TO OUR MEMBERS:

You are cordially asked to consider and vote upon the following proposal:

The accompanying information statement explains the proposed sale and provides specific information concerning the vote on the proposed sale. Please read this material carefully.
 
 

We cannot complete the sale unless it is approved by the affirmative vote of a majority of the Members voting by submitting their written ballot cards by mail. We encourage you to sign and return your ballot card as soon as possible in the enclosed self-addressed envelope so that your vote will be recorded. All ballot cards must be submitted by mail. All ballot cards must be received at the address stated in the self-addressed envelope by the close of business on December 31, 1999; details are outlined on the enclosed ballot card. Ballot cards may not be delivered by other means. Please do not send or deliver your ballot card to Cable Co-op. Your vote is very important.

On behalf of Cable Co-op’s board of directors, I thank you for your support and ask you to vote in favor of the asset purchase agreement, the sale transaction with AT&T Cable, and the use of proceeds as set forth in the asset purchase agreement and herein.

John Kelley
President of the Board of Directors

The written ballot card and information statement are dated November 24, 1999 and are first being mailed to Members on or about December 3, 1999. Members of record at the close of business on November 9, 1999 are entitled to notice of the vote and to vote by mail.

This summary highlights selected information from this information statement and may not contain all of the information that is important to you. To better understand the asset purchase agreement and the sale of assets to AT&T Cable, and for a more complete description of the legal terms of these transactions, you should read this entire document carefully, as well as those additional documents to which we refer you. (see "Where You Can Find More Information" beginning at page 52)

 The Companies

Cable Communications Cooperative of Palo Alto, Incorporated

3200 Park Boulevard

Palo Alto, CA 94306

(650) 856-3553

Cable Communications Cooperative of Palo Alto, Incorporated ("Cable Co-op") is a California consumer cooperative corporation. Cable Co-op is primarily engaged in the cable television business, consisting of the provision of cable television services, high-speed data services and FM services, all provided via its cable television reception and distribution system. Cable Co-op’s cable television services include local origination programming and retransmission of local broadcast signals, selected cable networks, premium video and audio services, and pay-per-view services. Its FM services include the retransmission of certain local and distant FM stations. Cable Co-op’s data services include high-speed Internet access, e-mail, file transfers and World Wide Web related activities, provided on a turnkey basis by an outside contractor. Cable Co-op operates its cable television system pursuant to a franchise agreement with the Joint Powers Authority, as represented by the City of Palo Alto, California on behalf of itself and the other local governments within the service area covered by the franchise. This service area encompasses the Cities of Palo Alto, East Palo Alto and Menlo Park, the Town of Atherton and portions of San Mateo and Santa Clara Counties, California.

TCI Cablevision of California, Inc., d/b/a AT&T Cable

1691 Bayport Ave.

San Carlos, CA 94070
 
 

TCI Cablevision of California, Inc., d/b/a AT&T Cable ("AT&T Cable"), is a subsidiary of Tele-Communications, Inc., d/b/a AT&T Broadband and Internet Services ("AT&T BIS"), which is a subsidiary of AT&T Corp. ("AT&T"). AT&T is among the world’s communications leaders, providing voice, data and video telecommunications services to large and small businesses, consumers and government entities. AT&T and its subsidiaries furnish regional, domestic, international, local and Internet communication transmission services, including cellular telephone and other wireless services. AT&T also provides billing, directory and calling card services to support its communications business.

AT&T was incorporated in 1885 under the laws of the State of New York and has its principal executive offices at 32 Avenue of the Americas, New York, NY 10013-2412 (telephone number 212-387-5400).

AT&T BIS, through its subsidiaries, including TCI Cablevision of California, Inc., d/b/a AT&T Cable, is a business unit of AT&T that provides cable television entertainment and information programming services to more than 10 million customers across the country. AT&T BIS also provides a host of advanced services, including its high-speed, content-enriched cable Internet service, and is actively developing competitive local cable telephone services.

The principal office for AT&T BIS is located at 9197 So. Peoria St., Englewood, CO 80112 (telephone number 720-875-5500).

Silicon Valley Community Communications, Inc.

Silicon Valley Community Communications, Inc. ("SVCC") is a newly formed California public benefit nonprofit corporation that has been formed in connection with the contemplated sale of Cable Co-op’s cable television system to AT&T Cable. Upon the completion of the sale, Cable Co-op will transfer to SVCC its equipment and other assets relating to the production of local community programming and AT&T Cable will make an unconditional charitable gift to SVCC of $17 million. Following the completion of the sale, Cable Co-op anticipates that SVCC will, among other things, establish and operate a new Mid-Peninsula Community Media Center in accordance with SVCC’s vision statement, set forth at page 28, and expand communication services on the Internet and World Wide Web, including the provision of training in the production and use of such services.
 
 

Set forth in this information statement is an assortment of Cable Co-op’s understandings as to what actions SVCC will take on a going forward basis. Cable Co-op can make no assurance that SVCC will take any of the stated actions. SVCC is a corporation independent from Cable Co-op and Cable Co-op does not control SVCC’s operations.
 
 

The Proposed Transactions

The transactions involve the following steps:

Reasons For The Transactions (See Page 9)

The board of directors believes that the transactions should be completed for a number of reasons, including, but not limited to, the following:

Cable Co-op’s Recommendations to You

The board of directors of Cable Co-op believes that the sale of assets is fair and in the best interest of Cable Co-op and its Members. The board of directors recommends that you vote "FOR" approval and adoption of the asset purchase agreement and approval of the sale of assets and the use of proceeds as set forth in the asset purchase agreement and herein.
 
 

Record Date and Voting Power (See Page 8)

You are entitled to vote if you were a Member on the close of business on November 9, 1999, the record date for the vote. You will have one vote. There are 29,691 Members entitled to vote in connection with the sale of assets.
 
 

Required Vote (See Page 9)

Provided that a quorum of 250 voting Members return completed written ballot cards by December 31, 1999, the approval and adoption of the asset purchase agreement and approval of the sale of assets and the use of proceeds as set forth in the asset purchase agreement and herein requires the affirmative vote of a majority of the votes duly cast by Members.
 
 

Interests of Certain Persons in the Sale; Possible Conflicts of Interest (See Page 45)

You should be aware that some of the directors and executive officers of Cable Co-op own Sustaining Shares and/or Preferred Shares of Cable Co-op and/or shares of AT&T Corp., the parent company of AT&T Cable, that give them interests in the sale of assets to AT&T Cable that may be different from other Members. In addition, certain senior management employees of Cable Co-op, along with other non-senior management employees, are entitled to a retention bonus and may be entitled to severance payments following the completion of the sale. Further, certain members of the board of directors of Cable Co-op also are currently members of the board of directors of SVCC and certain members of senior management of Cable Co-op also are members of senior management of SVCC.
 
 

Tax Matters (See page 48)

Cable Co-op’s sale of its assets to AT&T Cable will be taxable to Cable Co-op. In addition, Cable Co-op expects to pay patronage dividends to its Members, which are expected to be deductible by Cable Co-op for federal income tax purposes. Patronage dividends will generally not be taxable to Cable Co-op Members. Tax matters can be complicated. You should consult your own tax advisers to fully understand the tax consequences to you, if any, of the sale of assets and the dividend distribution.

Conditions to the Sale of Assets

AT&T Cable and Cable Co-op will not complete the sale of assets unless the following conditions, among others, are satisfied or, in some cases, waived:

When to Vote

You may vote by mailing your signed ballot card in the enclosed return envelope at any time after your receipt of this information statement and the enclosed written ballot card; provided that your ballot card is received at the address set forth on the enclosed return envelope, as soon as possible and, in any event, so that it is received on or before December 31, 1999. You cannot return your completed ballot card to the offices of Cable Co-op.

Purpose of the Vote

We ask you please to consider and vote upon the following proposal:

Record Date and Voting Power

Only holders of Class A Membership shares of record at the close of business on the record date, November 9, 1999, are entitled to notice of the vote related to the sale transaction and to vote on such sale. There were 29,691 Members of record on the record date. Each Member is entitled to one vote.
 
 

Voting and Revocation of Written Ballot Cards

Each properly executed written ballot card will be counted in accordance with the vote reflected on such ballot card. A Member of Cable Co-op who has executed a written ballot card may not revoke such written ballot card after it has been deposited in the mail.
 
 

Required Vote

250 voting Members must return a completed written ballot card to constitute a quorum. The affirmative vote of a majority of the votes cast is required to approve and adopt the asset purchase agreement and approve the sale and the use of proceeds as described in the asset purchase agreement and herein.
 
 

Recommendation of Cable Co-op’s Board of Directors

Recommendation to the Members

After careful consideration, the Cable Co-op board of directors has by a vote of 13-1-0 (with one director absent) approved the asset purchase agreement and recommends that you vote "FOR" approval and adoption of the asset purchase agreement and the approval of the sale of the cable television system to AT&T Cable. In reaching its decision to approve the asset purchase agreement, the Cable Co-op board of directors consulted with (a) its legal counsel regarding the legal terms of the transaction and the obligations of the Cable Co-op board in its consideration of the proposed transaction, (b) its financial advisor regarding the fairness from a financial point of view of the consideration to be received by Cable Co-op, and (c) the management of Cable Co-op. The Cable Co-op board analyzed several alternatives for upgrading the company’s cable television system. At the same time, the Cable Co-op board also reviewed the history of Cable Co-op and its current and expected future financial and competitive position. Cable Co-op’s management also reviewed with the board of directors certain other prospects for the cable television system and its subscribers if the sale transaction were not completed. The factors that were examined as part of this analysis included, but were not limited to, the following:

The above discussion of the material factors considered by the Cable Co-op board of directors is not exhaustive, but does set forth many of the principal factors considered by one or more members of the board. The Cable Co-op board collectively, by a 13-1-0 (with one director absent) vote, reached the conclusion to approve the asset purchase agreement and the sale transaction in light of the factors described above and/or other factors that each member of the Cable Co-op board felt were appropriate. In so voting, the Cable Co-op board did not assign relative or specific weights to any of the factors described above or other factors considered, and individual directors may have weighted the factors differently.
 
 

For the reasons set forth above, the Cable Co-op board has approved the asset purchase agreement as fair to and in the best interests of Cable Co-op, and recommends that the Members approve and adopt the asset purchase agreement and approve the sale of the cable television system to AT&T Cable.

