Loading...
RES 1998-1387 - Transfer of cable television franchise from Douglas County CableVision to Cox COmmunications Omaha ` ��N►AHA,NF6 Law Department .wr ,� rr_ �, Omaha/Douglas Civic Center a!if!f s+�i+►, rl '# !a n 1819 Famam Street,Suite 804 xc® ' P1�..`J°�� 4 98 i7{'Y 1 ! )' Omaha,Nebraska 68183-0804 °�_ .. ° (402)444-5115 �ry t r, Telefax(402)444-5125 4TFDFEB03 C,�...t Ci of Omaha �` �'', F 5 E 4 j �c€• n Paul D.Kraft ty ' City Attorney Hal Daub,Mayor Honorable President and Members of the City Council, The attached Resolution is prepared at the request of the Omaha Cable Television Advisory Committee. The Resolution consents to the cable television franchise held by Advance/Newhouse Partnership, dba "Douglas County CableVision", (hereinafter "CableVision") being transferred to Cox Communications Omaha L.L.C., dba"Cox Communications Omaha" (hereinafter "Cox"). The franchise agreement requires a decision must be made within sixty (60) days of the application for consent to transfer. Thus,the City Council must vote on this request no later than June 5, 1998, or the City will be deemed to have unconditionally consented to the transfer. At the City Council's direction, this transfer was examined by the Cable Television Advisory Committee, which recommends approval based upon further agreements by Cox. A Subcommittee of CTAC held meetings with Cox and CableVision and reviewed various issues surrounding the transfer. The Subcommittee identified several conditions that should be imposed upon the transfer. The Resolution of CTAC and the report of the Subcommittee is attached. The Resolution requires compliance with these conditions. Cox informed the Subcommittee that it intends to upgrade the technical capabilities in the CableVision area so all customers will have access to the same services Cox currently offers to its Omaha customers. If this transfer is approved, Cox will hold two franchises within the City of Omaha. Cox wishes to consolidate the former CableVision contract into Cox's citywide franchise. Additional documents to complete this consolidation will be presented to you in the future. Respect submitted, Thomas O. Mumg Assistant City Attorney P:\LAW\7643.SKZ • • RESOLVED BY THE CITY OF OMAHA CABLE TELEVISION ADVISORY COMMITTEE: WHEREAS, Advance/Newhouse Partnership, dba "Douglas County CableVision" is operating a cable television system within the city pursuant to a franchise granted May 18, 1982, and subsequently extended, which provides that the franchise shall not be assigned or transferred without the prior written consent of the City; and, WHEREAS,Advance/Newhouse Partnership has filed with the City an application seeking the City's consent to the transfer of the franchise to Cox Communications L.L.C., dba "Cox Communications Omaha"; and, WHEREAS, such transfer shall be subordinate to the terms and conditions of the franchise and Cox Communications L.L.C. has certified that it shall comply with all provisions of the franchise if the transfer is permitted and both companies have agreed to the conditions identified in the May 6, 1998, report of the Franchise Renewal Subcommittee, a copy of which is attached hereto; and, WHEREAS, in reliance upon the application of Advance/Newhouse Partnership,the certification of Cox Communications L.L.C., and the representations of both companies, this Committee finds it is in the best interests of the citizens of Omaha who reside within the franchise area of Advance/Newhouse Partnership to consent to the transfer. NOW, THEREFORE, BE IT RESOLVED BY THE CITY OF OMAHA CABLE TELEVISION ADVISORY COMMITTEE: THAT,it is hereby recommended that the Omaha City Council consent to the transfer of the Omaha cable television franchise held by Advance/Newhouse Partnership, dba "Douglas County CableVision", to Cox Communications L.L.C., subject to continued compliance with the terms and conditions of the existing cable television franchise agreement, as amended, and the conditions identified in the May 6, 1998,report of the Franchise Renewal Subcommittee, a copy of which is attached hereto. C - Chair n APPROVE TO FORM: Assistant City ttorney • et It REPORT OF THE CABLE TELEVISION ADVISORY COMMITTEE FRANCHISE RENEWAL SUBCOMMITTEE ON THE REQUEST FOR APPROVAL TO TRANSFER THE DOUGLAS COUNTY CABLEVISION FRANCHISE May 6, 1998 On April 6, 1998, Advance/Newhouse Partnership, d/b/a "Douglas County CableVision" (CableVision) submitted a request for the City of Omaha's consent to transfer its cable television franchise to Cox Communications Omaha, L.L.C. (Cox). The Omaha City Council directed the Cable Television Advisory Committee to review the transfer request and submit a recommendation. The Cable Television Advisory Committee, in turn, directed this Subcommittee to meet with Cox and CableVision and prepare a report and recommendation for the Advisory Committee. That task has been completed and this report is submitted for the Advisory Committee's review. The franchise agreement between the City and CableVision provides that the City must make a decision upon a request for consent within sixty (60) days of the request. Federal law allows up to one-hundred and twenty(120)days for review,but CableVision declined to agree to using the longer federal standard. Thus,the City Council must make a decision on this request no later than June 5, 1998, or the City will be deemed to have consented to the transfer. The Subcommittee recommends that the Advisory Committee vote upon a recommendation at its meeting on May 11, 1998. The Subcommittee met twice with City staff and representatives of CableVision and Cox. Cox represented to the Subcommittee that, after the transfer, it intended to provide the same services to the former CableVision customers as it provides to other Cox customers within the City. Cox intends to have one unified cable system providing service throughout the metropolitan area regardless of political boundaries. To achieve that goal, Cox requests that the transfer result in Cox holding one cable television franchise contract with the City. The existing CableVision franchise agreement would be canceled and the Cox franchise agreement would become the controlling document. The Subcommittee agrees that this goal is in the best interests of the City and cable television subscribers. Cox's desire to eliminate the current CableVision agreement raised several issues. The two contracts are not identical and Cox's plans would result in some changes in the obligations currently owed to CableVision customers or the City. The following subject areas were identified: 1. Service to fire and police stations and schools. 2. Carriage of all public, community, and governmental programming. 3. Extension of service to areas after annexation. 4. Paying an interconnect fee to the account designated to promote and assist public, governmental, or community access programming. 5. Continuing lower rates for former CableVision customers who receive the same service as current Cox customers. - i W. FRANCHISE RENEWAL SUBCOMMITTEE REPORT May 6, 1998 Page 2 Subject: COX CABLE/DOUGLAS COUNTY CABLEVISION TRANSFER APPROVAL With respect to issues nos. 1,2,and 3 Cox agreed that the contract provision the City considers most beneficial will apply to the former CableVision franchise area. This will result in: (1) Cox being obligated to provide service to all fire and police stations and schools within the City limits regardless of whether the station or school was in the former CableVision franchise area; (2) former CableVision customers will receive Cox's full schedule of public and community access programming rather than the limited programming required by CableVision's interconnect agreement; and, (3) Cox will be obligated to extend service to all areas formerly served by CableVision which meet the density requirementt of 20 occupied units per mile when the area is annexed into the City in the future. This agreement is acceptable to the Subcommittee. CableVision currently is obligated to contribute to the interconnect fund designated to support access programming. In 1997, CableVision's contribution totalled$6,915.00. CableVision's obligation, in part, recognizes that operators receiving access programming via an interconnection should share in the cost of producing and supporting access programming. If the CableVision contract is canceled,that contribution will end. The interconnect fund will then rely solely on contributions by Telechoice and Cox's support will be limited to the obligations under its current Omaha contract. Cox has agreed to offset this revenue loss by continuing to contribute $3,450.00 per year(approx. 50% of the 1997 amount) to the interconnect fund for the remaining 13 years covered by the CableVision contract (through September, 2011). This contribution will be in addition to Cox's franchise fee. This agreement is acceptable to the Subcommittee. CableVision customers now pay approximately 25%less than Cox customers for basic service. The respective levels of service are currently slightly different, but the service will become identical under Cox's one-franchise plan. A period of time will be required for Cox to complete technical changes necessary to provide this increased level of service to former CableVision customers. City staff advised the Subcommittee that city ordinances will be violated if, after those changes, Cox continues to charge different rates for the same service. Omaha Municipal Code section 19-423 prohibits discrimination in cable television rates. After extensive discussion, Cox requested permission to continue the lower CableVision rates until the technical changes are completed and the new services are available to all former CableVision customers residing inside the City. At that time, either the former CableVision customers' rates will increase or the rate for Cox customers in other areas of the City will decrease. The date this will occur remains uncertain and no more specific deadline can be set. The Subcommittee finds this arrangement acceptable. CableVision has agreed to remain obligated for any franchise fees or other amounts which are owed to the City for activity prior to the closing date for this transfer if an audit is conducted within one year of that date. This is consistent with the continuing obligation imposed on United Cable Television when Cox obtained that franchise. • FRANCHISE RENEWAL SUBCOMMITTEE REPORT May 6, 1998 Page 3 Subject: COX CABLE/DOUGLAS COUNTY CABLEVISION TRANSFER APPROVAL The Franchise Renewal Subcommittee recommends that the Cable Television Advisory Committee adopt a Resolution recommending that the Omaha City Council approve the franchise transfer subject to the conditions discussed, above. City staff will draft such a Resolution for your consideration during your May 11, 1998,meeting. Respec submitted, gat/1,017/(101 Robert Mancuso, Chairman Franchise Renewal Subcommittee • MOTION BY COUNCILMEMBER '• I hereby move that Council Document No. „Az- , appearing as item no. 68 on the May 19, 1998, City Council agenda,be amended by adding the following on page 2 as the last paragraph in the text of the Resolution: "THAT, the foregoing consent to transfer the franchise shall be effective upon the consummation of the transfer of the assets of the system by Advance/Newhouse Partnership to Cox Communications Omaha, L.L.C, at which time the City shall automatically release Advance/Newhouse Partnership and its predecessors from all obligations and liabilities under the franchise that relate to periods from and after such date. Advance/Newhouse Partnership shall give the City written notice of the date of such consummation prior to its occurrence." APPRO D • S TO FORM: /o / ASSISTANT CIT ATTG 'Y P:\LAW\3884.PJM } ttl co Oa -co el to n c � cr r f cabicyision TOMORROW STARTS HERE April 6, 1998 r, rn — Via Hand Delivery To: rn :Td � t " "q C City CouncilNtxztAr City of Omaha, Nebraska co Omaha-Douglas Civic Center 1819 Farnam St. Omaha, NE 68183 Re: Cable Television Franchise granted by the City of Omaha, Nebraska ("Franchising Authority") and held by Advance/Newhouse Partnership (the "Franchise") Dear Members of the City Council: As you may know, Advance/Newhouse Partnership ("Franchisee") has entered into an agreement with Cox Communications Omaha, L.L.C. ("Cox") pursuant to which Time Warner will transfer to Cox substantially all of the assets of Franchisee's cable television system serving Douglas County, Sarpy County and the City of Omaha, Nebraska (the "System"), including its rights under the Franchise. The purpose of this letter is to request the consent of Franchising Authority to the assignment of the Franchise by Franchisee to Cox, effective as of the date of consummation of Franchisee's transfer of the System to Cox (the "Closing Date"). In connection with the proposed transaction, effective as of the Closing Date, Cox will accept such assignment and assume all of the duties and obligations of Franchisee under the Franchise relating to the period from and after the Closing Date. I have enclosed a consent to transfer in the form of a resolution, which Franchisee respectfully requests that Franchising Authority adopt. The transfer of the System by Franchisee to Cox is scheduled to occur within the next few months, as soon as all franchise transfer approvals have been received, so the Franchising Authority's prompt action on this matter would be greatly appreciated. DOUGLAS COUNTY CABLEVISION 2312 SOUTH 156TH CIRCLE • OMAHA, NEBRASKA 68130 • (402)333-6484 Also enclosed is a fully-executed original FCC Form 394 (along with two copies) which is required to be submitted pursuant to the Cable Television Consumer Protection and Competition Act of 1992, as amended by the Telecommunications Act of 1996. Should you have any questions or need any additional information in connection with this request, please contact me as soon as possible at 330-1663. Sincerely, Mti Gold erg General Manager cc: City Council Staff .l f Y i RESOLUTION NO. WHEREAS, Resolution No. 1188, adopted May 18, 1982, Agreement dated May 18, 1982 between the City of Omaha and TV Transmissions, Inc.; Ordinance No. 31786 approved April 28, 1989 to Amended the Existing Cable Television Franchise; Ordinance No. 33233 approved April 7, 1994 to Amend the Provisions of the Cable Television Franchise Agreement between the City of Omaha and T.V. Transmission, Inc., dba Douglas County CableVision (approving interconnect agreement); Amendment of Franchise Agreement Between the City of Omaha and T.V. Transmission, Inc., dba Douglas County Cablevision dated April 5, 1994 (interconnect); Ordinance No. 33235 approved April 7, 1994 to Amend the Provisions of the Cable Television Franchise Agreement between the City of Omaha and T.V. Transmission, Inc., dba Douglas County CableVision (approving extension of franchise term); Amendment of Franchise Agreement Between the City of Omaha and T.V. Transmission, Inc., dba Douglas County Cablevision dated April 5, 1994 (extension of franchise term); and Resolution dated May 23, 1996 of the City of Omaha approving transfer of the franchise to Advance/Newhouse Partnership; and Ordinance No. 34475 dated February 19, 1998 (approving extension of franchise term) (collectively, the "Franchise") were adopted by the City of Omaha, Nebraska ("Franchising Authority") and the Franchise is held by Advance/Newhouse Partnership ("Franchisee"); WHEREAS, Franchisee has negotiated an agreement with Cox Communications Omaha, L.L.C. ("Cox") pursuant to which Franchisee will transfer to Cox substantially all of the assets of Franchisee's cable television system serving Douglas County, Sarpy County and the City of Omaha, Nebraska (the "System"), including its rights under the Franchise; WHEREAS, Franchisee and Cox have filed a FCC Form 394; WHEREAS, the Franchise requires that Franchising Authority grant its consent to an assignment of the Franchise by Franchisee, which consent shall not be unreasonably withheld; and WHEREAS, Franchisee and Cox have requested that Franchising Authority consent to the assignment and transfer of the Franchise by Franchisee to Cox. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF OMAHA, NEBRASKA: 1. Franchising Authority acknowledges that it has received a complete FCC Form 394. 2. Franchising Authority does hereby consent to the transfer of the Franchise and all of Franchisee's rights, powers and privileges under the Franchise from Franchisee to Cox. r I 3. The foregoing consent to the transfer and assignment of the Franchise shall be effective upon the consummation of the transfer of the assets of the System by Franchisee to Cox, at which time Franchising Authority shall automatically release Franchisee and its predecessors from all obligations and liabilities under the Franchise that relate to periods from and after such date. Notice of the date of such consummation shall be given to Franchising Authority. 4. Franchising Authority hereby consents to a transfer of the Franchise or control related thereto to any entity controlling, controlled by or under common control with Cox. 5. Franchising Authority hereby consents to and approves the assignment, mortgage, pledge or other encumbrance, if any, of the Franchise, the System or assets relating thereto, as collateral for a loan. 6. Franchising Authority hereby confirms that, to its knowledge: (a) the Franchise is currently in full force and effect and expires on ; (b) Franchisee is currently the valid holder and authorized grantee of the Franchise; (c) Franchisee is in compliance in all material respects with the Franchise; and (d) no event has occurred or exists that would constitute a default under the Franchise or that would permit Franchising Authority to revoke or terminate the Franchise. Subject to compliance with the terms of this Resolution, all action necessary to approve the transfer of the Franchise to Cox has been duly and validly taken. 7. This Resolution shall have the force of a continuing agreement with Franchisee and Cox, and Franchising Authority shall not amend or otherwise alter this Resolution without the consent of Franchisee and Cox. Adopted by the City Council of the City of Omaha, Nebraska on this day of , 1998. Name: Title: Federal Communications Commission Approved By OMB Washington,DC 20554 FCC 394 3060-0573 APPLICATION FOR FRANCHISE AUTHORITY CONSENT TO ASSIGNMENT OR TRANSFER OF CONTROL OF CABLE TELEVISION FRANCHISE FOR FRANCHISE AUTHORITY USE ONLY SECTION I. GENERAL INFORMATION DATE A P t L. J 19 9 Z 1. Community Unit Identification Number: NE0155 2. Application for: ® Assignment of Franchise n Transfer of Control 3. Franchising Authority: City of Omaha, Nebraska 4. Identify community where the system/franchise that is the subject of the assignment or transfer of control is located: City of Omaha, Nebraska 5. Date system was acquired or(for system's constructed by the transferor/assignor)the date on N/A which service was provided to the first subscriber in the franchise area: 6. Proposed effective date of closing of the transaction assigning or transferring ownership of the As soon as possible system to transferee/assignee: 7. Attach as an Exhibit a schedule of any and all additional information or material filed with this Exhibit No. application that is identified in the franchise as required to be provided to the franchising 1 authority when requesting its approval of the type of transaction that is the subject of this application. PART I - TRANSFEROR/ASSIGNOR 1. Indicate the name, mailing address, and telephone number of the transferor/assignor. Legal name of Transferor/Assignor(if individual, list last name first) Advance/Newhouse Partnership Assumed name used for doing business (if any) Mailing street address or P.O. Box P.O. Box 4872 City State ZIP Code Telephone No. (include area code) Syracuse NY 13221 2.(a) Attach as an Exhibit a copy of the contract or agreement that provides for the assignment or Exhibit No. transfer of control (including any exhibits or schedules thereto necessary in order to 2 understand the terms thereof). If there is only an oral agreement, reduce the terms to writing and attach. (Confidential trade, business, pricing or marketing information, or other information not otherwise publicly available, may be redacted). (b) Does the contract submitted in response to (a) above embody the full and complete ® Yes ❑ No agreement between the transferor/assignor and the transferee/assignee? If No, explain in an Exhibit. Exhibit No. FCC 394(Page 1) September 1996 PART II -TRANSFEREE/ASSIGNEE 1.(a) Indicate the name, mailing address,and telephone number of the transferee/assignee. Legal name of Transferee/Assignee(if individual, list last name first) Cox Communications Omaha, L.L.C. Assumed name used for doing business(if any) Cox Communications Omaha Mailing street address or P.O. Box 11505 W. Dodge Road City State ZIP Code Telephone No. (include area code) Omaha NE 68154 (402) 330-2314 (b) Indicate the name, mailing address, and telephone number of person to contact, if other than transferee/assignee. Name of contact person (list last name first) Richard Hook Firm or company name(if any) Cox Communications Omaha Mailing street address or P.O. Box 11505 W. Dodge Road City State ZIP Code Telephone No. (include area code) Omaha NE 68154 (402) 330-2314 (c) Attach as an Exhibit the name, mailing address, and telephone number of each additional person who Exhibit No. should be contacted, if any. (d) Indicate the address where the system's records will be maintained. Street address 11505 W. Dodge Road City State ZIP Code Omaha NE 68154 2. Indicate on an attached exhibit any plans to change the current terms and conditions of service and Exhibit No. operations of the system as a consequence of the transaction for which approval is sought. FCC 394(Page 2) September 1996 SECTION II. TRANSFEREE'S/ASSIGNEE'S LEGAL QUALIFICATIONS 1. Transferee/Assignee is: MCorporation a.Jurisdiction of incorporation: d. Name and address of registered agent in State of Delaware jurisdiction: b. Date of incorporation: C T Corporation System April 24, 1985 206 South 13th St.,Suite 1500 c. For profit or not-for-profit: Lincoln, NE 68508 For Profit Limited Partnership a. Jurisdiction in which formed: c. Name and address of registered agent in ri i�u sd coon: b. Date of formation: ❑ General Partnership a. Jurisdiction whose laws govern formation: b. Date of formation: ❑ Individual ❑ Other. Describe in an Exhibit. Exhibit No. 2. List the transferee/assignee,and, if the transferee/assignee is not a natural person,each of its officers, directors, stockholders beneficially holding more than 5%of the outstanding voting shares, general partners, and limited partners holding an equity interest of more than 5%. Use only one column for each individual or entity. Attach additional pages if necessary. (Read carefully-the lettered items below refer to corresponding lines in the following table.) (a)Name, residence, occupation or principal business, and principal place of business. (If other than an individual, also show name,address and citizenship of natural person authorized to vote the voting securities of the applicant that it holds.) List the applicant first, officers, next,then directors and,thereafter, remaining stockholders and/or partners. (b)Citizenship. (c) Relationship to the transferee/assignee(e.g.,officer,director, etc.). (d) Number of shares or nature of partnership interest. (e) Number of votes. (f) Percentage of votes. (See Exhibit 3 Attached) (a) (b) (c) (d) (e) (f) FCC 394(Page 3) September 1996 3. If the applicant is a corporation or a limited partnership, is the transferee/assignee formed under the E Yes No laws of, or duly qualified to transact business in,the State or other jurisdiction in which the system operates? If the answer is No,explain in an Exhibit. Exhibit No. 4. Has the transferee/assignee had any interest in or in connection with an applicant which has been 11 Yes 111 No dismissed or denied by any franchise authority? If the answer is Yes, describe circumstances in an Exhibit. Exhibit No. 5. Has an adverse finding been made or an adverse final action been taken by any court or EI Yes a No administrative body with respect to the transferee/assignee in a civil, criminal or administrative proceeding, brought under the provisions of any law or regulation related to the following: any felony; revocation, suspension or involuntary transfer of any authorization (including cable franchises)to provide video programming services; mass media related antitrust or unfair competition;fraudulent statements to another government unit; or employment discrimination? If the answer is Yes,attach as an Exhibit a full description of the persons and matter(s)involved, Exhibit No. including an identification of any court or administrative body and any proceeding(by dates and file numbers, if applicable), and the disposition of such proceeding. 6. Are there any documents, instruments, contracts or understandings relating to ownership or future n Yes I I No ownership rights with respect to any attributable interest as described in Question 2(including, but not limited to, non-voting stock interests, beneficial stock ownership interests, options,warrants, debentures)? If Yes, provide particulars in an Exhibit. 7. Do documents, instruments, agreements or understandings for the pledge of stock of the Yes El No transferee/assignee, as security for loans or contractual performance, provide that: (a)voting rights will remain with the applicant, even in the event of default on the obligation; (b) in the event of default,there will be either a private or public sale of the stock; and(c) prior to the exercise of any ownership rights by a purchaser at a sale described in (b),any prior consent of the FCC and/or of the franchising authority, if required pursuant to federal, state or local law or pursuant to the terms of the franchise agreement will be obtained? If No,attach as an Exhibit a full explanation. Exhibit No. 4 SECTION III. TRANSFEREE'S/ASSIGNEE'S FINANCIAL QUALIFICATIONS 1. The transferee/assignee certifies that it has sufficient net liquid assets on hand or available from X Yes No committed resources to consummate the transaction and operate the facilities for three months. 2. Attach as an Exhibit the most recent financial statements, prepared in accordance with generally Exhibit No. accepted accounting principals, including a balance sheet and income statement for at least one full 5 year,for the transferee/assignee or parent entity that has been prepared in the ordinary course of business, if any such financial statements are routinely prepared. Such statements, if not otherwise publicly available, may be marked CONFIDENTIAL and will be maintained as confidential by the franchise authority and its agents to the extent permissible under local law. SECTION IV. TRANSFEREE'S/ASSIGNEE'S TECHNICAL QUALIFICATIONS Set forth in an Exhibit a narrative account of the transferee's/assignee's technical qualifications,experience Exhibit No. and expertise regarding cable television systems, including, but not limited to, summary information about 6 appropriate management personnel that will be involved in the system's management and operations. The transferee/assignee may, but need not, list a representative sample of cable systems currently or formerly owned or operated. FCC 394(Page 4) September 1996 . 1 SECTION V-CERTIFICATIONS Part I-Transferor/Assignor All the statements made in the application and attached exhibits are considered material representations, and all the Exhibits are a material part hereof and are incorporated herein as if set out in full in the application. • Signature I CERTIFY that the statements in this application are true, complete and correct to the best of my knowledge and belief and /U.‘i, ---\...., I are made in good faith. Date \ WILLFUL FALSE STATEMENTS MADE ON THIS FORM ARE PUNISHABLE BY FINE AND/OR IMPRISONMENT. U.S.CODE, Print full name TITLE 18,SECTION 1001. Robert J. Miron Check appropriate classification: _ a Individual —a General Partner - Corporate Officer X Other.Explain:Vi ce Presi dert, (Indicate Title) _Newhouse Broadcasting Corpc rati on, a general partner of Advance/Newhouse Partnership Part II-Transferee/Assignee All the statements made in the application and attached Exhibits are considered material representations,and all the Exhibits are a material part hereof and are incorporated herein as if set out in full in the application. The transferee/assignee certifies that he/she: (a) Has a current copy of the FCC's Rules governing cable television systems. (b) Has a current copy of the franchise that is the subject of this application,and of any applicable state laws or local ordinances and related regulations. (c) Will use its best efforts to comply with the terms of the franchise and applicable state laws or local ordinances and related regulations,and to effect changes,as promptly as practicable,in the operation system,if any changes are necessary to cure any violations thereof or defaults thereunder presently in effect or ongoing. Signature I CERTIFY that the statements in this application are true, complete and correct to the best of my knowledge and belief and are made in good faith. Date WILLFUL FALSE STATEMENTS MADE ON THIS FORM ARE PUNISHABLE BY FINE AND/OR IMPRISONMENT. U.S.CODE, Print full name TITLE 18, SECTION 1001. Check appropriate classification: Corporate Officer 0 Individual General Partner 0 (Indicate Title) Other.Explain: • FCC 394(Page 5) September 1996 SECTION V-CERTIFICATIONS Part I-Transferor/Assignor All the statements made in the application and attached exhibits are considered material representations, and all the Exhibits are a material part hereof and are incorporated herein as if set out in full in the application. Signature I CERTIFY that the statements in this application are true, complete and correct to the best of my knowledge and belief and are made in good faith. Date WILLFUL FALSE STATEMENTS MADE ON THIS FORM ARE PUNISHABLE BY FINE AND/OR IMPRISONMENT. U.S. CODE, Print full name TITLE 18, SECTION 1001. Check appropriate classification: Individual General Partner Corporate Officer Other. Explain: (Indicate Title) Part II-Transferee/Assignee All the statements made in the application and attached Exhibits are considered material representations,and all the Exhibits are a material part hereof and are incorporated herein as if set out in full in the application. The transferee/assignee certifies that he/she: (a) Has a current copy of the FCC's Rules governing cable television systems. (b) Has a current copy of the franchise that is the subject of this application,and of any applicable state laws or local ordinances and related regulations. (c) Will use its best efforts to comply with the terms of the franchise and applicable state laws or local ordinances and related regulations, and to effect changes,as promptly as practicable, in the operation system, if any changes are necessary to cure any violations thereof or defaults thereunder presently in effect or ongoing. Signature I CERTIFY that the statements in this application are true, myknowledge and belief and complete and correct to the best of p 9 are made in good faith. \ /�/ fiX(71A3vV\ Date (�t WILLFUL FALSE STATEMENTS MADE ON THIS FORM ARE February 19, 1998 PUNISHABLE BY FINE AND/OR IMPRISONMENT. U.S. CODE, Print full name TITLE 18, SECTION 1001. James A. Hatcher Check appropriate classification: n Corporate Officer nIndividual General Partner (Indicate Title) Other. Explain: Director FCC 394(Page 5) September 1996 Exhibit 1 FCC Form 394 Date: April 3, 1998 Schedule of Additional Franchise Required Information The City of Omaha requirements relative to transfer of ownership or control are contained in Ordinance 29254 of the Franchise Agreement. A copy of this section is attached. No additional information is required to be submitted other than this Form 394. urulnaliet. R29254 • COMPANY RULES AND REGULATIONS - Company has the authority to promulgate rules to conduct its business provided such rules shall not be in conflict with governmental laws. (Page 35) LOCKOUT DEVICE - The Company agrees to supply free of charge a device sufficient to lockout any pay cable service to any other subscriber requesting such device provided that the Company shall also inform all subscribers that such .a device is available. ' 11 „(1\01/4-1 TRANSFER OF OWNERSHIP OR CONTROL - Company cannot be transferred, etc . in whole or part without consent of the City, except that it can transfer , etc. without the consent of City to a subsidiary of the Company . (Page 35, 36 , 37) ( REMOVAL OF CATV SYSTEM - At the expiration Of the term for which this Franchise is granted, Company shall remove all designated portion of the CATV system. (See comprehensive details Pages 37, 38) EQUAL EMPLOYMENT OPPORTUNITY - (See Pages 39, 40, 41 ) SALE OR SERVICE OF TELEVISION RECEIVERS - The Company shall not engage in the sale , lease or repair of television or radio receivers or their appurtenances. The Company shall not require or recommend that the subscriber utilize the services of any specific television/radio service business for the repair or . maintenance of the subscriber 's receivers, or their appurtenances , either radio or television. (Page 42) Federal Legislation (See Ord. r30090 , Passed 8/23/83 , Sec. 9 Page 9) r • . . • Page 9 Exhibit 2 FCC Form 394 Date: April 3, 1998 Contract or Agreement Attached is a redacted copy of the Asset Purchase Agreement. ti FINAL ASSET PURCHASE AGREEMENT DATED AS OF APRIL 3, 1998 BETWEEN ADVANCE/NEWHOUSE PARTNERSHIP AND COX COMMUNICATIONS OMAHA, L.L.C. TABLE OF CONTENTS Article 1. Definitions 1 Section 1.1 Rules of Construction 1 Section 1.2 Certain Defined Terms 2 Section 1.3 Terms Defined in Other Sections 7 Article 2. Purchase and Sale 8 Section 2.1 Purchase and Sale of Assets 8 Section 2.2 Assumed Obligations and Liabilities 10 Section 2.3 Current Items Amount 11 Section 2.4 Current Items Amount Calculated 13 Article 3. Related Matters 14 Section 3.2 Employees 14 Section 3.3 Use of Names and Logos 16 Section 3.4 Bulk Sales 17 Section 3.5 Transfer Taxes 17 Section 3.6 Further Assurances 17 Article 4. Seller's Representations and Warranties 17 Section 4.1 Organization and Qualification 17 Section 4.2 Authority 18 Section 4.3 No Conflict; Required Consents 18 Section 4.4 Assets; Title, Condition, and Sufficiency 18 Section 4.5 Franchises, Licenses and System Contracts 19 Section 4.6 Real Property 19 Section 4.7 Litigation 20 Section 4.8 Competitive Activities 20 Section 4.9 Tax Returns; Other Reports 20 Section 4.10 System Information 21 Section 4.11 Bonds 22 Section 4.12 Compliance with Legal Requirements 22 Section 4.13 Financial Statements; No Material Adverse Change 24 Section 4.14 Employee Benefits 24 Section 4.15 Employees 26 Section 4.16 Environmental 27 Section 4.17 Complete System 27 Section 4.18 Accounts Receivable 27 Section 4.19 Transactions with Affiliates 28 Section 4.20 Disclosure 28 Section 4.21 Taxpayer Identification Number 28 Article 5. Buyer's Representations and Warranties 28 Section 5.1 Organization and Qualification 28 Section 5.2 Authority 28 Section 5.3 No Conflict; Required Consents 29 Section 5.4 Litigation 29 Section 5.5 Disclosure 29 Section 5.6 Taxpayer Identification Number 29 Article 6. Covenants 29 Section 6.1 Certain Affirmative Covenants of Seller 29 Section 6.2 Certain Negative Covenants of Seller 31 Section 6.3 Certain Covenants of Both Parties or of Buyer 32 Section 6.4 Confidentiality and Publicity 33 Section 6.5 Title Insurance Commitments and Surveys 34 Section 6.6 Leased Vehicles 35 Section 6.7 Consent 35 Section 6.8 Transitional Billing Services 35 Section 6.9 Social Contract Election 36 Section 6.10 Environmental Investigations 36 Section 6.11 No Shop 37 Section 6.12 Noncompetition and Nonsolicitation Agreement 37 Article 7. Conditions Precedent 37 Section 7.1 Conditions to Seller's Obligations 37 Section 7.2 Conditions to Buyer's Obligations 38 Article 8. Closing 41 Section 8.1 Closing; Time and Place 41 Section 8.2 Buyer's Obligations 41 Section 8.3 Seller's Obligations 42 Article 9. Termination and Default 43 Section 9.1 Termination Events 43 Section 9.2 Effect of Termination 44 Article 10. Indemnification 44 Section 10.1 Indemnification by Buyer 44 Section 10.2 Indemnification by Seller 45 Section 10.3 Procedure for Indemnified Third Party Claim 46 Section 10.4 Determination of Indemnification Amounts and Related Matters 46 Section 10.5 Time and Manner of Certain Claims 47 • Section 10.6 Other Indemnification 47 Article 11. Miscellaneous Provisions 47 Section 11.1 Expenses 47 Section 11.2 Waivers 47 Section 11.3 Notices 48 Section 11.4 Entire Agreement; Prior Representations; Amendments 49 Section 11.5 Binding Effect; Benefits 49 Section 11.6 Headings and Schedules 49 Section 11.7 Counterparts 50 Section 11.8 Governing Law 50 Section 11.9 Severability 50 Section 11.10 Third Parties; Joint Ventures 50 Section 11.11 Construction 50 Section 11.12 Attorneys' Fees 50 Section 11.13 Risk of Loss 51 Section 11.14 Rights Cumulative 51. Article 12. Guaranty 52 12.1 Benefit of Guaranty 52 12.2 Guaranty 52 12.3 Effectiveness; Reinstatement 53 ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into as of the 3rd day of April, 1998, by and between Advance/Newhouse Partnership, a New York general partnership ("Seller"), whose U.S. Taxpayer Identification Number is 16-1466735, Cox Communications Omaha, L.L.C., a Delaware limited liability company ("Buyer"), whose U.S. Taxpayer Identification Number is 58- 2377082, and with respect to Article 12 only, CoxCom, Inc., a Delaware corporation ("Cox"), whose U.S. Taxpayer Indentification Number is 95-2755479. RECITALS A. Seller owns and operates the cable television system that is franchised or holds other operating authority in and around Douglas County, Sarpy County and the City of Omaha, Nebraska (the "System"). B. Seller is willing to convey to Buyer, and Buyer is willing to purchase from Seller, substantially all of the assets comprising the System other than the Excluded Assets (as hereinafter defined), upon the terms and conditions set forth in this Agreement. AGREEMENTS In consideration of the mutual covenants and promises set forth herein, Seller and Buyer agree as follows: ARTICLE 1. DEFINITIONS Section 1.1 Rules of Construction. Certain capitalized terms are used in this Agreement with the specific meanings defined below. Except as otherwise explicitly specified to the contrary or unless the context clearly requires otherwise, (a) accounting terms used in this Agreement will have the meanings ascribed to them under GAAP, (b) words used in this Agreement, regardless of the gender and number used, will be deemed and construed to include any other gender, masculine, feminine, or neuter, and any other number, singular or plural, as the context requires, (c) the words "include," "includes" or "including" shall be construed as "including without limitation," and the word "or" is not exclusive, (d) the capitalized term "Section" refers to sections of this Agreement, (e) references to a particular Section include all subsections thereof, (f) references to a particular statute or regulation include all amendments thereto, rules and regulations thereunder and any successor statute, rule or regulation, or published clarifications or interpretations with respect thereto, in each case as from time to time in effect, and (g) references to a Person include such person's successors and assigns to the extent not prohibited by this Agreement, (h) references to "the date hereof" mean the date first set forth above, (i) time is of the essence of this Agreement, (j) references to a "day" or a number of"days" (without the explicit qualification, "business") shall be interpreted as reference to a calendar day or number of calendar days, and if any action or notice is to be taken or given on or by a particular day, and such calendar day is not a business day, then such notice or action shall be deferred until, or may be taken or given on, as applicable, the next Business Day, and (k) capitalized terms have the meanings specified in this Agreement. Section 1.2 Certain Defined Terms. As used in this Agreement: "1992 Cable Act" means the Cable Television Consumer Protection and Competition Act of 1992. "Adjustment Time" means 11:59 p.m., local time, on the Closing Date. "Affiliate" means, 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. "Basic Service" means the cable television services described as "Broadcast TV Service" on Schedule 4.10 with respect to the System. "Benefit Arrangement" means any material benefit arrangement that is not an Employee Benefit Plan, including (i) any employment or consulting agreement, (ii) any arrangement providing for insurance coverage or workers' compensation benefits, (iii) any incentive or deferred bonus arrangement, (iv) any arrangement providing termination allowance, severance or similar benefits, (v) any equity compensation plan, (vi) any deferred compensation plan and (vii) any compensation policy or practice. "Business" means the business and operations of the System. "Business Day" means any day other than a Saturday or Sunday or a day on which banks in New York, New York, or Denver, Colorado are closed. "Buyer Required Consents" means any and all consents, authorizations and approvals set forth on Schedule 5.3. "Closing Date" means the date on which Closing occurs. "COBRA" means the Consolidated Omnibus Budget Reconciliation Act of 1985, as set forth in Section 4980B of the Code and Part 6 of Title I of ERISA. "Code" means the United States Internal Revenue Code of 1986. "Communications Act" means the Communications Act of 1934. 2 "Contract" means any written contract, mortgage, deed of trust, bond, indenture, lease, note, certificate, option, warrant, right, or other instrument, document, obligation, or agreement, and any oral obligation, right, or agreement, including any amendments and other modifications thereto. "CPST" means the cable television services described as "Full Basic Service" on Schedule 4.10 with respect to the System. "Deposits" means all monies that are on deposit with third parties as of the Adjustment Time for the account of Seller with respect to the System or as security for Seller's performance of its obligations, including deposits under the Franchises or the System Contracts and deposits with utilities. "Equivalent Billing Unit" means the total of Individual Subscribers and Subscriber Equivalents. "ERISA" means the Employee Retirement Income Security Act of 1974. "ERISA Affiliate" means, as to any Person, any trade or business, whether or not incorporated, which together with such Person as of the relevant measuring date under ERISA, was or is required to be treated as a single employer under Section 414 of the Code. "FCC" means the Federal Communications Commission. "GAAP" means generally accepted accounting principles as from time to time in effect in the United States and applicable to the cable television industry, including the statements and interpretations of the United States Financial Accounting Standards Board and other commonly-recognized authorities. "Governmental Authority" means the United States of America, any state, commonwealth, territory, or possession thereof and any political subdivision or quasi- governmental authority of any of the same, including courts, tribunals, departments, commissions, boards, bureaus, agencies, counties, municipalities, provinces, parishes, and other instrumentalities. "Hazardous Substances" means (i) any "hazardous waste" as defined by the Resource Conservation and Recovery Act of 1976 ("RCRA") (42 U.S.C. §§ 6901 et seq.); (ii) any "hazardous substance" as defined by the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. § 9601 et seq.) ("CERCLA"); (iii) any "toxic substance," as defined by the Toxic Substances Control Act ("TSCA") (42 U.S.C. § 2601 et seq.); (iv) asbestos; (v) polychlorinated biphenyls; (vi) any substances regulated under the provisions of Subtitle I of RCRA relating to underground storage tanks; (vii) any substance the presence, use, treatment, storage or disposal of which on the Owned Property or Leased Property is prohibited by any Legal Requirements; (viii) any "hazardous substance" as defined by the Federal Water Pollution Control Act (33 U.S.C. § 1251 et seq.); and (ix) any other substance which by any Legal 3 Requirements requires special handling, reporting or notification of any Governmental Authority in its collection, storage, use, treatment, or disposal. "Individual Subscriber" means, as of any date, an active subscriber of the System as of the last full month ending on or prior to such date at the System's regular monthly subscriber rate for Basic Service and CPST who has paid at least one month's payment (including deposit and installation charges, if any, due in connection with such subscriber's initially obtaining cable television service from the System) in full without discount (unless discounted pursuant to marketing programs conducted in the ordinary course of business) and who is not, as of the last full month ending on or prior to such date, (i) more than two monthly billing cycles in arrears in payment for any service based on billing reports for the System prepared in the ordinary course of business; (ii) a courtesy account; (iii) any subscriber that fulfills the requirements of subsection (i) above because such subscriber's account (or any part thereof) has been compromised or written off, other than write-offs made in the ordinary course of business consistent with past practices for reasons such as service interruptions, but not for purposes of making such subscriber qualify as an active subscriber, or (iv) any account that has a disconnect request pending or that is scheduled to be disconnected for any reason. The number of days past due of a subscriber account shall be determined from the first day of the period for which the applicable billing relates. "Judgment" means any judgment, writ, order, injunction, award, or decree of any court, judge, justice, arbitrator or magistrate, including any bankruptcy court or judge, and any order of or by any Governmental Authority. "Knowledge" of any Person of or with respect to any matter means actual awareness or knowledge of such matter (and knowledge of facts or circumstances that would lead a prudent person acting in the ordinary course to investigate and, more likely than not, acquire knowledge). References to the Knowledge of Seller shall mean the Knowledge of the following individuals: Bonnie Blecha, Vice President - Investments, Beth Scarborough, President, Lincoln Division of TWEAN, Bryan Goldberg, general manager of the System and with respect to Section 4.16 only, John Matejovich, Vice President - Engineering, Lincoln Division of TWEAN. References to the Knowledge of Buyer shall mean the Knowledge of David J. Head, Director of Investment Planning. "Legal Requirements" means applicable common law and any statute, ordinance, code or other law, rule, regulation, order, technical or other written standard, requirement, or procedure (or any interpretation thereof by courts or administrative agencies) enacted, adopted, promulgated, applied, or followed by any Governmental Authority, including Judgments. "Lien" means any 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 lien, mortgage, indenture, pledge, option, encumbrance, adverse interest, constructive trust or other trust, claim or attachment, exception to or defect in title or other ownership interest (including 4 reservations, rights of entry, possibilities of reverter, encroachments, easements, rights- of-way, restrictive covenants, leases and licenses) of any kind, which otherwise constitutes an interest in or claim against property, whether arising pursuant to any Legal Requirement, Contract, or otherwise. "Litigation" means any claim, action, suit, proceeding, arbitration, investigation, hearing, or other activity or procedure that could result in a Judgment. "Losses" means any claims, losses, liabilities, damages, Liens, 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; provided, however, that in no event shall Losses include incidental or consequential damages. "Material Adverse Effect" means a material adverse effect on the business, operations, assets or condition (financial or otherwise) of the System, taken as a whole, other than matters affecting the cable television industry generally (including legislative, regulatory or litigation matters) and matters relating to or arising from national economic conditions (including financial and capital markets). "Permitted Liens" means (a) Liens for Taxes, assessments and governmental charges not yet past due, (b) zoning laws and ordinances and similar Legal Requirements, (c) rights reserved to any Governmental Authority to regulate the affected property, and (d) as to Owned Property and Real.Property Interests, any Liens that do not individually or in the aggregate interfere with the right or ability to own, use or operate the Owned Property or Real Property Interests as they are currently being used or operated or to convey good, marketable and indefeasible title to the same; provided that "Permitted Liens" will not include any Liens securing indebtedness, or any Lien that could prevent or inhibit in any material way the conduct of the business of the System as it is currently being conducted. "Person" means any natural person, Governmental Authority, corporation, limited liability company, general or limited partnership, joint venture, trust, association, or unincorporated entity of any kind. "Seller Required Consents" means any and all of the consents, authorizations and approvals identified and marked with an asterisk on Schedule 4.3. "Social Contract" means the Social Contract approved by the FCC on November 30, 1995 and entered into between the FCC and TWEAN, TWI Cable Inc. and Time Warner Entertainment Company, L.P., or any subsidiary, division or affiliate thereof. 