<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ------------to -----------
Commission File Number 0-13333
ENSTAR INCOME PROGRAM 1984-1, L.P.
------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
GEORGIA 58-1581136
- ----------------------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10900 WILSHIRE BOULEVARD - 15TH FLOOR
LOS ANGELES, CALIFORNIA 90024
- ---------------------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 824-9990
--------------
Securities registered pursuant to Section 12 (b) of the Act: NONE
Securities registered pursuant to Section 12 (g) of the Act:
Name of each exchange
Title of each Class on which registered
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UNITS OF LIMITED PARTNERSHIP INTEREST NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
State the aggregate market value of the voting equity securities held by
non-affiliates of the registrant - 29,935 of the registrant's 29,940 units of
limited partnership interests, its only class of equity securities, are held by
non-affiliates. There is no public trading market for the units, and transfers
of units are subject to certain restrictions; accordingly, the registrant is
unable to state the market value of the units held by non-affiliates.
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The Exhibit Index is located at Page E-1
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Enstar Income Program 1984-1, L.P., a Georgia limited partnership
(the "Partnership"), is engaged in the ownership, operation and development,
and, when appropriate, sale or other disposition, of cable television systems in
small to medium-sized communities. The Partnership was formed on December 12,
1983. The general partner of the Partnership is Enstar Communications
Corporation, a Georgia corporation (the "General Partner"). On September 30,
1988, ownership of the General Partner was acquired by Falcon Cablevision, a
California limited partnership that has been engaged in the ownership and
operation of cable television systems since 1984 ("Falcon Cablevision"). The
general partner of Falcon Cablevision was Falcon Holding Group, L.P., a Delaware
limited partnership ("FHGLP"), until September 1998. On September 30, 1998,
FHGLP acquired ownership of the General Partner from Falcon Cablevision.
Simultaneously with the closing of that transaction, FHGLP contributed all of
its existing cable television system operations to Falcon Communications, L.P.
("FCLP"), a California limited partnership and successor to FHGLP. FHGLP serves
as the managing partner of FCLP, and the general partner of FHGLP is Falcon
Holding Group, Inc., a California corporation ("FHGI"). The General Partner has
contracted with FCLP and its affiliates to provide management services for the
Partnership. See Item 13., "Certain Relationships and Related Transactions." The
General Partner, FCLP and affiliated companies are responsible for the day to
day management of the Partnership and its operations. See "Employees" below.
Based on its belief that the market for cable systems has
generally improved, the General Partner is evaluating strategies for liquidating
the Partnership. These strategies include the potential sale of substantially
all of the Partnership's assets to third parties and/or affiliates of the
General Partner, and the subsequent liquidation of the Partnership. The General
Partner expects to complete its evaluation within the next several months and
intends to advise unitholders promptly if it believes that commencing a
liquidating transaction would be in the best interests of unitholders.
A cable television system receives television, radio and data
signals at the system's "headend" site by means of over-the-air antennas,
microwave relay systems and satellite earth stations. These signals are then
modulated, amplified and distributed, primarily through coaxial and fiber optic
distribution systems, to customers who pay a fee for this service. Cable
television systems may also originate their own television programming and other
information services for distribution through the system. Cable television
systems generally are constructed and operated pursuant to non-exclusive
franchises or similar licenses granted by local governmental authorities for a
specified term of years.
The Partnership's cable television systems (the "systems"), offer
customers various levels (or "tiers") of cable services consisting of broadcast
television signals of local network, independent and educational stations, a
limited number of television signals from so-called "super stations" originating
from distant cities (such as WGN), various satellite-delivered, non-broadcast
channels (such as Cable News Network ("CNN"), MTV: Music Television ("MTV"), the
USA Network ("USA"), ESPN, Turner Network Television ("TNT") and The Disney
Channel), programming originated locally by the cable television system (such as
public, educational and governmental access programs) and informational displays
featuring news, weather, stock market and financial reports, and public service
announcements. A number of the satellite services are also offered in certain
packages. For an extra monthly charge, the systems also offer "premium"
television services to their customers. These services (such as Home Box Office
("HBO") and Showtime) are satellite channels that consist principally of feature
films, live sporting events, concerts and other special entertainment features,
usually presented without commercial interruption. See "Legislation and
Regulation."
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A customer generally pays an initial installation charge and fixed
monthly fees for basic, expanded basic, other tiers of satellite services and
premium programming services. Such monthly service fees constitute the primary
source of revenues for the systems. In addition to customer revenues, the
systems receive revenue from the sale of available advertising spots on
advertiser-supported programming. The systems also offer to their customers home
shopping services, which pay the systems a share of revenues from sales of
products in the systems' service areas, in addition to paying the systems a
separate fee in return for carrying their shopping service. Certain other
channels have also offered the cable systems managed by FCLP, including those of
the Partnership, fees in return for carrying their service. Due to a general
lack of channel capacity available for adding new channels, the Partnership's
management cannot predict the impact of such potential payments on the
Partnership's business. See Item 7., "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources."
The Partnership began its cable television business operations in
1984 with the acquisition of certain cable television systems and expanded its
operations in 1985 with additional system acquisitions. The Partnership sold
certain of its cable television systems during 1986 and 1987. As of December 31,
1998, the Partnership offered cable service in South Carolina, North Carolina
and Tennessee. The two South Carolina systems are located in and around the
cities of Kershaw (Lancaster County) and River Hills (York County). The
Partnership's North Carolina system serves portions of Greene County, including
the municipalities of Grifton, Snow Hill, Hookerton and Walstonburg. The three
Tennessee systems cover portions of the municipalities of Covington, Bolivar,
Brownsville and Burlison. As of December 31, 1998, the Partnership served
approximately 10,800 basic subscribers in these areas. The Partnership does not
expect to make any additional material acquisitions during the remaining term of
the Partnership.
FCLP receives a management fee and reimbursement of expenses from
the General Partner for managing the Partnership's cable television operations.
See Item 11., "Executive Compensation."
The Chief Executive Officer of FHGI is Marc B. Nathanson. Mr.
Nathanson has managed FCLP or its predecessors since 1975. Mr. Nathanson is a
veteran of more than 30 years in the cable industry and, prior to forming FCLP's
predecessors, held several key executive positions with some of the nation's
largest cable television companies. The principal executive offices of the
Partnership, the General Partner and FCLP are located at 10900 Wilshire
Boulevard, 15th Floor, Los Angeles, California 90024, and their telephone number
is (310) 824-9990. See Item 10., "Directors and Executive Officers of the
Registrant."
BUSINESS STRATEGY
Historically, the Partnership has followed a systematic approach
to acquiring, operating and developing cable television systems based on the
primary goal of increasing operating cash flow while maintaining the quality of
services offered by its cable television systems. The Partnership's business
strategy has focused on serving small to medium-sized communities. The
Partnership believes that given a similar rate, technical, and channel
capacity/utilization profile, its cable television systems generally involve
less risk of increased competition than systems in large urban cities. In the
Partnership's markets, consumers have access to only a limited number of
over-the-air broadcast television signals. In addition, these markets typically
offer fewer competing entertainment alternatives than large cities. Nonetheless,
the Partnership believes that all cable operators will face increased
competition in the future from alternative providers of multi-channel video
programming services. See "Competition."
Adoption of rules implementing certain provisions of the Cable
Television Consumer Protection and Competition Act of 1992 (the "1992 Cable
Act") by the Federal Communications Commission (the "FCC") has had a negative
impact on the Partnership's revenues and cash flow. These rules are subject to
further amendment to give effect to the Telecommunications Act of 1996 (the
"1996 Telecom Act"). Among other changes, the 1996 Telecom Act provides that the
regulation of certain cable programming service tier ("CPST") rates will
terminate on March 31, 1999. There can be no assurance as to what, if any,
further action
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may be taken by the FCC, Congress or any other regulatory authority or court,
or the effect thereof on the Partnership's business. See "Legislation and
Regulation" and Item 7., "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
CLUSTERING
The Partnership has sought to acquire cable television operations
in communities that are proximate to other owned or affiliated systems in order
to achieve the economies of scale and operating efficiencies associated with
regional "clusters." The Partnership believes clustering can reduce marketing
and personnel costs and can also reduce capital expenditures in cases where
cable service can be delivered through a central headend reception facility.
CAPITAL EXPENDITURES
As noted in "Technological Developments," the Partnership's
systems have no available channel capacity with which to add new channels or to
provide pay-per-view offerings to customers. As a result, significant amounts of
capital for future upgrades will be required in order to increase available
channel capacity, improve quality of service and facilitate the expansion of new
services such as advertising, pay-per-view, new unregulated tiers of
satellite-delivered services and home shopping, so that the systems remain
competitive within the industry.
The Partnership's management has selected a technical standard
that incorporates the use of fiber optic technology where applicable in its
engineering design for the majority of its systems that are to be rebuilt. A
system built with this type of architecture can provide for future channels of
analog service as well as new digital services. Such a system will also permit
the introduction of high speed data transmission/Internet access and telephony
services in the future after incurring incremental capital expenditures related
to these services. The Partnership is also evaluating the use of digital
compression technology in its systems. See "Technological Developments" and
"Digital Compression."
As discussed in prior reports, the Partnership postponed a number
of rebuild and upgrade projects because of the uncertainty related to
implementation of the 1992 Cable Act and the negative impact thereof on the
Partnership's business and access to capital. As a result, the Partnership's
systems are significantly less technically advanced than had been expected prior
to the implementation of deregulation. The Partnership is party to a loan
agreement with an affiliate which provides for a revolving loan facility of
$7,481,700 (the "Facility"). The Partnership expects to use borrowings under the
Facility to upgrade its systems. The Partnership's upgrade program is presently
estimated to require aggregate capital expenditures of approximately $8,300,000
and covers 12 franchise areas. These upgrades are currently required in six
existing franchise agreements covering eight franchise areas. The upgrades
required by the six existing franchise agreements are estimated to cost
approximately $4,900,000 and must be completed by June 2000, December 2001 and
February 2002. Capital expenditures budgeted for 1999 include approximately
$48,000 to begin the upgrades and $501,000 for the replacement of other assets.
See "Digital Compression," "Legislation and Regulation" and Item 7.,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
DECENTRALIZED MANAGEMENT
The General Partner manages the Partnership's systems on a
decentralized basis. The General Partner believes that its decentralized
management structure, by enhancing management presence at the system level,
increases its sensitivity to the needs of its customers, enhances the
effectiveness of its customer service efforts, eliminates the need for
maintaining a large centralized corporate staff and facilitates the maintenance
of good relations with local governmental authorities.
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MARKETING
The Partnership's marketing strategy is to provide added value to
increasing levels of subscription services through "packaging." In addition to
the basic service package, customers in substantially all of the systems may
purchase an expanded group of regulated services, additional unregulated
packages of satellite-delivered services, and premium services. The Partnership
has employed a variety of targeted marketing techniques to attract new customers
by focusing on delivering value, choice, convenience and quality. The
Partnership employs direct mail, radio and local newspaper advertising,
telemarketing and door-to-door selling utilizing demographic "cluster codes" to
target specific messages to target audiences. In certain systems, the
Partnership offers discounts to customers who purchase premium services on a
limited trial basis in order to encourage a higher level of service
subscription. The Partnership also has a coordinated strategy for retaining
customers that includes televised retention advertising to reinforce the initial
decision to subscribe and encourage customers to purchase higher service levels.
CUSTOMER SERVICE AND COMMUNITY RELATIONS
The Partnership places a strong emphasis on customer service and
community relations and believes that success in these areas is critical to its
business. The Partnership has developed and implemented a wide range of monthly
internal training programs for its employees, including its regional managers,
that focus on the Partnership's operations and employee interaction with
customers. The effectiveness of the Partnership's training program as it relates
to the employees' interaction with customers is monitored on an ongoing basis,
and a portion of the regional managers' compensation is tied to achieving
customer service targets. The Partnership conducts an extensive customer survey
on a periodic basis and uses the information in its efforts to enhance service
and better address the needs of its customers. A quarterly newsletter keeps
customers up to date on new service offerings, special events and company
information. In addition, the Partnership is participating in the industry's
Customer Service Initiative which emphasizes an on-time guarantee program for
service and installation appointments. The Partnership's corporate executives
and regional managers lead the Partnership's involvement in a number of programs
benefiting the communities the Partnership serves, including, among others,
Cable in the Classroom, Drug Awareness, Holiday Toy Drive and the Cystic
Fibrosis Foundation. Cable in the Classroom is the cable television industry's
public service initiative to enrich education through the use of commercial-free
cable programming. In addition, a monthly publication, CABLE IN THE CLASSROOM
magazine provides educational program listings by curriculum area, as well as
feature articles on how teachers across the country use the programs.
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DESCRIPTION OF THE PARTNERSHIP'S SYSTEMS
The table below sets forth certain operating statistics for
the Partnership's cable systems as of December 31, 1998.
<TABLE>
<CAPTION>
Average
Monthly
Premium Revenue Per
Homes Basic Basic Service Premium Basic
System Passed (1) Subscribers Penetration (2) Units (3) Penetration (4) Subscriber (5)
- ------ ---------- ----------- --------------- --------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Snow Hill, NC 5,325 1,689 31.7% 522 30.9% $39.25
Kershaw, SC 4,205 2,209 52.5% 891 40.3% $36.51
Brownsville, TN 15,285 6,906 45.2% 2,991 43.3% $40.62
------ ------- -----
Total 24,815 10,804 43.5% 4,404 40.8% $39.59
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</TABLE>
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1 Homes passed refers to estimates by the Partnership of the approximate
number of dwelling units in a particular community that can be connected to
the distribution system without any further extension of principal
transmission lines. Such estimates are based upon a variety of sources,
including billing records, house counts, city directories and other local
sources.
2 Basic subscribers as a percentage of homes passed by cable.
3 Premium service units include only single channel services offered for a
monthly fee per channel and do not include tiers of channels offered as a
package for a single monthly fee.
4 Premium service units as a percentage of homes subscribing to cable
service. A customer may purchase more than one premium service, each of which
is counted as a separate premium service unit. This ratio may be greater than
100% if the average customer subscribes for more than one premium service.
5 Average monthly revenue per basic subscriber has been computed based on
revenue for the year ended December 31, 1998.
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CUSTOMER RATES AND SERVICES
The Partnership's cable television systems offer customers
packages of services that include the local area network, independent and
educational television stations, a limited number of television signals from
distant cities, numerous satellite-delivered, non-broadcast channels (such as
CNN, MTV, USA, ESPN, TNT and The Disney Channel) and certain information and
public access channels. For an extra monthly charge, the systems provide certain
premium television services, such as HBO and Showtime. The Partnership also
offers other cable television services to its customers. For additional charges,
in most of its systems, the Partnership also rents remote control devices and
VCR compatible devices (devices that make it easier for a customer to tape a
program from one channel while watching a program on another).
The service options offered by the Partnership vary from system to
system, depending upon a system's channel capacity and viewer interests. Rates
for services also vary from market to market and according to the type of
services selected.
Pursuant to the 1992 Cable Act, most cable television systems are
subject to rate regulation of the basic service tier, the non-basic service
tiers other than premium (per channel or program) services, the charges for
installation of cable service, and the rental rates for customer premises
equipment such as converter boxes and remote control devices. These rate
regulation provisions affect all of the Partnership's systems not deemed to be
subject to effective competition under the FCC's definition. Currently, none of
the Partnership's systems are subject to effective competition. See "Legislation
and Regulation."
At December 31, 1998, the Partnership's monthly rates for basic
cable service for residential customers, including certain discounted rates,
ranged from $20.05 to $26.75 and its premium service rate was $11.95, excluding
special promotions offered periodically in conjunction with the Partnership's
marketing programs. A one-time installation fee, which the Partnership may
wholly or partially waive during a promotional period, is usually charged to new
customers. Commercial customers, such as hotels, motels and hospitals, are
charged a negotiated, non-recurring fee for installation of service and monthly
fees based upon a standard discounting procedure. Most multi-unit dwellings are
offered a negotiated bulk rate in exchange for single-point billing and basic
service to all units. These rates are also subject to regulation.
EMPLOYEES
The various personnel required to operate the Partnership's
business are employed by the Partnership, the General Partner, its subsidiary
corporation and FCLP. As of February 12, 1999, the Partnership had seven
employees, the cost of which is charged directly to the Partnership. The
employment costs incurred by the General Partner, its subsidiary corporation and
FCLP are allocated and charged to the Partnership for reimbursement pursuant to
the partnership agreement and management agreement. Other personnel required to
operate the Partnership's business are employed by affiliates of the General
Partner. The cost of such employment is allocated and charged to the
Partnership. The amounts of these reimbursable costs are set forth below in Item
11., "Executive Compensation."
TECHNOLOGICAL DEVELOPMENTS
As part of its commitment to customer service, the Partnership
seeks to apply technological advances in the cable television industry to its
cable television systems on the basis of cost effectiveness, capital
availability, enhancement of product quality and service delivery and
industry-wide acceptance. Currently, the Partnership's systems have an average
channel capacity of 36 which was fully utilized at December 31, 1998. The
Partnership believes that system upgrades would enable it to provide customers
with greater programming diversity, better picture quality and alternative
communications delivery systems made possible by the introduction of fiber optic
technology and by the possible future application of digital
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compression. See "Business Strategy - Capital Expenditures," "Legislation and
Regulation" and Item 7., "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The use of fiber optic cable as an alternative to coaxial cable is
playing a major role in expanding channel capacity and improving the performance
of cable television systems. Fiber optic cable is capable of carrying hundreds
of video, data and voice channels and, accordingly, its utilization is essential
to the enhancement of a cable television system's technical capabilities. The
Partnership's current policy is to utilize fiber optic technology where
applicable in rebuild projects which it undertakes. The benefits of fiber optic
technology over traditional coaxial cable distribution plant include lower
ongoing maintenance and power costs and improved picture quality and
reliability.
DIGITAL COMPRESSION
The Partnership has been closely monitoring developments in the
area of digital compression, a technology that will enable cable operators to
increase the channel capacity of cable television systems by permitting a
significantly increased number of video signals to fit in a cable television
system's existing bandwidth. Depending on the technical characteristics of the
existing system, the Partnership believes that the utilization of digital
compression technology will enable its systems to increase channel capacity in
certain systems in a manner that could, in the short term, be more cost
efficient than rebuilding such systems with higher capacity distribution plant.
However, the Partnership believes that unless the system has sufficient unused
channel capacity and bandwidth, the use of digital compression to increase
channel offerings is not a substitute for the rebuild of the system, which will
improve picture quality, system reliability and quality of service. The use of
digital compression will expand the number and types of services these systems
offer and enhance the development of current and future revenue sources. This
technology is under frequent management review.
PROGRAMMING
The Partnership purchases basic and premium programming for its
systems from FCLP. In turn, FCLP charges the Partnership for these costs based
on an estimate of what the General Partner could negotiate for such services for
the 15 partnerships managed by the General Partner as a group (approximately
91,000 basic subscribers at December 31, 1998), which is generally based on a
fixed fee per customer or a percentage of the gross receipts for the particular
service. Certain other channels have also offered FCLP and the Partnership's
systems fees in return for carrying their service. Due to a lack of channel
capacity available for adding new channels, the Partnership's management cannot
predict the impact of such potential payments on its business. In addition, the
FCC may require that such payments from programmers be offset against the
programming fee increases which can be passed through to subscribers under the
FCC's rate regulations. FCLP's programming contracts are generally for a fixed
period of time and are subject to negotiated renewal. FCLP does not have
long-term programming contracts for the supply of a substantial amount of its
programming. Accordingly, no assurance can be given that its, and
correspondingly the Partnership's, programming costs will not increase
substantially in the near future, or that other materially adverse terms will
not be added to FCLP's programming contracts. Management believes, however, that
FCLP's relations with its programming suppliers generally are good.
The Partnership's cable programming costs have increased in recent
years and are expected to continue to increase due to additional programming
being provided to basic customers, requirements to carry channels under
retransmission carriage agreements entered into with certain programming
sources, increased costs to produce or purchase cable programming generally
(including sports programming), inflationary increases and other factors. The
1996 retransmission carriage agreement negotiations resulted in the Partnership
agreeing to carry one new service in its Brownsville and Kershaw systems, for
which it expects to receive reimbursement of certain costs related to launching
the service. All other negotiations were completed with essentially no change to
the previous agreements. Under the FCC's rate regulations, increases
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in programming costs for regulated cable services occurring after the earlier
of March 1, 1994, or the date a system's basic cable service became
regulated, may be passed through to customers. See "Legislation and
Regulation - Federal Regulation - Carriage of Broadcast Television Signals."
Generally, programming costs are charged among systems on a per customer
basis.
FRANCHISES
Cable television systems are generally constructed and operated
under non-exclusive franchises granted by local governmental authorities. These
franchises typically contain many conditions, such as time limitations on
commencement and completion of construction; conditions of service, including
number of channels, types of programming and the provision of free service to
schools and certain other public institutions; and the maintenance of insurance
and indemnity bonds. The provisions of local franchises are subject to federal
regulation under the Cable Communications Policy Act of 1984 (the "1984 Cable
Act"), the 1992 Cable Act and the 1996 Telecom Act. See "Legislation and
Regulation."
As of December 31, 1998, the Partnership held 22 franchises. These
franchises, all of which are non-exclusive, provide for the payment of fees to
the issuing authority. Annual franchise fees imposed on the Partnership systems
range up to 5% of the gross revenues generated by a system. The 1984 Cable Act
prohibits franchising authorities from imposing franchise fees in excess of 5%
of gross revenues and also permits the cable system operator to seek
renegotiation and modification of franchise requirements if warranted by changed
circumstances.
The following table groups the franchises of the Partnership's
cable television systems by date of expiration and presents the number of
franchises for each group of franchises and the approximate number and
percentage of homes subscribing to cable service for each group as of December
31, 1998.
<TABLE>
<CAPTION>
Number of Percentage of
Year of Number of Basic Basic
Franchise Expiration Franchises Subscribers Subscribers
----------------------- ---------- ----------- -------------
<S> <C> <C> <C>
Prior to 2000 6 5,947 55.0%
2000 - 2004 5 1,892 17.5%
2005 and after 11 2,965 27.5%
---- ------- ------
Total 22 10,804 100.0%
---- ------- ------
---- ------- ------
</TABLE>
The Partnership operates cable television systems which serve
multiple communities. As of December 31, 1998, all areas were served by
franchises. In certain instances, where a single franchise comprises a large
percentage of the customers in an operating region, the loss of such franchise
could decrease the economies of scale achieved by the Partnership's clustering
strategy. The Partnership has never had a franchise revoked for any of its
systems and believes that it has satisfactory relationships with substantially
all of its franchising authorities.
The 1984 Cable Act provides, among other things, for an orderly
franchise renewal process in which franchise renewal will not be unreasonably
withheld or, if renewal is denied and the franchising authority acquires
ownership of the system or effects a transfer of the system to another person,
the operator generally is entitled to the "fair market value" for the system
covered by such franchise, but no value may be attributed to the franchise
itself. In addition, the 1984 Cable Act, as amended by the 1992 Cable Act,
establishes comprehensive renewal procedures which require that an incumbent
franchisee's renewal
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application be assessed on its own merit and not as part of a comparative
process with competing applications. See "Legislation and Regulation."
COMPETITION
Cable television systems compete with other communications and
entertainment media, including over-the-air television broadcast signals which a
viewer is able to receive directly using the viewer's own television set and
antenna. The extent to which a cable system competes with over-the-air
broadcasting depends upon the quality and quantity of the broadcast signals
available by direct antenna reception compared to the quality and quantity of
such signals and alternative services offered by a cable system. Cable systems
also face competition from alternative methods of distributing and receiving
television signals and from other sources of entertainment such as live sporting
events, movie theaters and home video products, including videotape recorders
and videodisc players. In recent years, the FCC has adopted policies providing
for authorization of new technologies and a more favorable operating environment
for certain existing technologies that provide, or may provide, substantial
additional competition for cable television systems. The extent to which cable
television service is competitive depends in significant part upon the cable
television system's ability to provide an even greater variety of programming
than that available over the air or through competitive alternative delivery
sources.
Individuals presently have the option to purchase home satellite
dishes, which allow the direct reception of satellite-delivered broadcast and
nonbroadcast program services formerly available only to cable television
subscribers. Most satellite-distributed program signals are being electronically
scrambled to permit reception only with authorized decoding equipment for which
the consumer must pay a fee. The 1992 Cable Act enhances the right of cable
competitors to purchase nonbroadcast satellite-delivered programming. See
"Legislation and Regulation-Federal Regulation."
Television programming is now also being delivered to
individuals by high-powered direct broadcast satellites ("DBS") utilizing
video compression technology. This technology has the capability of providing
more than 100 channels of programming over a single high-powered DBS
satellite with significantly higher capacity available if, as is the case
with DIRECTV, multiple satellites are placed in the same orbital position.