Dissent of Board Member

Dissenting board member Dr. Thomas Passell voted against the approval of the asset purchase agreement and the sale of Cable Co-op’s assets to AT&T Cable for several reasons, including the following:*

Written Ballot Cards

In addition to sending written ballot cards by mail, the directors, officers, employees and agents of Cable Co-op may solicit the vote from Members by personal interview, telephone, telegram or otherwise. Cable Co-op will bear the costs of the solicitation of votes from its Members. Cable Co-op has engaged the services of Chase Mellon Shareholder Services to distribute written ballot cards to Members and to assist in the solicitation of votes from Cable Co-op Members for a fee of approximately $60,000 plus reasonable out-of-pocket expenses.
 
 

The following is a brief summary of certain of the material terms of the asset purchase agreement, the noncompetition agreement, the charitable pledge agreement and certain other agreements contemplated thereby, copies of which are attached as attachments and are incorporated by reference in this information statement. The summary is qualified in its entirety by reference to these transaction agreements. We urge you to read the transaction agreements in their entirety for a more complete description of the terms and conditions of the transactions contemplated thereby.

The Asset Purchase Agreement (a copy of the asset purchase agreement, without exhibits or schedules, is attached to this information statement as Attachment B)

The asset purchase agreement provides that Cable Co-op will sell to AT&T Cable substantially all of Cable Co-op’s assets used or useful in connection with the cable television business that Cable Co-op operates under its franchise agreement with the City of Palo Alto, on behalf of itself and the other local governments (collectively referred to as the "Joint Powers Authority") of the communities served by the cable television system. The service area, the parameters of which are set by the franchise agreement, encompasses the Cities of Palo Alto, East Palo Alto and Menlo Park, the Town of Atherton and portions of San Mateo and Santa Clara Counties, California. The asset purchase agreement provides that the completion of the asset sale (the "Closing" or the "Closing Date") will take place as soon as practicable after the satisfaction or waiver of the conditions set forth in the asset purchase agreement, but in no event prior to February 1, 2000. See "Conditions to Closing." We hope to complete the asset sale by the end of March 2000.

Cable Co-op has further agreed to assign, and AT&T Cable has agreed to assume and perform, (a) Cable Co-op’s obligations to cable subscribers for advance payments held by Cable Co-op as of the Closing Date for cable services to be rendered after the Closing Date and the delivery of cable services after the Closing Date; (b) Cable Co-op’s obligations under certain governmental permits (to the extent the permits are transferable) and certain of Cable Co-op’s contracts, including its contract with the ISP Channel regarding the provision of Internet services; and (c) other obligations, including AT&T Cable’s pro-rata share of property taxes, franchise fees and copyright fees after the Closing Date.

Cable Co-op will retain those liabilities not assumed by AT&T Cable, including (a) all debt for borrowed money, including all obligations owed to Bank of America, N.A., as the holder of Cable Co-op’s bank indebtedness, (b) in respect of the redemption in full of and the payment of all accrued and unpaid dividends on Cable Co-op’s outstanding Class B Shares (the "Sustaining Shares") and Preferred Shares (including the outstanding Series 1987, Series 1988A, Series 1988B, Series 1988C, Series 1989A and Series 1991A Preferred Shares), (c) for retention bonuses and severance obligations payable to employees of Cable Co-op upon the Closing, (d) accounts payable existing at Closing and in respect of subscriber deposits and other prepaid expenses, (e) federal and state income taxes and Cable Co-op’s pro rata share of property taxes, franchise fees and copyright fees for the periods prior to the Closing Date, (f) in respect of environmental conditions existing prior to the Closing, and (g) transaction expenses incurred by Cable Co-op.

The management of Cable Co-op currently projects that as of March 31, 2000 the total amount of the foregoing obligations and liabilities, other than liabilities for federal and state income taxes, to be retained by Cable Co-op is expected to total approximately $43.5 million of which approximately $34 million represents the repayment of bank debt owed to Bank of America and approximately $6 million represents the redemption and the payment of accrued dividends on Cable Co-op’s Sustaining Shares and Preferred Shares.

On the Closing Date, Cable Co-op will transfer the retained assets associated with its local programming services to SVCC.
 
 

Allocation of Purchase Price

On the Closing Date, AT&T Cable has agreed to make a cash payment of $53 million to Cable Co-op. In addition, Cable Co-op will retain all cash and cash equivalents existing at Closing. The base cash purchase price payment to be made by AT&T Cable will be subject to customary upward and downward adjustment for accounts receivable and payable, prepaid income and expenses, third party payments and prorated property taxes, franchise taxes and copyright fees on the principle that expenses and income attributable to the business prior to Closing belong to Cable Co-op and after the Closing belong to AT&T Cable.

The asset purchase agreement provides that of the cash consideration paid by AT&T Cable to Cable Co-op, $49 million will be paid on the Closing Date and $4 million will be deposited in an interest bearing account pursuant to an escrow agreement. (see "Indemnification; Escrow Account" at page 21) The funds in the escrow account will be available to pay AT&T Cable for losses, damages or liabilities resulting from, among other things, any breach of representations and warranties made in the asset purchase agreement by Cable Co-op to pay AT&T Cable for any roll-back mandated by the Joint Powers Authority in the subscriber rates charged by Cable Co-op within the year preceding the Closing Date. The funds in the escrow account will also be available to pay for any federal and/or state taxes imposed on Cable Co-op in connection with the payment of the escrow amount.

After allocation of the $4 million to the escrow account, the cash consideration paid by AT&T Cable to Cable Co-op will be used to pay and retire the obligations and liabilities retained by Cable Co-op, including Cable Co-op’s outstanding obligations to Bank of America, the redemption and payment of accrued dividends on Cable Co-op’s outstanding Sustaining Shares and Preferred Shares and the payment of federal and state income taxes. (see "Asset Transfer and Assumption of Liabilities" at page 13)

The board of directors of Cable Co-op, by a vote of 12-1-1 (with one director absent), has determined to allocate the balance of the cash consideration paid by AT&T Cable to Cable Co-op as follows:

Members of Cable Co-op as of the Closing Date will continue to be Members of Cable Co-op after the Closing Date, subject to the terms of the bylaws, notwithstanding the fact that they shall have ceased to be subscribers of Cable Co-op and shall have become subscribers of AT&T Cable if they elect to continue receiving service from AT&T Cable.
 
 

Representations and Warranties

Cable Co-op and AT&T Cable have made representations and warranties in the asset purchase agreement relating to, among other things:

Covenants

Conduct of Business Prior to the Closing. Until the Closing, Cable Co-op has agreed to, among other things:

"No Shop"; Fiduciary Out. Cable Co-op agreed that, prior to the Closing, it will not solicit or entertain offers from, negotiate with, or in any manner encourage, discuss, accept, or consider any proposal to acquire Cable Co-op’s cable television system from any person, through purchase, merger, consolidation or otherwise (other than sales in the ordinary course of business). Despite this "no shop" provision, AT&T Cable agreed that Cable Co-op would have the right to consider unsolicited offers to purchase its cable television system prior to November 6, 1999, which was sixty days after the execution of the asset purchase agreement. If Cable Co-op accepted such an offer, the asset purchase agreement would automatically terminate, and Cable Co-op would be obligated to pay $20 million to AT&T Cable. Cable Co-op did not receive any offers to purchase the cable television system during this sixty-day period.
 
 

Use of Cable Co-op Name. For a period of 90 days after the Closing, Cable Co-op has agreed that AT&T Cable may use the name Cable Co-op or Cable Communications Cooperative of Palo Alto, Incorporated, provided that by the end of the ninety-day period, AT&T Cable will have discontinued the use of and will have disposed of all items of stationery, business cards and literature bearing such names.
 
 

Noncompetition Agreement. Cable Co-op has agreed to sign and deliver a noncompetition agreement to AT&T Cable at the Closing. The noncompetition agreement prohibits Cable Co-op and SVCC from competing with AT&T Cable, directly or indirectly, in the distribution of data, audio and video signals for a period of 5 years. (see "Noncompetition Agreement" at page 26)
 
 

Employee Benefits. AT&T Cable has agreed that it will, among other things:

The Franchise Agreement. Cable Co-op has agreed to use its best efforts to obtain and to cooperate with AT&T Cable to obtain approval by the City of Palo Alto on behalf of the Joint Powers Authority of (a) a new franchise agreement to replace the existing franchise agreement or (b) the amendment and transfer of the existing franchise agreement to AT&T Cable. The terms of such new franchise agreement or amendment and transfer of the existing franchise agreement must be satisfactory to AT&T Cable in its reasonable discretion. Cable Co-op shall have received assurances reasonably satisfactory to AT&T Cable from the City of Palo Alto on behalf of the Joint Powers Authority that (i) the rates that AT&T Cable proposes to charge to subscribers for basic services and associated equipment upon the Closing are acceptable; (ii) it will forbear from regulating rates for at least twelve months after the Closing; and (iii) it will not take any action against AT&T Cable with respect to rates historically charged by Cable Co-op, including ordering a roll-back of the rates historically charged for cable service by Cable Co-op.
 
 

Mid-Peninsula Access Corporation Agreement. AT&T Cable has agreed, if requested by MPAC, to negotiate in good faith with MPAC to enter into an amendment to the existing agreement between Cable Co-op and MPAC (the "MPAC Agreement") and to honor and assume Cable Co-op’s funding obligations under Section 6(a) of the MPAC Agreement totaling $115,000 per calendar year.
 
 

Community Programming. AT&T acknowledges and understands that SVCC intends to continue to produce and provide community programming (see "Silicon Valley Community Communications" beginning at page 28). AT&T Cable has agreed to provide a basic service channel to SVCC for the broadcast of non-commercial community programming free of cost for so long as AT&T Cable shall be the franchisee for the cable television system. Subject to certain conditions set forth in the asset purchase agreement, this dedicated channel will be, at SVCC’s election, provided (a) pursuant to a commercial programming agreement between AT&T Cable (or an affiliate) and SVCC or (b) if the Joint Powers Authority permits, as an additional dedicated access, educational or governmental channel under the franchise agreement.
 