5 "Subscriber Equivalent" means an equivalent to an Individual Subscriber, the number of Subscriber Equivalents served by the System being equal, as of any date, to the quotient of(i) the aggregate billings by the System for the sum of the rates for Basic Service and CPST (excluding billings from a la carte tiers or premium services, installation or other non-recurring charges, converter rental, new product tiers or from any outlet or connection other than a subscriber's first rental (except in the case of a hotel unit), or from any pass-through charges for sales taxes, line-itemized Franchise fees, fees charged by the FCC and the like) provided by the System during the last full month ending on or prior to such date to commercial establishments or residential multiple dwelling units that are billed for such service on a bulk basis and single-family households that pay rates other than the System's regular monthly rate for the sum of Basic Service and CPST (unless such rates have been discounted pursuant to a marketing program that provides one month of free service), divided by (ii) the System's regular monthly subscriber rate for the sum of the rates for Basic Service and CPST in effect during such month. For purposes of the foregoing there shall be excluded all billings to any such bulk account or discounted family household that (a) has not paid at least one month's payment (including deposit and installation charges, if any, due in connection with such bulk account or discounted family household's initially obtaining cable television service from the System) in full without discount (unless discounted pursuant to marketing programs conducted in the ordinary course of business), (b) is, as of the last day of the last full month ending on or prior to such date, more than two monthly billing cycles in arrears in payment for services based on billing reports for that System prepared in the ordinary course of business, (c) represents an installation or other non- recurring charge, a late fee or other charge for late payment, a charge for equipment, a charge for any outlet or connection other than the first outlet or first connection in any single family household or, with respect to a bulk account, in any residential unit (e.g., an individual apartment or rental unit), a charge for any tiered service, a charge for any pay TV, or a pass-through charge for sales Taxes, line-itemized franchise fees and charges, FCC fees, and similar items, (d) is a courtesy account; (e) fulfills the requirements of subsection (b) above because such account (or any part thereof) has been compromised or written off, other than write-offs made in the ordinary course of business consistent with past practices for reasons such as service interruptions, but not for purposes of making such subscriber qualify as an active subscriber, or (f) has a disconnect request pending or that is scheduled to be disconnected for any reason. The number of days past due of an account shall be determined from the first day of the period for which the applicable billing relates. "Taxes" means 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 (including Social Security), payroll, employment, excise, or property taxes, together with any interest thereon and any penalties, additions to tax, or additional amounts applicable thereto. "TWEAN" means Time Warner Entertainment-Advance/Newhouse Partnership. 6 "Transaction Documents" means the instruments and documents described in Sections 8.2 and 8.3 that are being executed and delivered by or on behalf of Seller or Buyer, as the case may be, or an Affiliate of either of them, in connection with this Agreement or the transactions contemplated hereby. Section 1.3 Terms Defined in Other Sections. The following terms, whether used in singular or plural forms, have the meanings given in the Sections indicated: Term Section "401(k) Plan" , 3.1(i) "Advertising Accounts Receivable" 2.3(a)(iv) "Agreement" Preamble "Assets" 2.1(a) "Assumed Obligations and Liabilities" 2.2 "Basket" 10.4(a) "Bill of Sale" 8.2(b) "Buyer" Preamble "Buyer Counsel Opinion" 7.1(e) "Closing" 8.1 "Confidential Information" 6.4 "Current Items Amount" 2.3 "Eligible Accounts Receivable" 2.3(a)(iii) "Employee Benefit Plan" 3.1(d) "Environmental Reports 6.10(a) "Estoppel Certificate" 6.1(h) "Excluded Assets" 2.1(b) "FCC Counsel Opinion" 7.2(f) "Final Adjustment Certificate" 2.4(b) "Financial Statements" 4.13(a) "Franchises" 2.1(a)(iii) "Guaranty" 12.1 "Guaranteed Obligations" 12.2(a) "Hired Employee" 3.1(b) "Indemnitee" 10.3 "Indemnitor" 10.3 "Initial Adjustment Certificate" 2.4(a) "Leased Property" 2.1(a)(ii) "Licenses" 2.1(a)(iv) "Noncompetition and Nonsolicitation Agreement" 6.12 "Obligations" 12.1 "Outside Closing Date" 9.1(c) "Owned Property" 2.1(a)(ii) "Proprietary Rights" 3.2 "Purchase Price" 2.1(c) "Qualified Auditor" 2.4(c) "Real Property" 2.1(a)(ii) 7 Term Section "Real Property Interests" 2.1(a)(ii) "Retained Employees" 3.1(b) "Seller" Preamble "Seller Counsel Opinion" 7.2(e) "Surveys" 6.5 "System Contracts" 2.1(a)(v) "System" Recital A "Tangible Personal Property" 2.1(a)(i) "Title Commitments" 6.5 "Title Company" 6.5 "Title Defect" 6.5 "Transitional Billing Services" 6.8 ARTICLE 2. PURCHASE AND SALE Section 2.1 Purchase and Sale of Assets. (a) Covenant of Purchase and Sale. Subject to the terms and conditions set forth in this Agreement, at Closing Seller shall convey, assign and transfer to Buyer, and Buyer shall acquire from Seller for the Purchase Price, as adjusted pursuant to Section 2.3, free and clear of all Liens (except for Permitted Liens) all right, title and interest of Seller in all of the assets, privileges, rights, interests, claims and properties, real and personal, tangible and intangible, of every type and description that are used by or useful to Seller in the business or operation of, or otherwise relating to, the System, including the following (the "Assets"): (i) All tangible personal property of the System as of the date hereof, including towers, tower equipment, antennae, aboveground and underground cable, distribution systems, headend amplifiers, line amplifiers, earth satellite receive • stations and related equipment, microwave equipment, converters, testing equipment, motor vehicles, office equipment, furniture, fixtures, supplies, inventory, and other physical assets, the principal items of which are described on Schedule 2.1(a)(i), plus such additions thereto and deletions therefrom arising in the ordinary course of business and as permitted by this Agreement between the date hereof and Closing (the "Tangible Personal Property"). (ii) Real Property. All fee interests in real property and all improvements thereon described on Schedule 2.1(a)(ii) ("Owned Property"); all leasehold interests in real property and all improvements thereon described on Schedule 2.1(a)(ii) ("Leased Property"); all easements, rights of access and other interests in real property, except for fee interests and leasehold interests, described on Schedule 2.1(a)(ii) ("Real Property Interests"), in each case as of the date hereof, plus such additions thereto and deletions therefrom arising in the ordinary course of business and as 8 permitted by this Agreement between the date hereof and Closing (the Owned Property, Leased Property and Real Property Interests, together, the "Real Property"). (iii) Franchises. The franchise agreements, franchise applications, operating permits and similar governing agreements, instruments, resolutions, statutes, ordinances, approvals, authorizations and similar rights obtained from any Governmental Authority that are necessary or required to operate the System and provide cable television services as of the date hereof, including all amendments thereto and modifications thereof and described on Schedule 2.1(a)(iii) (the "Franchises"). (iv) Licenses. The intangible CATV channel distribution rights, cable television relay service (CARS), business radio and other licenses, copyright notices, domestic satellite receive only (TVRO) registrations, and other licenses, authorizations, consents, or permits issued by the FCC or any other Governmental Authority authorizing, permitting or governing the provision of cable television services or otherwise required for the ownership or operation of the System as of the date hereof, other than Franchises, and described on Schedule 2.1(a)(iv) (the "Licenses"). (v) Contracts. The pole line and joint line agreements, underground conduit agreements, local retransmission consent agreements, crossing agreements, bulk or commercial service agreements, and other Contracts used by or useful to the System or that otherwise relate to the System that are either in effect on the date hereof or entered into by Seller in the ordinary course of business and as permitted by this Agreement between the date hereof and Closing, including those described on Schedule 2.1(a)(v) (the "System Contracts"). (vi) Accounts Receivable and Deposits. All subscriber, trade, advertising and other accounts receivable and all Deposits. (vii) Books and Records. All of the System's technical information and data, machinery and equipment warranties, maps, computer discs and tapes, engineering records, files, data, drawings, blueprints, schematics, reports, lists, plans and processes, and all files of correspondence, lists, records, and reports concerning subscribers and prospective subscribers of the System, signal and program carriage, and dealings with Governmental Authorities, including all reports filed with the FCC and statements of account filed with the U.S. Copyright Office, all books and records relating exclusively to the Business and located at the System or at TWEAN's division office in Lincoln, Nebraska, including executed copies of the System Contracts and all correspondence and memoranda related thereto. (viii) All choses in action relating to Assumed Obligations and Liabilities. (ix) The goodwill and going concern value generated by the System, if any. 9 (b) Excluded Assets. "Excluded Assets" means all: (i) cable programming Contracts; (ii) insurance policies and rights and claims thereunder; (iii) bonds, letters of credit, surety instruments, and other similar items; (iv) cash and cash equivalents; (v) any agreement, right, asset or property owned or leased by Seller that is not used or held for use in the Business; (vi) all subscriber deposits and advance payments held by Seller as of the Adjustment Time in connection with the operation of the System for which Buyer receives a credit pursuant to Section 2.3; (vii) all claims, rights and interest in or to any refunds of Taxes or fees of any nature, or other claims against third parties, relating to the Business before the Adjustment Time; (viii) subject to Section 3.2, Seller's Proprietary Rights; (ix) the account books of general entry, general ledgers and financial records used in connection with the System, subject to the reasonable right of Buyer to have copies of such documents for a reasonable period after Closing, not to exceed three years from the Closing Date; (x) any Benefit Arrangement or Employee Benefit Plan; (xi) subscriber billing Contracts and equipment, the material items of which are described on Schedule 2.1(b); (xii) the Social Contract and any obligations and liabilities with respect thereto; and (xiii) rights, assets, and properties described on Schedule 2.1(b). (c) Purchase Price. The aggregate consideration for the Assets to be paid by Buyer pursuant to this Agreement shall consist of(i) the "Purchase Price"), adjusted pursuant to Section 2.3, which shall be payable to Seller at Closing by wire transfer of immediately available funds, and (ii) the assumption by Buyer of the Assumed Obligations and Liabilities. Section 2.2 Assumed Obligations and Liabilities. After Closing, Buyer shall assume, pay, discharge, and perform the following (the "Assumed Obligations and Liabilities"): (i) Seller's obligations to subscribers of the System for (A) subscriber deposits held by Seller as of the Adjustment Time and that are refundable, in the amount for which Buyer received a credit pursuant to Section 2.3, (B) subscriber, advertising and other advance payments held by Seller as of the Adjustment Time for services to be rendered by Buyer on or after the Adjustment Time, in the amount for which Buyer received a credit pursuant to Section 2.3 and (C) the delivery of cable television service to subscribers of the System and the exhibition of advertising for advertising customers of the System on or after the Adjustment Time; (ii) obligations accruing and relating to periods on or after the Adjustment Time under the Franchises, Licenses and System Contracts; (iii) all other obligations and liabilities attributable to periods after the Adjustment Time and arising out of Buyer's ownership of the Assets or the Business after Closing, except to the extent that such obligations or liabilities relate to any Excluded Asset; and (iv) such other liabilities as are described on Schedule 2.2. All obligations and liabilities arising out of or relating to the Assets or the Business other than the Assumed Obligations and Liabilities shall remain and be the obligations and liabilities of Seller, including any liability for rate refunds and any liabilities or obligations associated with the Excluded Assets, including the Social Contract. Section 2.3 Current Items Amount. At Closing, the Purchase Price shall be increased or decreased by the net amount of the adjustments and prorations as of the 10 Adjustment Time described in Sections 2.3(a), (b), (c), (d) and (e) (the "Current Items Amount"). (a) Accounts Receivable. (i) Seller shall be entitled to an amount equal to the sum of(A) 100% of the face amount of all Eligible Accounts Receivable that are not more than one monthly billing cycles past due as of the Adjustment Time; and (B) 90% of the face amount of all Eligible Accounts Receivable that are past due more than one monthly billing cycle but not more than two monthly billing cycle past due as of the Adjustment Time. Seller shall receive no credit for any other Eligible Accounts Receivable, including Eligible Accounts Receivable any portion of which is more than two monthly billing cycles past due and accounts receivable from subscribers whose accounts are inactive or whose service is pending disconnection for any reason as of Closing. (ii) Seller shall be entitled to an amount equal to the sum of(A) 100% of the face amount of all Advertising Accounts Receivable of the System that are not more than 30 days past due as of the Adjustment Time; (B) 95% of the face amount of any Advertising Accounts Receivable that are past due more than 30 days but not more than 60 days, (C) 80% of the face amount of any Advertising Accounts Receivable that are past due more than 60 days but not more than 90 days, and (D) 50% of the face amount of any Advertising Accounts Receivable that are past due more than 90 days but not more than 120 days. Seller shall receive no credit for any other Advertising Accounts Receivable, including Advertising Accounts Receivable that are past due more than 120 days. Notwithstanding the foregoing, Seller shall be entitled to an amount equal to 100% of the face amount of any Advertising Accounts Receivable payable to Seller under the Advertising Sales Rep Agreement, dated March 1, 1992, between Seller, successor in interest to T.V. Transmission, Inc., and CableRep, Inc., or any other advertising sales agreement entered into between Seller and CableRep, Inc., for advertising services provided prior to the Adjustment Time. (iii) "Eligible Accounts Receivable" means accounts receivable resulting from the provision of cable television service to the System's subscribers that are active subscribers as of the Adjustment Time and that relate to periods of time prior to the Adjustment Time. For purposes of making "past due" calculations with respect to Eligible Accounts Receivable, the number of days past due of an account shall be determined from the first day of the period for which the applicable billing relates. (iv) "Advertising Accounts Receivable" means accounts receivable representing amounts owed to Seller in connection with advertising on the System, whether sold directly by Seller, by an advertising sales representative or an advertising agency, or through an advertising interconnect partnership. For purposes of making "past due" calculations with respect to Advertising Accounts Receivable, the billing statements of the System shall be deemed to be due and payable on the date of • such billing statements. 11 (b) Advance Payments, Deposits. Buyer shall be entitled to an amount equal to the aggregate of(i) all funds of third parties on deposit with Seller as of the Adjustment Time relating to the Business, including deposits of subscribers of the System for cable television service, converters, decoders, and similar items, and (ii) all payments received by Seller prior to the Adjustment Time for services to be rendered to subscribers of the System and advertisers on the System after the Adjustment Time. (c) Income and Expenses. As of the Adjustment Time, all income and expenses relating to the System and its operations shall be prorated, in accordance with GAAP, so that all income and expenses allocable to the conduct of the Business for the period prior to the Adjustment Time shall be for the account of Seller, and all income and expenses allocable to the conduct of the Business for the period after the Adjustment Time shall be for the account of Buyer. Without limiting the generality of the foregoing, the following expenses shall be prorated as described in the preceding sentence: (i) all payments and charges under or with respect to Franchises, Licenses, System Contracts and Real Property; (ii) general property Taxes, special assessments, and ad valorem Taxes levied or assessed against any of the Assets, except for Taxes arising from the transfer of the Assets pursuant to this Agreement; (iii) sales and use Taxes, if any, payable with respect to cable television service and related sales to System subscribers; (iv) charges for utilities and other goods or services furnished to the System; and (v) copyright fees based on signal carriage by the System. Buyer and Seller shall not prorate any items of income and expense that relate to any Excluded Assets, all of which shall remain and be solely for the account of Seller. (d) Subscriber Adjustment. With respect to any Individual Subscriber who will receive after Closing, pursuant to a marketing program that provides such marketing discount, a free or substantially free month of cable television service in any month other than such Individual Subscriber's initial month of service, Buyer shall be entitled to an amount equal to the aggregate of the value of such free months of cable television service with respect to all Individual Subscribers receiving such marketing discount. (e) Contractor Retainage. Buyer shall be entitled to an amount equal to the aggregate of all amounts retained by Seller pursuant to (i) Section 4.3 of the Agreement for Construction of Cable Television System dated June 1, 1997 between TWEAN and OTF Contractors, Inc. and (ii) Sections 4 and 8 of the Cable Television Construction Agreement dated March 25, 1997 between CableVision of Douglas County, Time Warner Entertainment-Advance/Newhouse, and Cable Engineering, Inc. 12 (f) New Programming Incentives. With respect to any programming added pursuant to Section 6.13 between the date of this Agreement and the Closing Date, Buyer shall be entitled to an amount equal to the value of any launch incentives and marketing support received either prior to or following Closing by Seller, TWEAN or their respective Affiliates for the benefit of Seller with respect to the System that are applicable to periods after Closing, as determined in accordance with GAAP. Section 2.4 Current Items Amount Calculated. (a) The adjustments and prorations included in the Current Items Amount shall be estimated in good faith by Seller, and set forth, together with a detailed statement of the calculations thereof, in a certificate (the "Initial Adjustment Certificate") executed by an officer of Seller, and delivered to Buyer at least ten Business Days prior to Closing. The Initial Adjustment Certificate shall include a schedule setting forth advance payments and deposits, as well as accounts receivable information relating to the System (showing sums due and their respective aging as of the Adjustment Time) and shall be accompanied by appropriate documentation, in summary form, supporting the adjustments proposed in such certificate for the Current Items Amount. An estimate of the Current Items Amount shall be made by Seller based on the Initial Adjustment Certificate to determine the net Current Items Amount, and at Closing, the party against whose favor the estimated Current Items Amount is so determined shall be obligated to the other for such amount;provided, however, that if Buyer promptly notifies Seller in writing that it believes any item on the Initial Adjustment Certificate to be materially incorrect, the parties shall, in good faith, attempt to resolve such item prior to Closing. (b) Within 90 days after Closing, Seller shall deliver to Buyer a certificate (the "Final Adjustment Certificate") showing in full detail the final determination of the Current Items Amount, which certificate shall be accompanied by appropriate documentation supporting the adjustments proposed in such certificate, including an accounts receivable detail with relevant aging information as of the Adjustment Time, and which shall be executed by an officer of Seller. Each party shall provide to the other reasonable access to all records in its possession that were used in the preparation of the Initial and Final Adjustment Certificates, as the case may be. (c) Buyer shall review the Final Adjustment Certificate prepared by Seller and shall give written notice to Seller of any objections it has to the calculations shown in such certificate within 30 days after Buyer's receipt thereof. If there are no objections to the Final Adjustment Certificate, the amount representing the difference between the estimated Current Items Amount and the Current Items Amount as finally determined shall be promptly paid by the appropriate party. If there are objections, Buyer and Seller shall endeavor in good faith to resolve any such objections within 30 days after the delivery by Buyer to Seller of its objections. Any resolution agreed to by the parties within such 30-day period shall be set forth in writing, shall be binding upon both parties, and shall not be subject to dispute or review. If any objections or disputes have not been resolved at the end of such 30-day period, the disputed portion of the 13 Current Items Amount shall be determined within the following 30 days by a partner in a national accounting firm with substantial cable television audit experience which is not the auditor of either Seller or Buyer (a "Qualified Auditor") and the determination of the Qualified Auditor shall be final and shall be binding upon both parties. If Seller and Buyer cannot agree with respect to selection of the Qualified Auditor, Seller and Buyer shall each select an auditor and those two auditors shall select a third auditor whose determination shall be final and shall be binding upon both parties. Seller and Buyer shall bear equally the expenses arising in connection with such determination. The payment required as a result of the determination of all disputed amounts, whether by agreement of the parties or by an auditor's determination, shall be made by the party responsible therefor to the other party within three Business Days after the final determination is made and shall be treated as the final Current Items Amount for all purposes of this Agreement. ARTICLE 3. RELATED MATTERS Section 3.1 Employees. (a) Seller shall remain solely responsible for and shall pay all salaries and all bonuses, severance, vacation, sick and holiday pay, and all other compensation and benefits to which employees of Seller may be entitled for periods prior to and on the Closing Date in connection with any welfare, medical, incentive, deferred compensation, insurance, disability or other Employee Benefit Plans or Benefit Arrangements. Seller shall retain full responsibility and liability for compliance with the provisions of COBRA with respect to any employee or former employee of Seller, or any beneficiary of any such employee or former employee, who is covered under any group health plan, within the meaning of Section 5000(b)(i) of the Code, maintained by Seller or its ERISA Affiliates as of the Closing Date, whether pursuant to the provisions of COBRA or otherwise. Any individual covered under a group health plan of TWEAN as of the Closing Date pursuant to the provisions of COBRA shall continue to be covered under a group health plan of TWEAN after the Closing Date. (b) Except for any Retained Employees (as defined below), Buyer may, but shall have no obligation to, employ or offer employment to any employee of the System. Seller shall notify Buyer not later than 30 days after the date hereof of all employees of the System that Seller intends to retain and reassign on or prior to the Closing Date (the "Retained Employees"). Buyer shall provide to Seller not later than 30 days prior to the anticipated Closing Date a list of the names of any employees of Seller to whom Buyer plans to offer employment on and after the Closing Date (each such employee who accepts Buyer's offer and becomes employed by Buyer after Closing shall be referred to as a "Hired Employee"). Such notification shall not be deemed to require that Buyer offer employment to the employees included on such list. Seller agrees to cooperate in all reasonable respects with Buyer to allow Buyer to evaluate and interview employees of the System to make hiring decisions. Seller and Buyer shall mutually agree upon the timing and procedures with respect to notifying employees of 14 the System of their employment status after Closing. As of the Closing Date but prior to the Adjustment Time, Seller shall terminate the employment of all Hired Employees. (c) Seller shall pay to all employees of the System all compensation, including salaries, commissions, bonuses, deferred compensation, severance, insurance, pensions, profit sharing, accrued vacation, sick pay and other compensation or benefits to which they are entitled for periods prior to the Adjustment Time, including all amounts, if any, payable on account of the termination of their employment by Seller. (d) Seller shall be responsible for maintenance and distribution of benefits accrued under any Employee Benefit Plan (within the meaning of Section 3(3) of ERISA) maintained by Seller or its Affiliates pursuant to the provisions of such plans. Buyer shall not assume any obligation or liability for any such accrued benefits or any fiduciary or administrative responsibility to account for or dispose of any such accrued benefits under any employee benefit plans maintained by Seller or its Affiliates. (e) Notwithstanding anything to the contrary herein, Buyer shall (i) permit each Hired Employee to participate in Buyer's Employee Benefit Plans to the same extent as similarly situated employees of Buyer; (ii) give each Hired Employee credit for past service with Seller (including past service with any Affiliate of Seller) for purposes of eligibility and vesting, but not benefit accrual, under Buyer's Employee Benefit Plans and Benefit Arrangements (including severance benefit and vacation plans but excluding post-retirement welfare benefits, and provided that Seller has provided to Buyer the date of each Hired Employee's entrance into any applicable Benefit Plan or Benefit Arrangement, age and number of years of service); (iii) not subject any Hired Employee to any waiting periods or limitations on benefits for pre-existing conditions under Buyer's employee welfare benefit plans, within the meaning of Section 3(1) of ERISA, including any group health and disability plans, except to the extent such Hired Employee was subject to such limitations under Seller's employee welfare benefit plans; and (iv) credit all payments made by such Hired Employee toward deductible, co- insurance and out-of-pocket limits under Seller's health care plans for the plan year which includes the Closing Date as if such payments had been made for similar purposes under the health care plan of Buyer for the plan year that includes the Closing Date. (f) If Buyer discharges any Hired Employee without cause within 90 days following the Adjustment Time, such Hired Employee shall be entitled to severance benefits under Buyer's severance plan, if any, in accordance with the terms of such plan and counting the period of employment with Seller as employment with Buyer for purposes of calculating benefits under any such plan. If Buyer has no severance plan, then the severance benefits payable by Buyer under this subsection shall be calculated in accordance with the terms and provisions of Seller's severance plan. (g) To permit Seller to make distributions to any former employee who is a Hired Employee of the balance of such employee's 401(k) account in Seller's tax qualified plan, if any, as soon as legally permitted, Buyer shall cooperate with Seller by providing information reasonably requested by Seller regarding each such employee's 15 employment status with Buyer. Such information shall be provided by Buyer within five business days following each such request by Seller. To facilitate the foregoing, Buyer shall, within 90 days following the Closing Date, include a notice in all personnel files (whether computerized or hard copy) relating to each Hired Employee, which notice should state that the appropriate manager or supervisor who closes such employee personnel file upon termination of such employee's employment with Buyer for any reason shall provide Seller notice of the date of such termination in accordance with this Section; provided, however, that nothing contained in this Section 3.1(g) shall impose on Buyer or on any of its employees the affirmative obligation to notify Seller in the event any Hired Employee terminates employment with Buyer or any of its Affiliates. (h) Nothing in this Section 3.1 or elsewhere in this Agreement shall be deemed to make any employee of Seller or its Affiliates a third party beneficiary of this Agreement. (i) On or before the Closing Date, Seller shall provide to Buyer a listing of the amounts deferred under Code Section 402(g) by the Hired Employees to any tax- qualified cash or deferred retirement plan maintained by Seller or by one of its Affiliates (a "401(k) Plan") during the calendar year in which the Closing Date occurs. (j) On or before the Closing Date, Seller shall provide to Buyer a listing of all Hired Employees who, as of the Closing Date, have outstanding participant loans from the 401(k) Plan or from any other tax-qualified defined contribution plan sponsored by Seller or by one of its Affiliates. Section 3.2 Use of Names and Logos. For a period of 90 days after Closing, Buyer shall be entitled to use the trademarks, trade names, service marks, service names, logos, and similar proprietary rights of Seller to the extent incorporated in or on the Assets (collectively, the "Proprietary Rights"); provided that (i) Buyer acknowledges that the Proprietary Rights belong to Seller, and that Buyer acquires no rights therein pursuant to the 90-day phase-out period; (ii) all such Assets shall be used in a manner consistent with the use made by Seller of such Assets prior to Closing; and (iii) Buyer shall exercise commercially reasonable efforts to remove all Proprietary Rights from the Assets as soon as reasonably practicable following Closing. Notwithstanding the foregoing, Buyer shall not be required to remove or discontinue using any such Proprietary Rights that are affixed to converters or other items located in customer homes or properties such that prompt removal is impracticable for Buyer; provided, however, that such Proprietary Rights shall be removed or discontinued promptly upon the return of such converters or other items to Buyer's possession. Section 3.3 Bulk Sales. Buyer waives compliance by Seller with Legal Requirements relating to bulk sales applicable to the transactions contemplated hereby. Section 3.4 Transfer Taxes. All sales, use, transfer, and similar Taxes or assessments, including transfer fees and similar assessments for Licenses and Contracts, 16 5 arising from or payable by reason of the conveyance of the Assets shall be shared equally by Seller and Buyer. Section 3.5 Further Assurances. At or after Closing, Seller, at the request of Buyer, shall promptly execute and deliver, or cause to be executed and delivered , to Buyer at no additional cost to Buyer all such documents and instruments, in addition to those otherwise required by this Agreement, in form and substance reasonably satisfactory to Buyer as Buyer may reasonably request to carry out or evidence the terms of this Agreement, or to collect any accounts receivable or other claims included in the Assets. Each party shall cooperate fully with the other and their respective counsel, accountants and other business personnel in connection with any action required to be taken as part of their respective obligations under this Agreement, and each party shall otherwise use diligent efforts to consummate the transaction contemplated hereby and to fulfill their obligations hereunder. ARTICLE 4. SELLER'S REPRESENTATIONS AND WARRANTIES Seller represents and warrants to Buyer, as of the date of this Agreement and as of Closing (except as otherwise specifically provided in this Article 4), as follows: Section 4.1 Organization and Qualification . Seller is a general partnership duly organized and validly existing under the laws of the State of New York, and has all requisite power and authority to own, lease and use the Assets and to conduct the Business as currently conducted. Seller is duly qualified to do business as a foreign partnership and is in good standing in all jurisdictions in which the ownership or leasing of the Assets or the nature of its activities in connection with the System makes such qualification necessary. Section 4.2 Authority. Seller has all requisite partnership power and authority to execute, deliver, and perform this Agreement and the Transaction Documents and consummate the transactions contemplated hereby and thereby. The execution, delivery, and performance of this Agreement and the Transaction Documents and the consummation of the transactions contemplated hereby and thereby by Sellers have been duly and validly authorized by all necessary action on the part of Seller. This Agreement has been duly and validly executed and delivered by Seller, and this Agreement constitutes, and the Transaction Documents, when executed and delivered, will constitute, the valid and binding obligation of Seller, enforceable against Seller in accordance with their respective terms, except as may be limited by: (i) the effects of bankruptcy, insolvency, moratorium, reorganization, and other laws of general application affecting the rights of creditors, (ii) general principles of equity, regardless of whether enforceability is considered in an action at law or in equity, or (iii) constitutional, statutory, common law or judicial requirements of notice and due process. Section 4.3 No Conflict; Required Consents. Except as described on Schedule 4.3, the execution, delivery, and performance by Seller of this Agreement and the 17 Transaction Documents do not and will not: (i) conflict with or violate any provision of the partnership agreement of Seller; (ii) violate any provision of any Legal Requirements; (iii) conflict with, violate, result in a breach of, constitute a default under (without regard to requirements of notice, lapse of time, or elections of other Persons, or any combination thereof) or accelerate or permit the acceleration of the performance required by, any Contract to which Seller is a party or by which Seller or the Assets or the Business are bound or affected, other than such breaches, defaults or accelerations that would not individually or in the aggregate materially impair the ability of Seller to perform its obligations hereunder or thereunder or that would not individually or in the aggregate have a Material Adverse Effect; (iv) result in the creation or imposition of any Lien against or upon any of the Assets; or (v) 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 with respect to the Assets or the transactions contemplated by this Agreement, except those filings and approvals which, if not made or obtained would not, individually or in the aggregate, materially impair the ability of Seller to perform its obligations hereunder or thereunder or individually or in the aggregate have a Material Adverse Effect. Section 4.4 Assets; Title, Condition, and Sufficiency. Seller has, or at Closing will have, good and marketable title to all of the owned Assets, free and clear of all Liens, except Permitted Liens and Liens described on Schedule 4.4 that will be terminated, released, or, in the case of the rights of first refusal named thereon, waived, as appropriate, at Closing, and in the case of Assets leased by Seller, has, or at Closing will have, valid leasehold interests in such Assets. The Tangible Personal Property is in reasonable operating condition (excluding normal wear and tear) and is available for immediate use in the Business, except for the Tangible Personal Property that is subject to routine maintenance or repair. The amount of inventory at the System as of Closing will be sufficient to permit the continued maintenance and operation of the System for at least a 30-day period after Closing. EXCEPT AS SET FORTH IN THIS AGREEMENT, SELLER MAKES NO WARRANTIES, AND DISCLAIMS ANY AND ALL WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE CONDITION OF THE ASSETS, INCLUDING IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. Section 4.5 Franchises, Licenses and System Contracts. (a) Schedules 2.1(a)(iii), (iv) and (v) contain descriptions of all of the Franchises, Licenses and System Contracts, except for (i) other Contracts that contemplate payments by or to Seller in any 12-month period that do not exceed $5,000 individually or $25,000 in the aggregate or constitute any material nonmonetary obligation; (ii) the Excluded Assets and (iii) Contracts with Individual Subscribers for cable television service in the ordinary course of business that may be canceled without penalty by Seller. (b) Seller has delivered to Buyer true and complete copies of each of the Franchises, Licenses and System Contracts, including any amendments thereto (or, in 18 the case of oral System Contracts, written summaries thereof) and of each document evidencing Seller's ownership of the Owned Property. Except as described in Schedule 4.5: (i) Seller is in compliance with each of the Franchises and Licenses and each of the Franchises and Licenses is in full force and effect in accordance with its terms; (ii) Seller has fulfilled when due, or has taken all action necessary to enable it to fulfill when due, all of its material obligations under each of the System Contracts, and each of the System Contracts is in full force and effect and, to the Seller's Knowledge, is legally enforceable in accordance with its terms against the other parties thereto; (iii) there has not occurred any default (without regard to lapse of time or the giving of notice, or both) by Seller under any of the Franchises or System Contracts, or, to Seller's Knowledge, by any other party thereto, except defaults that do not and will not, individually or in the aggregate, have a Material Adverse Effect; and (iv) no proceedings are pending or, to Seller's Knowledge, threatened, to revoke, terminate or cancel any of the Franchises, Licenses or System Contracts. Except as set forth in Schedule 4.5, no Person (including any Governmental Authority) has any interest in or right to acquire any interest in the System or the Assets (including any right of first refusal or similar right), other than rights of condemnation or eminent domain afforded by law. Section 4.6 Real Property. Schedule 2.1(a)(ii) lists all Real Property owned, leased or occupied by Seller relating to the System, and except for the Real Property, there is no interest in real property used in the Business. Except for routine repairs, all of the Owned Property and the Leased Property and the improvements located thereon are in good condition and repair and are suitable for the purposes used. The current use and occupancy of the Owned Property and Leased Property do not constitute nonconforming uses under any applicable zoning Legal Requirements. Each parcel of Owned Property and, to Seller's Knowledge, each parcel of Leased Property has access to and over public streets, or private streets for which Seller has a valid right of ingress and egress. The Real Property includes (i) all leases, fee interests and access agreements necessary to conduct the Business as currently conducted and (ii) easements and other real property interests (other than leases, fee interests and access agreements) necessary to conduct the Business as currently conducted, except for such easements and other real property interests (other than leases, fee interests and access agreements) the lack of which would not, individually or in the aggregate, interfere in any material manner with the provision of cable television services by the System to more than 200 subscribers. Section 4.7 Litigation. Except as set forth in Schedule 4.7: (i) there is no Litigation, other than Litigation affecting the cable television industry generally, pending or, to Seller's Knowledge, threatened against Seller, the Assets or the System that is reasonably likely to have a Material Adverse Effect or that could adversely affect the ability of Seller to perform its obligations under this Agreement, or that seeks or could result in the modification, revocation, termination, suspension, or other limitation of any of the Franchises, Licenses or System Contracts; and (ii) 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 System, or to which Seller (with respect to the System), the System, or the Assets are subject or by which they are bound or affected. 