer will each complete and file, or cause to be completed and filed, any notification and report required to be filed under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"); and each such filing will request early termination of the waiting period imposed by the HSR Act. The parties will use their reasonable best efforts to respond as promptly as reasonably practicable to any inquiries received from the Federal Trade Commission (the "FTC") and the Antitrust Division of the Department of Justice (the "Antitrust Division") for additional information or documentation and to respond as promptly as reasonably practicable to all inquiries and requests received from any other Governmental Authority in connection with antitrust matters. The parties will use their respective reasonable best efforts to overcome any objections which may be raised by the FTC, the Antitrust Division or any other Governmental Authority having jurisdiction over antitrust matters. Notwithstanding the foregoing, Buyer will not be required to make any significant change in the operations or activities of the business (or any material assets employed therein) of Buyer or any of its Affiliates, if Buyer determines in good faith that such change would be materially adverse to the operations or activities of the business (or any material assets employed therein) of Buyer or any of its Affiliates having significant assets, net worth, or revenue. Notwithstanding anything to the contrary in this Agreement, if Buyer or Seller, in its sole opinion, considers a request from a governmental agency for additional data and information in connection with the HSR Act to be unduly burdensome, such party may terminate this Agreement by giving written notice to the other. Within 10 days after receipt of a statement therefor, Seller will reimburse Buyer for one-half of the filing fees payable by Buyer in connection with Buyer's filing under the HSR Act. 7.9 No Shopping. None of Seller, its partners or any agent or ----------- representative of any of them will, during the period commencing on the date of this Agreement and ending with the earlier to occur of the Closing or the termination of this Agreement, directly or indirectly (a) solicit or initiate the submission of proposals or offers from any Person for, (b) participate in any discussions pertaining to or (c) furnish any information to any Person other than Buyer relating to, any direct or indirect acquisition or purchase of all or any portion of the Assets. 7.10 Lien and Judgment Searches. Not more than 20 nor fewer than 10 days -------------------------- prior to the expected Closing Date, Seller, at its expense, will provide Buyer with (a) the results of a lien search conducted by a professional search company of records in the offices of the secretaries of state in each state and county clerks in each county where there exist tangible Assets, and in the state and county where Seller's principal offices are located, including copies of all financing statements or similar notices or filings (and any continuation statements) discovered by such search company and (b) the results of a search of the dockets of the clerk of each federal and state court sitting in the city, county or other applicable political subdivision where the principal office or any material assets of Seller may be located, with respect to judgments, orders, writs or decrees against or affecting Seller or any of the Assets. -24- 7.11 Transfer Taxes. Any state or local sales or transfer Taxes imposed by -------------- any Governmental Authority arising from or payable by reason of the transfer of any of the Assets pursuant to this Agreement will be paid by Seller. Any state or local use Taxes or fees or any other charge (including filing fees) imposed by any Governmental Authority arising from or payable by reason of the transfer of any of the Assets pursuant to this Agreement will be paid by one-half by Buyer, with the balance to be paid by Seller. 7.12 Distant Broadcast Signals. Unless otherwise restricted or prohibited ------------------------- by any Governmental Authority or applicable Legal Requirement, if requested by Buyer, Seller will delete prior to the Closing Date any distant broadcast signals which Buyer determines will result in unacceptable liability on the part of Buyer for copyright payments with respect to continued carriage of such signals after the Closing. 7.13 Letter to Programmers. On or before the Closing Date, Seller will --------------------- transmit a letter in the form of EXHIBIT E to all programmers from which Seller purchases programming for the Systems and provide Buyer with a copy of each such letter. 7.14 Updated Schedules. Not later than ten Business Days prior to the ----------------- expected Closing Date, Seller will deliver to Buyer revised copies of all Schedules to this Agreement which will have been updated and marked to show any changes occurring between the date of this Agreement and the date of delivery; provided, however, that for purposes of Seller's representations and warranties and covenants in this Agreement, all references as of the date of signing to the Schedules will mean the version of the Schedules attached to this Agreement on the date of signing, and all references as of the date of Closing to the Schedules will mean the version of the Schedules attached to this Agreement on the date of Closing, and provided further, that if the effect of any such updates to Schedules is to disclose any one or more additional properties, privileges, rights, interests or claims as Assets, Buyer, at or before Closing, will have the right (to be exercised by written notice to Seller) to cause any one or more of such items to be designated as and deemed to constitute Excluded Assets for all purposes under this Agreement. 7.15 Use of Names and Logos. For a period of 90 days after the Closing ---------------------- Date, Buyer will be entitled to use all trademarks, trade names, service marks, service names, logos and similar proprietary rights of Seller and all derivations and abbreviations of such name and related marks to the extent incorporated in or on the Assets transferred to it at the Closing. Notwithstanding the foregoing, Buyer will not be required to remove or discontinue using any such trade name or mark that is affixed to converters or other items in or to be used in subscriber homes or properties, or as are used in a similar fashion making such removal or discontinuation impracticable for Buyer. 7.16 Subscriber Billing Services. Seller will provide to Buyer, upon --------------------------- request, on terms and conditions reasonably satisfactory to each party, access to and the right to use its billing system computers, software and related fixed assets in connection with the Systems acquired by Buyer for a period of up to 90 days following the Closing to allow for conversion of existing billing arrangements ("Transitional Billing Services"); provided however that Buyer will not be required to pay Seller more than Seller's actual cost of providing such service. Buyer will notify Seller at -25- least 10 days prior to the expected Closing Date as to whether it desires Transitional Billing Services from Seller. 7.17 Satisfaction of Conditions. Each party will use its best efforts to -------------------------- satisfy, or to cause to be satisfied, the conditions to the obligations of the other party to consummate the transactions contemplated by this Agreement, as set forth in SECTION 8, provided that Buyer will not be required to agree to any increase in the amount payable with respect to, or any modification that makes more burdensome in any material respect, any of the Assumed Liabilities. 7.18 Confidentiality and Publicity. Neither party will issue any press ----------------------------- release or make any other public announcement or any oral or written statements to Seller's employees concerning this Agreement or the transactions contemplated hereby except as required by applicable Legal Requirements, without the prior written consent of the other party. Each party will hold, and will cause its employees, consultants, advisors and agents to hold the terms of this Agreement in confidence; provided that (a) such party may use and disclose such information once it has become publicly disclosed (other than by such party in breach of its obligations under this Section) or which rightfully has come into the possession of such party (other than from the other party) and (b) to the extent that such party may be compelled by Legal Requirements to disclose any of such information, but the party proposing to disclose such information will first notify and consult with the other party concerning the proposed disclosure, to the extent reasonably feasible. Each party also may disclose such information to employees, consultants, advisors, agents and actual or potential lenders whose knowledge is necessary to facilitate the consummation of the transactions contemplated by this Agreement. The obligation by either party to hold information in confidence pursuant to this Section will be satisfied if such party exercises the same care with respect to such information as it would exercise to preserve the confidentiality of its own similar information. 7.19 Bulk Transfers. Buyer waives compliance by Seller with Legal -------------- Requirements relating to bulk transfers applicable to the transactions contemplated hereby. 7.20 Environmental Reports. Within 60 days after the execution of this --------------------- Agreement, Seller will, at its expense, obtain and deliver to Buyer for each parcel of Real Property owned or leased by Seller a current Phase I Environmental Site Assessment ("Environmental Report") prepared by a nationally known environmental engineering firm reasonably satisfactory to Buyer in accordance with ASTM Standard E 1527-93 and certified to Buyer. Each Environmental Report will include, in addition to the process described in E 1527-93, such soil and groundwater sampling and other testing as will enable the environmental engineers to determine if Hazardous Substances are detected and to provide an estimate of the cost to remove and dispose of the Hazardous Substances or otherwise remediate the property in accordance with all applicable Environmental Laws. Section 8. Conditions Precedent. 