 

Studio/Office Space. Pursuant to the asset purchase agreement, the lease for Cable Co-op’s administrative offices and headend facilities will be assigned to AT&T Cable. AT&T Cable has agreed to sublease to SVCC on a rent free basis the local programming studio, control room, edit suites, storage areas and programming suite and provide access to common area facilities for eighteen months or until SVCC relocates to a replacement studio, whichever occurs earlier. To the extent that the MPAC Agreement requires Cable Co-op to provide MPAC the use of studio space and equipment, SVCC will provide such studio space and equipment, provided such terms are reasonably acceptable to SVCC. AT&T Cable has agreed to pay one-half of the reasonable interconnect costs of connecting the replacement studio to the headend for the system, which costs to AT&T Cable may not exceed $200,000. (see "Studio and Operations" at page 30)
 
 

Upgrade Of System. AT&T Cable has agreed that it will agree, as part of the new franchise agreement or transfer of the existing franchise agreement, to substantially complete an upgrade of the current cable television system to a hybrid fiber/coax system with minimum bandwidth of at least 750 MHz within 36 months of the Closing, unless the Joint Powers Authority approves an alternate upgrade architecture.
 
 

Commitment to Schools. AT&T Cable has agreed that it will agree, as part of the new franchise agreement or transfer of the existing franchise agreement, to:

SVCC Pledge. AT&T Cable has agreed to enter into the charitable pledge agreement with SVCC at the Closing and timely perform AT&T Cable’s obligations under the charitable pledge. (see "Charitable Pledge Agreement" at page 27)
 
 

Best Efforts To Obtain Consent And Executed Multiple Unit Dwelling Agreements. Cable Co-op has agreed to use its best efforts to obtain, prior to the Closing Date, all approvals and consents of third parties required for:

Antitrust Matters. AT&T Cable and Cable Co-op have agreed to file any notification or report required under antitrust law and to use their reasonable best efforts to overcome or avoid any objections or impediments which may be raised under any applicable antitrust law, including the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), by the Federal Trade Commission, the Antitrust Division of the Department of Justice or other governmental authority with respect to the proposed sale transaction. If AT&T Cable considers a request from a governmental agency for additional data and information in connection with the HSR Act to be unduly burdensome, it may terminate the asset purchase agreement. Cable Co-op will reimburse AT&T Cable for one-half of the filing fees payable by AT&T Cable in connection with such filing under the HSR Act.
 
 

1031 Exchange. At AT&T Cable’s request, Cable Co-op has agreed to cooperate with AT&T Cable in order that the sale transaction contemplated by the asset purchase agreement may be accomplished as part of a tax-deferred exchange pursuant to Section 1031 of the Internal Revenue Code of 1986, as amended, and to permit AT&T Cable to assign any of its rights under the asset purchase agreement to a qualified intermediary for the purpose of qualifying the transactions as a tax-deferred exchange. AT&T Cable has agreed that Cable Co-op will not be liable for any expenses associated with qualifying the transactions as a tax-deferred exchange. Notwithstanding the possible structuring of the sale transaction as a tax-deferred exchange, AT&T Cable will continue to be obligated to perform all its obligations under the asset purchase agreement, including its post-Closing obligations.
 
 

Transfer And Management Of The System. AT&T Cable has agreed that it or its affiliate will remain the owner and manager of the current cable television system and will not grant an option or otherwise transfer the cable television system to a third-party or retain a manager of the cable television system unaffiliated with AT&T Cable or its affiliates for a period of two years after the Closing.
 
 

Indemnification; Escrow Account

Cable Co-op has agreed to indemnify AT&T Cable and its shareholders and its and their respective affiliates, and the shareholders, directors, officers, employees, agents, successors and assigns of such persons, against, among other things, all losses, damages or liabilities of AT&T Cable or any other indemnified person resulting from:

Limitations on Amount. Cable Co-op will have no liability with respect to the matters described above until the total of all damages incurred by the indemnified party with respect to such matters exceeds $100,000, provided that if the damages exceed $100,000, then Cable Co-op will be liable for the initial $100,000 as well.

AT&T Cable will have no liability with respect to the matters described above until the total of all damages incurred by the indemnified party with respect to such matters exceeds $100,000, provided that if the damages exceed $100,000, then AT&T Cable will be liable for the initial $100,000 as well. If AT&T Cable fails to perform any of its obligations with respect to the liabilities it assumes pursuant to the asset purchase agreement after the Closing Date, however, then the limitations on the amount of indemnification do not apply.
 
 

Escrow Account. Of the $53 million cash consideration paid by AT&T Cable to Cable Co-op at the Closing, $4 million will be deposited in an interest bearing escrow account pursuant to an escrow agreement. The sole source of satisfaction of AT&T Cable’s claims made under the indemnification provisions described above is the escrow account, including, among other things, a rate refund or roll-back ordered by the Joint Powers Authority or other governmental authority.

The funds remaining in the escrow account, if any, one year from the Closing Date will be paid to Cable Co-op so long as the escrow agent has not received any claims for indemnification from AT&T Cable or if the claims received from AT&T Cable have been resolved. If the escrow agent has received a claim for indemnification that remains unresolved one year from the Closing Date, then the escrow agent will retain in the escrow account the amount of any such claim plus any interest accrued or income associated therewith. Concurrently with the release of the funds remaining in the escrow account to Cable Co-op, the escrow agent will pay any interest income that has not been used to satisfy a claim pro rata to Cable Co-op and AT&T Cable based upon the total funds paid to Cable Co-op and AT&T Cable as of the date of the release of funds. The funds in the escrow account will also be available to pay for any federal and/or state taxes imposed on Cable Co-op in connection with the payment of the escrow amount, subject to certain terms described in the asset purchase agreement.
 
 

Conditions to Closing

The obligations of AT&T Cable and Cable Co-op to close the transactions contemplated by the asset purchase agreement are subject to the satisfaction or waiver of certain conditions, including:

Termination By Either AT&T Cable Or Cable Co-op. The asset purchase agreement may be terminated prior to the Closing:

Termination By AT&T Cable. The asset purchase agreement may be terminated by AT&T Cable prior to the Closing:

Termination By Cable Co-op. The asset purchase agreement could have been terminated by Cable Co-op if Cable Co-op had accepted an unsolicited offer to purchase its cable television system within 60 days of the signing of the asset purchase agreement. If Cable Co-op had accepted such an offer, it would have been obligated to pay $20 million to AT&T Cable. Cable Co-op did not receive or accept such an offer during this sixty-day period, which ended November 6, 1999. (see "‘No Shop’; Fiduciary Out" at page 17)
 
 

Effect of Termination. The asset purchase agreement provides that in the event of termination of the asset purchase agreement, no party will be relieved of any obligation or liability based on a breach or default by such party of its representations, warranties, covenants or agreements.
 
 

Amendment and Waiver

The asset purchase agreement may be amended or modified only by a writing signed by both AT&T Cable and Cable Co-op. The asset purchase agreement and any of its provisions may only be waived in writing.
 
 

Fees and Expenses

Each party will pay all of its expenses, including attorneys’ and accountants’ fees in connection with the negotiation of the asset purchase agreement, the performance of its obligations and the consummation of the transactions contemplated by the asset purchase agreement, unless the asset purchase agreement expressly provides otherwise. Cable Co-op has agreed to pay one-half of the filing fees payable by AT&T Cable in connection with AT&T Cable’s filing under the HSR Act. In the event of any action based upon any alleged breach of representation, warranty, covenant or agreement contained in the asset purchase agreement, the prevailing party will be entitled to recover reasonable attorneys’ fees and other costs from the other party.
 
 

Other Transaction Agreements

Noncompetition Agreement (a copy of the noncompetition agreement is attached to this information statement as Attachment C)

Cable Co-op has agreed to enter into a noncompetition agreement in connection with the sale of Cable Co-op’s cable television system to AT&T Cable and the transfer of certain of Cable Co-op’s assets to SVCC. Pursuant to that agreement, Cable Co-op will agree that for a period of five years from the date of the agreement, it will neither directly nor indirectly:

Charitable Pledge Agreement (a copy of the charitable pledge agreement is attached to this information statement as Attachment D)
 
 

The Pledge. AT&T Cable has agreed to enter into at the Closing a charitable pledge agreement with SVCC in connection with the sale transaction contemplated by the asset purchase agreement. (see "Purpose of the Vote") Pursuant to the charitable pledge agreement, AT&T Cable will agree to pay as an unrestricted charitable gift of cash as follows: (a) $10,075,000 directly to SVCC and (b) $6,925,000 to an escrow account (pursuant to an escrow agreement between SVCC and Cable Co-op described below) on the Closing Date (the "pledge"). AT&T Cable has agreed that SVCC may make use of the pledge in any lawful manner, including payment of costs and expenses of SVCC.
 
 

Escrow Agreement. The escrow agreement between SVCC and Cable Co-op provides that the $6,925,000 paid by AT&T Cable into an escrow account pursuant to the charitable pledge agreement will be used to satisfy any liability of Cable Co-op for federal and/or state income taxes, including penalties and interest and legal, accounting and other costs incurred by Cable Co-op in contesting liability for any such taxes, to the extent imposed by any federal or state income tax authority on Cable Co-op arising from AT&T Cable’s payment of the pledge to SVCC. The escrow fund will be the sole source of indemnification for any such taxes of Cable Co-op. The interest or other income attributable to the escrow amount will be allocable to SVCC. The escrow amount that remains in the escrow account as of the termination date of the agreement, if any, will be distributed to SVCC. The escrow agreement provides that the termination date will be determined by Cable Co-op and SVCC in accordance with the escrow agreement; however, the termination date will be a date that is at least 90 days after the date that a federal or state income tax authority is no longer entitled to assess Cable Co-op for any tax liability associated with the pledge.

As of the date of this information statement, neither Cable Co-op nor SVCC has sought an interpretative ruling from the IRS that the $17 million charitable gift from AT&T Cable to SVCC will constitute a tax-free transaction as to Cable Co-op nor has SVCC yet filed a determination letter with the IRS seeking the IRS’s determination of SVCC’s qualification for tax-exempt status as a non-profit corporation under Section 501(c)(3) of the Internal Revenue Code.
 
 

Set forth in this information statement, generally, and in this section in particular, are certain of Cable Co-op’s understandings as to what actions SVCC will take on a going forward basis. Cable Co-op can make no assurance that SVCC will take any of the stated actions. SVCC is a corporation independent from Cable Co-op, and Cable Co-op does not control SVCC’s operations.