19 • Section 4.8 Competitive Activities. Except as set forth in Schedule 4.8 and other than direct broadcast services, to the Knowledge of Seller: (i) Seller is currently the only Person operating a cable television system, multipoint multichannel distribution service or other multichannel video programming service (excluding direct broadcast satellite services) in the service area of the System; and (ii) no Person other than Seller has been granted a cable television franchise in any of the communities or unincorporated areas presently served by the System. Section 4.9 Tax Returns; Other Reports. Seller has timely filed in proper form all federal, state, local, and foreign tax returns and other reports required to be filed, and has timely paid all Taxes which have become due and payable, whether or not so shown on any such return or report, the failure to file or pay which could affect or result in the imposition of a Lien upon the Assets. Seller has received no notice of, nor does Seller have any Knowledge of, any deficiency or assessment or proposed deficiency or assessment from any taxing Governmental Authority that could affect or result in the imposition of a Lien upon the Assets. There are no pending property, sales and use, or franchise fee or tax audits relating to the System, and Seller has not received any property, sales and use, or franchise fee or tax audit notice. Section 4.10 System Information. (a) Schedule 4.10 sets forth a materially true and accurate description of the following information with respect to the System: (i) as of December 31, 1997, the approximate total number of miles of fully-completed and operational trunk and distribution cable, the approximate number of miles of aerial plant and the approximate number of miles of underground plant; (ii) the number of Equivalent Billing Units as of December 31, 1997; (iii) a description of basic and optional or tier services available from the System, the rates charged by Seller for each (including Basic Service, CPST, equipment, installation and late fees) as of the date of this Agreement, and the number of subscribers receiving each optional or tier service as of December 31, 1997; (iv) the stations and signals carried by the System and the channel position of each such signal and station as of the date of this Agreement; (v) with respect to each commercial establishment (e.g., hotel or motel) or multiple dwelling unit (e.g., apartment, condominium or cooperative building) served by the System that pays a bulk rate for Basic Service, (a) the name, and, if applicable, the number of units in, each such commercial establishment or multiple dwelling unit that is served by the System; (b) a description of the cable television services delivered to each such commercial establishment or multiple dwelling unit on a 20 bulk basis and the monthly rates charged for each such service as of the date of this Agreement; (c) the expiration date of any oral or written Contract for the provision of cable television services to each such commercial establishment or multiple dwelling unit; (vi) the approximate number of"dwellings" and commercial premises passed by the System as of December 31, 1997, where "dwelling" means a home or other residential unit that can be legally serviced by the System by using no more than 250 feet of drop cable; (vii) the bandwidth capacity of the System in MHz and the number of channels activated throughout the System, as of the date of this Agreement; (viii) the cities, towns, villages, boroughs and counties served by the System as of the date of this Agreement; and (ix) as of the date of this Agreement, the number of Individual Subscribers who receive free cable television service. (b) To Seller's Knowledge, except as described in Schedule 4.10, the System has not been denied access to any multiple dwelling unit or paid for access to any multiple dwelling unit, subdivision or private development in the areas served by the System. Section 4.11 Bonds. Except as set forth in Schedule 4.11, there are no franchise, construction, fidelity, performance, or other bonds, surety instruments, letters of credit or similar instruments posted or delivered in connection with the System or the Assets. Section 4.12 Compliance with Legal Requirements. (a) The System has been and is operated in compliance in all material respects with all Legal Requirements applicable to the System or the ownership of the Assets. Seller has received no written notice of any violation by Seller or the System of any Legal Requirement applicable to the operation of the System as it is currently conducted. (b) Without limiting the generality of the foregoing: except as set forth in Schedule 4.12, and except as would not have a Material Adverse Effect, with respect to the System, (i) Seller is in compliance with the Communications Act; (ii) Seller has submitted to the FCC all filings, including cable television registration statements, annual reports, and aeronautical frequency usage notices, that are required under the rules and regulations of the FCC; (iii) the operation of the System has been and is in compliance with the rules and regulations of the FCC, and Seller has not received notice from the FCC of any violation of its rules and regulations; (iv) Seller is and since 1991 has been certified as in compliance with the FCC's equal employment opportunity rules; (v) the System is in material compliance with all signal leakage criteria prescribed by the FCC; (vi) Schedule 4.12 lists all leased access agreements with third parties for use of the 21 System; (vii) for each relevant semi-annual reporting period, Seller has timely filed with the United States Copyright Office all required Statements of Account in true and correct form, and has paid when due all required copyright royalty fee payments in correct amount, relating to the System's carriage of television broadcast signals; (viii) Seller is in compliance in all material respect with the Copyright Act of 1976, and is otherwise in compliance with all applicable rules and regulations of the Copyright Office; and (ix) Seller has delivered to Buyer copies of all reports and filings for the past three years made or filed pursuant to FCC and Copyright rules and regulations by Seller with respect to the System and shall make available to Buyer all other past reports and filings made or filed pursuant to FCC and Copyright rules and regulations by Seller with respect to the System. To Seller's Knowledge, there is no inquiry, claim, action or demand pending before the Copyright Office or from any other party that questions the Statements of Account or payments made by Seller with respect to the System. (c) Seller has used commercially reasonable efforts to establish rates charged to subscribers that would be allowable under rules and regulations promulgated by the FCC under the Communications Act, and any authoritative interpretation thereof, if such rates were subject to regulation by any Governmental Authority, including the local franchising authorities and/or the FCC and, to Seller's Knowledge, such rates as computed under the FCC's rules and regulations are permitted rates except as set forth in Schedule 4.12. Seller has delivered to Buyer true and complete copies of all FCC Forms 393, 1200, 1205, 1210 (or 1240), 1215 and 1220 that have been prepared with respect to the System, copies of all correspondence with any Governmental Authority relating to rate regulation generally or specific rates charged to subscribers with respect to the System, including copies of any complaints filed with the FCC with respect to any rates charged to subscribers of the System, and any other documentation supporting an exemption from the rate regulation provisions of the 1992 Cable Act claimed by Seller with respect to the System, in each case for the last three years. Schedule 4.12 sets forth a list of each local franchising or other regulatory authority that is certified to regulate rates charged to subscribers of the System and a description of any subscriber service rate complaints pending before the FCC or any local franchising or any other regulatory authority. A request for renewal has been timely filed under Section 626(a) of the Communications Act with the proper Governmental Authority with respect to each Franchise expiring within 30 months after the date of this Agreement. (d) Except as set forth on Schedule 4.12, with respect to the System, Seller is in compliance in all material respects with the must-carry and retransmission consent provisions of the 1992 Cable Act. Schedule 4.12 lists all retransmission consent agreements and must-carry elections of stations carried by the System. Except as set forth in Schedule 4.12, no written notices or demands have been received from the FCC, from any television station or from any Person or Governmental Authority challenging the right of the System to carry any signal or deliver the same. Seller is permitted under all applicable FCC rules, regulations and orders to distribute the transmissions (whether television, satellite, radio or otherwise) of video programming or other information that Seller makes available to subscribers of the System presently being carried to the 22 subscribers of and by the System and to utilize all carrier frequencies generated by the operations of the System. (e) Seller has used reasonable good faith efforts to comply in all material respects with any customer service standards applicable to it with respect to the System. (f) Seller does not possess any patent, patent right, trademark, or copyright and neither Seller nor any other Person is a party to any license or royalty agreement with respect to any patent, trademark, or copyright used in the Business, except for licenses respecting program material and obligations under the Copyright Act of 1976 applicable to cable television systems generally. The Assets are free of the rightful claim of any third party by way of copyright infringement or the like (excluding claims involving music performance rights). To Seller's Knowledge, the System is not infringing upon or otherwise acting adversely to any trademarks, trade names, copyrights, patents, patent applications, know-how, methods or processes owned by any other Person. (g) Seller has submitted to the FCC and the Federal Aviation Administration all filings required with respect to the System's towers, each of which tower (and the height thereof) is listed on Schedule 4.12. Section 4.13 Financial Statements; No Material Adverse Change. (a) Schedule 4.13 contains true and complete copies of unaudited financial statements for the System consisting of balance sheets and statements of operations as of and for the 12-month periods ended December 31, 1996 and 1997 (the "Financial Statements"). The Financial Statements are prepared in accordance with GAAP, consistently applied, except for the absence of a statement of cash flows and footnotes. The Financial Statements are in accordance with the books and records of the System and present fairly the financial condition of the System as at their respective dates and the results of operations for the periods then ended. (b) Since December 31, 1997, there has been no material adverse change in the Assets or the financial condition or operations of Seller or the System, and the Assets and the financial condition and operations of the System have not been materially and adversely affected as a result of any fire, explosion, accident, casualty, labor trouble, flood, drought, riot, storm, condemnation, or act of God or public force or otherwise. (c) Except as set forth on Schedule 4.13, since December 31, 1997, the Business has been conducted in the ordinary and usual course substantially in the same manner as previously conducted, and neither Seller nor any other Person has: (i) Made any material increase in compensation payable or to become payable to any of the employees of the System or any material change in 23 personnel policies, insurance benefits, Benefit Arrangement, Employee Benefit Plan, or any other compensation arrangements affecting the employees of the System; (ii) Sold, transferred, leased to others or otherwise disposed of, pledged or encumbered any material amount of the Assets except for inventory sold or used in the ordinary course of business consistent with past practices or for assets sold of disposed of and replaced by other assets of comparable utility and value; (iii) Committed in writing, or to Seller's Knowledge, committed orally, to make any material capital expenditures or capital additions or betterments to the System or the Assets; or (iv) Suffered any changes, events or conditions that have had a Material Adverse Effect. Section 4.14 Employee Benefits. (a) Neither Seller nor any of Seller's Employee Benefit Plans or Benefit Arrangement that provides benefits to employees of the System is in material violation of its respective terms, nor, where applicable, the provisions of ERISA, the Code, the Age Discrimination in Employment Act and any other Legal Requirements; no reportable event (as defined in Section 4043 of ERISA), has occurred and is continuing with respect to any such Employee Benefit Plan; and no prohibited transaction (as defined in Section 406 of ERISA) has occurred with respect to any such Employee Benefit Plan that would result in material liability to Seller or Buyer. No accumulated funding deficiency (within the meaning of Section 412 of the Code) exists with respect to any Employee Benefit Plan and no waiver of funding requirements pursuant to Section 412(d) of the Code has been sought or received with respect to any Employee Benefit Plan. None of the Assets are subject to any lien arising pursuant to Section 412(n) of the Code or Section 4068 of ERISA. No Employee Benefit Plan that is an employee welfare benefit plan (as defined in Section 3(1) of ERISA) provides for continuing benefits or coverage for any participant (or beneficiary) after the termination of the participant's employment except as may be required under Section 4980B of the Code or applicable state statutory law. (b) All of the Employee Benefit Plans and Benefit Arrangements that provide benefits to employees of the System are listed and described in Schedule 4.14, and complete and accurate copies of(including any amendments to) any such written Employee Benefit Plans and Benefit Arrangements (or related insurance policies) have been furnished to Buyer, along with copies of any employee handbooks or similar documents describing such Employee Benefit Plans and Benefit Arrangements. Any unwritten Employee Benefit Plans or Benefit Arrangements also are listed in Schedule 4.14, and complete descriptions thereof have been furnished to Buyer. Except as disclosed in Schedule 4.14, neither Seller nor its Affiliates is party to, has in effect or intends to become effective after the date of this Agreement any plan, arrangement or other scheme that will become an Employee Benefit Plan or Benefit Arrangement that 24 provides benefits to employees of the System (including, but not limited to, any bonus, cash or deferred compensation, severance, medical, pension, profit sharing or thrift, stock option, employee stock ownership, life or group insurance, death benefit, vacation, sick leave, disability or trust agreement or arrangement), or any amendment to an Employee Benefit Plan or Benefit Arrangement. (c) Except as would not cause a Material Adverse Effect, (i) Seller has no Knowledge of the existence of any governmental inspection, investigation, audit or examination of any Employee Benefit Plan or Benefit Arrangement; and (ii) there exists no action, suit or claim (other than routine claims for benefits) with respect to any Employee Benefit Plan or Benefit Arrangement pending or, to Seller's Knowledge, threatened against any of such plan or arrangement. (d) Seller shall retain full responsibility and liability for offering and providing "continuation coverage" to any "qualified beneficiary" who is covered by a "group health plan" sponsored or contributed to by Seller and who has experienced a "qualifying event" or is receiving "continuation coverage" on or prior to the Closing Date. "Continuation coverage," "qualified beneficiary," "qualifying event" and "group health plan" shall have the meanings given such terms under Section 4980B of the Code and Section 601 et seq. of ERISA. Seller shall hold Buyer and any entity required to be combined with Buyer (within the meaning of Section 414(b), (c), (m) or (o) of the Code) harmless from and fully indemnify them against any costs, expenses, losses, damages and liabilities incurred or suffered by them directly or indirectly, including, but not limited to, reasonable attorneys' fees and expenses, which relate to continuation coverage for terminated employees not hired by Buyer or, if hired by Buyer, do not elect to be covered under Buyer's plans and arise as a result of any action or omission by Seller. Section 4.15 Employees. (a) Except as described on Schedule 4.15, there are no collective bargaining agreements applicable to employees of the System, and there is no duty to bargain with any labor organization with respect to any such Persons. There are no pending unfair labor practice charges with respect to the employees to the System, demands for recognition, or any other requests or demands from a labor organization for representative status with respect to any employees of the System. There is no strike, work slowdown, picketing or any other labor dispute, controversy or proceeding pending or, to Seller's Knowledge, threatened between Seller and any of the employees of the System or any labor union or other collective bargaining representative claiming to represent any of the employees of the System. Within the 36-month period ending on the date hereof, no labor union or other collective bargaining representative has claimed to represent or has been certified as representing any of the employees of the System, nor has there been any strike, work slowdown, picketing or any other labor dispute or controversy or proceeding between Seller and any of the employees of the System (b) Schedule 4.15 contains a true and complete list of names, positions and hire dates (and Seller has separately delivered to Buyer annual salary information 25 accurate as of the date of this Agreement) of all employees of the System. With respect to any employees of the System, Seller has complied in all respects with all applicable Legal Requirements relating to the employment of labor, including the Worker Adjustment and Retraining Notification Act, ERISA, continuation coverage requirements of group health plans, and those relating to wages, hours, collective bargaining, unemployment insurance, worker's compensation, equal employment opportunity, discrimination, immigration control, occupational safety and the payment and withholding of Taxes, except such noncompliance as would not, individually or in the aggregate, have a Material Adverse Effect. (c) Except as described on Schedule 4.15, Seller does not have any written or oral employment Contract with any employee of the System, other than an oral Contract that is terminable at will by either party, and none of the employment agreements, if any, listed on Schedule 4.1.5 require Buyer or any of its Affiliates to employ any Person after Closing. (d) No employee or consultant of the System shall accrue or receive any parachute payment, as defined in Section 280G of the Code, as a direct result of the transactions contemplated by this Agreement, except that Seller may pay such staying bonuses as Seller may deem appropriate to retain key employees until the Closing Date. Section 4.16 Environmental. (a) Seller has received no notice that it is the subject of any "Superfund" evaluation or investigation, or that it is the subject of any investigation or proceeding of any Governmental Authority evaluating whether any remedial or response action is necessary to respondHazardous to any release ofubstances on or in S connection with the Real Property. (b) Except as described on Schedule 4.16, (i) Seller is in compliance in all material respects, and to Seller's Knowledge, has previously been in compliance in all material respects, with all Legal Requirements with respect to pollution or protection of the environment, including Legal Requirements relating to actual or threatened emissions, discharges, or releases of Hazardous Substances into ambient air, surface water, ground water, land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of Hazardous Substances, insofar as they relate to the Owned Property or the Leased Property, and (ii) Seller has received no notice of, and has no Knowledge of circumstances relating to, any past, present, or future events, conditions, circumstances, activities, practices or incidents (includingthe presence, use, generation, manufacture, disposal, release, or P threatened release of any Hazardous Substances from or on the Owned Property or the Leased Property) which could interfere with or prevent continued compliance, or which are reasonably likely to give rise to any liability (including the need to undertake remedial or response action), based upon or related to the processing, distribution, use, treatment, storage, disposal, transport, handling or presence, or the emission, discharge, 26 release, or threatened release into the environment, of any Hazardous Substance from or attributable to the Owned Property or the Leased Property. (c) To Seller's Knowledge, except as disclosed on Schedule 4.16, (i) no underground storage tanks are currently or have been located on any Real Property and (ii) no building or other structure on any Owned Property or Leased Property contains friable asbestos. Section 4.17 Complete System. Except for those assets that are Excluded Assets, the Assets comprise all of the assets (without material exception) necessary to conduct the Business as presently conducted. Section 4.18 Accounts Receivable. All of the accounts receivable that are the subject of the adjustments provided in Section 2.3 have arisen from bona fide transactions in the ordinary course of the business of the System, consistent with past practice. Section 4.19 Transactions with Affiliates. Except as set forth in Schedule 4.19 or except with respect to any Excluded Assets, there is no indebtedness, Contract, understanding or other arrangement of any kind whatsoever entered into by Seller with any of its Affiliates relating to the System. Section 4.20 Disclosure. All of the Schedules to this Agreement are true, accurate and complete. No representation or warranty of Seller in this Agreement or in any Schedules to this Agreement or in any of the Transaction Documents contains or will contain any untrue statement of material fact, or omits or will omit to state a material fact required to be stated therein or necessary to make the statements contained therein in light of the circumstances in which made not misleading. Section 4.21 Taxpayer Identification Number . Seller's U.S. Taxpayer Identification Number is as set forth in the introductory paragraph of this Agreement. ARTICLE 5. BUYER'S REPRESENTATIONS AND WARRANTIES Buyer represents and warrants to Seller, as of the date of this Agreement and as of Closing (except as otherwise specifically provided in this Article 5), as follows: Section 5.1 Organization and Qualification. Buyer is a limited liability company duly organized, validly existing, and in good standing under the laws of the State of Delaware, and will be qualified to conduct business as a foreign corporation in the State of Nebraska prior to or at Closing. Section 5.2 Authority. Prior to Closing, Buyer will have all requisite power and authority to execute, deliver, and perform this Agreement and the Transaction Documents and consummate the transactions contemplated hereby and thereby. Prior to Closing, the execution, delivery, and performance of this Agreement and the Transaction 27 Documents and the consummation of the transactions contemplated hereby and thereby by Buyer will have been duly and validly authorized by all necessary action on the part of Buyer. Upon approval and authorization of this Agreement and the Transaction Documents and the transactions contemplated hereby and thereby by the boards of directors of Buyer and Cox Communications, Inc., this Agreement will have been duly and validly executed and delivered by Buyer, and this Agreement will constitute, and the Transaction Documents, when executed and delivered, will constitute, the valid and binding obligation of Buyer, enforceable against Buyer in accordance with their respective terms, except as may be limited by: (i) the effects of bankruptcy, insolvency, moratorium, reorganization, and other laws of general application affecting the rights of creditors, (ii) general principles of equity, regardless of whether enforceability is considered in an action at law or in equity, or (iii) constitutional, statutory, common law or judicial requirements of notice and due process. Section 5.3 No Conflict; Required Consents. Subject to Seller obtaining the consents listed in Schedule 4.3, and except as described on Schedule 5.3, the execution, delivery, and performance by Buyer of this Agreement and the Transaction Documents do not and will not: (i) conflict with or violate any provision of the certificate of incorporation or the bylaws of Buyer; (ii) violate any provision of any Legal Requirements; (iii) conflict with, violate, result in a breach of, constitute a default under (without regard to requirements of notice, lapse of time, or elections of other Persons, or any combination thereof) or accelerate or permit the acceleration of the performance required by, any Contract to which Buyer is a party or by which Buyer is bound or affected other than such breaches, defaults or accelerations that would not individually or in the aggregate materially impair the ability of Buyer to perform its obligations hereunder or thereunder; or (iv) 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 with respect to the transactions contemplated by this Agreement, except those filings and approvals which, if not made or obtained would not, individually or in the aggregate, materially impair the ability of Buyer to perform its obligations hereunder. Section 5.4 Litigation. Except as set forth in Schedule 5.4, there is no Litigation, other than Litigation affecting the cable television industry generally, pending or, to Buyer's Knowledge, threatened against Buyer that could adversely affect the ability of Buyer to perform its obligations under this Agreement. Section 5.5 Disclosure. No representation or warranty of Buyer in this Agreement or in any of the Transaction Documents contains or will contain any untrue statement of material fact, or omits or will omit to state a material fact required to be stated therein or necessary to make the statements contained therein in light of the circumstances in which made not misleading. Section 5.6 Taxpayer Identification Number . Buyer's U.S. Taxpayer Identification Number is as set forth in the introductory paragraph of this Agreement. 28 ARTICLE 6. COVENANTS Section 6.1 Certain Affirmative Covenants of Seller. Except as Buyer may otherwise consent in writing, between the date of this Agreement and Closing, Seller shall: (a) operate the System only in the usual, regular, and ordinary course and in accordance with past practices and in all material respects in accordance with the terms of the Franchises and Licenses and all applicable Legal Requirements and, to the extent consistent with such operation, use its commercially reasonable efforts to (i) preserve the Business and the Assets intact, including preserving existing relationships with franchising authorities, suppliers, customers, employees and others having business dealings with the System and maintaining the quality of service provided by the System, unless Buyer requests otherwise, (ii) keep available the services of its employees providing services in connection with the System, (iii) continue normal marketing, advertising, and promotional practices and expenditures with respect to the System, and (iv) maintain inventories of equipment, cable and supplies at levels consistent with past practices. (b) maintain (i) the Assets in good condition and repair, ordinary wear excepted, and implement any capital expenditures required in connection with such maintenance, consistent with past practices, (ii) in full force and effect the Franchises, Licenses and System Contracts, except with respect to the System Contracts expiring by their terms and that are replaced with Contracts reasonably acceptable to Buyer to the extent required in connection with the operation of the System, and (iii) in full force and effect bonds and policies of insurance with respect to the Assets and the operation of the System as in effect on the date hereof; (c) maintain its books, records, and accounts with respect to the Assets and the operation of the System in the usual, regular, and ordinary manner on a basis consistent with past practices; (d) Upon reasonable notice, and except as limited by Section 6.4, (i) give to Buyer, and its counsel, accountants, and other representatives, reasonable access during normal business hours to the System, Owned Property, Leased Property, Assets, books and records, and system personnel, and (ii) furnish to Buyer and such representatives all such additional documents, financial information, and other information as Buyer from time to time reasonably may request; provided that no investigation shall affect or limit the scope of any of the representations and warranties of Seller herein or in any Transaction Document or limit liability for any breach of such representations and warranties. (e) have filed, or file within 10 days after the date of this Agreement, the FCC Forms 394 necessary to transfer any Franchises to Buyer at or prior to Closing, and use its commercially reasonable efforts to obtain in writing as promptly as possible, 29 and at its reasonable expense, the Seller Required Consents and all other consents, authorizations, or approvals required to be obtained by Seller in connection with the transactions contemplated hereunder, and deliver to Buyer copies, reasonably satisfactory in form and substance to Buyer, of such Seller Required Consents and such other consents, authorizations, or approvals; provided, however, that Seller shall afford Buyer the opportunity to approve the form of any Seller Required Consent prior to delivery to the Person whose consent is sought and Seller shall not accept or agree or accede to any modifications or amendments to, or any conditions to the transfer that are not reasonably acceptable to Buyer; (f) within 30 days after the end of each month, deliver to Buyer true and complete copies of all monthly and quarterly financial statements and operating reports and any reports with respect to the operation of the System prepared by or for Seller at any time from the date hereof until Closing, and any other similar materials that Buyer may reasonably request; (g) promptly notify Buyer of any circumstance, event, or action by it or otherwise (i) that, if known at the date of this Agreement, would have been required to be disclosed in or pursuant to this Agreement, or (ii) the existence, occurrence, or taking of which would result in any of its representations and warranties in this Agreement or in any Transaction Document not being true and correct in all material respects when made or at Closing, and, with respect to clause (ii), use its commercially reasonable efforts to remedy the same; (h) use its commercially reasonable efforts to obtain certificates in form reasonably acceptable to Buyer, executed by the lessor of each parcel of the Leased Property (the "Estoppel Certificates"), each certifying that the respective real property lease has not been modified except as shown and is in full force and effect and that the parties are not in default thereunder, and stating the amount of the rent payable thereunder; (i) continue to implement its customary procedures for disconnection and discontinuance of service to subscribers whose accounts are delinquent in accordance with Seller's procedures as in effect on the date of this Agreement; (j) withhold, where applicable, and pay when due and payable all Taxes relating to the Assets, the System and employees of the System; and (k) file with the FCC all material reports required to be filed under applicable FCC rules and regulations, and otherwise comply with all material Legal Requirements with respect to the System. Section 6.2 Certain Negative Covenants of Seller. Except as Buyer may otherwise consent in writing, or as contemplated by this Agreement, between the date of this Agreement and Closing Seller shall not: 30 (a) modify, terminate, renew, suspend, or abrogate any System Contract other than in the ordinary course of business; • (b) modify, terminate, renew, suspend, or abrogate any Franchise or License; (c) enter into any new Contract (that would bind Buyer after the Closing Date), except for any Contract entered into in the ordinary course of business consistent with past practices and that involves liabilities under such Contract not exceeding $5,000 each year; (d) sell, lease, assign, transfer or otherwise dispose of any of the Assets other than in the ordinary course of business and on an arms' length basis; (e) create, assume or permit to exist any Lien upon any of the Assets except for such Liens that would constitute Permitted Liens or that will be released prior to Closing; (f) change the compensation or benefits payable, or to become payable, to its employees, except (i) as required by existing written agreement, (ii) such staying bonuses as Seller may deem appropriate to retain key employees, or (iii) in the ordinary course of business consistent with past practices; (g) fail to pay on a timely basis, in accordance with past practices, its accounts payable and other debts relating to the Assets or the System; provided, however, that nothing herein shall be deemed to preclude the contesting diligently and in good faith of any accounts payable or other debts; or (h) change subscriber billing, collection, write-off, installation or disconnection practices. Section 6.3 Certain Covenants of Both Parties or of Buyer. (a) If either party has Knowledge or obtains Knowledge on or prior to the Closing Date that a representation or warranty of the other party is untrue, the first party shall so notify in writing the other party of such circumstance. Each party covenants to the other that it will use commercially reasonable efforts to reach a resolution satisfactory to both parties of any such circumstance. (b) Each party shall, from time to time prior to Closing, use its commercially reasonable efforts to supplement the Schedules to this Agreement with additional information that, if existing or known to it on the date of this Agreement, would have been required to be included in one or more Schedules to this Agreement. The Schedules to this Agreement shall be deemed to include only the information contained therein on the date of this Agreement or added to the Schedules by written amendments or supplements to this Agreement delivered no later than five Business Days 31 prior to Closing by the party making such amendment and accepted in writing by the other party. (c) Each party shall consider any consent request of the other sought pursuant to Section 6.1, 6.2, or 6.3 in good faith and shall promptly act on each such request. (d) As of the date hereof, Buyer shall have provided to Seller all necessary documentation to allow Seller to file the necessary FCC Forms 394 in accordance with Section 6.1(e). (e) Buyer shall use its commercially reasonable efforts to cooperate with Seller in obtaining all necessary consents, approvals and authorizations including, to • the extent commercially reasonable, attending meetings with the parties that must provide such consents, approvals and authorizations and by providing the appropriate financial statements, insurance certificates and surety bonds required to obtain such consents, approvals and authorizations;provided, however, that Buyer shall not be required to make any payment to any Person from whom such consents, approvals and authorizations are sought or to accept any changes in, or the imposition of any adverse condition to, any Franchise, License or System Contract as a condition to obtaining any such consent, approval or authorization. (f) Between the date of this Agreement and Closing, neither party shall enter into any transaction or take any action that would result in any of its representations and warranties in this Agreement or in any Transaction Document not being true and correct in all respects, if specifically qualified by materiality, and if not so qualified, shall be true and accurate in all material respects, when made or at Closing. Section 6.4 Confidentiality and Publicity. (a) Seller shall from time to time in the course of the transaction contemplated by this Agreement disclose to Buyer information and material concerning Seller, the Assets and the System, including proprietary information, contacts, marketing information, technical information, product or service concepts, subscriber information, rates, financial information, ideas, concepts and research and development (collectively, "Confidential Information"). The term "Confidential Information" does not include any item of information that (i) is publicly known at the time of its disclosure; (ii) is lawfully received from a third party not bound in a confidential relationship with a party to this Agreement; (iii) is published or otherwise made known to the public by any source other than a party bound by the provisions of this Section 6.4(a), or (iv) was generated independently. Buyer agrees that Confidential Information received from Seller shall be used solely in connection with the transactions contemplated by this Agreement. Buyer agrees that it shall treat confidentially and not directly or indirectly, divulge, reveal, report, publish, transfer or disclose, for any purposes whatsoever, all or any portion of the Confidential Information disclosed to it by Seller to any third party other than Buyer's consultants and agents. To the extent that Buyer may, in the reasonable 32 judgment of its counsel, be compelled by Legal Requirements to disclose any Confidential Information, Buyer may disclose such information if it shall have used all reasonable efforts, and shall have afforded the opportunity to Seller, to obtain an appropriate protective order, or other satisfactory assurance of confidential treatment, for the information compelled to be disclosed Prior to the Closing Date, Seller shall in no event disclose to Buyer prospective marketing, pricing or the strategic plans of the System for any area served by Buyer's cable television system. The covenants set forth in this Section 6.4(a) shall be binding on Buyer until the earlier to occur of(i) the Closing Date and (ii) the third anniversary of the date of this Agreement. In the event of a breach of the covenants contained in this Section 6.4(a), Seller shall be entitled to seek injunctive relief as well as any and all other remedies at law or in equity. In the event of termination of this Agreement, Buyer shall use all reasonable efforts to cause to be delivered to Seller, and retain no copies of, any documents, work papers and other materials, including any Confidential Information, obtained by Buyer or on its behalf from Seller. (b) Any non-public information that Seller may possess with respect to Buyer or, after Closing, the System, or after Closing, any non-public information that Buyer may possess with respect to Seller (other than with respect to the System), shall be confidential and, for a period of three years from the date hereof, such party shall not disclose any such information to any other Person (other than its directors, officers and employees, and representatives of its advisors and lenders whose knowledge thereof is necessary) or use such information to the detriment of the other party; provided that (i) such party may use and disclose any such information if it (A) it is publicly known at the time of its disclosure; (B) is lawfully received from a third party not bound in a confidential relationship with a party to this Agreement; (C) is published or otherwise made known to the public by any source other than a party bound by the provisions of this Section 6.4(b), or (D) was generated independently, and (ii) to the extent that such party may, in the reasonable judgment of its counsel, be compelled by Legal Requirements to disclose any of such information, such party may disclose such information if it shall have used all reasonable efforts, and shall have afforded the opportunity to the other party, to obtain an appropriate protective order, or other satisfactory assurance of confidential treatment, for the information compelled to be disclosed. In the event of a breach of the covenants contained in this Section 6.4(b), the non-breaching party shall be entitled to seek injunctive relief as well as any and all other remedies at law or in equity. (c) Buyer and Seller each shall consult with and cooperate with the other with respect to the content and timing of all press releases and other public announcements with respect to this Agreement and the transactions contemplated hereby. Except as required by applicable Legal Requirements, neither Buyer nor Seller shall make any such release, or announcement, without the prior written consent and approval of the other, which consent and approval shall not be unreasonably withheld. Section 6.5 Title Insurance Commitments and Surveys. Buyer may order, at its own expense, by no later than 15 Business Days after the date of this Agreement, 33 (i) commitments of title insurance ("Title Commitments") issued by a nationally recognized title insurance company selected by Buyer (a "Title Company"), committing to insure in Buyer fee title to each parcel of the Owned Property and leasehold interest in each Leased Property included in the Assets, by ALTA (1992) owner' policies of title insurance, and (ii) surveys of each parcel of the Owned Property included in the Assets, in such form as is necessary to obtain the title insurance to be issued pursuant to the Title Commitments with the standard printed exceptions relating to survey matters deleted (the "Surveys"), certified to Buyer and to the Title Company issuing the Title Commitment with respect to that Owned Property. The Title Commitment shall evidence a commitment to issue the title insurance insuring good, marketable and indefeasible fee simple or leasehold title to each parcel of Owned Property or Leased Property contemplated above in such amount as Buyer directs and shall contain no exceptions except for Permitted Liens and such other exceptions, if any, as Buyer deems acceptable. If Buyer notifies Seller in writing within ten Business Days of Buyer's receipt of both the Title Commitments and the Surveys of any matter or Lien affecting title to the Owned Property or Leased Property other than a Permitted Lien (each a "Title Defect"), Seller shall exercise commercially reasonable efforts to remove, or with the consent of Buyer, cause the Title Company to commit to insure over, each such Title Defect prior to Closing. Notwithstanding anything contained to the contrary in this Section 6.5, Seller shall be obligated to convey the Real Property to Buyer at Closing free and clear of all Liens except Permitted Liens. • Section 6.6 Leased Vehicles. Seller shall pay the remaining balances on any leases for vehicles included in the Tangible Personal Property, and deliver title to such vehicles free and clear of all Liens to Buyer at Closing. Section 6.7 Post-Closing Obtaining of Consents. Subsequent to Closing, Seller shall continue to use its commercially reasonable efforts to obtain in writing as promptly as possible any consent, authorization, or approval required to be obtained by it in connection with the transactions contemplated hereunder that was not obtained on or before Closing, and deliver copies of the same, reasonably satisfactory in form and substance, to Buyer. Upon request by Seller, at Closing, Seller and Buyer shall enter into an agency agreement with respect to any such consents, authorizations or approvals that were not obtained on or before Closing in a form mutually satisfactory to each party specifying the terms of such agency. Section 6.8 Transitional Billing Services. Seller shall provide to Buyer, at Buyer's request, subscriber billing services ("Transitional Billing Services") in connection with the System for a period of up to 180 days following the Closing to allow for conversion of existing billing arrangements. After the Closing Date, Seller shall provide reasonable cooperation and support to Buyer in connection with such conversion, including reasonable access to all data and information necessary for conversion planning purposes;provided, however, that in no event shall any individual subscriber information be provided to Buyer prior to Closing. Buyer shall notify Seller at least 30 days prior to Closing as to whether it desires Transitional Billing Services. All Transitional Billing Services, if any, that are requested by Buyer shall be provided on 34 terms and conditions reasonably satisfactory to each party and at the actual out-of- pocket cost to Seller. To facilitate Buyer's access to the subscriber billing system, for a period of up to 180 days following Closing, Seller shall permit Buyer to use the equipment described as "Subscriber Billing Equipment" and set forth on Schedule 2.1(b). At the end of such 180-day period or such earlier time as Buyer has completed the transition to Buyer's subscriber billing system, Buyer shall return to Seller such equipment. Section 6.9 Social Contract Election. Buyer has elected to not have the provisions of the Social Contract apply to the System after Closing, and shall not petition the FCC to have the provisions of the Social Contract apply to the System after Closing. Section 6.10 Environmental Investigations. (a) As soon as practicable after the date of this Agreement (but in no event more than 15 Business Days after the date of this Agreement), Buyer may engage Enecotech or any other reputable environmental consultant (whose identity shall be subject to Seller's approval, which approval shall not unreasonably be withheld), at its own expense, to perform a Phase I environmental audit on such parcels of the Owned Property and Leased Property (which shall include a limited asbestos survey) as Buyer may determine. Seller shall comply with any reasonable request for information made by Buyer or its agents in connection with any such investigation and shall afford Buyer and its agents access to all operations of the System, including all areas of the Owned Property or Leased Property, at reasonable times and in a reasonable manner in connection with any such investigation. If the result of those investigations would cause a reasonable purchaser to perform further investigation or testing with respect to any of the Owned Property or Leased Property, Buyer shall cause to be performed, as its own expense, Phase II environmental audits with respect to such Real Property ("Environmental Reports"). Such firm shall complete the Phase I environmental audits and any Phase II environmental audits, and Buyer shall deliver the Environmental Reports to Seller, within 45 days of the date of this Agreement. In the event that as a result of the Environmental Reports, Buyer's environmental consultant determines that remedial action is required by applicable Legal Requirements and the estimated remediation costs for all parcels of Owned Property and Leased Property in the aggregate exceeds then either party shall have the right to terminate this Agreement. In the event t at as a result of the Environmental Reports, Buyer's environmental consultant determines that remedial action is required by applicable Legal Requirements and (i) the estimated remediation cost for all arcels of Owned Property and Leased Property in the aggregate is no more than or (ii) the estimated remediation for all parcels of Owned Property and Leased Property in the aggregate exceeds and neither Buyer nor Seller has terminated this Agreement, then Seller shall use commercially reasonable efforts to cause such remedial action to be performed at Seller's expense as soon as reasonably practicable in accordance with all applicable Legal Requirements. In the event that as a result of the Environmental Reports, Buyer's environmental consultant concludes that there are no environmental problems or that with respect to any environmental problems identified, applicable Legal 35 Requirements do not require remediation action, Buyer shall be entitled to rely on the representations and warranties of Seller and, if appropriate, seek indemnification against Seller under Article 10. (b) Buyer and Seller shall take such steps as are reasonable or necessary to ensure to the extent possible the attorney-client privilege treatment of all Phase I audits or Environmental Reports. Buyer and Seller agree not to disclose the contents of any such reports to Governmental Authorities or other third parties without prior approval of the other party, unless a party is advised by counsel that disclosure thereof is required by law, provided, however, that in the latter case the party advised of any such disclosure obligation shall inform in writing and discuss with the other party such obligation prior to making any such disclosure. Section 6.11 No Shop. None of Seller, its Affiliates or any agent or representative of any of them shall, 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 in accordance with its terms through no fault or breach of Seller, directly or indirectly (i) solicit or initiate the submission of proposals or offers from any Person for, (ii) participate in any discussions pertaining to or (iii) 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 or the System. Notwithstanding the foregoing, Buyer agrees that Seller may negotiate or enter into a purchase agreement with Galaxy Telecom, L.P., or an Affiliate thereof, with respect to the potential contingent acquisition of the System by Galaxy Telecom, L.P., or an Affiliate thereof, such acquisition to occur if, and only if, this Agreement has been terminated in accordance with its terms through no fault or breach of Seller. Section 6.12 Noncompetition and Nonsolicitation Agreement. At Closing, Seller shall execute and deliver to Buyer a noncompetition and nonsolicitation agreement in the form of Exhibit A (the "Noncompetition and Nonsolicitation Agreement"). ARTICLE 7. CONDITIONS PRECEDENT Section 7.1 Conditions to Seller's Obligations. The obligations of Seller to consummate the transactions contemplated by this Agreement shall be subject to the following conditions, any one or more of which may be waived in writing by Seller. (a) Accuracy of Representations and Warranties. The representations and warranties of Buyer in this Agreement and in any Transaction Document shall be true and accurate in all respects, if specifically qualified by materiality, and if not so qualified, shall be true and accurate in all material respects, at and as of Closing with the same effect as if made at and as of Closing, except to the extent a different date is specified therein, in which case such representation and warranty will be true and correct as of such date. 36 (b) Performance of Agreements. Buyer shall have performed in all material respects all obligations and agreements and complied in all material respects with all covenants in this Agreement and in any Transaction Document to be performed and complied with by it at or before Closing. (c) Officer's Certificate. Seller shall have received a certificate executed by an executive officer of Buyer, dated as of Closing, reasonably satisfactory in • form and substance to Seller, certifying that the conditions specified in Sections 7.1(a) and (b) have been satisfied, which certificate shall be given by such officer after a reasonable inquiry but without personal liability of such officer. (d) Legal Proceedings. There shall be no Legal Requirement, and no Judgment shall have been entered and not vacated by any Governmental Authority of competent jurisdiction in any Litigation or arising therefrom, that (i) enjoins, restrains, makes illegal, prohibits or would cause Seller or Buyer to incur substantial Losses in the event of, the consummation of the transactions contemplated by this Agreement or by any Transaction Document, (ii) prohibits Buyer's ownership or operation of all or a material portion of the System or the Assets, or (iii) compels Buyer to dispose of or hold separate all or a material portion of the System or the Assets as a result of the transactions contemplated by this Agreement, and there shall be no Litigation pending or threatened seeking, or which if successful would have the effect of, the foregoing. (e) Buyer Counsel Opinion. Seller shall have received an opinion of Dow, Lohnes & Albertson, counsel to Buyer, dated as of Closing, in the form of Exhibit B (the "Buyer Counsel Opinion"). (f) Consents. Seller shall have received evidence, in form and substance reasonably satisfactory to it, that the Buyer Required Consents have been obtained. (g) Execution and Delivery of Transaction Documents. To the extent not previously executed and delivered, Seller shall have received each of the Transaction Documents executed by Buyer. Section 7.2 Conditions to Buyer's Obligations. The obligations of Buyer to consummate the transactions contemplated by this Agreement shall be subject to the following conditions, any one or more of which may be waived in writing by Buyer: (a) Accuracy of Representations and Warranties. The representations and warranties of Seller in this Agreement and in any Transaction Document to which Seller is a party shall be true and accurate in all respects, if specifically qualified by materiality, and if not so qualified, shall be true and accurate in all material respects, at and as of Closing with the same effect as if made at and as of Closing, except to the extent a different date is specified therein, in which case such representation and warranty will be true and correct as of such date. 37 (b) Performance of Agreements. Seller shall have performed in all material respects all obligations and agreements and complied in all material respects with all covenants in this Agreement and in any Transaction Document to be performed and complied with by it at or before Closing. (c) Officer's Certificate. Buyer shall have received a certificate executed by an executive officer of Seller, dated as of Closing, reasonably satisfactory in form and substance to Buyer, certifying that (i) the conditions specified in Sections 7.2(a) and (b) have been satisfied, and (ii) as to the number of Equivalent Billing Units for the System as of Closing, which certificate shall be given by such officer after a reasonable inquiry but without personal liability of such officer. (d) Legal Proceedings. There shall be no Legal Requirement, and no Judgment shall have been entered and not vacated by any Governmental Authority of competent jurisdiction in any Litigation or arising therefrom, that (i) enjoins, restrains, makes illegal, prohibits or would cause Seller or Buyer to incur substantial Losses in the event of, the consummation of the transactions contemplated by this Agreement or by any Transaction Document, (ii) prohibits Buyer's ownership or operation of all or a material portion of the System or the Assets, or (iii) compels Buyer to dispose of or hold separate all or a material portion of the System or the Assets as a result of the transactions contemplated by this Agreement, and there shall be no Litigation pending or threatened seeking, or which if successful would have the effect of, the foregoing (e) Seller Counsel Opinion. Buyer shall have received an opinion of Sabin, Bermant & Gould, LLP, general counsel to Seller, dated as of Closing, in the form of Exhibit C (the "Seller Counsel Opinion"). (f) Seller FCC Counsel Opinion. Buyer shall have received an opinion of Bryan Cave, special FCC counsel to Seller, dated as of Closing, in the form of Exhibit D (the "FCC Counsel Opinion"). (g) Consents. Buyer shall have received evidence, in form and substance reasonably satisfactory to it, that the Seller Required Consents have been obtained;provided, however, that to the extent such Required Consents relate to consents by the FCC to assignments of Licenses, this condition shall be deemed met if such consents to assignment have been requested prior to Closing and Buyer is entitled. to operate such Licenses pursuant to conditional use authorizations until the FCC's consent is received (h) No Material Adverse Effect. There shall not have been any Material Adverse Effect. (i) Environmental Matters. If Buyer's environmental consultant (engaged in accordance with Section 6.10) has concluded that, as a result of the Environmental Reports, remedial action is required by applicable Legal Requirements, and (i) the estimated remediation costs for all parcels of Owned Property and Leased 38 Property in the aggregatellIMIIIIMMil and such remedial action shall have been completed to the reasonable satisfaction of Buyer's environmental consultant and in accordance with applicable Legal Requirements or (ii) the estimated remediation costs for all parcels of Owned Property and Leased Property in the aggregate exceeds MIIMIleither Seller nor Buyer shall have terminated this Agreement, and such remedial action shall have been completed to the reasonable satisfaction of Buyer's environmental consultant and in accordance with applicable Legal Requirements. (j) Documents and Records. Seller shall have delivered to Buyer (i) all existing blueprints, schematics, working drawings, plans, specifications, projections, statistics, engineering records, System construction and other System as-built maps relating to the System, whether maintained at the System or at any other office of Seller or its Affiliates, and (ii) all customer lists, files and records in connection with the operation of the System, including a list of all pending subscriber hookups, disconnect and repair orders, supply orders, and any other lists reasonably necessary to the operation of the System. Delivery of the foregoing shall be deemed made to the extent such lists, files and records are then located at any of the offices included in the Owned Property or Leased Property. (k) Subscribers. The System shall serve at least 13,204 Equivalent Billing Units. (1) Title Insurance. Buyer shall have received owner's or leasehold, as applicable, policies of title insurance, insuring Buyer's fee or leasehold title, as applicable, in each parcel of the Owned Property or Leased Property for which a Title Commitment was obtained, endorsed to delete or modify to the satisfaction of Buyer the standard printed exceptions and any Title Defects, or the irrevocable written commitment of the Title Company to deliver such policies. (m) Necessary Actions. The boards of directors of Buyer and Cox Communications, Inc. shall have authorized and approved the execution of this Agreement and the consummation of the transactions contemplated hereby, provided, however, that this condition shall be deemed satisfied unless Buyer provides notice to Seller by no later than April 15, 1998. that the boards of directors of Buyer and Cox Communications, Inc. have not approved this Agreement, in which case each of Buyer and Seller shall have the right to terminate this Agreement without further obligation or liability to the other. (n) Additional Programming. At Closing, there shall be at least 182 MHz capacity available. (o) Execution and Delivery of Transaction Documents. To the extent not previously executed and delivered, Buyer shall have received each of the Transaction Documents executed by Seller. 