8.1 Conditions to the Obligations of Buyer and Seller. The obligations of ------------------------------------------------- each party to consummate the transactions contemplated by this Agreement are subject to the satisfaction, at or -26- before the Closing, of the following, which may be waived by the parties to the extent permitted by applicable Legal Requirements: 8.1.1 HSR Act Filings. All filings required under the HSR Act have --------------- been made and the applicable waiting period has expired or been earlier terminated without the receipt of any objection or the commencement or threat of any litigation by a Governmental Authority of competent jurisdiction to restrain the consummation of the transactions contemplated by this Agreement. 8.1.2 Absence of Litigation. No action, suit or proceeding is pending --------------------- or threatened by or before any Governmental Authority and no Legal Requirement has been enacted, promulgated or issued or become or deemed applicable to any of the transactions contemplated by this Agreement by any Governmental Authority, which would (a) prohibit Buyer's ownership or operation of all or a material portion of any System, the Business or the Assets, (b) compel Buyer to dispose of or hold separate all or a material portion of any System, the Business or the Assets as a result of any of the transactions contemplated by this Agreement, (c) if determined adversely to Buyer's interest, materially impair the ability of Buyer to realize the benefits of the transactions contemplated by this Agreement (including the ability to acquire the Systems pursuant to a like-kind exchange under Section 1031 of the Code) or have a material adverse effect on the right of Buyer to exercise full rights of ownership of the Systems or (d) prevent or make illegal the consummation of any transactions contemplated by this Agreement. 8.2 Conditions to the Obligations of Buyer. The obligations of Buyer to -------------------------------------- consummate the transactions contemplated by this Agreement are subject to the satisfaction, at or before the Closing, of the following conditions, which may be waived by Buyer to the extent permitted by applicable Legal Requirements: 8.2.1 Representations and Warranties. All representations and ------------------------------ warranties of Seller in this Agreement and any Transaction Document are true and correct in all material respects, in each case on and as of the Closing Date with the same effect as if made at and as of the Closing Date, except for changes permitted or contemplated by this Agreement. 8.2.2 Performance of Agreements. Seller has performed in all material ------------------------- respects all obligations and agreements and complied in all material respects with all covenants and conditions in this Agreement and any Transaction Document to be performed or complied with by Seller at or before the Closing. 8.2.3 Deliveries. Seller has delivered the items and documents ---------- required to be delivered by it pursuant to this Agreement, including those required under SECTION 9.2. 8.2.4 Consents and Franchise Extensions and Renewals. Seller has ---------------------------------------------- delivered to Buyer evidence, in form and substance satisfactory to Buyer, that all of the Required Consents marked with an asterisk on SCHEDULE 5.3 have been obtained or given (or deemed to have been given) and are in full force and effect. -27- 8.2.5 Environmental Matters. The Environmental Reports delivered to --------------------- Buyer pursuant to SECTION 7.20 and any other environmental audits or assessments conducted with respect to the Assets do not indicate the existence of any conditions that could reasonably be expected to give rise to a material risk of liability. 8.2.6 No Material Adverse Change. There has not been any material -------------------------- adverse change in the Business, the Assets or the Systems since the date of this Agreement other than any change arising out of general economic conditions in the United States or any change affecting the United States cable television industry as a whole, including any change arising from (a) legislation, litigation, rulemaking or regulation or (b) competition caused by or arising from other multiple channel distribution services. 8.2.7 EBS. As of the Closing Date, the Business has no fewer than --- 23,200 EBSs. 8.2.8 Partner Approval. The partners of Seller shall have approved ---------------- this Agreement and the transactions contemplated by this Agreement. 8.3 Conditions to Obligations of Seller. The obligations of Seller to ----------------------------------- consummate the transactions contemplated by this Agreement are subject to the satisfaction by Seller at or before the Closing, of the following, which may be waived by Seller, to the extent permitted by applicable Legal Requirements: 8.3.1 Representations and Warranties. All representations and ------------------------------ warranties of Buyer contained in this Agreement and any Transaction Document are true and correct in all material respects, in each case on and as of the Closing Date with the same effect as if made on and as of the Closing Date, except for changes permitted or contemplated by this Agreement. 8.3.2 Performance of Agreements. Buyer has performed in all material ------------------------- respects all obligations and agreements, and complied in all material respects with all covenants and conditions in this Agreement and any Transaction Document to be performed or complied with by Buyer at or before the Closing. 8.3.3 Deliveries. Buyer has delivered the items and documents ---------- required to be delivered by it pursuant to this Agreement, including those required under SECTION 9.3. 8.3.4 Partner Approval. The partners of Seller shall have approved ---------------- this Agreement and the transactions contemplated by this Agreement. 8.4 Waiver of Conditions. Any party may waive in writing any or all of the -------------------- conditions to its obligations under this Agreement. -28- Section 9. Closing 9.1 The Closing; Time and Place. The Closing will be held on a date --------------------------- specified by Buyer (upon three Business Days prior notice to Seller) that is within 15 days after all conditions to the Closing contained in this Agreement (other than those based on acts to be performed at the Closing) have been satisfied or waived. The Closing will be held at 10:00 a.m. local time at Buyer's office located at 9697 East Mineral Avenue, Englewood, Colorado 80112, or at such place and time as Buyer and Seller may agree. 9.2 Seller's Delivery Obligations. At the Closing, Seller will deliver (or ----------------------------- cause to be delivered) to Buyer the following: 9.2.1 a Bill of Sale, Assignment and Assumption Agreement in the form attached as EXHIBIT B; 9.2.2 a special warranty deed in a form reasonably acceptable to Buyer (and complying with applicable state laws) with respect to each parcel of owned Real Property, duly executed and acknowledged and in recordable form, warranting to defend title to such Real Property against all persons claiming by, through or under Seller, subject only to Permitted Encumbrances, and in form sufficient to permit the title company to issue the title policy described in SECTION 7.7.1 to Buyer with respect to such Real Property; 9.2.3 an Assignment and Assumption of Contracts in the form attached as EXHIBIT C; 9.2.4 one or more Assignments of Leases in the form attached as EXHIBIT D and, if requested by Buyer, short forms or memoranda of such Assignments in recordable form; 9.2.5 any memorandum of lease obtained by Seller pursuant to SECTION 7.5.2; 9.2.6 an affidavit of Seller, under penalty of perjury, that Seller is not a "foreign person" (as defined in the Foreign Investment in Real Property Tax Act and applicable regulations) and that Buyer is not required to withhold any portion of the consideration payable under this Agreement under the provisions of such Act in the form attached as EXHIBIT F; 9.2.7 motor vehicle title certificates and such other transfer instruments as Buyer may deem necessary or advisable to transfer the Assets to Buyer and to perfect Buyer's rights in the Assets; 9.2.8 an opinion of Peter J. Bernbaum, counsel to Seller, or of any other counsel to Seller reasonably acceptable to Buyer, dated the Closing Date, in substantially the form set forth in EXHIBIT H; -29- 9.2.9 evidence satisfactory to Buyer that all Encumbrances affecting any of the Assets (other than Permitted Encumbrances) have been terminated and released; 9.2.10 the title insurance commitments described in SECTION 7.7.1; 9.2.11 a certificate, dated the Closing Date, signed by an executive officer of GP, stating that to his or her knowledge, the conditions set forth in SECTIONS 8.3.1 and 8.3.2, are satisfied; and 9.2.12 such other documents as Buyer may reasonably request in connection with the transactions contemplated by this Agreement. 