Representatives of Cable Co-op and MPAC have been working together to design a new community media center, which will be owned and operated by SVCC. The new community media center is tentatively named the Mid-Peninsula Community Media Center and known as the Media Center ("MC²"). SVCC, with input from MPAC, plans to build on MPAC’s public access efforts and Cable Co-op’s local origination efforts, without duplicating the independent efforts of MPAC. In addition, SVCC plans to enhance and expand information services previously provided by both MPAC and Cable Co-op’s local origination department into new areas. As envisioned, the cooperation between SVCC and MPAC eventually may result in the merger of the operations of MPAC with SVCC and/or MC².

In connection with the transactions contemplated by the asset purchase agreement, at the Closing AT&T Cable will make an unrestricted charitable gift of $17 million cash to SVCC. The gift is unrestricted, and SVCC may use the gift for any lawful purpose and, accordingly, will have the ability to begin to implement its vision. $6,925,000 of the gift will be initially deposited directly into an escrow account and will not be immediately available to SVCC. In addition, there is a risk that some or all of the escrow amount may never be available to SVCC. (see "Charitable Pledge Agreement -- Escrow Agreement" at page 27)

In addition to funding from AT&T Cable, in connection with the transactions contemplated by the asset purchase agreement, Cable Co-op will transfer to SVCC certain video, programming and editing equipment, copyrighted materials and/or other assets currently used by Cable Co-op’s local origination department.
 
 

Vision Statement

The following vision statement has been endorsed by Cable Co-op and MPAC and has been adopted by SVCC as SVCC’s initial mission statement:

Representatives of Cable Co-op and the Mid-Peninsula Access Corporation, contingent upon review of the available funding, have endorsed the creation of a new community media center, which would eventually replace MPAC and Cable Co-op as they are currently structured.

A new nonprofit corporation serves those who live or work in Atherton, East Palo Alto, Palo Alto, Menlo Park, Stanford, and unincorporated parts of San Mateo County. The Center will be housed in a new facility and will provide a variety of services to address the following goals:

Governance of SVCC

SVCC is currently governed by a board of directors consisting of three members, two of whom are members of the board of directors of Cable Co-op and one of whom is an attorney who has represented Cable Co-op in connection with the asset sale and is familiar with non-profit and other corporate organizational issues. The current directors are Seth Fearey of Menlo Park, Professor Ted Glasser of Stanford University, and Peter Carson, a partner at Cooley Godward LLP. Mr. Fearey and Professor Glasser are members of the board of directors of Cable Co-op.

As the mission and responsibilities of SVCC evolve, the representatives of Cable Co-op and MPAC designing MC² expect the composition of the SVCC board of directors to expand in order to meet the organization’s needs, with the expanded board to include representatives of the key constituencies served by the envisioned new Community Media Center. It is expected that the SVCC board will expand the number of directors prior to the Closing Date and that one or more of the current directors will not continue as directors following the Closing Date.
 
 

General Background of SVCC

SVCC is a California public benefit non-profit corporation. SVCC is in the process of developing a plan of operations consistent with its articles, by-laws, and the vision for a new Community Media Center. It is expected that SVCC, either directly or by contract or merger with the new Community Media Center, will assume all local origination functions of Cable Co-op. SVCC expects to produce some or all of the programs currently produced by the local origination department of Cable Co-op, and to facilitate the distribution of programming that can be carried on the local programming channels. Currently, SVCC has no paid employees and relies on volunteers to develop and initiate the implementation of its vision.

It is anticipated that some of SVCC’s initial programming equipment will be transferred to SVCC by Cable Co-op. SVCC’s facilities initially will occupy the space currently used by Cable Co-op’s local origination department, which AT&T Cable has agreed to provide to SVCC free of charge for eighteen months, or until SVCC relocates to replacement facilities, whichever occurs first. SVCC’s initial funding comes from AT&T Cable’s unrestricted charitable gift of $17 million cash. In addition, AT&T has agreed to provide SVCC with a dedicated basic service channel free of charge within Cable Co-op’s current cable television system for so long as AT&T Cable shall hold the system franchise in addition to the channel(s) already designated to carry local programming. (see "The Charitable Pledge Agreement" at page 27)
 
 

Studio and Operations

Upon the Closing, it is anticipated that SVCC or its designee will have the right to use certain equipment and the studio and production facilities of Cable Co-op located at 3200 Park Boulevard, Palo Alto, California for a limited time. Some of the existing facilities and equipment are shared with MPAC. (see "The Charitable Pledge Agreement" at page 27) Upon the Closing, both SVCC and MPAC are entitled to stay in the current facilities free of charge for eighteen months or until SVCC relocates to replacement facilities. Within eighteen months, Cable Co-op expects that SVCC will identify or locate and construct new studio facilities to replace the current facilities. The new studio facility will be the new Community Media Center.

Cable Co-op anticipates that the new Community Media Center will be able to provide at least the same level of community service and local programming as do Cable Co-op and MPAC currently. In addition, Cable Co-op understands that SVCC expects to support new broadcast and interactive communication services to the community as electronic media delivery systems evolve.
 
 

Other SVCC Operations

Cable Co-op understands that SVCC, like any advertiser, may insert cross-channel promotional segments in available time slots on some other channels of AT&T Cable’s distribution system. Discussions are ongoing with AT&T Media Services, an affiliate of AT&T Corp., AT&T Cable’s parent corporation, for discounted access to such segments for, among other things, public service announcements and program promotions.

Cable Co-op understands that SVCC also hopes to provide a significant variety of educational opportunities to the local community. In connection with such activities, Cable Co-op understands that SVCC may seek accreditation by appropriate institutions after it has developed a curriculum, faculty and facilities.
 
 

Future Fund Development

Cable Co-op understands that SVCC intends to seek additional funding from a variety of sources in support of its vision, including, among other things, federal and state support and charitable donations. At present, Cable Co-op understands that SVCC has not yet engaged in such fundraising activities.
 
 

Business of Cable Co-op

Overview

Cable Co-op is engaged in the cable business, consisting of the provision of cable television services, high-speed data services and FM services, all provided via its cable television network. Cable television services include retransmission of certain local broadcast signals, selected cable networks, premium video and audio services and pay-per-view services. FM services include the retransmission of certain local and distant FM stations. Data services include high-speed Internet access, e-mail, file transfers and World Wide Web related activities, provided on a turnkey basis by ISP Channel, an outside contractor.

Assets

The assets of Cable Co-op include the physical plant and the reception and transmission equipment, located at 3250 Park Boulevard, Palo Alto California and throughout the service area, the vehicle fleet, the office equipment, the studio equipment and supplies located at 3200 Park Boulevard, Palo Alto, California, and other contract rights, intellectual property rights and intangibles.

Cable Co-op’s headend location contains all the equipment currently needed by Cable Co-op to receive and retransmit cable and FM signals and houses the cable modem receive and transmit equipment.

History Of Cable Co-op

Background

Cable Co-op was incorporated in 1981 as a California cooperative corporation. Pursuant to our articles of incorporation, as amended, we are authorized to issue three classes of shares:

Membership Shares. Originally, Cable Co-op issued and sold Class A Membership Shares at an original purchase price of $10.00 per share. Since 1987, we have granted Membership Shares either without charge to, or as part of installation charges incurred by, new subscribers in connection with the initial provision of cable service to such subscribers. As of November 9, 1999, the record date, there were 29,691 holders of Membership Shares.
 
 

Sustaining Shares. Cable Co-op has issued and sold Sustaining Shares to holders of Membership Shares at an original purchase price of $20 per share up to a maximum investment of $300. At various times throughout our existence, Cable Co-op has provided different levels of benefits to holders of Sustaining Shares, including among other things, an annual credit against the cost of service. As of the record date, there were approximately 8,500 Sustaining Shares outstanding.
 
 

Preferred Shares. Beginning in 1987, Cable Co-op has issued and/or offered to sell several series of Preferred Shares, including the Series 1987, Series 1988A, Series 1988B, Series 1988C and Series 1989A Preferred Shares at an original purchase price of $100 per share. Holders of shares of the Series 1987, Series 1988A, Series 1988B, and Series 1988C Preferred Shares are entitled to receive a cumulative annual dividend of $15 per share, which began to accrue as of January 1, 1989, June 30, 1988, September 30, 1988 and January 1, 1989, respectively. Holders of shares of the Series 1989A Preferred Shares are entitled to receive a cumulative annual dividend of $16.50 per share, which began to accrue as of March 31, 1989. As of January 1, 1995, the Series 1987, Series 1988A, Series 1988B, Series 1988C and Series 1989A Preferred Shares are redeemable at the option of Cable Co-op or the holders of such shares at the redemption price of $100 per share, plus any accrued but unpaid dividends.

In addition, Cable Co-op has issued and sold shares of Series 1991A Preferred at an original purchase price of $5,000 per share. As of October 1, 1998, the Series 1991A Preferred Shares were redeemable at the option of either Cable Co-op or the holders of such shares at a price equal to the greater of (a) a fixed value of $26,656 plus interest at the rate of 18% per annum compounded annually based upon a 365-day year after October 1, 1998 until the time of redemption, or (b) a variable value based upon the "net value of a share of Series 1991A" as described in Cable Co-op’s bylaws.

As of the record date, there were 698 shares of Series 1987 Preferred, 40 shares of Series 1988A Preferred, 25 shares of Series 1988B Preferred, 1,990 shares of Series 1989A Preferred and 154 shares of Series 1991A Preferred. There are no outstanding shares of Series 1988C Preferred.

