<PAGE> 1
AS FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 9, 1998
PRELIMINARY PROXY STATEMENT
FILED ON SCHEDULE 14A
PRELIMINARY PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, For Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
-----------------------------------------------------------------
(Name of Registrant as Specified in Its Charter and Person
Filing Preliminary Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Units of Limited Partnership Interest.
(2) Aggregate number of securities to which transaction applies: 36,626
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
The filing fee is based on the aggregate cash to be received by the
Registrant from the proposed sale of assets, which the Registrant
believes will be $10,473,200 multiplied by 1/50th of 1%.
(4) Proposed maximum aggregate value of transaction: $10,473,200
(5) Total fee paid: $2,095
[ ] Fee paid previously with preliminary materials:
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement no.:
--------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
10900 WILSHIRE BOULEVARD, 15TH FLOOR
LOS ANGELES, CALIFORNIA 90024
, 1998
Dear Unitholders:
Enstar Income/Growth Program Six-B, L.P. (the "Partnership")
was formed in September 1987 to engage in the ownership, operation, development
and, where appropriate, the sale or other disposition of cable television
systems in small and medium sized communities. The Partnership presently owns
three cable television systems (the "Assets"). These systems serve customers in
the city of Ivins, Utah, in and around the city of Fisk, Missouri, and in and
around the city of Villa Rica, Georgia. The Partnership's Villa Rica cable
system serves approximately 90% of the Partnership's subscribers.
The Partnership's corporate General Partner is Enstar
Communications Corporation, a Georgia corporation ("ECC" or the "General
Partner"). An affiliate of the General Partner, Falcon Holding Group, L.P., a
Delaware limited partnership ("FHGLP"), and related entities provide certain
management services to the Partnership. The General Partner, FHGLP and other
affiliates of FHGLP are responsible for the day-to-day management of the
Partnership and its operations.
Substantially all of the available channel capacity in the
Partnership's cable systems is being utilized and each of the Partnership's
cable systems requires upgrading. Existing franchise agreements for three of the
seven franchise areas in the Partnership's Villa Rica, Georgia cable system
require the Partnership to complete system upgrades by early 1999. In addition,
the Partnership is in the process of negotiating the renewal of franchise
agreements for two other franchise areas covered by the Villa Rica cable system
and the Partnership believes that the renewed franchise agreements may require
the Partnership to upgrade the cable systems within those franchise areas. If
the Partnership is unable to obtain financing to fund the upgrades required by
its franchise agreements, the respective franchising authorities may be entitled
to terminate the franchise agreements and the Partnership could lose valuable
franchises.
Because the Villa Rica cable system is served by one headend
and utilizes integrated cable hardware, the Partnership's proposed upgrade
program would cover all of the seven franchise areas in the Villa Rica, Georgia
cable system (the "Villa Rica Upgrade") and is estimated to require aggregate
capital expenditures of approximately $7.5 million. The Partnership, however,
does not presently have, and believes it will be unable to obtain, the funds
required to complete the Villa Rica Upgrade. The Partnership only has
approximately $800,000 of availability under its $2.5 million revolving loan
facility. In addition, the Partnership's partnership agreement (the "Partnership
Agreement") provides that the Partnership may not incur borrowings unless the
amount of such borrowings, together with all outstanding borrowings, does not
exceed 33% of the original capital raised by the Partnership (i.e., a maximum of
approximately $3.0 million of outstanding indebtedness). Consequently, even if
the Partnership used the approximately $800,000 of existing availability under
its revolving loan facility and was able to obtain the additional $500,000 of
debt financing permitted under the terms of the Partnership Agreement, the
Partnership would still lack approximately $6.2 million of additional funding
necessary to complete the Villa Rica Upgrade.