9.3 Buyer's Delivery Obligations. At the Closing, Buyer will deliver (or ----------------------------- cause to be delivered) to Seller the following: 9.3.1 the Base Purchase Price required to be paid at the Closing, as adjusted in accordance with Section 3.4.1 of this Agreement minus the Deposit (plus interest accrued thereon); 9.3.2 a Bill of Sale, Assignment and Assumption Agreement in the form attached as EXHIBIT B; 9.3.3 an Assignment and Assumption of Contracts in the form attached as EXHIBIT C; 9.3.4 a certificate, dated the Closing Date, signed by an executive officer of Buyer, stating that to his or her knowledge, the conditions set forth in SECTIONS 8.2.1, 8.2.2, 8.2.6 and 8.2.7 are satisfied; 9.3.5 the opinion of Elizabeth Steele, Esq., counsel for Buyer, dated the Closing Date, in substantially the form set forth in EXHIBIT H; and 9.3.6 such other documents as Seller may reasonably request in connection with the transactions contemplated by this Agreement. Section 10. Termination 10.1 Termination Events. This Agreement may be terminated and the ------------------ transactions contemplated by this Agreement may be abandoned: 10.1.1 At any time by the mutual written agreement of Buyer and Seller; 10.1.2 By Buyer at any time, if Seller is in material breach or default of any of Seller's covenants, agreements or other obligations in this Agreement or in any Transaction Document, or if any of Seller's representations in this Agreement or in any Transaction Document is not true in all material respects when made or when otherwise required by this Agreement or any Transaction Document to be true and such breach or default or failure to be true is not cured by Seller or waived by Buyer prior to Closing; 10.1.3 By Seller at any time, if Buyer is in material breach or default of any of Buyer's covenants, agreements or other obligations in this Agreement or in any Transaction Document, or if any of Buyer's representations in this Agreement or in any Transaction Document is not true in all material respects when made or when otherwise required by this Agreement or any Transaction Document to be true and such breach or default or failure to be true is not cured by Buyer or waived by Seller prior to Closing; 10.1.4 By either party upon written notice to the other, if Closing has not occurred on or before November 30, 1998 (the "Outside Closing Date"), for any reason other than a material breach or default by such party of its respective covenants, agreements or other obligations under this Agreement, or any of its representations this Agreement not being true and accurate in all material respects when made or when otherwise required by this Agreement to be true and accurate in all material respects; and 10.1.5 As otherwise provided in this Agreement. 10.2 Effect of Termination. If this Agreement is terminated pursuant to --------------------- SECTION 10.1, all obligations of the parties under this Agreement will terminate, except for the obligations set forth in SECTIONS 7.18, 11 and 12.16. Termination of this Agreement pursuant to SECTIONS 10.1.2 or 10.1.3 will not limit or impair any remedies that any party may have with respect to a breach or default by the other of its covenants, agreements or obligations under this Agreement. Section 11. Survival of Representations and Warranties; Indemnification. 11.1 Survival of Representations and Warranties. The representations and ------------------------------------------ warranties of Seller in this Agreement and in the Transaction Documents to be delivered by Seller pursuant to this Agreement will survive until the first anniversary of the Closing Date, except that (a) all such representations and warranties with respect to any federal, state or local Taxes, rates, Environmental Law, ERISA, employment matters or copyright matters will survive until 60 days after the expiration of the applicable statute of limitations (including any extensions) for such federal, state or local Taxes, rates, Environmental Law, ERISA, employment matters or copyright matters, respectively and (b) the representations and warranties as to ownership of the Assets in SECTION 5.4, SECTION 5.7.1 and in the deed or deeds delivered with respect to Real Property will survive the Closing and the delivery of such deeds and will continue in full force and effect without limitation. The representations and warranties of Buyer in this Agreement and in the Transaction Documents to be delivered by Buyer pursuant to this Agreement will survive until the first anniversary of the Closing Date. The periods of survival of the representations and warranties prescribed by this SECTION 11.1 are referred to as the "Survival Period." The liabilities of the parties under their respective representations and warranties will expire as of the expiration of the applicable Survival Period; provided, however, that such expiration will not include, extend or apply to any -31- representation or warranty, the breach of which has been asserted by Buyer in a written notice to Seller before such expiration or about which Seller has given Buyer written notice before such expiration indicating that facts or conditions exist that, with the passage of time or otherwise, can reasonably be expected to result in a breach (and describing such potential breach in reasonable detail). The covenants and agreements of the parties in this Agreement (that are by their terms intended to be performed after Closing) and in the Transaction Documents to be delivered by Seller or Buyer pursuant to this Agreement, will survive the Closing and will continue in full force and effect without limitation. 11.2 Indemnification by Seller. Seller will indemnify and hold harmless ------------------------- Buyer and its shareholders and its and their respective Affiliates, and the shareholders, directors, officers, employees, agents, successors and assigns and any Person claiming by or through any of them, as the case may be, from and against: 11.2.1 all Losses resulting from or arising out of (i) any breach of any representation or warranty made by Seller in this Agreement or in the Transactions Documents delivered by Seller, (ii) any breach of any covenant, agreement or obligation of Seller contained in this Agreement or in the Transaction Documents delivered by Seller, (iii) any act or omission of Seller with respect to, or any event or circumstance related to, the ownership or operation of the Assets or the conduct of the Business, which act, omission, event or circumstance occurred or existed prior to or at the Closing Date, without regard to whether a claim with respect to such matter is asserted before or after the Closing Date, including any matter described on SCHEDULE 5.13, (iv) any liability or obligation not included in the Assumed Liabilities, (v) any title defect Seller fails to eliminate as an exception from a title insurance commitment referred to in SECTION 7.7.1, (vi) any claim that the transactions contemplated by this Agreement violates WARN, or any similar state or local law or any bulk transfer or fraudulent conveyance laws of any jurisdiction, (vii) the presence, generation, removal or transportation of a Hazardous Substance on or from any of the Real Property prior to the Closing Date, including the costs of removal or clean-up of such Hazardous Substance and other compliance with the provisions of any Environmental Laws (whether before or after Closing), or (viii) any rate refund ordered by any Governmental Authority for periods prior to the Closing Date; and 11.2.2 all claims, actions, suits, proceedings, demands, judgments, assessments, fines, interest, penalties, costs and expenses (including settlement costs and reasonable legal, accounting, experts' and other fees, costs and expenses) incident or relating to or resulting from any of the foregoing. In the event that an indemnified item arises under both clause 11.2.1(i) and under one or more of clauses 11.2.1(ii) through 11.2(viii) of this SECTION 11.2, Buyer's rights to pursue its claim under clauses 11.2.1(ii) through 11.2(viii), as applicable, will exist notwithstanding the expiration of the Survival Period applicable to such claim under clause 11.2.1(i). -32- 11.3 Indemnification by Buyer. Buyer will indemnify and hold harmless ------------------------ Seller and Seller's partners, employees, agents, successors and assigns, and any Person claiming by or through any of them, as the case may be, from and against: 11.3.1 all Losses resulting from or arising out of (i) any breach of any representation or warranty made by Buyer in this Agreement or in the Transaction Documents delivered by Buyer, (ii) any breach of any covenant, agreement or obligation of Buyer contained in this Agreement or in the Transaction Documents delivered by Buyer or (iii) the failure by Buyer to perform any of its obligations in respect of the Assumed Liabilities; and 11.3.2 all claims, actions, suits, proceedings, demands, judgments, assessments, fines, interest, penalties, costs and expenses (including settlement costs and reasonable legal, accounting, experts' and other fees, costs and expenses) incident or relating to or resulting from any of the foregoing. In the event that an indemnified item arises under both clause 11.3.1(i) and under one or more of clauses 11.3.1(ii) or 11.3.1(iii) of this SECTION 11.3, Seller's rights to pursue its claim under clauses 11.3.1(ii) or 11.3.1(iii), as applicable, will exist notwithstanding the expiration of the Survival Period applicable to such claim under clause 11.3.1(i). 