39 ARTICLE 8. CLOSING Section 8.1 Closing; Time and Place. Subject to (a) the satisfaction or waiver (by the party for whose benefit the closing condition is imposed) on the date of Closing of the closing conditions described in Article 7, and (b) the provisions of Article 9, the closing of the transactions contemplated by this Agreement ("Closing") shall take place on the last day of the month in which all closing conditions are waived or satisfied, at 10:00 a.m. local time at the offices of Holland & Hart LLP, located at 555 17th Street, Suite 3200, Denver, Colorado, 80201, or at such time and location as the parties may otherwise agree. Section 8.2 Buyer's Obligations. At Closing, Buyer shall deliver or cause to be delivered to Seller the following: (a) Payment of Purchase Price. The Purchase Price, adjusted to reflect the agreed, estimated Current Items Amount. (b) Bill of Sale. An executed counterpart of a Bill of Sale and Assignment and Assumption Agreement with respect to the System in the form of Exhibit E (the "Bill of Sale"). (c) Evidence of Necessary Actions. A certificate, dated as of the Closing Date, executed by the Secretary of Buyer, without personal liability, certifying (i) that the resolutions, as attached to such certificate, were duly adopted by the boards of directors of Cox Communications, Inc. and Buyer authorizing and approving the execution of this Agreement and the consummation of the transactions contemplated hereby and that such resolutions remain in full force and effect and (ii) as to the incumbency of each signatory to this Agreement and to any Transaction Document executed by Buyer. (d) Officer's Certificate. The certificate described in Section 7.1(c). (e) Buyer Counsel Opinion. The Buyer Counsel Opinion. (f) Noncompetition and Nonsolicitation Agreement. An executed counterpart of the Noncompetition and Nonsolicitation Agreement. (g) Other. Such other documents and instruments as shall be necessary to effect the intent of this Agreement and consummate the transactions contemplated hereby. Section 8.3 Seller's Obligations. At Closing, except as otherwise provided below, Seller shall deliver or cause to be delivered to Buyer the following: (a) Bill of Sale. An executed counterpart of the Bill of Sale. 40 (b) Vehicle Titles. Title certificates to all vehicles included among the Assets, endorsed for transfer of title to Buyer, and separate bills of sale therefor, if required by the laws of the states in which such vehicles are titled. (c) Evidence of Necessary Actions. A certificate, dated as of the date of Closing, executed by the Secretary of a general partner of Seller, without personal liability, certifying (i) that, if required, the resolutions or other actions, as attached to such certificate, were duly adopted by Seller's governing board and partners, if required, authorizing and approving the execution of this Agreement and the consummation of the transactions contemplated hereby and that such resolutions remain in full force and effect, and (ii) as to the incumbency of each signatory to this Agreement and to any Transaction Document executed by Seller. (d) Deeds. Warranty deeds conveying to Buyer, subject only to Permitted Liens, each parcel of the Owned Property in a form reasonably acceptable to Buyer and in a form sufficient to permit the Title Company to issue the title insurance policy described in Section 6.5 to Buyer with respect to such parcel. (e) Officer's Certificate. The certificate described in Section 7.2(c). • (f) Estoppel Certificates. The Estoppel Certificates. (g) Seller Counsel Opinion. The Seller Counsel Opinion. (h) FCC Counsel Opinion. The FCC Counsel Opinion. (i) Lien Releases. Evidence satisfactory to Buyer that all Liens (other than Permitted Liens) affecting or encumbering the Assets have been terminated, released, or waived, as appropriate, or original, executed instruments in form satisfactory to Buyer effecting such terminations, releases, or waivers. (j) FIRPTA Certificate. FIRPTA Non-Foreign Seller Certificate certifying that Seller is not a foreign Person within the meaning of Section 1445 of the Code reasonably satisfactory in form and substance to Buyer. (k) Noncompetition and Nonsolicitation Agreement. An executed counterpart of the Noncompetition and Nonsolicitation Agreement. (1) Other. Such other documents and instruments as shall be necessary to effect the intent of this Agreement and consummate the transactions contemplated hereby. ARTICLE 9. TERMINATION AND DEFAULT Section 9.1 Termination Events. Prior to Closing, this Agreement may be terminated and the transactions contemplated hereby may be abandoned only as follows: 41 (a) at any time, by the mutual agreement of Seller and Buyer; (b) by either Seller or Buyer, at any time, if the other is in material breach or default of its respective covenants, agreements, or other obligations herein or in any Transaction Document, or if any of its representations herein or in any Transaction Document are not true and accurate in all material respects when made or when otherwise required by this Agreement or any Transaction Document to be true and accurate;provided, however, that (i) the breaching party is given prompt written notice that provides a reasonably detailed explanation of the facts and circumstances surrounding such breach, and (ii) the breaching party is given 30 days after the receipt of such notice within which to cure such breach to the reasonable satisfaction of the non- breaching party or, if such breach cannot be cured, to agree to fairly compensate the non-breaching party for such breach to the reasonable satisfaction of the non-breaching party; (c) by either Seller or Buyer, upon written notice to the other, if any of the conditions to its obligations set forth in Sections 7.1 and 7.2, respectively, shall not have been satisfied or waived in writing by the party entitled to waive such condition on or before November 30, 1998 (the "Outside Closing Date"), for any reason other than a material breach or default by such terminating party of its respective covenants, agreements, or other obligations hereunder, or any of its representations herein not being true and accurate in all material respects when made or when otherwise required by this Agreement to be true and accurate in all material respects; (d) by either Seller or Buyer, upon written notice to the other, if(i) any of the conditions to its obligations set forth in Sections 7.1 and 7.2 respectively, shall not have been satisfied or waived in writing by the party entitled to waive such condition on or before November 30, 1999 and (ii) at the time of such termination there is no Litigation pending or if a Judgment has been entered, such Judgment is final and nonappealable, in each case with respect to this Agreement or the transactions contemplated hereby; (e) by Buyer pursuant to Sections 6.10 or 11.13; (f) by Seller pursuant to Section 6.10; (g) by Buyer or Seller pursuant to Section 7.2(m); or (h) as otherwise provided herein. Section 9.2 Effect of Termination. If this Agreement shall be terminated pursuant to Section 9.1, (i) all obligations of the parties hereunder shall terminate, except for the obligations set forth in Sections 6.4, 9.2, 11.1 and 11.12, and (ii) all filings, applications and other submissions relating to the transactions contemplated hereby shall, to the extent practicable, be withdrawn from the Governmental Authority, or other Person to which made. Termination of this Agreement pursuant to Section 9.1 42 shall not limit or impair any remedies that either Buyer or Seller may have with respect to a breach or default by the other of its covenants, agreements or obligations hereunder. The parties recognize that in the event a party hereto should refuse to perform under the provisions of this Agreement, monetary damages alone will not be adequate. The nonbreaching party shall therefore be entitled, in addition to any other remedies that may be available, including money damages, to obtain specific performance of the terms of this Agreement. In the event of any action to enforce this Agreement, the breaching party hereby waives the defense that an adequate remedy at law exists. In the event of a breach or default that results in the filing of a lawsuit for damages, specific performance or other remedy, the nonbreaching party shall be entitled to reimbursement by the breaching party of reasonable legal fees and expenses actually incurred by the nonbreaching party. ARTICLE 10. INDEMNIFICATION Section 10.1 Indemnification by Buyer. From and after Closing, Buyer shall indemnify and hold harmless Seller, its Affiliates, partners, officers, employees, agents, and representatives, and any Person claiming by or through any of them, as the case may be, from and against any and all Losses arising out of or resulting from: (a) any representations and warranties made by Buyer in this Agreement or in any Transaction Document not being true and accurate in all material respects, when made and at Closing; (b) any failure by Buyer to perform in all material respects, any of its covenants, agreements, or obligations in this Agreement or in any Transaction Document; (c) any employment by Buyer or any of its Affiliates of, or services rendered to Buyer or any of its Affiliates by, any finder, broker, agency, or other intermediary, in connection with the transactions contemplated hereby, or any allegation of any such employment or services; and (d) Taxes for which Buyer is liable under Section 3.4. If, by reason of the claim of any third party relating to any of the matters subject to such indemnification, a Lien is placed or made upon any of the properties or assets owned or leased by Seller or any other Indemnitee under this Section, in addition to any indemnity obligation of Buyer under this Section, Buyer shall furnish a bond sufficient to obtain the prompt release thereof within ten days after receipt from Seller of notice thereof. Section 10.2 Indemnification by Seller. From and after Closing, Seller shall indemnify and hold harmless Buyer, its Affiliates, officers, directors, employees, agents, and representatives, and any Person claiming by or through any of them, as the case may be, from and against any and all Losses arising out of or resulting from: 43 (a) any representations and warranties made by Seller in this Agreement or in any Transaction Document not being true and accurate in all respects, if specifically qualified by materiality, and if not so qualified, not being true and accurate in all material respects when made and at Closing; (b) any failure by Seller to perform in all respects, if specifically qualified by materiality, and if not so qualified, in all material respects any of its covenants, agreements, or obligations in this Agreement or in any Transaction Document; (c) the operation or ownership of the System prior to the Adjustment Time; (d) all liabilities of Seller or relating to the System that are not Assumed Obligations and Liabilities; (e) any employment by Seller or any of its Affiliates of, or services rendered to Seller or any of its Affiliates by, any finder, broker, agency, or other intermediary, in connection with the transactions contemplated hereby, or any allegation of any such employment or services; (f) Losses for which Seller is liable under Section 3.1; (g) Notwithstanding Buyer's waiver of Seller's compliance with Legal Requirements relating to bulk sales applicable to the transactions contemplated hereby pursuant to Section 3.3, noncompliance by Seller with Legal Requirements relating to bulk sales applicable to the transactions contemplated hereby; and (h) Taxes for which Seller is liable under Section 3.4. If, by reason of the claim of any third party relating to any of the matters subject to such indemnification, a Lien is placed or made upon any of the properties or assets owned or leased by Buyer or any other Indemnitee under this Section, in addition to any indemnity obligation of Seller under this Section, Seller shall furnish a bond sufficient to obtain the prompt release thereof within ten days after receipt from Buyer of notice thereof. Section 10.3 Procedure for Indemnified Third Party Claim. Promptly after receipt by a party entitled to indemnification hereunder (the "Indemnitee") of written notice of the assertion or the commencement of any Litigation with respect to any matter referred to in Sections 10.1 or 10.2, the Indemnitee shall give written notice thereof to the party from whom indemnification is sought pursuant hereto (the "Indemnitor") and thereafter shall keep the Indemnitor reasonably informed with respect thereto if the Indemnitor does not assume the defense of such claim;provided, however, that failure of the Indemnitee to give the Indemnitor notice as provided herein shall not relieve the Indemnitor of its obligations hereunder, except to the extent that such failure to give notice shall prejudice any defense or claim available to the Indemnitor. In case any Litigation shall be brought against any Indemnitee, the Indemnitor shall be entitled to 44 participate therein or assume the defense thereof with counsel reasonably satisfactory to the Indemnitee, at the Indemnitor's sole expense. If the Indemnitor elects to assume control of the defense of any third party claim, the Indemnitee shall have the right to participate in the defense of such claim at its own expense. If the Indemnitor shall assume the defense of any Litigation, it shall not settle the Litigation unless the settlement shall include as an unconditional term thereof the giving by the claimant or the plaintiff of a release of the Indemnitee, satisfactory to the Indemnitee, from all liability with respect to such Litigation. If the Indemnitor fails to defend any claim within a reasonable time or does not elect to assume control of or otherwise participate in the defense of any Litigation, the Indemnitor shall nevertheless provide reasonable cooperation to the Indemnitee in the defense of such Litigation, and any settlement of such Litigation shall be on terms reasonably satisfactory to the Indemnitor. Section 10.4 Determination of Indemnification Amounts and Related Matters. (a) Seller shall not be required to indemnify Buyer under Section 10.2(a) and b until the aggregate amount of all Losses of Buyer exceeds in the aggregat the "Basket"), and if the aggregate amount of all such Losses exceeds the Basket, uyer shall be entitled to indemnity with respect to all of its Losses, including those constituting the Basket. Each of Buyer's and Seller's liability under this Article 10 shall be limited to Losses not exceeding in the aggregate Notwithstanding anything to the contrary contained herein, Seller and uyer ag ee that the Basket and other limitations contained in this Section 10.4 shall not apply to indemnification claims brought by Buyer relating to the obligations and liabilities of Seller that are not Assumed Obligations and Liabilities, including rate refund liability. (b) Amounts payable by the Indemnitor to the Indemnitee in respect of any Losses under Sections 10.1 or 10.2 shall be payable by the Indemnitor as incurred by the Indemnitee, and shall bear interest at the rate publicly announced from time to time by the Bank of New York as its prime rate plus 2% per annum from the date the Losses for which indemnification is sought were incurred by the Indemnitee until the date of payment of indemnification by the Indemnitor. Section 10.5 Time and Manner of Certain Claims. In the absence of fraud, the indemnification obligations and remedies set forth in this Article 10 are intended to be the sole and exclusive remedy of the parties with respect to the matters for which indemnification may be sought pursuant to Sections 10.1 or 10.2 or elsewhere in this Agreement. The representations and warranties of Seller and Buyer in this Agreement and any Transaction Document shall survive Closing for a period of 18 months except that (i) the liability of the parties shall extend beyond such 18-month period with respect to any claim that has been asserted in a written notice before the expiration of such 18- month period, (ii) all representations and warranties set forth in Sections 4.7, 4.12 and 4.16 shall survive Closing for a period of five years, (iii) all representations and warranties set forth in Section 4.9 shall survive Closing for a period of seven years, (iv) all representations and warranties with respect to title to the Assets shall survive Closing indefinitely; and (v) the covenants and agreements of the parties in this 45 Agreement and in the Transaction Documents and all representations with respect to title to the Assets shall survive Closing until fully performed. Notwithstanding the foregoing, the Survival Periods shall not limit indemnification obligations of the parties set forth in Sections 10.1(b) - (d) and 10.2(b) - (h). Section 10.6 Other Indemnification. The provisions of Sections 10.3, 10.4 and 10.5 shall be applicable to any claim for indemnification made under any other provision of this Agreement, and all references in Sections 10.3, 10.4 and 10.5 to Sections 10.1 and 10.2 shall be deemed to be references to such other provisions of this Agreement. ARTICLE 11. MISCELLANEOUS PROVISIONS Section 11.1 Expenses. Except as otherwise provided in Section 11.12 or elsewhere in this Agreement, each of the parties shall pay its own expenses and the fees and expenses of its counsel, accountants, and other experts in connection with this Agreement. Section 11.2 Waivers. No action taken pursuant to this Agreement, including any investigation by or on behalf of any party hereto, shall be deemed to constitute a waiver by the party taking the action of compliance with any representation, warranty, covenant or agreement contained herein or in any Transaction Document. The waiver by any party hereto of any condition or of a breach of another provision of this Agreement or any Transaction Document shall be in writing and shall be executed by Buyer, Seller and Cox, and shall not operate or be construed as a waiver of any other condition or subsequent breach. The waiver by any party of any of the conditions precedent to its obligations under this Agreement shall not preclude it from seeking redress for breach of this Agreement other than with respect to the condition so waived (excluding from this exclusion the conditions set forth in Sections 7.1(a) and 7.2(a)). Section 11.3 Notices. All notices, requests, demands, applications, services of process, and other communications which are required to be or may be given under this Agreement or any Transaction Document shall be in writing and shall be deemed to have been duly given if sent by telecopy or facsimile transmission, confirmation of transmission requested, or delivered by personal delivery or commercial courier or mailed, certified first class mail, postage prepaid, return receipt requested, to the parties hereto at the following addresses: Buyer: Cox Communications Omaha, L.L.C. 1400 Lake Hearn Drive, N.E. Atlanta, Georgia 30319 Attn: David J. Head Telecopy: (404) 847-6336 46 Copies (which shall not constitute notice): Dow, Lohnes & Albertson, PLLC One Ravinia Drive, Suite 1600 Atlanta, Georgia 30346-2108 Attn: Thomas J. Peters, IV, Esq. Telecopy: (770) 901-8874 Seller: Advance/Newhouse Partnership 5015 Campuswood Drive East Syracuse, New York 13057 Attn: Robert J. Miron Telecopy: (315) 463-4127 Copies (which shall not constitute notice): Time Warner Entertainment-Advance/Newhouse Partnership 290 Harbor Drive Stamford, Connecticut 06902 Attn: Bonnie J. Blecha Telecopy: (203) 328-0691 Copies (which shall not constitute notice): Holland & Hart LLP P.O. Box 8749 555 17`h Street, Suite 3200 Denver, Colorado 80201 Attn: Davis O. O'Connor, Esq. Telecopy: (303) 295-8261 Copies (which shall not constitute notice): Sabin, Bermant & Gould, LLP 350 Madison Avenue New York, New York 10017 Attn: Arthur J. Steinhauer, Esq. Telecopy: (212) 692-4496 or to such other address as any party shall have furnished to the other by notice given in accordance with this Section. Such notice shall be effective, (i) if delivered in person or by courier, upon actual receipt by the intended recipient, or (ii) if sent by telecopy or facsimile transmission, when confirmation of transmission is received, or (iii) if mailed, upon the earlier of five days after deposit in the mail and the date of delivery as shown . by the return receipt therefor. Section 11.4 Entire Agreement; Prior Representations; Amendments. This Agreement embodies the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior representations, agreements and understandings, oral or written, with respect thereto. Notwithstanding any 47 representations which may have been made by either party in connection with the transactions contemplated by this Agreement, each party acknowledges that (i) it has not relied on any representation by the other party with respect to such transactions, the Assets, or the System except those contained in this Agreement or the Schedules hereto, and (ii) its execution of this Agreement specifically precludes any negligent misrepresentation or other claims by it based on any representation made by the other party which is not contained in this Agreement or the Schedules hereto. This Agreement may not be modified orally, but only by an agreement in writing signed by Buyer, Seller and Cox. Section 11.5 Binding Effect; Benefits. This Agreement shall inure to the benefit of and will be binding upon the parties hereto and their respective heirs, legal representatives, successors, and permitted assigns. Neither Seller nor Buyer shall assign this Agreement or delegate any of its duties hereunder to any other Person without the prior written consent of the other; provided, however, that Buyer may assign (by operation of law or otherwise) this Agreement without Seller's consent to CoxCom, Inc. or to any wholly-owned subsidiary of Cox Communications, Inc. that has, in Seller's reasonable estimation, the financial capability to fulfill the obligations and duties of Buyer in this Agreement. Section 11.6 Headings and Schedules. The section and other headings contained in this Agreement are for reference purposes only and will not affect the meaning or interpretation of this Agreement. Reference to Schedules or Exhibits shall, unless otherwise indicated, refer to the Schedules and Exhibits attached to this Agreement, which shall be incorporated in and constitute a part of this Agreement by such reference. Section 11.7 Counterparts. This Agreement may be executed in any number of counterparts, each of which, when executed, shall be deemed to be an original and all of which together will be deemed to be one and the same instrument. Section 11.8 Governing Law. The validity, performance, and enforcement of this Agreement and all Transaction Documents, unless expressly provided to the contrary, shall be governed by the laws of the State of Delaware without giving effect to the principles of conflicts of law of such state. Section 11.9 Severability. Any term or provision of this Agreement which is invalid or unenforceable shall 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; provided, however, that the economic and legal substance of the transactions contemplated by this Agreement is not affected in any manner that is materially adverse to any party affected by such invalidity or unenforceability. Section 11.10 Third Parties; Joint Ventures. This Agreement constitutes an agreement solely among the parties hereto, and, except as otherwise provided herein, is 48 not intended to and will not confer any rights, remedies, obligations, or liabilities, legal or equitable, including any right of employment, on any Person other than the parties hereto and their respective successors, or assigns, or otherwise constitute any Person a third party beneficiary under or by reason of this Agreement. Nothing in this Agreement, expressed or implied, is intended to or shall constitute the parties hereto partners or participants in a joint venture. Section 11.11 Construction. This Agreement has been negotiated by Seller and Buyer 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 shall not apply in any construction or interpretation of this Agreement. Section 11.12 Attorneys' Fees. If any Litigation between Buyer and Seller with respect to this Agreement or the transactions contemplated hereby shall be resolved or adjudicated by a Judgment of any court, the party prevailing under such Judgment shall be entitled, as part of such Judgment, to recover from the other party its reasonable attorneys' fees and costs and expenses of Litigation. Section 11.13 Risk of Loss. (a) The risk of any loss, damage or destruction to the Assets resulting from fire, theft or any other casualty or cause (except reasonable wear and tear) shall be borne by Seller at all times prior to Closing. In the event of any material loss or damage to any material portion of the Assets from fire, casualty or other cause prior to Closing, Seller shall notify Buyer in writing immediately. Such notice shall specify with particularity the loss or damage incurred, the cause thereof if known or reasonably ascertainable, and the insurance coverage related thereto. (b) Notwithstanding any other provision contained in this Agreement: i If any such loss, damage or destruction shall be equal to or greater tha nd such loss, damage or destruction prevents normal operations of any material portion of the System or the replacement or restoration of any lost, damaged or destroyed Assets by the date that is the latter of(a) the Outside Closing Date or (b) the date that is 60 days after such loss, damage or destruction has occurred, Seller shall notify Buyer in writing of its inability to resume normal operations or to replace or restore the lost or damaged property, and Buyer, at any time within 10 days after receipt of such notice, may elect by written notice to Seller either to (y) waive such defect and proceed toward consummation of the transaction contemplated by this Agreement in accordance with the terms thereof, or (z) terminate this Agreement. If Buyer elects to so terminate this Agreement, Buyer and Seller shall stand fully released and discharged of any and all obligations hereunder, except as provided in Section 9.2. If Buyer elects to consummate the transactions contemplated by this Agreement notwithstanding such loss or damage and does so, all insurance proceeds payable as a result of the occurrence of the event resulting in such loss or damage shall be delivered 49 by Seller to Buyer, or the rights thereto shall be assigned by Seller to Buyer if not yet paid over to Seller, and the Purchase Price shall be reduced by an amount equal to the different between the amount of all insurance proceeds payable as a result of the occurrence of the event resulting in such loss or damage and the full replacement cost of the lost, damaged or destroyed Assets, as reasonably agreed by the parties. (ii) If any such loss or damage shall be less than 1111111Seller shall have the right to postpone Closing until the Outside Closing Date and make reasonable attempts to repair, replace or restore the lost or damaged Assets. On the Outside Closing Date, or such earlier date as the parties may agree, this Agreement shall remain in force and effect and the parties shall, subject to satisfaction or waiver of the conditions set forth in Article 7, proceed to Closing. If the loss or damages to the Assets has not been repaired, replaced or restored to the reasonable satisfaction of Buyer as of the Outside Closing Date, this Agreement shall remain in force and effect and the Purchase Price shall be reduced by an amount equal to the cost to Seller, as mutually agreed by Seller and Buyer, to complete such repair, replacement or restoration. Section 11.14 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. ARTICLE 12. GUARANTY Section 12.1 Benefit of Guaranty. The guaranty set forth in this Article (the "Guaranty") is given by Cox, an Affiliate of Buyer, in favor of Seller to guarantee the performance or payment of all agreements, covenants, liabilities and obligations of Buyer set forth in this Agreement (the "Obligations"). Section 12.2 Guaranty. (a) To induce Seller to execute, deliver and perform this Agreement and the Transaction Documents, Cox hereby (i) guarantees, absolutely and subject only to any conditions set forth in this Agreement, the prompt and complete performance or payment of the Obligations, (ii) agrees to pay, on demand, any and all costs and expenses (including attorneys' fees and disbursements) that may be paid or incurred by Seller (if and to the extent Seller is the prevailing party) in enforcing any rights with respect to, or collecting or enforcing any rights against, Cox under this Guaranty, and (iii) agrees to cause and enable Buyer to perform each and every Obligation, subject to the conditions set forth in this Agreement (all of the obligations, covenants, agreements, terms, conditions and indemnities described in clause (i), (ii) and (iii) above, collectively, the "Guaranteed Obligations"). (b) Cox agrees that this Guaranty constitutes a guaranty of performance and payment and not of collection, and Seller shall not be obligated to initiate, pursue or 50 exhaust any form of recourse or obtain any judgment against Buyer or others before being entitled to performance and payment from Cox. (c) The liability of Cox under this Guaranty shall be unconditional and absolute irrespective of(i) any unenforceability or invalidity of any Guaranteed Obligation; (ii) any change of the time, manner or place of payment, or any other term, of any Guaranteed Obligation; (iii) any law, regulation or order of any jurisdiction affecting any term of any Guaranteed Obligation or Cox's or Buyer's rights with respect thereto; (iv) any waiver, consent, extension, granting of time, forbearance, indulgence or other action or inaction under or in respect of this Agreement or any exercise or nonexercise of any right, remedy or power in respect thereof; (v) any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation or similar proceedings with respect to Buyer or Cox, or the properties or creditors of either of them, or (vi) any other circumstance that might otherwise constitute a defense (other than full performance and payment) available to, or a discharge of, Buyer or any guarantor other than Cox, if any. Cox waives promptness, protest, diligence and notices with respect to any Guaranteed Obligation and this Guaranty and any requirements that Seller exhaust any right or take any action against Buyer or against any other Person. Notwithstanding anything to the contrary set forth herein, Cox shall have the right to assert any defense to enforcement of any of the Obligations under this Agreement that would be available to Buyer, other than those set forth in subsections (ii), (iv) and (v). Notwithstanding the foregoing, all waivers, consents, extensions, grantings of time, forbearances, indulgences or other actions or inactions under or in respect of this Agreement made by Seller in favor of Buyer shall also benefit Cox, and all waivers, consents, extensions, grantings of time, forbearances, indulgences or other actions or inactions under or in respect of this Agreement made by Buyer in favor of Seller shall also be deemed to be made by Cox, in either case without voiding or otherwise affecting the enforceability of this Guaranty. (d) This Guaranty is a continuing guarantee and shall remain in full force and effect until the date on which all Guaranteed Obligations shall have been performed and paid in full. Section 12.3 Effectiveness; Reinstatement. This Guaranty shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Guaranteed Obligations is rescinded or must otherwise by restored or returned by Seller upon the insolvency, bankruptcy dissolution, liquidation or reorganization of Buyer, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, Buyer or any substantial part of its property, or otherwise, all as though such payments had not been made. 51 Seller and Buyer have executed this Agreement as of the date first written above. ADVANCE/NEWHOUSE PARTNERSHIP By: Advance Communication Corp., a general partner f t,, f By: Name: Pi. •`MIA"+ Title: c'ettoe•'t" COX COMMUNICATIONS OMAHA, G.L.C. By: CuxCom, Inc., its member By: Name: '1'it1e: With respect to Article 12 only; COXCOM, INC. • By: Name: Title: • 52 • Seller and Buyer have executed this Agreement as of the date first written above. ADVANCE/NEWHOUSE PARTNERSHIP By: Advance Communication Corp., a general partner By: _ Name: Title: COX COMMUNICATIONS OIVIAAA, . . L.L.C. By: CoxCom, Inc., its member kti B Name: ) ` ' E') Title: 1),L , _SSE- • With respect to Article 12 only: COXCOM, INC. B y: -.0yv-_h« Name: U+-kJ( N1 .byer, Title: V tc - Ft„ ..>r 52 LIST OF SCHEDULES Schedule 2.1(a)(i) Tangible Personal Property Schedule 2.1(a)(ii) Real Property Schedule 2.1(a)(iii) Franchises Schedule 2.1(a)(iv) Licenses Schedule 2.1(a)(v) System Contracts Schedule 2.1(b) Excluded Assets Schedule 2.2 Assumed Obligations and Liabilities Schedule 4.3 Required Consents Schedule 4.4 Liens Schedule 4.5 Defaults Schedule 4.7 Litigation Schedule 4.8 Competitive Activities Schedule 4.10 System Information Schedule 4.11 Bonds Schedule 4.12 Compliance with Law Schedule 4.13 Financial Statements Schedule 4.14 Employee Benefit Plans and Benefit Arrangements Schedule 4.15 Employment and Collective Bargaining Agreements Schedule 4.16 Environmental Matters Schedule 4.19 Transactions with Affiliates Schedule 5.3 Buyer Required Consents Schedule 5.4 Buyer Litigation Exhibit A Form of Noncompetition and Nonsolicitation Agreement Exhibit B Form of Buyer Counsel Opinion Exhibit C Form of Seller Counsel Opinion Exhibit D Form of FCC Counsel Opinion Exhibit E Form of Bill of Sale DENVER:0813635.11 1 Exhibit 3 FCC Form 394 Date: April 3, 1998 List of Transferee Officers, Directors and Shareholders Entity: Cox Communications Omaha, L.L.C. Name/Residence Occupation/Place of Business Citizenship Officer/Director # Shares #Votes %Votes Cox Communications, Inc. --- --- 1,000 1,000 100% 1400 Lake Hearn Drive Atlanta, Georgia 30319 James A. Hatcher USA Director --- --- --- 1400 Lake Hearn Drive Atlanta, Georgia 30319 Jimmy W. Hayes USA Director --- --- --- 1400 Lake Hearn Drive Atlanta, Georgia 30319 James O. Robbins USA President 1400 Lake Hearn Drive --- --- --- Atlanta, Georgia 30319 • Richard Hook USA Vice President --- --- --- 111505 W. Dodge Road Omaha,Nebraska 68154 Claus Kroeger USA Vice President --- --- --- 1400 Lake Hearn Drive Atlanta, Georgia 30319 Dallas Clement USA Director and --- --- --- 1400 Lake Hearn Drive Treasurer Atlanta, Georgia 30319 Andrew A. Merdek USA Secretary --- --- --- 1400 Lake Hearn Drive Atlanta, Georgia 30319 Shauna J. Sullivan USA Assistant --- --- --- 1400 Lake Hearn Drive Secretary Atlanta, Georgia 30319 Exhibit 4 FCC Form 394 Date: April 3, 1998 There appears to be a typographical error in the Form, which should call for an Exhibit only if the answer to Question 7, Part II is "Yes." Nonetheless, there are no documents, instruments, etc. for the pledge of stock of the transferee, as security for loans or contractual performance. Exhibit 5 FCC Form 394 Date: April 3, 1998 Transferee's Financial Qualifications Cox Communications Omaha, L.L.C. is a wholly owned subsidiary of CoxCom, Inc. which is a wholly-owned subsidiary of Cox Communications, Inc. which is charged with operating the cable communications properties of that company. Accordingly, the financial qualifications of Cox Communications Omaha, L.L.C. are those of its parent companies, Cox Communications, Inc. A copy of the most recent Annual Report (1996) and SEC Form 10K for the year ending December 31, 1996 and SEC Form 10Q for the quarter ending September 30, 1997 are enclosed. • UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) x l QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 l TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-13576 COMMUNICATIONS Cox Communications, Inc. (Exact name of registrant as specified in its charter) Delaware 58-2112281 (State or other jurisdiction of incorporation or organization) (I.R.S.Employer Identification No.) 1400 Lake Hearn Drive, Atlanta, Georgia 30319 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (404) 843-5000 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 ® No EJ Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date. There were 257,242,414 shares of Class A Common Stock outstanding as of November 1, 1997. There were 13,798,896 shares of Class C Common Stock outstanding as of November 1, 1997. Cox Communications, Inc. Form 10-Q For the Quarter Ended September 30, 1997 Table of Contents Page Part I- Financial Information Item 1. Financial Statements 2 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Part II - Other Information Item 1. Legal Proceedings 15 Item 6. Exhibits and Reports on Form 8-K 15 Signatures 16 Part I - Financial Information Item 1. Financial Statements Cox Communications, Inc. • Consolidated Balance Sheets September 30 December 31 1997 1996 (unaudited) (Thousands of Dollars) Assets • Cash (including restricted cash of$11,410 as of September 30, 1997) $ 43,785 $ 42,349 Accounts and notes receivable, less allowance for doubtful accounts of$7,347 and $7,778 129,733 122,574 Net plant and equipment 1,881,193 1,531,811 Investments 1,642,833 1,219,082 Intangible assets 2,531,741 2,728,955 Other assets 110,149 139,819 Total assets $ 6,339,434 $ 5,784,590 Liabilities and shareholders'equity Accounts payable and accrued expenses $ 222,632 $ 220,859 Deferred income 31,287 29,440 Deferred income taxes 555,168 294,453 Other liabilities 14,740 97,526 Debt 3,148,585 2,823,853 Amounts due to Cox Enterprises, Inc 38,296 57,147 Total liabilities 4,010,708 3,523,278 Shareholders' equity Preferred Stock, $1 par value; 5,000,000 shares authorized; none issued Class A Common Sto ck, $1 par value; 316,000,000 shares authorized; shares issued and outstanding: 256,734,181 and 256,463,651 256,734 256,464 Class C Common Stock, $1 par value; 14,000,000 shares authorized; shares issued and outstanding: 13,798,896..... 13,799 13,799 Additional paid-in capital 1,782,928 1,742,121 Retained earnings 157,480 216,097 Foreign currency translation adjustment 5,708 23,424 Net unrealized gain on securities 112,077 9,407 Total shareholders' equity 2,328,726 2,261,312 Total liabilities and shareholders'equity $ 6,339,434 $ 5,784,590 See notes to consolidated financial statements. 2 • Cox Communications, Inc. Consolidated Statements of Operations Three Months Nine Months Ended September 30 Ended September 30 1997 1996 1997 1996 (unaudited) (Thousands of Dollars,excluding per share data) Revenues Complete basic $ 267,294 $ 245,900 $ 796,209 $ 740,021 New product tier 4,740 3,547 14,377 • 10,156 Premium service 46,563 47,278 139,318 142,736 Pay-per-view 9,467 10,187 36,142 32,967 Advertising 25,519 25,346 72,607 67,925 Satellite 32,278 22,043 88,028 58,938 Other 22,340 9,515 45,728 25,906 Total revenues 408,201 363,816 1,192,409 1,078,649 Costs and expenses Programming costs 89,122 81,815 269,854 243,954 Plant operations 33,234 35,838 109,535 105,116 Marketing 23,648 19,023 59,457 57,164 General and administrative 82,746 69,732 234,698 •209,821 Satellite operating and administrative 27,102 19,338 79,714 52,544 Depreciation 81,424 61,040 239,567 180,122 Amortization 21,583 17,427 57,610 53,519 Operating income 49,342 59,603 141,974 176,409 Interest expense (52,484) (37,037) (149,470) (105,843) Equity in net losses of affiliated companies (107,210) (53,189) (270,318) (101,257) Gain on exchanges of cable systems. - -- 24,642 Gain on issuance of stock by affiliated companies - -- -- 50,100 Gain on sale of affiliated companies - -- 193,780 4,640 Other, net 10 4,062 3,102 13,943 Income (loss) before income taxes (110,342) (26,561) (56,290) 37,992 Income taxes (28,384) 1,513 2,327 31,745 Net income (loss) $ (81,958) $ (28,074) $ (58,617) $ 6,247 Per share data Net income (loss) per share $ (0.30) $ (0.10) $ (0.22) $ 0.02 Weighted-average shares outstanding 270,504,264 270,250,069 270,396,146 270,233,224 See notes to consolidated financial statements.• 3 Cox Communications, Inc. Consolidated Statements of Shareholders' Equity • 'Foreign Net Additional currency unrealized Common Stock paid-in Retained translation gain on Class A Class C capital earnings adjustment securities Total (unaudited) (Thousands of Dollars) • Balance at December 31, 1996 $ 256,464 $ 13,799 $ 1,742,121 $ 216,097 $ 23,424 $ 9,407 $ 2,261,312 Net loss (58,617) (58,617) Issuance of stock related to stock compensation plans 270 4,283 4,553 Capital contribution by CEI 36,524 36,524 Foreign currency translation adjustment (17,716) (17,716) Change in net unrealized gain on securities 102,670 102,670 Balance at September 30, 1997 $ 256,734 $ 13,799 $ 1,782,928 $ 157,480 $ 5,708 $ 112,077 $ 2,328,726 See notes to consolidated financial statements. 4 • Cox Communications, Inc. Consolidated Statements of Cash Flows Nine Months Ended September 30 1997 1996 (unaudited) (Thousands of Dollars) Cash flows from operating activities Net income(loss) $ (58,617) $ 6,247 Adjustments to reconcile net income(loss)to net cash provided by operating activities: Depreciation 239,567 180,122 Amortization 57,610 53,519 Equity in net losses of affiliated companies 270,318 101,257 Deferred income taxes • 86,281 (75,529) Gain on issuance of stock by affiliated companies - (50,100) Gain on exchange of cable systems (24,642) -- Gain on sale of affiliated companies (193,780) (4,640) (Increase)decrease in accounts and notes receivable (8,486) 15,597 (Increase)decrease in inventory 2,514 (20,399) Decrease in taxes payable (50,863) (35,842) Other, net (4,340) (18,011) Net cash provided by operating activities 315,562 152,221 Cash flows from investing activities Capital expenditures (530,551) (392,671) Investments in affiliated companies (326,598) (241,984) Proceeds from sale of affiliated companies 6,983 - Payments for exchanges of cable systems (53,442) Restricted proceeds from sale of business 11,410 Proceeds from sale of business - 201,791 Other, net (9,289) (1,796) Net cash used in investing activities (901,487) (434,660) Cash flows from financing activities Revolving credit borrowings, net 350,000 366,291 Repayments of commercial paper, net (21,739) - Proceeds from issuance of debt 249,400 5,000 Repayment of debt (11,083) (5,080) Proceeds from exercise of stock options 4,553 1,158 Payment to reacquire subsidiary preferred stock (10,000) - Increase(decrease) in amounts due to Cox Enterprises, Inc 18,937 (52,898) Increase(decrease) in book overdrafts 7,293 (17,480) Net cash provided by financing activities 587,361 296,991 Net increase in cash 1,436 14,552 Cash at beginning of period 42,349 39,166 Cash (including restricted cash of$11,410 as of September 30, 1997)at end of period $ 43,785 $ 53,718 See notes to consolidated financial statements. 5 Cox Communications, Inc. Consolidated Statements of Cash Flows (Continued) Nine Months Ended September 30 1997 1996 (unaudited) (Thousands of Dollars) Significant noncash transactions Transfer of PCS license $ 251,918 $ Flextech merger stock exchange 203,119 -- Gemstar merger stock exchange 19,373 Net gain on @Home stock offering 329,051 -- Net gain on Teleport offering -- 50,100 Additional cash flow information Interest paid $ 130,624 $ 78,888 Income taxes paid (refunded) (33,092) 143,095 See notes to consolidated financial statements. 