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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(D) (4) OF THE SECURITIES EXCHANGE ACT OF 1934
Enstar Income Program IV-1, L.P.
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(Name of Subject Company)
Enstar Income Program IV-1, L.P.
Enstar Communications Corporation
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(Name of Person(s) Filing Statement)
Units of Limited Partnership Interest
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(Title of Class of Securities)
Not Applicable
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((CUSIP) Number of Class of Securities)
Stanley S. Itskowitch, Esq.
Enstar Communications Corporation
10900 Wilshire Blvd., 15th Floor
Los Angeles, California 90024
(310) 824-9990
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(Name, Address and Telephone Number of Person Authorized to Receive
Notice and Communications on Behalf of the Person(s) Filing Statement)
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The subject company is Enstar Income Program IV-1, L.P., a Georgia
limited partnership (the "Partnership"). The corporate general partner of
the Partnership is Enstar Communications Corporation, a Georgia corporation
(the "General Partner"), and the individual general partner of the
Partnership is Robert T. Graff, Jr. (together with the General Partner, the
"General Partners"). The principal executive offices of the Partnership and
the General Partner are located at 10900 Wilshire Boulevard, 15th Floor, Los
Angles, California 90024. The title and class of equity securities to which
this Statement relates is the units of limited partnership interest of the
Partnership (the "Units").
ITEM 2. TENDER OFFER OF THE BIDDER.
This Statement relates to the offer (the "Offer") by Madison
Liquidity Investors 104, LLC, a Delaware limited liability company
("Madison"), to purchase for cash up to 3,958 Units, representing
approximately 9.9% of the Units outstanding, at a purchase price of $160.00
per Unit (less the $25 transfer fee and the amount of any distributions paid
with respect to the Units on or after February 16, 1999) (the "Offer Price"),
as disclosed in the Tender Offer Statement on Schedule 14D-1 (the "Schedule
14D-1"), dated February 16, 1999, and filed by Madison with the Securities
and Exchange Commission on February 19, 1999. According to the Schedule
14D-1, Madison's principal business address is P.O. Box 7461, Incline
Village, Nevada 89452.
ITEM 3. IDENTITY AND BACKGROUND.
(a) This Statement is being filed by the Partnership and the General
Partner. The name and business address of the Partnership and the General
Partner are set forth under Item 1 above.
(b)(1) The Partnership is party to a management agreement (the
"Management Agreement") with Enstar Cable Corporation, a wholly owned
subsidiary of the General Partner ("Enstar Cable"). Pursuant to the
Management Agreement, Enstar Cable manages the Partnership's systems and
provides operational support for the activities of the Partnership. For
these services, Enstar Cable receives a management fee equal to 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 Enstar Cable for certain operating expenses
incurred by Enstar Cable in the day-to-day operation of the Partnership's
cable systems. The Management Agreement also requires the Partnership to
indemnify Enstar Cable (including its officers, employees, agents and
shareholders) against loss or expense, absent negligence or deliberate breach
by Enstar Cable of the Management Agreement. Enstar Cable has entered into
identical agreements with Enstar Cable of Macoupin County and Enstar IV/PBD
Systems Venture, each a Georgia general partnership of which the Partnership
is a co-partner (the "Joint Ventures"), except that Enstar Cable of Macoupin
County (the "Macoupin Joint Venture") pays Enstar Cable only a 4% management
fee. However, the Macoupin Joint Venture is required to distribute to Enstar
Communications Corporation (which is the corporate general partner of the
Macoupin Joint Venture as well as of the Partnership) an amount equal to 1%
of the Joint Venture's gross revenues in respect of Enstar Communications
Corporation's interest as
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corporate general partner of the Joint Venture. No management fee is payable
by the Partnership in respect of any amounts received by the Partnership from
the Joint Ventures, and there is no duplication of reimbursed expenses or
costs of Enstar Cable. Enstar Cable has engaged Falcon Communications, L.P.,
an affiliate of the General Partner ("FCLP"), to provide certain management
services for the Partnership and the Joint Ventures and pays 80% of the
management fees it receives to FCLP in consideration of such services and
reimburses FCLP for expenses incurred by FCLP on its behalf. In addition,
the Joint Ventures receive certain system operating management services from
affiliates of Enstar Cable in lieu of directly employing personnel to perform
such services. The Joint Ventures reimburse the affiliates for their
allocable share of the affiliates' operating costs. The General Partner also
performs certain supervisory and administrative services for the Partnership
for which it is reimbursed. In addition, the Joint Ventures purchase
substantially all of their programming services from Falcon Cablevision, a
California limited partnership which is an affiliate of the General Partner
("Cablevision"). Cablevision charges the Joint Ventures 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 interest of the General Partner and the affiliates that
provide the services described above in maximizing their profits from the
provision of such services conflicts with the Partnership's and the Joint
Ventures' interest in receiving such services for the best possible price.