The Partnership considered seeking an amendment to the
Partnership Agreement to permit the Partnership to incur sufficient indebtedness
to fund completion of the Villa Rica Upgrade. Ultimately, however, the
Partnership concluded that such an amendment would not benefit the Partnership
because debt financing sufficient to complete the Villa Rica Upgrade was not
available. This conclusion was based in large part on the discussions held with
financing sources in 1996 and 1997 in connection with the refinancing by Enstar
Finance Company, LLC (an affiliate of ECC) of the long-term indebtedness of
several partnerships managed by ECC. Since financing was not available to fund
completion of the Villa Rica Upgrade, the Partnership instead engaged a business
broker to solicit offers from third parties to purchase the Partnership's
Assets. At the time the broker was engaged, FHGLP had concluded that it was not
interested in acquiring the Assets primarily due to limitations on the capital
available to FHGLP for system acquisitions under its debt agreements and the
pendancy of a restructuring of its partnership agreement.
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<PAGE> 3
Over a period of four months in early 1998, the Partnership
solicited offers to purchase the Assets. The Partnership distributed
solicitation materials to more than twenty-five potential purchasers and only
four responded by conducting due diligence at the Partnership. Ultimately, the
Partnership received only two preliminary offers, both dated May 15, 1998, for
certain of its assets (the "Initial Offers"), each of which excluded the Ivins,
Utah and Fisk, Missouri cable systems and contained several potential purchase
price adjustments and material closing conditions. The Partnership concluded
that it was not in the best interests of the holders of its limited partnership
interests ("Unitholders") to accept either of the Initial Offers because, among
other things, neither Initial Offer constituted an offer to purchase all of the
Assets, and each Initial Offer was subject to several potential purchase price
adjustments and material closing conditions. Subsequent to the Partnership's
receipt of the Initial Offers, the Partnership received an offer from certain
affiliates of FHGLP to purchase all of the Assets (the "Falcon Offer") for
$10,473,200 in cash. The Falcon Offer includes a price for the Villa Rica cable
system which exceeds the highest of the Initial Offers by approximately 2.5%,
contains no potential purchase price adjustments and contains only limited
closing conditions. The affiliates of FHGLP were able to make the Falcon Offer
because, subsequent to the Partnership's receipt of the Initial Offers, FHGLP
successfully refinanced its bond and bank indebtedness and reached an agreement
to restructure its partnership agreement and acquire a significant number of
cable systems from third parties. After the Partnership received the Falcon
Offer, the Partnership received an additional offer, dated October 2, 1998,
solely for the Fisk, Missouri cable system (the "Fisk Offer"). The Partnership
concluded that it was not in the best interests of the Unitholders to accept the
Fisk Offer because, among other things, the Fisk Offer did not constitute an
offer to purchase all of the Assets, and the Falcon Offer includes a price for
the Fisk, Missouri cable system that exceeds the Fisk Offer by approximately
15%.
Given current market conditions for the Assets, the lack of
channel capacity, the impending upgrades required by the Partnership's franchise
agreements and the Partnership's funding limitations, the General Partner
believes that accepting the Falcon Offer is in the best interests of the
Partnership and the Unitholders. Accordingly, Falcon Cablevision, a California
limited partnership ("Cablevision"), and Falcon Telecable, a California limited
partnership ("Telecable" and, collectively with Cablevision, the "Purchasers")
and the Partnership entered into an Asset Purchase Agreement (the "Purchase
Agreement"), dated as of November 6, 1998, pursuant to which the Purchasers
agreed to purchase from the Partnership, and the Partnership agreed to sell to
the Purchasers, subject to obtaining the requisite consents from the Unitholders
as discussed below, all of the Assets for a price of $10,473,200 in cash (the
"Sale"). If the Sale is consummated, the General Partner will make one or more
liquidating distributions to the Unitholders and the general partners and, after
providing for the payment of the Partnership's obligations, cause the
Partnership to dissolve and be liquidated (together with the Sale and the
related amendments to the Partnership Agreement as discussed below, the
"Liquidation Plan"). Based upon the terms and conditions of the Sale, after
repayment of the Partnership's existing obligations, the Partnership presently
estimates that liquidating distributions to Unitholders would total
approximately $225 per unit.