6 Cox Communications, Inc. Notes to Consolidated Financial Statements (Unaudited) September 30, 1997 1. Basis of Presentation and Other Information The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnote disclosures required by generally accepted accounting principles for complete fmancial statements. In the opinion of management, the financial statements reflect all adjustments considered necessary for a fair statement of the results of operations and financial position for the interim periods presented. All such adjustments are of a normal recurring nature. These unaudited interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in Cox Communications,Inc.'s("Cox")Annual Report on Form 10-K for the year ended December 31, 1996. The results of operations for the nine months ended September 30, 1997 are not necessarily indicative of the results to be expected for the year ended December 31, 1997 or any interim period. 2. Summary of Significant Accounting Policies Recently Issued Accounting Pronouncements In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." This Statement establishes standards for computing and presenting earnings per share ("EPS"). It replaces the presentation of primary EPS with a presentation of basic EPS. It also requires dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures. Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is computed similarly to fully diluted EPS pursuant to APB Opinion No. 15, "Earnings per Share" ("Opinion 15"), which is superseded by this Statement. This Statement requires restatement of all prior-period EPS data presented. Upon adoption of this Statement in December 1997, the EPS amounts presented will not be materially different than those previously presented in accordance with Opinion 15. In June 1997, SFAS No. 130, "Reporting Comprehensive Income," was issued. This Statement requires that Cox(a)classify,by nature, items of other comprehensive income in a financial statement and (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of the balance sheet. This Statement will also require Cox to report other comprehensive income, a measure of performance that includes all non-owner sources of changes in equity, in addition to net income reported in the financial statements. Reclassification of financial statements for earlier periods provided for comparative purposes will be required. There will be no effect on Cox's financial position upon adoption in the first quarter of 1998. 7 • • • Effective July 1, 1997, Cox revised the cost component factor used to capitalize indirect costs relating to network construction activity. This change in estimate resulted in a reduction of the net loss of approximately$4.1 million during the third quarter, or$0.02 per share for the three months and year ended September 30, 1997. Reclassifications Certain amounts in the 1996 financial statements have been reclassified for comparative purposes. 3. Exchanges and Dispositions of Businesses In September 1997, Cox sold its Sun City California cable television system, serving approximately 10,000 customers, for $11.4 million. An insignificant loss was recognized in conjunction with the sale. For tax purposes, Cox accounted for the disposition as a like-kind exchange. Tax rules allow Cox to defer a substantial portion of the related tax gain on this transaction upon the reinvestment of the net proceeds in qualifying future acquisitions. Cox is presently pursuing additional qualifying reinvestment properties. At September 30, 1997, restricted cash of $11.4 million was held in escrow pending reinvestment and has been reported in the Consolidated Balance Sheet as part of cash. In August 1997, Cox signed a definitive agreement to sell its Central Ohio cable television system to FrontierVision Partners, L.P. The Central Ohio system, which serves approximately 85,000 customers, was acquired by Cox during its 1995 acquisition of Times Mirror Cable Television. Cox anticipates this transaction will be consummated during the fourth quarter of 1997. In addition, Cox anticipates that it will recognize a book gain on this transaction. In August 1997, Cox and Insight Communications Company, L.P. ("Insight") signed a letter of intent whereby Cox agreed to exchange its Lafayette, Indiana cable television system, serving approximately 38,000 customers, for Insight's suburban Phoenix cable system, serving approximately 36,000 customers. Cox anticipates this transaction will be consummated during the fourth quarter of 1997. No gain or loss is expected on this transaction. In March 1997, Cox exchanged its Myrtle Beach, South Carolina cable television system serving approximately 42,230 customers for Time Warner Entertainment/Advance-Newhouse's ("Time Warner") Hampton and Williamsburg, Virginia cable television systems serving approximately 45,300 customers. The transaction included a Texas cable television system serving approximately 7,000 customers which was purchased by Cox and then immediately traded to Time Warner. Cox recognized a book gain of$27.8 million in conjunction with the exchange. 8 • 4. Investments The summarized unaudited financial information presented below for significant equity method investments served as the basis for which Cox recorded its share of equity in net losses: Three Months Ended (Thousands of Dollars) Outdoor GEMS Sprint PCS PioneerCo TCGI Life Speedvision Television Sept.30, 1997 Revenues $ 72,534 $ 2,760 $ 131,400 $ 3,386 $ 3,304 $ 2,593 Operating loss (382,712) (33,771) (28,600) (5,361) (8,266) (1,586) Net loss (457,179) (46,737) (53,700) (5,628) (8,643) (2,456) Sept.30, 1996 Revenues -- -- $ 72,749 $ 710 $ 905 $ 2,255 Operating loss $(87,136) $(10,422) (21,963) (6,297) (9,151) (2,323) Net loss (94,552) (15,990) (33,704) (6,376) (9,230) (3,207) Nine Months Ended (Thousands of Dollars) Outdoor GEMS Sprint PCS PioneerCo TCGI Life Speedvision Television Sept.30, 1997 Revenues $ 107,387 $ . 5,632 $ 343,900 $ 8,744 $ 6,664 $ 7,612 Operating loss (851,238) (106,259) (80,800) (14,871) (23,452) (5,249) Net loss (1,004,014) (149,894) (150,100) (15,547) (24,375) (8,139) Sept.30, 1996 Revenues -- -- $ 180,271 $ 1,334 $ 1,427 $ 6,573 Operating loss $(165,011) $(23,471) (33,116) (16,071) (21,837) (6,365) Net loss (252,682) (29,636) (72,139) (16,225) (21,991) (8,913) In July 1997,At Home Corporation("At Home")conducted an initial public offering.As a result, the value of the At Home share price became readily determinable, thereby causing Cox to account for its investment in At Home as an available-for-sale investment under FASB No. 115, "Accounting for Certain Investments in Debt and Equity Securities," which resulted in the recording of an unrealized gain on its investment in At Home of$329.1 million. In June 1997, PrimeStar Partners L.P. ("PrimeStar Partners"), in which Cox holds a 10.4% interest, agreed to merge with TCI Satellite Entertainment, Inc. and create a new company,PrimeStar, Inc. As part of this transaction Cox will roll-up, along with the other owners of PrimeStar Partners, its ownership interest in PrimeStar Partners and its PrimeStar distribution businesses into PrimeStar, Inc. in exchange for(i)cash(or the assumption of debt), (ii)shares of Series A Common Stock of PrimeStar, Inc., and(iii)shares of Series C Common Stock of PrimeStar,Inc. It is expected that upon consummation of the roll-up, shares of the Series A Common Stock of PrimeStar, Inc. will be publicly traded on the NASDAQ Stock Market. Subsequent to the roll-up, Cox will own 9%of the common equity ownership of PrimeStar, Inc.Cox anticipates that it will recognize a book gain on this transaction. In May 1997, Starsight Telecast, Inc. merged with Gemstar International Group Limited, a public company that develops and markets proprietary technologies aimed at making technology more user. friendly to consumers. Cox, as a holder of Starsight shares, received 1,313,421 shares of Gemstar as a 9 • result of the merger, representing a 2.8% interest in Gemstar and recognized a gain of approximately $11.0 million related to this transaction in the second quarter of 1997. In April 1997, Cox exchanged its 37.9% interest in UK Gold and 49.6% interest in UK Living for 20,701,084 shares, or a 12.6% interest, in Flextech plc, a United Kingdom publicly held programming company. Cox recognized a gain related to this transaction of$179.8 million during the second quarter of 1997. In December 1996, pursuant to previous agreements, Cox, CEI, Tele-Communications, Inc. ("TCI"), Comcast Corporation ("Comcast") and Sprint Corporation ("Sprint") formed Cox Communications PCS, L.P. ("PioneerCo")to operate the PCS system in the Los Angeles-San Diego Major Trading Area ("MTA"). PioneerCo is owned 49% by Sprint Spectrum Holding Company L.P. ("Sprint PCS")as limited partner and 51%by Cox Pioneer Partnership("CPP") as general partner. CPP is a jointly controlled partnership owned approximately 78%by Cox and approximately 22%by CEI. In March 1997, upon approval from the Federal Communication Commission("FCC"), Cox transferred the PCS license for the Los Angeles-San Diego MTA and the related obligation to the FCC of$251.9 million to PioneerCo. The December 1996 formation of PioneerCo and the March 1997 transfer of the license and obligation resulted in Cox recording$36.5 million as a capital contribution from CEI. 5. Debt September 30 December 31 1997 1996 (Thousands of Dollars) Revolving Credit Facilities $ 799,999 $ 449,999 Commercial Paper,net of unamortized discount of$4,355 and$3,296 695,906 718,704 Medium Term Notes,net of unamortized discount of $647 and$721 263,307 166,082 Floating Rate Reset Notes,due June 15,2009,net of unamortized discount of$18 149,982 -- 6.375%Notes,due June 15,2000,net of unamortized discount of$643 and$821 424,357 424,179 6.5%Notes,due November 15,2002,net of unamortized discount of$453 and$517 199,547 199,483 6.875%Notes,due June 15,2005,net of unamortized discount and hedging of$12,797 and$13,661 362,203 361,339 7.25%Debentures,due November 15,2015,net of unamortized discount of$845 and$880 99,155 99,120 7.625%Debentures,due June 15,2025,net of unamortized discount and hedging of$18,001 and$18,128 131,999 131,872 Obligation to the FCC -- 251,918 Capitalized Lease Obligations 22,130 21,157 Total Debt $3,148,585 $2,823,853 In June 1997, Cox issued $150 million principal amount of Floating Rate Reset Notes due June 15, 2009 (the "Notes"). The Notes bear interest at a floating rate equal to 0.8975% per annum below LIBOR until June 15, 1999, at which time the interest rate will be reset at a fixed annual rate equal to 6.62% plus Cox's spread to the ten year Treasury rate. The Notes are redeemable at the election of the holder,in whole but not in part,at 100%of the principal amount on June 15, 1999. In September 1997, Cox amended and restated its $1,200 million revolving credit facility and its $800 million revolving credit facility to extend the maturities to October 9, 2002 and October 8, 1998, respectively.Minimal changes were also made to the commitment and utilization fees. 10 6. Transactions with Affiliated Companies Cash requirements are funded by internally generated funds, by various external financing transactions and, as needed, through intercompany loans from CEI. CEI performs day-to-day cash management services for Cox,with settlements of credit or debit balances between Cox and CEI occurring periodically with interest at market rates (6.32% at September 30, 1997). Included in the amounts due to/(from)CEI are the following transactions: (Thousands of Dollars) Balance,December 31, 1996 $ 57,147 • Cash transferred from CEI 58,660 Capital contribution by CEI (36,524) Net operating expense allocations and reimbursement (40,987) Balance, September 30, 1997 ... $ 38,296 7. Shareholders' Equity In April 1997,Cox amended its Certificate of Incorporation thereby increasing authorized Class A Common Stock from 286,000,000 shares to 316,000,000 shares. 8. Commitments and Contingencies On October 9, 1997, a putative class action suit was filed against Cox and its cable system subsidiaries in California (the "Cox California Systems") arising out of the manner in which the Cox California Systems sell premium channel cable services. The suit seeks injunctive relief as well as an order awarding the class members compensatory damages, plus statutory damages, punitive damages, interest and attomey's fees.The outcome of this matter cannot be predicted at this time. Cox is a party to other various legal proceedings that are ordinary and incidental to its business. Management does not expect that any legal proceedings currently pending will have a material adverse impact on Cox's consolidated financial position or consolidated results of operations. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the accompanying historical Consolidated Statements of Income for the nine-month period ended September 30, 1997 and 1996. Recent Sales and Exchanges In September 1997, Cox sold its Sun City California cable television system, serving approximately 10,000 customers, for $11.4 million. An insignificant loss was recognized in conjunction with the sale. For tax purposes, Cox accounted for the disposition as a like-kind exchange. Tax rules allow Cox to defer a substantial portion of the related tax gain on this transaction upon the reinvestment of the net proceeds in qualifying future acquisitions. Cox is presently pursuing additional qualifying reinvestment properties. At September 30, 1997, restricted cash of $11.4 million was held in escrow pending reinvestment and has been reported in the Consolidated Balance Sheet as part of cash. In August 1997,Cox signed a definitive agreement to sell its Central Ohio cable television system to FrontierVision Partners, L.P. The Central Ohio system, which serves approximately 85,000 customers, was acquired by Cox during its 1995 acquisition of Times Mirror Cable Television. Cox anticipates this 11 transaction will be consummated during the fourth quarter of 1997. In addition, Cox anticipates that it will recognize a book gain on this transaction. In August 1997, Cox and Insight Communications Company, L.P. ("Insight") signed a letter of intent whereby Cox agreed to exchange its Lafayette, Indiana cable television system, serving approximately 38,000 customers, for Insight's suburban Phoenix cable system, serving approximately 36,000 customers. Cox anticipates this transaction will be consummated during the fourth quarter of 1997. No gain or loss is expected on this transaction. In March 1997, Cox exchanged its Myrtle Beach, South Carolina cable television system serving approximately 42,230 customers for Time Warner Entertainment/Advance-Newhouse's ("Time Warner") Hampton and Williamsburg, Virginia cable television systems serving approximately 45,300 customers. The transaction included a Texas cable television system serving approximately 7,000 customers which was purchased by Cox and then immediately traded to Time Warner. Cox recognized a book gain of$27.8 million in conjunction with the exchange. Three Months Ended September 30, 1997 Compared with Three Months Ended September 30, 1996 Revenues for the three months ended September 30, 1997 were $408.2 million, a 12% increase over revenues of$363.8 million for the three months ended September 30, 1996. Basic customers were 3,296,830, a 2.7%increase over customers at September 30, 1996 after adjusting for the trades and sale of cable systems during 1997. Complete basic revenues for the third quarter of 1997 increased 9%over the same period in 1996 to $267.3 million due to customer growth and average rate increases implemented generally in the fourth quarter of 1996. These increases are the result of new channel additions, increased programming costs and pass-through of inflation adjustments. New product tier revenues grew 34% to $4.7 million as a result of launching these channel offerings in additional systems. Premium service revenues for the three months ended September 30, 1997 were $46.6 million, down$0.7 million compared to comparable period of 1996 as premium units decreased to 1,913,028 due to the completion of the spring 1996 three-for-one promotion. Pay-per-view revenues for the third quarter of 1997 were $9.5 million, down 7% from the same period in 1996; however, excluding revenues from a 1996 Tyson boxing event, pay-per-view revenues increased 20%. Advertising revenues increased slightly to $25.5 million; however, excluding revenues from a non-recurring 1996 Sprint campaign, advertising revenues increased 15%. Revenues from satellite operations were$32.3 million for the current quarter, a 46% increase over revenues of$22.0 million for the same quarter in 1996 as PrimeStar customers increased to 157,193 at September 30, 1997 from 103,004 at September 30, 1996.Other revenues increased to$22.3 million due to strong growth in Fibernet operations,the launch of high-speed data services and consideration received for preferential placement on Cox's digital television offering. Programming costs were $89.1 million for the third quarter of 1997, an increase of 9% over the same period in 1996 due primarily to Cox's customer growth, January 1997 programming rate increases and new channel additions. Plant operations expenses decreased 7% to $33.2 million and included the effect of a revised cost component factor used to capitalize indirect costs relating to network construction activity.Marketing costs increased 24%to$23.6 million for the third quarter due in part to costs associated with roll-out of residential high-speed data and telephony services. General and administrative expenses for the third quarter of 1997 increased 19% to $82.7 million due primarily to the increase in direct costs associated with residential and commercial high-speed data and telephony services. Operating income before depreciation and amortization ("EBITDA") is a commonly used financial analysis tool for measuring and comparing cable television companies in several areas, such as 12 liquidity, operating performance and leverage. EBITDA increased 10% to $152.3 million for the third quarter of 1997. EBITDA for the core video business, which excludes satellite and Fibernet operations and $8.3 million of direct costs associated with residential and commercial high-speed data and telephony services,grew 12%to$153.2 million compared to the third quarter of 1996. The EBITDA margin(EBITDA as a percentage of revenues)for the current quarter was 37.3%, a decrease from 38.0% for the third quarter of 1996 due to the increased launch costs associated with residential and commercial data and telephony. The core video business EBITDA margin was 41.2% for the quarter,an increase from 40.2%for the comparable quarter of 1996. Depreciation was $81.4 million for the third quarter of 1997, a 33% increase compared to the same period in 1996 due to the continued upgrade and rebuild of the broadband network. Amortization increased 24%to$21.6 million for the current quarter due to additional goodwill resulting from the trades of cable systems during the first quarter of 1997. Operating income for the third quarter of 1997 was$49.3 million,a decrease of 17%compared to the same period in 1996. Interest expense increased $15.4 million to $52.5 million for the third quarter of 1997 due to the discontinuance of capitalizing interest resulting from the launch of services by Cox's PCS investments. Equity in net losses of affiliated companies was $107.2 million primarily due to losses of$64.2 million, $18.6 million and$13.5 million associated with Sprint PCS,Cox PCS and Teleport,respectively. Net loss for the current quarter was$82.0 million as compared to net loss of$28.1 million for the third quarter of 1996. Nine Months Ended September 30, 1997 Compared with Nine Months Ended September 30, 1996 Revenues for the nine months ended September 30, 1997 were $1,192.4 million, an 11%increase over revenues of$1,078.6 million for the nine months ended September 30, 1996. Basic customers were 3,296,830 at September 30, 1997 compared to 3,210,698 at September 30, 1996. Complete basic revenues increased 8%to$796.2 million due to customer growth and average rate increases implemented generally in the fourth quarter of 1996. These rate increases are the result of new channel additions, increased programming costs and pass-through of inflation adjustments. New product tier revenues grew 42% to $14.4 million as a result of launching these channel offerings in additional systems. Premium service revenues for the nine months ended September 30, 1997 were $139.3 million, down 2%compared to the comparable period of 1996.Premium units decreased to 1,913,028 at September 30, 1997 from 2,044,019 at September 30, 1996 due to the completion of the spring 1996 three-for-one channel promotion. Pay-per-view revenues were $36.1 million, a 10% increase from the nine months ended September 30, 1996 primarily due to the June 1997 Tyson/Holyfield boxing event. Advertising revenues increased 7%to$72.6 million as a result of strong growth in local and national ad sales and Cox's telecasts of the San Diego Padres major league baseball games. Revenues from satellite operations were $88.0 million, a 49% increase over revenues of$58.9 million for the same period in 1996 as PrimeStar customers increased to 157,193 at September 30, 1997 from 103,004 at September 30, 1996. Other revenues increased to $45.7 million due to strong growth in Fibernet operations, the launch of high-speed data services and consideration received during the third quarter of 1997 for preferential placement on Cox's digital television offering. Programming costs increased 11% due primarily to Cox's customer growth, January 1997 programming rate increases,new channel additions and the June 1997 Tyson/Holyfield boxing event.Plant 13 • operations expenses increased 4% to $109.5 million due to 1997 annual salary increases and additional repair and maintenance costs related to systems acquired in the trades during the first quarter of 1997 offset by the third quarter 1997 effect of a revised cost component factor used to capitalize indirect costs relating to network construction activity. Marketing costs increased 4% to $59.5 million due in part to costs associated with roll-out of residential high-speed data and telephony services. General and administrative expenses increased 12% to $234.7 million due to annual salary increases and the increase in direct costs associated with residential and commercial high-speed data and telephony services. EBITDA for the nine months ended September 30, 1997 was $439.2 million, a 7% increase over $410.1 million for the same period in 1996. EBITDA for the core video business, which excludes satellite and Fibernet operations and $15.9 million of direct costs associated with residential and commercial high- speed data and telephony services, grew 9% to $441.9 million compared to the nine months ended September 30, 1996. The EBITDA margin for the nine months of 1997 was 36.8%, a decrease from 38.0%for the nine months of 1996 due to the increased launch costs associated with residential and commercial data and telephony. The core video business EBITDA margin was 40.4%for the nine months ended September 30, 1997,a slight increase over the same period of 1996. Depreciation increased 33%to $239.6 million reflecting the continued upgrade and rebuild of the broadband network. Amortization increased 8% to $57.6 million for the current year due to additional goodwill resulting from the trades of cable systems during the first quarter of 1997. Operating income for the nine months ended September 30, 1997 was $142.0 million, a decrease of 20% compared to the same period in 1996. Interest expense increased $43.6 million to $149.5 million for the nine months ended September 30, 1997 due to the discontinuance of capitalizing interest resulting from the launch of services by Cox's PCS investments. Equity in net losses of affiliated companies was$270.3 million primarily due to losses of $145.4 million, $61.6 million and $37.1 million associated with Sprint PCS, Cox PCS and Teleport, respectively. A gain of $190.8 was recognized in the second quarter of 1997 primarily as a result of the exchange of Cox's interest in UK Gold and UK Living to Flextech plc. Net loss for the nine months ended September 30, 1997 was $58.6 million as compared to net income of$6.2 million for the nine months ended September 30, 1996. Liquidity and Capital Resources Uses of Cash As part of Cox's ongoing strategic plan, Cox has invested, and will continue to invest, significant amounts of capital to enhance the reliability and capacity of its broadband cable network in preparation for the offering of new services and to make investments in affiliated companies primarily focused on telephony,programming and communications-related activities. Capital expenditures are primarily directed at upgrading and rebuilding broadband cable networks in preparation for the delivery of additional services. Capital expenditures for 1997 are expected to range between $625 million and $675 million. During the nine months ended September 30, 1997, Cox made capital expenditures of$530.6 million. Funding requirements in 1997 for investments in affiliated companies are expected to be approximately$173 million for Sprint PCS and PhillieCo, $165 million for PioneerCo and$33 million for programming, PrimeStar and other investments. During the nine months ended September 30, 1997, Cox 14 funded approximately $316.5 million for Sprint PCS, PioneerCo and other telephony ventures and $10.1 million for programming,PrimeStar and other investments. During the nine months ended September 30, 1997, net repayments of$21.7 million were made for the commercial paper program. In addition, payments for exchanges of cable systems of$53.4 million were made for the trades which were closed during the first quarter of 1997. Sources of Cash Cox generated $315.6 million from operating activities during the nine months ended September 30, 1997. Restricted proceeds of$11.4 million were received by Cox for the sale of its Sun City California cable television system and will be held in escrow pending reinvestment in a future cable system acquisition. Cox borrowed$350.0 million of short term debt under the revolving credit facilities during the first nine months ended September 30, 1997. In addition, Cox received net proceeds of$249.4 million from the issuance of Floating Rate Reset Notes due June 15, 2009 and the issuance of medium term notes. In September 1997, Cox amended and restated its $1,200 million revolving credit facility and its $800 million revolving credit facility to extend the maturities to October 9, 2002 and October 8, 1998, respectively. Minimal changes were also made to the commitment and utilization fees. Part II - Other Information Item 1. Legal Proceedings On October 9, 1997, Lynn Putnam, Jerry Williams and Raphael Levens filed a putative class action suit in Superior Court of the State of California, County of San Diego against Cox and its cable system subsidiaries in California (the "Cox California Systems") arising out of the manner in which the Cox California Systems sell premium channel cable services. The suit alleges that the Cox California Systems unlawfully require limited basic cable customers to purchase the expanded basic services tier in order to purchase premium channels,i.e.,channels sold on an a la carte basis such as Home Box Office and Showtime. The suit asserts causes of action under California antitrust and consumer protection laws. The suit seeks injunctive relief as well as an order awarding the class members compensatory damages, plus statutory damages, punitive damages, interest and attomey's fees. The outcome of this matter cannot be predicted at this time. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27 -- Financial Data Schedule (b) Reports on Form 8-K filed during the quarter ended September 30, 1997: None. 15 t r • • SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Cox Communications,Inc. /s/Jimmy W. Hayes Date: November 6, 1997 Jimmy W. Hayes Senior Vice President,Finance and Chief Financial Officer (Principal Financial Officer) 16 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington,D.C.20549 FORM 10-K (Mark One) [x J ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED) For the fiscal year ended December 31,1996 OR [ J TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to Commission File Number 1-06590 COMMUNICATIONS Cox Communications,Inc. (Exact name of registrant as specified in its charter) Delaware 58-2112281 (State or otherjurisdiction of incorporation or organization) (I.R.S.Employer Identification No.) 1400 Lake Hearn Drive,Atlanta,Georgia 30319 (Address of principal executive offices) (Zip Code) Registrant's telephone number,including area code:(404)843-5000 • - SECURITIES REGISTERED PURSUANT TO SECTION 12(b)OF THE ACT: Class A Common Stock,$1.00 par value SECURITIES REGISTERED PURSUANT TO SECTION 12(g)OF THE ACT: NONE. 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 ® No 0 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K.O As of March 6, 1997, the aggregate market value of the Class A Common Stock held by non-affiliates of the registrant was$1,438,696,301 based on the closing price on the New York Stock Exchange on such date. There were 256,511,695 shares of Class A Common Stock outstanding as of March 6,1997. There were 13,798,896 shares of Class C Common Stock outstanding as of March 6,1997. DOCUMENTS INCORPORATED BY REFERENCE Portions of the 1996 Annual Report to Stockholders are incorporated by reference into Parts I and II.Portions of the Proxy Statement for the 1997 Annual Meeting of Stockholders are incorporated by reference into Part III. c COX COMMUNICATIONS,INC. 1996 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS Page PART I Item 1. Business 3 Item 2. Properties 36 Item 3. Legal Proceedings 37 Item 4. Submission of Matters to a Vote of Security Holders 37 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 37 Item 6. Selected Financial Data 37 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 38 Item S. Financial Statements and Supplementary Data 38 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial 38 Disclosure PART III Item 10. Directors and Executive Officers of the Registrant 38 Item 11. Executive Compensation 38 Item 12. Security Ownership of Certain Beneficial Owners and Management 38 Item 13. Certain Relationships and Related Transactions 38 PART IV Item 14. Exhibits,Financial Statement Schedules and Reports on Form 8-K 39 SIGNATURES 42 • PARTI ITEM 1. BUSINESS Cox Communications, Inc. ("Cox") is the fifth largest operator of cable television systems in the United States and is a fully integrated, diversified media and broadband communications company with operations and investments in three related areas: (i) U.S. broadband networks; (ii) cable television programming;and(iii)United Kingdom("U.K.")broadband networks. Cox is an indirect 75.2% owned subsidiary of Cox Enterprises, Inc. ("CEI"). CEI, a privately-held corporation headquartered in Atlanta, Georgia, is one of the largest media companies in the United States with consolidated revenues.in 1996 of$4.6 billion. CEI, which has a 98-year history in the media and communications industry, publishes 18 daily newspapers and owns or operates 11 television stations in addition to its interest in Cox. Through its majority-owned subsidiary Cox Radio, Inc., CEI owns or operates 22 radio broadcast stations. Through Manheim Auctions, CEI is also the world's largest operator of auto auctions. Cox's business strategy is the development and implementation of new services for its customers by capitalizing on its highly clustered cable television systems, its industry leading position in upgrading the technological capabilities of its broadband networks and its commitment to customer service. Cox believes that an integrated package of existing multichannel video and new services, such as enhanced video,high- speed Internet access and telephony, including personal communication services ("PCS"), will enhance Cox's ability to acquire and retain customers while increasing revenues per customer. In addition, Cox has sought to utilize its expertise and position as one of the nation's premier cable television companies to invest in programming, telecommunications and technology companies which are complementary to Cox's business strategy. Cox believes that these investments have contributed substantially to the growth of its core broadband communications business and that its leadership position in broadband communications has facilitated the growth of these investments. Cox seeks to utilize insights gained from the integrated operations of its cable television systems and related programming, telecommunications and technology investments to continue its leadership in the broadband communications industry by anticipating and capitalizing upon long-term industry trends. U.S.Broadband Networks' Business Strategy Cox's strategy for its U.S. broadband network is to capitalize on the strength of its current cable television business to provide customers with an integrated package of existing multichannel video and new services, including enhanced video, high-speed Internet access and telephony, including PCS. Cox believes that the long-term competitive advantages of clustering, its aggressive investment in the g mP 8 g ggr technological capabilities of its broadband network and its commitment to customer service will enhance Cox's ability to acquire and retain customers while increasing revenues per customer in a competitive environment. Clustering. As an integral part of its broadband communications strategy, Cox has continually sought the advantages and efficiencies of operating large cable television clusters. Including the effects of the exchanges of cable television systems in the first quarter of 1997, approximately 82%of Cox's customers will be served by Cox's nine largest clusters. These nine clusters will average over 300,000 customers each. See"-- Cable Television Business— Operating Data." Communities served by Cox's systems have an average household income of approximately $40,000, versus the national average of$33,500. Large cable television clusters enable Cox to reduce expenses through the consolidation of marketing and support functions and to place more experienced management teams at the system level who are better equipped to 3 ICI • meet the new regulatory and competitive challenges of today's telecommunications industry. Large operating clusters will also increase the speed and effectiveness of Cox's new product and services deployment,enhancing its ability to increase both customers and revenues. Cox has and will continue to make strategic acquisitions of contiguous cable television systems to create and expand large clusters,while disposing of cable operations in non-strategic regions. In the past year,Cox has made the following acquisitions and exchanges of cable television systems: In January 1996, Cox acquired a cable television system serving approximately 51,000 customers in Newport News,Virginia,for approximately$122.3 million. Cox operates this system as part of its cluster in Hampton Roads,Virginia. In April 1996, Cox exchanged its Williamsport, Pennsylvania cable television system serving approximately 24,500 customers for $13 million and an East Providence, Rhode Island system serving approximately 15,500 customers. In January 1997, Cox and Tele-Communications, Inc. ("TCI") exchanged certain cable television systems with the result that Cox increased the size of its existing clusters in Hampton Roads,Phoenix,New Orleans,Rhode Island,and Omaha and disposed of several non-strategic cable television systems. Cox and TCI each exchanged more than 300,000 customers. • In January 1997, Cox exchanged its western Massachusetts cable television systems serving approximately 48,000 customers for Continental Cablevision's James City and York County, Virginia and Pawtucket,Rhode Island systems serving approximately 49,000 customers. In March 1997, Cox exchanged its Myrtle Beach, South Carolina cable television system serving approximately 42,000 customers for Time Warner's Hampton and Williamsburg,Virginia systems serving approximately 45,000 customers. This transaction also included a Texas cable television system serving approximately 7,000 customers which was purchased by Cox and immediately traded to Time Warner. Through the exchanges set forth above, Cox has increased the approximate size of its Phoenix cluster 15%to 513,000 customers, its New England cluster 97%to 410,000 customers, its Hampton Roads cluster 46%to 383,000 customers,its New Orleans cluster 7%to 271,000 customers and its Omaha cluster 41%to 149,000 customers. Technology and Capital Improvements. Cox emphasizes high technical standards for its cable television clusters. Cox continues to deploy fiber optic cable and to upgrade the technical quality of its hybrid fiber-coaxial("HFC")broadband network. The result is a significant increase in channel capacity, facilitating the delivery of additional programming and services such as enhanced video, high-speed Internet access and telephony, including PCS. Cox's aggressive investment in its broadband network upgrade will allow it to offer these services more quickly,increasing revenues and cash flows. Cox strives to maintain the highest technological standards in the industry. Cox's U.S.cable television systems have bandwidth capacities ranging from 400MHz to 750MHz,which permits carriage of 54 to 112 analog channels. At the end of 1996, approximately 93% of Cox's network had at least 54-channel capacity, and 100% of its cable television subscribers were served by addressable technology. Cox anticipates that approximately 87%of its customers will be served by broadband networks with at least 78 analog channels of capacity by the end of 1998. In Cox's nine largest systems,by the end of 1997,75%of its customers will have access to 550MHz or 750 MHz capacity and 2 million customers will be able to receive two-way services. In addition,Cox plans to deploy digital compression converters in several of its markets by the end of 1997. Digital compression will enable Cox to increase the channel capacity of its cable television systems to more than 100 channels. Cox believes that the cable television system upgrades, along with the 4 distribution of digital compression technology, will provide its customers with greater programming diversity,better picture quality,improved reliability,and enhanced customer service. In addition to increasing channel capacity, Cox's aggressive investment in technology has improved the reliability of its service. Cox's HFC broadband networks had a 99.986% reliability rate in 1996, as measured by average customer minutes of outage per year, which is comparable to the BellCore standard of 99.989%utilized by the RBOCs. Cox's fiber optic network design of ring-in-ring architecture provides significant improvements over existing non-ring network architecture in capability, flexibility, and reliability, without creating additional cost. Once ring-in-ring architecture is fully deployed, Cox expects the reliability of its broadband networks to exceed the BellCore standard, which will afford Cox the opportunity to provide competitive residential telephony and other communications services in its systems. All of Cox's cable television systems utilize addressable technology and approximately 50% of Cox's customers have addressable converters. Addressable technology enables Cox to control electronically the services delivered to each customer. Cox can upgrade, downgrade, or disconnect services to an addressable customer immediately,without the delay or expense of dispatching a technician to the home. In addition,Cox is able to offer its customers pay-per-view programming,generally consisting of recently released movies and special events. Addressable technology also helps Cox reduce pay service theft and is an effective enforcement tool in the collection of delinquent payments. Customer and Community Service. Strong customer service is a key element of Cox's long-term business strategy to develop and implement new services for its customers. Cox has always been committed to customer service and has been recognized by several industry groups as a leader in providing quality customer service.In 1996,Cox was distinguished by J.D.Power&Associates for achieving highest overall customer satisfaction among cable television users in the first study on the cable television industry. Cox outplaced six other leading cable television companies in all areas impacting customer satisfaction, including: cost of service, reception quality, programming, corporate image and customer service and billing. Cox systems have won the "Customer is Key Award" nine times, more than all other cable companies combined. The award is presented by CTAM (Cable & Telecommunications: A Marketing Society)for outstanding customer service in the cable television industry.Cox anticipates that its high level of customer satisfaction will help it compete more effectively in the delivery of new services such as enhanced video, high-speed Internet access and telephony, including PCS, to its customers. Cox places special emphasis on training its customer contact employees and has developed customer service standards and programs that exceed national customer service standards developed by the National Cable Television Association ("NCTA") and the Federal Communications Commission ("FCC"). Cox also has sought to meet the needs of its customers by deploying, in many of its U.S. cable television systems, user-friendly technology such as automatic response units("ARUs"),automatic number identification("ANI")telephone equipment and "impulse" pay-per-view capability, all of which provide added convenience to customers. The use of these technologies facilitates the processing of customer inquiries and service orders and aids in the marketing of existing and new services. A key element of Cox's community service is enhancing education through the use of cable technology and programming. Cox currently participates in four education initiatives. First, Cox participates in a national initiative, Cable in the Classroom, which offers commercial free programming with lesson plans free of charge to schools. Second, under the Cox Line to Learning program, Cox plans to install a cable modem with high-speed Internet access free of charge in certain schools as it upgrades its broadband network. Third, Cox has established model technology schools in Chula Vista, California, Omaha, Nebraska, Warwick, Rhode Island and Norfolk, Virginia, where it is testing future services, such as interactive fiber optic links to local colleges,to determine their value in the classroom. Additionally, Cox has established a Multimedia Academy to train educators,parents, students and community leaders about the use of multimedia technology as an educational tool. Telephony. Cox believes that cable television companies are well suited to take a leading position in the telephony business. Cable television's HFC broadband networks have improved significantly in the 5 past five years with the advent of low-cost broadband fiber optic technology,which has provided the level of performance and reliability necessary to compete in the evolving telecommunications market. By providing local telephony services and reselling long distance services, Cox will access a portion of a revenue market as large as$180 million for telephony services,which is more than seven times larger than the existing cable television market. Additionally, Cox owns an interest in Teleport Communications Group Inc.("TCGr'),the nation's largest competitive local exchange carrier. See"—Telephony and High- Speed Internet Access Businesses--Teleport Communications Group Inc." Cox believes in the revenue opportunities of wireless communications. Cox has been a leader in developing PCS, an advanced, digital, wireless telephone technology.. For its innovative efforts in developing PCS, Cox was awarded a pioneer preference license for the Los Angeles-San Diego Major Trading Area("MTA"),an area with a population of more than 21 million. See " -- Telephony and High- Speed Internet Access Businesses—Cox Communications PCS,L.P." Cox believes that the use of the HFC broadband network and new digital wireless technologies will continue to position the cable industry as a viable competitor for local exchange carrier("LEC")services. Additionally,to enhance Cox's entry into this new wireless communications market, Cox joined TCI, Comcast Corporation ("Comcast") and Sprint Corporation ("Sprint") to create Sprint Spectrum Holding Company L.P. (with its subsidiaries, "Sprint PCS") with the goal of gaining a significant share of the wireless communications market. See "—Telephony and High-Speed Internet Access Businesses -- Sprint PCS." The partners are developing an integrated, national wireless voice and data system, which the partners will promote using the "Sprint PCS" brand name and cross-promote with cable services and products branded by Cox,TCI and Comcast in their respective cable television systems. Satellite Television. Cox is involved in the business of delivering television programming via direct broadcast satellite ("DBS"). Cox owns a 10.4% interest in PrimeStar Partners L.P. ("PrimeStar"), the nation's second-largest DBS operator with 1.6 million customers as of December 31, 1996. See "-- Other Telecommunications and Technology Investments — PrimeStar Partners, L.P." In addition to being an investor in PrimeStar,Cox,as part of its consolidated operations,currently distributes the PrimeStar service to more than 130,000 customers. High-Speed Internet Access. The use of computers, online services and the Internet has increased significantly over the last few years. For example, over the last ten years the number of Internet hosts has increased from 10,000 to over 10 million. Cox believes in the revenue opportunities of Internet related services and is taking advantage of these opportunities by developing and providing high-speed Internet access and work-at-home services via its advanced HFC broadband network. By using a cable modem and the broadband network, users can access the Internet at speeds up to hundreds of times faster than existing telephone modems. To enhance Cox's entry into the cable based high-speed Internet access market, Cox acquired an interest in At Home Corporation. See "—Telephony and High-Speed Internet Access Businesses — @Home." In December 1996, Cox launched high-speed Internet access, offered as Cox @Home Network, in Orange County, California. Cox plans to introduce the service in additional markets in 1997. Other Alternative Revenue Sources. Implementation of Cox's business strategy will allow Cox to develop revenue sources ancillary to its core cable television, telephony and high-speed Internet access businesses. In recent years, Cox has increasingly generated revenues from additional sources such as advertising,pay-per-view and home shopping. Cox derives revenues from the sale of advertising time on satellite-delivered networks such as ESPN, MTV and CNN. Currently, Cox inserts advertising on approximately 15 channels in each of its cable television systems. Local cable television advertising is often more effective and less expensive than alternative local advertising sources. As such,Cox expects continued strong growth in this revenue source. In addition, Cox participates in the national and regional cable television advertising market through its 6 investment in National Cable Communications, L.P. ("NCC"), a partnership which represents cable television companies to advertisers. NCC is the largest representation firm in spot cable advertising sales. Cox believes that the growing number of addressable homes, the addition of channels offering pay- per-view movies and events (such as boxing matches and concerts) and its increasing pay-per-view marketing expertise will lead to increases in Cox's pay-per-view revenue stream In addition, Cox is continuing its efforts to increase the performance of the pay-per-view sector through the use of automated phone ordering procedures and preview channels. With future impulse ordering technology, Cox hopes to further the growth of pay-per-view services. The implementation of digital compression technology, and the resulting increase in channel capacity,will give Cox"near video-on-demand" capabilities, and further increase pay-per-view purchases. Cable Television Business Cox's domestic cable television operations represent the core element of its integrated broadband communications strategy. Including the effects of the exchanges of cable television systems in the first quarter of 1997, Cox owns and operates cable television systems organized into 18 locally managed clusters in 13 states. These clusters pass approximately 5.0 million homes and provide service to approximately 3.2 million customers.The foregoing excludes approximately 82,500 customers represented by Cox's 50%ownership interest in a joint venture with Time Warner Entertainment Company,L.P.,which owns two additional cable television systems in Fort Walton Beach,Florida and Staten Island,New York, which, as of December 31, 1996, passed approximately 237,000 homes and provided service to approximately 165,000 customers. Cox's U.S. cable television systems are diversified geographically and are not dependent on the economic viability of any one particular region. Cox's U.S.cable television systems offer customers packages of basic and cable programming services consisting of television signals available off-air, a limited number of television signals from so-called "super stations," numerous satellite-delivered non-broadcast channels (such as Cable News Network, MTV: Music Television,USA Network,ESPN,Arts and Entertainment Channel,The Discovery Channel, The Learning Channel, Turner Network Television and Nickelodeon), displays of information featuring news, weather, stock and financial market reports and public, governmental and educational access channels. In some systems, these satellite-delivered non-broadcast services are offered at a per channel charge or are packaged together to form a tier of services offered at a discount from the combined per channel rate.Cox's cable television systems also provide premium television services to their customers for an extra monthly charge. Such services (including Home Box Office ("HBO"), Showtime, Cinemax and regional sports networks)are satellite-delivered channels that consist principally of feature motion pictures presented without commercial interruption, sports events, concerts and other entertainment programming. Customers generally pay initial connection charges and fixed monthly fees for cable programming and premium television services,which constitute the principal sources of revenues to Cox. 7 Operating Data. The following table indicates the growth of Cox's cable television systems by summarizing the number of homes passed by cable, basic customers, premium service units, penetration levels and average monthly revenue per basic customer as of December 31 for each of the five years set forth below: 1996 1995 1994 1993 1992 Homes passed(a) 5,016,749 5,005,858 2,878,857 2,838,197 2,745,491 Basic customers(b) 3,259,384 3,248,759 1,851,726 1,784,337 1,722,007 Basic penetration(c) 65.0% 64.9% 64.3% 62.9% 62.7% Premium service units(d) 2,000,673 1,827,068 1,203,606 1,205,587 '1,249,673 Premium penetration(e) 61.4% 56.2% 65.0% 67.6% 72.6% Average monthly revenues per basic customer(f)(g) $37.40 $34.72 $33.75 $33.65 $31.97 (a) A home is deemed to be "passed" if it can be connected to the distribution system without any further extension of the distribution plant. (b)A home with one or more television sets connected to a cable television system is counted as one basic service customer. (c)Basic customers as a percentage of homes passed by cable. (d)Premium service units include single or multi-channel services offered for a monthly fee per service. (e)Premium service units as a percentage of basic customers. A basic service customer may purchase more than one premium service,each of which is counted as a separate premium service unit. (f)Average for each period presented. (g)Includes revenues associated with competitive access and PrimeStar operations. 