In addition, on September 30, 1997, the Partnership entered into a
new revolving loan facility with Enstar Finance Company, LLC ("Enstar
Finance"), an eighty-percent owned subsidiary of the General Partner, and has
incurred indebtedness under that facility. The interest of Enstar Finance in
receiving prompt payments of principal and interest may conflict with the
Partnership's interest in maintaining liquidity.
(b)(2) To the best knowledge of the Partnership and the General
Partner, there are no material contracts, agreements, arrangements or
understandings or any actual or potential conflicts of interest between the
Partnership or the General Partner or the directors and executive officers of
the General Partner or affiliates thereof, on the one hand, and Madison or
its executive officers, directors or affiliates , on the other hand.
Based on the Schedule 14D-1, as of the date of the Offer, Madison's
affiliates owned or had contracted to purchase a total of 1,812 Units, or
approximately 4.53% of the outstanding Units, which were acquired during 1998
through unregistered tender offers and secondary market purchases.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) This Statement relates to the recommendation by the Partnership and
the General Partner with respect to the Offer. In a letter to unitholders,
dated March 2, 1999, the Partnership and the General Partner recommended that
unitholders reject the Offer. In reaching that conclusion, the Partnership
and the General Partner noted, however, that some unitholders may view the
Offer as attractive, even if at a low value, because it offers the prospect
of liquidity, and also noted that there can be no assurance as to when
unitholders will be presented with another opportunity to liquidate their
investment in the Units. Such letter is filed as Exhibit (a)(1) hereto and is
incorporated herein by reference.
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(b) The reasons for the position taken by the Partnership and the
General Partner are as follows:
THE OFFER PRICE REPRESENTS A LOW CASH FLOW MULTIPLE. The
Partnership's cash flow (operating income before depreciation and
amortization) for the twelve months ended December 31, 1998 was approximately
$36.48 per Unit. The Offer Price represents a valuation of approximately 1.3
times cash flow (after adjustment for the excess of current assets over total
liabilities as of December 31, 1998). The Partnership and the General
Partner believe that a valuation of 1.3 times cash flow is considerably lower
than the inherent value of the Partnership's assets based on cash flow
multiples paid for similar assets.
THE OFFER PRICE IS LOWER THAN THE GENERAL PARTNER'S ESTIMATE OF A
REASONABLE VALUATION RANGE PER UNIT. As of the date hereof, the General
Partner believes that a reasonable range of valuation per limited partnership
Unit is between $260 and $310 based on the factors noted below. The General
Partner believes that the Madison Offer is inadequate because it is
significantly less than the $260 low end of the range provided. The General
Partner did not retain a third party to conduct an evaluation of the
Partnership's assets or otherwise obtain any appraisals. Rather, the per
Unit valuations provided were derived by attributing a range of multiples to
the Partnership's cash flow (operating income before depreciation and
amortization) for the twelve months ended December 31, 1998, adjusted for the
excess of current assets over total liabilities. The General Partner has
selected market multiples based on, among other things, its understanding of
the multiples placed on other transactions involving comparable cable
television properties and the securities of companies in that industry. The
General Partner's belief as to the valuation range provided is necessarily
based on economic, industry and financial market conditions as they exist as
of the date hereof, all of which are subject to change, and there can be no
assurance that the Partnership's cable properties could actually be sold at a
price within this range. Additionally, the valuations provided do not give
effect to any brokerage or other transaction fees that might be incurred by
the Partnership in any actual sale of the Partnership's systems.