Unlike cable television systems, however, DBS satellites are limited by law
in their ability to deliver local broadcast signals. One DBS provider,
EchoStar, has announced plans to deliver a limited number of local broadcast
signals in a limited number of markets and has initiated efforts to have the
practice legalized. Legislation has been introduced in Congress which would
permit DBS operators to elect to provide local broadcast signals to their
customers under the Copyright Act. If DBS providers are ultimately permitted
to deliver local broadcast signals, cable television systems would lose a
significant competitive advantage. DBS service can be received virtually
anywhere in the continental United States through the installation of a small
rooftop or side-mounted antenna, and it is more accessible than cable
television service where cable plant has not been constructed or where it is
not cost effective to construct cable television facilities. DBS service is
being heavily marketed on a nationwide basis by several service providers. In
addition, medium-power fixed-service satellites can be used to deliver
direct-to-home satellite services over small home satellite dishes, and one
provider, PrimeStar, currently provides service to subscribers using such a
satellite. DIRECTV has recently agreed to purchase PrimeStar.
Multichannel multipoint distribution systems ("wireless cable")
deliver programming services over microwave channels licensed by the FCC and
received by subscribers with special antennas. Wireless cable systems are less
capital intensive, are not required to obtain local franchises or to pay
franchise fees, and are subject to fewer regulatory requirements than cable
television systems. To date, the ability of wireless cable services to compete
with cable television systems has been limited by channel capacity (35-channel
maximum) and the need for unobstructed line-of-sight over-the-air transmission.
Although relatively few wireless cable systems in the United States are
currently in operation or under construction, virtually all markets have been
licensed or tentatively licensed. The use of digital compression technology, and
the FCC's
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recent amendment to its rules, which permits reverse path or two-way
transmission over wireless facilities, may enable wireless cable systems to
deliver more channels and additional services.
Private cable television systems compete to service condominiums,
apartment complexes and certain other multiple unit residential developments.
The operators of these private systems, known as satellite master antenna
television ("SMATV") systems, often enter into exclusive agreements with
apartment building owners or homeowners' associations which preclude franchised
cable television operators from serving residents of such private complexes.
However, the 1984 Cable Act gives franchised cable operators the right to use
existing compatible easements within their franchise areas upon
nondiscriminatory terms and conditions. Accordingly, where there are preexisting
compatible easements, cable operators may not be unfairly denied access or
discriminated against with respect to the terms and conditions of access to
those easements. There have been conflicting judicial decisions interpreting the
scope of the access right granted by the 1984 Cable Act, particularly with
respect to easements located entirely on private property. Under the 1996
Telecom Act, SMATV systems can interconnect non-commonly owned buildings without
having to comply with local, state and federal regulatory requirements that are
imposed upon cable systems providing similar services, as long as they do not
use public rights of way.
The FCC has initiated a new interactive television service which
will permit non-video transmission of information between an individual's home
and entertainment and information service providers. This service, which can be
used by DBS systems, television stations and other video programming
distributors (including cable television systems), is an alternative technology
for the delivery of interactive video services. It does not appear at the
present time that this service will have a material impact on the operations of
cable television systems.
The FCC has allocated spectrum in the 28 GHz range for a new
multichannel wireless service that can be used to provide video and
telecommunications services. The FCC recently completed the process of awarding
licenses to use this spectrum via a market-by-market auction. It cannot be
predicted at this time whether such a service will have a material impact on the
operations of cable television systems.
Cable systems generally operate pursuant to franchises granted on
a non-exclusive basis. In addition, the 1992 Cable Act prohibits franchising
authorities from unreasonably denying requests for additional franchises and
permits franchising authorities to build and operate their own cable systems.
Municipally-owned cable systems enjoy certain competitive advantages such as
lower-cost financing and exemption from the payment of franchise fees.
The 1996 Telecom Act eliminates the restriction against ownership
(subject to certain exceptions) and operation of cable systems by local
telephone companies within their local exchange service areas. Telephone
companies are now free to enter the retail video distribution business through
any means, such as DBS, wireless cable, SMATV or as traditional franchised cable
system operators. Alternatively, the 1996 Telecom Act authorizes local telephone
companies to operate "open video systems" (a facilities-based distribution
system, like a cable system, but which is "open," i.e., also available for use
by programmers other than the owner of the facility) without obtaining a local
cable franchise, although telephone companies operating such systems can be
required to make payments to local governmental bodies in lieu of cable
franchise fees. Up to two-thirds of the channel capacity on an "open video
system" must be available to programmers unaffiliated with the local telephone
company. As a result of the foregoing changes, well financed businesses from
outside the cable television industry (such as public utilities that own the
poles to which cable is attached) may become competitors for franchises or
providers of competing services. The 1996 Telecom Act, however, also includes
numerous provisions designed to make it easier for cable operators and others to
compete directly with local exchange telephone carriers in the provision of
traditional telephone service and other telecommunications services.
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Other new technologies, including Internet-based services, may
become competitive with services that cable television systems can offer. The
1996 Telecom Act directed the FCC to establish, and the FCC has adopted,
regulations and policies for the issuance of licenses for digital television
("DTV") to incumbent television broadcast licensees. DTV is expected to deliver
high definition television pictures, multiple digital-quality program streams,
as well as CD-quality audio programming and advanced digital services, such as
data transfer or subscription video. The FCC also has authorized television
broadcast stations to transmit textual and graphic information useful both to
consumers and businesses. The FCC also permits commercial and noncommercial FM
stations to use their subcarrier frequencies to provide nonbroadcast services
including data transmission. The cable television industry competes with radio,
television, print media and the Internet for advertising revenues. As the cable
television industry continues to offer more of its own programming channels,
e.g., Discovery and USA Network, income from advertising revenues can be
expected to increase.
Recently a number of Internet service providers, commonly known as
ISPs, have requested local authorities and the FCC to provide rights of access
to cable television systems' broadband infrastructure in order that they be
permitted to deliver their services directly to cable television systems'
customers. In a recent report, the FCC declined to institute a proceeding to
examine this issue, and concluded that alternative means of access are or soon
will be made to a broad range of ISPs. The FCC declined to take action on ISP
access to broadband cable facilities, and the FCC indicated that it would
continue to monitor this issue. Several local jurisdictions also are reviewing
this issue.
Telephone companies are accelerating the deployment of Asymmetric
Digital Subscriber Line technology, known as ADSL. These companies report that
ADSL technology will allow Internet access to subscribers at peak data
transmission speeds equal or greater than that of modems over conventional
telephone lines. Several of the Regional Bell Operating Companies have requested
the FCC to fully deregulate packet-switched networks (a type of data
communication in which small blocks of data are independently transmitted and
reassembled at their destination) to allow them to provide high-speed broadband
services, including interactive online services, without regard to present
service boundaries and other regulatory restrictions. The Partnership cannot
predict the likelihood of success of the online services offered by these
competitors, (ISP attempts to gain access to the cable industry's broadband
facilities), or the impact on the Partnership's business.
Premium programming provided by cable systems is subject to the
same competitive factors which exist for other programming discussed above. The
continued profitability of premium services may depend largely upon the
continued availability of attractive programming at competitive prices.
Advances in communications technology, as well as changes in the
marketplace and the regulatory and legislative environment, are constantly
occurring. Thus, it is not possible to predict the competitive effect that
ongoing or future developments might have on the cable industry. See
"Legislation and Regulation."
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LEGISLATION AND REGULATION
The cable television industry is regulated by the FCC, some state
governments and substantially all local governments. In addition, various
legislative and regulatory proposals under consideration from time to time by
Congress and various federal agencies have in the past materially affected, and
may in the future materially affect, the Partnership and the cable television
industry. The following is a summary of federal laws and regulations affecting
the growth and operation of the cable television industry and a description of
certain state and local laws. The Partnership believes that the regulation of
its industry remains a matter of interest to Congress, the FCC and other
regulatory authorities. There can be no assurance as to what, if any, future
actions such legislative and regulatory authorities may take or the effect
thereof on the Partnership.
FEDERAL REGULATION
The primary federal statute dealing with the regulation of the
cable television industry is the Communications Act of 1934 (the "Communications
Act"), as amended. The three principal amendments to the Communications Act that
shaped the existing regulatory framework for the cable television industry were
the 1984 Cable Act, the 1992 Cable Act and the 1996 Telecom Act.
The FCC, the principal federal regulatory agency with jurisdiction
over cable television, has promulgated regulations to implement the provisions
contained in the Communications Act. The FCC has the authority to enforce these
regulations through the imposition of substantial fines, the issuance of cease
and desist orders and/or the imposition of other administrative sanctions, such
as the revocation of FCC licenses needed to operate certain transmission
facilities often used in connection with cable operations. A brief summary of
certain of these federal regulations as adopted to date follows.
RATE REGULATION
The 1992 Cable Act replaced the FCC's previous standard for
determining "effective competition," under which most cable systems were not
subject to local rate regulation, with a statutory provision that resulted in
nearly all cable television systems becoming subject to local rate regulation of
basic service. The 1996 Telecom Act, however, expanded the definition of
effective competition to include situations where a local telephone company or
an affiliate, or any multichannel video provider using telephone company
facilities, offers comparable video service by any means except DBS. A finding
of effective competition exempts both basic and nonbasic tiers from regulation.
Additionally, the 1992 Cable Act required the FCC to adopt a formula,
enforceable by franchising authorities, to assure that basic cable rates are
reasonable; allowed the FCC to review rates for nonbasic service tiers (other
than per-channel or per-program services) in response to complaints filed by
franchising authorities and/or cable customers; prohibited cable television
systems from requiring subscribers to purchase service tiers above basic service
in order to purchase premium services if the system is technically capable of
doing so; required the FCC to adopt regulations to establish, on the basis of
actual costs, the price for installation of cable service, remote controls,
converter boxes and additional outlets; and allowed the FCC to impose
restrictions on the retiering and rearrangement of cable services under certain
limited circumstances. The 1996 Telecom Act limits the class of complainants
regarding nonbasic tier rates to franchising authorities only and ends FCC
regulation of nonbasic tier rates on March 31, 1999.
The FCC's regulations contain standards for the regulation of
basic and nonbasic cable service rates (other than per-channel or per-program
services). Local franchising authorities and/or the FCC are empowered to order a
reduction of existing rates which exceed the maximum permitted level for either
basic and/or nonbasic cable services and associated equipment, and refunds can
be required. The rate regulations adopt a benchmark price cap system for
measuring the reasonableness of existing basic and nonbasic service rates.
Alternatively, cable operators have the opportunity to make cost-of-service
showings which, in some cases, may justify rates above the applicable
benchmarks. The rules also require that charges for cable-related equipment
(E.G., converter boxes and remote control devices) and installation services be
unbundled from the provision of
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cable service and based upon actual costs plus a reasonable profit. The
regulations also provide that future rate increases may not exceed an
inflation-indexed amount, plus increases in certain costs beyond the cable
operator's control, such as taxes, franchise fees and increased programming
costs. Cost-based adjustments to these capped rates can also be made in the
event a cable operator adds or deletes channels. In addition, new product
tiers consisting of services new to the cable system can be created free of
rate regulation as long as certain conditions are met, such as not moving
services from existing tiers to the new tier. These provisions currently
provide limited benefit to the Partnership's systems due to the lack of
channel capacity previously discussed. There is also a streamlined
cost-of-service methodology available to justify a rate increase on basic and
regulated nonbasic tiers for "significant" system rebuilds or upgrades.
Franchising authorities have become certified by the FCC to
regulate the rates charged by the Partnership for basic cable service and for
installation charges and equipment rental. The Partnership has had to bring its
rates and charges into compliance with the applicable benchmark or equipment and
installation cost levels in substantially all of its systems. This has had a
negative impact on the Partnership's revenues and cash flow.
FCC regulations adopted pursuant to the 1992 Cable Act require
cable systems to permit customers to purchase video programming on a per channel
or a per program basis without the necessity of subscribing to any tier of
service, other than the basic service tier, unless the cable system is
technically incapable of doing so. Generally, an exemption from compliance with
this requirement for cable systems that do not have such technical capability is
available until a cable system obtains the capability, but not later than
December 2002. At the present time, the Partnership's systems are unable to
comply with this requirement.
CARRIAGE OF BROADCAST TELEVISION SIGNALS
The 1992 Cable Act adopted new television station carriage
requirements. These rules allow commercial television broadcast stations which
are "local" to a cable system, I.E., the system is located in the station's Area
of Dominant Influence, to elect every three years whether to require the cable
system to carry the station, subject to certain exceptions, or whether the cable
system will have to negotiate for "retransmission consent" to carry the station.
Local non-commercial television stations are also given mandatory carriage
rights, subject to certain exceptions, within the larger of: (i) a 50-mile
radius from the station's city of license; or (ii) the station's Grade B contour
(a measure of signal strength). Unlike commercial stations, noncommercial
stations are not given the option to negotiate retransmission consent for the
carriage of their signal. In addition, cable systems must obtain retransmission
consent for the carriage of all "distant" commercial broadcast stations, except
for certain "superstations," I.E., commercial satellite-delivered independent
stations, such as WGN. The Partnership has thus far not been required to pay
cash compensation to broadcasters for retransmission consent or been required by
broadcasters to remove broadcast stations from the cable television channel
line-ups. The Partnership has, however, agreed to carry some services in
specified markets pursuant to retransmission consent arrangements which it
believes are comparable to those entered into by most other large cable
operators, and for which it pays monthly fees to the service providers, as it
does with other satellite providers. The second election between must-carry and
retransmission consent for local commercial television broadcast stations was
October 1, 1996, and the Partnership has agreed to carry one new service in
specified markets pursuant to these retransmission consent arrangements. The
next election between must-carry and retransmission consent for local commercial
television broadcast stations will be October 1, 1999.
The FCC is currently conducting a rulemaking proceeding regarding
the carriage responsibilities of cable television systems during the transition
of broadcast television from analog to digital transmission. Specifically, the
FCC is exploring whether to amend the signal carriage rules to accommodate the
carriage of digital broadcast television signals. The Partnership is unable to
predict the ultimate outcome of this proceeding or the impact of new carriage
requirements on the operations of its cable systems.
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NONDUPLICATION OF NETWORK PROGRAMMING
Cable television systems that have 1,000 or more customers must,
upon the appropriate request of a local television station, delete the
simultaneous or nonsimultaneous network programming of certain lower priority
distant stations affiliated with the same network as the local station.
DELETION OF SYNDICATED PROGRAMMING
FCC regulations enable television broadcast stations that have
obtained exclusive distribution rights for syndicated programming in their
market to require a cable system to delete or "black out" such programming from
certain other television stations which are carried by the cable system. The
extent of such deletions will vary from market to market and cannot be predicted
with certainty. However, it is possible that such deletions could be substantial
and could lead the cable operator to drop a distant signal in its entirety.
PROGRAM ACCESS
The 1992 Cable Act contains provisions that are intended to foster
the development of competition to traditional cable systems by regulating the
access of competing multichannel video providers to vertically integrated,
satellite-distributed cable programming services. Consequently, with certain
limitations, the federal law generally precludes any satellite distributed
programming service affiliated with a cable company from favoring an affiliated
company over competitors; requires such programmers to sell their programming to
other multichannel video providers; and limits the ability of such satellite
program services to offer exclusive programming arrangements to their
affiliates.
FRANCHISE FEES
Franchising authorities may impose franchise fees, but such
payments cannot exceed 5% of a cable system's annual gross revenues. Under the
1996 Telecom Act, franchising authorities may not exact franchise fees from
revenues derived from telecommunications services.
RENEWAL OF FRANCHISES
The 1984 Cable Act established renewal procedures and criteria
designed to protect incumbent franchisees against arbitrary denials of renewal.
While these formal procedures are not mandatory unless timely invoked by either
the cable operator or the franchising authority, they can provide substantial
protection to incumbent franchisees. Even after the formal renewal procedures
are invoked, franchising authorities and cable operators remain free to
negotiate a renewal outside the formal process. Nevertheless, renewal is by no
means assured, as the franchisee must meet certain statutory standards. Even if
a franchise is renewed, a franchising authority may impose new and more onerous
requirements such as upgrading facilities and equipment, although the
municipality must take into account the cost of meeting such requirements.
The 1992 Cable Act makes several changes to the process under
which a cable operator seeks to enforce his renewal rights, which could make it
easier in some cases for a franchising authority to deny renewal. While a cable
operator must still submit its request to commence renewal proceedings within
thirty to thirty-six months prior to franchise expiration to invoke the formal
renewal process, the request must be in writing and the franchising authority
must commence renewal proceedings not later than six months after receipt of
such notice. The four-month period for the franchising authority to grant or
deny the renewal now runs from the submission of the renewal proposal, not the
completion of the public proceeding. Franchising authorities may consider the
"level" of programming service provided by a cable operator in deciding whether
to renew. For alleged franchise violations occurring after December 29, 1984,
franchising authorities are no longer precluded from denying renewal based on
failure to substantially comply with the material terms of the franchise where
the franchising authority has "effectively acquiesced" to such past violations.
Rather, the franchising authority is estopped if,
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after giving the cable operator notice and opportunity to cure, it fails to
respond to a written notice from the cable operator of its failure or
inability to cure. Courts may not reverse a denial of renewal based on
procedural violations found to be "harmless error."
CHANNEL SET-ASIDES
The 1984 Cable Act permits local franchising authorities to
require cable operators to set aside certain channels for public, educational
and governmental access programming. The 1984 Cable Act further requires cable
television systems with thirty-six or more activated channels to designate a
portion of their channel capacity for commercial leased access by unaffiliated
third parties. While the 1984 Cable Act allowed cable operators substantial
latitude in setting leased access rates, the 1992 Cable Act requires leased
access rates to be set according to a formula determined by the FCC.
COMPETING FRANCHISES
The 1992 Cable Act prohibits franchising authorities from
unreasonably refusing to grant franchises to competing cable television systems
and permits franchising authorities to operate their own cable television
systems without franchises.
OWNERSHIP
The 1996 Telecom Act repealed the 1984 Cable Act's prohibition
against local exchange telephone companies ("LECs") providing video programming
directly to customers within their local telephone exchange service areas.
However, with certain limited exceptions, a LEC may not acquire more than a 10%
equity interest in an existing cable system operating within the LEC's service
area. The 1996 Telecom Act also authorized LECs and others to operate "open
video systems." A recent judicial decision overturned various parts of the FCC's
open video rules, including the FCC's restriction preventing local governmental
authorities from requiring open video system operators to obtain a franchise.
The Partnership expects the FCC to modify its open video rules to comply with
the federal court's decision, but is unable to predict the impact any rule
modifications may have on the Partnership's business and operations. See
"Business-Competition."
The 1984 Cable Act and the FCC's rules prohibit the common
ownership, operation, control or interest in a cable system and a local
television broadcast station whose predicted grade B contour (a measure of a
television station's signal strength as defined by the FCC's rules) covers any
portion of the community served by the cable system. The 1996 Telecom Act
eliminates the statutory ban and directs the FCC to review its rule within two
years. Such a review is presently pending. Finally, in order to encourage
competition in the provision of video programming, the FCC adopted a rule
prohibiting the common ownership, affiliation, control or interest in cable
television systems and wireless cable facilities having overlapping service
areas, except in very limited circumstances. The 1992 Cable Act codified this
restriction and extended it to co-located SMATV systems. Permitted arrangements
in effect as of October 5, 1992 are grandfathered. The 1996 Telecom Act exempts
cable systems facing effective competition from the wireless cable and SMATV
restriction. In addition, a cable operator can purchase a SMATV system serving
the same area and technically integrate it into the cable system. The 1992 Cable
Act permits states or local franchising authorities to adopt certain additional
restrictions on the ownership of cable television systems.
Pursuant to the 1992 Cable Act, the FCC has imposed limits on the
number of cable systems which a single cable operator can own. In general, no
cable operator can have an attributable interest in cable systems which pass
more than 30% of all homes nationwide. Attributable interests for these purposes
include voting interests of 5% or more (unless there is another single holder of
more than 50% of the voting stock), officerships, directorships, general
partnership interests and limited partnership interests (unless the limited
partners have no material involvement in the limited partnership's business).
These rules are under review by the
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FCC. The FCC has stayed the effectiveness of these rules pending the outcome
of the appeal from a U.S. District Court decision holding the multiple
ownership limit provision of the 1992 Cable Act unconstitutional.
The FCC has also adopted rules which limit the number of channels
on a cable system which can be occupied by programming in which the entity which
owns the cable system has an attributable interest. The limit is 40% of the
first 75 activated channels.
The FCC also recently commenced a rulemaking proceeding to
examine, among other issues, whether any limitations on cable-DBS
cross-ownership are warranted in order to prevent anticompetitive conduct in the
video services market.
FRANCHISE TRANSFERS
The 1992 Cable Act requires franchising authorities to act on any
franchise transfer request submitted after December 4, 1992 within 120 days
after receipt of all information required by FCC regulations and by the
franchising authority. Approval is deemed to be granted if the franchising
authority fails to act within such period.
TECHNICAL REQUIREMENTS
The FCC has imposed technical standards applicable to the cable
channels on which broadcast stations are carried, and has prohibited franchising
authorities from adopting standards which are in conflict with or more
restrictive than those established by the FCC. Those standards are applicable to
all classes of channels which carry downstream National Television System
Committee (the "NTSC") video programming. The FCC also has adopted additional
standards applicable to cable television systems using frequencies in the
108-137 MHz and 225-400 MHz bands in order to prevent harmful interference with
aeronautical navigation and safety radio services and has also established
limits on cable system signal leakage. Periodic testing by cable operators for
compliance with the technical standards and signal leakage limits is required
and an annual filing of the results of these measurements is required. The 1992
Cable Act requires the FCC to periodically update its technical standards to
take into account changes in technology. Under the 1996 Telecom Act, local
franchising authorities may not prohibit, condition or restrict a cable system's
use of any type of subscriber equipment or transmission technology.
The FCC has adopted regulations to implement the requirements of
the 1992 Cable Act designed to improve the compatibility of cable systems and
consumer electronics equipment. Among other things, these regulations generally
prohibit cable operators from scrambling their basic service tier. The 1996
Telecom Act directs the FCC to set only minimal standards to assure
compatibility between television sets, VCRs and cable systems, and to rely on
marketplace competition to best determine which features, functions, protocols,
and product and service options meet the needs of consumers.
Pursuant to the 1992 Cable Act, the FCC has adopted rules to
assure the competitive availability to consumers of customers premises
equipment, such as converters, used to access the services offered by cable
television systems and other multichannel video programming distributions
("MVPD"). Pursuant to those rules, consumers are given the right to attach
compatible equipment to the facilities of their MVPD so long as the equipment
does not harm the network, does not interfere with the services purchased by
other customers, and is not used to receive unauthorized services. As of July 1,
2000, MVPDs (other than DBS operators) are required to separate security from
non-security functions in the customer premises equipment which they sell or
lease to their customers and offer their customers the option of using component
security modules obtained from the MVPD with set-top units purchased or leased
from retail outlets. As of January 1, 2005, MVPDs will be prohibited from
distributing new set -top equipment integrating both security and non-security
functions to their customers.
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POLE ATTACHMENTS
The FCC currently regulates the rates and conditions imposed by
certain public utilities for use of their poles unless state public service
commissions are able to demonstrate that they regulate the rates, terms and
conditions of cable television pole attachments. In the absence of state
regulation, the FCC administers such pole attachment rates through use of a
formula which it has devised. The 1996 amendments to the Communications Act
modified the FCC's pole attachment regulatory scheme by requiring the FCC to
adopt new regulations. These regulations become effective in 2001 and govern the
charges for pole attachments used by companies, including cable operators, that
provide telecommunications services by immediately permitting certain providers
of telecommunications services to rely upon the protections of the current law
until the new rate formula becomes effective in 2001, and by requiring that
utilities provide cable systems and telecommunications carriers with
nondiscriminatory access to any pole, conduit or right-of-way controlled by the
utility. In adopting its new attachment regulations, the FCC concluded, in part,
that a cable operator providing Internet service on its cable system is not
providing a telecommunications service for purposes of the new rules.
The new rate formula adopted by the FCC and which is applicable
for any party, including cable systems, which offer telecommunications services
will result in significantly higher attachment rates for cable systems which
choose to offer such services. Any resulting increase in attachment rates as a
result of the FCC's new rate formula will be phased in over a five-year period
in equal annual increments, beginning in February 2001. Several parties have
requested the FCC to reconsider its new regulations and several parties have
challenged the new rules in court. A federal district court recently upheld the
constitutionality of the new statutory provision, and the utilities involved in
that litigation have appealed the lower court's decision. The FCC also has
initiated a proceeding to determine whether it should adjust certain elements of
the current rate formula. If adopted, these adjustments could increase rates for
pole attachments and conduit space. The Partnership is unable to predict the
outcome of this current litigation or the ultimate impact of any revised FCC
rate formula or of any new pole attachment rate regulations on its business and
operations.