Bank Debt. In February 1991, Cable Co-op purchased from Pacific Bell certain tangible and intangible assets (including rights of access to and use of certain tangible assets owned by Pacific Bell or other third parties) being used by Cable Co-op under the Pacific Bell Lease for a total of $18,670,000. In addition, we agreed to pay Pacific Bell $1,938,336 for past-due payments, construction charges and late charges. Of these amounts, Cable Co-op paid $4,778,818 in cash and issued a promissory note to Pacific Bell for $15,829,518 originally due February 28, 1999. No current interest was payable; instead all interest was added to the note and was due on maturity. On January 17, 1992, Pacific Bell sold this note plus $1,195,238 compounded interest to Bank of America, which amended certain terms of the note (the "Bank of America Note"). (see "Financial Condition of Cable Co-op" at page 35)

In connection with the purchase of the cable distribution facilities from Pacific Bell, Cable Co-op also entered into a loan agreement with CIBC dated as of February 28, 1991 (the "Senior Credit Agreement"). The Senior Credit Agreement provided for a $20,000,000 revolving credit facility until February 28, 1993. Cable Co-op received $17,700,000 in cash and a letter of credit of $300,000 in favor of the City of Palo Alto. The remaining $2,000,000 was originally reserved and to be advanced only upon prior consent of CIBC. In January 1993, the remaining $2,000,000 available under the Senior Credit Agreement was canceled by CIBC. On February 28, 1993, the outstanding principal balance converted to a term loan repayable in quarterly installments originally ending on August 31, 1998. Substantially all of the assets of Cable Co-op were pledged as first priority collateral to secure Cable Co-op’s obligations under the Senior Credit Agreement.

In addition, Cable Co-op entered into a new $1,000,000 senior subordinated credit agreement dated as of February 28, 1991 (the "Senior Subordinated Credit Agreement") with National Cooperative Bank ("NCB") in order to refinance its then existing debt to NCB under a 1986 credit agreement. The Senior Subordinated Credit Agreement was sold to CIBC in April 1991 without changes in its terms. The amounts outstanding under the Senior Subordinated Credit Agreement became due in quarterly installments beginning in May 1994. Substantially all of the assets of Cable Co-op were pledged as second priority collateral to secure Cable Co-op’s obligations under the Senior Subordinated Credit Agreement.

Substantially all of the assets of Cable Co-op were further pledged as third priority collateral to secure Cable Co-op’s obligations under the Bank of America Note.
 
 

Participation Units. In connection with the payment of other outstanding debt obligations, Cable Co-op retired its obligations to a short term lender through the issuance of 140 participation units. The participation units, which were contract-based participations and did not represent a proprietary interest in Cable Co-op, were redeemable by Cable Co-op beginning in 1995 or could be converted to preferred stock at the holder’s option. In November 1991, Cable Co-op’s board of directors authorized the issuance of up to 200 shares of the Series 1991A Preferred Shares. During 1992, Cable Co-op redeemed 15 participation units at $5,000 per share. The remaining participation units were converted to 125 shares of the Series 1991A Preferred Shares at $5,000 per share. In addition, Cable Co-op issued 24 shares of Series 1991A Preferred Shares at $5,000 per share for cash and/or cancellations of previously issued preferred shares. Options for additional shares were subsequently granted to a former employee of Cable Co-op.

The proceeds of the Bank of America Note, the Senior Credit Agreement, the Senior Subordinated Credit Agreement and the participation units were used to pay the cash portion of the purchase price for Pacific Bell’s cable distribution facilities, to repay or refinance existing debt, to finance transaction costs and to pay capital and operating expenditures and other obligations.
 
 

Collaboration with Heritage Cablevision

From 1985 through March 1998, Heritage Cablevision, Inc. ("Heritage") and, following Heritage’s acquisition by Tele-Communications, Inc. (now AT&T BIS) or one of its affiliates ("TCI"), TCI provided certain management services to Cable Co-op pursuant to various agreements. In accordance with such agreements, Cable Co-op was able to purchase programming from Heritage and later from TCI at discounted prices. In March 1998, TCI exercised its right to terminate the then existing agreement and notified Cable Co-op that it would no longer be able to purchase programming from TCI at a discount.
 
 

Industry Trends

The cable television industry has undergone tremendous change and consolidation over the past several years. Some cable companies now provide competitive local and long distance telephone services and are placing an increasing importance on high-speed Internet service provisioning. Moreover, significant rapid technological changes have occurred. Some cable companies employ a hybrid fiber/coax architecture, designed to break the network into a series of fiber optic "nodes" serving 1000 or fewer homes. This type of network enhances overall reliability and provides much greater bandwidth, making it capable of providing a wide range of advanced digital services, data services, traditional video services and, in some instances, telephone services.

In addition to the technological capabilities of our competitors in the industry at large, Cable Co-op expects to be facing increased competition for subscribers in its own service area. In June 1998, RCN Corporation ("RCN") announced, among other things, that it had applied for regulatory authority to deliver its package of phone, cable and Internet services to California residents over its own network and that it intended to focus its network construction in California on the San Francisco to San Diego corridor. Management researched RCN and reported to the board of directors that RCN is a provider of "bundled services," providing video, telephone and high-speed Internet services at extremely competitive prices and that RCN has proven to be a strong competitor in the eastern regions of the United States, having an impact on the cable operations of Time Warner, AT&T BIS and other large cable operators. RCN subsequently has announced that it has received approval from, among others, the City of San Francisco, San Mateo and Daly City to construct its network. In addition, the Palo Alto Daily News has reported that the "Pacific Bell parent company SBC Communications, the nation’s largest local phone company, plans to spend $6 billion to bring high-speed Internet service to nearly a third of America’s homes."

Moreover, Cable Co-op continues to compete with direct broadcast satellite providers, such as Direct TV. Federal law currently prevents these competitors from offering local broadcast channels, a primary advantage of Cable Co-op. In the future, however, these laws may be amended to allow carriage of network programming on these satellite dish networks.

An increase of competition for subscribers would place Cable Co-op in a very difficult financial situation. The results of Cable Co-op’s management’s investigation further suggested that a potential new competitor, such as RCN, with a new network and "bundled" service offerings, would have a substantial negative impact on Cable Co-op’s ability to service its then outstanding bank debt, and that the loss of as few as ten percent of Cable Co-op’s then subscribers would have a substantial adverse effect on the financial condition of Cable Co-op.

Currently, we are unable to offer the entire suite of telecommunications services to our Members that are available today. We do not expect to have the financial resources to pay our current debts and other obligations and to upgrade our system so as to provide all of these services while remaining competitive and independent and without having sold a substantial part of our assets and/or having given up substantial control over the system.

Credit, Loan and Other Debt Obligations. Cable Co-op has accumulated significant debt obligations in connection with its purchase, construction and extension of its cable television system. Pursuant to the Bank of America Note, Cable Co-op was obligated to pay approximately $31,849,521 as of September 30. 1999. This obligation is expected to increase to approximately $34,100,000 as of the Bank of America Note’s July 31, 2000 maturity. Cable Co-op expects to have completed the full repayment of its senior and senior subordinated debt owing to CIBC before February 2000.
 
 

Losses from Operations. Cable Co-op has suffered recurring losses from operations. Operating losses were approximately $30,000 in 1997. Operating profits were approximately $60,000 in 1998. Operating losses were approximately $75,000 for the nine months ending September 30, 1999. Cable Co-op’s accumulated deficit as of September 30, 1999 was approximately $27.98 million.
 
 

Redemption Value and Dividends of Shares. The following table sets forth the approximate redemption value and dividends accrued thereon due the holders of Preferred Shares of Cable Co-op as of December 31, 1999:

 

	Rate	Number of Shares	Redemption Value*	Dividend*
1987	15%	698	$69,800	$10,470
1988A	15%	40	$4,000	$600
1988B	15%	25	$2,500	$375
1988C	15%	0	[N/A]	[N/A]
1989A	16.5%	1,990	$199,000	$32,835
1991A		154	$5,574,030	[N/A]
TOTAL:			$5,849,330	$44,280

 

* Represents an estimate. The actual amount to be paid will be paid in accordance with the bylaws of Cable Co-op.

Strategic Alternatives

In the face of recurring losses from operations, accumulated deficit and significant debt, Cable Co-op has considered several strategic alternatives, as described in greater detail below. In considering these alternatives, we have kept in mind Cable Co-op’s long term goals, which the board of directors has reaffirmed at certain points throughout Cable Co-op’s history: (i) assuring access to high-quality cable television programming and communications services by residents, businesses and institutions in Cable Co-op’s service area at reasonable rates; (ii) assuring access to and providing high-quality local programming and other public benefits; and (iii) stimulating the development of advanced telecommunications services in Cable Co-op’s service area.
 
 

Increase Revenue. Cable Co-op has worked to improve the amount of cash we receive from operations by increasing our subscriber base, controlling costs and modifying subscriber rates. For example, in September 1997, we increased the basic subscriber rate and, in an effort to attract more subscribers to our pay services, simplified the fee structure by charging a flat fee for most pay services. Moreover, we have changed our line-up and reduced the number of personnel at Cable Co-op in an effort to improve cash flow.
 
 

Strategic Partnerships. In March 1995, Cable Co-op retained Intellect Partners, a consulting firm, to produce a strategic plan for Cable Co-op. In 1996 and 1997, with the assistance of the investment bank CIBC Wood Gundy, Cable Co-op conducted discussions with several potential investors, including cable operators of various sizes and large telecommunication providers. In February 1997, after considering the proposals of the various investors, the board of directors adopted a resolution in favor of pursuing an offer from Sun Country Cable, which contemplated a three-way partnership among Cable Co-op, Sun Country Cable and the Carlyle Group. The discussions regarding the potential partnership were subsequently terminated by the Carlyle Group when the Carlyle Group withdrew its offer to provide Sun Country Cable with the capital necessary to finance the partnership.
 
 

Silicon Valley Communications Authority Plan. In January 1998, with the assistance of Salomon Smith Barney acting as a financial advisor in the potential sale of its assets, Cable Co-op released a "Telecommunications Plan for the 21st Century" (the "SVCA Plan"), which we subsequently submitted to the City of Palo Alto. Pursuant to the SVCA Plan, Cable Co-op proposed a new public-private partnership to lay fiber-optic cable and to build a modern telecommunications system to serve Palo Alto, Menlo Park, East Palo Alto, Atherton, and Stanford. The SVCA Plan proposed the creation of a new, independent government entity, the Silicon Valley Communications Authority ("SVCA"), which would own and operate Cable Co-op’s cable television system. In the SVCA Plan, Cable Co-op envisioned the issuance and sale of non-recourse, partially tax-exempt bonds by SVCA, the proceeds of which would be used in part to purchase Cable Co-op’s cable television system.

In February 1998, the City Council for the City of Palo Alto voted not to pursue the SVCA Plan. Representatives of Cable Co-op subsequently had discussions with representatives of one or more other local cities and the Palo Alto Unified School District concerning the SVCA Plan, but these discussions did not lead to a new formal presentation of the SVCA plan to the City of Palo Alto.