A SIGNIFICANT PORTION OF THE UNITS TENDERED PURSUANT TO THE OFFER
MAY NOT BE TRANSFERRED IN 1999. As more fully described under Item 8 below,
the Partnership adheres to an Internal Revenue Service safe harbor which
limits most sales of limited partnership interests to five percent of the
outstanding Units in any given tax year of the Partnership. The General
Partner believes that the policy of allowing no more than five percent of the
outstanding Units to be transferred in any given tax year of the Partnership
serves the best interests of the Partnership and the unitholders and the
Partnership does not intend to waive this policy for transfers of Units
pursuant to the Offer. Consequently, this policy may have the effect of
limiting the number of Units that can be transferred pursuant to the Offer in
1999.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Neither the Partnership nor the General Partner, nor any person
acting on their behalf, intends to employ, retain or compensate any other
person to make solicitations or recommendations to the holders of Units in
connection with the Offer.
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ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) To the best knowledge of the Partnership and the General Partner,
no transaction in the Units has been effected during the past 60 days by the
Partnership or the General Partner, or by any executive officer, director,
affiliate or subsidiary thereof.
(b) To the best knowledge of the Partnership and the General Partner,
the General Partner and the executive officers, directors, affiliates and
subsidiaries of the Partnership and the General Partner do not own any Units.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) The Partnership is not engaged in any negotiations in response to
the Offer that relates to or would result in: (1) an extraordinary
transaction, such as a merger or reorganization, involving the Partnership or
any subsidiary of the Partnership; (2) a purchase, sale or transfer of a
material amount of assets by the Partnership or any subsidiary of the
Partnership; (3) a tender offer for or other acquisition of securities by or
of the Partnership; or (4) any material change in the present capitalization
or distribution policy of the Partnership.
(b) There are no transactions, board or partnership resolutions,
agreements in principle or signed contracts in response to the Offer, which
relate to or would result in one or more of the events set forth in clauses
(1) through (4) in section (a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
Unitholders are advised that Units may be transferred (including
transfers pursuant to the Offer) only upon the following conditions: (1) the
transfer is of the transferor's entire interest in the Partnership, unless
the General Partners otherwise consent; (2) the transfer is not made to any
person who is incompetent or has not attained his twenty-first birthday or to
any other person not lawfully empowered to own such interest; (3) documents
have been executed and delivered by the transferring unitholder and the
transferee in a form satisfactory to the General Partners to evidence and
effectuate the transfer, and they have indemnified the Partnership and the
General Partners against any loss or liability arising out of the transfer;
and (4) the transfer, in the sole determination of the General Partners,
would not violate the Revised Uniform Limited Partnership Act of the State of
Georgia or any applicable state or Federal securities laws, would not be
detrimental to the continued status of the Partnership as a limited
partnership taxable as a "partnership" under the Internal Revenue Code of
1986, as amended, and would not cause a deemed termination of the Partnership
under the Code.
The Partnership currently is treated as a partnership for Federal
income tax purposes. One of the obligations of the General Partner is to
endeavor to preserve the status of the Partnership as a partnership under
Federal income tax laws. Failure to maintain this status could have a
material adverse effect on the Partnership and the unitholders. Among the
related legal requirements imposed upon the Partnership is that its
partnership interests not be traded in
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an established securities market, a secondary market or the substantial
equivalent of a secondary market. As it believes is customary, the
Partnership complies with this requirement by adhering to an Internal Revenue
Service safe harbor which limits most sales of limited partnership interests
to five percent of the outstanding Units in any given tax year of the
Partnership. Transfers to which the above trading limit does not apply
include (1) carryover basis transactions, (2) transfers at death, (3)
transfers between siblings, spouses, ancestors or lineal descendants and (4)
distributions from a qualified retirement plan.