OTHER MATTERS
Other matters subject to FCC regulation include certain
restrictions on a cable system's carriage of local sports programming; rules
governing political broadcasts; customer service standards; obscenity and
indecency; home wiring; equal employment opportunity; privacy; closed
captioning; sponsorship identification; system registration; and limitations on
advertising contained in nonbroadcast children's programming.
COPYRIGHT
Cable television systems are subject to federal copyright
licensing covering carriage of broadcast signals. In exchange for making
semi-annual payments to a federal copyright royalty pool and meeting certain
other obligations, cable operators obtain a statutory license to retransmit
broadcast signals. The amount of this royalty payment varies, depending on the
amount of system revenues from certain sources, the number of distant signals
carried, and the location of the cable system with respect to over-the-air
television stations. Any future adjustment to the copyright royalty rates will
be done through an arbitration process supervised by the U.S. Copyright Office.
Cable operators are liable for interest on underpaid and unpaid
royalty fees, but are not entitled to collect interest on refunds received for
overpayment of copyright fees.
Copyrighted music transmitted in programming supplied to cable
television systems by pay cable networks (such as HBO) and basic cable networks
(such as USA Network) is licensed by the networks through private agreements
with the American Society of Composers and Publishers ("ASCAP") and BMI, Inc.
("BMI"), the two major performing rights organizations in the United States. As
a result of extensive litigation,
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both ASCAP and BMI now offer "through to the viewer" licenses to the cable
networks which cover the retransmission of the cable networks' programming by
cable systems to their customers. Payment for music performed in programming
offered on a per program basis remains unsettled. The Partnership recently
participated in a settlement with BMI for payment of fees in connection with
the Request pay-per-view network. Industry litigation of this issue with
ASCAP is likely.
Copyrighted music transmitted by cable systems themselves, E.G.,
on local origination channels or in advertisements inserted locally on cable
networks, must also be licensed. Cable industry negotiations with ASCAP, BMI and
SESAC, Inc. (a third and smaller performing rights organization) are in
progress.
LOCAL REGULATION
Because a cable television system uses local streets and
rights-of-way, cable television systems generally are operated pursuant to
nonexclusive franchises, permits or licenses granted by a municipality or other
state or local government entity. Franchises generally are granted for fixed
terms and in many cases are terminable if the franchise operator fails to comply
with material provisions. Although the 1984 Cable Act provides for certain
procedural protections, there can be no assurance that renewals will be granted
or that renewals will be made on similar terms and conditions. Upon receipt of a
franchise, the cable system owner usually is subject to a broad range of
obligations to the issuing authority directly affecting the business of the
system. The terms and conditions of franchises vary materially from jurisdiction
to jurisdiction, and even from city to city within the same state, historically
ranging from reasonable to highly restrictive or burdensome. The specific terms
and conditions of a franchise and the laws and regulations under which it was
granted directly affect the profitability of the cable television system. Cable
franchises generally contain provisions governing charges for basic cable
television services, fees to be paid to the franchising authority, length of the
franchise term, renewal, sale or transfer of the franchise, territory of the
franchise, design and technical performance of the system, use and occupancy of
public streets and the number and types of cable services provided. The 1996
Telecom Act prohibits a franchising authority from either requiring or limiting
a cable operator's provision of telecommunications services.
The 1984 Cable Act places certain limitations on a franchising
authority's ability to control the operation of a cable system operator, and the
courts have from time to time reviewed the constitutionality of several general
franchise requirements, including franchise fees and access channel
requirements, often with inconsistent results. On the other hand, the 1992 Cable
Act prohibits exclusive franchises, and allows franchising authorities to
exercise greater control over the operation of franchised cable television
systems, especially in the area of customer service and rate regulation.
Moreover, franchising authorities are immunized from monetary damage awards
arising from regulation of cable television systems or decisions made on
franchise grants, renewals, transfers and amendments.
Existing federal regulations, copyright licensing and, in many
jurisdictions, state and local franchise requirements, currently are the subject
of a variety of judicial proceedings, legislative hearings and administrative
and legislative proposals which could change, in varying degrees, the manner in
which cable television systems operate. Neither the outcome of these proceedings
nor their impact upon the cable television industry can be predicted at this
time.
ITEM 2. PROPERTIES
The Partnership owns or leases parcels of real property for signal
reception sites (antenna towers and headends), microwave facilities and business
offices, and owns or leases its service vehicles. The Partnership believes that
its properties, both owned and leased, are in good condition and are suitable
and adequate for the Partnership's business operations.
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The Partnership owns substantially all of the assets related to
its cable television operations, including its program production equipment,
headend (towers, antennas, electronic equipment and satellite earth stations),
cable plant (distribution equipment, amplifiers, customer drops and hardware),
converters, test equipment and tools and maintenance equipment.
ITEM 3. LEGAL PROCEEDINGS
The Partnership is periodically a party to various legal
proceedings. Such legal proceedings are ordinary and routine litigation
proceedings that are incidental to the Partnership's business and management
believes that the outcome of all pending legal proceedings will not, in the
aggregate, have a material adverse effect on the financial condition of the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S EQUITY SECURITIES AND RELATED
SECURITY HOLDER MATTERS
LIQUIDITY
While the Partnership's equity securities, which consist of units
of limited partnership interests, are publicly held, there is no established
public trading market for the units and it is not expected that a market will
develop. The approximate number of equity security holders of record was 977 as
of December 31, 1998. In addition to restrictions on the transferability of
units contained in the Partnership Agreement, the transferability of units may
be affected by restrictions on resales imposed by federal or state law.
Pursuant to documents filed with the Securities and Exchange
Commission on February 18, 1999, Madison Liquidity Investors 104, LLC
("Madison") initiated a tender offer to purchase up to approximately 9.9% of the
outstanding units for $210 per unit. On March 2, 1999, the Partnership filed a
Recommendation Statement on Schedule 14D-9 and distributed a letter to
unitholders recommending that unitholders reject Madison's offer.
DISTRIBUTIONS
The Partnership Agreement generally provides that all Partnership
profits, gains, losses, credits, and cash distributions (all as defined) from
operations or liquidation be allocated one percent to the general partners and
99% to the limited partners until the limited partners have received
distributions of cash flow from operations and/or cash flow from sales,
refinancing, or liquidation of systems equal to their initial investment. After
the limited partners have received cash flow equal to their initial investment,
the general partner will receive a one percent allocation of cash flow from
liquidating a system until the limited partners have received an annual simple
interest return of at least 18% of their initial investment less any
distributions from previous system liquidations. Thereafter, allocations will be
made 15% to the general partner and 85% to the limited partners. All allocations
to individual limited partners will be based on their respective capital
accounts. Upon dissolution of the Partnership, any negative capital account
balances remaining after all allocations and distributions are made must be
funded by the respective partners.
The policy of the General Partner (although there is no
contractual obligation to do so) is to cause the Partnership to make cash
distributions on a quarterly basis throughout the operational life of the
Partnership, assuming the availability of sufficient cash flow from Partnership
operations. The amount of such distributions, if any, will vary from quarter to
quarter depending upon the Partnership's results of operations and the General
Partner's determination of whether otherwise available funds are needed for the
Partnership's ongoing working capital and liquidity requirements. It is also the
General Partner's policy to distribute available net proceeds from sales of
cable television systems. However, on February 22, 1994, the FCC announced
significant amendments to its rules implementing certain provisions of the 1992
Cable Act. Compliance with these rules has had a negative impact on the
Partnership's revenues and cash flow.
The Partnership began making periodic cash distributions to
limited partners during 1984 and discontinued distributions in January 1990. No
distributions were made during 1996, 1997 or 1998. For more information
regarding distributions, see Item 7., "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The Partnership's ability to pay distributions, the actual level
of distributions and the continuance of distributions, if any, will depend on a
number of factors, including the amount of cash flow from operations, projected
capital expenditures, provision for contingent liabilities, availability of bank
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<PAGE>
financing, regulatory or legislative developments governing the cable television
industry, and growth in customers. Some of these factors are beyond the control
of the Partnership, and consequently, no assurances can be given regarding the
level or timing of future distributions, if any. The Partnership's Facility does
not restrict the payment of distributions to partners unless an event of default
exists thereunder or the Partnership's ratio of debt to cash flow is greater
than 4 to 1.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
Set forth below is selected financial data of the Partnership for
the five years ended December 31, 1998. This data should be read in conjunction
with the Partnership's financial statements included in Item 8 hereof and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in Item 7.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------
OPERATIONS STATEMENT DATA 1994 1995 1996 1997 1998
-------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues $ 4,532,800 $ 4,919,300 $ 5,243,500 $ 5,369,200 $ 5,221,100
Costs and expenses (2,964,900) (3,010,900) (3,175,000) (3,473,500) (3,184,700)
Depreciation and amortization (1,242,600) (1,173,500) (570,600) (583,100) (747,600)
-------------- ------------- -------------- ------------- -------------
Operating income 325,300 734,900 1,497,900 1,312,600 1,288,800
Interest expense (275,200) (270,600) (187,900) (107,500) (103,900)
Interest income 29,800 53,200 43,500 34,700 25,700
Gain on sale of cable assets - 3,300 100 - -
Casualty gain (loss) - - - 202,400 (271,000)
-------------- ------------- -------------- ------------- -------------
Net income $ 79,900 $ 520,800 $ 1,353,600 $ 1,442,200 $ 939,600
-------------- ------------- -------------- ------------- -------------
-------------- ------------- -------------- ------------- -------------
PER UNIT OF LIMITED
PARTNERSHIP INTEREST:
Net income $ 2.64 $ 17.22 $ 44.76 $ 47.69 $ 31.07
-------------- ------------- -------------- ------------- -------------
-------------- ------------- -------------- ------------- -------------
OTHER OPERATING DATA
Net cash provided by operating
activities $ 1,380,200 $ 1,712,900 $ 1,804,800 $ 1,830,400 $ 2,084,800
Net cash used in investing activities (504,900) (960,700) (1,170,000) (825,600) (1,398,400)
Net cash used in financing activities (440,100) (986,600) (565,700) (1,546,300) (113,300)
EBITDA (1) 1,567,900 1,908,400 2,068,500 1,895,700 2,036,400
EBITDA to revenues 34.6% 38.8% 39.4% 35.3% 39.0%
Total debt to EBITDA 1.9x 1.0x .5x .1x -
Capital expenditures $ 480,800 $ 934,300 $ 1,149,600 $ 776,900 $ 1,389,800
As of December 31,
------------------------------------------------------------------------------------
BALANCE SHEET DATA 1994 1995 1996 1997 1998
-------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Total assets $ 4,196,700 $ 3,853,400 $ 4,605,200 $ 4,696,100 $ 5,417,400
Total debt 3,011,000 1,942,800 1,042,800 250,000 -
General partner's deficit (74,200) (69,000) (55,500) (41,100) (31,700)
Limited partners' capital (deficit) (80,300) 435,300 1,775,400 3,203,200 4,133,400
</TABLE>
- --------------------
1 EBITDA is calculated as operating income before depreciation and
amortization. Based on its experience in the cable television industry, the
Partnership believes that EBITDA and related measures of cash flow serve as
important financial analysis tools for measuring and comparing cable
television companies in several areas, such as liquidity, operating
performance and leverage. In addition, the covenants in the primary debt
instrument of the Partnership use EBITDA-derived calculations as a measure of
financial performance. EBITDA is not a measurement determined under GAAP and
does not represent cash generated from operating activities in accordance
with GAAP. EBITDA should not be considered by the reader as an alternative to
net income as an indicator of the Partnership's financial performance or as an
alternative to cash flows as a measure of liquidity. In addition, the
Partnership's definition of EBITDA may not be identical to similarly titled
measures used by other companies.
-23-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
The 1992 Cable Act required the FCC to, among other things,
implement extensive regulation of the rates charged by cable television systems
for basic and programming service tiers, installation, and customer premises
equipment leasing. Compliance with those rate regulations has had a negative
impact on the Partnership's revenues and cash flow. The 1996 Telecom Act
substantially changed the competitive and regulatory environment for cable
television and telecommunications service providers. Among other changes, the
1996 Telecom Act provides that the regulation of CPST rates will terminate on
March 31, 1999. There can be no assurance as to what, if any, further action may
be taken by the FCC, Congress or any other regulatory authority or court, or the
effect thereof on the Partnership's business. Accordingly, the Partnership's
historical financial results as described below are not necessarily indicative
of future performance.
This Report includes certain forward looking statements regarding,
among other things, future results of operations, regulatory requirements,
competition, capital needs and general business conditions applicable to the
Partnership. Such forward looking statements involve risks and uncertainties
including, without limitation, the uncertainty of legislative and regulatory
changes and the rapid developments in the competitive environment facing cable
television operators such as the Partnership, as discussed more fully elsewhere
in this Report.
RESULTS OF OPERATIONS
1998 COMPARED TO 1997
The Partnership's revenues decreased from $5,369,200 to
$5,221,100, or by 2.8%, for the year ended December 31, 1998 compared to 1997.
Of the $148,100 decrease, $326,700 was due to decreases in the number of
subscriptions for basic, pay, tier and equipment rental services. These
decreases were partially offset by a $467,300 increase due to increases in
regulated service rates that were implemented by the Partnership in 1997 and a
$7,500 increase in other revenue producing items. As of December 31, 1998, the
Partnership had approximately 10,800 basic subscribers and 4,400 premium service
units.
Service costs decreased from $2,012,500 to $1,848,400, or by 8.2%,
for the year ended December 31, 1998 as compared to 1997. Service costs
represent costs directly attributable to providing cable services to customers.
Lower copyright fees accounted for most of the decrease as a result of the
industry-wide change in status of one satellite service that resulted in lower
fees. Copyright fees also decreased in direct relation to decreased revenues as
described above.
General and administrative expenses decreased from $857,400 to
$676,000, or by 21.2%, for the year ended December 31, 1998 as compared to 1997,
primarily due to decreases in bad debt expense, personnel costs and customer
billing expenses.
Management fees and reimbursed expenses increased from $603,600 to
$660,300, or by 9.4%, for the year ended December 31, 1998 as compared to 1997.
Management fees decreased in direct relation to decreased revenues as described
above. Reimbursed expenses increased as a result of transferring system
operating management of the Partnership's Tennessee systems from an affiliate to
the General Partner.
Depreciation and amortization expense increased from $583,100 to
$747,600, or by 28.2%, for the year ended December 31, 1998 as compared to 1997,
primarily due to depreciation of asset additions
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<PAGE>
including expenditures to replace segments of the Partnership's North
Carolina cable plant and subscriber connections that were damaged by a storm.
Operating income decreased from $1,312,600 to $1,288,800, or by
1.8%, for the year ended December 31, 1998 as compared to 1997, primarily due to
increases in amortization and depreciation expense and decreases in revenues as
described above.
Interest expense decreased from $107,500 to $103,900, or by 3.3%,
for the year ended December 31, 1998 as compared to 1997, primarily due to lower
average borrowings in 1998 caused by the repayment of the Partnership's note
payable in June 1998.
Interest income decreased from $34,700 to $25,700, or by 25.9%,
for the year ended December 31, 1998 as compared to 1997, primarily due to lower
average cash balances available for investment.
The Partnership recognized a $271,000 casualty loss during 1998
related to storm damage sustained by its North Carolina system in 1996 and
1998. See Note 3 of Notes to Financial Statements.
Due to the factors described above, the Partnership's net income
decreased from $1,442,200 to $939,600, or by 34.8%, for the year ended December
31, 1998 compared to 1997.
EBITDA is calculated as operating income before depreciation and
amortization. See footnote 1 to "Selected Financial Data." EBITDA as a
percentage of revenues increased from 35.3% in 1997 to 39.0% during 1998. The
increase was primarily due to lower copyright fees and bad debt expense as
described above. EBITDA increased from $1,895,700 to $2,036,400, or by 7.4%, as
a result.
1997 COMPARED TO 1996
The Partnership's revenues increased from $5,243,500 to
$5,369,200, or by 2.4%, for the year ended December 31, 1997 compared to 1996.
Of the $125,700 increase, $358,500 was due to increases in regulated service
rates that were implemented by the Partnership in the second and fourth quarters
of 1996 and the fourth quarter of 1997, $64,800 was due to the July 1, 1996
restructuring of The Disney Channel from a premium channel to a tier channel and
$2,500 was due to increases in other revenue producing items. These increases
were partially offset by a $300,100 decrease due to decreases in the number of
subscriptions for basic, pay, tier and equipment rental services. As of December
31, 1997, the Partnership had approximately 11,200 basic subscribers and 4,900
premium service units.
Service costs increased from $1,859,500 to $2,012,500, or by 8.2%,
for the year ended December 31, 1997 as compared to 1996. Service costs
represent costs directly attributable to providing cable services to customers.
Increases in copyright fees and decreases in capitalization of labor and
overhead costs accounted for the majority of the increase. Copyright fees
increased in direct relation to increased revenues as described above.
Capitalization of labor and overhead costs decreased as a result of fewer
capital projects in 1997.
General and administrative expenses increased from $758,100 to
$857,400, or by 13.1%, for the year ended December 31, 1997 as compared to 1996,
primarily due to an increase in bad debt expense.
Management fees and reimbursed expenses increased from $557,400 to
$603,600, or by 8.3%, for the year ended December 31, 1997 as compared to 1996.
Management fees increased in direct relation to increased revenues as described
above. Reimbursed expenses increased primarily due to higher allocated personnel
costs resulting from staff additions and wage increases.
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<PAGE>
Depreciation and amortization expense increased from $570,600 to
$583,100, or by 2.2%, for the year ended December 31, 1997 as compared to 1996,
primarily due to depreciation of asset additions.
Operating income decreased from $1,497,900 to $1,312,600, or by
12.4%, for the year ended December 31, 1997 as compared to 1996, primarily due
to increases in bad debt expense and copyright fees as described above.
Interest expense decreased from $187,900 to $107,500, or by 42.8%,
for the year ended December 31, 1997 as compared to 1996, primarily due to lower
average borrowings during 1997.
Interest income decreased from $43,500 to $34,700, or by 20.2%,
for the year ended December 31, 1997 as compared to 1996, due to lower average
cash balances available for investment.
The Partnership recognized a $202,400 gain on involuntary
conversion of cable system assets during 1997 related to storm damage sustained
in its North Carolina system.
Due to the factors described above, the Partnership's net income
increased from $1,353,600 to $1,442,200 for the year ended December 31, 1997
compared to 1996.
EBITDA is calculated as operating income before depreciation and
amortization. See footnote 1 to "Selected Financial Data." EBITDA as a
percentage of revenues decreased from 39.4% during 1996 to 35.3% in 1997. The
decrease was primarily caused by higher bad debt expense and copyright fees.
EBITDA decreased from $2,068,500 to $1,895,700, or by 8.4%, as a result.
DISTRIBUTIONS TO PARTNERS
As provided in the partnership agreement, distributions to
partners are funded from income before depreciation and amortization after
providing for working capital and other liquidity requirements, including debt
service and capital expenditures not otherwise funded by borrowings. No
distributions were made during 1996, 1997 or 1998. No assurance can be given
regarding the level or timing of future distributions, if any.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's primary objective, having invested its net
offering proceeds in cable systems, is to distribute to its partners all
available cash flow from operations and proceeds from the sale of cable systems,
if any, after providing for expenses, debt service and capital requirements. In
general, these capital requirements involve expansion, improvement and upgrade
of the Partnership's existing cable systems.
Based on its belief that the market for cable systems has
generally improved, the General Partner is evaluating strategies for liquidating
the Partnership. These strategies include the potential sale of substantially
all of the Partnership's assets to third parties and/or affiliates of the
General Partner, and the subsequent liquidation of the Partnership. The General
Partner expects to complete its evaluation within the next several months and
intends to advise unitholders promptly if it believes that commencing a
liquidating transaction would be in the best interests of unitholders.
The Partnership relies upon the availability of cash generated
from operations and possible borrowings to fund its ongoing expenses, debt
service and capital requirements. The Partnership's capital expenditures were
$1,389,800 in the year ended December 31, 1998. As of the date of this Report,
substantially all of the available channel capacity in the Partnership's cable
television systems is being utilized and each of such systems requires an
upgrade. The entire upgrade program is presently estimated to
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<PAGE>
require aggregate capital expenditures of approximately $8,300,000 and covers
12 franchise areas. These upgrades are currently required in six existing
franchise agreements covering eight franchise areas. The upgrades required by
the six existing franchise agreements are estimated to cost approximately
$4,900,000 and must be completed by June 2000, December 2001 and February
2002. Capital expenditures budgeted for 1999 include approximately $48,000 to
begin three of the upgrades and $501,000 for the replacement of other assets.
The Partnership believes that borrowings under its credit agreement together
with cash flow from operations will be adequate to fund capital expenditures
and other liquidity requirements.
The Partnership is party to a loan agreement with Enstar Finance
Company, LLC ("EFC"), a subsidiary of the General Partner. The loan agreement
provides for a revolving loan facility of $7,481,700 (the "Facility"). The
Partnership prepaid its outstanding borrowings of $250,000 on June 22, 1998,
although the Partnership's management expects to reborrow under the Facility in
the future for the upgrade of the Partnership's systems.
The Partnership's Facility matures on August 31, 2001, at which
time all amounts then outstanding are due in full. Borrowings bear interest at
the lender's base rate (7.75% at December 31, 1998) plus 0.625%, or at an
offshore rate plus 1.875%. Under certain circumstances, the Partnership is
required to make mandatory prepayments, which permanently reduce the maximum
commitment under the Facility. The Facility contains certain financial tests and
other covenants including, among others, restrictions on incurrence of
indebtedness, investments, sales of assets, acquisitions and other covenants,
defaults and conditions. The Facility does not restrict the payment of
distributions to partners unless an event of default exists thereunder or the
Partnership's ratio of debt to cash flow is greater than 4 to 1. However, due to
the upgrade program discussed above, the General Partner believes it is critical
to conserve cash and borrowing capacity and, consequently, has concluded that it
would not be prudent for the Partnership to resume paying distributions at this
time.
Beginning in August 1997, the General Partner elected to
self-insure the Partnership's cable distribution plant and subscriber
connections against property damage as well as possible business interruptions
caused by such damage. The decision to self-insure was made due to significant
increases in the cost of insurance coverage and decreases in the amount of
insurance coverage available.
In October 1998, FCLP reinstated third party insurance coverage
for all of the cable television properties owned or managed by FCLP to cover
damage to cable distribution plant and subscriber connections and against
business interruptions resulting from such damage. This coverage is subject to a
significant annual deductible which applies to all of the cable television
properties owned or managed by FCLP.
Approximately 64% of the Partnership's subscribers are served by
its system in Brownsville, Tennessee and neighboring communities. Significant
damage to the system due to seasonal weather conditions or other events could
have a material adverse effect on the Partnership's liquidity and cash flows.
The Partnership continues to purchase insurance coverage in amounts its
management views as appropriate for all other property, liability, automobile,
workers' compensation and other types of insurable risks.
During the fourth quarter of 1998, FCLP, on behalf of the General
Partner, continued its identification and evaluation of the Partnership's Year
2000 business risks and its exposure to computer systems, to operating equipment
which is date sensitive and to the interface systems of its vendors and service
providers. The evaluation has focused on identification and assessment of
systems and equipment that may fail to distinguish between the year 1900 and the
year 2000 and, as a result, may cease to operate or may operate improperly when
dates after December 31, 1999 are introduced.
Based on a study conducted in 1997, FCLP concluded that certain of
the Partnership's information systems were not Year 2000 compliant and elected
to replace such software and hardware with
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<PAGE>
applications and equipment certified by the vendors as Year 2000 compliant.
FCLP installed a number of the new systems in January 1999. The remaining
systems are expected to be installed by mid-1999. The total anticipated cost,
including replacement software and hardware, will be borne by FCLP. FCLP is
utilizing internal and external resources to install the new systems. FCLP
does not believe that any other significant information technology ("IT")
projects affecting the Partnership have been delayed due to efforts to
identify and address Year 2000 issues.
Additionally, FCLP has continued to inventory the Partnership's
operating and revenue generating equipment to identify items that need to be
upgraded or replaced and has surveyed cable equipment manufacturers to determine
which of their models require upgrade or replacement to become Year 2000
compliant. Identification and evaluation, while ongoing, are substantially
completed and a plan is being developed to remediate non-compliant equipment
prior to January 1, 2000. FCLP expects to complete its planning process by the
end of May 1999. Upgrade or replacement, testing and implementation will be
performed thereafter. The cost of such replacement or remediation, currently
estimated at $2,000, is not expected to have a material effect on the
Partnership's financial position or results of operations. The Partnership had
not incurred any costs related to the Year 2000 project as of December 31, 1998.
FCLP plans to inventory, assess, replace and test equipment with embedded
computer chips in a separate segment of its project, presently scheduled for the
second half of 1999.