11.4 Third Party Claims. Promptly after the receipt by any party of ------------------ notice of any claim, action, suit or proceeding by any Person who is not a party to this Agreement (collectively, an "Action"), which Action is subject to indemnification under this Agreement, such party (the "Indemnified Party") will give reasonable written notice to the party from whom indemnification is claimed (the "Indemnifying Party"). The Indemnified Party will be entitled, at the sole expense and liability of the Indemnifying Party, to exercise full control of the defense, compromise or settlement of any such Action unless the Indemnifying Party, within a reasonable time after the giving of such notice by the Indemnified Party, (a) admits in writing to the Indemnified Party the Indemnifying Party's liability to the Indemnified Party for such Action under the terms of this SECTION 11, (b) notifies the Indemnified Party in writing of the Indemnifying Party's intention to assume such defense, (c) provides evidence reasonably satisfactory to the Indemnified Party of the Indemnifying Party's ability to pay the amount, if any, for which the Indemnified Party may be liable as a result of such Action and (d) retains legal counsel reasonably satisfactory to the Indemnified Party to conduct the defense of such Action. The other party will cooperate with the party assuming the defense, compromise or settlement of any such Action in accordance with this Agreement in any manner that such party reasonably may request. If the Indemnifying Party so assumes the defense of any such Action, the Indemnified Party will have the right to employ separate counsel and to participate in (but not control) the defense, compromise or settlement of the Action, but the fees and expenses of such counsel will be at the expense of the Indemnified Party unless (i) the Indemnifying Party has agreed to pay such fees and expenses, (ii) any relief other than the payment of money damages is sought against the Indemnified Party or (iii) the Indemnified Party will have been advised by its counsel that there may be one or more defenses available to it which are different from or additional to those available to the Indemnifying Party, and in any such case that portion of the fees and expenses of such separate counsel that are reasonably related to matters -33- covered by the indemnity provided in this SECTION 11 will be paid by the Indemnifying Party. No Indemnified Party will settle or compromise any such Action for which it is entitled to indemnification under this Agreement without the prior written consent of the Indemnifying Party, unless the Indemnifying Party has failed, after reasonable notice, to undertake control of such Action in the manner provided in this SECTION 11.4. No Indemnifying Party will settle or compromise any such Action (A) in which any relief other than the payment of money damages is sought against any Indemnified Party or (B) in the case of any Action relating to the Indemnified Party's liability for any Tax, if the effect of such settlement would be an increase in the liability of the Indemnified Party for the payment of any Tax for any period beginning after the Closing Date, unless the Indemnified Party consents in writing to such compromise or settlement. 11.5 Limitations on Indemnification -- Seller. Seller will not be ---------------------------------------- liable for indemnification arising solely under SECTION 11.2.1(I) for (a) any Losses of or to Buyer or any other person entitled to indemnification from Seller or (b) any claims, actions, suits, proceedings, demands, judgments, assessments, fines, interest, penalties, costs and expenses (including settlement costs and reasonable legal, accounting, experts' and other fees, costs and expenses) incidental or relating to or resulting from any of the foregoing (the items described in clauses (a) and (b) collectively being referred to for purposes of this SECTION 11.5 as "Buyer Damages") unless the amount of Buyer Damages for which Seller would, but for the provisions of this SECTION 11.5, be liable exceeds, on an aggregate basis, $250,000 (the "Threshold Amount"), in which case Seller will be liable for all such Buyer Damages, which will be due and payable within 15 days after Seller's receipt of a statement therefor; provided, however, that Seller shall be liable for (a) all rate refunds ordered by any Governmental Authority for periods prior to the Closing Date and (b) all federal, state or local taxes determined by any Governmental Authority to be owing for periods prior to the Closing Date, regardless of whether the aggregate amount of such rate refunds and/or taxes equals or exceeds the Threshold Amount. 11.6 Limitations on Indemnification -- Buyer. Buyer will not be --------------------------------------- liable for indemnification arising solely under SECTION 11.3.1(I) for (a) any Losses of or to Seller or any other person entitled to indemnification from Buyer or (b) any claims, actions, suits, proceedings, demands, judgments, assessments, fines, interest, penalties, costs and expenses (including settlement costs and reasonable legal, accounting, experts' and other fees, costs and expenses) incidental or relating to or resulting from any of the foregoing the items described in clauses (a) and (b) collectively being referred to for purposes of this SECTION 11.6 as "Seller Damages") unless the amount of Seller Damages for which Buyer would, but for the provisions of this SECTION 11.6, be liable exceeds, on an aggregate basis, the Threshold Amount, in which case Buyer will be liable for all such Seller Damages, which will be due and payable within 15 days after Buyer's receipt of a statement therefor. Section 12. Miscellaneous 12.1 Parties Obligated and Benefited. Subject to the limitations set ------------------------------- forth below, this Agreement will be binding upon the parties and their respective assigns and successors in interest and will inure solely to the benefit of the parties and their respective assigns and successors in -34- interest, and no other Person will be entitled to any of the benefits conferred by this Agreement. Without the prior written consent of the other party, neither party may assign any of its rights under this Agreement or delegate any of its duties under this Agreement, except as described in the following sentence. Buyer agrees that Seller will have the right to assign its right to sell the Assets under this Agreement to a qualified institution, acting as a Qualified Intermediary (as such term is used in Treas. Reg. Section 1.1031(k)-1(g)(4), and that this Agreement constitutes notice to Buyer of such assignment, which assignment Seller will make effective immediately prior to Closing (provided no such assignment will relieve Seller of any obligations under this Agreement). 12.2 Notices. Any notice, request, demand, waiver or other communication ------- required or permitted to be given under this Agreement will be in writing and will be deemed to have been duly given only if delivered in person or by first class, prepaid, registered or certified mail, or sent by courier or, if receipt is confirmed, by telecopier: to Buyer at: c/o Jones Intercable, Inc. 9697 East Mineral Avenue Englewood, Colorado 80112 Attention: President Telecopy: (303) 799-1644 with a copy similarly addressed to the attention of the General Counsel; with a copy to: Davis, Graham & Stubbs LLP 370 Seventeenth Street, Suite 4700 Denver, Colorado 80202 Attention: John L. McCabe, Esq. Telecopy: 893-1379 to Seller at: Bresnan Communications Company, L.P. 709 Westchester Avenue White Plains, New York 10604 Attention: Robert V. Bresnan, General Counsel Telecopy: (914) 993-6601 -35- Any party may change the address to which notices are required to be sent by giving notice of such change in the manner provided in this SECTION 12.2. All notices will be deemed to have been received on the date of delivery, which in the case of deliveries by telecopier will be the date of the sender's confirmation, or on the third Business Day after mailing in accordance with this Section, except that any notice of a change of address will be effective only upon actual receipt. 12.3 Attorneys' Fees'. In the event of any action or suit based upon ---------------- or arising out of any alleged breach by any party of any representation, warranty, covenant or agreement contained in this Agreement, the prevailing party will be entitled to recover reasonable attorneys' fees and other costs of such action or suit from the other party. 12.4 Waiver. This Agreement or any of its provisions may not be waived ------ except in writing. The failure of any party to enforce any right arising under this Agreement on one or more occasions will not operate as a waiver of that or any other right on that or any other occasion. 12.5 Captions. The captions of this Agreement are for convenience only -------- and do not constitute a part of this Agreement. 12.6 Choice of Law. THIS AGREEMENT AND THE RIGHTS OF THE PARTIES UNDER ------------- IT WILL BE GOVERNED BY AND CONSTRUED IN ALL RESPECTS IN ACCORDANCE WITH THE LAWS OF THE STATE OF COLORADO, WITHOUT REGARD TO THE CONFLICTS OF LAWS RULES OF COLORADO. 12.7 Terms. Terms used with initial capital letters will have the ----- meanings specified, applicable to both singular and plural forms, for all purposes of this Agreement. The word "include" and derivatives of that word are used in this Agreement in an illustrative sense rather than limiting sense. 12.8 Rights Cumulative. All rights and remedies of each of the parties ----------------- under this Agreement will be cumulative, and the exercise of one or more rights or remedies will not preclude the exercise of any other right or remedy available under this Agreement or applicable law. 12.9 Further Actions. Seller and Buyer will execute and deliver to the --------------- other, from time to time at or after the Closing, for no additional consideration and at no additional cost to the requesting party, such further assignments, certificates, instruments, records, or other documents, assurances or things as may be reasonably necessary to give full effect to this Agreement and to allow each party fully to enjoy and exercise the rights accorded and acquired by it under this Agreement. 12.10 Time. If the last day permitted for the giving of any notice or the ---- performance of any act required or permitted under this Agreement falls on a day which is not a Business Day, the time for the giving of such notice or the performance of such act will be extended to the next succeeding Business Day. -36- 12.11 Late Payments. If either party fails to pay the other any amounts ------------- when due under this Agreement, the amounts due will bear interest from the due date to the date of payment at the annual rate publicly announced from time to time by The Bank of New York as its prime rate (the "Prime Rate") plus 2%, adjusted as and when changes in the Prime Rate are made. 12.12 Counterparts. This Agreement may be executed in counterparts, each ------------ of which will be deemed an original. 