Cable Co-op also approached other potential lenders in an attempt to refinance our debt obligations. To date, Cable Co-op has not identified a lender interested in lending money to Cable Co-op sufficient to retire its existing obligations and to finance an upgrade of the existing cable television system. Individual members of the board of directors also independently pursued other refinancing alternatives.

A member of Cable Co-op’s board also contacted certain investment bankers to determine whether it was feasible to refinance Cable Co-op’s debt, incur new debt to finance an upgrade of the system and incur new debt to pay the dividends due and payable on our Preferred Shares. Based upon the results of his inquiries, the board member concluded that it was unlikely that Cable Co-op would be able to borrow sufficient capital to refinance its debts without simultaneously increasing the rates charged its customers to such an extent that we would no longer remain competitive.

Beginning in March 1998, Cable Co-op began efforts to raise additional capital through the issuance of additional Sustaining Shares of Cable Co-op to our members. The board of directors hoped to raise at least $150,000 to install limited fiber in our network and to provide additional support to local schools, but this effort was not successful.

Continuing into the first quarter of 1999, Cable Co-op’s management and/or members of the board of directors had discussions with three companies, including AT&T Cable, that were interested in purchasing Cable Co-op’s assets. Management received written proposals from each of the three interested parties. Management and/or members of the board of directors also had preliminary contacts with at least three other companies to determine whether they were interested in submitting proposals for Cable Co-op’s consideration; none of these initial inquiries resulted in written proposals at that time.

Separately, management and several members of the Cable Co-op board of directors met with members of the Palo Alto City Council to determine the status of the SVCA Plan and whether any new interest existed on the part of the member cities to create SVCA. In the course of these meetings, Cable Co-op received a clear response from those council members that the City of Palo Alto had no interest in pursuing the development of SVCA.

In April 1999, following extensive discussion of the terms of the AT&T Cable proposal, as well as consideration of potential alternatives, Cable Co-op’s board of directors authorized its management to execute a letter of intent with AT&T Cable setting forth the principal terms of the proposed sale of Cable Co-op’s cable television system to AT&T Cable. On April 26, 1999, AT&T Cable and Cable Co-op issued a joint press release announcing the signing of a letter of intent. Negotiations with AT&T Cable took place over the next several months.

In May 1999, the then secretary of the board of directors led the board of directors in recounting the initiatives the board of directors and management had undertaken to explore various means of refinancing Cable Co-op, including, but not limited to: (a) rescheduling Cable Co-op’s debt; (b) proposing municipal financing in partnership with the communities served by Cable Co-op; (c) revisiting conventional refinancing alternatives; and (d) requesting Members to purchase Sustaining Shares. The board of directors noted that these efforts to raise funds sufficient to repay Cable Co-op’s debts and to upgrade the system had not been successful.

Pursuant to the letter of intent with AT&T Cable, Cable Co-op agreed not to directly or indirectly solicit or entertain offers or proposals from other persons regarding the purchase of Cable Co-op’s cable television system. In June 1999, the board of directors was notified of certain preliminary inquiries that had been received from other parties interested in a possible purchase of Cable Co-op’s assets and/or other relationship with Cable Co-op. To date, none of these parties has made a detailed offer to our management.

In June 1999, the board of directors approved a motion that if the proposed transaction with AT&T Cable was approved by the board of directors, then the proposed transaction would be submitted to a vote of the Membership of Cable Co-op for approval. In addition, the board of directors authorized management to explore the cost and feasibility of obtaining a fairness opinion that could be disclosed to Members concerning the proposed sale transaction with AT&T Cable.

In July 1999, the board of directors approved the creation of a committee to explore the needs of the community regarding public access and local origination programming, to investigate successful programs in other communities, and to analyze alternative missions for presentation to the board of directors. The board of directors also approved the creation of a two-person liaison committee to develop and maintain relations with MPAC. The board of directors also authorized the expenditure of certain additional funds for one or more financial analyses of the proposed sale of the business to AT&T Cable. In July 1999, the board of directors, by a vote of 13-1-0 (with one director absent), authorized Cable Co-op’s management to commission a fairness opinion from Kagan Media Appraisals, Inc. that could be disclosed to members concerning the fairness to Cable Co-op of the proposed sale of assets to AT&T Cable. (see "Fairness Opinion" at page 41) In July 1999, Cable Co-op also issued two press releases expressing the board of directors’ views concerning the proposed sale of Cable Co-op’s cable television system to AT&T Cable.

In August 1999, the board of directors received a report concerning certain communications with MPAC and a description of the work of the committee that had been formed to explore the needs of the community regarding public access and local origination.

On September 7, 1999, following several interim reports during the prior months from Cable Co-op’s management, its counsel and/or certain members of the board of directors concerning the status of negotiations and reviews of certain drafts of certain portions of the proposed asset purchase agreement, Cable Co-op’s management presented the asset purchase agreement to the board of directors for its consideration and approval. At that meeting, the board of directors received the verbal and written opinion from a representative of Kagan Media Appraisals, Inc., which rendered its written opinion that "the consideration to be received by Cable Co-op of Palo Alto for the assets of the Palo Alto cable television system is fair from a financial point of view". Cable Co-op’s management then reported to the board of directors that (i) Cable Co-op’s lenders were not interested in refinancing Cable Co-op’s loans, (ii) Cable Co-op’s members were asking for services that required a system upgrade, (iii) Cable Co-op was running a lean operation, providing a lower level of support than was desirable, and (iv) the expected arrival of new competition from RCN and from DBS satellite providers was provoking increasing concern. Following discussion, the board of directors, by a vote of 13-1-0 (with one director absent), approved and adopted the asset purchase agreement and approved the sale of Cable Co-op’s assets to AT&T Cable, including, the concurrent unrestricted charitable gift to be made by AT&T Cable to SVCC; and to prepare and distribute materials regarding the transactions contemplated by the asset purchase agreement to the Members. By a vote of 12-1-1 (with one director absent), the board of directors approved an approximate allocation of the cash proceeds pursuant to the asset purchase agreement. (see "The Transaction Agreements – Allocation of Purchase Price" at page 14)
 
 

The Franchise Agreement

AT&T Cable is not obligated to purchase Cable Co-op’s assets unless the City of Palo Alto, on behalf of the Joint Powers Authority, approves a new franchise agreement with AT&T Cable or, in the alternative, an amendment to and transfer of the existing franchise agreement between the Joint Powers Authority and Cable Co-op to AT&T Cable. The public process should provide an additional forum where issues that concern residents of Palo Alto, Menlo Park, East Palo Alto, Atherton and those other portions of San Mateo and Santa Clara Counties located within the service area may be considered. The Joint Powers Authority has the authority to grant or deny a new franchise agreement or the transfer of the existing agreement, subject to the application of FCC regulations regarding the transfer of a franchise. Normally, the transfer of the franchise must be approved within 120 days of the submission of notification of an application for approval to the franchise authority. (see "The Transaction Agreements – Covenants – The Franchise Agreement" at page 18)
 
 

The HSR Act

The sale transaction is subject to the requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, under which a transaction cannot be completed until required information and materials are furnished to the Antitrust Division of the Department of Justice and the Federal Trade Commission and the waiting periods end or expire. AT&T Cable and Cable Co-op will make the required filings with the Department of Justice and the Federal Trade Commission promptly following December 31, 1999, the deadline for the return of the ballot cards by the Members, if the Members vote to approve and adopt the asset purchase agreement and approve the sale of the cable television system to AT&T Cable. The applicable statutory waiting period for both the Antitrust Division of the Department of Justice and the Federal Trade Commission is thirty days after the initial filing.

However, the Antitrust Division of the Department of Justice or the Federal Trade Commission may challenge the sale transaction on antitrust grounds either before or after expiration of the waiting period. Accordingly, at any time before or after the completion of the sale transaction, either the Antitrust Division of the Department of Justice or the Federal Trade Commission could take action under the antitrust laws as it deems necessary or desirable in the public interest. Other persons could also take action under the antitrust laws, including seeking to enjoin the sale transaction. Additionally, at any time before or after the completion of the sale transaction, whether or not the applicable waiting period expired or ended, any state could take action under the antitrust laws as it deems necessary or desirable in the public interest. There can be no assurance that a challenge to the sale transaction will not be made or that, if a challenge is made, we will prevail.

Cable Co-op is not aware of any other material governmental or regulatory approval required for completion of the sale transaction, other than compliance with applicable corporate law of California applicable to consumer cooperative corporations.
 
 

Cable Co-op engaged Kagan Media Appraisals, Inc. ("KMA") to evaluate the fairness to Cable Co-op, from a financial point of view, of the asset purchase agreement (the "Opinion"). (a copy of the fairness opinion is attached to this Information Statement as Attachment E)

Within the Kagan Group of companies, Paul Kagan Associates, Inc. publishes over 40 newsletters on various communications and media disciplines, including CABLE TV INVESTOR, WIRELESS CABLE INVESTOR, CABLE TV FINANCE and INTERACTIVE MULTIMEDIA INVESTOR. It has published CABLE TV INVESTOR, the only continuing publication analyzing the value of public and private cable TV companies, since 1969. Over the past 30 years, Kagan Media Appraisals, Inc. has appraised over $40 billion worth of media properties on contract assignment. In addition, the Kagan Newsletters have evaluated public and private companies, on at least a quarterly basis over a number of years, totaling hundreds of billions of dollars in market value. The Kagan Organization is nationally recognized for its analysis of strategic developments in the media and telecommunications industries and its comprehensive economic forecasts for the cable TV and related media and telecommunications industry sectors.

On September 7, 1999, KMA delivered an oral opinion and written Opinion to the board of directors of Cable Co-op that, as of such date, and based on and subject to the assumptions, limitations and qualifications as set forth in such Opinion, the transaction taken as a whole, including cash and non-cash consideration, was fair from a financial point of view to Cable Co-op.