FCLP has continued to survey the Partnership's significant third
party vendors and service suppliers to determine the extent to which the
Partnership's interface systems are vulnerable should those third parties fail
to solve their own Year 2000 problems on a timely basis. Among the most
significant service providers upon which the Partnership relies are programming
suppliers, power and telephone companies, various banking institutions and the
Partnership's customer billing service. A majority of these service suppliers
either have not responded to FCLP's inquiries regarding their Year 2000
compliance programs or have responded that they are unsure if they will become
compliant on a timely basis. Consequently, there can be no assurance that the
systems of other companies on which the Partnership must rely will be Year 2000
compliant on a timely basis.
FCLP expects to develop a contingency plan in 1999 to address
possible situations in which various systems of the Partnership, or of third
parties with which the Partnership does business, are not compliant prior to
January 1, 2000. Considerable effort will be directed toward distinguishing
between those contingencies with a greater probability of occurring from those
whose occurrence is considered remote. Moreover, such a plan will necessarily
focus on systems whose failure poses a material risk to the Partnership's
results of operations and financial condition.
The Partnership's most significant Year 2000 risk is an
interruption of service to subscribers, resulting in a potentially material loss
of revenues. Other risks include impairment of the Partnership's ability to bill
and/or collect payment from its customers, which could negatively impact its
liquidity and cash flows. Such risks exist primarily due to technological
operations dependent upon third parties and to a much lesser extent to those
under the control of the Partnership. Failure to achieve Year 2000 readiness in
either area could have a material adverse impact on the Partnership. The
Partnership is unable to estimate the possible effect on its results of
operations, liquidity and financial condition should its significant service
suppliers fail to complete their readiness programs prior to the Year 2000.
Depending on the supplier, equipment malfunction or type of service provided, as
well as the location and duration of the problem, the effect could be material.
For example, if a cable programming supplier encounters an interruption of its
signal due to a Year 2000 satellite malfunction, the Partnership will be unable
to provide the signal to its cable subscribers, which could result in a loss of
revenues, although the Partnership would attempt to provide its customers with
alternative program services for the period during which it could not provide
the original signal. Due to the number of individually owned and operated
channels the Partnership carries for its subscribers, and the packaging of those
channels, the Partnership is unable to estimate any reasonable dollar impact of
such interruption.
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<PAGE>
1998 VS. 1997
Operating activities provided $254,400 more cash in the year ended
December 31, 1998 than in 1997. Collection of an insurance claim receivable
provided $304,500 more cash in 1998 due to receipt of the insurance settlement
during the year. Changes in accounts receivable and prepaid expenses provided
$25,500 more cash in 1998 than in 1997 due to differences in the timing of
receivable collections and in the payment of prepaid expenses. The Partnership
used $190,100 more cash in 1998 for the payment of liabilities owed to third
party creditors due to differences in the timing of payments.
The Partnership used $572,800 more cash in investing
activities in 1998 than in 1997 due to a $612,900 increase in capital
expenditures, partially offset by a $40,100 decrease in expenditures for
intangible assets. Financing activities used $1,433,000 less cash in 1998 than
in 1997. The Partnership used $780,300 less cash to pay deferred management fees
and reimbursed expenses owed to the General Partner, $542,800 less cash, net of
new borrowings, for the repayment of debt and $109,900 less cash for deferred
loan costs related to its Facility.
1997 VS. 1996
Operating activities provided $25,600 more cash in the year ended
December 31, 1997 than in 1996. The Partnership used $147,900 less cash to pay
liabilities owed to third-party creditors as a result of differences in the
timing of payments. Changes in receivables, prepaid expenses and other assets
used $56,900 more cash in 1997 due to differences in the timing of receivable
collections and in the payment of prepaid expenses.
The Partnership used $344,400 less cash in investing activities in
1997 than in 1996 due to a $372,700 decrease in capital expenditures, partially
offset by a $24,600 increase in expenditures for intangible assets. The
Partnership received $3,700 less cash from the sale of cable assets in 1997 than
in 1996. Financing activities used $980,600 more cash in 1997 than in 1996. The
Partnership used $1,004,600 more cash to pay deferred management fees and
reimbursed expenses owed to the General Partner, $142,800 more cash to repay
debt under its previous credit agreement and $83,200 more cash for the payment
of deferred loan costs related to the new Facility. Borrowings under the
Facility provided $250,000 in 1997.
NEW ACCOUNTING PRONOUNCEMENT
In 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on Costs of Start-Up Activities."
The new standard, which becomes effective for the Partnership on January 1,
1999, requires costs of start-up activities to be expensed as incurred. The
Partnership believes that adoption of this standard will not have an impact on
the Partnership's financial position or results of operations.
INFLATION
Certain of the Partnership's expenses, such as those for wages and
benefits, equipment repair and replacement, and billing and marketing generally
increase with inflation. However, the Partnership does not believe that its
financial results have been, or will be, adversely affected by inflation in a
material way, provided that the Partnership is able to increase its service
rates periodically, of which there can be no assurance. See "Legislation and
Regulation."
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<PAGE>
ITEM 7(A). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership is not currently exposed to material market risks
associated with its financial instruments, although the Partnership would be
subject to interest rate risk were it to borrow under its Facility with EFC.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and related financial information
required to be filed hereunder are indexed on Page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The general partners of a partnership may be considered for
certain purposes the functional equivalent of directors and executive officers.
Enstar Communications Corporation is the sole general partner of the
Partnership. Since its incorporation in Georgia in 1982, the General Partner has
been engaged in the cable-telecommunications business, both as a general partner
of 15 limited partnerships formed to own and operate cable television systems
and through a wholly-owned operating subsidiary. As of December 31, 1998, the
General Partner managed cable television systems serving approximately 91,000
basic subscribers.
On September 30, 1998, FHGLP acquired ownership of the General
Partner from Falcon Cablevision. FHGI is the sole general partner of FHGLP.
FHGLP controls the general partners of the 15 limited partnerships which operate
under the Enstar name (including the Partnership). Although these limited
partnerships are affiliated with FHGLP, their assets are owned by legal entities
separate from the Partnership.
Set forth below is certain general information about the Directors
and Executive Officers of the General Partner:
<TABLE>
<CAPTION>
NAME POSITION
- ---- --------
<S> <C>
Marc B. Nathanson Director, Chairman of the Board and Chief Executive Officer
Frank J. Intiso Director, President and Chief Operating Officer
Stanley S. Itskowitch Director, Executive Vice President and General Counsel
Michael K. Menerey Director, Executive Vice President, Chief Financial Officer and Secretary
Joe A. Johnson Executive Vice President - Operations
Thomas J. Hatchell Executive Vice President - Operations
Abel C. Crespo Vice President, Corporate Controller
</TABLE>
MARC B. NATHANSON, 53, has been Chairman of the Board and Chief Executive
Officer of FHGI and its predecessors since 1975, and prior to September 19, 1995
also served as President. He has been Chairman of the Board and Chief Executive
Officer of Enstar Communications Corporation since October 1988, and also served
as its President prior to September 1995. Prior to 1975, Mr. Nathanson was Vice
President of Marketing for Teleprompter Corporation, then the largest cable
operator in the United States. He also held executive positions with Warner
Cable and Cypress Communications Corporation. He is a former President of the
California Cable Television Association and a member of Cable Pioneers. He is
currently a director of the National Cable Television Association ("NCTA") and
will Chair its 1999 National Convention. At the 1986 NCTA convention, Mr.
Nathanson was honored by being named the recipient of the Vanguard Award for
outstanding contributions to the growth and development of the cable television
industry. Mr. Nathanson is a 30-year veteran of the cable television industry.
He is a founder of the Cable Television Administration and Marketing Society
("CTAM") and the Southern California Cable Television Association. Mr. Nathanson
is an Advisory Board member of TVA, (Brazil) and also Chairman of the Board and
Chief Executive Officer of Falcon International Communications, LLC. Mr.
Nathanson was appointed by President Clinton on November 1, 1998 as Chair of the
Board of Governors for the International Bureau of Broadcasting which oversees
Voice of America, Radio/TV Marti, Radio Free Asia, Radio Free Europe and Radio
Liberty. Mr. Nathanson is a trustee of the Annenburg School of Communications at
the University of Southern California and a member of the Board of Visitors of
the Anderson School of Management at UCLA. In addition, he serves on the Board
of the UCLA Foundation and the UCLA Center for Communications Policy and is on
the Board of Governors of AIDS Project Los Angeles and Cable Positive.
-31-
<PAGE>
FRANK J. INTISO, 52, was appointed President and Chief Operating Officer of FHGI
in September 1995. Between 1982 and September 1995, Mr. Intiso held the
positions of Executive Vice President and Chief Operating Officer, with
responsibility for the day-to-day operations of all cable television systems
under the management of Falcon. He has been President and Chief Operating
Officer of Enstar Communications Corporation since September 1995, and between
October 1988 and September 1995 held the positions of Executive Vice President
and Chief Operating Officer. Mr. Intiso has a Masters Degree in Business
Administration from UCLA and is a Certified Public Accountant. He currently
serves as Immediate Past Chair of the California Cable Television Association
and is on the boards of the Cable Advertising Bureau, Cable in the Classroom,
and the California Cable Television Association. He is a member of the American
Institute of Certified Public Accountants, the American Marketing Association,
the American Management Association and the Southern California Cable Television
Association.
STANLEY S. ITSKOWITCH, 60, has been a Director of FHGI and its predecessors
since 1975. He served as Senior Vice President and General Counsel of FHGI from
1987 to 1990 and has been Executive Vice President and General Counsel since
February 1990. Mr. Itskowitch has been Executive Vice President and General
Counsel of Enstar Communications Corporation since October 1988. He has been
President and Chief Executive Officer of F.C. Funding, Inc. (formerly Fallek
Chemical Company), which is a marketer of chemical products, since 1980. He is a
Certified Public Accountant and a former tax partner in the New York office of
Touche Ross & Co. (now Deloitte & Touche LLP). He has a J.D. Degree and an
L.L.M. Degree in Tax from New York University School of Law. Mr. Itskowitch is
also Executive Vice President and General Counsel of Falcon International
Communications, LLC.
MICHAEL K. MENEREY, 47, has been Executive Vice President, Chief Financial
Officer and Secretary of FHGI and Enstar Communications Corporation since
February 1998 and was Chief Financial Officer and Secretary of FHGI and its
predecessors between 1984 and 1998 and of Enstar Communications Corporation
since October 1988. Mr. Menerey is a Certified Public Accountant and is a member
of the American Institute of Certified Public Accountants and the California
Society of Certified Public Accountants, and he was formerly associated with BDO
Seidman.
JOE A. JOHNSON, 54, has been Executive Vice President of Operations of FHGI
since September 1995, and was a Divisional Vice President of FHGI between 1989
and 1992. He has been Executive Vice President-Operations of Enstar
Communications Corporation since January 1996. From 1982 to 1989, he held the
positions of Vice President and Director of Operations for Sacramento Cable
Television, Group W Cable of Chicago and Warner Amex. From 1975 to 1982, Mr.
Johnson held Cable System and Regional Manager positions with Warner Amex and
Teleprompter. Mr. Johnson is also a member of the Cable Pioneers.
THOMAS J. HATCHELL, 49, has been Executive Vice President of Operations of FHGI
and Enstar Communications Corporation since February 1998. From October 1995 to
February 1998, he was Senior Vice President of Operations of Falcon
International Communications, L.P. and its predecessor company and was a Senior
Vice President of FHGI from January 1992 to September 1995. Mr. Hatchell was a
Divisional Vice President of FHGI between 1989 and 1992. From 1981 to 1989, he
served as Vice President and Regional Manager for the San Luis Obispo,
California region owned by an affiliate of FHGI. He was Vice President of
Construction of an affiliate of FHGI from June 1980 to June 1981.
ABEL C. CRESPO, 39, has been Vice President, Corporate Controller of FHGI and
Enstar Communications Corporation since March 1999. He previously had served as
Controller since January 1997. Mr. Crespo joined Falcon in December 1984, and
has held various accounting positions during that time. Mr. Crespo holds a
Bachelor of Science degree in Business Administration from California State
University, Los Angeles.
-32-
<PAGE>
OTHER OFFICERS OF FALCON
The following sets forth certain biographical information with
respect to certain additional members of FHGI management.
LYNNE A. BUENING, 45, has been Vice President of Programming of FHGI since
November 1993. From 1989 to 1993, she served as Director of Programming for
Viacom Cable, a division of Viacom International Inc. Prior to that, Ms. Buening
held programming and marketing positions in the cable, broadcast and newspaper
industries.
OVANDO COWLES, 45, has been Vice President of Advertising Sales and Production
of FHGI since January 1992. From 1988 to 1991, he served as Director of
Advertising Sales and Production at Cencom Cable Television in Pasadena,
California. From 1985 to 1988, he was an Advertising Sales Account Executive at
Choice TV, an affiliate of FHGI.
HOWARD J. GAN, 52, has been Vice President of Regulatory Affairs of FHGI and its
predecessors since 1988. Prior to joining FHGI, he was General Counsel at
Malarkey-Taylor Associates, a Washington, D.C.-based telecommunications
consulting firm, from 1986 to 1988, and was Vice President and General Counsel
at CTIC Associates from 1978 to 1983. In addition, he was an attorney and an
acting Branch Chief of the Federal Communications Commission's Cable Television
Bureau from 1973 to 1978.
R.W. ("SKIP") HARRIS, 51, has been Vice President of Marketing of FHGI since
June 1991. Mr. Harris was National Director of Affiliate Marketing for The
Disney Channel from 1985 to 1991. He was also a sales manager, regional
marketing manager and director of marketing for Cox Cable Communications from
1978 to 1985.
MARTIN B. SCHWARTZ, 39, has been Vice President of Corporate Development of FHGI
since March 1999. Mr. Schwartz joined Falcon in November 1989 and has held
various finance, planning and corporate development positions during that time,
most recently that of Director of Corporate Development. Mr. Schwartz has a
Masters Degree in Business Administration from UCLA.
JOAN SCULLY, 63, has been Vice President of Human Resources of FHGI and its
predecessors since May 1988. From 1987 to May 1988, she was self-employed as a
management consultant to cable and transportation companies. She served as
Director of Human Resources of a Los Angeles-based cable company from 1985
through 1987. Prior to that time, she served as a human resource executive in
the entertainment and aerospace industries. Ms. Scully holds a Masters Degree in
Human Resources Management from Pepperdine University.
RAYMOND J. TYNDALL, 51, has been Vice President of Engineering of FHGI since
October 1989. From 1975 to September 1989, he held various technical positions
with Choice TV and its predecessors. From 1967 to 1975, he held various
technical positions with Sammons Communications. He is a certified National
Association of Radio and Television Engineering ("NARTE") engineer in lightwave,
microwave, satellite and broadband and is a member of the Cable Pioneers.
In addition, FHGI has six Divisional Vice Presidents who are based
in the field. They are G. William Booher, Daniel H. DeLaney, Ron L. Hall, Ronald
S. Hren, Michael E. Kemph and Michael D. Singpiel.
Each director of the Corporate General Partner is elected to a
one-year term at the annual shareholder meeting to serve until the next annual
shareholder meeting and thereafter until his respective successor is elected and
qualified. Officers are appointed by and serve at the discretion of the
directors of the Corporate General Partner.
-33-
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
MANAGEMENT FEE
The Partnership has a management agreement (the "Management
Agreement") with Enstar Cable Corporation, a wholly owned subsidiary of the
General Partner (the "Manager"), pursuant to which Enstar Cable Corporation
manages the Partnership's systems and provides all operational support for the
activities of the Partnership. For these services, the Manager receives a
management fee of 5% of the Partnership's gross revenues, excluding revenues
from the sale of cable television systems or franchises, calculated and paid
monthly. In addition, the Partnership reimburses the Manager for certain
operating expenses incurred by the Manager in the day-to-day operation of the
Partnership's cable systems. The Management Agreement also requires the
Partnership to indemnify the Manager (including its officers, employees, agents
and shareholders) against loss or expense, absent negligence or deliberate
breach by the Manager of the Management Agreement. The Management Agreement is
terminable by the Partnership upon sixty (60) days written notice to the
Manager. The Manager has engaged FCLP to provide certain management services for
the Partnership and pays FCLP a portion of the management fees it receives in
consideration of such services and reimburses FCLP for expenses incurred by FCLP
on its behalf. Additionally, the Partnership receives certain system operating
management services from affiliates of the Manager in lieu of directly employing
personnel to perform such services. The Partnership reimburses the affiliates
for its allocable share of their operating costs. The General Partner also
performs certain supervisory and administrative services for the Partnership,
for which it is reimbursed.
For the fiscal year ended December 31, 1998, the Manager charged
the Partnership management fees of approximately $261,100 and reimbursed
expenses of $399,200. The Partnership also reimbursed affiliates approximately
$26,900 for system operating management services. In addition, certain
programming services are purchased through FCLP. The Partnership paid FCLP
approximately $1,161,700 for these programming services for fiscal year 1998.
PARTICIPATION IN DISTRIBUTIONS
The General Partner is entitled to share in distributions from,
and profit and losses in, the Partnership. See Item 5., "Market for Registrant's
Equity Securities and Related Security Holder Matters."
-34
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 1, 1999, the only persons known by the Partnership
to own beneficially or that may be deemed to own beneficially more than 5% of
the units were:
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percent
Title of Class of Beneficial Owner Beneficial Ownership of Class
- ----------------------------- ----------------------- ---------------------- --------
<S> <C> <C> <C>
Units of Limited Partnership Paul Isaacs 1,510(1) 5.0%
Interest 7 Douglas Lane
Larchmont, NY 10538
</TABLE>
(1) As reported to the Partnership by its transfer agent, Gemisys Corporation.
The General Partner is a wholly-owned subsidiary of FHGLP. FHGI
owns a 10.6% interest in, and is the general partner of, FHGLP. As of March
3, 1999, the common stock of FHGI was owned as follows: 78.5% by Falcon Cable
Trust, a grantor trust of which Marc B. Nathanson is trustee and he and
members of his family are beneficiaries; 20% by Greg A. Nathanson; and 1.5%
by Stanley S. Itskowitch. Greg A. Nathanson is Marc B. Nathanson's brother.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CONFLICTS OF INTEREST
On September 30, 1998, FHGLP acquired ownership of Enstar
Communications Corporation from Falcon Cablevision and FCLP assumed the
management services operations of FHGLP. FCLP now manages the operations of
the partnerships of which Enstar Communications Corporation is the General
Partner, including the Partnership. FCLP began receiving management fees and
reimbursed expenses which had previously been paid by the Partnership, as
well as other affiliated entities, to FHGLP. The day-to-day management of
FCLP is substantially the same as that of FHGLP, which serves as the managing
partner of FCLP.
Certain members of management of the General Partner have also
been involved in the management of other cable ventures. FCLP may enter into
other cable ventures, including ventures similar to the Partnership.
The Partnership relies upon the General Partner and certain of
its affiliates to provide general management services, system operating
services, supervisory and administrative services and programming. See Item
11., "Executive Compensation." The Partnership is also party to a loan
agreement with a subsidiary of the Corporate General Partner. See Item 7.,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources."
Conflicts of interest involving acquisitions and dispositions
of cable television systems could adversely affect Unitholders. For instance,
the economic interests of management in other affiliated partnerships are
different from those in the Partnership and this may create conflicts
relating to which acquisition opportunities are preserved for which entities.
These affiliations subject FCLP, FHGLP and the General Partner
and their management to certain conflicts of interest. Such conflicts of
interest relate to the time and services management will devote
-35-
<PAGE>
to the Partnership's affairs and to the acquisition and disposition of cable
television systems. Management or its affiliates may establish and manage
other entities which could impose additional conflicts of interest.
FCLP, FHGLP and the General Partner will resolve all conflicts
of interest in accordance with their fiduciary duties.
FIDUCIARY RESPONSIBILITY AND INDEMNIFICATION OF THE GENERAL PARTNER
A general partner is accountable to a limited partnership as a
fiduciary and consequently must exercise good faith and integrity in handling
partnership affairs. Where the question has arisen, some courts have held
that a limited partner may institute legal action on his own behalf and on
behalf of all other similarly situated limited partners (a class action) to
recover damages for a breach of fiduciary duty by a general partner, or on
behalf of the partnership (a partnership derivative action) to recover
damages from third parties. Section 14-9-1001 of the Georgia Revised Uniform
Limited Partnership Act also allows a partner to maintain a partnership
derivative action if general partners with authority to do so have refused to
bring the action or if an effort to cause those general partners to bring the
action is not likely to succeed. Certain cases decided by federal courts have
recognized the right of a limited partner to bring such actions under the
Securities and Exchange Commission's Rule 10b-5 for recovery of damages
resulting from a breach of fiduciary duty by a general partner involving
fraud, deception or manipulation in connection with the limited partner's
purchase or sale of partnership units.
The partnership agreement provides that the General Partner
will be indemnified by the Partnership for acts performed within the scope of
its authority under the partnership agreement if such general partner (i)
acted in good faith and in a manner that it reasonably believed to be in, or
not opposed to, the best interests of the Partnership and the partners, and
(ii) had no reasonable grounds to believe that its conduct was negligent. In
addition, the partnership agreement provides that the General Partner will
not be liable to the Partnership or its limited partners for errors in
judgment or other acts or omissions not amounting to negligence or
misconduct. Therefore, limited partners will have a more limited right of
action than they would have absent such provisions. In addition, the
Partnership maintains, at its expense and in such reasonable amounts as the
General Partner shall determine, a liability insurance policy which insures
the General Partner, FHGI and its affiliates (which include FCLP), officers
and directors and such other persons as the General Partner shall determine,
against liabilities which they may incur with respect to claims made against
them for certain wrongful or allegedly wrongful acts, including certain
errors, misstatements, misleading statements, omissions, neglect or breaches
of duty. To the extent that the exculpatory provisions purport to include
indemnification for liabilities arising under the Securities Act of 1933, it
is the opinion of the Securities and Exchange Commission that such
indemnification is contrary to public policy and therefore unenforceable.
-36-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
Reference is made to the Index to Financial
Statements on page F-1.
(a) 2. Financial Statement Schedules
Reference is made to the Index to Financial
Statements on page F-1.
(a) 3. Exhibits
Reference is made to the Index to Exhibits on Page
E-1.
(b) Reports on Form 8-K
None.
-37-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, on March
29, 1999.
ENSTAR INCOME PROGRAM 1984-1, L.P.
By: Enstar Communications Corporation,
General Partner
By: /s/ Marc B. Nathanson
------------------------
Marc B. Nathanson
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on behalf of the
Registrant and in the capacities indicated on the 29th day of March 1999.
<TABLE>
<CAPTION>
Signatures Title(*)
- --------------------- -----------------------------------------------------
<S> <C>
/s/ Marc B. Nathanson Chairman of the Board and Chief Executive Officer
- -------------------------- (Principal Executive Officer)
Marc B. Nathanson
/s/ Michael K. Menerey Executive Vice President, Chief Financial Officer,
- -------------------------- Secretary and Director
Michael K. Menerey (Principal Financial and Accounting Officer)
/s/ Frank J. Intiso President, Chief Operating Officer and Director
- --------------------------
Frank J. Intiso
/s/ Stanley S. Itskowitch Executive Vice President, General Counsel
- -------------------------- and Director
Stanley S. Itskowitch
</TABLE>
(*) Indicates position(s) held with Enstar Communications Corporation, the
General Partner of the Registrant.
-38-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors F-2
Balance Sheets - December 31, 1997 and 1998 F-3
Financial Statements for each of the three years in the
period ended December 31, 1998:
Statements of Operations F-4
Statements of Partnership Capital (Deficit) F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-7
</TABLE>
All schedules have been omitted because they are either not required, not
applicable or the information has otherwise been supplied.
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Partners
Enstar Income Program 1984-1, L.P. (A Georgia Limited Partnership)
We have audited the accompanying balance sheets of Enstar Income Program
1984-1, L.P. (A Georgia Limited Partnership) as of December 31, 1997 and
1998, and the related statements of operations, partnership capital
(deficit), and cash flows for each of the three years in the period ended
December 31, 1998. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Enstar Income Program
1984-1, L.P. at December 31, 1997 and 1998, and the results of its operations
and its cash flows for each of the three years in the period ended December
31, 1998, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Los Angeles, California
March 12, 1999
F-2
<PAGE>
ENSTAR INCOME PROGRAM 1984-1, L.P.
BALANCE SHEETS
=================================
<TABLE>
<CAPTION>
December 31,
-------------------------------
1997 1998
---------- ----------
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 462,900 $1,036,000
Accounts receivable, less allowance of $28,000 and
$5,500 for possible losses 107,500 27,800
Insurance claim receivable 399,700 -
Prepaid expenses and other assets 135,800 150,000
Property, plant and equipment, less accumulated
depreciation and amortization 3,387,200 4,048,700
Franchise cost, net of accumulated
amortization of $235,400 and $114,500 74,600 66,000
Deferred loan costs and other deferred charges, net 128,400 88,900
---------- ----------
$4,696,100 $5,417,400
---------- ----------
---------- ----------
LIABILITIES AND PARTNERSHIP CAPITAL
LIABILITIES:
Accounts payable $ 529,800 $ 420,800
Due to affiliates 754,200 894,900
Note payable - affiliate 250,000 -
---------- ----------
TOTAL LIABILITIES 1,534,000 1,315,700
---------- ----------
COMMITMENTS AND CONTINGENCIES
PARTNERSHIP CAPITAL (DEFICIT):
General partner (41,100) (31,700)
Limited partners 3,203,200 4,133,400
---------- ----------
TOTAL PARTNERSHIP CAPITAL 3,162,100 4,101,700
---------- ----------
$4,696,100 $5,417,400
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
ENSTAR INCOME PROGRAM 1984-1, L.P.