12.13 Entire Agreement. This Agreement (including the Schedules and ---------------- Exhibits referred to in this Agreement, which are incorporated in and constitute a part of this Agreement) and the Transaction Documents contain the entire agreement of the parties and supersedes all prior oral or written agreements and understandings with respect to the subject matter. This Agreement may not be amended or modified except by a writing signed by the parties. 12.14 Severability. Any term or provision of this Agreement which is ------------ invalid or unenforceable will be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining rights of the Person intended to be benefited by such provision or any other provisions of this Agreement. 12.15 Construction. This Agreement has been negotiated by Buyer and ------------ Seller and their respective legal counsel, and legal or equitable principles that might require the construction of this Agreement or any provision of this Agreement against the party drafting this Agreement will not apply in any construction or interpretation of this Agreement. 12.16 Expenses. Except as otherwise expressly provided in this -------- Agreement, each party will pay all of its expenses, including attorneys' and accountants' fees, in connection with the negotiation of this Agreement, the performance of its obligations and the consummation of the transactions contemplated by this Agreement. 12.17 Risk of Loss; Condemnation. -------------------------- 12.17.1 Seller will bear the risk of any loss or damage to the Assets resulting from fire, theft or other casualty (except reasonable wear and tear) at all times prior to the Closing. If any such loss or damage is sufficiently substantial so as to preclude or prevent resumption of normal operations of any material portion of a System or the replacement or restoration of the lost or damaged property within 30 days from the occurrence of the event resulting in such loss or damage, Seller will immediately notify Buyer in writing of that fact and Buyer, at any time within 10 days after receipt of such notice, may elect by written notice to Seller either (a) to waive such defect and proceed toward consummation of the transaction in accordance with terms of this Agreement or (b) terminate this Agreement. If Buyer elects to so terminate this Agreement, Buyer and Seller will stand fully released and discharged of any and all obligations under this Agreement. If Buyer elects to consummate the transactions contemplated by this Agreement notwithstanding such loss or damage and does so, there will be no adjustment in the consideration payable to Seller on account of such loss or damage but all insurance proceeds payable as a result of the occurrence of the event -37- resulting in such loss or damage (to the extent not used to replace or restore such lost or damaged property) will be delivered by Seller to Buyer, or the rights to such proceeds will be assigned by Seller to Buyer if not yet paid over to Seller. 12.17.2 If, prior to the Closing, any part of or interest in the Assets is taken or condemned as a result of the exercise of the power of eminent domain, or if a Governmental Authority having such power informs Seller or Buyer that it intends to condemn all or any part of or interest in the Assets (such event being called, in either case, a "Taking"), and such Taking involves a material part of or interest in the Assets, then Buyer may terminate this Agreement. If Buyer does not elect or have the right to terminate this Agreement, then (a) Buyer will have the sole right, in the name of Seller, if Buyer so elects, to negotiate for, claim, contest and receive all damages with respect to the Taking, (b) Seller will be relieved of its obligation to convey to Buyer the Assets or interests that are the subject of the Taking, (c) at the Closing Seller will assign to Buyer all of Seller's rights to all damages payable with respect to such Taking and will pay to Buyer all damages previously paid to Seller with respect to the Taking and (d) following the Closing, Seller will give Buyer such further assurances of such rights and assignment with respect to the taking as Buyer may from time to time reasonably request. ****************** -38- The parties have executed this Agreement as of the day and year first above written. SELLER: BRESNAN COMMUNICATIONS COMPANY, L.P. By: BCI (USA), L.P., its managing general partner By: Bresnan Communications, Inc., its managing general partner By:/s/ Michael Bresnan ------------------------------- Name: Michael Bresnan ----------------------------- Title: SVP Domestic Division ---------------------------- BUYER: JONES COMMUNICATIONS OF GEORGIA/ SOUTH CAROLINA, INC. By:/s/ Elizabeth Steele -------------------------------- Name: Elizabeth Steele ------------------------------ Title: Vice President ----------------------------- -39- EX-2.6 3 GRANTS SYSTEM PURCHASE & SALE AGREEMENT EXHIBIT 2.6 GRANTS SYSTEM ------------- PURCHASE AND SALE AGREEMENT --------------------------- THIS PURCHASE AND SALE AGREEMENT is made as of the 16th day of June, 1998, by and between SPACELINK FUND 3, LTD., a Colorado limited partnership ("Seller"), and JONES COMMUNICATIONS OF NEW MEXICO, INC., a Colorado corporation ("Buyer"). RECITALS -------- A. Seller owns and operates a cable television system serving Grants and Thoreau in the State of New Mexico (the "System"). B. Seller desires to sell to Buyer, and Buyer desires to purchase from Seller, the System upon the terms and conditions set forth in this Agreement. AGREEMENT --------- In consideration of the mutual promises contained in this Agreement and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Purchase and Sale. Subject to the terms and conditions set forth in ----------------- this Agreement, Seller hereby agrees to sell, convey, assign, transfer and deliver to Buyer, and Buyer hereby agrees to purchase from Seller, on the Closing Date (as defined in Paragraph 9 hereof), all of Seller's right, title and interest in and to the System and the Assets (as defined in Paragraph 2 hereof) then being transferred and sold pursuant hereto, free and clear of all security interests, liens, pledges, charges and encumbrances. 2. Assets. (a) The assets to be conveyed to Buyer hereunder shall consist ------ of all of the assets and properties of Seller, whether real, personal, tangible or intangible, of whatever description and wherever located, now owned or used by Seller solely in connection with Seller's ownership or operation of the System, except those items excluded pursuant to subparagraph 2(b) hereof, but including all additions made to the Closing Date, to the end that all of Seller's assets owned on the Closing Date which are used or owned solely in connection with Seller's ownership or operation of the System shall pass to Buyer. Such assets (collectively, the "Assets") shall include, without limitation: (i) all of Seller's towers, tower equipment, antennas, aboveground and underground cable, distribution systems, headend amplifiers, line amplifiers, earth satellite receive stations and related equipment, microwave equipment, testing equipment, motor vehicles, office equipment, furniture and fixtures, supplies, inventory and other physical assets owned or used by Seller solely in connection with Seller's ownership or operation of the System; (ii) the franchises, leases, agreements, permits, consents, licenses and other contracts, pole line or joint pole agreements, underground conduit agreements, agreements for the reception or transmission of signals by microwave, easements, rights-of-way and construction permits, if any, and any other obligations and agreements between Seller and suppliers and customers, which are owned or used by Seller solely in connection with Seller's ownership and operation of the System; (iii) the real property owned and used solely in connection with the System; (iv) all accounts receivable of Seller arising in connection with the System; (v) all engineering records, files, data, drawings, blueprints, schematics, maps, reports, lists and plans and processes owned or developed by or for Seller and intended for use in connection with the System; (vi) all promotional graphics, original art work, mats, plates, negatives and other advertising, or related materials developed by or for Seller and intended for use in connection with the System; (vii) all of Seller's correspondence files, lists, records and reports concerning customers and prospective customers of the Systems, concerning television stations whose transmissions are or may be carried as part of the Systems and concerning all dealings with federal, state, and local regulatory agencies, including all reports filed by or on behalf of Seller with the Federal Communications Commission (the "FCC") in connection with the System and any Statements of Account of the System filed by or on behalf of Seller with the united States Copyright Office in connection with the System; provided however, --------- ------- that Seller shall not transfer to Buyer the licenses and agreements for which the consent of a third party is required to transfer (the "Additional Agreements") until Seller has obtained the approval of the parties granting the Additional Agreements to 2 such transfer, whereupon such Additional Agreements shall be deemed to be included in the assets to be transferred to Buyer pursuant to this Agreement. (b) The following properties and assets relating to the System and its business operations shall be retained by Seller and shall not be sold, assigned or transferred to Buyer; (i) cash or cash equivalents on hand or in banks; (ii) insurance policies and rights and claims thereunder; (iii) all claims, rights and interest in and to any refunds for Federal, state or local income or other taxes or fees of any nature whatsoever for periods prior to the Closing Date, including without limitation, fees paid to the United States Copyright Office; and (iv) assets disposed of in the normal course of business or with the written consent of Buyer between the date hereof and the Closing Date. 3. Purchase Price. Subject to the adjustments to be made in accordance -------------- with Paragraph 4 hereof, the total purchase price for the Assets shall be Six Million Four Hundred Twenty Thousand Eight Hundred Six Dollars ($6,420,806) (the "Purchase Price"), which Purchase Price represents the average of three separate independent appraisals of the System. The Purchase Price shall by payable to Seller at Closing in cash, by cashier's check or by wire transfer of Federal funds to a bank or banks designated by Seller. 