The General Partner believes that the policy of allowing no more
than five percent of the outstanding Units to be transferred in any given tax
year of the Partnership serves the best interests of the Partnership and the
unitholders, and the Partnership does not intend to waive this policy for
transfers of Units pursuant to the Offer. Consequently, this policy may have
the effect of limiting the number of Units that can be transferred pursuant
to the Offer in 1999. As of the date of this Statement, transfers of 1,036
Units, or approximately 2.59% of the total outstanding Units, already have
been processed during the 1999 tax year of the Partnership. Accordingly,
only 963 Units, or approximately 2.41% of the total outstanding Units, remain
available for transfer during the remainder of this 1999 tax year.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION
(a)(1) Letter, dated March 2, 1999, from the Partnership and the General
Partner to the unitholders of the Partnership.
(c)(1) Second Amended and Restated Agreement of Limited Partnership of Enstar
Income Program IV-1, L.P., dated as of August 1, 1988 (incorporated by
reference to the exhibits to the Partnership's Annual Report on Form
10-K for the fiscal year ended December 31, 1988, File No. 0-15705).
(c)(2) Management Agreement between Enstar Income Program IV-1, L.P. and
Enstar Cable Corporation (incorporated by reference to the exhibits to
the Partnership's Annual Report on Form 10-K for the fiscal year ended
December 31, 1986, File No. 0-15705).
(c)(3) Management Agreement between Enstar Cable of Macoupin County and
Enstar Cable Corporation (incorporated by reference to the exhibits to
the Partnership's Annual Report on Form 10-K for the fiscal year ended
December 31, 1988, File No. 0-15705).
(c)(4) Service Agreement, dated as of October 1, 1988, between Enstar
Communications Corporation, Enstar Cable Corporation and Falcon
Holding Group, Inc. (incorporated by reference to the exhibits to the
Partnership's Annual Report on Form 10-K for the fiscal year ended
December 31, 1989, File No. 0-15705).
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(c)(5) Loan Agreement, dated as of September 30, 1997, between Enstar Income
Program IV-1, L.P. and Enstar Finance Company, LLC (incorporated by
reference to the exhibits to the Partnership's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1997, File No. 0-15705).
(c)(6) Amended and Restated Partnership Agreement of Enstar IV/PBD Systems
Venture, dated as of December 15, 1996 (incorporated by reference to
the exhibits to the Partnership's Annual Report on Form 10-K for the
fiscal year ended December 31, 1986, File No. 0-15705).
(c)(7) Management Agreement between Enstar IV/PBD Systems Venture and Enstar
Cable Corporation (incorporated by reference to the exhibits to the
Partnership's Annual Report on Form 10-K for the fiscal year ended
December 31, 1986, File No. 0-15705).
(c)(8) Partnership Agreement of Enstar Cable of Macoupin County, dated as of
December 30, 1987 (incorporated by reference to the exhibits to the
Partnership's Annual Report on Form 10-K for the fiscal year ended
December 31, 1987, File No. 0-15705).
(c)(9) Amended and Rested Partnership Agreement of Enstar Cable of Macoupin
County, dated as of October 1, 1993 (incorporated by reference to the
exhibits to the Enstar Income Program IV-3, L.P.'s Annual Report on
Form 10-K for the fiscal year ended December 31, 1997, File No.
0-15686).
After reasonable inquiry and to the best of our knowledge and
belief, we certify that the information set forth in this Statement is true,
complete and correct.
ENSTAR INCOME PROGRAM IV-1, L.P.
By: Enstar Communications Corporation,
Corporate General Partner
By: MICHAEL K. MENEREY
Michael K. Menerey
Executive Vice President, Chief Financial Officer
and Secretary
ENSTAR COMMUNICATIONS CORPORATION
By: MICHAEL K. MENEREY
Michael K. Menerey
Executive Vice President, Chief Financial Officer
and Secretary
Dated: March 2, 1999
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EXHIBIT (a)(1)
March 2, 1999
Dear Limited Partner:
Enstar Income Program IV-1, L.P. (the "Partnership") and its corporate
general partner, Enstar Communications Corporation (the "General Partner"),
have become aware that an unsolicited offer (the "Offer") to purchase
outstanding units in the Partnership, at a price of $160 per unit, was
commenced by Madison Liquidity Investors 104, LLC ("Madison") pursuant to an
offer to purchase dated February 16, 1999. THIS OFFER WAS MADE WITHOUT THE
CONSENT OR THE INVOLVEMENT OF THE PARTNERSHIP OR THE GENERAL PARTNER. The
Partnership and the General Partner have filed with the Securities and
Exchange Commission a Recommendation Statement on Schedule 14D-9, relating to
the Offer. A copy of that Recommendation Statement on Schedule 14D-9 is
enclosed with this letter and we urge you to review it carefully.