STATEMENTS OF OPERATIONS
==================================
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES $5,243,500 $5,369,200 $5,221,100
---------- ---------- ----------
OPERATING EXPENSES:
Service costs 1,859,500 2,012,500 1,848,400
General and administrative expenses 758,100 857,400 676,000
General Partner management fees
and reimbursed expenses 557,400 603,600 660,300
Depreciation and amortization 570,600 583,100 747,600
---------- ---------- ----------
3,745,600 4,056,600 3,932,300
---------- ---------- ----------
Operating income 1,497,900 1,312,600 1,288,800
---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest expense (187,900) (107,500) (103,900)
Interest income 43,500 34,700 25,700
Gain on sale of cable assets 100 - -
Casualty gain (loss) - 202,400 (271,000)
---------- ---------- ----------
(144,300) 129,600 (349,200)
---------- ---------- ----------
NET INCOME $1,353,600 $1,442,200 $ 939,600
---------- ---------- ----------
---------- ---------- ----------
Net income allocated to General Partner $ 13,500 $ 14,400 $ 9,400
---------- ---------- ----------
---------- ---------- ----------
Net income allocated to Limited Partners $1,340,100 $1,427,800 $ 930,200
---------- ---------- ----------
---------- ---------- ----------
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 44.76 $ 47.69 $ 31.07
---------- ---------- ----------
---------- ---------- ----------
WEIGHTED AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING THE YEAR 29,940 29,940 29,940
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
ENSTAR INCOME PROGRAM 1984-1, L.P.
STATEMENTS OF PARTNERSHIP CAPITAL (DEFICIT)
===========================================
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
--------- ----------- ----------
<S> <C> <C> <C>
PARTNERSHIP DEFICIT,
January 1, 1996 $(69,000) $ 435,300 $ 366,300
Net income for year 13,500 1,340,100 1,353,600
-------- ---------- ----------
PARTNERSHIP DEFICIT,
December 31, 1996 (55,500) 1,775,400 1,719,900
Net income for year 14,400 1,427,800 1,442,200
-------- ---------- ----------
PARTNERSHIP CAPITAL (DEFICIT),
December 31, 1997 (41,100) 3,203,200 3,162,100
Net income for year 9,400 930,200 939,600
-------- ---------- ----------
PARTNERSHIP CAPITAL (DEFICIT),
December 31, 1998 $(31,700) $4,133,400 $4,101,700
-------- ---------- ----------
-------- ---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
ENSTAR INCOME PROGRAM 1984-1, L.P.
STATEMENTS OF CASH FLOWS
===================================
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,353,600 $ 1,442,200 $ 939,600
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 570,600 583,100 747,600
Amortization of deferred loan costs 14,500 50,300 29,500
Gain on sale of cable assets (100) - -
Casualty (gain) loss - (202,400) 271,000
Increase (decrease) from changes in:
Accounts receivable, prepaid expenses
and other assets (73,700) 40,000 65,500
Insurance claim receivable 6,700 (163,900) 140,600
Accounts payable (66,800) 81,100 (109,000)
----------- ----------- -----------
Net cash provided by operating activities 1,804,800 1,830,400 2,084,800
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (1,149,600) (776,900) (1,389,800)
Proceeds from sale of property, plant and equipment 3,700 - -
Increase in intangible assets (24,100) (48,700) (8,600)
----------- ----------- -----------
Net cash used in investing activities (1,170,000) (825,600) (1,398,400)
----------- ----------- -----------
Cash flows from financing activities:
Repayment of debt (900,000) (1,042,800) -
Borrowings from affiliate - 250,000 -
Repayment of borrowings from affiliate - - (250,000)
Deferred loan costs (30,700) (113,900) (4,000)
Due to affiliates 365,000 (639,600) 140,700
----------- ----------- -----------
Net cash used in financing activities (565,700) (1,546,300) (113,300)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 69,100 (541,500) 573,100
Cash and cash equivalents at beginning of year 935,300 1,004,400 462,900
----------- ----------- -----------
Cash and cash equivalents at end of year $ 1,004,400 $ 462,900 $ 1,036,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
ENSTAR INCOME PROGRAM 1984-1, L.P.
NOTES TO FINANCIAL STATEMENTS
==================================
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
FORM OF PRESENTATION
Enstar Income Program 1984-1, L.P., a Georgia limited
partnership (the "Partnership"), owns and operates cable television systems
in rural areas of North Carolina, South Carolina and Tennessee.
The financial statements do not give effect to any assets that
the partners may have outside of their interest in the Partnership, nor to
any obligations, including income taxes, of the partners.
CASH EQUIVALENTS
For purposes of the statements of cash flows, the Partnership
considers all highly liquid debt instruments purchased with an initial
maturity of three months or less to be cash equivalents.
Cash equivalents at December 31, 1996 include $884,000 of
short-term investments in commercial paper.
PROPERTY, PLANT, EQUIPMENT AND DEPRECIATION AND AMORTIZATION
Property, plant and equipment are stated at cost. Direct costs
associated with installations in homes not previously served by cable are
capitalized as part of the distribution system, and reconnects are expensed
as incurred. For financial reporting, depreciation and amortization is
computed using the straight-line method over the following estimated useful
lives:
Cable television systems 5-15 years
Vehicles 3 years
Furniture and equipment 5-7 years
Leasehold improvements Life of lease
FRANCHISE COST
The excess of cost over the fair values of tangible assets and
customer lists of cable television systems acquired represents the cost of
franchises. In addition, franchise cost includes capitalized costs incurred
in obtaining new franchises and the renewal of existing franchises. These
costs are amortized using the straight-line method over the lives of the
franchises, ranging up to 15 years. The Partnership periodically evaluates
the amortization periods of these intangible assets to determine whether
events or circumstances warrant revised estimates of useful lives. Costs
relating to unsuccessful franchise applications are charged to expense when
it is determined that the efforts to obtain the franchise will not be
successful. The Partnership is in the process of negotiating the renewal of
expired franchise agreements for six of the Partnership's 22 franchises.
F-7
<PAGE>
ENSTAR INCOME PROGRAM 1984-1, L.P.
NOTES TO FINANCIAL STATEMENTS
==================================
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
DEFERRED LOAN COSTS AND OTHER DEFERRED CHARGES
Costs related to obtaining new loan agreements are capitalized
and amortized to interest expense over the life of the loan. Other deferred
charges are amortized using the straight-line method over two years.
RECOVERABILITY OF ASSETS
The Partnership assesses on an ongoing basis the recoverability
of intangible and capitalized plant assets based on estimates of future
undiscounted cash flows compared to net book value. If the future
undiscounted cash flow estimate were less than net book value, net book value
would then be reduced to estimated fair value, which would generally
approximate discounted cash flows. The Partnership also evaluates the
amortization periods of assets, including franchise costs and other
intangible assets, to determine whether events or circumstances warrant
revised estimates of useful lives.
REVENUE RECOGNITION
Revenues from customer fees, equipment rental and advertising
are recognized in the period that services are delivered. Installation
revenue is recognized in the period the installation services are provided to
the extent of direct selling costs. Any remaining amount is deferred and
recognized over the estimated average period that customers are expected to
remain connected to the cable television system.
INCOME TAXES
As a partnership, Enstar Income Program 1984-1, L.P. pays no
income taxes. All of the income, gains, losses, deductions and credits of the
Partnership are passed through to its partners. The basis in the
Partnership's assets and liabilities differs for financial and tax reporting
purposes. At December 31, 1998, the book basis of the Partnership's net
assets exceeds its tax basis by $1,039,500.
The accompanying financial statements, which are prepared in
accordance with generally accepted accounting principles, differ from the
financial statements prepared for tax purposes due to the different treatment
of various items as specified in the Internal Revenue Code. The net effect of
these accounting differences is that net income for 1998 in the financial
statements is $751,200 more than tax income of the Partnership for the same
period, caused principally by timing differences in depreciation expense.
COSTS OF START-UP ACTIVITIES
In 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on Costs of Start-Up
Activities." The new standard, which becomes effective for the Partnership on
January 1, 1999, requires costs of start-up activities to be expensed as
incurred. The Partnership believes that adoption of this standard will not
have an impact on the Partnership's financial position or results of
operations.
F-8
<PAGE>
ENSTAR INCOME PROGRAM 1984-1, L.P.
NOTES TO FINANCIAL STATEMENTS
==================================
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
ADVERTISING COSTS
All advertising costs are expensed as incurred.
EARNINGS PER UNIT OF LIMITED PARTNERSHIP INTEREST
Earnings and losses have been allocated 99% to the limited
partners and 1% to the general partner. Earnings and losses per unit of
limited partnership interest are based on the weighted average number of
units outstanding during the year. The General Partner does not own units of
Partnership interest in the Partnership, but rather holds a participation
interest in the income, losses and distributions of the Partnership.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
NOTE 2 - PARTNERSHIP MATTERS
The Partnership was formed December 12, 1983 to acquire,
construct, improve, develop and operate cable television systems. The
partnership agreement provides for Enstar Communications Corporation (the
"General Partner") and Robert T. Graff, Jr. to be the general partners and
for the admission of limited partners through the sale of interests in the
Partnership. Sale of interests in the Partnership began in February 1984, and
the initial closing took place in May 1984. The Partnership continued to
raise capital until $7,500,000 (the maximum) was sold by September 1984. The
Partnership acquired its first property subsequent to the initial closing.
The Partnership acquired several other operating properties during 1984 and
1985.
On September 30, 1988, Falcon Cablevision, a California limited
partnership, purchased all of the outstanding capital stock of the General
Partner. On September 10, 1993, Enstar Communications Corporation, the
General Partner, purchased the general partnership interest held by Robert
Graff, Jr., the individual general partner, in Enstar Income Program 1984-1,
L.P. and five affiliated partnerships. The purchase was made pursuant to an
agreement dated August 9, 1988 and amended September 10, 1993, by and among
Enstar Communications Corporation, Falcon Cablevision and Robert Graff, Jr.
Following the purchase, Enstar Communications Corporation became the sole
general partner of Enstar Income Program 1984-1, L.P.
On September 30, 1998, Falcon Holding Group, L.P., a Delaware
limited partnership ("FHGLP"), acquired ownership of the General Partner from
Falcon Cablevision. Simultaneously with the closing of that transaction,
FHGLP contributed all of its existing cable television system operations to
Falcon Communications, L.P. ("FCLP"), a California limited partnership and
successor to FHGLP. FHGLP serves as the managing partner of FCLP. The General
Partner has contracted with FCLP and its affiliates to provide management
services for the Partnership.
F-9
<PAGE>
ENSTAR INCOME PROGRAM 1984-1, L.P.
NOTES TO FINANCIAL STATEMENTS
==================================
NOTE 2 - PARTNERSHIP MATTERS (CONTINUED)
The partnership agreement generally provides that all
partnership profits, gains, losses, credits, and cash distributions (all as
defined) from operations or liquidation be allocated 1% to the general
partner and 99% to the limited partners until the limited partners have
received distributions of cash flow from operations and/or cash flow from
sales, refinancing, or liquidation of systems equal to their initial
investment. After the limited partners have received cash flow equal to their
initial investment, the general partner will only receive a one percent
allocation of cash flow from liquidating a system until the limited partners
have received an annual simple interest return of at least 18% of their
initial investment less any distributions from previous system liquidations.
Thereafter, allocations will be made 15% to the general partner and 85% to
the limited partners. All allocations to individual limited partners will be
based on their respective capital accounts. Upon dissolution of the
Partnership, any negative capital account balances remaining after all
allocations and distributions are made must be funded by the respective
partners.
The partnership agreement limits the amount of debt the
Partnership may incur.
NOTE 3 - INSURANCE CLAIM RECEIVABLE
Insurance claim receivable at December 31, 1997 represents an
uncollected claim arising from storm related system damage which occurred in
1996. The Partnership recognized a gain of $202,400 in 1997 reflecting the
anticipated insurance reimbursement over the net carrying value of the
damaged assets. The insurance carrier disputed elements of the claim. In
1998, the Partnership negotiated a settlement of the insurance claim in which
the Partnership collected $140,600 in full settlement of the claim. The
remaining receivable amount of $259,100 was recorded as a casualty loss.
The Partnership's Snow Hill, North Carolina cable system
sustained damage due to a hurricane on August 26, 1998. The cost of replacing
and upgrading the damaged assets amounted to approximately $26,500. As
discussed in Note 7, the Partnership was self-insured for damage caused by
this storm. The cost of repairs was funded from available cash reserves
and operating cash flow. The Partnership recognized a casualty loss of
$11,900 in 1998.
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1997 1998
------------- ------------
<S> <C> <C>
Cable television systems $ 13,596,700 $ 14,752,500
Vehicles, furniture and
equipment, and leasehold
improvements 268,400 390,700
------------ ------------
13,865,100 15,143,200
Less accumulated depreciation and
amortization (10,477,900) (11,094,500)
------------ ------------
$ 3,387,200 $ 4,048,700
------------ ------------
------------ ------------
</TABLE>
F-10
<PAGE>
ENSTAR INCOME PROGRAM 1984-1, L.P.
NOTES TO FINANCIAL STATEMENTS
==================================
NOTE 5 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it is practicable
to estimate that value:
CASH AND CASH EQUIVALENTS
The carrying amount approximates fair value due to the short
maturity of those instruments.
NOTE PAYABLE - AFFILIATE
The carrying amount approximates fair value due to the variable
rate nature of the note payable.
NOTE 6 - NOTE PAYABLE - AFFILIATE
On September 30, 1997, the Partnership completed new financing
arrangements with a subsidiary of the General Partner, Enstar Finance
Company, LLC ("EFC"). EFC obtained a secured bank facility of $35 million
from two agent banks in order to obtain funds that would in turn be advanced
to the Partnership and certain of the other partnerships managed by the
General Partner. The Partnership entered into a loan agreement with EFC for a
revolving loan facility (the "Facility") of $7,481,700 of which $250,000 was
advanced to the Partnership at closing. Such funds together with available
cash were used to repay $619,000 of previously deferred management fees and
reimbursed expenses due the General Partner. The Partnership prepaid its
outstanding borrowings of $250,000 in June 1998.
The Partnership's Facility matures on August 31, 2001, at which
time all amounts then outstanding are due in full. Borrowings bear interest
at the lender's base rate (7.75% at December 31, 1998) plus 0.625%, or at an
offshore rate plus 1.875%. The Partnership is permitted to prepay amounts
outstanding under the Facility at any time without penalty, and is able to
reborrow throughout the term of the Facility up to the maximum commitment
then available so long as no event of default exists. If the Partnership has
"excess cash flow" (as defined in its loan agreement) and has leverage, as
defined, in excess of 4.25 to 1, or receives proceeds from sales of its
assets in excess of a specified amount, the Partnership is required to make
mandatory prepayments under the Facility. Such prepayments permanently reduce
the maximum commitment under the Facility. The Partnership is also required
to pay a commitment fee of 0.5% per annum on the unused portion of its
Facility, and an annual administrative fee. Advances by EFC under its
partnership loan facilities are independently collateralized by individual
partnership borrowers so that no partnership is liable for advances made to
other partnerships. Borrowings under the Partnership's Facility are
collateralized by substantially all assets of the Partnership. At closing,
the Partnership paid to EFC a $76,100 facility fee. This represented the
Partnership's pro rata portion of a similar fee paid by EFC to its lenders.
The Facility contains certain financial tests and other
covenants including, among others, restrictions on incurrence of
indebtedness, investments, sales of assets, acquisitions and other covenants,
defaults and conditions. The Facility does not restrict the payment of
distributions to partners unless an event of default exists thereunder or the
Partnership's ratio of debt to cash flow is greater than 4 to 1. The General
Partner believes the Partnership was in compliance with the covenants at
December 31, 1998.
F-11
<PAGE>
ENSTAR INCOME PROGRAM 1984-1, L.P.
NOTES TO FINANCIAL STATEMENTS
==================================
NOTE 6 - NOTE PAYABLE - AFFILIATE (CONTINUED)
The General Partner contributed $462,300 of its receivable
balance due from the Partnership for deferred management fees and reimbursed
expenses as an equity contribution to EFC. This balance remains an
outstanding obligation of the Partnership.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Partnership leases buildings associated with the franchises
under operating leases expiring in various years through 2006.
Future minimum rental payments under non-cancelable leases
having remaining terms in excess of one year as of December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
Year Amount
--------------- --------
<S> <C>
1999 $12,600
2000 12,500
2001 8,300
2002 6,100
2003 5,400
Thereafter 16,200
-------
$61,100
-------
-------
</TABLE>
Rentals, other than pole rentals, charged to operations
amounted to $30,400, $31,800 and $33,000 in 1996, 1997 and 1998,
respectively. Total expense charged to operations for pole rentals was
$98,600, $99,900 and $105,800 in 1996, 1997 and 1998, respectively.
Other commitments include approximately $4.9 million at
December 31, 1998 to upgrade the Partnership's cable systems in eight
franchise areas, but management intends to spend approximately $8.3 million
in total to upgrade its systems. Franchise agreements for the eight required
upgrades specify completion dates ranging from June 2000 to February 2002.
The Partnership is subject to regulation by various federal,
state and local government entities. The Cable Television Consumer Protection
and Competition Act of 1992 (the "1992 Cable Act") provides for, among other
things, federal and local regulation of rates charged for basic cable
service, cable programming service tiers ("CPSTs") and equipment and
installation services. Regulations issued in 1993 and significantly amended
in 1994 by the Federal Communications Commission (the "FCC") have resulted in
changes in the rates charged for the Partnership's cable services. The
Partnership believes that compliance with the 1992 Cable Act has had a
significant negative impact on its operations and cash flow. It also believes
that any potential future liabilities for refund claims or other related
actions would not be material. The Telecommunications Act of 1996 (the "1996
Telecom Act") was signed into law on February 8, 1996. As it pertains to
cable television, the 1996 Telecom Act, among other things, (i) ends the
regulation of certain CPSTs in 1999; (ii) expands the definition of effective
competition, the existence of which displaces rate regulation; (iii)
eliminates the restriction against the ownership and operation of cable
systems by telephone
F-12
<PAGE>
ENSTAR INCOME PROGRAM 1984-1, L.P.
NOTES TO FINANCIAL STATEMENTS
==================================
NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
companies within their local exchange service areas; and (iv) liberalizes
certain of the FCC's cross-ownership restrictions.
Beginning in August 1997, the General Partner elected to
self-insure the Partnership's cable distribution plant and subscriber
connections against property damage as well as possible business
interruptions caused by such damage. The decision to self-insure was made due
to significant increases in the cost of insurance coverage and decreases in
the amount of insurance coverage available.
In October 1998, FCLP reinstated third party insurance coverage
for all of the cable television properties owned or managed by FCLP to cover
damage to cable distribution plant and subscriber connections and against
business interruptions resulting from such damage. This coverage is subject
to a significant annual deductible which applies to all of the cable
television properties owned or managed by FCLP.
Approximately 64% of the Partnership's subscribers are served
by its system in Brownsville, Tennessee and neighboring communities.
Significant damage to the system due to seasonal weather conditions or other
events could have a material adverse effect on the Partnership's liquidity
and cash flows. The Partnership continues to purchase insurance coverage in
amounts its management views as appropriate for all other property,
liability, automobile, workers' compensation and other types of insurable
risks.
NOTE 8 - EMPLOYEE BENEFIT PLAN
The Partnership has a cash or deferred profit sharing plan (the
"Profit Sharing Plan") covering substantially all of its employees. The
Profit Sharing Plan provides that each participant may elect to make a
contribution in an amount up to 15% of the participant's annual compensation
which otherwise would have been payable to the participant as salary. The
Partnership's contribution to the Profit Sharing Plan, as determined by
management, is discretionary but may not exceed 15% of the annual aggregate
compensation (as defined) paid to all participating employees. There were no
contributions charged against operations of the Partnership for the Profit
Sharing Plan in 1996, 1997 or 1998.
NOTE 9 - TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES
The Partnership has a management and service agreement with a
wholly-owned subsidiary of the General Partner (the "Manager") for a monthly
management fee of 5% of gross receipts, as defined, from the operations of
the Partnership. Management fee expense was $262,200, $268,500 and $261,100
during 1996, 1997 and 1998, respectively.
In addition to the monthly management fee, the Partnership
reimburses the Manager for direct expenses incurred on behalf of the
Partnership, and for the Partnership's allocable share of operational costs
associated with services provided by the Manager. All cable television
properties managed by the General Partner and its subsidiaries are charged a
proportionate share of these expenses. The General Partner has contracted
with FCLP and its affiliates to provide management services for the
Partnership. Corporate office allocations and district office expenses are
charged to the properties served based primarily on the respective percentage
of basic customers or homes passed (dwelling units within a system) within
the designated service areas. The total amount charged to the Partnership for
these services was $295,200, $335,100 and $399,200 during 1996, 1997 and
1998, respectively.
F-13
<PAGE>
ENSTAR INCOME PROGRAM 1984-1, L.P.
NOTES TO FINANCIAL STATEMENTS
==================================
NOTE 9 - TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES (CONTINUED)
Payments of management fees and reimbursed expenses were
deferred in prior years pursuant to restrictions imposed by the Partnership's
previous note payable agreement. The cumulative amount deferred was
approximately $1,081,300. On September 30, 1997, the Partnership obtained new
financing and subsequently used such borrowings and other available cash to
pay $619,000 of previously deferred management fees and reimbursed expenses.
The remainder of these deferred amounts was contributed as an equity
contribution by the General Partner to EFC. In the normal course of business,
the Partnership pays commitment fees to EFC. See Note 6.
The Partnership also receives certain system operating
management services from affiliates of the General Partner in addition to the
Manager. The Partnership reimburses the affiliates for its allocable share of
the affiliates' operational costs. The total amount charged to the
Partnership for these costs approximated $118,100, $104,300 and $26,900 in
1996, 1997 and 1998, respectively. No management fee is payable to the
affiliates by the Partnership and there is no duplication of reimbursed
expenses and costs paid to the Manager.
Substantially all programming services have been purchased
through FCLP. FCLP, in the normal course of business, purchases cable
programming services from certain program suppliers owned in whole or in part
by affiliates of an entity that became a general partner of FCLP on September
30, 1998. Such purchases of programming services are made on behalf of the
Partnership and the other partnerships managed by the General Partner as well
as for FCLP's own cable television operations. FCLP charges the Partnership
for these costs based on an estimate of what the General Partner could
negotiate for such programming services for the 15 partnerships managed by
the General Partner as a group. The Partnership recorded programming fee
expense of $1,172,500, $1,195,900 and $1,161,700 in 1996, 1997, and 1998,
respectively. Programming fees are included in service costs in the
statements of operations.
NOTE 10 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
During the years ended December 31, 1996, 1997 and 1998, cash
paid for interest amounted to $189,300, $107,100 and $94,800, respectively.