4. Adjustments. All adjustments provided for herein with respect to this ----------- transaction shall increase or decrease the Purchase Price, as appropriate, and shall be made as of the close of business (5:01 p.m., local time) on the Closing Date. (a) Rent, pole rents, franchise fees, taxes, power and utility fees and deposits, insurance premiums, licenses, customer prepayments and deposits, and other prepayments and amounts due shall be prorated and debited or credited to Seller or Buyer, as applicable. For purposes of adjustments made under this Paragraph 4(a), the subscriber accounts receivable which are due and payable for and with respect to the month in which the Closing takes place shall be prorated as of the Closing Date. 3 (b) The Purchase Price shall be reduced by any accounts payable, accrued expenses and vehicle lease obligations for which Seller would otherwise be liable hereunder, but for which the obligation for payment is assumed by Buyer. (c) Seller and Buyer shall jointly determine the adjustments required by this Paragraph 4 at the Closing. The net amount to which Buyer or Seller, as the case may be, is entitled pursuant hereto shall be thereupon paid by Buyer or Seller, as the case may be, by an adjustment to the Purchase Price. All adjustments made at Closing shall be tentative and shall be subject to final adjustment within 90 days after Closing. 5. Assumption of Liabilities. Buyer shall agree to assume and discharge ------------------------- all debts, liabilities and obligations of Seller arising with respect to periods subsequent to the Closing Date under any franchise, license, permit, lease, instrument or agreement transferred to Buyer hereunder and, with respect to periods prior to and including the Closing Date, to assume and discharge all obligations of Seller to the extent that the Purchase Price is reduced pursuant to Paragraph 4(b) hereof; provided, however, that Buyer shall not assume the -------- ------- Additional Agreements until Seller has obtained the approval of the parties granting the Additional Agreements to Seller's transfer of the Additional Agreements to Buyer, whereupon the Additional Agreements shall be deemed to be included in the assets to be assumed by Buyer hereunder. Buyer hereby agrees to indemnify and to hold harmless from and against any and all damages, costs, claims and expenses (the "Indemnifiable Claims") arising by reason of the ownership, operation or control of the System after Closing Date; provided, -------- however, that Buyer shall not indemnify and hold harmless Seller from any - ------- Indemnifiable Claims arising under Additional Agreements as a result of actions relating to any period before Seller has obtained the approval of the parties granting the Additional Agreements to Seller's transfer of the Additional Agreements to Buyer. Anything herein to the contrary notwithstanding, there is hereby excluded from the assumed obligations, and Seller hereby agrees to retain and discharge, and to indemnify and hold Buyer harmless from and against, any and all Indemnifiable Claims to the extent they arise (a) out of any debt, liability or obligation arising with respect to periods prior to the Closing Date for which no reduction of the Purchase Price has been made pursuant to Paragraph 4(b) hereof, (b) out of any debt, liability or obligation arising under the Additional Agreements arising as a result of actions relating to any period before Seller has obtained the approval of the parties granting the Additional Agreements to Seller's transfer of the Additional Agreements to Buyer, and (c) any debt, liability or obligation of Seller not expressly assumed hereunder, whenever arising. 4 6. Seller's Representations. Seller hereby represents, warrants, ------------------------ covenants and agrees, that: (a) Seller is a limited partnership duly organized and validly existing under the laws of the State of Colorado. Seller has all requisite partnership power and authority to own and operate its properties and to carry on its business as now and where being conducted. (b) All necessary consents and approvals have been obtained by Seller for the execution and delivery of this Agreement. The execution and delivery of this Agreement by Seller has been duly and validly authorized and approved by all necessary action of Seller. This Agreement is a valid and binding obligation of Seller, enforceable against it in accordance with its terms. (c) Subject to the receipt of any required consents, Seller has full legal power, right and authority to sell and convey to Buyer legal and beneficial title to the Assets and Seller's sale to Buyer shall transfer good and marketable title thereto, free and clear of all security interests, liens, pledges, charges and encumbrances of every kind. (d) The execution, delivery and performance of this Agreement by Seller will not violate any provisions of law and will not, with or without the giving of notice or the passage of time, conflict with or result in any breach of any of the terms or conditions of, or constitute a default under, any mortgage, agreement or other instrument to which Seller is a party or by which Seller, the Assets or the System are bound. The execution, delivery and performance of this Agreement will not result in the creation of any security interest, lien, pledge, charge or encumbrance upon the Assets or the Systems. 7. Conditions Precedent to Buyer's Obligations. The obligations of Buyer ------------------------------------------- under this Agreement with respect to the purchase and sale of the Assets shall be subject to the fulfillment on or prior to the Closing Date of each of the following conditions: (a) All of the representations and warranties by Seller contained in this Agreement shall be true and correct in all material respects at and as of the Closing Date. Seller shall have complied with and performed all of the agreements, covenants and conditions required by this Agreement to be performed or complied with by it on or prior to the Closing Date. 5 (b) Seller shall have delivered to Buyer such instruments, consents and approvals of third parties as are necessary to transfer the Assets to Buyer pursuant to this Agreement. (c) The statutory waiting period applicable to this Agreement and the transactions contemplated hereby under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), shall have been terminated or shall have expired. 8. Conditions Precedent to Seller's Obligation. The obligations of Seller ------------------------------------------- under this Agreement with respect to the purchase and sale of the Assets shall be subject to the fulfillment on or prior to the Closing Date of each of the following conditions: (a) The statutory waiting period applicable to this Agreement and the transactions contemplated hereby under the HSR Act, shall have been terminated or shall have expired. (b) Buyer shall have delivered the Purchase Price to Seller in accordance with Paragraph 3 hereof. 9. Closing. The closing hereunder (the "Closing") shall be held in the ------- offices of Seller, 9697 East Mineral Avenue, Englewood, Colorado, 80112, on such date or dates as the parties hereto shall mutually agree (the "Closing Date"). At the Closing, all cash, checks, notes, deeds, bills of sale, certificates of title, assignments and other instruments and documents referred to or contemplated by this Agreement shall be exchanged by the parties hereto. 10. Brokerage. Seller represents and warrants to Buyer that Seller will --------- be solely responsible for, and pay in full, any and all brokerage or finder's fees or agent's commissions or other like payment owing in connection with Seller's use of any broker, finder or agent in connection with this Agreement or the transactions contemplated hereby. Buyer represents and warrants to Seller that Buyer will be solely responsible for, and pay in full, any and all brokerage or finder's fees or agent's commission or other like payment owing in connection with Buyer's use of any broker, finder or agent in connection with this Agreement or the transaction contemplated hereby. Each party hereto agrees to indemnify and hold the other party hereto harmless against and in respect of any breach by it of the provision of this Paragraph 10. 