8 s T The following table is a summary of certain operating data as of December 31, 1996 for Cox's U.S. cable television clusters: Actual Pro Forma(a) Homes Basic _ Basic Top Nine Clusters: Passed Customers Customers Phoenix,AZ 864,535 450,303 512,965 San Diego,CA 687,531 472,060 472,060 New England 363,981 258,019 410,355 Hampton,Roads,VA 410,684 261,226 383,026 New Orleans,LA 427,793 253,741 270,637 Orange County,CA 328,719 248,359 248,359 Omaha,NE 162,337 98,825 149,352 Pensacola/Ft.Walton Beach,FL(b) 193,759 145,218 145,218 Oklahoma City,OK 203,610 116,624 116,624 Subtotal Top Nine 3,642,949 2,304,375 2,708,596 Other Systems: Santa Barbara/Bakersfield,CA 129,613 90,125 90,125 Gainesville/Ocala,FL 116,798 86,606 86,606 Coshocton/Newark,OH 108,898 84,618 84,618 Lubbock/Midland,TX 132,399 76,317 76,317 Middle Georgia 107,588 72,315 72,315 Cleveland,OH 98,664 70,677 70,677 Roanoke,VA 77,555 56,773 56,773 Lafayette,IN 49,292- 38,124 38,124 Humboldt,CA 43,231 32,231 32,231 Quad Cities/Cedar Rapids,IA 163,871 111,444 - Spokane,WA 132,980 90,600 - Springfield,IL 71,382 49,139 - Western Massachusetts 64,475 47,887 - Saginaw,MI 54,647 35,916 - Myrtle Beach,SC 54,551 42,230 - Washington,PA 48,253 36,575 - Subtotal Other Systems 1,454,197 1,021,577 607,786 Total(including Ft.Walton Beach)(b) 5,097,146 3,325,952 3,316,382 Total(excluding Ft.Walton Beach) 5,016,749 3,259,384 3,249,814 (a) The pro forma customer count includes the effects of the TCI and Continental exchanges completed in January 1997 and the Time Warner exchange completed in March 1997. The actual customer counts for the TCI,Continental and Time Warner systems will be lower when conformed to Cox's methodology of counting customers. (b) Includes the Ft.Walton Beach,Florida system which is managed as part of Cox's Pensacola cluster. The system is 50% owned by Cox through a partnership with Time Warner. This partnership also owns a system in Staten Island,New York which is managed by Time Warner. 9 Franchises. Cable television systems are constructed and operated under non-exclusive franchises granted by local governmental authorities. These franchises typically contain many conditions, such as time limitations on commencement and completion of system construction, service standards including 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 under the Cable Communications Policy Act of 1984(the"1984 Cable Act"), as amended by the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act")and the Telecommunications Act of 1996(the"1996 Act"). As of March 6, 1997,Cox held 225 franchises.These franchises provide for the payment of fees to the issuing authority. 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. For each of 1996, 1995 and 1994, franchise fee payments made by Cox averaged approximately 4% of gross revenues. Cox has never had a franchise revoked.The 1984 Cable Act provides for an orderly franchise renewal process,and it establishes comprehensive renewal procedures which require that an incumbent franchisee's renewal application be assessed on its own merit and not as part of a comparative process with competing • applications. A franchising authority may not unreasonably withhold the renewal of a franchise. If a franchise renewal is denied and the system is acquired by the franchise authority or a third party, then the franchise authority must pay the operator the "fair market value" for the system covered by the franchise, but with no value allocated to the franchise itself. Cox believes that it has satisfactory relationships with its franchising communities. Programming Suppliers. Cox has various contracts to obtain basic and premium programming from program suppliers whose compensation is typically based on a fixed fee per customer or a percentage of Cox's gross receipts for the particular service. Some program suppliers provide volume discount pricing structures or offer marketing support to Cox. Cox's programming contracts are generally for a fixed period of time and are subject to negotiated renewal. Cox's programming costs have increased in recent years and are expected to continue to increase due to additional programming being provided to Cox's customers, increased costs to produce or purchase programming, inflationary increases and other factors. Increases in the cost of programming services have been offset in part by additional volume discounts as a result of the growth of Cox and its success in selling such services to its customers. Cox believes that it will continue to have access to programming services at reasonable cost levels. Telephony and High Speed Internet Access Businesses Cox actively seeks to develop and introduce new services that capitalize on the capabilities of its advanced broadband platform. Accordingly, business and residential telephony services and high-speed Internet access are a developing part of Cox's business strategy. Cox has made commitments to wireline and wireless telephony and the high-speed Internet access businesses directly and through its investments in related entities. Wireline. In 1996 Cox began delivering local phone service over its broadband network in two test markets and commercially offered phone service to residents of an apartment complex in Orange County, California. In 1997 Cox will launch local phone service to residential and commercial customers in additional markets. Additionally,through its wholly-owned subsidiary,Cox Fibernet,Cox provides access for voice and data services to its customers in three markets thereby allowing information-intensive businesses alternatives to the local phone companies for access to an array of telecommunications services. Cox also owns a 24.6%interest in TCGI. See"—Teleport Communications Group Inc." 10 Cox intends to selectively upgrade its broadband network to provide residential telephone services. The timing and location of Cox's deployment of residential telephone services will depend on numerous factors, including regulatory approvals and technical advances. Cox's residential telephony subsidiaries have either been certified as a competitive local exchange carrier("CLEC") or have applications pending for CLEC status in eight states. Cox has executed interconnection agreements with the incumbent LEC in several states, has arbitrated several agreements and is in the process of negotiating interconnection agreements in several others.Competition for residential telecommunications will be driven by competitive pricing,advanced features and packaging of services. Sprint PCS. Sprint PCS engages in the business of providing wireless communications services, primarily PCS. Sprint PCS is in the process of building a seamless integrated nationwide wireless communications network. Sprint PCS, through WirelessCo, L.P., was the successful bidder for 29 broadband PCS licenses in the auction conducted by the FCC that was completed in March 1995. The markets covered by the licenses for which Sprint PCS was the successful bidder include New York, San Francisco-Oakland-San Jose, Detroit, Dallas-Fort Worth, Boston-Providence, Minneapolis-St. Paul and Miami-Fort Lauderdale.The$2.11 billion total purchase price for the 29 licenses has been paid to the FCC. Additionally, Cox recently assigned its Omaha MTA license to Sprint PCS, bringing the total number of licenses to 30. As of February 1997,Sprint PCS had launched its service in thirteen markets. Sprint PCS's objectives include the penetration of both the current wireless and wireline telecommunications marketplaces through the use of advanced digital technology. Sprint PCS and its affiliates have obtained licenses to offer a full range of wireless telecommunications services to areas with an aggregate population of approximately 191 million. Sprint PCS plans to penetrate these markets by offering a competitively-priced product which will be targeted towards high usage consumers. Sprint PCS believes that the programmable PCS network will offer long-term competitive pricing, digital call quality, security and capacity advantages over the current cellular networks. Sprint PCS intends to use both mass- marketing and specific customer segment marketing to focus its efforts on consumers who have significant work or personal telecommunications demands. Sprint PCS expects to own, or to have affiliation relationships with PCS providers who own, PCS licenses that together will cover a national scope. The programmable qualities of the PCS network will allow Sprint PCS to offer packages that will be competitive with those offered by cellular service providers and the LECs. These packages may include a flat monthly rate for calls made from a particular micro-cell site(e.g.,the neighborhood of a customer)and a modest additional charge for calls initiated outside of the customer's neighborhood. In addition, Sprint PCS intends to cross-market its wireless services with the telecommunications products and services provided by its partners. Sprint PCS also owns equity interests in two partnerships that hold PCS licenses that were issued under the FCC's pioneer preference program. First, Sprint PCS purchased from The Washington Post Company a 49%limited partnership interest in American PCS,L.P.("APC").APC holds a broadband PCS license for the Washington-Baltimore MTA.APC has agreed to affiliate its PCS system with Sprint PCS's systems and to become part of the partnership's nationwide network, using the "Sprint Spectrum" trademark. In November 1995,APC began the commercial deployment of its services with PCS customers accessing the network in the Washington-Baltimore MTA. Second, Sprint PCS owns a 49% limited partnership interest in Cox Communications PCS, L.P. ("PioneerCo"),a partnership formed to hold the license for the PCS system in the Los Angeles-San Diego MTA, using the license awarded to Cox under the pioneer preference program. See "— Cox Communications PCS, L.P." PioneerCo has also agreed to affiliate its PCS system with the Sprint PCS nationwide network and use the "Sprint PCS" trademark. In December 1996, Sprint PCS service was launched in the San Diego area. Cox Communications PCS,L.P. Cox was awarded a broadband PCS license for the Los Angeles-San Diego MTA in 1995 under the FCC's pioneer preference program. The amount payable by Cox for the license is $251.9 million which is included in outstanding debt at December 31, 1996 and 1995. The Los 11 Angeles-San Diego market has a total population of over 21 million and includes most of southern California,southern Nevada and a small portion of Arizona. In December 1996,Cox,CEI,TCI,Comcast and Sprint formed PioneerCo to operate the PCS system in the Los Angeles-San Diego MTA. PioneerCo is owned approximately 49% by Sprint PCS as limited partner and approximately 51%by Cox Pioneer Partnership ("CPP") as general partner. CPP is a jointly controlled partnership owned approximately 78% by Cox and approximately 22% by CEI. Cox, as managing general partner of CPP, controls the license and has day-to-day management authority over PioneerCo. Upon FCC approval, the PCS license for the Los Angeles-San Diego MTA and the related payment obligation to the FCC will be transferred from Cox to PioneerCo. Beginning on the earlier of December 14, 1997 or completion of the FCC's buildout requirement, CPP has the right to put its interest to Sprint PCS at fair market value over a five-year period. In addition, CPP has the right to put its entire interest from the fifth through the eighth anniversaries of the earlier of December 14, 1997 or completion of buildout, and Sprint PCS has a call on CPP's interest from the fourth to the eighth anniversaries of the earlier of December 14, 1997 or completion of the buildout requirement. PhillieCo,L.P. and Omaha PCS License. Cox also owns a 17.6%interest in PhillieCo, a partnership formed by subsidiaries of Cox, TCI and Sprint. PhillieCo was the successful bidder for a broadband PCS license for the Philadelphia MTA. The approximately $85 million purchase price for this license has already been paid to the FCC. PhillieCo will also be affiliated with the Sprint PCS network and will use the"Sprint PCS"trademark. Cox was also the successful bidder for a broadband PCS license for the Omaha MTA in the FCC's 1995 auction. The purchase price for the license was approximately $5.1 million. In February 1997, following FCC approval,Cox contributed the Omaha PCS license to Sprint PCS. Teleport Communications Group Inc.Prior to June 1996,Cox held a 30.06%interest in each of TCGI and Teleport Communications Group Partners ("TCGP"), which both owned and operated fiber optic networks serving several U.S. markets and provide point-to-point digital communications links to telecommunications businesses and long-distance carriers. In June 1996, TCGI entered into a reorganization under which,among other things,TCGI's four stockholders,Cox,Comcast,Continental and TCI(collectively,the"Cable Stockholders")contributed to TCGI all of their partnership interests in TCGP, additional interests in local joint ventures and debt and accrued interest owed by TCGI to the Cable Stockholders (the "Reorganization"). Following the Reorganization, TCGI conducted an initial public offering in which it sold 27,025,000 shares(the"TCGI IPO"). Upon completion of the Reorganization and the TCGI IPO, Cox owns 39,087,594 shares of TCGI's Class B Common Stock representing 29.8% of TCGI's Class B Common Stock, 24.6% of total shares outstanding and 29.1% of the voting power of TCGI. Each share of Class B Common Stock is convertible into one share of its Class A Common Stock. (Nome. In August 1996, Cox acquired a 14.2% interest in At Home Corporation. At Home Corporation is the provider of"@Home," a national Internet "backbone" service that allows customers access to the Internet at speeds up to hundreds of times faster than today's telephone modems by using a cable modem and the cable television broadband network. The other partners are TCI (45.4%), KPCB Affiliates (13.6%), Comcast (14.2%) and @Home's management (12.6%). At December 31, 1996, @Home had launched its service in four markets. 12 • • II Other Telecommunications and Technology Investments A summary of Cox's significant investments in other telecommunications and technology businesses is set forth below. Cox Percentage Ownership Investment Description • Interest PrimeStar Partners,L.P. Medium-powered DBS 10.4% StarSight Telecast,Inc. Interactive program guide 8.6 Syntellect,Inc. Supplier of pay-per-view ordering technology 8.6 PrimeStar Partners, L.P. PrimeStar is a provider of DBS services. Cox owns a 10.4% interest in PrimeStar. PrimeStar's direct-to-home television delivery business served, as of December 31, 1996, approximately 1,566,000 customers (representing an estimated 40% of the U.S. DBS market) using a single satellite owned and operated by GE Americom. PrimeStar programming includes 94 channels of popular cable and network television, professional sports and movies, as well as 14 channels of quality audio services. PrimeStar has secured a long-term agreement with GE Americom for.the use of a new satellite which was launched in January 1997. The new satellite will increase PrimeStar's offering to approximately 160 channels. PrimeStar was formed in 1990 by GE Americom and nine of the nation's largest cable television companies,including Cox,TCI,Comcast,Continental and Time Warner. The following table sets forth certain fmancial and subscriber data with respect to PrimeStar Partners: December 31 1996 1995 1994 Revenues(millions) ....... $413.0 $180.6 $27.8 Growth .. 129% 550% 155% Subscribers(thousands).... 1,565.7 961.2 230.8 Growth .. 63% 316% 246% StarSight Telecast, Inc. In June 1993, Cox purchased an interest in StarSight Telecast, Inc. ("StarSight"). StarSight has developed a patented on-screen interactive television guide and VCR service. The StarSight system allows users of its service to view up to a week of television programming, select a desired program by channel,program title or theme,record a program or series of programs with the touch of a button, reset the order of channels by preference and delete unwanted channels. In December 1996, StarSight agreed to merge its operations with Gemstar International Group Limited ("Gemstar"). As a result of this merger, Cox will receive approximately 1,313,421 shares of Gemstar common stock representing a 3.5% interest in Gemstar. This transaction is expected to close in the second quarter of 1997. As of December 31, 1996, Cox owned 2,166,647 shares of StarSight common stock, representing approximately 8.6% of the equity of StarSight. As of December 31, 1996, the closing price of StarSight common stock was$9.38 per share. Syntellect, Inc. Cox holds .1,150,000 shares of Syntellect, Inc. ("Syntellect") common stock, representing approximately 8.6% of the equity of Syntellect. Syntellect designs and markets ARUs. In March 1996, Syntellect merged with Telecorp Systems, Inc. ("Telecorp"), which also designs, manufactures and markets ARUs and a full line of cable-specific voice and data products and services. Applications include inbound and outbound call processing, pay-per-view ordering, information management and voice production services. Prior to the merger of Syntellect and Telecorp, Cox held a 24.54%interest in Telecorp. 13 • • Cable Television Programming Investments Cox has made substantial investments in cable television networks as a means of generating additional interest among consumers in cable television.A summary of Cox's significant programming investments is set forth below: Cox Percentage Ownership Investment Description Interest Discovery Communications,Inc. Discovery Channel,Learning Channel,Animal Planet Network,retail and other ancillary businesses 24.6% E! Entertainment Television Entertainment-related news 10.4 Outdoor Life Network Outdoor activities 41.0 Speedvision Network Automotive,marine and aviation related programming 39.0 PPVN Holding Co. Pay-per-view,including Viewer's Choice 20.0 Digital Cable Radio Associates Digital audio services,including Music Choice 13.6 Home Shopping Network Home shopping 0.1 The Sunshine Network Inc. Sports,public affairs and general entertainment 5.3 National Cable Communications Cable television advertising sales 12.5 Product Information Network Infomercial distribution 45.0 UK Gold BBC and Thames syndicated programming(UK) 37.9 UK Living Talk shows and soap operas(UK) 49.6 European Channel Management News and entertainment programming in Europe, Limited including BBC Europe and BBC Prime 10.0 GEMS Television Spanish-language service targeted at women 50.0 Discovery Communications, Inc The principal businesses of Discovery Communications, Inc. ("Discovery") are the advertiser-supported basic cable networks The Discovery Channel, The Learning Channel,Animal Planet Network and Discovery Europe and its retail division consisting primarily of 113 stores of The Nature Company. The Discovery Channel provides nature, science and technology, history, exploration and adventure programming and is distributed to customers in virtually all U.S. cable homes. The Learning Channel broadcasts a variety of educational and non-fiction programming. In addition, through internally generated funding, significant investments are being made by Discovery in building a documentary programming library. The Learning Channel has increased distribution from fewer than 14 million cable homes prior to its acquisition by Discovery in 1991 to over 53 million homes as of December 31, 1996. Cox holds a 24.6% interest in Discovery, with TCI, NewChannels Corp. ("NewChannels") and Discovery's management holding interests of 49.3%, 24.6% and 1.4%,respectively. In addition, in March 1995 Discovery announced the creation of a new division to produce movies for theatrical release under the name Discovery Pictures. Cox believes that the documentary profile of Discovery programming makes it one of the best- positioned U.S. cable networks to expand internationally. Discovery is expanding the "Discovery" brand name by establishing channels based in Europe, Latin America and Asia, a substantial portion of the programming for which will be drawn from Discovery's own documentary programming library. 14 The following table sets forth certain financial and subscriber data relating to Discovery, The Discovery Channel and The Learning Channel: December 31 - Discovery 1996 1995 1994 Revenues(millions of dollars) $661.8 $447.2 $329.6 Growth 47.8% 35.7% 40.6% The Discovery Channel Subscribers(millions) 70.6 66.5 61.5 Growth 6.2% 8.1% -- Nielsen Rating-Avg 0.61 0.63 0.53 The Learning Channel Subscribers(millions) 53.9 43.2 31.5 Growth 24.8% 37.1% 15.3% Nielsen Rating-Avg 0.38 0.35 0.31 E! Entertainment Television. E! Entertainment Television, Inc. is an entertainment-related news service with distribution to approximately 42 million customers as of the end of 1996. E! Entertainment seeks to build value based on international interest in Hollywood and entertainment industry news, information and features. Cox owns 10.4% of E! Entertainment Television. Its partners are Comcast, Continental and TCI,each with a 10.4%interest,and Time Warner with a 58.4%interest. In January 1997, Comcast and The Walt Disney Company agreed to form a partnership to which Comcast will contribute its 10.4% interest and which will then acquire Time Warner's 58.4% interest. Cox's interest in E! Entertainment will not be affected by this transaction. - The following table sets forth certain financial and subscriber data with respect to E! Entertainment: December 31 1996 1995 1994 Revenues(millions of dollars).... $97.5 $74.3 $49.1 Growth 31.2% 51.3% 54.9% _ Subscribers(millions) 41.9 31.2 26.8 Growth 34.3% 16.4% 12.6% Outdoor Life Network and Speedvision Network The Outdoor Life Network,which was launched on July 31, 1995, presents programming consisting primarily of outdoor life and participants themes. The Speedvision Network, which was launched in January 1996,presents a variety of programming of interest to automobile, boat and airplane enthusiasts including news, historical and other information and event coverage. Cox owns approximately 41% and 39% of Outdoor Life and Speedvision, respectively. The other partners include Comcast,Continental and Times Mirror. PPVN Holding Co. PPVN Holding Co. ("PPVN"), which operates under the brand-name Viewer's Choice,is a cable operator-controlled buying cooperative for pay-per-view programming.Cox holds a 20% interest in PPVN, with the remaining equity interests held by Time Warner(30%), TCI (10%), Comcast (10%), Continental (10%), Viacom International Inc. (10%) and Walt Disney Pictures and Television (10%). Digital Cable Radio Associates. Digital Cable Radio Associates distributes audio programming,under the brand name Music Choice, in a digital format via coaxial cable to more than one million customers in the United States. This service allows cable television customers to receive compact disc quality sound in diverse music formats. Cox currently holds.a 13.6% interest, with the remaining interests held in varying proportions by Jerrold Communications, Sony Music Entertainment, Inc., Continental, Comcast, Time Warner,Adelphia Communications and EMI Music. 15 National Cable Communications, L.P. Cox has a 12.5% limited partnership interest in NCC, a partnership which represents cable television companies to advertisers. NCC is the largest representation firm in spot cable advertising sales. It enables advertisers to place advertising in selected multiple systems on a regional or national single-source basis,and enhances the ability of affiliated cable television systems to attract advertisers other than purely local advertisers.The other limited partners in NCC are Continental, Time Warner and Comcast,each with a 12.5%interest.Katz Cable Corporation is the sole general partner and has a 50%interest. The Product Information Network Cox and Jones International Ltd.formed a joint venture known as the Product Information Network("PIN").PIN was organi7Pd to develop a network for the distribution of multiple direct response television commercials, or "infomercials," through cable television systems and other television programming outlets.In January 1996,Adelphia Communications purchased an interest in PIN,reducing Cox's interest to 45%. UK Gold Cox holds a 38% interest in UK Gold Television Limited("UK Gold"), which operates a basic cable programming service in the U.K. UK Gold broadcasts entertainment programming from the libraries of the BBC and Thames, and currently has access to over 130,000 hours (14.8 years) of unsyndicated programming for exhibition in the U.K.on an exclusive basis.As of December 31, 1996,UK Gold had over 5,000,000 customers. UK Gold also is included in the package of services distributed by British Sky Broadcasting ("BSkyB") to satellite customers in the U.K., and therefore UK Gold has subscriber fee revenues from both satellite and cable television customers.UK Gold was launched by Cox in November 1992 in partnership with BBC,Thames and TCI,which own interests of 20%, 15%and 27%, respectively. UK Living. In July 1993,Cox invested in UK Living,a new basic cable programming service that was launched in the United Kingdom in September 1993.UK Living programming,patterned after Lifetime in the United States, is targeted at women, with daytime programming consisting of informational shows of interest to homemakers, original talk shows produced by Thames and rebroadcasts of popular BBC talk shows. Nighttime programming consists of movies, dramatic series and game shows. UK Living is also included in the BSkyB package of services distributed to satellite customers in the U.K. UK Living has subscriber fee revenues from both satellite and cable television customers, and seeks to minimize its administrative and support services (including advertising sales) expenses through a collaborative effort with UK Gold pursuant to a service contract.UK Living is owned 49.6%by Cox,35.4%by TCI and 15% by Thames. In March 1997,Cox entered into an agreement to exchange its interests in UK Gold and UK Living for an equity stake in Flextech plc, a publicly traded cable programming company in the U.K. Cox will receive 20,701,084 shares of Flextech, representing approximately a 12.6% interest. This transaction is expected to close during the second quarter of 1997. European Channel Management Limited In January 1995, Cox invested in a new international programming joint venture in Europe. Cox is a 10% partner in European Channel Management Limited which delivers BBC World, a 24-hour news channel, and BBC Prime, an entertainment channel, to European subscribers outside the United Kingdom. Both channels will seek to serve growing European demand for programming by accessing the programming expertise and recognition of the BBC. Strategically, this investment provides another avenue for Cox to position itself in the international programming arena in association with a well-known programming brand.The ventures'other partners are the BBC(40%)and Pearson plc(50%). GEMS Television. In June 1994,Cox entered into an equal partnership with International Television, Inc.('TIT"),a subsidiary of Empresas 1-BC,Venezuela's largest media company.Prior to the formation of the partnership, TIT had licensed and broadcast Spanish-language television programming under the name of GEMS Television.The Cox-ITI partnership will continue the existing business of GEMS Television and expand into additional markets in the United States, South America and other Spanish or Portuguese- 16 speaking regions. The programming of GEMS Television is produced in Venezuela, consists largely of telenovelas (soap operas) and is targeted primarily to women in Latin America and to Spanish-speaking women in the United States. The Cox-ITI partnership has access to more than 10,000 hours of Spanish- language programming for use in the business of GEMS Television. United Kingdom Broadband Networks TeleWest Communications plc. At December 31, 1996, Cox had a 14.7% ownership interest in TeleWest Communications plc("TeleWest"),a company that is currently operating and constructing cable television and telephony systems in the United Kingdom. Other significant shareholders of TeleWest are US West Inc.,TCI and SBC Communications,Inc. TeleWest is the largest cable television and telephony operator in the U.K. based on the number of homes passed and subscribers.The following table sets out certain data concerning TeleWest's owned and operated and affiliated franchises: December 31 Cable Television 1996 1995 Homes passed and marketed 2,626,835 2,066,654 Basic subscribers 599,599 457,472 Residential Telephony Homes passed and marketed 2,543,041 1,882,559 Residential subscribers 686,101 477,655 Residential lines connected 693,521 479,465 Business Telephony Business subscribers 23,297 15,986 Business lines connected 78,569 47,518 Competition Cable Television Competition The cable television systems owned by Cox compete with other communications and entertainment media, including conventional off-air television broadcasting service, newspapers, movie theaters, live sporting events and home video products. Cable television service was first offered as a means of • improving television reception in markets where terrain factors or remoteness from major cities limited the availability of off-air television. In some of the areas served by Cox's systems, a substantial variety of television programming can be received off-air.The extent to which cable television service is competitive depends upon the cable television system's ability to provide a greater variety of programming than is available off-air. Since Cox's U.S. cable television systems operate under non-exclusive franchises, other companies may obtain permission to build cable television systems in areas where Cox operates.To date,the extent of actual overbuilding in these areas has been relatively slight,and fewer than 2%of Cox's total homes passed are overbuilt at this time. While Cox believes that the current level of overbuilding has not had a material impact on its operations, it is unable to predict the extent to which adverse effects may occur in the future as a result of overbuilds. Additional competition may come from private satellite master antenna television("SMATV")systems which transmit signals by satellite to receiving facilities located on customers' premises such as condominiums, apartment complexes and other private residential developments. The 1996 Act broadens 17 the definition of SMATV systems not subject to regulation as a franchised cable communications service. The operators of these private systems often enter into exclusive agreements with apartment building owners or homeowners' associations that may preclude operators of franchised cable television systems from serving residents of such private complexes. A private cable television system normally is free of the regulatory burdens imposed on franchised cable television systems. Cox is unable to predict the extent to which additional competition from these services will materialize in the future or the impact such competition would have on Cox's operations. The availability of reasonably-priced home satellite dish earth stations ("HSDs") enables individual households to receive many of the satellite-delivered program services formerly available only to cable subscribers. Furthermore,the 1992 Cable Act contains provisions,which the FCC has implemented with regulations, to enhance the ability of cable competitors to purchase and make available to HSD owners certain satellite-delivered cable programming at competitive costs. The 1996 Act and FCC regulations implementing that law preempt certain local restrictions on the use of HSDs and roof-top antennae to receive satellite programming and over-the-air broadcasting services. In recent years,the FCC has initiated new policies and authorized new technologies to provide a more favorable operating environment for new and existing technologies that provide, or have the potential to provide,substantial additional competition to cable television systems.These technologies include, among others, DBS and MMDS (as defined below) services. High-powered direct-to-home satellites have made possible the wide-scale delivery of programming to individuals throughout the United States using roof-top or wall-mounted antennas. Companies offering DBS services are using video compression technology to increase satellite channel capacity and to provide a package of movies, network programming and other program services competitive to those of cable television systems. Programming is currently available to the owners of HSDs through conventional, medium and high- powered satellites. PrimeStar, a consortium comprised of cable operators including Cox and a satellite company,commenced operation in 1990 of a medium-power DBS satellite system using the Ku portion of the frequency spectrum and currently provides service consisting of approximately 95 channels of programming, including broadcast signals and pay-per-view services. See "— Other Telecommunications and Technology Investments — PrimeStar Partners L.P." In January 1997, PrimeStar launched a replacement medium-power DBS satellite which will enable it to increase its capacity to approximately 160 channels. DirecTV, which includes AT&T Corp. as an investor, began offering nationwide high-power DBS service in 1994 accompanied by extensive marketing efforts, along with United States Satellite Broadcasting Company which uses capacity on DirecTV's satellite. Together, both companies offer over 200 channels of service using video compression technology. Several other major companies, including EchoStar Communications Corporation ("EchoStar") and American Sky Broadcasting ("ASkyB"), a joint venture between MCI Telecommunications Corporation and News Corp., have begun offering or are currently developing high power DBS services. ASkyB is constructing satellites that reportedly, when operational,will provide domestically approximately 200 channels of DBS service. The ability of DBS service providers to compete with the cable television industry will depend on, among other factors, the availability of reception equipment at reasonable prices. Although it is not possible at this time to predict the likelihood of success of any DBS services venture, DBS may offer substantial competition to cable television operators. Recently, EchoStar and ASkyB announced their intention to merge operations, subject to obtaining necessary federal regulatory approvals. If the merger is approved, the combined company could provide 50 channels of programing reaching the continental United States, and over 50 additional channels covering various areas of the country. This channel capacity could be increased through the use of channel compression technology. It has been reported that by using such increased channel capacity and video compression technology, the combined company could provide 500 channels of programming which would include the signals of selected television stations that could be received by DBS subscribers in local viewing areas. Currently, satellite program providers are only authorized to provide the signals of 18 television network stations to subscribers who live in areas where over-the-air reception of such signals cannot be received. The offering of local broadcast signals in DBS program packages would provide substantial competition to the cable industry. However, implementation of this proposal would likely require the amendment of copyright laws which currently preclude the retransmission of local signals by satellite carriers outside of their viewing areas. Cable television systems also compete with wireless program distribution services such as multichannel, multipoint distribution service ("MMDS"), commonly called wireless cable, which are licensed to serve specific areas using low-power microwave frequencies to transmit video programming over-the-air to subscribers. There are MMDS operators who are authorized to provide or are providing broadcast and satellite programming to subscribers in areas served by Cox's cable systems. Several Regional Bell Operating Companies ("BOCs") have acquired significant interests in major MMDS companies operating in certain of Cox's cable service areas. Recent public announcements and activities by BellSouth,a BOC operating in the Southeast,indicate plans for that BOC to compete with Cox through the use of MMDS technology in the New Orleans market. Pacific Telesis Enterprises,a BOC operating in California, also is providing or authorized to provide wireless cable services in several California communities which Cox serves. Additionally, the FCC recently adopted new regulations allocating frequencies in the 28 GHz band for a new multichannel wireless video service similar to MMDS but has imposed cross-ownership restrictions of these frequencies by cable operators and telephone companies. For a three-year period, cable operators and telephone companies will be precluded from operating on these frequencies in the same authorized or franchised service areas in which they provide service. Cox is unable to predict whether wireless video services will have a material impact on its operations. The 1996 Act repeals the cable/television cross-ownership ban adopted in the 1984 Cable Act, and contains restrictions on buying out incumbent cable operators in a telephone company's service area, especially in suburban and rural markets. The 1996 Act will enable common carriers to provide video programming services as either cable operators or open video system ("OVS") operators, a regulatory regime to be established by the FCC in a rulemaking proceeding. Other new technologies may become competitive with respect to certain non-entertainment services that cable television systems can also offer. The FCC has authorized television broadcast stations to transmit textual and graphic information useful both to consumers and to businesses.The FCC also permits commercial and non-commercial FM stations to use their subcarrier frequencies to provide non-broadcast services, including data transmissions. The FCC established an over-the-air Interactive Video and Data Service that will permit two-way interaction with commercial and educational programming along with informational and data services.Telephone companies and other common carriers also provide facilities for the transmission and distribution of data and other non-video services. Telephony Competition Landline Telecommunications Services. While the current switched voice and data telecommunications market is dominated by local telephone companies, also known as incumbent LECs, the 1996 Act presents new opportunities for new entrants into these markets. Incumbent LECs provide a wide range of local telecommunications services and equipment to customers, as well as originating and terminating access to their local networks to interexchange carriers and mobile radio service providers. Because LECs historically have had exclusive state franchises by law to provide telephone service, they have established long-term,exclusive relationships with their customers.Under the new law,and subject to certain limitations for rural LECs, the FCC is directed to preempt any state law or regulation that acts to prevent new competitive entry into incumbent LEC markets. The 1996 Act represents the most comprehensive reform of the nation's telecommunications laws since the Communications Act of 1934. The 1996 Act is intended to open local exchange markets to competition, which should result in a substantial increase in Cox's business opportunities to deliver 19 telephony over its broadband networks. Among its more significant provisions, the Telecommunications Act: (i) removes legal barriers to entry in local telephone markets; (ii) requires incumbent LECs to "interconnect" with competitors, including the provision of necessary elements for local competition such as telephone number portability; (iii) establishes procedures for incumbent LEC entry into new markets such as long distance and cable television;(iv)relaxes regulation of telecommunications services provided by incumbent LECs and all other telecommunications service providers; and (v) directs the FCC to establish a subsidy mechanism for the preservation of universally affordable telephone service. Under the 1996 Act, new landline entrants will become subject to additional federal regulatory requirements when they provide local exchange service in any market.The 1996 Act imposes a number of access and interconnection requirements on all LECs,with additional requirements imposed on incumbent LECs. Specifically,the 1996 Act required the FCC to implement rules under which all LECs must provide telephone number portability,dialing parity,reciprocal compensation for traffic transport and termination, the purchase of unbundled network elements, resale and access to rights of way. The 1996 Act also requires state commissions to review and approve voluntarily negotiated interconnection agreements and to arbitrate compulsory interconnection negotiations between new entrants and incumbent LECs. These requirements also place burdens on new entrants that may benefit other competitors. In particular, the resale requirement means that a company could seek to resell the facilities of a new entrant without making a similar investment in facilities. The 1996 Act eliminates the requirement that incumbent LECs obtain FCC authorization prior to constructing facilities for interstate services. The 1996 Act also limits the FCC's ability to review incumbent LEC tariff filings. These changes will increase the speed with which the LECs are able to introduce new service offerings and new pricing of existing services,thereby increasing their flexibility to respond to new entrants. In addition to incumbent LECs and existing competitive access providers, new entrants potentially capable of offering switched and non-switched services include individual cable television companies, electric utilities,long-distance carriers,microwave carriers,wireless service providers,resellers and private networks built by large end-users. The FCC has adopted many,but not all, of the rules required to implement the 1996 Act. On August 1, 1996 the FCC adopted a report and order promulgating rules and regulations to implement the 1996 Act's provision that obligates CLECs and incumbent LECs to interconnect their networks and to develop a methodology to translate the 1996 Aces pricing guidelines into incumbent LEC pricing of interconnection for reciprocal transport and termination, unbundled elements and resale (the "Local Competition Order"). The Local Competition Order adopts a national pro-competitive framework for interconnection but leaves to the individual state commissions the task of implementing the FCC's rules in their process of reviewing interconnection agreements. The states are to base rates for interconnection, the reciprocal exchange of local telephone traffic and the purchase of ILEC unbundled network elements on a new incremental cost methodology called Total Element Long-Run Incremental Cost ("TELRIC"). Incumbent LECs may present the states with TELRIC cost studies,while the FCC adopted interim"default"rates the states could apply pending state review of TELRIC studies. Additionally, the FCC interpreted the non-discrimination provisions of the 1996 Act to allow carriers to request that the incumbent LEC make available to them any interconnection, service or network element contained in an approved agreement to which the LEC was a party under the same terms and conditions. Many petitions for reconsideration of the FCCs Local Competition Order are pending at the FCC. Despite the adoption of generally pro-competitive rules that Cox views as consistent with the requirements of the 1996 Act,the interconnection rules,particularly those containing the TELRIC pricing methodology and"default"rates,have not taken effect due to successful motions for stay filed by incumbent LECs'and jurisdictional challenges filed by several state utility commissions. Review of the FCC's rules is before the Eighth Circuit Court of Appeals, which in October 1996 granted a temporary stay of many of the interconnection rules pending court review of the merits of the petitioner's challenge. The Eighth Circuit 20 heard oral arguments of the case on January 17, 1997 and a decision is expected within several months. In the meantime, the stay only affects certain FCC rules; the independent legal obligations created by the 1996 Act have not been stayed. As a result,many states are applying the FCC's interpretations of the 1996 Act as guidelines,despite the fact that many FCC interconnection rules are not in effect. The FCC has announced that the Local Competition Order is the first part in a "trilogy" of orders that will reform access pricing and universal service consistent with the 1996 Act's goal of encouraging competition. It is anticipated that the prices incumbent LECs charge for both intrastate and interstate access services will-be substantially reduced as a result of the FCC's initiative to reform the current access charge regime as well as by reform of current universal service procedures. In July 1996 the FCC released an Order promulgating rules implementing the 1996 Act's directive for local telephone number portability(the "Number