F-14
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3 The Sixteenth Amended and Restated Agreement of Limited
Partnership of Enstar Income Program 1984-1, L.P., Dated as of
August 1, 1988(3)
10.1 Management Agreement between Enstar Income Program 1984-1 and
Enstar Cable Corporation(1)
10.2 Revolving Credit and Term Loan Agreement dated April 10, 1985,
between Enstar Income Program 1984-1, L.P. and Rhode Island
Hospital Trust National Bank, as amended(2)
10.3 Franchise Ordinance and related documents thereto granting a
non-exclusive community antenna television franchise for Greene
County, North Carolina(2)
10.4 Franchise Ordinance and related documents thereto granting a
non-exclusive community antenna television franchise for the City
of Hookerton, North Carolina(2)
10.5 Franchise Ordinance and related documents thereto granting a
non-exclusive community antenna television franchise for the City
of Kershaw, South Carolina(2)
10.6 Franchise Ordinance and related documents thereto granting a
non-exclusive community antenna television franchise for York
County, South Carolina(2)
10.7 Franchise Ordinance and related documents thereto granting a
non-exclusive community antenna television franchise for the City
of Covington, Tennessee(2)
10.8 Franchise Ordinance and related documents thereto granting a
non-exclusive community antenna television franchise for Tipton
County, Tennessee(2)
10.9 Franchise Ordinance and related documents thereto granting a
non-exclusive community antenna television franchise for the City
of Brownsville, Tennessee(2)
10.10 Franchise Ordinance and related documents thereto granting a
non-exclusive community antenna television franchise for the City
of Bolivar, Tennessee(2)
10.11 Franchise Ordinance and related documents thereto granting a
non-exclusive community antenna television franchise for the City
of Riverhills, South Carolina(2)
10.12 Amendment No. 6 to Revolving Credit and Term Loan Agreement dated
April 10, 1985 between Enstar Income Program 1984-1, L.P. and
Rhode Island Hospital Trust National Bank, dated as of January 26,
1990(4)
10.13 Service Agreement between Enstar Communications Corporation,
Enstar Cable Corporation and Falcon Holding Group, Inc. dated as
of October 1, 1988(4)
10.14 Easement agreement and related documents thereto granting an
agreement for the purpose of constructing, maintaining and
operating a community antenna television system in River Hills
Plantation, South Carolina.(5)
10.15 Franchise Ordinance and related documents thereto granting a
non-exclusive community antenna television franchise for the Town
of Heath Springs, South Carolina.(5)
10.16 Amendment No. 6 to Revolving Credit and Term Loan Agreement dated
April 10, 1985 between Enstar Income Program 1984-1 and Rhode
Island Hospital Trust National Bank, dated January 26, 1990.(5)
</TABLE>
E-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.17 Amendment No. 7 to Revolving Credit and Term Loan Agreement dated
April 10, 1985 between Enstar Income Program 1984-1 and Rhode
Island Hospital Trust National Bank, dated November 30, 1990.(5)
10.18 Amendment No. 8 to Revolving Credit and Term Loan Agreement dated
April 10, 1985 between Enstar Income Program 1984-1 and Rhode
Island Hospital Trust National Bank, dated April 1, 1991.(6)
10.19 Franchise Ordinance and related documents thereto granting a
non-exclusive community antenna television franchise for Hardeman
County, Tennessee.(6)
10.20 Amendment No. 9 to Revolving Credit and Term Loan Agreement dated
April 10, 1985 between Enstar Income Program 1984-1 and Rhode
Island Hospital Trust National Bank, dated June 17, 1992.(7)
10.21 Amendment No. 10 to Revolving Credit and Term Loan Agreement dated
April 10, 1985 between Enstar Income Program 1984-1 and Rhode
Island Hospital Trust National Bank, dated March 29, 1993.(7)
10.22 Amendment No. 11 to Revolving Credit and Term Loan Agreement dated
April 10, 1985 between Enstar Income Program 1984-1 and Rhode
Island Hospital Trust National Bank, dated March 29, 1994. (8)
10.23 Amendment No. 12 to Revolving Credit and Term Loan Agreement dated
April 10, 1985 between Enstar Income Program 1984-1 and Rhode
Island Hospital Trust National Bank, dated March 31, 1995.(9)
10.24 Amendment No. 13 to Revolving Credit and Term Loan Agreement dated
April 10, 1985 between Enstar Income Program 1984-1 and Rhode
Island Hospital Trust National Bank, dated March 27, 1996.(10)
10.25 Amendment No. 14 to Revolving Credit and Term Loan Agreement dated
April 10, 1985 between Enstar Income Program 1984-1 and Rhode
Island Hospital Trust National Bank, dated October 31, 1996.(11)
10.26 Loan Agreement between Enstar Income Program 1984-1, L.P. and
Enstar Finance Company, LLC dated September 30, 1997.(12)
10.27 Franchise Ordinance granting a non-exclusive community antenna
television franchise for Greene County, North Carolina.(13)
10.28 Franchise Ordinance granting a non-exclusive community antenna
television franchise for the Town of Grifton, North Carolina.(14)
10.29 Franchise Ordinance granting a non-exclusive community antenna
television franchise for the Town of Heath Springs, the Town of
Kershaw and Lancaster County, South Carolina.
</TABLE>
E-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
21.1 Subsidiaries: None.
</TABLE>
FOOTNOTE REFERENCES
(1) Incorporated by reference to the exhibits to the Registrant's Annual
Report on Form 10-K, File No. 0-13333 for the fiscal year ended
December 31, 1986.
(2) Incorporated by reference to the exhibits to the Registrant's Annual
Report on Form 10-K, File No. 0-13333 for the fiscal year ended
December 31, 1987.
(3) Incorporated by reference to the exhibits to the Registrant's Annual
Report on Form 10-K, File No. 0-13333 for the fiscal year ended
December 31, 1988.
(4) Incorporated by reference to the exhibits to the Registrant's Annual
Report on Form 10-K, File No. 0-13333 for the fiscal year ended
December 31, 1989.
(5) Incorporated by reference to the exhibits to the Registrant's Annual
Report on Form 10-K, File No. 0-13333 for the fiscal year ended
December 31, 1990.
(6) Incorporated by reference to the exhibits to the Registrant's Annual
Report on Form 10-K, File No. 0-13333 for the fiscal year ended
December 31, 1991.
(7) Incorporated by reference to the exhibits to the Registrant's Quarterly
Report on Form 10-Q, File No. 0-13333 for the quarter ended June 30,
1993.
(8) Incorporated by reference to the exhibits to the Registrant's Annual
Report on Form 10-K, File No. 0-13333 for the fiscal year ended
December 31, 1993.
(9) Incorporated by reference to the exhibits to the Registrant's Annual
Report on Form 10-K, File No. 0-13333 for the fiscal year ended
December 31, 1994.
(10) Incorporated by reference to the exhibits to the Registrant's Annual
Report on Form 10-K, File No. 0-13333 for the fiscal year ended
December 31, 1995.
(11) Incorporated by reference to the exhibits to the Registrant's Quarterly
Report on Form 10-Q, File No. 0-13333 for the quarter ended September
30, 1996.
(12) Incorporated by reference to the exhibits to the Registrant's Quarterly
Report on Form 10-Q, File No. 0-13333 for the quarter ended September
30, 1997.
(13) Incorporated by reference to the exhibits to the Registrant's Quarterly
Report on Form 10-Q, File No. 0-13333 for the quarter ended March 31,
1998.
(14) Incorporated by reference to the exhibits to the Registrant's Quarterly
Report on Form 10-Q, File No. 0-13333 for the quarter ended June 30,
1998.
E-3
<PAGE>
EXHIBIT 10.29
SOUTHERN LANCASTER COUNTY SC
FALCON CABLE TELEVISION FRANCHISE AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1. INTENT AND AUTHORITY 1
Finding (1); Authority to Grant Franchise (1)
2. DEFINITIONS 1
3. MISCELLANEOUS GENERAL PROVISIONS. 6
Short Title (6); Police Powers (6); Separability (6); Adjustment of
Dollar Amounts (6); Applicability (6); Confidentiality (6); Notices
(6)
THE FRANCHISE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
4. INFORMATION REQUIRED/RECEIVED FROM GRANTEE 7
5. GRANT OF FRANCHISE 7
Consistency with Federal and State Laws (7); General Ordinances (8)
6. DURATION 8
Term (8); Renewal (9)
7. USE OF STREETS 9
8. SYSTEM UPGRADE 12
9. REMOVAL 14
10. RIGHT OF GRANTORS TO PURCHASE THE SYSTEM 15
SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
11. UNIVERSAL SERVICE 16
Line Extension Policy (16)
12. GENERAL REQUIREMENTS 16
Repairs (17); Emergency Alert System (17)
13. CUSTOMER SERVICE 18
FCC Standards (18); Customer information (18); Grantee Rules (18);
Local business office (18); 24-hour service (18); Prompt repair (18);
Equipment maintenance (19); Deposits (19); Disconnection (19);
Security deposit (19); Refunds (19); Late fees (20)
14. TECHNICAL STANDARDS 20
Color, Stereo, and VIT Signals (21)
15. COMMUNITY, EDUCATIONAL AND GOVERNMENTAL ACCESS 21
Grantee use of Unused Access Channel (21); Support for Use of Access (22)
16. SERVICE TO GRANTORS 22
17. PROGRAMMING 23
</TABLE>
<PAGE>
<TABLE>
<S> <C>
REGULATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
18. REGULATION OF THE FRANCHISE 23
19. TRANSFERS 24
20. BOND 25
21. INDEMNIFICATION 25
22. INSURANCE 26
23. REPORTS 27
Contemporaneous reports (27); Annual Report (27); Special reports (28)
24. RATES 28
Promotional rates (28)
25. FRANCHISE FEES 29
26. RECEIVERSHIP AND FORECLOSURE 30
27. ENFORCEMENT 31
Termination (31); Liquidated Damages (32); Forbearance (33); Force
Majeure (33)
</TABLE>
<PAGE>
PAGE 1
KNOW ALL MEN BY THESE PRESENTS that the Town of Heath Springs, the Town of
Kershaw, and Lancaster County, South Carolina, hereinafter singly and
collectively the Grantors, and Enstar Income Program 1984-1, L.P. d.b.a. Falcon,
hereinafter the Grantee, in order to provide to Grantee a non-exclusive
franchise to operate a cable television system, do mutually agree as follows.
INTRODUCTION
1. INTENT AND AUTHORITY
a. Finding : The Grantors find that the development of communications
systems such as cable television has the potential of having great
benefit and impact upon the residents of Heath Springs, Kershaw, and
Lancaster County. Because of the complex and rapidly changing
technology associated with cable television, the Grantors further
finds that the public convenience, safety and general welfare can best
be served by reasonable regulations to attain the best possible public
interest and public purpose in these matters.
b. Authority to Grant Franchise: Grantors shall comply with any
requirements of the State or Federal governments so as to maintain
their authority to grant a Franchise.
2. DEFINITIONS
For the purposes of this Franchise Agreement the following terms, phrases,
words, and their derivations shall have the meaning given herein. When not
inconsistent with the context, words used in the present tense include the
future, words in the plural number include the singular number, words in the
singular number include the plural number, and the use of any gender shall be
applicable to all genders whenever the sense requires. The words "shall" and
"will" are mandatory and the word "may" is permissive. Words not defined shall
be given their common and ordinary meaning.
a. "Area of dominant interest" has the same meaning given it in FCC
regulations.
b. "Cable Act" means the Cable Communications Policy Act of 1984 (Public
Law No. 98-549, 47 USC 521 (Supp.)) as it may be amended or
superseded.
c. "Cable Communications System" or "System," also referred to as "Cable
Television System," "Cable System," "CATV System," shall mean a
facility, consisting of a set of closed transmission paths and
associated signal generation, reception, and control equipment that is
designed and constructed for the purpose of providing cable service
within the Franchise Area.
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d. "Cable service" means the provision to subscribers of video
programming or information Grantee makes available to all subscribers
generally and subscriber interaction, if any, which is required for
the selection of such programming or information.
e. "Cable TV Administrator" shall mean the Mayor of Heath Springs, the
Administrator of Kershaw, or the County Administrator, or their
designee, as applicable, provided that the said administrator shall
notify Grantee in writing the name of such designee(s).
f. "Channel" means a portion of the electromagnetic frequency spectrum
which is used in the cable system and which is capable of delivering a
television channel as defined by the FCC to subscribers.
g. "Community channel" or "community access channel" means any channel
designated or dedicated for use by the general public or noncommercial
organizations which is made available for use without charge on a
first-come, first-served, nondiscriminatory basis. Such channels are
identical to "public access channels" as defined in the Cable Act.
h. "Educational channel" or "educational access channel" means any
channel where educational programs are the only designated use.
i. "Fair market value" means the price that a willing buyer would pay to
a willing seller for a going concern.
j. "FCC" means the Federal Communications Commission or any legally
appointed or elected successor.
k. "Franchise" shall mean the right granted by this agreement to erect,
construct, reconstruct, operate, dismantle, test, use and maintain a
cable communications system in the Grantors' jurisdictions.
l. "Franchise Area" or "Service Area" shall mean the area within the
present corporate limits of Heath Springs and Kershaw, and any area
subsequently annexed by either of them, and the unincorporated portion
of Lancaster County, unless Grantors shall approve a smaller area
pursuant to section 12.(b).
m. "Franchise fee" means any tax, fee or assessment of any kind imposed
by a franchising authority or other governmental entity on a Grantee
solely because of its status as such. The term "Franchise Fee" does
not include:
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(1) Any tax, business license, fee, or assessment of general
applicability (including any such tax, license, fee, or
assessment imposed on both utilities and cable operators or their
services but not including a tax, fee or assessment which is
unduly discriminatory against Grantee);
(2) Capital costs which are required by the Franchise to be incurred
by Grantee for community, educational or governmental access
facilities;
(3) Requirements or charges incidental to the awarding or enforcing
of the Franchise, including payments for bonds, security funds,
letters of credit, insurance, indemnification, penalties, or
liquidated damages; or
(4) Any fee imposed under Title 17, United States Code.
n. "Government channel" or "government access channel" means any channel
specifically designated or dedicated for government use.
o. "Grantee" shall mean Enstar Income Program 1984-1, L.P. d.b.a. Falcon,
its agents, employees, lawful successors, transferees or assignees.
p. "Grantors" shall mean the Town of Heath Springs, the Town of Kershaw,
and Lancaster County of the State of South Carolina, or any one or two
of them. The Grantors' Councils are the governing bodies of the
Grantors.
q. "Gross Revenues derived from the operation of the system" shall mean
all cash, credits, property of any kind or nature or other
consideration derived directly or indirectly by a Grantee, its
affiliates, subsidiaries, parents, and any other person or entity in
which the Grantee has a financial interest or which has a financial
interest in the Grantee, including but not limited to:
(1) revenue from all charges for cable services provided to
subscribers (including leased access fees), less refunds but
including the full amount recovered by any collection agency;
(2) revenue from all charges for the insertion of commercial
advertisements upon the Cable Television system;
(3) revenue from all charges for the leased use of studios;
(4) revenue from all charges for the installation, connection and
reinstatement of equipment necessary for the utilization of the
Cable Television System and the provision of subscriber and other
services;
(5) the sale, exchange or use or cable cast of any programming
developed for community use or institutional users;
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PAGE 4
(6) valued at retail price levels, the value of any goods, services,
or other remuneration in non-monetary form, received by the
Grantee or others described above in consideration for
performance by a Grantee or others described above of any
advertising or other service in connection with the Cable
Television System; and
(7) revenues from any television programming or other services
offered to the citizens of Grantors within the term of the
Franchise by any means of delivery whatsoever where such
programming or services are provided by means of the System or
any part thereof.
Such revenues shall be subject to a Franchise Fee once and only once and
revenues transferred to a related entity shall not be subject to a Franchise Fee
a subsequent time. This definition shall not operate to result in an amount for
gross revenues that is less than the amount subject to South Carolina sales tax.
The phrase "financial interest" as used in this definition shall include
but not be limited to the following, if and to the extent derived from the
operation of the cable system (a) Any contract in which the Grantee or any
named owner thereof is to receive a percentage of the gross revenues and/or
a percentage of the net income of the other party to the transaction by
reason of the activities encompassed by said contract; (b) Any debt
relationship in which the Grantee or any named owner thereof as debtor
borrows funds at a rate more advantageous than that generally available to
similarly situated entities of similar credit worthiness; (c) Any debt
relationship in which the Grantee or any named owner thereof as creditor
receives a rate of interest exceeding that which would otherwise be paid by
a similarly situated debtor of similar credit worthiness; (d) Any debt
relationship which has conversion privileges to a form of equity of the
nature described in the preceding subsection.
The phrase "derived from the system" as used in this definition shall not
include: (a) business services provided to cable television entities to the
extent such revenues are subject to another Franchise; (b) business
services provided to non-cable television entities provided that Grantee
receives reasonable consideration for such services; (c) any activity,
product or service which cannot be provided by means of the system,
provided that the value of use of the system for marketing or otherwise
shall be included.
r. "Installation" shall mean the connection of the system to subscribers'
terminals.
s. "Leased Access" shall mean the use on a fee-for-service basis of the
Cable Television System by business enterprises (whether profit,
nonprofit or governmental) to render services to the citizens of the
Grantors and shall include without limitation all use pursuant to
Section 612 of the Cable Act.
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t. "Leased access channel" or "commercial leased channel" means any
channel designated or dedicated for use by persons unaffiliated with
the Grantee in accordance with the Cable Act.
u. "Person" means any individual, corporation, partnership, association,
joint venture or organization of any kind and the lawful trustee,
successor, assignee, transferee or personal representative thereof.
v. "Reasonable notice" shall be written notice addressed to either
Grantors or Grantee at its respective principal office within the
Grantors or such other office as the party has designated to the other
as the address to which notice shall be transmitted to it, which
notice shall be certified and postmarked not less than ten (10)
business days prior to that day in which the party giving such notice
shall commence any action which requires the giving of notice. In
computing said five (5) days, holidays recognized by the Grantors
shall be excluded.
w. "Resident" means any person residing in the Franchise Area.
x. "Sale" shall include any sale, exchange, barter or offer for sale.
y. "School" means any public, private or nonprofit educational
institution, including primary and secondary schools, colleges and
universities.
z. "Service area" means the "Franchise Area."
aa. "State" means the State of South Carolina.
bb. "Street" shall mean the public ways, including the surface of and the
space above and below any public street, road, highway, freeway,
easement, lane, path, alley, court, sidewalk, parkway, or driveway now
or hereafter existing as such within the Franchise Area.
cc. "Subscriber" means any person who legally receives any one or more of
the services provided by the Cable Communications System.
dd. "System" means "Cable Communications System."
ee. "Upstream signal" means a signal originating from a terminal to
another point in the cable television system, including video, audio
or digital signals for any purpose.
ff. "User" means a person or organization utilizing channel or equipment
and facilities for the purpose of production and/or transmission of
material, as contrasted with receipt thereof in a subscriber capacity.
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3. MISCELLANEOUS GENERAL PROVISIONS
a. Short Title: This agreement shall be known and may be cited as the
"Falcon Cable TV Franchise Agreement."
b. Police Powers: Nothing in this shall be construed as an abrogation by
the Grantors of any of their police powers.
c. Separability: If any Section, subsection, sentence, clause, phrase, or
portion of this Franchise Agreement is for any reason held invalid or
unconstitutional by any court of competent jurisdiction, such portion
shall be deemed a separate, distinct, and independent provision and
such holding shall not affect the validity of the remaining portions
hereof.
d. Adjustment of Dollar Amounts: All amounts stated in specific dollars
in this agreement may be adjusted from time-to-time by Grantors
Councils based upon the Consumer Price Index or some other reasonable
method.
e. Applicability: Grantee may not avoid compliance with the terms and
provisions of this agreement by contracting for any service. Grantee
shall not utilize an "open video system" or its equivalent to avoid
application of the Franchise to Grantee's operations.
f. Confidentiality: To the maximum extent permitted by applicable law,
the Grantors shall disclose to only those Grantors officials whose
positions reasonably require knowledge of such information and shall
otherwise keep confidential any information specifically designated by
Grantee in writing to be confidential. In the event that a request for
disclosure is made pursuant to a Freedom of Information Act or
otherwise reasonably requiring a response by the Grantors, the
Grantors shall disclose the fact that the Grantee claims a right of
confidentiality with respect to such information and shall promptly
advise the Grantee regarding such request. The Grantors shall further
resist such request only if the Grantee agrees in writing to bear the
expense of such resistance. Failure of Grantee to agree to bear such
expense in a timely fashion in order for Grantors to meet their legal
obligation to the party requesting such information shall be construed
as Grantee relinquishing any claim of confidentiality.
g. Notices: All notices, requests, demands, or other communications
hereunder shall be in writing and shall be deemed to have been duly
given and delivered by mailing, first class, postage pre-paid, return
receipt requested, as follows:
(1) To Grantors: Mayor, Town of Heath Springs, P. O. Box 68, Heath
Springs SC 29058; Administrator, Town of Kershaw, Box 145,
Kershaw, SC 29067; Administrator, Lancaster County, P. O. Box
1809, Lancaster, SC 29721.
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PAGE 7
(2) To Grantee: Director of Government Relations, Enstar Income
Program 1984-1, L.P., c/o Falcon, 10900 Wilshire Boulevard, 15th
Floor, Los Angeles, CA 90034.
THE FRANCHISE
4. INFORMATION REQUIRED/RECEIVED FROM GRANTEE
Grantors acknowledge receipt and sufficiency of the following:
a. a clear description of the identity of the Grantee including but not
limited to the name of the Grantee, the address of the Grantee, the
nature of the business entity, the name(s) and address(es) of each
person owning one percent (1%) or more of the business entity, and
evidence of the compliance of the business entity with all applicable
law;
b. an affidavit that the Grantee is not in collusion with any potential
applicant for a Cable TV Franchise and that Grantee is not a
participant in any other application for a cable TV Franchise by the
Grantors;
c. a non-refundable fee of $5,000.
Information to be Public : Subject to the provisions of section 3.f, all
information described in this section shall be available for public inspection
at places designated by the Grantors.
5. GRANT OF FRANCHISE
a. Grant : Grantors hereby grant to Grantee a nonexclusive, revocable
Franchise to construct, operate, maintain, and reconstruct, a Cable
Communications System within the Franchise Area. Said Franchise
constitutes both a right and obligation to provide the services of a
Cable Communications System. Grantors specifically reserve the right
to grant, at any time, such additional Franchises for Cable
Communications Systems as they deems appropriate, and issuance of one
or more Franchises shall not be construed as limiting the Grantors'
right to provide Cable Television services themselves or in concert
with any other entity.
b. Consistency with Federal and State Laws: The Franchise granted hereby
is intended to be consistent with federal laws and regulations and
state general laws and regulations. In the event of conflict between
the terms and conditions of the Franchise and the terms and conditions
on which the Grantors can grant a Franchise, the general law and/or
statutory requirements shall, without exception, control.
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PAGE 8
c. General ordinances: The Franchise granted hereby is made subject to
general ordinance provisions now in effect or hereafter made
effective. Nothing in the Franchise shall be deemed to waive the
requirements of the other codes and ordinances of the Grantors
regarding permits, fees to be paid or manner of construction. Grantee
shall be liable for all taxes, business licenses, fees, or other
impositions as any other business having its place of business in the
Grantors' jurisdiction.
d. The franchise granted herein shall be terminated only as authorized
and permitted by applicable federal and state law and this agreement
and upon written notice given not less than 120 days prior to the
effective date of termination.
e. The Grantors shall not grant another franchise for cable television
service in the franchise area, nor shall they undertake to provide
cable television services in competition with Grantee, on terms or
conditions more favorable or less burdensome to the operator than
those applied to Grantee herein under this Franchise. In the event
that Grantors provide cable service, they shall include in charges to
their subscribers the equivalent of the franchise fees Grantee is
required to pay pursuant to this Franchise. If Grantors grant another
franchise for cable television service in the franchise that is less
favorable or more burdensome to the operator than those applied to
Grantee under this Franchise Agreement, Grantee shall become subject
to such provisions in a reasonable time as determined by Grantors.
6. DURATION
a. Term The term of this Franchise and all rights, privileges,
obligations, and restrictions pertaining thereto shall be ten (10)
years from March 15, 1998, which shall be the effective date hereof,
unless terminated sooner or extended as hereinafter provided, and all
Grantee's obligations, except the obligation to provide a Cable
Communications System under section 5, shall survive expiration of the
Franchise. During the final two years of the initial term of this
Franchise, Grantors shall review the technology employed by Grantee to
determine whether the technology is substantially equal to the
technology employed by other systems of similar size managed by or
affiliated at that time with Grantee, its general partner or
management company in North or South Carolina.
(1) Unless Grantors determine that the technology employed by Grantee
at that time is not substantially equal to the technology
employed by Grantee, its general partner or management company in
North or South Carolina, the term of this franchise shall be
automatically extended for an additional five (5) years.
(2) In the event that Grantors reasonably determine that the
technology employed by Grantee at that time is not substantially
equal to the technology employed at that time by other systems
managed by or affiliated with Grantee, its general partner or
management company in North or
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PAGE 9
South Carolina, Grantee shall upgrade its technology to make
it substantially equal to the technology employed by such
other systems within eighteen (18) months of the notice to
Grantee or within ten (10) years of the effective date hereof,
whichever is later. The term of this franchise shall be
extended to such deadline date. If Grantee completes the
upgrade required by this subsection, then the term of this
franchise shall be extended as provided in subsection (1) of
this section.
(3) If Grantee wishes to appeal the determination of Grantors
described in subsection (1) of this section, its sole recourse
shall be to a board of three members, all three of whom shall be
experts in cable television franchising, one appointed by
Grantee, one appointed by Grantors, and one selected by the other
two members. Grantee shall initiate such appeal by appointing one
such person and serving written notice upon Grantors of such
appointment. Within forty-five (45) days after receipt of such
notice, Grantors shall serve upon Grantee a notice of the
appointment of a member. If Grantors shall fail to make such
appointment or if the two members appointed by the parties shall
fail to select a third member within thirty (30) days after the
appointment of the second member, the Court of Common Pleas for
Lancaster County may, upon application of either party, appoint
any member or members not duly appointed in accordance with the
foregoing. The board may obtain such records of Grantee as it may
determine to be relevant to its assignment and shall make its
determination within a reasonable time. Members of the board
shall be entitled to reasonable compensation to be paid by the
parties equally.
b. Renewal: Upon expiration of the franchise term or any extension
thereof, the right of Grantee respecting renewal shall be determined
in accordance with applicable law in effect at that time.