AS A CONDITION TO THE SALE, THE PURCHASE AGREEMENT REQUIRES
THAT THE HOLDERS OF A MAJORITY OF THE UNITS APPROVE THE LIQUIDATION PLAN. YOUR
VOTE IS VERY IMPORTANT. You are being asked to consider and vote upon the
following elements of the Liquidation Plan: (i) the Sale; (ii) the amendment of
the Partnership Agreement to permit (a) the purchase by the Purchasers of all or
any of the Assets and (b) the completion of the Liquidation Plan by the General
Partner on behalf of the Partnership (together, the "Amendments"); and (iii) one
or more liquidating distributions to the partners and, after providing for the
payment of all obligations of the Partnership, the dissolution and termination
of the Partnership and subsequent liquidation. All of these steps are more fully
described in the attached Consent Solicitation Statement. PLEASE RETURN YOUR
CONSENT CARD AS SOON AS POSSIBLE, BECAUSE THE FAILURE TO RETURN A CONSENT CARD
HAS THE SAME EFFECT AS A "NO" VOTE.
The General Partner believes that the Liquidation Plan is in
the best interests of the Partnership and the Unitholders and recommends that
you complete and return the consent card with a vote "FOR" the Liquidation Plan.
The General Partner has based its recommendation on the following factors:
o If the Liquidation Plan is approved, the Partnership will be able to
consummate the Sale for an amount the General Partner believes represents
a fair value of the Assets and upon terms which the General Partner
believes will entail minimal costs and will permit an efficient
consummation of the Sale. The purchase price was determined based upon
the results of the broker's efforts to solicit offers to purchase the
Assets, the terms of the Initial Offers and the determination by the
Purchasers
2
<PAGE> 4
o of a reasonable fair market value for the Assets based upon their
experience as regular buyers and sellers of cable systems. In addition,
the Partnership has obtained the opinion of HPC Puckett & Company that
the purchase price is fair, from a financial point of view, to the
Partnership and the unaffiliated Unitholders. Unlike the Initial Offers,
the Falcon Offer includes all of the Assets, contains no potential
purchase price adjustments and contains only limited closing conditions.
In addition, the Falcon Offer includes a purchase price for the Villa
Rica cable system which exceeds the highest of the Initial Offers by
approximately 2.5%, and a purchase price for the Fisk, Missouri cable
system which exceeds the Fisk Offer by approximately 15%.
o By selling the Assets now, the Partnership would eliminate the risks
inherent in the ownership of its cable systems, including, among other
things, the risk that the Partnership may be unable to obtain funding to
complete the upgrades required by its franchise agreements and the loss
of valuable cable franchises that may occur if such upgrades are not
completed, the uncertainty of legislative and regulatory changes, and the
rapid developments in the competitive environment facing cable television
operators.
o Due to financial constraints, the Partnership has not made any
distributions to Unitholders in the past several years and, in light of
the capital required to complete the Villa Rica Upgrade, does not
anticipate being in a position to make distributions in the foreseeable
future. Approval of the Liquidation Plan will, however, permit
liquidating cash distributions to Unitholders presently estimated to
total approximately $225 per unit.
o The Liquidation Plan would provide liquidity to Unitholders. At present,
there is no established public trading market for the units, and
liquidity has been limited to sporadic sales which have occurred within
an informal secondary market.
The principal disadvantage which would result to Unitholders
from the approval of the Liquidation Plan is that the Partnership would not
benefit from any future improvements in economic and market conditions for the
Assets, which improvements could produce increased cash flow and possibly
increase the sales price of all or any of the Assets in the future.
Under the terms of the Partnership Agreement, the Sale and
subsequent liquidation of the Partnership requires Unitholder approval.
Furthermore, because the Purchasers are entities affiliated with the General
Partner, the Partnership Agreement must be amended to permit entities affiliated
with the General Partner to purchase the Assets, which amendment also requires
Unitholder approval. Accordingly, the Partnership is soliciting the written
Consent of each Unitholder to the Liquidation Plan, which is more fully
described in the attached Consent Solicitation Statement.
YOU ARE URGED TO READ CAREFULLY THE ATTACHED CONSENT
SOLICITATION STATEMENT IN ITS ENTIRETY FOR A COMPLETE DESCRIPTION OF THE
LIQUIDATION PLAN. If you have any questions regarding the Liquidation Plan or
need assistance in completing and returning your consent card, please feel free
to contact the Partnership's soliciting agent, Robert Marese, at Mackenzie
Partners, Inc., at (800) 322-2885.