Portability Order"). The FCC ordered all LECs to begin phased development of a long-term service provider portability method in the 100 largest Metropolitan Statistical Areas ("MSAs")no later than October 1, 1997, and to complete deployment in those MSAs by March 31, 1998. After March 31, 1998, each LEC must make number portability available within six months after receiving a specific request by another telecommunications carrier in areas outside the 100 largest area MSAs. Until long-term service provider number portability is available, all LECs must provide currently available number portability measures as soon as reasonably possible after a specific request from another carrier. Because new carriers are at a competitive disadvantage without telephone number portability, the Number Portability Order should enhance Cox's ability to offer service in competition with the incumbent LECs. It is uncertain how effective these regulations will be in promoting cost effective and efficient number portability. The Number Portability Order does not address how the costs of implementing long-term service provider number portability will be recovered. This issue is subject to an additional comment period and is not expected to be decided until later in 1997. The Number Portability Order also is subject to Petitions for Reconsideration at the FCC and Petitions for Review filed before the Eighth Circuit Court of Appeals. A Federal-State Joint Board mandated by the 1996 Act made initial recommendations regarding universal service in the fall of 1996. The Joint Board proposed a new regime for funding universal telephone service and for distributing universal service subsidies. The recommended decision is subject to public comment and may be changed between now and May 8, 1997,when the FCC is required to adopt a final order on universal service. If the recommended decision is adopted, there will be specific subsidies for high cost areas and carriers, for low income consumers and for advanced services for schools and libraries. The total amount of these subsidies is expected to range from$5 to$14 billion annually. Under the proposal adopted by the Joint Board, any telecommunications carrier that provided all of the services that fall within the definition of"universal service" would be eligible to receive subsidies, as would any entity that provided advanced services or infrastructure used by schools and libraries. Funding for these subsidies would come from surcharges imposed on all telecommunications carriers, but the exact formula for the subsidies has not been determined. In addition to the federal universal service plan, it is likely that most or all states will adopt their own universal service support mechanisms. Another issue to be resolved is the application of a "cost proxy" model that identifies those carriers in need of subsidies to maintain universal service. While not directly required under the 1996 Act, the FCC has also adopted a Notice of Proposed Rulemaking to reform interstate access charges that are generally acknowledged to contain subsidy elements. The Notice suggests as alternatives market-based and proscriptive reforms to interstate access charges. Many parties have commented on these alternatives and the FCC is considering concluding at least the first stage of access charge reform at the same time it adopts universal service reform. The wide- ranging Notice also tentatively concludes that interstate access charges should not be imposed on enhanced services traffic such as Internet access traffic. Wireless Telecommunications Services. The success of Sprint PCS will depend on its ability to compete with other wireless communications providers (and wired communications providers) operating 21 • within its markets. It is anticipated that the telecommunications industry will become increasingly competitive as new service providers enter the wireless telecommunications marketplace. The wireless telephone industry provides a wide range of high-quality,high capacity communications services to vehicle-mounted and hand-held portable telephones and other two-way radio devices. Today, the industry comprises many competing service providers, the most prominent of which are the existing cellular radio-telephone service operators. Cellular. The U.S. cellular telephone business has been characterized as a regulated duopoly. The FCC has allocated only two licenses for cellular service in each cellular service area. One of the two licenses was initially available only to a company or group affiliated with the local landline telephone carriers in the market(the "wireline"license),and the other license was initially awarded to a company not affiliated with any landline telephone carrier(the"non-wireline"license). Cellular service providers operating in the PCS markets of Sprint PCS have already established a substantial customer base.They collectively constitute the primary initial competitors to the PCS networks of Sprint PCS. Although PCS promises to offer service capabilities comparable or technically superior to cellular service at lower cost, the cellular industry continues to enjoy the benefits of being the incumbent provider of wireless service.Cellular operators already have in place equipment supplier arrangements and have acquired the sites necessary to provide service to a substantial portion of their geographic service • areas. Other PCS Providers. Sprint PCS will face direct competition for PCS subscribers from other licensed PCS systems within its markets. There are potentially six PCS providers (not counting resellers and marketing agents for licensees) in each PCS service area. Three licensees will hold 30 MHz of PCS spectrum, one of which is licensed for a basic trading area, and the remaining three licensees will hold 10 MHz of PCS spectrum. Some of the 10 MHz licenses will be used to provide niche services or will be purchased by existing cellular providers for added spectrum, while the 30 MHz licenses will be used to offer a broad range of voice, data and related communications services, and may ultimately develop into services that include a wireless local loop functionality. Sprint PCS may also face competition from other current or developing technologies. Specialized Mobile Radio ("SMR") systems, such as those used by taxicabs, as well as other forms of mobile communications service, may provide competition in certain markets. SMR systems are permitted by the FCC to be interconnected to the public switched telephone network and are significantly less expensive to build and operate than cellular telephone systems. SMR systems, however, are licensed to operate on substantially fewer channels than PCS systems and generally lack PCS's ability to expand capacity through frequency reuse by using many low-power transmitters and micro-cells to hand off calls. A company holding a considerable number of SMR licenses across the nation is implementing its digital system to use available SMR spectrum in various metropolitan areas more efficiently to increase capacity and to provide a range of mobile radio communications services. The implementation of this proposal, known as Enhanced Specialized Mobile Radio("ESMR")service,has resulted in legislation and FCC rules that regulate ESMR services in a manner that reflects its potential interchangeability with cellular and PCS services. In 1994, the FCC decided to license SMR systems in the 800 Mhz bands for wide-area use, thus increasing potential competition with cellular and PCS. It also recently decided to license SMR spectrum in contiguous spectrum blocks via the competitive bidding process. Although wide- area SMR spectrum has not yet been assigned, the licensing change may further the potential of SMR services to compete with cellular and PCS. Other. Paging or beeper services that feature voice message,data services and tones are also available in the targeted markets of Sprint PCS. Advanced two-way paging systems with nationwide coverage are also under development. These services may provide adequate capacity and sufficient mobile capabilities to satisfy the needs of some potential PCS subscribers. 22 Several applicants have received and several others are seeking FCC authorization to construct and operate global satellite networks to provide domestic and international mobile communications services from geostationary and low earth orbit satellites. In addition, the Omnibus Budget Reconciliation Act of 1993 (the "1993 Budget Act") provided, among other things, for the release of 200 MHz of Federal government spectrum for commercial and/or other non-federal use over a 15 year period.The 1993 Budget Act also authorized the FCC to conduct competitive bidding for certain radio spectrum licenses and required the FCC to adopt new rules that eliminate the regulatory distinctions between mobile common and private carriers who interconnect with the public switched network and make their services available to a substantial portion of the public for profit. These developments and further technological advances may make available other alternatives to PCS service thereby creating additional sources of competition. An example of this is the FCC's recent order creating a new flexible Wireless Communications Service,which could potentially compete with wireless and wired networks for customers. Legislation and Regulation The cable television industry is regulated by the FCC, some state governments and substantially all local governments.In addition,various legislative and regulatory proposals under consideration from time to time by the Congress and various federal agencies may materially affect the cable television industry. The following is a summary of federal laws and regulations affecting the growth and operation of the cable television industry and a description of certain state and local laws. Cable Communications Policy Act of 1984. The 1984 Cable Act generally became effective in December 1984. This federal statute, which amended-the Communications Act of 1934 established comprehensive national standards and guidelines for the regulation of cable television systems and identified the boundaries of permissible federal, state and local government regulation. The FCC, in turn, was charged with responsibility for adopting rules to implement the 1984 Cable Act.Among other things, the 1984 Cable Act affirmed the right of franchising authorities(state or local,depending on the practice in individual states) to award one or more franchises within their jurisdictions. It also prohibited non- grandfathered cable television systems from operating without a franchise in such jurisdictions. In connection with new franchises, the 1984 Cable Act provides that in granting or renewing franchises, franchising authorities may establish requirements for cable-related facilities and equipment, but may not establish or enforce requirements for video programming or information services other than in broad categories. Cable Television Consumer Protection and Competition Act of 1992. In October 1992, Congress enacted the 1992 Cable Act. This legislation, which amended the 1984 Cable Act, made significant changes to the legislative and regulatory environment for the cable industry. The 1992 Cable Act became effective in December 1992, although certain provisions, most notably those dealing with rate regulation and retransmission consent, took effect at later dates. The 1992 Cable Act permitted a greater degree of regulation of the cable industry with respect to, among other things: (i) cable system rates for both basic and certain cable programming services;(ii)programming access and exclusivity arrangements;(iii)access to cable channels by unaffiliated programming services; (iv) leased access terms and conditions; (v) horizontal and vertical ownership of cable systems; (vi) customer service requirements; (vii) franchise renewals;(viii)television broadcast signal carriage and retransmission consent;(ix)technical standards;(x) customer privacy; (xi) consumer protection issues; (xii) cable equipment compatibility; (xiii) obscene or indecent programming; and(xiv) subscription to tiers of service other than basic service as a condition of purchasing premium services. Additionally, the legislation encouraged competition with existing cable television systems by allowing municipalities to own and operate their own cable television systems without a franchise,preventing franchising authorities from granting exclusive franchises or unreasonably refusing to award additional franchises covering an existing cable system's service area,and prohibiting the common ownership of cable systems and co-located MMDS or SMATV systems.The 1992 Cable Act also precluded video programmers affiliated with cable television companies from favoring cable operators over competitors and required such programmers to sell their programming to other multichannel video 23 distributors.The legislation required the FCC to initiate a number of rulemaking proceedings to implement various provisions of the statute, the majority of which, including certain proceedings related to rate regulation,have been completed. Various cable operators have filed actions in the United States District Court in the District of Columbia(the"D.C.District Court")challenging the constitutionality of several sections of the 1992 Cable Act. In April 1993, a three judge panel of the D.C. District Court granted summary judgment for the government and upheld the constitutional validity of the must-carry provisions of the 1992 Cable Act.That decision was appealed directly to the United States Supreme Court, which vacated the decision in June 1994 and remanded it to the three judge panel for further proceedings. On December 12, 1995, the three- judge panel again upheld the must-carry rules' constitutional validity. Pending the Supreme Court's final review of the constitutionality of the must-carry rules, such rules continue in force. On August 30, 1996, the U.S. Court of Appeals for the D.C. Circuit upheld the constitutionality of nine other provisions of the 1992 Cable Act. Also on June 6, 1995, the same court of Appeals generally upheld the FCC's rate regulations which were implemented pursuant to the 1992 Cable Act. The Telecommunications Act of 1996. On February 1, 1996, Congress passed the 1996 Act, which was signed into law by the President on February 8, 1996. The 1996 Act substantially revises the Communications Act of 1934,as amended(the "Communications Act"), including the 1984 Cable Act and the 1992 Cable Act under which the cable industry is regulated. The FCC has been conducting various rulemaking proceedings to implement the provisions of the 1996 Act over the last year. The 1996 Act has been described as one of the most significant changes in communications regulation since the passage of the Communications Act.The 1996 Act modifies various rate regulation provisions of the Cable Act of 1992. Generally, under the 1996 Act, cable programming service ("CPS") tier rates are deregulated on March 31, 1999. Upon enactment, the CPS rates charged by small cable operators are deregulated in systems serving 50,000 or fewer subscribers. The 1996 Act also revises the CPS complaint filing procedures and adds a new effective competition test under which cable rates may be deregulated. The 1996 Act allows cable operators to aggregate equipment costs into broad categories, such as converter boxes, regardless of the varying levels of functionality of the equipment within each such broad category, on a franchise,system,regional,or company level.The statutory changes also facilitate the rationalizing of equipment rates across jurisdictional boundaries.These favorable cost-aggregation rules do not apply to the limited equipment used by basic service-only subscribers. The 1996 Act is intended,in part,to promote substantial competition in the marketplace for telephone local exchange service and in the delivery of video and other services and permits cable television operators to enter the local telephone exchange market. Cox's ability to competitively offer telephone services may be adversely affected by the degree and form of regulatory flexibility afforded to LECs, and in part, will depend upon the final outcome of various FCC rulemakings, including the proceeding which will deal with the interconnection*obligations of telecommunications carriers. The 1996 Act also repeals the cable television/telephone cross-ownership ban adopted in the 1984 Cable Act and permits local telephone companies(also known as LECs)and other service providers to provide video programming. The most far-reaching changes in communications businesses will result from the telephony provisions of the 1996 Act.These provisions promote local exchange competition as a national policy by eliminating legal barriers to competition in the local telephone business and setting standards to govern the relationships among telecommunications providers, establishing uniform requirements and standards for entry,competitive carrier interconnection and unbundling of LEC monopoly services.The statute expressly preempts any legal barriers to competition under state and local laws. Many of these barriers have been lifted by state actions over the last few years, but the 1996 Act completes the task. The 1996 Act also establishes new requirements to maintain and enhance universal telephone service and new obligations for telecommunications providers to maintain the privacy of customer information. 24 Under the 1996 Act, LECs may provide video service as cable operators or through "open video systems"("OVSs"),a regulatory regime that gives them more flexibility than traditional cable systems.The 1996 Act eliminates the requirement that telephone companies file Section 214 applications with the FCC before providing video service. This will limit the ability of cable operators to challenge the econcomic viability of telephone company entry into the video market. With certain exceptions, the 1996 Act also restricts buying out incumbent cable operators in the LECs service area. Other parts of the 1996 Act also will affect cable operators.The 1996 Act directs the FCC to revise the current pole attachment rate formula.This will result in an increase in the rates paid by entities, including cable operators,that provide telecommunication services. (Cable operators that provide only cable services are unaffected.)Under the V-chip provisions of the 1996 Act,cable operators and other video providers are required to carry any program rating information that programmers include in video signals. Cable operators also are subject to new scrambling requirements for sexually explicit programming. These requirements have been held constitutional by a three judge federal district court, and the United States Supreme Court has been requested to review the decision. In addition, cable operators that provide Internet access or other online services are subject to the new indecency limitations. Two U.S. District Courts have issued final rulings striking down the Internet access provisions and the U.S. Supreme Court has agreed to hear the appeals of these rulings. The courts have preliminarily enjoined the enforcement of these content-based provisions relating to scrambling and Internet access. Under the 1996 Act, a franchising authority may not require a cable operator to provide telecommu- nications services or facilities, other than an institutional network, as a condition to a grant, renewal, or transfer of a cable franchise,and franchising authorities are preempted from regulating telecommunications services provided by cable operators and from requiring-cable operators to obtain a franchise to provide such services. The 1996 Act also repeals the 1992 Cable Act's anti-trafficking provision which generally required the holding of cable television systems for three years. It is premature to predict the effect of the 1996 Act on the cable industry in general or Cox in particular. The FCC must undertake numerous rulemaking proceedings to interpret and implement the 1996 Act. Some of these rulemakings have been completed, but all are subject to pending petitions for reconsideration,appeals,or both. It is not possible at this time to predict the outcome of those proceedings or their effect on Cox. Federal Regulation The FCC, the principal federal regulatory agency with jurisdiction over cable television, has promulgated regulations covering such areas as the registration of cable television systems, cross- ownership between cable television systems and other communications businesses, carriage of television broadcast programming, consumer education and lockbox enforcement, origination cablecasting and sponsorship identification, children's programming, the regulation of basic cable service rates in areas where cable television systems are not subject to effective competition, signal leakage and frequency use, technical performance, maintenance of various records, equal employment opportunity, and antenna structure notification,marking and lighting.The FCC may enforce these 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 often used in connection with cable operations. The 1992 Cable Act required the FCC to adopt additional regulations covering, among other things, cable rates, broadcast signal carriage, consumer protection and customer service, leased access, indecent programming, programmer access to cable television systems, programming agreements, technical standards, consumer electronics equipment compatibility, ownership of home wiring,program exclusivity, equal employment opportunity, and various aspects of DBS system ownership and operation. A brief summary of certain of these federal regulations as adopted to date follows. 25 Rate Regulation. The 1992 Cable Act substantially changed the regulatory environment.Although the regulation of premium channels is still prohibited, the 1992 Cable Act replaced the FCC's effective competition test,under which most cable systems were not subject to local rate regulation, with a statutory provision that results in nearly all cable television systems becoming subject to rate regulation. Additionally, the legislation eliminated the permissible automatic 5% annual rate increase for regulated basic services previously allowed by the 1984 Cable Act; required the FCC to adopt a formula for franchising authorities to enforce to assure that basic cable rates are reasonable;allowed the FCC to review rates for cable programming service tiers (other than per-channel or per-event services) in response to complaints filed by franchising authorities and/or cable customers; prohibited cable television systems from requiring subscribers to purchase service tiers above basic service in order to purchase premium services if the system is technically capable of doing so;required the adoption of regulations by the FCC to establish, on the basis of actual costs, the price for installation of cable service,remote controls, converter boxes and additional outlets; and permitted the imposition by the FCC of restrictions on the retiering and rearrangement of cable services,under certain limited circumstances. The FCC's rules governing rates for the regulation of basic and cable programming service tiers generally became effective in September 1993. In February 1994, the FCC revised its benchmark regulations adopted in April 1993. Effective May 1994, cable television systems not seeking to justify rates with a cost-of-service showing were to reduce rates by up to 17% of the rates in effect on September 30, 1992, adjusted for inflation, channel modifications, equipment costs and certain increases in programming costs. Under certain conditions systems were permitted to defer these rate adjustments until July 14, 1994.Further rate reductions for cable systems whose rates are below the revised benchmark levels, as well as reductions that would require operators to reduce rates below benchmark levels in order to achieve a 17% rate reduction were held in abeyance pending completion of cable system cost studies.The FCC recently adopted an order which made permanent its deferral of the full 17 percent rate reduction, and consequently these systems will not be required to reduce their rates by the full competitive differential previously implemented by the FCC. The FCC also revised its regulations governing the manner in which cable operators may charge subscribers for new channels added to cable programming services tiers. The FCC instituted a three-year flat fee mark-up plan. Commencing on January 1, 1995, operators may charge subscribers up to $.20 per channel for any channels added after May 14, 1994, but may not make adjustments to monthly rates totalling more than $1.20 plus an additional $.30 to cover programming license fees for those channels over the first two years of the three-year period. In year three, an additional channel may be added with another$.20 increase in rates.Rates also may increase in the third year to cover any additional costs for the programming for any of the channels added during the entire three-year period. Cable operators electing to use the $.20 per channel adjustment may not also take a 7.5% mark-up on programming cost increases, which is otherwise permitted under the FCC's regulations. The FCC has requested further comment on whether cable operators should continue to receive the 7.5% mark-up on increases in license fees on existing programming services. The FCC will permit cable operators to exercise their discretion in setting rates for New Product Tiers ("NPr') so long as, among other conditions, the channels that are subject to rate regulation are priced in conformity with applicable regulations and cable operators do not remove programming services from existing rate-regulated service tiers and offer them on an NPT. In September 1995, the FCC authorized a new, alternative method of implementing rate adjustments which will allow cable operators to increase rates for programming annually on the basis of projected increases in external costs(programming costs,local regulatory fees and state and local taxes applicable to the provision of cable television services),inflation and changes in the number of regulated channels rather than on the basis of cost increases incurred in the preceding quarter. Operators that elect not to recover all of their accrued external costs and inflation pass-throughs each year may recover them (with interest) in subsequent years. In March, 1997, the FCC implemented regulations that provide cable operators with the option of establishing uniform rates throughout multiple franchise areas served by the same system. The FCC will review proposals to implement uniform rates on a case by case basis. 26 In December 1995, the FCC adopted final cost-of-service rate regulations requiring, among other things,cable operators to exclude 34%of system acquisition costs related to intangible and tangible assets used to provide regulated services. The FCC also reaffirmed the industry-wide 11.25% after tax rate of return on an operator's allowable rate base,but initiated a further rulemaking in which it proposed to use an operator's actual debt cost and capital structure to determine an operator's cost of capital or rate of return. After a rate has been set pursuant to a cost-of-service showing, rate increases for regulated services are indexed for inflation,and operators are permitted to increase rates in response to increases in costs beyond their control,such as taxes and increased programming costs. The 1996 Act amends the rate regulation provisions of the 1992 Cable Act. Regulation of basic cable service continues in effect until a cable system becomes subject to effective competition. Regulation of CPS rates will be deregulated in franchise areas with more than 50,000 residents on March 31, 1999. The 1996 Act deregulates rates of small operators upon enactment where a small cable operator serves 50,000 or fewer subscribers. A small cable operator is defined as an operator that serves fewer than 1% of all subscribers and is not affiliated with any entity whose gross annual revenues in the aggregate exceed$250 million. Subscribers are no longer permitted to file programming service complaints with the FCC, and complaints may only be brought by a franchising authority if,within 90 days after a rate increase becomes effective,it receives subscriber complaints.The FCC is required to act on such complaints within 90 days. In addition to the existing definition of effective competition, a new effective competition test permits deregulation of both basic and CPS tier rates where a telephone company offers cable service by any means (other than direct-to-home satellite services) provided that such service is comparable to the services provided in the franchise area by the unaffiliated cable operator. The uniform rate provision of the 1992 Cable Act is amended to exempt bulk discounts to multiple dwelling units so long as a cable operator that is not subject to effective competition does not charge predatory prices to a multiple dwelling unit. Franchising authorities in a number of communities in which Cox operates cable television systems initiated basic service rate regulation pursuant to Section 623 of the Communications Act and corresponding regulations of the FCC and required Cox to justify its existing basic service rates. In addition, certain subscribers and franchising authorities filed complaints with the FCC pursuant to Section 623 of the Communications Act and corresponding FCC regulations challenging the reasonableness of Cox's rates for cable programming services. Cox submitted rate justifications to these franchising authorities and filed responses to the rate complaints with the FCC. Franchising authorities and the FCC issued a number of rate decisions regarding basic and CPS rates, and the FCC is currently processing several additional rate complaints. On December 1, 1995,the FCC issued an order adopting the terms of a rate settlement in the form of a proposed resolution between Cox and the FCC's Cable Services Bureau (the "Resolution"). The order resolves the outstanding programming service rate complaints covering all of Cox's systems as of June 30, 1995. The order provides for$7 million in refunds plus interest and covers one million subscribers. The fees paid by the former TMCT subscribers for additional outlets have been eliminated as of January 6, 1996 and account for virtually all of the refund amount. The order also permits Cox to move as many as four regulated services to a new tier in each franchise area where an a la carte package previously was not provided,which provides Cox additional pricing flexibility for this new tier.In addition,the order confirms that Cox's cable programming service tier rates, as of June 30, 1995, are not unreasonable and that the acceptance of the Resolution by the FCC does not constitute an admission by Cox of any violation or failure to conform to any law, rule or policy. On January 29, 1996, the City of Irvine and six other cities located in California filed an appeal to set aside the order in the United States Court of Appeals for the Ninth Circuit. The FCC is a party to the appeal and Cox has been granted leave to intervene. In lieu of filing its brief, the FCC asked the Court to remand the case so that it might issue an order that better explained the reasons underlying its decision to accept the Resolution. The Court granted the request,but the FCC has not yet issued a revised order. Cox cannot predict the outcome of this appeal. 27 Carriage of Broadcast Television Signals. The 1992 Cable Act contains new signal carriage requirements. The FCC adopted rules implementing the must-carry provisions for non-commercial and commercial stations and retransmission consent for commercial stations in March 1993. These rules allow commercial television broadcast stations which are "local" to a cable system, i.e., the system is located in the station's Area of Dominant Influence ("ADI"), to elect every three years whether to require the cable system to carry the station,subject to certain exceptions,or whether to require the cable system to negotiate for "retransmission consent" to carry the station. The first such election was made in June 1993 and the second in October 1996. With the 1996 election,FCC rules require broadcasters to use their DMA as the relevent television market for must-carry purposes. A recent amendment to the Copyright Act of 1976 will in some cases increase the number of stations that may elect must-carry status on cable systems located within such stations'ADI.Cable systems must obtain retransmission consent for the carriage of all"distant" commercial broadcast stations, except for certain "superstations" (i.e., commercial satellite-delivered independent stations such as WTBS).All commercial stations entitled to carriage were to have been carried by June 1993, and any non-must-carry stations(other than superstations)for which retransmission consent had not been obtained could no longer be carried after October 5, 1993. A number of stations previously carried by Cox's cable television systems elected retransmission consent. Cox generally reached agreements with broadcasters who elected retransmission consent or negotiated extensions to the retransmission deadline and thus far has not been required to pay cash compensation to broadcasters for retransmission consent. Cox has agreed to carry some services (e.g.,fX and ESPN2) in specified markets pursuant to retransmission consent agreements which it believes are comparable to those entered into by most other large cable television operators. Local non-commercial television stations are also given mandatory carriage rights, subject to certain exceptions,within the larger of: (i) a 50 mile radius from the station's city of license; or (ii) the station's Grade B contour (a measure of signal strength). Unlike commercial stations,non-commercial stations are not given the option to negotiate retransmission consent for the carriage of their signal. The must-carry provisions for non-commercial stations became effective in December 1992. Nonduplication of Network Programming. Cable television systems that have 1,000 or more customers must, upon the appropriate request of a local television station, delete the simultaneous or nonsimultaneous network programming of a distant station when such programming has also been contracted for by the local station on an exclusive basis. Deletion of Syndicated Programming. FCC regulations enable television broadcast stations that have obtained exclusive distribution rights for syndicated programming in their market to require a cable system to delete or "black out" such programming from other distant television stations which are carried by the cable system. The extent of such deletions will vary from market to market and cannot be predicted with certainty.However,it is possible that such deletions could be substantial and could lead the cable operator to drop a distant signal in its entirety. The FCC also has commenced a proceeding to determine whether to relax or abolish the geographic limitations on program exclusivity contained in its rules, which would allow parties to set the geographic scope of exclusive distribution rights entirely by contract, and to determine whether such exclusivity rights should be extended to noncommercial educational stations. It is possible that the outcome of these proceedings will increase the amount of programming that cable operators are required to black out. Finally, the FCC has declined to impose equivalent syndicated exclusivity rules on satellite carriers who provide services to the owners of home satellite dishes similar to those provided by cable systems. Registration Procedure and Reporting Requirements. Prior to commencing operation in a particular community, all cable television systems must file a registration statement with the FCC listing the broadcast signals they will carry and certain other information. Additionally, cable operators periodically are required to file various informational reports with the FCC. Technical Requirements. Historically, the FCC has imposed technical standards applicable to the cable channels on which broadcast stations are carried, and has prohibited franchising authorities from adopting standards which were in conflict with or more restrictive than those established by the FCC. The 28 FCC revised its standards and made them applicable to all classes of channels which carry downstream National Television System Committee ("NTSC") video programming. Local franchising authorities are permitted to enforce the FCCs new technical standards. The FCC also has adopted additional standards applicable to cable television systems using frequencies in the 108-137 MHz and 225-400 MHz bands in order to prevent harmful interference with aeronautical navigation and safety radio services and has also established limits on cable system signal leakage. The 1992 Cable Act requires the FCC to periodically update its technical standards to take into account changes in technology and to entertain waiver requests from franchising authorities who seek to impose more stringent technical standards upon their franchised cable television systems. Pole Attachments. The FCC currently regulates the rates, terms and conditions imposed by certain public utilities for use of their poles, unless under the Federal Pole Attachment Act state public utilities commissions are able to demonstrate that they regulate rates, terms and conditions of the cable television pole attachments. A number of states and the District of Columbia have so certified to the FCC. In the absence of state regulation,the FCC administers such pole attachment rates through use of a formula which it has devised and from time to time revises. Recently the FCC initiated a proceeding to determine whether it should make other adjustments to the current pole attachment formula which, if implemented, generally would result in an increase in pole attachment rates. The 1996 Act extends the regulation of rates, terms and conditions of pole attachments to telecommunications service providers, and requires the FCC to prescribe regulations to govern the charges for pole attachments used by telecommunications carriers to provide telecommunications services when the parties fail to resolve the dispute over such charges. The 1996 Act, among other provisions, increases significantly future pole attachment rates for cable systems which use pole attachments in connection with the provision of telecommunications services as a result of a new rate formula charged to telecommunication carriers for the non-useable space of each pole.These rates are to be phased in after a five-year period. Regulatory Fees and Other Matters. Pursuant to the Communications Act, the FCC has adopted requirements for payment of annual "regulatory fees" by the various industries it regulates, including the cable television industry. Currently, cable television systems are required to pay regulatory fees of$0.55 per subscriber per year, which may be passed on to subscribers as "external cost" adjustments to rates for basic cable service.Fees are also assessed for other licenses,including licenses for business radio and cable television relay systems(CARS).Those fees,however,may not be collected directly from subscribers. In addition, the FCC has adopted regulations pursuant to the 1992 Cable Act which require cable systems not subject to effective competition to permit customers to purchase video programming on a per- channel or a per-event basis without the necessity of subscribing to any tier of service, other than the basic service tier, unless the cable system is technically incapable of doing so. Generally cable systems must • become technically capable of complying with the statutory obligation by December 2002. Consistent with its statutory obligations, the FCC also has adopted a number of measures for improving compatibility between existing cable systems and consumer electronics equipment, including a prohibition from scrambling program signals carried on the basic tier,absent a waiver.The FCC also is considering whether to extend this prohibition to cover all regulated tiers of programming. In December 1994,the FCC announced that its longstanding Emergency Broadcast System rules were to be replaced. The new rules establish cable television and broadcast technical standards to support a new Emergency Alert System. Cable operators must install and activate equipment necessary for the new system by July 1, 1997. FCC regulations also address the carriage of local sports programming;restrictions on origination and cablecasting by cable system operators; application of the rules governing political broadcasts; customer service standards; home wiring and limitations on advertising contained in nonbroadcast children's programming. The FCC has initiated a rulemaking to consider, among other issues, whether to adopt • uniform regulations governing telephone and cable inside wiring. The regulations ultimately adopted by the FCC could affect Cox's ownership and access to inside wiring used to provide telephony and video 29 • programming services particularly with regard to the provision of services to multiple dwelling unit buildings. In a related rulemaking proceeding, the FCC will consider the appropriate treatment of inside wiring in multiple dwelling unit buildings. The outcome of that rulemaking could affect cable operators' access to inside wiring in MDUs which they currently serve. Consumer Equipment The 1996 Act requires the FCC,in consultation with industry standard-setting organizations, to adopt regulations which would encourage commercial availability to consumers of all services offered by multichannel video programming distributors, such as converter boxes, interactive communications equipment and other equipment used by consumers to access multichannel video programming.The FCC has initiated a proceeding seeking comment as to how to implement its obligations under the 1996 Act. Pursuant to the 1996 Act, the regulations adopted may not prohibit programming distributors from offering consumer equipment,so long as the cable operator's rates for such equipment are not subsidized by charges for the services offered. The rules also may not compromise the security of the services offered, or the efforts of service providers from preventing theft of service. The FCC may waive these rules so as not to hinder the development of advanced services and equipment. The 1996 Act also requires the FCC to examine the market for closed captioned programming and prescribe regulations which ensure that video programming,with certain exceptions, is fully accessible through closed captioning and the FCC has initiated a proceeding to prescribe such rules. Franchise Fees and Obligations. Although franchising authorities may impose franchise fees under the 1984 Cable Act, such payments cannot exceed 5% of a cable system's annual gross revenues. Franchising authorities are also empowered in awarding new franchises or renewing existing franchises to require cable operators to provide cable-related facilities and equipment and to enforce compliance with voluntary commitments.In the case of franchises in effect prior to the effective date of the 1984 Cable Act, franchising authorities may enforce requirements contained in the franchise relating to facilities,equipment and services, whether or not cable-related. The 1984 Cable Act, under certain limited circumstances, permits a cable operator to obtain modifications of franchise obligations. Renewal of Franchises. The 1984 Cable Act established renewal procedures and criteria designed to protect incumbent franchisees against arbitrary denials of renewal. These formal procedures are mandatory only if timely invoked by either the cable operator or the franchising authority. Even after the formal renewal procedures are invoked, franchising authorities and cable operators remain free to negotiate a renewal outside the formal process. Although the procedures provide substantial protection to incumbent franchisees,renewal is by no means assured, as the franchisee must meet certain statutory standards. Even if a franchise is renewed, a franchising authority may impose new and more onerous requirements such as upgrading facilities and equipment, although the municipality must take into account the cost of meeting such requirements. The 1992 Cable Act made several changes to the renewal process which could make it easier in some cases for a franchising authority to deny renewal.The cable operator's timely request to commence renewal proceedings must be in writing and the franchising authority must commence renewal proceedings not later than six months after receipt of such notice. Within a four-month period beginning with the submission of the renewal proposal, the franchising authority must grant or preliminarily deny the renewal. Franchising authorities may consider the "level" of programming service provided by a cable operator in deciding whether to renew. Franchising authorities are no longer precluded from denying renewal based on failure to substantially comply with the material terms of the franchise where the franchising authority has "effectively acquiesced"to such past violations. Rather, the franchising authority is estopped only if, after giving the cable operator notice and opportunity to cure, the authority fails to respond to a written notice from the cable operator of its failure or inability to cure. Courts may not reverse a denial of renewal based on procedural violations found to be"harmless error." Competing Franchises. Questions concerning the ability of municipalities to award a single cable television franchise and to impose certain franchise restrictions upon cable television companies have been considered in several recent federal appellate and district court decisions. These decisions have been 30 somewhat inconsistent and,until the United States Supreme Court rules definitively on the scope of cable television's First Amendment protections, the legality of the franchising process and of various specific franchise requirements is likely to be in a state of flux. It is not possible at the present time to predict the constitutionally permissible bounds of cable franchising and particular franchise requirements. However, the 1992 Cable Act, among other things, prohibits franchising authorities from unreasonably refusing to grant franchises to competing cable television systems and permits franchising authorities to operate their own cable television systems without franchises. Channel Set Asides. The 1984 Cable Act permits local franchising authorities to require cable operators to set aside certain channels for public, educational and governmental access programming. The 1984 Cable Act further requires cable television systems with 36 or more activated channels to designate a portion of their channel capacity for commercial leased access by unaffiliated third parties.While the 1984 Cable Act allowed cable operators substantial latitude in setting leased access rates, the 1992 Cable Act requires leased access rates to be set according to an FCC-prescribed formula. The FCC has adopted rules regulating: (i) the maximum reasonable rate a cable operator may charge for commercial use of the designated channel capacity; (ii) the terms and conditions for commercial use of such channels; and (iii) the procedures for the expedited resolution of disputes concerning rates or commercial use of the designated channel capacity. The FCC recently reconsidered and revised the formula governing the rates that may be charged for the use of leased access channels. The new formula, which will result in a downward adjustment in such rates,has been appealed by a party seeking a further adjustment. Ownership. The FCC rules generally prohibit the direct or indirect common ownership, operation, control or interest in a cable television system, on the one hand, and a local television broadcast station whose television signal(predicted grade B contour as defined under FCC regulations)reaches any portion of the community served by the cable television system, on the other hand. For purposes of the cross-ownership rules, "control" of licensee companies is attributed to all 5% or greater stockholders, except for mutual funds,banks and insurance companies which may own less than 10%without attribution of control.This rule prohibits Cox from owning or operating a cable television system in the same area in which CEI or one of CErs subsidiaries owns or operates a television broadcast station. The FCC has requested comment as to whether to raise the attribution criteria from 5%to 10%and for passive investors from 10% to 20%, and whether it should exempt from attribution certain widely held limited partnership interests where each individual interest represents