6 11. Miscellaneous. ------------- (a) Buyer shall have the right, upon notice to Seller, to assign prior to the Closing Date, in whole or in part, its rights and obligations hereunder to any affiliate of Buyer, including any public limited partnership or partnerships of which Buyer or any affiliate of Buyer is a general partner or any joint venture or general partnership of which Buyer, or any affiliate of Buyer, or any of such public limited partnership or partnerships is a constituent partner, or to any subsidiary of Buyer or other entity controlled by, controlling or under common control with Buyer, or, subject to Seller's consent, to any other entity. (b) From time to time after the Closing Date, Seller shall, if requested by Buyer, make, execute and deliver to Buyer such additional assignments, bills of sale, deeds and other instruments of transfer, as may be necessary or proper to transfer to Buyer all of Seller's right, title and interest in and to the assets covered by this Agreement. Such efforts and assistance shall be without cost to Buyer. (c) This Agreement embodies the entire understanding and agreement among the parties concerning the subject matter hereof and supersedes any and all prior negotiations, understandings or agreements in regard thereto. This Agreement shall be interpreted, governed and construed in accordance with the laws of the State of Colorado. This Agreement may not be modified or amended except by an agreement in writing executed by both Buyer and Seller. (d) Any sales, use, transfer or documentary taxes imposed in connection with the sale and deliver of the Assets and the rights acquired by Buyer under this Agreement shall be paid by Buyer. 7 IN WITNESS WHEREOF the parties have executed this Agreement as of the day and year first above written. SELLER: ------ SPACELINK FUND 3, LTD. a Colorado limited partnership By: Jones Intercable Funds, Inc., a Colorado corporation, as its general partner By: /s/ James B. O'Brien -------------------- Title: President -------------------- BUYER: ----- JONES COMMUNICATIONS OF NEW MEXICO, INC., a Colorado corporation By: /s/ Ruth E. Warren ------------------------- Title: Vice President/Operations ------------------------- 8 EX-2.7 4 SOCORRO SYSTEM PURCHASE & SALE AGREEMENT Exhibit 2.7 SOCORRO SYSTEM -------------- PURCHASE AND SALE AGREEMENT --------------------------- THIS PURCHASE AND SALE AGREEMENT is made as of the 16th day of June, 1998, by and between SPACELINK FUND 3, LTD., a Colorado limited partnership ("Seller"), and JONES COMMUNICATIONS OF NEW MEXICO, INC., a Colorado corporation ("Buyer"). RECITALS -------- A. Seller owns and operates a cable television system serving Socorro, New Mexico (the "System"). B. Seller desires to sell to Buyer, and Buyer desires to purchase from Seller, the System upon the terms and conditions set forth in this Agreement. AGREEMENT --------- In consideration of the mutual promises contained in this Agreement and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Purchase and Sale. Subject to the terms and conditions set forth in ----------------- this Agreement, Seller hereby agrees to sell, convey, assign, transfer and deliver to Buyer, and Buyer hereby agrees to purchase from Seller, on the Closing Date (as defined in Paragraph 9 hereof), all of Seller's right, title and interest in and to the System and the Assets (as defined in Paragraph 2 hereof) then being transferred and sold pursuant hereto, free and clear of all security interests, liens, pledges, charges and encumbrances. 2. Assets. (a) The assets to be conveyed to Buyer hereunder shall consist ------ of all of the assets and properties of Seller, whether real, personal, tangible or intangible, of whatever description and wherever located, now owned or used by Seller solely in connection with Seller's ownership or operation of the System, except those items excluded pursuant to subparagraph 2(b) hereof, but including all additions made to the Closing Date, to the end that all of Seller's assets owned on the Closing Date which are used or owned solely in connection with Seller's ownership or operation of the System shall pass to Buyer. Such assets (collectively, the "Assets") shall include, without limitation: (i) all of Seller's towers, tower equipment, antennas, aboveground and underground cable, distribution systems, headend amplifiers, line amplifiers, earth satellite receive stations and related equipment, microwave equipment, testing equipment, motor vehicles, office equipment, furniture and fixtures, supplies, inventory and other physical assets owned or used by Seller solely in connection with Seller's ownership or operation of the System; (ii) the franchises, leases, agreements, permits, consents, licenses and other contracts, pole line or joint pole agreements, underground conduit agreements, agreements for the reception or transmission of signals by microwave, easements, rights-of-way and construction permits, if any, and any other obligations and agreements between Seller and suppliers and customers, which are owned or used by Seller solely in connection with Seller's ownership and operation of the System; (iii) the real property owned and used solely in connection with the System; (iv) all accounts receivable of Seller arising in connection with the System; (v) all engineering records, files, data, drawings, blueprints, schematics, maps, reports, lists and plans and processes owned or developed by or for Seller and intended for use in connection with the System; (vi) all promotional graphics, original art work, mats, plates, negatives and other advertising, or related materials developed by or for Seller and intended for use in connection with the System; (vii) all of Seller's correspondence files, lists, records and reports concerning customers and prospective customers of the Systems, concerning television stations whose transmissions are or may be carried as part of the Systems and concerning all dealings with federal, state, and local regulatory agencies, including all reports filed by or on behalf of Seller with the Federal Communications Commission (the "FCC") in connection with the System and any Statements of Account of the System filed by or on behalf of Seller with the united States Copyright Office in connection with the System; provided however, --------- ------- that Seller shall not transfer to Buyer the licenses and agreements for which the consent of a third party is required to transfer (the "Additional Agreements") until Seller has obtained the approval of the parties granting the Additional Agreements to 2 such transfer, whereupon such Additional Agreements shall be deemed to be included in the assets to be transferred to Buyer pursuant to this Agreement. (b) The following properties and assets relating to the System and its business operations shall be retained by Seller and shall not be sold, assigned or transferred to Buyer; (i) cash or cash equivalents on hand or in banks; (ii) insurance policies and rights and claims thereunder; (iii) all claims, rights and interest in and to any refunds for Federal, state or local income or other taxes or fees of any nature whatsoever for periods prior to the Closing Date, including without limitation, fees paid to the United States Copyright Office; and (iv) assets disposed of in the normal course of business or with the written consent of Buyer between the date hereof and the Closing Date. 3. Purchase Price. Subject to the adjustments to be made in accordance -------------- with Paragraph 4 hereof, the total purchase price for the Assets shall be Three Million Six Hundred Thirty Eight Thousand Seven Hundred Ninety One Dollars ($3,638,791) (the "Purchase Price"), which Purchase Price represents the average of three separate independent appraisals of the System. The Purchase Price shall by payable to Seller at Closing in cash, by cashier's check or by wire transfer of Federal funds to a bank or banks designated by Seller. 4. Adjustments. All adjustments provided for herein with respect to this ----------- transaction shall increase or decrease the Purchase Price, as appropriate, and shall be made as of the close of business (5:01 p.m., local time) on the Closing Date. (a) Rent, pole rents, franchise fees, taxes, power and utility fees and deposits, insurance premiums, licenses, customer prepayments and deposits, and other prepayments and amounts due shall be prorated and debited or credited to Seller or Buyer, as applicable. For purposes of adjustments made under this Paragraph 4(a), the subscriber accounts receivable which are due and payable for and with respect to the month in which the Closing takes place shall be prorated as of the Closing Date. 3 (b) The Purchase Price shall be reduced by any accounts payable, accrued expenses and vehicle lease obligations for which Seller would otherwise be liable hereunder, but for which the obligation for payment is assumed by Buyer. (c) Seller and Buyer shall jointly determine the adjustments required by this Paragraph 4 at the Closing. The net amount to which Buyer or Seller, as the case may be, is entitled pursuant hereto shall be thereupon paid by Buyer or Seller, as the case may be, by an adjustment to the Purchase Price. All adjustments made at Closing shall be tentative and shall be subject to final adjustment within 90 days after Closing. 5. Assumption of Liabilities. Buyer shall agree to assume and discharge ------------------------- all debts, liabilities and obligations of Seller arising with respect to periods subsequent to the Closing Date under any franchise, license, permit, lease, instrument or agreement transferred to Buyer hereunder and, with respect to periods prior to and including the Closing Date, to assume and discharge all obligations of Seller to the extent that the Purchase Price is reduced pursuant to Paragraph 4(b) hereof; provided, however, that Buyer shall not assume the -------- ------- Additional Agreements until Seller has obtained the approval of the parties granting the Additional Agreements to Seller's transfer of the Additional Agreements to Buyer, whereupon the Additional Agreements shall be deemed to be included in the assets to be assumed by Buyer hereunder. Buyer hereby agrees to indemnify and to hold harmless from and against any and all damages, costs, claims and expenses (the "Indemnifiable Claims") arising by reason of the ownership, operation or control of the System after Closing Date; provided, -------- however, that Buyer shall not indemnify and hold harmless Seller from any - ------- Indemnifiable Claims arising under Additional Agreements as a result of actions relating to any period before Seller has obtained the approval of the parties granting the Additional Agreements to Seller's transfer of the Additional Agreements to Buyer. Anything herein to the contrary notwithstanding, there is hereby excluded from the assumed obligations, and Seller hereby agrees to retain and discharge, and to indemnify and hold Buyer harmless from and against, any and all Indemnifiable Claims to the extent they arise (a) out of any debt, liability or obligation arising with respect to periods prior to the Closing Date for which no reduction of the Purchase Price has been made pursuant to Paragraph 4(b) hereof, (b) out of any debt, liability or obligation arising under the Additional Agreements arising as a result of actions relating to any period before Seller has obtained the approval of the parties granting the Additional Agreements to Seller's transfer of the Additional Agreements to Buyer, and (c) any debt, liability or obligation of Seller not expressly assumed hereunder, whenever arising. 