As more fully described in the Recommendation Statement on Schedule
14D-9, we recommend that you reject Madison's Offer. We note, however, that
some unitholders may view the Offer as attractive, even if at a low value,
because it offers the prospect of liquidity. We also note that there can be
no assurance as to when unitholders will be presented with another
opportunity to liquidate their investment in the units. In evaluating the
Offer, the Partnership and the General Partner believe that its limited
partners should also consider the following information:
- - The Partnership's cash flow (operating income before depreciation and
amortization) for the twelve months ended December 31, 1998 was
approximately $26.48 per unit. The price offered by Madison represents a
valuation of approximately 1.3 times cash flow (after adjustment for the
excess of current assets over total liabilities as of December 31, 1998).
The Partnership and the General Partner believe that a valuation of 1.3
times cash flow is considerably lower than the inherent value of the
Partnership's assets based on cash flow multiples paid for similar assets.
- - As of the date of this letter, the General Partner believes that a
reasonable range of valuation per limited partnership unit is between $260
and $310 based on the factors noted below. The General Partner believes
that the Madison Offer is inadequate because it is significantly less than
the $260 low end of the range provided. The General Partner did not retain
a third party to conduct an evaluation of the Partnership's assets or
otherwise obtain any appraisals. Rather, the per unit valuations provided
were derived by attributing a range of multiples to the Partnership's cash
flow (operating income before depreciation and amortization) for the twelve
months ended December 31, 1998, adjusted for the excess of current assets
over total liabilities. The General Partner has selected market multiples
based on, among other things, its understanding of the multiples placed on
other transactions involving comparable cable television properties and the
securities of companies in that industry. The General Partner's belief as
to the valuation range provided is necessarily based on economic, industry
and financial market conditions as they exist as of the date of this
letter, all of which are subject to change, and there can be no assurance
that the Partnership's cable properties could actually be sold at a price
within this range. Additionally, the valuations provided do not give
effect to any
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brokerage or other transaction fees that might be incurred by the
Partnership in any actual sale of the Partnership's systems.
Furthermore, one of the obligations of the Corporate General Partner is
to endeavor to preserve the status of the Partnership as a partnership under
Federal income tax laws. Failure to maintain this status could have a
material adverse effect on the Partnership and its partners. Among the
related legal requirements imposed upon the Partnership is that its
partnership interests not be traded on an established securities market, a
secondary market or the substantial equivalent of a secondary market. As it
believes is customary, the Partnership complies with this requirement by
adhering to an Internal Revenue Service safe harbor which limits most sales
of limited partnership interests to five percent of the outstanding units in
any given year. AFTER FIVE PERCENT OF THE OUTSTANDING UNITS HAVE BEEN
TRANSFERRED IN 1999, NO FURTHER SALES OF UNITS, INCLUDING ANY ATTEMPTED SALES
RELATED TO THE MADISON OFFER, WILL BE RECOGNIZED BY THE PARTNERSHIP FOR THE
BALANCE OF 1999.
For the reasons discussed above and more fully described in the
Recommendation Statement on Schedule 14D-9, the Partnership and the General
Partner recommend that you NOT transfer, agree to transfer, or tender any
units in response to the Madison Offer. To the extent that you have
previously tendered units pursuant to Madison's Offer, we note that you have
a right to withdraw your tender by following the procedures set forth under
"Section 5. Withdrawal Rights" in Madison's offer to purchase document.
If you have any questions regarding these matters or your investment,
please call our Investor Services Department at (800) 433-4287.
Sincerely,
Enstar Income Program IV-1, L.P.
Enstar Communications Corporation
cc: Account Representative