In connection with rendering the Opinion, KMA reviewed among other things: (1) the financial terms and conditions of the asset purchase agreement; (2) unaudited financial and operating statements for Cable Co-op for the full year 1998 and interim monthly statements for January through June, 1999; (3) Cable Co-op’s internal budget for 1999; (4) report on Form 10K for 1998 for AT&T, AT&T Cable’s parent company; (5) public documents and published reports from AT&T, AT&T BIS and AT&T Cable and other industry sources relating to AT&T’s broadband plans and initiatives. KMA also conducted discussions with Cable Co-op’s senior management related to financial and operating performance and business prospects for the cable television system. Further, KMA undertook other financial studies, analyses and investigations as it deemed relevant for the purpose of rendering the Opinion.

In rendering the Opinion, KMA relied upon the completeness and accuracy of the materials and information provided by Cable Co-op and available from other sources, but did not independently verify the information. The KMA Opinion was necessarily based on economic, market, financial and other conditions as they existed, and as they were made available to KMA, on the date that the Opinion was presented. KMA assumed the acquisition would be consummated on the terms described in the asset purchase agreement. Although subsequent developments could affect the KMA Opinion, KMA does not have any obligation to update, revise or reaffirm its Opinion.

KMA’s Opinion was submitted to the Cable Co-op board of directors as an independent study of the fairness from a financial point of view to Cable Co-op of the consideration to be received for the sale of the cable television system assets. It is a result of KMA’s independent conclusions based on assumptions and analyses described in more detail below. The Opinion does not purport to indicate the actual value or necessarily reflect the final price at which the property will be sold. In performing its analyses, KMA made numerous assumptions with respect to industry performance, economic conditions and other matters. Such analyses are inherently subject to uncertainty, being based upon numerous factors beyond the control of all parties involved. KMA, therefore, assumes no responsibility if future results or actual values are materially different from those forecasts or estimates contained in the analyses.

In conducting its evaluation, KMA used standard appraisal methodologies of an Income Approach and a Market Data (comparability) Approach.
 
 

Discounted Cash Flow Analysis

KMA prepared independent financial forecasts for Cable Co-op, estimating the net present value of the future stream of free cash flows the Cable Co-op cable television system would generate under the ownership of AT&T Cable. The value estimate under this Income Approach was developed by determining the current income level of the subject business, then projecting growth rates for that income stream and discounting future income by an imputed rate based on cost-of-money factors. The final valuation was yielded by the sum of the present values to be generated in each of the years counted.

In projecting the future operational performance for Cable Co-op, KMA focused on years 2000-2009 and incorporated assumptions that were patterned after publicly available industry expectations in general and publicly disclosed AT&T expectations in particular for the development of digital video, high-speed Internet access and cable telephony services. The following penetration assumptions were incorporated into the discounted cash flow ("DCP") forecast:

For this analysis KMA used discount rates ranging from 12.5% to 13.5% and perpetuity growth rates in year 10 of 5% to 6%, applied to forecast free cash flow (earnings before interest and depreciation/amortization but after capital expenditures and imputed taxes). This analysis indicated a range of net present asset values for the Cable Co-op system of $77.7 million to $93 million, the average of which was $85.1 million. The analysis implied a range of valuation multiples of 10.7 to 12.8x projected year 2000 EBITDA (earnings before interest, depreciation, amortization and taxes, as determined in accordance with generally accepted accounting principles ("GAAP")), the average of which was 11.7x 2000 EBITDA.
 
 

Market Data (Comparable) Analysis

KMA reviewed cable television system sale transactions recorded by Paul Kagan Associates, for properties with less than 100,000 subscribers sold during the period January 1998 through August 1999. KMA did not compare the Cable Co-op/AT&T Cable transaction to recent, prominent sales of the largest system groups in the country. Those sales (including TCI/AT&T, Century/Adelphia, Charter/Paul Allen) involved multiple millions of subscribers and scale and scope economies that, KMA believed, render them not comparable to Cable Co-op. And those transactions, KMA believed, also carried valuation premiums related to their strategic significance to the buyers.

KMA reviewed 83 transactions for systems/groups of under 100,000 subscribers which sold in a broad multiple range of 5.5x-17.0x projected year one EBITDA. The weighted average sale multiple was 10.4x; the simple average multiple was 8.8x. Applying the weighted average sale multiple for this group of single market or small market group sales to the Cable Co-op system implied a possible comparable value of $78.7 million.

Within the broader group of comparable transactions, KMA reviewed four selected acquisitions or proposed acquisitions in markets that KMA deemed to be particularly comparable to Cable Co-op’s :

The range of sale multiples for the group of four was 9.9x-12.4x projected year one EBITDA, for an average sale multiple of 11.4x EBITDA. Applied to Cable Co-op’s estimated 2000 EBITDA, the comparable sale multiples indicated a valuation range for Cable Co-op of $72.2-90.4 million, and a simple average of $83.1 million.

The range of values per subscriber indicated by the comparable sales was $1,924-3,540, with an average value per subscriber of $2,580. Applied to Cable Co-op’s approximately 28,000 subscriber base at June 30, 1999, the comparable sale values per subscriber indicated a valuation range of $54.3-99.8 million, and a simple average of $72.8 million.
 
 

Valuation of Non-Cash Consideration

Because the asset purchase agreement involves cash and non-cash consideration and special tax-efficient allocations of the cash portion of the consideration, KMA reviewed the scope of these components of the asset purchase agreement and assigned a value to each to reflect the full worth of the transaction to Cable Co-op. These other considerations included:

(a) The requirement of AT&T Cable to implement a complete upgrade of the cable television system within the first three years of new ownership. The extraordinary capital expense underlies and predicates the assumptions for penetrations, revenues and cash flows forecast by KMA for the Cable Co-op system in its discounted cash flow analysis. Based on an engineering study commissioned by Cable Co-op, which estimated a cost of $16 million to fully upgrade the system and KMA’s knowledge of industry cost benchmarks and AT&T’s published projections for its cost to upgrade systems to 750 MHz and above, KMA estimated a $12 million total cost for the upgrade project and assigned a present value of $10 million to the upgrade consideration in the asset purchase agreement.

(b) The cash payment of $17 million in the form of an unconditional charitable contribution to SVCC. Assuming the avoidance of a tax liability on these receipts at a 40% tax rate yields a tax benefit to Cable Co-op of approximately $6.8 million, to be included as a non-cash consideration in the transaction.

(c) The forgiveness of 18 months of lease payments by SVCC. Based on Cable Co-op management estimates, the availability of studio space for SVCC was valued by KMA at $300,000.

(d) The assignment of a single analog program channel for the exclusive use of SVCC. KMA calculated that this non-cash consideration might conservatively be valued at $3 million. The loss of future income to AT&T Cable from a third party programmer, assuming a ten year period with channel fee payments of 75 cents/subscriber/month and no escalation clause, yields an approximate $3 million present value. KMA did not forecast other revenue streams such as advertising or digital video streams that might further enhance the revenue generating ability of this gifted channel.

KMA’s review of these four non-cash elements of the asset purchase agreement indicated an aggregate value of $20.1 million, which KMA deemed appropriate to add to the cash receipts of $70 million in calculating the full value to Cable Co-op of the asset purchase agreement.

Therefore, KMA assessed the full value to Cable Co-op of the transaction to be approximately $90.1 million. That derived value falls at the high end of the range of valuation results indicated by discounted cash flow and comparable sale analyses performed by KMA.
 
 

Miscellaneous

Pursuant to the terms of the engagement, Cable Co-op has agreed to pay KMA for its financial advisory and valuation services in connection with the asset purchase agreement between AT&T Cable and Cable Co-op an aggregate fee of $65,000, of which $25,000 was payable at the time of engagement, $25,000 was payable at the time of the oral delivery of the Opinion and $15,000 payable at the time of the delivery of the written Opinion. Cable Co-op also has agreed to reimburse KMA for reasonable out of pocket expenses incurred in performing its services.

In the past, KMA has provided financial services to Cable Co-op, including a long-term revenue analysis for the cable television system, developed in conjunction with the SVCA Plan, and a fair market value analysis for Cable Co-op. KMA was paid an aggregate $112,500 for those analyses, both completed in 1998.
 
 

General

When considering the recommendations of Cable Co-op’s board of directors, you should be aware that some members of the Cable Co-op Board and executive officers have certain interests in the sale that may be different from or in addition to the interests of the Cable Co-op Members generally. These interests may create potential conflicts of interest. These additional interests relate to:

Equity Ownership of Officers and Directors.

The following table sets forth as of November 1, 1999, the Cable Co-op directors and executive officers who beneficially own AT&T common stock and the amount of shares of such common stock owned by them (excluding stock that may from time to time be indirectly owned by them through mutual funds):

 

Name	Cable Co-op Position	AT&T Shares Owned
Ken Allen	board member	100.82
Roland Finston	board member	75
Carolyn Hillman	board member	250

 
 
 

Security Ownership Of Management

The following table sets forth as of November 1, 1999, the number of Sustaining Shares and Preferred Shares of Cable Co-op beneficially owned by each of its directors, each executive officer and all directors and executive officers as a group:

* Less than 1%

(1) Based on approximately 8,500 Sustaining Shares outstanding on November 9, 1999.

SVCC Board of Directors and Officers

As of the date of this information statement, Professor Ted Glasser and Seth Fearey are members of the board of directors of both Cable Co-op and SVCC. In addition, Peter Carson, a partner of the law firm of Cooley Godward llp, is also a member of the board of directors of SVCC. The Cooley Godward law firm has represented Cable Co-op as its corporate counsel for over a decade, and Mr. Carson is representing Cable Co-op in connection with the sale transaction with AT&T Cable. Further, Ron Kirkeeng, Chief Executive Officer and General Manager of Cable Co-op, is currently serving as an officer of SVCC. It is expected that Mr. Kirkeeng will resign as an officer of SVCC prior to the Closing.
 
 

Employment and Severance Agreements

Cable Co-op has a Change in Control Benefit Plan, which entitles its employees to severance payments upon a termination of employment following a change of control of Cable Co-op and a retention bonus following a change in control.

In connection with the sale of assets, all non-senior management employees will be offered employment with AT&T Cable, subject to routine background and drug tests. Additionally, pursuant to the Change in Control Benefit Plan, in the event of a change of control, non-senior management employees are entitled to a retention bonus of three  times their respective monthly salaries, payable 60 days after the change of control. If a non-senior management employee is involuntary terminated within one year from the change of control, such employee is entitled to a severance package consisting of: (i) a lump sum payment of three times his or her respective monthly salary and (ii) three months medical insurance coverage.