4 6. Seller's Representations. Seller hereby represents, warrants, ------------------------ covenants and agrees, that: (a) Seller is a limited partnership duly organized and validly existing under the laws of the State of Colorado. Seller has all requisite partnership power and authority to own and operate its properties and to carry on its business as now and where being conducted. (b) All necessary consents and approvals have been obtained by Seller for the execution and delivery of this Agreement. The execution and delivery of this Agreement by Seller has been duly and validly authorized and approved by all necessary action of Seller. This Agreement is a valid and binding obligation of Seller, enforceable against it in accordance with its terms. (c) Subject to the receipt of any required consents, Seller has full legal power, right and authority to sell and convey to Buyer legal and beneficial title to the Assets and Seller's sale to Buyer shall transfer good and marketable title thereto, free and clear of all security interests, liens, pledges, charges and encumbrances of every kind. (d) The execution, delivery and performance of this Agreement by Seller will not violate any provisions of law and will not, with or without the giving of notice or the passage of time, conflict with or result in any breach of any of the terms or conditions of, or constitute a default under, any mortgage, agreement or other instrument to which Seller is a party or by which Seller, the Assets or the System are bound. The execution, delivery and performance of this Agreement will not result in the creation of any security interest, lien, pledge, charge or encumbrance upon the Assets or the Systems. 7. Conditions Precedent to Buyer's Obligations. The obligations of Buyer ------------------------------------------- under this Agreement with respect to the purchase and sale of the Assets shall be subject to the fulfillment on or prior to the Closing Date of each of the following conditions: (a) All of the representations and warranties by Seller contained in this Agreement shall be true and correct in all material respects at and as of the Closing Date. Seller shall have complied with and performed all of the agreements, covenants and conditions required by this Agreement to be performed or complied with by it on or prior to the Closing Date. 5 (b) Seller shall have delivered to Buyer such instruments, consents and approvals of third parties as are necessary to transfer the Assets to Buyer pursuant to this Agreement. (c) The statutory waiting period applicable to this Agreement and the transactions contemplated hereby under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), shall have been terminated or shall have expired. 8. Conditions Precedent to Seller's Obligation. The obligations of Seller ------------------------------------------- under this Agreement with respect to the purchase and sale of the Assets shall be subject to the fulfillment on or prior to the Closing Date of each of the following conditions: (a) The statutory waiting period applicable to this Agreement and the transactions contemplated hereby under the HSR Act, shall have been terminated or shall have expired. (b) Buyer shall have delivered the Purchase Price to Seller in accordance with Paragraph 3 hereof. 9. Closing. The closing hereunder (the "Closing") shall be held in the ------- offices of Seller, 9697 East Mineral Avenue, Englewood, Colorado, 80112, on such date or dates as the parties hereto shall mutually agree (the "Closing Date"). At the Closing, all cash, checks, notes, deeds, bills of sale, certificates of title, assignments and other instruments and documents referred to or contemplated by this Agreement shall be exchanged by the parties hereto. 10. Brokerage. Seller represents and warrants to Buyer that Seller will --------- be solely responsible for, and pay in full, any and all brokerage or finder's fees or agent's commissions or other like payment owing in connection with Seller's use of any broker, finder or agent in connection with this Agreement or the transactions contemplated hereby. Buyer represents and warrants to Seller that Buyer will be solely responsible for, and pay in full, any and all brokerage or finder's fees or agent's commission or other like payment owing in connection with Buyer's use of any broker, finder or agent in connection with this Agreement or the transaction contemplated hereby. Each party hereto agrees to indemnify and hold the other party hereto harmless against and in respect of any breach by it of the provision of this Paragraph 10. 6 11. Miscellaneous. ------------- (a) Buyer shall have the right, upon notice to Seller, to assign prior to the Closing Date, in whole or in part, its rights and obligations hereunder to any affiliate of Buyer, including any public limited partnership or partnerships of which Buyer or any affiliate of Buyer is a general partner or any joint venture or general partnership of which Buyer, or any affiliate of Buyer, or any of such public limited partnership or partnerships is a constituent partner, or to any subsidiary of Buyer or other entity controlled by, controlling or under common control with Buyer, or, subject to Seller's consent, to any other entity. (b) From time to time after the Closing Date, Seller shall, if requested by Buyer, make, execute and deliver to Buyer such additional assignments, bills of sale, deeds and other instruments of transfer, as may be necessary or proper to transfer to Buyer all of Seller's right, title and interest in and to the assets covered by this Agreement. Such efforts and assistance shall be without cost to Buyer. (c) This Agreement embodies the entire understanding and agreement among the parties concerning the subject matter hereof and supersedes any and all prior negotiations, understandings or agreements in regard thereto. This Agreement shall be interpreted, governed and construed in accordance with the laws of the State of Colorado. This Agreement may not be modified or amended except by an agreement in writing executed by both Buyer and Seller. (d) Any sales, use, transfer or documentary taxes imposed in connection with the sale and deliver of the Assets and the rights acquired by Buyer under this Agreement shall be paid by Buyer. 7 IN WITNESS WHEREOF the parties have executed this Agreement as of the day and year first above written. SELLER: ------ SPACELINK FUND 3, LTD., a Colorado limited partnership By: Jones Intercable Funds, Inc., a Colorado corporation, as its general partner By: /s/ James B. O'Brien ------------------------------- Title: President ------------------------------- BUYER: ----- JONES COMMUNICATIONS OF NEW MEXICO, INC., a Colorado corporation By: /s/ Ruth E. Warren ------------------------------- Title: Vice President/Operations ------------------------------- 8 EX-21 5 JONES INTERCABLE, INC. LIST OF SUBSIDIARIES EXHIBIT 21 ---------- JONES INTERCABLE, INC. LIST OF SUBSIDIARIES Evergreen Intercable, Inc. International Aviation, Ltd. Jones Cable Corporation Jones Cable Holdings, Inc. Jones Cable Holdings II, Inc. Jones Communications, Inc. Jones Communications of Arizona, Inc. Jones Communications of California, Inc. Jones Communications of Georgia/South Carolina, Inc. Jones Communications of Maryland, Inc. Jones Communications of Missouri, Inc. Jones Communications of New Mexico, Inc. Jones Communications of Virginia, Inc. Jones Electronic Manufacturing Services, Inc. Jones Futurex, Inc. The Intercable Group, Ltd. (fka The Jones Group, Ltd.) Jones Intercable Funds, Inc. Jones Intercble of Ft. Myers, Inc. Jones Intercable of Leeds, Inc. Jones Intercable of San Diego, Inc. Jones Intercable of South Hertfordshire, Inc. Jones Material Management, Inc. Jones of Wisconsin, Inc. Jones Panorama Properties, Inc. Jones Programming Services, Inc. Jones Satellite Programming, Inc. Jones Spacelink Acquisition Corporation Jones Spacelink Cable Corporation Jones Spacelink Management, Inc. Jones Telecommunications of California, Inc. Jones Telecommunications of Maryland, Inc. Jones Telecommunications of Virginia, Inc. Jones Tri-City Intercable, Inc. Jones U.K. Holdings, Inc. Saturn Cable T.V., Inc. EX-23 6 CONSENT OF ARTHUR ANDERSEN LLP EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS ----------------------------------------- As independent public accountants, we hereby consent to the incorporation by reference of our report included in this Form 10-K into the Company's previously filed Registration Statements on Form S-3, File Nos. 333-40147 and 333-40149 and on Form S-8, File Nos. 33-54596 and 33-52813. ARTHUR ANDERSEN LLP Denver, Colorado EX-27 7 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 2,586 0 26,884 2,822 0 0 1,005,080 (311,655) 1,731,093 112,781 1,462,707 0 0 412 155,193 1,731,093 0 460,729 0 0 446,282 0 94,865 (80,418) 0 (80,418) 0 0 0 (80,418) (1.96) (1.96)
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