7. USE OF STREETS
a. For the purposes of operating and maintaining a Cable Communications
System in the Franchise Area, Grantee may erect, install, construct,
repair, replace, reconstruct and retain in, on, over, under, upon,
across and along the streets within Grantors such lines, cables,
conductors, ducts, conduits, vaults, manholes, amplifiers, appliances,
pedestals, attachments and other property and equipment as are
necessary and appurtenant to the operation of the Cable System,
provided that all applicable permits are applied for and granted, all
fees paid and all other of Grantors codes and ordinances are otherwise
complied with.
b. Plans to be approved : Prior to construction or alteration, Grantee
shall in each case file plans with the Grantors and receive written
approval of such plans.
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PAGE 10
c. Coordination : Construction, installation and maintenance of the Cable
Television System shall be performed in an orderly and workmanlike
manner, and in close coordination with public and private utilities
serving the Franchise Area following accepted construction procedures
and practices and working through existing coordinating committees and
organizations or such organizations as may be established. All cable
and wires shall be installed, where possible, parallel with electric
and telephone lines, and multiple cable configurations shall be
arranged in parallel and bundled with due respect for engineering
considerations.
d. All transmission and distribution structures, lines, and equipment
erected by the Grantee within the Franchise Area shall be so located
as to cause minimum interference with other proper uses of streets,
alleys, and other public ways and places, and to cause minimum
interference with the rights and reasonable convenience of property
owners who adjoin any of the said streets, alleys or other public ways
and places. Grantee shall make use of existing poles and other
facilities available to Grantee. Grantee shall individually notify all
residents significantly adversely affected by proposed construction
prior to the commencement of that work.
e. Notwithstanding the above grant to use streets, no street shall be
used by Grantee if Grantors determine that such use is inconsistent
with the terms, conditions or provisions by which such street was
created or dedicated, or is presently used.
f. Nothing in this Franchise shall be deemed to compel the Grantors to
maintain or retain any of their property any longer than, or in any
fashion other than, in the Grantors' judgment, their own business
needs may require. The Grantors shall not be required to assume any
responsibility for the securing of any rights-of-way or easements, nor
shall the Grantors be responsible for securing any permits or
agreements with other persons or utilities.
g. In case of disturbance of any street, sidewalk, alley, public way, or
paved area, the Grantee shall, at its own cost and expense and in a
manner approved by the Grantors, replace and restore such street,
sidewalk, alley, public way, or paved area in as good a condition as
before the work involving such disturbance was done.
h. Existing poles : Grantee shall use to the fullest extent possible
existing poles or wire-holding structures. To that end Grantee is
authorized to enter into pole-sharing agreements with other users of
the public ways or to enter into agreements for other such entities to
use portions of Grantee's space on shared poles or structures or to
enter into agreements to use portions of other entity's space on
shared poles or structures.
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PAGE 11
i. Erection of Poles : This Franchise shall not be deemed to expressly or
by implication authorize the Grantee to construct or install poles or
wire-holding structures within streets for the purpose of placing
cables, wires, lines or otherwise, without the written consent of the
Grantors. Such consent shall be given upon such terms and conditions
as the Grantors may prescribe which shall include a requirement that
the Grantee perform, at its sole expense, all tree trimming required
to maintain the poles clear of obstructions.
j. With respect to any poles or wire-holding structures which the Grantee
is authorized to construct and install within streets, a public
utility or public utility district serving the Grantors may, if denied
the privilege of utilizing such poles or wire-holding structures by
the Grantee, apply for such permission to the Grantors Council. If the
Grantors Council finds that such use would enhance the public
convenience and would not unduly interfere with the Grantee's
operations, the Grantors Council may authorize such use subject to
such terms and conditions as it deems appropriate. Such authorization
shall include the condition that the public utility or public utility
district pay to the Grantee any and all actual and necessary costs
incurred by the Grantee in permitting such use.
k. Grantee shall have the right to remove, trim, cut and keep clear of
its poles, towers, wires and other overhead appliances and equipment,
the trees in and along the streets within the Franchise Area;
provided, however, that in the exercise of such right, Grantee shall
not cut, remove, trim or otherwise injure such trees to any greater
extent than is necessary for the installation, maintenance and use of
such poles, towers, wires or other overhead appliances.
l. With respect to any cables, wires and other like facilities
constructed and installed by the Grantee above ground, the Grantee
shall, at its sole expense, reconstruct and reinstall such cables,
wires or other facilities underground pursuant to any project under
which the cables, wires or other like facilities of all such utilities
are placed underground within an area.
m. Undergrounding : Except as hereinafter provided, in all areas of the
Franchise Area where the cables, wires and other like facilities of
any public utilities or public utility districts are placed
underground, Grantee shall construct and install its cables, wires,
and other facilities underground. Amplifier boxes and pedestal mounted
terminal boxes may be placed above ground if existing technology
reasonably requires, but shall be of such size and design and shall be
so located as not to be unsightly or unsafe. In any area of the
Grantors where there are certain cables, wires and other like
facilities of a public utility or public utility district underground
and at least one operable cable, wire or like facility of a public
utility or public utility district suspended above the ground from
poles the Grantee may construct and install its cables, wires, and
other facilities from the same poles.
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PAGE 12
n. Relocation : If the Grantors or other public agency acting in concert
with the Grantors elects to alter, repair, realign, abandon, improve,
vacate, reroute or change the grade of any street or to replace,
repair, install, maintain, or otherwise alter any above ground or
underground cable, wire conduit, pipe, line, pole, wire-holding
structure, structure, or other facility utilized for the provision of
utility or other services or transportation of drainage, sewage or
other liquids, the Grantee, shall, except as otherwise hereinafter
provided, at its sole expense remove or relocate as necessary its
poles, wires, cables, underground conduits, manholes and any other
facilities which it has installed. If such removal or relocation is
required within the subdivision in which all utility lines, including
those for the Cable Television System were installed at the same time,
the entities may decide among themselves who is to bear the cost of
relocation; provided that the Grantors shall not be liable to the
Grantee for such costs except to the extent specifically agreed to by
the Grantors. Regardless of who bears the costs, the Grantee shall
take action to remove or relocate at such time or times as are
directed by the agency or company undertaking the work. Reasonable
advance written notice shall be mailed to the Grantee advising the
Grantee of the date or dates removal or relocation is to be
undertaken.
o. Movement of Buildings : Grantee shall, upon request by any person
holding a building moving permit, Franchise or other approval issued
by the Grantors, temporarily remove, raise or lower its wire to permit
the movement of buildings. The expense of such removal, raising or
lowering shall be paid by the person requesting same, and Grantee
shall be authorized to require such payment in advance. Grantee shall
be given not less than seven (7) days oral or written notice to
arrange for such temporary wire changes.
8. SYSTEM UPGRADE
a. Not later than June 30, 2000, Grantee shall upgrade its system to
provide a minimum of sixty (60) channels, of which no less than 36
shall be activated for service to subscribers initially, with the
capacity of expansion. Grantee may use a nodal architecture including
fiber optics to the node or other technology and design that is more
practicable both economically and technologically to achieve a system
with the same minimum capacity and technical quality. Prior to
commencing construction, Grantee shall submit a plan and schedule of
construction reflected on maps at a scale of 1 inch to 200 feet
showing by a logical geographic progression the sequence in which the
entire franchise area will be served.
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PAGE 13
b. A Final Order of Completion for the upgrade shall be issued by the
Grantors when:
(1) construction of the Cable Television System has been completed
within the entirety of the Franchise Area in compliance with
construction standards, the approved plan, and the design and
other requirements of this agreement;
(2) cable television services have been made available in accordance
with section 12 of this agreement to the Franchise Area.
(3) any and all studio facilities, equipment, channels and other
services, resources or benefits required for community,
educational, and governmental access purposes pursuant to the
provisions of this agreement have been completed and made
available;
(4) complete and accurate "as built" plans in electronic format
compatible with Lancaster County GIS have been filed by the
Grantee with the Grantors; and
(5) a Notice of Completion has been filed by the Grantee as
hereinafter provided.
c. For purposes of this section, cable television service shall be deemed
to be made available when cable television services are offered on a
non-discriminatory basis for immediate provision to the owner or legal
representative of the owner empowered to consent to use of the
property of such individual dwelling units.
d. For the purpose of determining completion under this Section, the
total number of dwelling units within each Franchise Area shall be
deemed to be the actual number of units available for occupancy as of
a date forty-five (45) calendar days in advance of the date of filing
by the Grantee of the Notice of Completion; provided that the Grantee
files the Notice of Completion with a good faith belief that it has in
fact achieved completion as of the date of filing.
e. When Grantee asserts completion it shall file a written Notice of
Completion with the Cable TV Administrator. The Notice of Completion
shall state the total number of dwelling units available for occupancy
within each Franchise Area forty-five (45) calendar days in advance of
the filing of the Notice, the total number of dwelling units to which
cable television service has been made available within each Franchise
Area as of the date of filing, and shall otherwise certify completion
as defined by the first paragraph in this Section. Neither the Notice
of Completion nor the statements, assertions or certifications
contained therein shall be deemed to be binding upon the Grantors.
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PAGE 14
f. During the period of upgrade construction and during the sixty (60)
day period following filing of the Notice of Completion, all elements
and components thereof, and all equipment and studio facilities
required by this Franchise document shall be subject to inspection by
Grantors' employees or authorized agents or representatives, for the
purpose of determining whether the System and related facilities
comply with the Franchise and the provisions of this agreement. The
Grantee shall authorize such inspection and provide such information
and cooperation as is required in order to permit an adequate
investigation to determine the existence or nonexistence of such
compliance.
9. REMOVAL
a. Upon expiration or termination of a Franchise, if the Franchise is not
renewed and if neither the Grantors nor an assignee purchase the Cable
Television System, Grantee, at its sole cost and expense,
(1) may remove any underground cable from the streets which has been
installed in such a manner that it can be removed without
trenching or other opening of the streets along the extension of
cable to be removed. Grantee shall not remove any underground
cable or conduit which requires trenching or other opening of the
streets along the extension of cable to be removed, except as
hereinafter provided.
(2) shall remove any underground cable or conduit by trenching or
opening of the streets along the extension thereof or otherwise
which is ordered to be removed by the Grantors Council based upon
a determination of the Council that removal is required in order
to eliminate or prevent a hazardous condition or promote future
utilization of the streets for public purposes. Any order by the
Grantors Council to remove cable or conduit shall be mailed to
the Grantee not later than thirty (30) calendar days following
the date of expiration or termination of the Franchise. Grantee
shall file written notice with the Grantors not later than thirty
(30) calendar days following the date of expiration or
termination of the Franchise of its intention voluntarily to
remove cable intended to be removed and a schedule for removal by
location. The schedule and timing of removal shall be subject to
approval and regulation by the Grantors. Underground cable and
conduit in the streets which is not removed shall be deemed
abandoned and title thereto shall be vested in the Grantors.
(3) shall remove from the streets all above ground elements of the
Cable Television System, including but not limited to amplifier
boxes, pedestal mounted terminal boxes, and cable attached to or
suspended from poles or other structures.
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PAGE 15
b. Grantee shall apply for and obtain such encroachment permits,
licenses, authorizations or other approvals and pay such fees and
deposit such security as required by applicable ordinance of the
Grantors, shall conduct and complete the work of removal in compliance
with all such applicable ordinances, and shall restore the streets to
the same condition they were in before the work of removal commenced.
The work of removal shall be completed not later than twelve (12)
months following final determination that the franchise has been
terminated.
10. RIGHT OF GRANTORS TO PURCHASE THE SYSTEM
a. In the event the Grantors revoke the Franchise pursuant to provisions
of this agreement or upon non-renewal after the normal expiration of
the Franchise term or extension thereof and if Grantee is willing to
sell to any party, the Grantors shall have the first right, directly
or as an intermediary, to purchase the cable communications system.
The purchase price shall be the higher of any bonafide offer of
purchase made by an unaffiliated third party or the fair market value
of the system.
b. The date of valuation shall be no earlier than the day following the
date of expiration or revocation and no later than the date the
Grantors make an appropriate offer for the system.
c. The value of the cable system shall be determined by a board of three
members, all three of whom shall be experts in the appraisal of cable
television systems, one appointed by Grantee, one appointed by the
Grantors, and one selected by those two. Either party may initiate the
formation of the board by serving written notice upon the other of the
appointment of a member. Within forty-five (45) days after receipt of
such notice, the other party shall serve upon the first party a notice
of the appointment of a member. If the second party shall fail to make
such appointment or if the two members appointed by the parties shall
fail to select a third member within thirty (30) days after the
appointment of the second member, the Court of Common Pleas for
Lancaster County may, upon application of either party, appoint any
member or members not duly appointed in accordance with the foregoing.
The board may obtain such records of Grantee as it may determine to be
relevant to its assignment and shall make its determination of value
within a reasonable time. Members of the board shall be entitled to
reasonable compensation to be paid by the parties equally.
d. Either party may invoke the provisions of this section by serving
written notice upon the other.
e. Nothing contained in this section shall preclude payment by the
Grantors of a purchase price established by agreement between the
Grantee and the Grantors at any time.
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SERVICES
11. UNIVERSAL SERVICE
a. Grantee shall provide equal and uniform cable television service to
all dwelling units within incorporated portions of the Franchise Area;
provided, that all permissions required from owners of property are
reasonably available. Notice of the circumstances of each such
unavailability shall be given to the Grantors. No charge shall be
required of any subscriber or property owner for extension of
distribution facilities except as provided in section 11.b. Grantee
shall not discriminate in the offer of services or assessment, levy,
charge, imposition or collection of rates on the basis of age, race,
creed, color, religion, national origin, sex, marital status, or
location within the Franchise Area.
b. Line Extension Policy: Outside the portions of the franchise area
which were inside the corporate limits of the Towns on March 15, 1998,
Grantee shall extend its distribution facilities to any area
contiguous to its existing system that is not served by a franchised
cable company when there are 20 homes or 15 one-year commitments per
mile of cable. Grantee may require subscribers to share the cost of
extending distribution facilities to other areas. Grantee's rules for
sharing such costs shall be subject to the provisions of sections 13
and 24 of this Franchise and shall be subject to approval of the
Grantors.
c. Service to new developments: Grantee shall provide service to new
developments within the Franchise Area on a timely basis in
coordination with utility providers in such areas, and subject to the
provisions of subsection 11.b above.
d. Service to Newly Annexed Areas: Within sixty (60) days of official
notice of any annexation, unless Grantee is already providing cable
service to the annexation area, Grantee shall submit a plan and
schedule meeting the requirements of Section 9.1 showing how Grantee
proposes to incorporate such annexed area into its System as quickly
as is reasonably possible.
12. GENERAL REQUIREMENTS
The Cable Television System shall, at minimum:
a. Relay to subscriber terminals those signals required by the FCC.
b. Make available upon request by any subscribers receiving channels
showing premium services and pay per view events, a lockout device
which prevents the unauthorized viewing of such channels.
c. Make available to subscribers an RF switch (an A-B switch) permitting
conversion from cable to reception from another source for each
outlet.
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d. Not, as a condition to providing cable communications service, require
any subscriber or potential subscriber, to remove any existing antenna
structures for the receipt of television signals nor prohibit any
subscriber from installing such structures.
e. Render efficient service, make repairs promptly, and interrupt service
only for good cause and for the shortest time possible. Such
interruptions, insofar as practical, shall be preceded by notice and
shall occur during periods of minimum use of the System. In the event
that any subscriber is interrupted for twenty-four (24) or more
consecutive hours due to causes within Grantee's control, Grantee
shall provide a prorated rebate of monthly fees to the affected
subscriber. The rebate to an active subscriber may be in the form of a
credit against the account of the subscriber.
f. Effective with completion of the upgrade, Grantee shall include an
"Emergency Alert System" which meets the requirements of the FCC for a
video interrupt and audio alert message on all channels and EAS audio
and video messages on at least one channel, without regard to the
deadline in FCC rules. The Cable Television System shall include the
capability to receive alerts from the Grantors' headquarters for
Emergency Services. Grantors shall indemnify and hold Grantee harmless
from any and all claims of loss or damage alleged to arise from the
acts or omissions of Grantors in the use or failure to use such
capability.
g. Grantee shall interconnect its Cable Television System with other
Cable Systems within the County, or provide direct connections to
programming sources, so as to enable each system to carry and
cablecast the community, educational, and governmental access
programming of the other systems. It is recognized that this
capability requires cooperation from other independent franchising
authorities, cable operators, and others. Grantee shall cooperate with
such other entities with a goal of achieving interconnection.
Grantee's obligation under this section shall be as required by
section 15.d and the following: Not later than June 30, 2001, Grantee
shall present a plan developed with the other cable television
companies operating in the county to accomplish the interconnection
required by this section. Provided that there is live programming on
the government channel at that time, or subsequently when such
programming is being provided, and upon approval of such plan by
Grantors, Grantee shall implement the plan up to a cost to Grantee of
$10,000.
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13. CUSTOMER SERVICE
a. FCC Standards: Grantee shall provide customer service, at a minimum,
equal to requirements adopted by the FCC or other federal agencies
having jurisdiction over Grantee. A printed copy of the standards that
are applicable shall be provided by Grantee to its customers on
request without charge or made available by way of the cable system.
b. Customer information: Grantee shall make available to its customers
through one of its locally produced television channels or by such
other methods as the Grantee may deem necessary information with
regard to complaint procedures, channel offerings, rate schedules and
discount packages.
c. Grantee Rules: Grantee shall promulgate such rules, regulations,
terms, and conditions governing the conduct of its business as shall
be reasonably necessary to enable Grantee to exercise its rights and
to perform its obligations under this Franchise and to assure an
uninterrupted service to each and all of its customers; provided,
however, that such rules, regulations, terms, and conditions shall not
be in conflict with the provisions hereof, and shall have been
submitted to the Grantors not less than (30) days prior to the
proposed effective date thereof.
d. Local business office: Grantee shall establish, operate, and maintain
either with its own employees or by contract with a competent
unrelated organization in one of the Towns or within eight (8) miles
of both the Town Halls of Heath Springs and Kershaw a business office
for the purpose of initiating, changing or discontinuing service,
paying bills, and returning equipment. Such office shall be open
during normal business hours and additional hours as Grantee
determines.
e. 24-hour service: Grantee shall have a listed toll-free telephone
number for service calls and such telephone service shall be available
twenty-four (24) hours a day, seven (7) days a week.
f. Prompt repair: Grantee shall maintain adequate repair materials and
technicians. Grantee shall make repairs affecting fewer than five (5)
subscribers within 48 hours of initial notice by any subscriber.
Grantee shall initiate repairs affecting five (5) or more subscribers
within 24 hours of initial notice by any subscriber. Whenever such
repairs cannot be completed within 72 hours of initiation, Grantee
shall notify Grantors prior to the end of the 72-hour period of a time
certain when the repairs shall be completed. All repairs shall restore
the system to conform with plans previously submitted to the Grantors.
Grantee shall credit the account of any subscriber without service
beyond the limits in this section. In the event of a declared natural
disaster or other major disruption affecting more than twenty-five
percent of its subscribers, Grantee shall repair the system reasonably
promptly and in coordination with Grantors and emergency authorities.
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g. Equipment maintenance: Grantee shall service or replace without charge
all equipment provided by it to the subscriber, provided, however,
that Grantee may charge a subscriber for service to or replacement of
any equipment damaged by a subscriber. This subparagraph does not
apply to inside wiring not owned by Grantee. Grantee may remove
obsolete equipment without providing a replacement.
h. Deposits: Grantee may require all subscribers to pay for basic service
not more than two (2) months in advance. Grantee shall require no
other deposit or pre-payment for basic service, provided, however,
that nothing herein shall be construed to prohibit a charge for
installation of Cable Communications Services.
i. Disconnection: In the event that a subscriber fails to pay as properly
due and owing a fee or charge, the Grantee may disconnect the
subscriber's service outlet, upon giving ten (10) days written notice
thereof, and charge a reasonable reconnection fee. If a subscriber
shall exercise his right to withhold payment under provisions of State
law, Grantee shall strictly adhere to the requirements of said State
law. Unless permitted by FCC regulations, Grantee shall neither impose
nor collect any additional charge for the disconnection of any
installation or outlet or level of service.
j. Security deposit: Grantee shall not charge a security deposit greater
than the actual cost to the Grantee of equipment for which the
security deposit was collected. If Grantee's policy of requiring such
deposits shall change to require a smaller or no deposit, Grantee
shall refund all or the same proportion of previously-collected
deposits for the same or substantially similar equipment immediately
upon such change taking place. Such refund may be by credit on
subscriber's bills.
k. Refunds: Grantee shall establish and conform to the following policy
regarding refunds to subscribers and users:
(1) If the Grantee collects a deposit or advance charge on any
service or equipment requested by a subscriber or user, Grantee
shall provide such service or equipment within thirty (30) days
of the collection of the deposit or charge or it shall refund
such deposit or charge within forty-five (45) days after receipt
thereof.
(2) Nothing in this Section shall be construed to relieve the Grantee
of any responsibility to subscribers or users under any
contractual agreements into which it enters with them.
(3) Nothing in this section shall be construed as limiting the
Grantee's liability for fines or penalties which may be imposed
under this Franchise for violation or breach of any of its
provisions.
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(4) Nothing in this section shall be construed to limit the Grantee's
liability for damages because of its failure to provide the
service for which the deposit or charge was made.
(5) In the event that a subscriber terminates basic service prior to
the end of a pre-paid period, the pro-rata portion of any
pre-paid subscriber fee which represents payment for services
which are no longer to be rendered shall be refunded promptly,
but in no case more than forty-five (45) days after receipt of
the request for termination.
l. Late fees: Grantee may impose reasonable late fees. Grantee shall not
assess a late fee on any amount paid in advance prior to the end of
the period for which such advance payment was billed.
14. TECHNICAL STANDARDS
a. Grantee shall construct, install and maintain its Cable Television
System in a manner consistent and in compliance with all applicable
laws, ordinances, construction standards, governmental requirements,
and technical standards including those established by the FCC.
b. Minimum Bandwidth : Grantee shall provide a minimum capacity of 60
channels on completion of the upgrade.
c. Electrical and related Codes : Grantee shall at all times comply with
the National Electrical Safety Code (National Bureau of Standards);
National Electrical Code (National Bureau of Fire Underwriters);
Applicable FCC and other federal, state and local regulations; and
codes and other ordinances of the Grantors.
d. In any event, the Cable Television System shall not endanger or
interfere with the safety of persons or property within the Franchise
Area or other areas where the Grantee may have equipment located.
e. Antenna Structure(s): Any antenna structure used in the Cable
Television System shall comply with construction, marking and lighting
of antennae structures, required by the United States Department of
Transportation, regardless of whether such structure is within the
Grantors' jurisdiction.
f. Grantors radio services: RF leakage shall be checked at specified
fixed reception locations for emergency radio services to prove no
interference with specified frequencies used by the Grantors are
possible. The Grantors will specify in writing the locations and
frequencies referred to in this subparagraph and provide reasonable
notice of same to Grantee before any leakage tests other than those
required by federal law or regulations shall be required.
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g. Cable Ready consumer equipment: The Cable Television System shall be
designed to be compatible with common features of consumer electronic
equipment, in accordance with FCC regulations.
h. Color, Stereo, and VIT Signals: Effective with the upgrade, the Cable
Television System shall distribute television signals substantially as
they are available to it, particularly including such information as
color, Multi-Channel Television Sound (MTS, stereo), and vertical
interval test (VIT) signals. Grantors may waive this requirement based
on justification provided by Grantee in an application.
i. Grantee shall include equipment capable of providing standby powering
for head end, transportation and trunk amplifiers serving not less
than 250 subscribers for a minimum of two (2) hours. The equipment
shall be so constructed as to automatically notify the cable office
when it is in operation and to automatically revert to the standby
mode when the AC power returns. The system shall incorporate
safeguards necessary to prevent injury to linemen resulting from a
standby generator powering a "dead" utility line. Provision of standby
power shall be illustrated on the system map on file at the Grantors.