Pursuant to the Change in Control Benefit Plan, in the event of a change of control, senior management employees (other than Ron Kirkeeng, Chief Executive Officer and General Manager of Cable Co-op) are entitled to a retention bonus of three times their respective monthly salaries plus 1% of their respective annual base salary for each one hundred thousand dollars ($100,000) over forty-five million dollars ($45,000,000) for which Cable Co-op is sold in connection with a change of control, up to a maximum of nine times their respective monthly salaries.

If one of such senior management employees is involuntary terminated within one year from the change of control, such employee is entitled to a severance package consisting of: (i) a lump sum payment of nine times his or her respective monthly salary and (ii) nine months medical insurance coverage.

Pursuant to the letter of employment between Cable Co-op and Ron Kirkeeng, Chief Executive Officer and General Manager of Cable Co-op, Mr. Kirkeeng is entitled to receive a bonus up to a maximum of $60,000 consisting of a lump sum payment of $15,000 in the event of a change of control plus $2,500 for each full month between January 1, 1999 and the Closing.

The asset sale will constitute a change of control for the purposes of the Change in Control Benefit Plan. Cable Co-op will make payments to the employees in accordance with the terms of the Change in Control Benefit Plan. At the present time, the total amount expected to be payable under the Change in Control Benefit Plan is approximately $600,000.

The board of directors of Cable Co-op has also approved an additional retention bonus to be paid to all non-senior management employees employed by Cable Co-op as of the Closing in connection with the asset sale to AT&T Cable, consisting of approximately $300,000 to be divided among them pro rata based on their respective salaries.
 
 

Cable Co-op’s sale of its assets to AT&T Cable will be a taxable transaction. Cable Co-op’s taxable gain will generally equal the difference between the total purchase price paid by AT&T Cable for Cable Co-op’s assets and Cable Co-op’s adjusted tax basis in those assets.

Cable Co-op has substantial federal net operating loss carry forwards which will reduce Cable Co-op’s taxable gain on the sale.

In addition, Cable Co-op expects to pay patronage dividends to its Members, which are expected to be deductible by Cable Co-op for federal income tax purposes and reduce its taxable gain. Patronage dividends will generally not be taxable to the Cable Co-op’s Members.
 
 

Tax matters can be complicated. You should consult your own tax advisers to fully understand the tax consequences to you, if any, of the sale of assets and the patronage dividend.

SELECTED FINANCIAL DATA OF CABLE CO-OP

Our selected historical financial data set forth below for the three years ended December 31, 1998 has been derived from our audited consolidated financial statements. The financial data for the nine-month period ended September 30, 1999 has been derived from unaudited financial statements. The unaudited financial statements include all adjustments, consisting of normal recurring accruals, which we consider necessary for a fair presentation of the financial position and the results of operations for this period. The financial data should be read in connection with our financial statements and related notes. (see "Incorporation of Certain Documents by Reference" at page 51)
 

	Nine Months Ended September 30,	Year Ended December 31,
	1999	1998	1997	1996
Selected Operating Statement Data:
Revenue	$11,502,247	$14,394,919	$13,265,175	$12,182,979
Expenses
System programming and maintenance	$4,318,450	$5,773,400	$4,899,251	$4,312,236
Selling, general and administrative	$3,496,432	$3,180,657	$2,914,112	$2,840,272
Depreciation and amortization	$1,648,268	$2,120,776	$2,090,345	$2,079,693
Total Expenses	$9,463,150	$11,074,833	$9,903,708	$9,232,201
Operating Income	$2,039,097	$3,320,086	$3,361,467	$2,950,778
Interest Expense	($2,114,915)	($3,214,540)	($3,190,680)	($3,232,738)
Other expense, net		($45,104)	($200,867)	($173,248)
Net Income (loss)	($75,818)	$60,442	($30,080)	($455,208)
Selected Balance Sheet Data:
Total current assets	$1,465,159	$1,876,298	$1,768,845	$1,927,644
Property, cable television systems and equipment	$32,899,047	$31,590,557	$30,409,099	$29,171,063
Cable distribution system	$30,717,805	$29,666,819	$28,574,428	$27,426,476
Leasehold improvements	$1,009,892	$1,002,292	$1,002,292	$991,692
Furniture, fixtures and equipment	$1,171,350	$921,446	$832,379	$752,895
Less accumulated amortization and depreciation	$22,210,490	$20,635,941	$18,605,924	$16,619,452
Net property, cable television systems and equipment	$10,688,557	$10,954,616	$11,803,175	$12,551,611
Net intangible assets	$156,670	$287,353	$579,214	$935,338
Deposits and other assets	$41,518	$35,318	$35,318	$35,318
Total Assets	$12,351,904	$13,153,585	$14,186,552	15,449,911
Current liabilities, including current portion of long-term debt	$35,225,471	$5,715,040	$9,624,224	$6,268,054
Long-term debt, net of current portion	$0	$30,234,700	$27,380,115	$31,900,314
Total Liabilities	$35,225,471	$35,949,740	$37,004,339	$38,182,058
Shareholders Deficit
Membership shares	$6,105	$6,105	$6,105	$6,105
Sustaining shares	$168,910	$170,410	$175,210	$183,310
Mandatory Redeemable Preferred Stock*	$4,933,607	$4,408,520	$3,552,586	$2,870,391
Accumulated Deficit	($27,982,188)	($27,381,190)	($26,551,668)	($25,791,953)
Total Shareholders’ Deficit	($22,873,566)	($22,796,155)	($22,817,787)	($22,732,147)

Overview

Cable Co-op derives its revenues primarily from monthly subscriber billings of subscribers of its basic broadcast, cable and premium channels. Cable Co-op also generates revenues from monthly billings associated with purchases of movies and events on a pay-per-view basis and from advertising and monthly billing of subscribers to its cable modem services.
 
 

Results of Operations for the Fiscal Years ended December 31, 1997 and 1998

Revenues. Cable Co-op’s revenues consist primarily of subscription fees, advertising, installation and service fees and cable modem fees. Cable Co-op’s revenues grew from approximately $13.3 million in 1997 to approximately $14.4 million in 1998. The increase in revenues was primarily attributable to an increase of $3.00 per month in the basic rate charged to customers by Cable Co-op beginning in October 1997 and growth in cable modem revenues.
 
 

Cable Modem Service Revenues. Cable modem service revenues consist of cable modem fees and set-up fees paid by subscribers. Cable modem service revenues increased from approximately $0.1 million in 1997 to approximately $0.7 million in 1998. The increase was primarily attributable to a reduction in the price of cable modem services and an increase in cable modem subscribers.
 
 

System Programming and Maintenance Expenses. System programming and maintenance expenses consist primarily of programming fees and expenses related to upkeep of the cable plant. System programming and maintenance expenses were approximately $4.9 million in 1997 and approximately $5.8 million in 1998. This increase was primarily attributable to increases in costs of programming, increases in the cost of labor, and increases in the price of maintenance materials.
 
 

Selling, General and Administrative Expenses. Selling expenses consist primarily of compensation and benefits costs paid to sales representatives, advertising and promotional costs. General and administrative expenses consist primarily of compensation and benefit cost for management, finance, legal, human resources, business development and administrative personnel, professional fees, facilities cost and other general corporate expenses. Selling, general and administrative expenses were approximately $2.9 million in 1997 and approximately $3.2 million in 1998. This increase was primarily attributable to increases in printing costs, employee compensation and benefits costs, rent and utility increases and higher costs for subscriber acquisition.
 
 

Operating Results. Operating losses were approximately $30,000 in 1997 and operating profits were approximately $60,000 in 1998. The increase in operating profits from 1997 to 1998 was primarily attributable to increases in basic cable rates, cable modem service revenues and in the number of basic cable television service subscribers.
 
 

Significant Events

In March 1999, the board of directors authorized management to execute a letter of intent with AT&T Cable and to begin negotiations of an asset purchase agreement. Cable Co-op and AT&T Cable entered into the asset purchase agreement on September 7, 1999.
 
 

Liquidity and Capital Resources

Cable Co-op’s cash position is limited. Without the infusion of additional capital resources, management is uncertain whether Cable Co-op will have sufficient cash to support future business operations and to repay debt obligations to Bank of America totaling approximately $34.1 million that will mature July 31, 2000.

Capital spending by Cable Co-op is limited by outstanding bank loan agreements to $1,500,000 per fiscal year. Management estimates that to upgrade Cable Co-op’s cable television network, it will need to obtain approximately $16 million in new working capital.
 
 

Year 2000

Cable Co-op has tested mission critical systems for Year 2000 compliance. Accounting systems have been upgraded, tested and found to be materially compliant. Control systems for addressable converters have been upgraded, tested and found to be materially compliant. Cable Co-op’s representations in the asset purchase agreement regarding Year 2000 compliance are based in part upon representations and warranties regarding Year 2000 compliance by Cable Co-op’s outside vendors.
 
 

The following documents are attached to and incorporated into this information statement:

Any person receiving a copy of this information statement may obtain, without charge, upon written or oral request, a copy of any of the documents incorporated by reference except for the disclosure schedules to the asset purchase agreement which, due to confidentiality concerns and their voluminous nature, must be reviewed on location at Cable Co-op’s offices. Requests should be directed to Cable Co-op, 3200 Park Boulevard, Palo Alto, California 94306, Attention: Ron Kirkeeng, Chief Executive Officer and General Manager (telephone number 650-856-3553, ext. 3100). A copy will be mailed by first class mail or other equally prompt means within approximately two business days after receipt of such request.
 
 

AT&T Cable, and its parent AT&T, are subject to the informational requirements of the Securities Exchange Act of 1934. Each company files reports, proxy statements and other information with the SEC. You may read and copy such reports, proxy statements and other information at the SEC’s Public Reference Section at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website, located at http://www.sec.gov, which contains reports, proxy statements and other information regarding registrants that file electronically with the SEC.

You may read reports and other information relating to Cable Co-op generally on the company’s Internet website, located at http://www.cableco-op.com.
 
 

We have authorized no one to give you any information or to make any representation about the proposed sale transaction or our company that differs from the information contained in this information statement and the documents incorporated herein. Therefore, if anyone should give you any different information, you should not rely on it.

The information contained in this information statement speaks only as of the date indicated on the cover of this information statement unless the information specifically indicates that another date applies.