an insignificant percentage of total partnership equity. The 1996 Act eliminated the statutory ban on the cross-ownership of a cable system and a television station,and permits the FCC to amend or revise its own regulations regarding the cross-ownership ban.The FCC's rule remains in effect. The FCC recently lifted its ban on the cross-ownership of cable television systems by broadcast networks and revised its regulations to permit broadcast networks to acquire cable television systems serving up to 10%of the homes passed in the nation,and up to 50%of the homes passed in a local market. The local limit would not apply in cases where the network-owned cable system competes with another cable operator. Finally, in order to encourage competition in the provision of video programming, the FCC adopted a rule in 1993 prohibiting the common ownership, affiliation, control or interest of cable television systems and MMDS facilities having overlapping service areas,except in very limited circumstances.However,the 1996 Act permits co-ownership of MMDS and cable systems in areas where the cable operator is subject to effective competition. The 1992 Cable Act also codified this restriction and extended it to co-located SMATV systems,except that a cable system may acquire a co-located SMATV system if it provides cable service to the SMATV system in accordance with the terms of its cable television franchise. Under the 1992 Cable Act, permitted arrangements in effect as of October 5, 1992 were grandfathered. The 1992 Cable Act permits states or local franchising authorities to adopt certain additional restrictions on the transfer of ownership of cable television systems. The cross-ownership prohibitions would preclude investors from holding ownership interests in Cox if they simultaneously served as officers or directors of, or held an attributable ownership interest in, these other businesses, and would also preclude Cox from acquiring a cable television system when Cox's 31 1 officers or directors served as officers or directors of, or held an attributable ownership in, these other businesses which were located within the same area as the cable system which was to be acquired. The 1996 Act generally restricts common carriers from holding greater than a 10%fmancial interest or any management interest in cable operators which provide cable service within the carrier's telephone exchange service area or from entering joint ventures or partnerships with cable operators in the same market subject to four general exceptions which include population density and competitive market tests. The FCC may waive the buyout restrictions if it determines that,because of the nature of the market served by the cable system or the telephone exchange facilities, the cable operator or LEC would be subject to undue economic distress by enforcement of the restrictions, the system or LEC facilities would not be economically viable if the provisions were enforced,the anticompetitive effects of the proposed transaction clearly would be outweighed by the public interest in serving the community, and the local franchising authority approves the waiver. Pursuant to the 1992 Cable Act,the FCC has imposed regulatory ownership restrictions on the number of cable systems which a single cable operator may own. In general, no cable operator may hold an attributable interest in cable systems which pass more than 30% of all homes nationwide. Attributable interests for these purposes include voting interests of 5%or more(unless there is another single holder of more than 50%of the voting stock), officerships, directorships and general partnership interests. The FCC has stayed the effectiveness of these rules pending the outcome of the appeal of the United States District Court decision holding the multiple ownership limit provision of the 1992 Cable Act unconstitutional. The appeal of that decision has been consolidated with an appeal of the FCC's regulatory ownership restrictions. The FCC also has adopted rules which limit the number of channels on a cable system that can be occupied by programming in which the entity that owns the cable system has an attributable interest. The limit is 40%of all activated channels. Federal cross-ownership restrictions have previously limited entry into the cable television business by potentially strong competitors such as telephone companies.The 1996 Act repeals the cross-ownership ban and provides that telephone companies may operate cable television systems within their own service areas. The 1996 Act will enable telephone companies to provide video programming services as common carriers, cable operators or open video system("OVS") operators. If OVS systems become widespread in the future, cable television systems could be placed at a competitive disadvantage because, unlike OVS operators, cable television systems are required to obtain local franchises to provide cable television service and must comply with a variety of obligations under such franchises.Under the 1996 Act,common carriers leasing capacity for the provision of video programming services over cable systems or OVS operators are not bound by the interconnection obligations of Title II, which otherwise would require the carrier to make capacity available on a nondiscriminatory basis to any other person for the provision of cable service directly to subscribers. Additionally, under the 1996 Act, common carriers providing video programming are not required to obtain a Section 214 certification to establish or operate a video programming delivery system. Common carriers that qualify as OVS operators are exempt from many of the regulatory obligations that currently apply to cable operators. However, certain restrictions and requirements that apply to cable operators will still be applicable to OVS operations. Common carriers that elect to provide video services over an OVS may do so upon obtaining certification by the FCC. Among other requirements,the 1996 Act prohibits OVS operators from discriminating in the provision of video programming services and requires OVS operators to limit carriage of video services selected by the OVS operator to one-third of the OVS's capacity. OVS operators must also comply with the FCC's sports exclusivity, network nonduplication and syndicated exclusivity restrictions, public, educational, and government channel use requirements, the "must-carry"requirements of the 1992 Cable Act,and regulations that prohibit anticompetitive behavior or discrimination in the prices, terms and conditions of providing vertically integrated satellite-delivered programming. The manner in which OVS operators will be treated as cable operators for purposes of 32 copyright liability has not yet been determined by the Copyright Office. Upon compliance with such requirements and FCC rules that mirror statutory requirements, an OVS operator will be exempt from various statutory restrictions which apply to cable operators, such as broadcast-cable .ownership restrictions,commercial leased access requirements, franchising,rate regulation, and consumer electronics compatibility requirements. Although OVS operators are not subject to franchise fees, as defined by the 1996 Act, they may be subject to fees charged by local franchising authorities or other governmental entities in lieu of franchise fees. Such fees may not exceed the rate at which franchise fees are imposed on cable operators and may be itemized separately on subscriber bills. The FCC has ruled that cable operators may opt to operate OVS systems,but only if they are subject to effective competition. Under the FCCs rules, a cable operator may not terminate an existing franchise agreement in order to become an OVS operator. An appeal of these rules is currently pending in the United States Court of Appeals for the Fifth Circuit. Telecommunications Regulation. The telecommunications services currently offered by Cox affiliates and Sprint PCS are subject to varying degrees of federal, state and local regulation. The FCC exercises jurisdiction over all facilities of,and services offered by,telecommunications service providers to the extent that those facilities are used to provide, originate and terminate interstate or international communications. Landline Telecommunications Services. While the current switched voice and data market is dominated by local exchange companies, also known as incumbent LECs, the 1996 Act presents new opportunities for new entrants into these markets. The LECs provide a full range of local telecommunications services and equipment to customers,-as well as originating and terminating access to their local networks to interexchange carriers and commercial mobile radio service providers. Because LECs historically have had exclusive state franchises by law to provide telephone services, they have established monopoly relationships with their customers. Under the new law and subject to certain exemptions for rural telephone companies, the FCC is directed to preempt any state law or regulation that acts to prevent new competitive entry into incumbent LEC markets. The 1996 Act also eliminates the interexchange (interLATA) restrictions contained in the Modified Final-Judgment, the 1981 consent decree, and establishes procedures under which a Bell Operating Company (BOC) can enter the market for interLATA services within its telephone service area. Before a BOC can enter the landline interLATA market, it must enter into a state-approved interconnection agreement with a company that provides local exchange service to business and residential customers predominantly over its own facilities. Alternatively, if no such competitor requests interconnection, the BOC can request authority to provide interLATA services if it offers interconnection pursuant to state- approved terms and conditions. The interconnection provided by the BOC must comply with a "competitive checklist". Many, if not all, of the BOCs are currently preparing applications for FCC approval to provide interLATA services. Regulatory Requirements for all LECs,Including New Entrants. Under the 1996 Act,new landline entrants will become subject to additional federal regulatory requirements when they provide local exchange service in any market. The 1996 Act imposes a number of access and interconnection requirements on all LECs, with additional requirements imposed on incumbent LECs. Specifically, the 1996 Act required the FCC to implement rules under which all LECs must provide telephone number portability, dialing parity, reciprocal compensation for traffic transport and termination, resale and access to rights of way. In addition, the 1996 Act specifies procedures for state commissions to review and approve both voluntary and compulsory interconnection agreements entered into between new entrants and incumbent LECs. These requirements also place burdens on new entrants that may benefit other competitors.In particular,the resale requirement means that a company can seek to resell the facilities of a new entrant without making a similar investment in facilities. 33 One of the primary goals of the original Communications Act of 1934 was to extend telephone service to all citizens of the United States.This goal has been achieved primarily by maintaining the rates for basic local exchange service at a reasonable level. It was widely accepted that incumbent LECs were able to maintain relatively low local rates by subsidizing them with revenues from business and toll services, and by subsidizing rural service at the expense of urban customers. The extent of these subsidies has been widely disputed and incumbent LECs that have this information generally have not made it available for review and verification. The 1996 Act continues the goal of preserving and advancing universal service by requiring the FCC to establish an explicit mechanism for subsidizing service to those who might otherwise drop off the public switched telephone network. Although the details will be determined by the FCC as it considers the recommendations of a Federal-State joint board of regulators, the legislation specifies that all telecommunications carriers will be required to contribute and carriers that serve eligible customers can apply to receive subsidies. State universal service programs may also continue in effect so long as they are administered on a competitively neutral basis. Depending upon how the FCC implements its statutory mandate and states adjust their existing programs,this subsidy mechanism may provide an additional source of revenue to those LECs willing and able to provide service to those markets that are less financially desirable,either because of the high cost of . providing service or the limited revenues that might be available from serving a particular subset of customers in an area,i.e.,residential customers. Another goal of the 1996 Act is to increase competition for telecommunications services, thereby reducing the need for continuing regulation of these services.To this end the 1996 Act requires the FCC to streamline its regulation of incumbent LECs and permits the FCC to forbear from regulating particular classes of telecommunications services or providers, including relaxation or potentially eventual termination of FCC service tariffing requirements. The 1996 Act eliminates the requirement that incumbent LECs obtain FCC authorization prior to constructing facilities for interstate services. The 1996 Act also limits the FCC's ability to review incumbent LEC tariff filings. These changes will increase the speed with which incumbent LECs are able to introduce new service offerings and new pricing of existing services, thereby increasing their flexibility to respond to new entrants. In addition to incumbent LECs'and existing competitive access providers, new entrants potentially capable of offering switched and non-switched services include individual cable television companies, electric utilities,long distance carriers,microwave carriers,wireless service providers,resellers and private networks built by large end-users. Broadband PCS Auction. In the 1993 Budget Act, Congress gave the FCC the authority to preempt states from regulating the entry of or the rates charged by any Commercial Mobile Radio Service ("CMRS")provider, including PCS providers. On February 3, 1994, the FCC adopted rules implementing the 1993 Budget Act and created the CMRS regulatory classification. The CMRS classification applies to all mobile services(including PCS)that are for profit and that provide interconnected service to the public or a substantial portion of the public. At that time, the FCC preempted state regulation and established a procedure for states to petition the FCC for authority to regulate CMRS rates. Eight states submitted requests to continue regulation of cellular providers within their jurisdictions. On May 19, 1995, the FCC released orders denying the requests. States are permitted under the 1993 Budget Act to regulate "other terms and conditions" of CMRS, including the siting and zoning of CMRS equipment.A petition for rulemaking is pending before the FCC requesting that the FCC preempt state and local siting and zoning regulation to the extent such regulation acts to inhibit or prevent entry into the CMRS marketplace. The petition generally has been opposed by state and local governments and supported by CMRS providers and potential PCS providers.The 1996 Act 34 contains a provision prohibiting state and local governments from discriminating in their zoning decisions that apply to personal wireless service facilities and enforcing rules or regulations that prevent the provision of wireless services. Additionally, the 1996 Act specifically determined that CMRS providers are not required to provide equal access to interexchange carriers for the provision of interexchange services. While the FCC has prescribed rules for the unblocking of access to a preferred interexchange carrier,the legislation does away with the equal access requirement imposed on the wireless affiliates of the BOCs. In addition, the 1996 Act permits the BOCs,on enactment,to provide interexchange service to their cellular customers. The FCC has allocated 120 MHz of spectrum in the 2 GHz band to be licensed to competing broadband PCS providers, which it is anticipated will offer advanced digital wireless services in competition with current cellular and specialized mobile radio services as well as with landline telephone service.Broadband PCS spectrum was first auctioned by Major Trading Area(MTA) licenses by the FCC in an auction which ended in mid-March 1995. Six broadband PCS licenses have been auctioned in each service area(except that only five licenses were auctioned in the three markets in which pioneer preference licenses were issued),and FCC rules permit some aggregation and disaggregation of PCS spectrum by PCS operators. The first broadband PCS auction included two 30 MHz frequency blocks of spectrum (Blocks "A" and "B") licensed by MTA. The second auction was for 30 MHz blocks of broadband spectrum, licensed using Basic Trading Areas (Block "C" auction). Block C licenses were available only to parties that met specific FCC eligibility criteria. A Basic Trading Area spectrum block, Block "F," was also auctioned only to parties meeting specific eligibility criteria following the Block"C"auction.The FCC has recently concluded its fmal PCS auctions for the F Block and two Basic Trading Area 10 MHz blocks of spectrum,Blocks"D"and"E,"which will not be subject to the additional eligibility requirements imposed on Blocks"C"and"F." State and Local Regulation Cable Television Regulation. Because a cable television system uses local streets and rights-of-way, cable television systems are subject to state and local regulation,typically imposed through the franchising process. Consistent with the Communications Act, state and/or local officials are usually involved in franchise selection, system design and construction, safety, service rates, consumer relations, billing practices and community related programming and services. Cable television systems generally are operated pursuant to non-exclusive franchises, permits or licenses granted by a municipality or other state or local government entity. Franchises generally are granted for fixed terms and in many cases are terminable if the franchise operator fails to comply with material provisions.Although the 1984 Cable Act provides for certain procedural protections,there can be no assurance that renewals will be granted or that renewals will be made on similar terms and conditions. Franchises usually call for the payment of fees,often based on a percentage of the system's gross customer revenues, to the granting authority. Upon receipt of a franchise, the cable system owner usually is subject to a broad range of obligations to the issuing authority directly affecting the business of the system. The terms and conditions of franchises vary materially from jurisdiction to jurisdiction, and even from city to city within the same state, historically ranging from reasonable to highly restrictive or burdensome. The 1984 Cable Act places certain limitations on a franchising authority's ability to control the operation of a cable system, and courts have from time to time reviewed the constitutionality of several general franchise requirements,including franchise fees and access channel requirements,often with inconsistent results. On the other hand, the 1992 Cable Act prohibits exclusive franchises and allows franchising authorities to exercise greater control over the operation of franchised cable television systems, especially in the area of customer service and rate regulation. The 1992 Cable Act also allows franchising authorities to operate their own multichannel video distribution system without having to obtain a franchise and permits states or local franchising authorities to adopt certain restrictions on the ownership of cable television systems. Moreover,franchising authorities have immunity from monetary damage awards arising from regulation of cable television systems or decisions made on franchise grants,renewals,transfers and amendments. 35 The specific terms and conditions of a franchise and the laws and regulations under which it was granted directly affect the profitability of the cable television system. Cable franchises generally contain provisions governing charges for basic cable television services, fees to be paid to the franchising authority, length of the franchise term,renewal,sale or transfer of the franchise, territory of the franchise, design and technical performance of the system,use and occupancy of public streets and number and types of cable services provided. Various proposals have been introduced at the state and local levels with regard to the regulation of cable television systems, and a number of states have adopted legislation subjecting cable television systems to the jurisdiction of centralized state governmental agencies,some of which impose regulation of a character similar to that of a public utility. The foregoing does not purport to describe all present and proposed federal,state and local regulations and legislation relating to the cable television or telephony industries. Other existing federal regulations, copyright licensing and, in many jurisdictions, state and local franchise requirements currently are the subject of a variety of judicial proceedings,legislative hearings and administrative and legislative proposals which could change, in varying degrees, the manner in which cable television or telephony systems operate.Neither the outcome of these proceedings nor their impact upon the cable television or telephony industries can be predicted at this time. The government of Mexico has authorized the allocation of a new broadcast station on channel 3 in Tijuana,Mexico,which if constructed,will cause interference with the operations of the Company's cable system serving the San Diego area. The Company provides its subscribers with converters which are tuned to channel 3,and ingress from the station's signal wall cause co-channel interference on the system in those areas of the San Diego market where.the station's signal is received. The United States Government has requested the Mexican government to modify its proposed allocation. If the Mexican government declines, the Company would be required to incur significant expenses to retune subscribers' converters to a different channel. Cable reception in those franchise areas where the station could be received would be disrupted until the converters were retuned. Employees At December 31, 1996, Cox had approximately 7,200 full-time-equivalent employees. Cox considers its relations with its employees to be satisfactory. ITEM 2. PROPERTIES Cox's principal physical assets consist of cable television operating plant and equipment, including signal receiving, encoding and decoding devices, headends and distribution systems and customer house drop equipment for each of its cable television systems.The signal receiving apparatus typically includes a tower, antenna, ancillary electronic equipment and earth stations for reception of satellite signals. Headends, consisting of associated electronic equipment necessary for the reception, amplification and modulation of signals, are located near the receiving devices. Cox's distribution system consists primarily of coaxial and fiber optic cables and related electronic equipment. Customer devices consist of decoding converters. The physical components of cable television systems require maintenance and periodic upgrading to keep pace with technological advances. Cox's cable distribution plant and related equipment are generally attached to utility poles under pole rental agreements with local public utilities, although in some areas the distribution cable is buried in underground ducts or trenches. Cox owns or leases parcels of real property for signal reception sites (antenna towers and headends), microwave facilities and business offices in each of its market areas and leases most of its service vehicles. Cox believes that its properties, both owned and leased, taken as a whole,are in good operating condition and are suitable and adequate for Cox's business operations. 36 ITEM 3. LEGAL PROCEEDINGS Cox is a party to various legal proceedings that are ordinary and incidental to its business. Management does not expect that any legal proceedings currently pending,individually or in the aggregate, will have a material adverse effect on Cox or its business or operations. See Note 16 to the Consolidated Financial Statements included in Cox's 1996 Annual Report to Stockholders and incorporated herein by reference(see Exhibit 13). ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Cox held its 1996 Annual Meeting of Stockholders on May 7, 1996. Two matters were voted upon at the meeting: (a) the election of a Board of Directors of seven members to serve until the 1997 Annual Meeting or until their successors are duly elected and qualified; and(b)ratification of the appointment by the Board of Directors of Deloitte & Touche LLP, independent certified public accountants, as Cox's independent auditors for the year ending December 31, 1996. The following directors were elected and they received the votes indicated: Votes In Favor Of Withheld James C.Kennedy 383,026,502 579,883 Janet Morrison Clarke 383,227,225 379,360 John R.Dillon 383,025,987 580,398 David E.Easterly 383,026,481 579,904 Robert F.Erburu 382,994,061 612,324 James O.Robbins 383,026,540 579,845 Andrew J.Young 383,205,099 401,286 Ratification of Deloitte & Touche LLP as independent auditors for the fiscal year ending December 31, 1996 was approved with 383,544,498 votes in favor, 15,104 votes opposed and 45,783 abstentions. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Except as set forth below, the information required by this Item is incorporated by reference to the back cover of Cox's 1996 Annual Report to Stockholders(see Exhibit 13). In June 1995, concurrent with its public offering of shares of Class A Common Stock, the Company agreed to issue shares of Class A Common Stock to CEI in a private placement (the "CEI Purchase"). Pursuant to the CEI Purchase, CEI acquired 8,298,755 shares of Class A Common Stock at $18.075 per share, the price offered to the public per share, less the underwriting discounts and commissions thereon. CEI holds these shares of Class A Common Stock for investment purposes. ITEM 6. SELECTED FINANCIAL DATA The information required by this Item is incorporated by reference to page 18 of Cox's 1996 Annual Report to Stockholders(see Exhibit 13). 37 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this Item is incorporated by reference to pages 19 through 25 of Cox's 1996 Annual Report to Stockholders(see Exhibit 13). ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Except as set forth below,the information required by this Item is incorporated by reference to pages 26 through 48 of Cox's 1996 Annual Report to Stockholders(see Exhibit 13). The information required by this Item with respect to Cox California PCS, Inc. is included at Exhibit 99.1. The information required by this Item with respect to Sprint Spectrum Holding Company, L.P. is included at Exhibit 99.2. The information required by this Item with respect to Teleport Communications Group Inc.is incorporated by reference to the financial statements contained in the Form 10-K for the fiscal year ended December 31, 1996 filed by Teleport Communications Group Inc.(Commission File No.0-20913)(See Exhibit 99.3). 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 information required by this Item is incorporated by reference to Cox's Proxy Statement for the 1997 Annual Meeting of Stockholders. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is incorporated by reference to Cox's Proxy Statement for the 1997 Annual Meeting of Stockholders. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated by reference to Cox's Proxy Statement for the 1997 Annual Meeting of Stockholders. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is incorporated by reference to Cox's Proxy Statement for the 1997 Annual Meeting of Stockholders. 38 PART IV ITEM 14. EXHIBITS,FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents incorporated by reference or filed with this Report (1) The financial statements set forth on pages 26 through 48 of the 1996 Annual Report to Stockholders are incorporated herein by reference(see Exhibit 13). The fmancial statements required by Item 8 with respect to Cox California PCS,Inc.are incorporated by reference herein(see Exhibit 99.1). The financial statements required by Item 8 with respect to Sprint Spectrum Holding Company,L.P.are incorporated by reference herein(see Exhibit 99.2). The financial statements required by Item 8 with respect to Teleport Communications Group Inc.are incorporated by reference herein(see Exhibit 99.3). (2) No fmancial statement schedules are required to be filed by Items 8 and 14(d)because they are not required or are not applicable, or the required information is set forth in the applicable financial statements or notes thereto. (3) Exhibits required to be filed by Item 601 of Regulation S-K: Listed below are the exhibits which are filed as part of this Report(according to the number assigned to them in Item 601 of Regulation S-K): Exhibit - Number Description 2.1 — Agreement and Plan of Merger, dated as of June 5, 1994,by and among The Times Mirror Company, New TMC Inc., Cox Communications, Inc. and Cox Enterprises, Inc. (Incorporated by reference to Exhibit 2.1 to Cox's Registration Statement on Form S-4,File No.33-80152,filed with the Commission on December 16, 1994.) 2.2 -- Amendment No. 1, dated as of December 16, 1994, to Agreement and Plan of Merger by and among The Times Mirror Company, New TMC Inc., Cox Communications, Inc. and Cox Enterprises, Inc. (Incorporated by reference to Exhibit 2.2 to Cox's Registration Statement on Form S-4, File No. 33-80152, filed with the Commission on December 16, 1994.) 2.3 — Amendment No. 2, dated as of January 30, 1995, to Agreement and Plan of Merger by and among The Times Mirror Company,New TMC Inc., Cox Communications, Inc., and Cox Enterprises, Inc. (Incorporated by reference to Exhibit 2.3 to Cox's Current Report on Form 8-K filed with the Commission on February 15, 1995.) 3.1 -- Amended Certificate of Incorporation of Cox Communications, Inc. (Incorporated by reference to Exhibit 3.1 to Cox's Annual Report on Form 10-K for the fiscal year ended December 31, 1994.) 3.2 -- Bylaws of Cox Communications, Inc. (Incorporated by reference to Exhibit 3.2 to Cox's Registration Statement on Form S-4, File No. 33-80152, filed with the Commission on December 16, 1994.) 4.1 -- Indenture dated as of June 27, 1995 between Cox Communications, Inc. and The • Bank of New York, as Trustee, relating to the 6 3/8 % Notes due 2000, 6 1/2 % Notes due 2002, 6 7/8 Notes due 2005, 7 1/4 %Debentures due 2015 and the 7 5/8 %Debentures due 2025 of Cox Communications,Inc. (Incorporated by reference to Exhibit 4.1 to Cox's Registration Statement on Form S-1, File No. 33-99116, filed with the Commission on November 8, 1995.) 10.1 — Amended and Restated Agreement of Limited Partnership of MajorCo,L.P.,dated as of January 31, 1996, among Sprint Spectrum,L.P.,TCI Network Services, Comcast Telephony Services and Cox Telephony Partnership. * (Incorporated by reference to 39 * Exhibit 10.1 to Cox's Current Report on Form 8-K filed with the Commission on February 9, 1996.) 10.2 -- Second Amended and Restated Joint Venture Formation Agreement, dated as of January 31, 1996, by and between Sprint Corporation, Tele-Communications, Inc., Comcast Corporation and Cox Communications,Inc. *(Incorporated by reference to Exhibit 10.2 to Cox's Current Report on Form 8-K filed with the Commission on February 9, 1996.) 10.3 — Parents Agreement,dated as of January 31, 1996 between Cox Communications,Inc and Sprint Corporation. * (Incorporated by reference to Exhibit 10.3 to Cox's Current Report on Form 8-K filed with the Commission on February 9, 1996.) 10.4 — Amended and Restated Agreement of Limited Partnership of PhillieCo, L.P., dated as of February 17, 1995, by and among Sprint Spectrum, Inc., TCI Network, Inc. • and Cox Communications Wireless, Inc. (Incorporated by reference to Exhibit 10.4 to the Annual Report on Form 10-K of Cox Communications, Inc., filed with the Commission on March 31, 1995.) 10.5 -- Contribution Agreement, dated as of March 28, 1995, by and among TCI Network Services, Comcast Telephony Services, Cox Telephony Partnership, MajorCo, L.P. and Newtelco, L.P. (Incorporated by reference to Exhibit 10.5 to the Annual Report on Form 10-K of Cox Communications, Inc., filed with the Commission on March 31, 1995.) 10.6 -- Registration Rights Agreement, dated as of January 31, 1995, by and between Cox Communications, Inc., and Bank of America National Trust and Savings Association, Thomas Unterman, James F. Guthrie, James R. Simpson, Robert F. Erburu and David Laventhol, each as trustees for certain employee benefit plans of The Times Mirror Company. (Incorporated by reference to Exhibit 10.6 to the Annual Report on Form 10-K of Cox Communications, Inc., filed with the Commission on March 31, 1995.) 10.7 -- Tax Allocation Agreement, dated as of February 1, 1995, by and between Cox Enterprises, Inc. and Cox Communications, Inc. (Incorporated by reference to Exhibit 10.7 to the Annual Report on Form 10-K of Cox Communications,Inc.,filed with the Commission on March 31, 1995.) 10.8 -- Asset Purchase Agreement,dated as of November 8, 1994,by and between Newport News Cablevision, Ltd. and Cox Cable Hampton Roads, Inc. (Incorporated by reference to Exhibit 10.8 to the Annual Report on Form 10-K of Cox Communications,Inc.,filed with the Commission on March 31, 1995.) 10.9 -- Cox Executive Supplemental Plan of Cox Enterprises, Inc. (Incorporated by reference to Exhibit 10.5 to Cox's Registration Statement on Form S-4, File No. 33- 80152,filed with the Commission on December 16, 1994.) 10.10 -- Cox Communications,Inc.Long-Term Incentive Plan. (Incorporated by reference to Exhibit 10.8 to Cox's Registration Statement on Form S-4, File No. 33-80152, filed with the Commission on December 16, 1994.) 10.11 -- Cox Communications, Inc. Restricted Stock Plan for Non-Employee Directors.. (Incorporated by reference to Exhibit 10.9 to Cox's Registration Statement on Form S-4,File No.33-80152,filed with the Commission on December 16, 1994.) 10.12 — 5-Year Credit Agreement, dated as of January 24, 1995, by and among Cox Communications, Inc., Texas Commerce Bank National Association and Chemical Bank, individually and as agents, and the other banks signatory thereto. (Incorporated by reference to Exhibit 10.13 to the Annual Report on Form 10-K of Cox Communications,Inc.,filed with the Commission on March 31, 1995.) 10.13 — 364-Day Credit Agreement, dated January 24, 1995, by and among Cox Communications, Inc., Texas Commerce Bank National Association and Chemical Bank, individually and as agents, and the other banks signatory. (Incorporated by reference to Exhibit 10.14 to the Annual Report on Form 10-K of Cox Communications,Inc.,filed with the Commission on March 31, 1995.) 40 4 • 10.14 — Assumption and Amendment Agreement, dated as of February 1, 1995, among Cox Communications, Inc., Texas Commerce Bank National Association, individually and as agent, and the other bank signatory. (Incorporated by reference to Exhibit 10.15 to the Annual Report on Form 10-K of Cox Communications, Inc., filed with the Commission on March 31, 1995.) 10.15 — Form of Letter Agreement between Cox Enterprises,Inc. and Cox Communications, Inc. relating to the CEI Purchase. (Incorporated by reference to Exhibit 10.16 to Cox's Amendment No.2 to Registration Statement on Form S-1,File No. 33-92000, filed with the Commission on June 21, 1995.) 10.16 — Share Exchange Agreement, dated August 11, 1995, among Southwestern Bell - International Holdings (UK-1) Corporation, Southwestern Bell International Holdings (UK-2) Corporation, Cox UK Communications, LP, TeleWest plc, TeleWest Communications plc, SBC International, Inc., Cox Communications, Inc. and SBC Cable Comms (UK) relating to the TeleWest Merger. (Incorporated by reference to Exhibit 10.1 on Form 10-Q of Cox Communications,Inc.,filed with the Commission on November 8, 1995.) 10.17 — Form of Co-Operation Agreement among Cox U.K. Communications, LP, Cox Communications, Inc., Southwestern Bell International Holdings (UK-1) Corporation and Southwestern Bell International Holdings(UK-2)Corporation,SBC International, Inc. and TeleWest plc relating to the TeleWest Merger. (Incorporated by reference to Exhibit 10.2 on Form 10-Q of Cox Communications,Inc., filed with the Commission on November 8, 1995.) 10.18 -- Form of Share Dealing Agreement among Cox Communications, Inc., Cox U.K. Communications, LP, SBC International, Inc., Southwestern Bell International Holdings(UK-1)Corporation and Southwestern Bell International Holdings (UK-2) Corporation, Telecommunications International Holdings, Inc., US West International Holdings, Inc. and TeleWest plc relating to the TeleWest Merger. (Incorporated by reference to Exhibit 10.3 on Form 10-Q of Cox Communications, Inc.,filed with the Commission on November 8, 1995.) 10.19 -- Asset Exchange Agreement, dated December 31, 1996, by and among Heritage Cablevision of Southeast Massachusetts, Inc., Heritage Cablevue, Inc., TCI Cablevision of St. Bernard, Inc., TCI of Council Bluffs, Inc., TCI of Virginia, Inc., UA-Columbia Cablevision of Massachusetts,Inc.,United Cable Television of Sarpy County, Inc., United Cable Television of Scottsdale, Inc., and TCI American Cable Holdings,L.P.,and CoxCom,Inc.* 10.20 -- Subscription Agreement,dated March 21, 1997,between Cox Communications,Inc. and Flextech plc* 13 — Portions of the 1996 Annual Report to Stockholders (expressly incorporated by reference in Part I,Item 3 and Part II,Items 5 through 8 of this Report). 21 -- Subsidiaries of Cox Communications,Inc. 23.1 — Consent of Deloitte&Touche LLP, Atlanta,Georgia 23.2 — Consent of Deloitte&Touche u.', Kansas City,Missouri 23.3 — Consent of Deloitte&Touche LLP, New York,New York 23.4 — Consent of Deloitte&Touche u.', Costa Mesa,California 23.5 — Consent of Price Waterhouse LLP,Washington,D.C. 24 — Power of Attorney(included on page 42) 27 — Financial data schedule 99.1 — Combined financial statements of Cox Communications PCS,L.P.and Cox California PCS,Inc. 99.2 -- Financial statements of Sprint Spectrum Holding Company,L.P. 99.3 — Financial statements of Teleport Communications Group Inc. * Schedules and exhibits intentionally omitted. (b) Current reports on Form 8-K Cox filed a Current Report on Form 8-K dated 12/31/96. SIGNATURES • Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Cox Communications, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. COX COMMUNICATIONS,INC. By: /s/ JAMES O.ROBBINS James O.Robbins President and Chief Executive Officer Date:March 28, 1997 POWER OF ATTORNEY Cox Communications,Inc.,a Delaware corporation,and each person whose signature appears below, constitutes and appoints James O.Robbins and Jimmy W.Hayes,and either of them,with full power to act without the other,such person's true and lawful attorneys-in-fact,with full power of substitution and resubstitution,for him and in his name,place and stead,in any and all capacities,to sign this Annual Report on Form 10-K and any and all amendments to such Annual Report on Form 10-K and other documents in connection therewith,and to file the same,and all exhibits thereto and other documents in connection therewith,with the Securities and Exchange Commission,granting unto said attorneys-in-fact, and each of them,full power and authority to do and perform each and every act and thing necessary or desirable to be done in and about the premises,as fully to all intents and purposes as he might or could do in person,thereby ratifying and confirming all that said attorneys-in-fact,or any of them,or their or his substitute or substitutes,may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934,this report has been signed below by the following persons on behalf of Cox Communications,Inc. and in the capacities and on the dates indicated. Signature Title Date /s/ JAMES C.KENNEDY Chairman of the Board of March 28, 1997 James C.Kennedy Directors /s/ JAMES O.ROBBINS. President and Chief Executive March 28, 1997 James O.Robbins Officer;Director /s/ JIMMY W.HAYES Senior Vice President,Finance and March 28, 1997 Jimmy W.Hayes Chief Financial Officer (principal financial officer) /s/ MICHAEL D.HORAN Vice President and Controller March 28, 1997 Michael D.Horan (principal accounting officer) /s/ JANET MORRISON CLARKE Director March 28, 1997 Janet Morrison Clarke 42 is /s/ JOHN R.DILLON Director March 28, 1997 John R.Dillon /s/ DAVID E.EASTERLY Director March 28, 1997 David E.Easterly /s/ ROBERT F.ERBURU Director March 28, 1997 Robert F.Erburu /s/ ANDREW J.YOUNG Director March 28, 1997 Andrew J.Young 43 Exhibit 6 FCC Form 394 Date: April 3, 1998 Transferee's Technical Qualifications • Corporate Personnel • Local System Management • Cable Systems Currently Owned/Operated Exhibit 6 FCC Form 394 Date: April 3, 1998 Section IV Technical Qualifications - Corporate Personnel Cox Communications, Inc.'s Corporate Engineering Department consists of 40 people who reside in Atlanta. The Department is organized to offer assistance to our cable systems in the areas of cable engineering (fiber, coax, etc.), alternate access (business telephony), wireless and wireline telephone (residential), high speed data services, upgrade and rebuild planning and design, and purchasing and materials management. Fourteen of our people have a technical background with five of the fourteen having a total of 124 years experience in the cable industry (78 years with Cox). Five more have a telephony background with a total of 80 years experience in the telephone industry (9 years with Cox). This group of engineers sets the overall strategic technical direction for the cable division plus offers specific expertise in the technical disciplines stated above, when requested by the individual systems. An additional 15 of the 40 people are involved in designing the fiber networks we are putting in place in each of our systems, plus providing a quality control function for the design of the coaxial cable upgrade and rebuilds. The remaining 11 individuals are responsible for purchasing and inventory control of the materials needed by the individual systems to upgrade their networks and enter new businesses such as telephony and access to on-line services. For the past five years, we have aggressively upgraded our system channel capacity by deploying state-of-the-art amplifier technology. Simultaneously, we have installed more than 5,000 route miles of optical cable, substantially improving picture quality and reliability while preparing the network for multimedia services. Adhering to our present schedule, more than 90% of our system miles (50,000) will offer 550 MHz of bandwidth or greater by the year 2000 and fiber will be deployed down to serving areas of less than 1,000 homes. Exhibit 6 FCC Form 394 Date: April 3, 1998 Cox Communications, L.L.C. d.b.a. Cox Communications Omaha Section IV Technical Qualifications - Local System Management Local System Management (Following will continue to serve locally) • Name Department Years of Experience Richard Hook VP/General Manager 25 Michael Bojanski Director of Human Resources 9 John Chesnutt Director of Broadband 11 Thomas Makin Director of Site Development 2 Robert Sebby Director of Customer Service 12 Michael Kohler Director of Public Affairs 16 Joseph Seda Director of Network Operations 2 Thomas Stokes Director of Field Operations 14 Mark Caniglia Director of Marketing 17 Mike Miller Advertising Sales Manager 15 Erin Sullivan Accounting Manager 2 Don Wonka Financial Planning Manager 13 Gary Whitney Broadband Operations Manager 3 John Alexander Inventory and Facilities Manager 17 Julie Breeling Marketing Product Manager - Telephony 1 Margie Gutnik Marketing Product Manager - Data 1 Shay Ranchod Data Processing Manager 4 Phil Higgins Sales Manager 8 Dawn Villone Sales Manager 4 Howard Swain . Public Access Manager 17 Annette Heaton Sales Manager 7 Joe Scott Primestar Manager 11 Laura Roccaforte Training/Development Manager 3 S. Mark Wichelt Construction Manager 3 Exhibit 6 FCC Form 394 Date: April 3, 1998 Section IV Technical.Qualifications List of Cable Systems Currently Operated 12/31/96 Group System Basic Subs Central Bakersfield/Santa Barbara 90,125 Central Ohio 84,618 Cleveland 70,677 Gainesville/Ocala 86,606 Humboldt 32,231 Lafayette 38,124 Middle Georgia 72,315 Oklahoma City 116,624 Omaha 149,352 Roanoke 56,773 West Texas 76,317 Central Total 873,762 Eastern New England 410,355 Pensacola/Ft. Walton 145,218 Phoenix 512,965 Eastern Total 1,068,538 Western Hampton Roads 383,026 Louisiana 270,637 Orange County 248,359 San Diego 472,060 Western Total 1,374,082 Grand Total 3,316,382 csA � �� CITY.OF OMAHA to ©/'&/i7 = s� LEGISLATIVE CHAMBER Omaha,Nebr 19 RESOLVED BY THE CITY COUNCIL OF THE CITY OF OMAHA: WHEREAS,Advance/Newhouse Partnership,dba"Doi glas County CableVision"(hereinafter "CableVision")owns,operates,and maintains a cable television system(hereinafter"the system")within the city pursuant to a franchise granted May 18, 1982,and subsequently assigned,amended,and extended; and, • WHEREAS,the franchise agreement between the City and CableVision provides that the franchise shall not be assigned or transferred without the prior written consent of the City; and, WHEREAS,CableVision has filed with the City an application seeking the City's consent to the transfer of the franchise to Cox Communications Omaha, L.L.C. (hereinafter "Cox"); and, WHEREAS,such assignment shall be subordinate to the terms and conditions of the franchise and subject to the certification by Cox that,if the assignment is permitted, it will use its best efforts to comply with all terms of the franchise and applicable state laws or ordinances and related regulations; that it will effect changes,as promptly as practicable,in the operation of the system;that it will accept conditions and changes in the franchise outlined in the May 6, 1998,report of the Omaha Cable Television Advisory Committee Franchise Renewal Subcommittee;and that it will cure any violations or defaults in the franchise presently in effect or ongoing; and, WHEREAS,CableVision agrees that,notwithstanding the transfer,it will continue to be obligated to pay any amounts found due the City,including unpaid franchise fees,by a financial audit or otherwise,to be performed at the City's direction; and, WHEREAS,the City confirms that the franchise was properly granted to CableVision,and the franchise is currently in full force and effect and will expire September 3, 2011; and, WHEREAS,in reliance upon the application and representations of CableVision and the certification of Cox,this Council finds it is in the best interests of the citizens of Omaha who reside within the franchise area to consent to the transfer. • By Councilmember Adopted City Clerk Approved Mayor • • CITY OF OMAHIA LEGISLATWE CHAMBER . • Omaha,Nebr 19 • PAGE 2 NOW,THEREFORE,BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF OMAHA: - THAT,the Omaha City Council hereby consents to the transfer of the Omaha cable teleVision franchise held by Advance/Newhouse Partnership, dba "Douglas County CableVision", to Cox Communications Omaha, dba "Cox Communications ()Mahe. BE IT FURTHER RESOLVED: THAT, such consent shall be subject to and dependent upon compliance with the cpriditions.outlined in the May 6, 1998,report of the Omaha Cable Television Advisory Committee Franchise Renewal Subcommittee and the certifications and representations stated herein. THAT, the,foregoing consent to transfer the franchise shall be effective upon the • consummation of the transfer of the assets of the system by Advance/Newhouse Partnership to Cox • Communications Omaha, L.L.C, at Which time the City shall automatically release 'Advance/Newhouse:Partnership and its predecessors from all obligations and liabilities under the franchise that relate to periods from and after such date. Advance/Newhouse Partnership shall give the City written notice of the date of such consummation prior to its occurrence. APPRO ED S TO FORM: .1, tLLd4I /1/L.A0 „ , SISTANT CATNEY DATE P:\CC\7702.SKZ 42.1 Y • Councilmember Adopted NO 9 I 9 9 8:4c Ve4 2 led a-e ity Cid • Approved III.. / . Mayor oa o c� y- t I > .CD d 18 . .4., t .1.- , 4 ..„3„, ,c) ., aq.kk „. , ... ,,) „:, , ,;:: , .,, ,.. „„ ,,..., . , . 8 P., 0 0- o g q7. (''r) (-). • i\ 0.4 .� ,, :: . , ; c . . . 25',1'- arCnD ..',, 0 ° . 7, $. p, z, .,moo r„, i\" - • 0 P., 8 2 a., .r. 171 -, ;:., • 1 puiru ' � 1 a. o o CS (-) '41. 4 • E 4 i. ` . • ICI ) I I • 4, ' • `. ,. •