15. COMMUNITY, EDUCATIONAL AND GOVERNMENTAL ACCESS
a. Grantee shall provide, pursuant to the provisions of the Cable
Communications Policy Act of 1984, Section 611 (47 USC 531), one (1)
downstream channel for access by the Grantors and other government
entities in Lancaster County; and upon written notice by the Grantors
shall provide one (1) downstream channel for community access and/or
one (1) downstream channel for educational access. Grantee shall
activate the government access channel, including the provision of
equipment required by Section 15.d and training of Grantors' staff,
within 90 days of the effective date of this agreement. Other access
channels required in this section shall be activated, after completion
of the upgrade, within 60 days of written notice by Grantors.
b. Grantee shall effect the availability of all access channels to
viewers as a part of basic service. Any access channel requiring a
converter or "cable-ready" consumer equipment shall not be scrambled
or otherwise denied to customers.
c. Grantee use of Unused Access Channel: In the event that Grantee
desires to use any access channel in whole or in part for the
provision of other services, Grantee shall apply to the Grantors for
permission to do so and notify subscribers of the substance of the
application. Grantee shall demonstrate in such application that the
channel is not being used for the purpose designated. Based on such
application and other information and following opportunity for public
input, Grantors may permit Grantee to use such channel for other
purposes. Whenever Grantors reasonably determine that conditions have
changed so that the channel
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should be returned to its designated purpose, Grantors shall notify
Grantee. Grantee thereupon shall cease use of the channel and return
it to its designated purpose.
d. Support for Use of Access: Grantee shall provide necessary computer
equipment, modem(s), and training so that the government access
programming originated by the County and other jurisdictions may be
transferred to Grantee's system for carriage on the government access
channel. Nothing contained in this agreement shall be construed to
limit the authority of the Grantee to make payments in support of the
use of community, educational or governmental access channel(s).
However, except for the computer equipment, such payments are
expressly not a requirement of this Franchise and shall in no event be
considered in the calculation of Franchise Fees pursuant hereto.
e. Availability of Access Facilities: Grantee shall activate channels for
community, educational and government access upon the Cable Television
System pursuant to this section at all times and shall maintain such
channels in operation the same as any other channel on the system.
Grantee shall furnish and maintain all equipment necessary for
transmitting signals from one location to the head end for each such
channel.
f. As to channels allocated for community and educational access, Grantee
shall assist in the development and may assist in the operation of
separate non-profit entities to manage such channels.
g. Grantee shall make all reasonable efforts to coordinate the cable
casting of community, educational and governmental access programming
upon the Cable Television System at the same time and upon the same
channel designations as such programming is cablecast upon other cable
television systems within the community.
16. SERVICE TO GRANTORS
Grantee, at its own expense within 45 days of the effective of date of this
agreement, shall provide and maintain one connection to Grantors' existing
office buildings, police stations, fire stations, fixed radio
transmitter/receiver sites, recreational facilities, and any other of Grantors
facilities within the Franchise Area as designated by the Grantors; provided,
that Grantee shall not be responsible for providing the distribution system
within any of such places. Further, no fees shall be charged for basic service
to such places. Service shall be provided to newly established Grantors
facilities of the type referred to above under the same terms and conditions
within 30 days of notice by the Grantors. The requirement to serve any specific
facility may be waived by the Grantors.
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17. PROGRAMMING
Community Needs: Grantee shall provide programming meeting the needs of the
community, including programming devoted to minorities, sports, music, children,
business and financial affairs, arts and culture, science, public affairs,
foreign culture and language, and South Carolina. Grantee shall provide a
diversity of programming about South Carolina, but Grantee shall be under no
obligation to create original programming.
REGULATION
18. REGULATION OF THE FRANCHISE
a. The Grantors shall have the following regulatory responsibility:
(1) Administration and enforcement of the provisions of this
Franchise;
(2) Renewal, extension or termination of this Franchise;
(3) Approval prior to sale or transfer of the Franchise granted
hereunder;
(4) Performance evaluations pursuant to this Franchise.
B. The Grantors also reserves the right to perform the following
functions:
(1) Develop objectives and coordinate activities related to the
operation of community, educational and government channels;
(2) Provide technical, programming and operational support to public
agency users such as Grantors departments, schools and health
care institutions;
(3) Coordinate plans for interconnection of cable services;
(4) Analyze the possibility of integrating cable communications with
other city, state, or regional telecommunications networks;
(5) Formulate and recommend long-range telecommunications policy for
the Grantors and provide for the determination of future
cable-related needs and interests of the community;
(6) Provide the administrative effort necessary for the conduct of
performance evaluations pursuant to this Franchise, and any other
activities required for the administration of the Franchise;
(7) Monitor the Grantee's process for handling citizen complaints and
periodically inspect and analyze the records related to such
complaints;
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(8) Monitor the Grantee's adherence to operational procedures and
line-extension policies;
(9) Assure compliance with applicable laws and ordinances;
(10) Arrange tests and analyses of equipment and performance;
(11) Provide for reasonable continuity in service;
(12) Receive for examination all data and reports required by this
Franchise; and
(13) Intervene in any suit or proceeding to which the Grantee is
party, when the issues involved are relevant to the interest of
the Grantors in the performance of Grantee's obligations under
this agreement and when permitted by the court.
19. TRANSFERS
a. The Franchise may not be sold, transferred, assigned, mortgaged,
pledged, leased, sublet, or otherwise encumbered for any purpose
whatsoever, nor shall title thereto, either legal or equitable, or any
right or interest therein, pass to or vest in any party without
Grantors approval, which shall be based upon a reasonable
determination by the Grantors of the qualifications of the buyer or
assignee in respect to technical, financial, legal, character, or
other such requirements, which approval shall not be unreasonably
withheld; and upon sale or assignment, the buyer or transferee shall
be required to become a party to the terms of this Franchise.
Notwithstanding the above, Grantee may hypothecate its assets
including the Cable Television System or any part thereof to secure
loans, except that such loans shall not be from cable television
industry sources.
b. A sale or transfer of control of Grantee to or among the present
shareholders of Grantee, their spouses, children or grandchildren, or
other entities owned or controlled by the shareholders of Grantee
shall not be deemed a sale or assignment of the Franchise for the
purposes of this section.
c. The transfer, over the term of the Franchise, of more than fifty
percent (50%) of voting control of Grantee pursuant to a sale or
security agreement to persons other than the present shareholders of
Grantee, their spouses, children or grandchildren, or other entities
owned or controlled by the shareholders of Grantee shall create a
presumption of a transfer of control of Grantee.
d. Any change in the list of owners required by section 4.a that does not
require approval of the Grantors shall be reported to the Grantors
within thirty (30) days of the effective date thereof.
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e. Any transfer or other encumbrance of whatever kind or nature made in
violation of the provisions of this Section shall be void.
20. BOND
Grantee shall furnish a franchise bond or irrevocable letter of credit
guaranteeing performance of Grantee's obligations under this franchise in an
amount of $25,000. Such security shall be maintained throughout the term of this
Franchise, provided that the surety may be substituted at any time provided that
the substituted surety is qualified, that the suretyship is not interrupted, and
that notice of the proposed substitution is provided to Grantors not less than
60 days prior to the date of the proposed substitution. Grantors shall notify
Grantee within 30 days of said notice if Grantors object to the proposed
substitution. The bond or irrevocable letter of credit required herein shall be
in a form satisfactory to the Grantors. Surety shall be licensed therefor by the
State of South Carolina. An irrevocable letter of credit shall be issued by a
bank subject to the jurisdiction of South Carolina courts and which meets the
capital requirements of federal regulators.
21. INDEMNIFICATION
Grantee shall, at its sole expense, fully indemnify, defend and hold harmless
the Grantors, its officials, employees, agents, and volunteers, from and against
any and all claims, suits, actions, liability and judgments for damages or
otherwise:
a. For actual or alleged injury to persons or property, including loss of
use of property due to an occurrence, whether or not such property is
physically damaged or destroyed, in any way arising out of or through
or alleged to arise out of or through the acts or omissions of the
Grantee or its officers, agents, employees, or contractors or to which
the Grantee's or its officers', agents', employees' or contractors'
acts or omissions in any way contribute;
b. Arising out of or alleged to arise out of any claim for damages for
invasion of the right of privacy, defamation of any person, firm or
corporation, or the violation or infringement of any copyright, trade
mark, trade name, service mark or patent, or of any other right of any
person, firm or corporation; and
c. Arising out of or alleged to arise out of Grantee's failure to comply
with the provisions of any statute, regulation or ordinance of the
United States, State of South Carolina, or any local agency applicable
to the Grantee in its business.
Grantee, however, shall not indemnify, defend or hold harmless the Grantors, its
officials, employees, or volunteers to the extent that such claims are caused by
such parties.
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22. INSURANCE
a. Grantee shall maintain in full force and effect at all times for the
full term of the Franchise, insurance as described in this section.
Such insurance shall protect the Grantors as an additional insured
with respect to damages and defense of claims arising from activities
performed by or on behalf of Grantee, products and completed
operations of Grantee and premises owned, leased or used by the
Grantee.
b. All liability insurance required in this section shall be kept in full
force and effect by the Grantee during the existence of the Franchise
and until after the removal of all poles, wires, cables, underground
conduits, manholes, and other conductors and fixtures installed by
Grantee incident to the maintenance and operation of the cable
communications system as defined in this Franchise.
c. All insurance policies shall be written by insurers licensed to do
business in South Carolina and be acceptable to the Grantors. All
policies shall be endorsed to give the Grantors thirty (30) days
written notice of the intent to amend, cancel or non-renew by either
the Grantee or the insuring company.
d. Grantee shall furnish the Grantors with certificates of insurance and
with original endorsements affecting coverage required by this
section. The certificates and endorsements for each insurance policy
are to be signed by a person authorized by that insurer to bind
coverage on its behalf. Certificates shall be on ACCORD Form 25-S or
on forms approved by the Grantors. Endorsements shall be provided by
Grantee using insurance industry standard forms or other forms
approved by the Grantors, which approval shall not be unreasonably
withheld.
e. Insurance Coverages Required : A comprehensive general liability
insurance policy protecting the Grantors against liability for loss or
bodily injury and property damage occasioned by the installation,
removal, maintenance or operation of the cable communication system by
the Grantee in the following minimum amounts:
(1) $5,000,000 combined single limit, bodily injury and for property
damage in any one occurrence;
(2) $5,000,000 aggregate.
(3) A comprehensive automobile liability policy for all owned,
non-owned, hired and leased vehicles operated by the Grantee with
limits no less than five million dollars ($5,000,000) each
accident, single limit, bodily injury and property damage
combined, or evidence of self insurance.
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(4) Worker's compensation and employer's liability, valid in the
State, in the minimum amount of the statutory limit for worker's
compensation, and $500,000 for employer's liability.
23. REPORTS
a. Contemporaneous reports :
(1) Regulatory communications. Copies of all written petitions,
applications, letters, memoranda and reports submitted by Grantee
to or received by Grantee from any Federal or State agency having
jurisdiction in respect to any matters affecting construction or
operation of a Cable Television System or services provided
through such a System; provided, however, that materials exempt
from disclosure under the Freedom of Information Act applicable
to such agency shall not be subject to this requirement.
(2) Notices to public. Copies of all written notices to subscribers,
news releases, and other documents concerning operation of the
system issued to the public or media shall be submitted to the
Grantors not later than the time they are first mailed or
delivered to any other person.
b. Annual Report: Grantee shall file with the Grantors in January of each
year, including the January following the expiration of this
Franchise, an annual report consisting of:
(1) Facilities report. A report describing plant construction and
plant in operation during the previous year, including head end
and production facilities.
(2) Grantee rules. The Grantee's full schedule of all subscriber and
user rates and all other charges including, but not limited to,
premium, leased channel and pay per view services, contract or
application forms of regular subscriber policy regarding the
processing of subscriber complaints, delinquent subscriber
disconnect and reconnect procedures and any other terms and
conditions adopted as the Grantee's policy in connection with its
system subscribers.
(3) Proof of insurance. Written notice of payment of required
premiums for insurance required by this Franchise.
(4) Financial reports. The financial reports for the Grantee, which
shall indicate income and expenses, assets and liabilities, and
such other information that reasonably may be required.
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(5) Grantee's annual proof of performance tests conducted pursuant to
FCC standards and requirements. In the event that the FCC does
not require a complete proof of performance, Grantee shall
furnish such tests as are necessary to demonstrate that the
system meets the technical standards required by section 14.
(6) A summary of new services offered and services discontinued
during the previous year with an explanation of the changes.
(7) A summary of complaints received and handled which may be a list
of types and number.
(8) A report of the number and types of outages affecting five (5) or
more subscribers simultaneously.
(9) The number of subscribers by level of service subject to the
Franchise, the total number of subscribers served from facilities
located within the Franchise Area, a list of systems or
franchises served from facilities located in the Franchise Area.
(10) A report on programming provided pursuant to section 17.
c. Special reports: Grantee shall prepare and furnish to the Grantors, at
the times and in the form prescribed, such additional reports with
respect to its operation, affairs, transactions or property as may be
reasonably necessary and appropriate to the performance of any of the
functions or duties of the Grantors in connection with the System.
24. RATES
a. Rate regulation : Grantors expressly reserve the right to approve the
rates which the Grantee charges its subscribers for such services as
Grantors may be permitted to regulate by current or subsequent law.
Grantee shall not deny, delay, interrupt or terminate cable
communications services or the use of community communications
facilities to subscribers or users because Grantors deny a request for
a rate increase, provided, however, that nothing herein shall be
construed to limit the Grantee's right to seek judicial review of the
reasonableness of such action. No rate, fee or charge of any kind,
which is within the approval authority of Grantors as set forth above,
shall be charged or collected from subscribers by the Grantee without
the written authorization of Grantors. Rate regulation shall be
implemented according to applicable federal law and regulations.
b. Promotional rates: Nothing in this Section shall be construed to
prohibit the reduction or waiving of charges in conjunction with
promotional campaigns for the purpose of attracting subscribers or
users.
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25. FRANCHISE FEES
a. Purpose : For the use of the streets and for the purposes of providing
revenue with which to defray the costs of regulation arising out of
the granting of this Franchise and for promoting and assisting
community, educational, and governmental access programming, the
Grantee shall pay Franchise Fees in the amount in this Section.
b. During the term of this Franchise, Grantee shall pay to the Grantors
an amount equal to five percent (5%) each year of the Grantee's annual
Gross Revenues derived from the operation of the system within the
Franchise Area. Said fees shall be paid quarterly within 30 days of
the end of each calendar quarter. Grantee agrees that no adjustment
shall be necessary to represent the time value of money in the payment
of franchise fees.
c. The term "revenues derived from operation of the cable system in the
Franchise Area" shall be construed to include only (1) those revenues
derived by the Grantee from subscribers within the Franchise Area and
(2) a portion of other revenues of the Grantee calculated by a formula
or formulae which fairly allocate revenues attributable to the
Franchise Area. In the absence of a more precise formula, the portion
shall be calculated by multiplying such other revenues by a fraction
whose numerator is the number of subscribers within the Franchise Area
and whose denominator is the number of subscribers served by the head
end facility of Grantee.
d. Not later than March 31 of each year during the Franchise, and
including the year following expiration of the Franchise, Grantee
shall provide the Grantors with certification by an officer of Grantee
of the accuracy of the Franchise fee paid and in detail the sources
and amounts of revenues received by Grantee during the previous year.
The Grantors may, in their sole discretion, retain the services of an
independent certified public accountant to provide an opinion,
prepared in accordance with generally accepted accounting standards,
as to the accuracy of franchise fee paid. Expense of such audit will
be paid by the Grantors unless such opinion establishes that the
Franchise fee has been underpaid, in which case, the Grantee will
reimburse the Grantors for expense of the opinion along with any
unpaid fee, interest and penalty within 30 days of the opinion date.
e. No acceptance of any payment shall be construed as an accord that the
amount paid is, in fact, the correct amount, nor shall such acceptance
of payment be construed as a release of any claim which the Grantors
may have for further or additional sums payable under the provisions
of this Section.
<PAGE>
PAGE 30
f. If the limitation on Franchise Fee contained in the Cable Act is
raised, the fee required by this Franchise may be increased up to the
new limit effective for fees paid after January 1 next following the
effective date of such amendment to the Cable Act; provided that such
increase is authorized by Grantors after a duly noticed public
hearing.
g. Interest: Any Franchise Fees which remain unpaid after the due date
shall be delinquent and shall thereafter accrue interest at the then
published prime rate.
h. Franchise fees due hereunder shall be payable based on gross revenues
received by the Grantee beginning on July 1, 1998, and thereafter, as
required by this Section. Grantee shall obtain business licenses for
the period beginning July 1, 1998, and thereafter in accordance with
Grantors' business license ordinances.
i. Inspection of books : Grantee shall make available for inspection by
authorized representatives of the Grantors, its books, accounts, and
all other financial records at reasonable times and upon reasonable
notice. Such inspections shall not be limited to annually, as are
audits.
j. If for any reason, the Grantors refund any payment of franchise fee,
Grantee shall credit such refund to subscribers in a reasonable manner
to be approved by the Grantors.
26. RECEIVERSHIP AND FORECLOSURE
a. The Franchise shall, at the option of the Grantors, cease and
terminate one hundred twenty (120) days after the appointment of a
receiver or receivers, or trustee or trustees, to take over and
conduct the business of the Grantee, whether in a receivership,
reorganization, or other action or proceeding, unless such
receivership or trusteeship shall have been vacated prior to the
expiration of said one hundred twenty (120) days, or unless such
receivers or trustees shall have, within one hundred twenty (120) days
after their election or appointment, fully complied with all the terms
and provisions of this Franchise, and the receivers or trustees,
within said one hundred twenty (120) days, shall have remedied all
defaults under the Franchise; and such receivers or trustees shall,
within said one hundred twenty (120) days, execute an agreement, duly
approved by the court having jurisdiction of the premises, whereby
such receivers or trustees assume and agree to be bound by each and
every term, provisions and limitation of this Franchise.
b. In the case of a foreclosure or other judicial sale or transfer in
lieu thereof of the plant, property and equipment of the Grantee or
any part thereof, including or excluding the Franchise, the Grantors
may serve notice of termination upon the Grantee and the successful
bidder at such sale or proposed transferee, in which event the
Franchise and all rights and privileges of the Grantee granted
hereunder
<PAGE>
PAGE 31
shall cease and terminate one hundred twenty (120) days after
service of such notice unless the Grantors shall have
approved the transfer of the Franchise pursuant to section 19.
Provided, however, that if such transferee is a prior secured party
pursuant to section 19.a to whom the transfer has been made in lieu
of foreclosure or as a result of a foreclosure or other judicial
sale or is a successful bidder at foreclosure or other judicial
sale whom the Grantors has not approved pursuant to Section 19, the
transferee shall be permitted to continue operating the system for
twelve months from the date of such transfer, while actively
seeking another operator meeting Grantors' requirements for
approval, if the transferee shall have covenanted and agreed with
the Grantors to assume and be bound by all of the terms and
conditions of the Franchise reasonably applicable under the
conditions and circumstances existing during said twelve month
period.
27. ENFORCEMENT
a. Procedure for Remedying Franchise Violations by Termination: In the
event that the Grantors determine that Grantee has violated any
material provision of this Franchise, Grantors may make a written
demand on Grantee that it remedy such violation. If the violation is
not remedied, or in the process of being remedied, to the reasonable
satisfaction of the Grantors within sixty (60) days following such
demands, Grantors shall determine whether or not such violation by
Grantee was excusable or inexcusable, in accordance with the
Administrative Procedures Act commencing at Section 1-23-310 of the
Code of South Carolina of 1976 or any successor legislative amendment,
to the extent that it may be applicable. Upon such determination, the
Grantors Council shall adopt a decision which includes findings of
fact and conclusions. If the decision by the Grantors Council is that
there are grounds for termination of the Franchise and that the
Franchise shall be terminated, the Council may adopt a resolution
which terminates the Franchise and includes its decision. The
effective date of termination shall be such date as is reasonably
prescribed by the Grantors Council, in the resolution.
b. Alternative Remedies: Any enforcement action or remedy provided by
this Franchise shall not be deemed exclusive but shall be alternative
or cumulative in nature. No provision of this Franchise shall be
deemed to bar the right of either party to seek or obtain judicial
relief from a violation of any provision of this Franchise or any
rule, regulation, requirement or directive promulgated thereunder.
Neither the existence of other remedies identified in this Franchise
nor the exercise thereof shall be deemed to bar or otherwise limit the
right of the either party to recover monetary damages (except where
liquidated damages are otherwise prescribed) for such violation or
judicial enforcement of either party's obligations by means of
specific performance, injunctive relief or mandate, or any other
judicial remedy at law or in equity.
<PAGE>
PAGE 32
Liquidated Damages:
(1) Grantee understands and agrees that failure to comply with any time
and performance requirements as stipulated in this Franchise will
result in damage to the Grantors, and that it may be impracticable to
determine the actual amount of such damage in the event of delay or
non-performance.
(2) If the Grantors conclude that Grantee is liable for liquidated damages
pursuant to this Section, they shall issue to Grantee by certified
mail a notice of Intention to Assess Liquidated Damages. The notice
shall set forth the basis for the assessment, and shall inform the
Grantee that liquidated damages will be assessed from the date of the
notice unless such violation shall have been cured within 10 days of
the date of notice or the assessment notice is appealed. On appeal the
Grantors may determine (1) that the violation has been corrected, or
(2) that an extension of time or other relief should be granted.
Unless the Grantors indicates to the contrary, said liquidated damages
shall be assessed beginning with the date on which the Grantors sent
the notice of the intention to assess liquidated damages and
continuing thereafter until such time as the violation ceases, as
determined by the Grantors.
(3) The following liquidated damages amounts are established:
(a) For failure to pay any monetary amount due to Grantors when due,
in addition to any interest due on such amount, an amount equal
to five percent of such monetary amount.
(b) For failure to provide within a reasonable time after written
request any data, documents, reports, or other information
required by the Franchise, $50 per day that such violation
continues.
(c) For failure to complete the upgrade, $100 per day that such
violation continues.
(d) For failure to provide an emergency alert system pursuant to
Section 12.f, $100 per day that such violation continues.
(e) For failure to provide service to Grantors pursuant to Section
16, $25 per site per day that such violation continues.
(f) For failure to activate any access channel pursuant to Section
15, $100 per day that such violation continues.
(g) For failure to complete repairs promptly as required by section
13.f, $25 per subscriber per day until repairs are completed.
<PAGE>
PAGE 33
(h) For failure to comply with Customer Service Standards as required
by section 13 except subsection 13.f, $50 per day that such
violation continues.
(i) For failure to comply with Technical Standards required by
section 14, $50 per day that such violation continues.
(j) For failure to file reports as required by section 23, $100 per
day that such violation continues.
(k) For failure to test, analyze and report on the performance of the
system following a written request, $100 per day that such
violation continues.
(l) For failure to obtain any permit or permission of the Grantors
required by this Franchise, $100 or an amount equal to the
associated fee, whichever is greater.
d. Forbearance by Grantors: Grantee shall not be relieved of any
obligation to comply with any of the provisions of this Franchise or
any rule, regulation, requirement or directive promulgated thereunder
by reason of any failure of the Grantors or their officers, agents or
employees to enforce prompt compliance.
e. Force Majeure: Notwithstanding anything to the contrary in this
Franchise, the Grantors shall not impose any penalty upon the Grantee
where either violation or failure to cure the same result from force
majeure, labor dispute, declaration of war or other hostilities, Act
of God, or any other reason beyond the control of the Grantee.
For and in consideration of the promises, covenants, grant of franchise,
obligations, fees and provision of services, the Grantors and Grantee agree to
be bound by the terms of this franchise agreement, acknowledge that it is their
entire agreement and that is binding on them, their successors and assigns.
<PAGE>
PAGE 34
IN TESTIMONY WHEREOF, the parties hereto have executed this Agreement as of the
13th day of October, 1998.
TOWN OF HEATH SPRINGS Enstar Income Program 1984-1,
L.P. d.b.a. Falcon
By /S/ ANN S. TAYLOR
-----------------
Mayor By: /S/ HOWARD GAN
------------------
ATTEST: /S/ THEE BAKER Its: V.P.
--------------- -----------------
Its: CLERK / TREASURER ATTEST: /S/ LAURA DAINKO
------------------- ----------------
TOWN OF KERSHAW Its: ADMIN ASST
-------------
By /S/ W. R. CLYBURN
-----------------
Mayor
ATTEST: /S/ ERNEST GREEN
-----------------
Administrator
COUNTY OF LANCASTER
By /S/ RAY E. GARDENER
-----------------------
County Council chairman
ATTEST: /S/ CHAPPEL HURST
-----------------
County Administrator
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT DECEMBER 31, 1998, AND THE STATEMENTS OF OPERATIONS FOR THE TWELVE
MONTHS ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,036,000
<SECURITIES> 0
<RECEIVABLES> 33,300
<ALLOWANCES> 5,500
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 15,143,200
<DEPRECIATION> 11,094,500
<TOTAL-ASSETS> 5,417,400
<CURRENT-LIABILITIES> 1,315,700
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,417,400
<SALES> 0
<TOTAL-REVENUES> 5,221,100
<CGS> 0
<TOTAL-COSTS> 3,932,300
<OTHER-EXPENSES> 245,300
<LOSS-PROVISION> 132,200
<INTEREST-EXPENSE> 103,900
<INCOME-PRETAX> 939,600
<INCOME-TAX> 0
<INCOME-CONTINUING> 939,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 939,600
<EPS-PRIMARY> 31.07
<EPS-DILUTED> 0
</TABLE>