Very truly yours,
Enstar Communications Corporation
General Partner
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ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
10900 WILSHIRE BOULEVARD, 15TH FLOOR
LOS ANGELES, CALIFORNIA 90024
NOTICE OF CONSENT SOLICITATION
________________, 1998
To the Unitholders of Enstar Income/Growth Program Six-B, L.P.:
NOTICE IS HEREBY GIVEN to the holders (the "Unitholders") of
the beneficial ownership interests in the limited partnership interests (the
"Units") in Enstar Income/Growth Program Six-B, L.P., a Georgia limited
partnership (the "Partnership"), that Enstar Communications Corporation, a
Georgia corporation and the corporate general partner of the Partnership ("ECC"
or the "General Partner"), is soliciting written consents (the "Consents") on
behalf of the Partnership to approve a plan of action (the "Liquidation Plan"),
which consists of: (i) the sale of all of the cable television systems of the
Partnership (the "Assets") for $10,473,200 in cash (the "Sale") to Falcon
Cablevision, a California limited partnership, and Falcon Telecable, a
California limited partnership (collectively, the "Purchasers"), each of which
is an affiliate of ECC; (ii) the amendment of the Agreement and Certificate of
Limited Partnership, dated as of September 24, 1987, and as subsequently amended
(the "Partnership Agreement"), to permit (a) the purchase of the Assets by
affiliates of ECC and (b) the completion of the Liquidation Plan by the General
Partner on behalf of the Partnership (together, the "Amendments"); and (iii) one
or more liquidating distributions to the partners and, after providing for the
payment of all obligations of the Partnership, the dissolution and termination
of the Partnership and subsequent liquidation. All of these steps are more fully
described in the attached Consent Solicitation Statement. The Liquidation Plan
is a single proposal which must be approved by Unitholders holding at least a
majority of the Units.
Only Unitholders who own Units on the close of business on
______________, 1998 are entitled to notice of the solicitation of Consents and
to give their Consent to the Liquidation Plan. In order to be valid, all
Consents must be received before 5:00 p.m., Los Angeles time on ______________,
1998 (unless extended, in the sole discretion of ECC acting on behalf of the
Partnership). The approval will be obtained through the solicitation of written
Consents, and no meeting of Unitholders will be held. Mackenzie Partners, Inc.
(the "Soliciting Agent") has been retained as a soliciting agent to assist in
soliciting Consents. A Consent may be revoked by written notice of revocation or
by a later dated action containing different instructions received by the
Soliciting Agent until 5:00 p.m., Los Angeles time on __________, 1998 (unless
extended, in the sole discretion of ECC acting on behalf of the Partnership).
Unitholders will be notified as soon as practicable as to the results of this
solicitation.
Exhibits C and D to the enclosed Consent Solicitation
Statement contain the Partnership's Annual Report on Form 10-K for the year
ended December 31, 1997 and the Partnership's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998, respectively.
YOUR APPROVAL IS IMPORTANT. PLEASE READ THE CONSENT
SOLICITATION STATEMENT CAREFULLY AND THEN COMPLETE, SIGN AND DATE THE ENCLOSED
CONSENT CARD AND RETURN IT IN THE SELF-ADDRESSED PREPAID ENVELOPE OR BY
FACSIMILE OF THE FRONT AND BACK OF THE CONSENT CARD TO (212) 675-0918. ANY
CONSENT CARD WHICH IS SIGNED AND DOES NOT SPECIFICALLY DISAPPROVE THE
LIQUIDATION PLAN WILL BE TREATED AS APPROVING THE LIQUIDATION PLAN. Your prompt
response is appreciated.
ENSTAR COMMUNICATIONS CORPORATION
General Partner
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
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<S> <C>
QUESTIONS AND ANSWERS ABOUT THE LIQUIDATION PLAN..........................................................3
WHO CAN HELP ANSWER YOUR QUESTIONS........................................................................5
SUMMARY...................................................................................................6
THE PARTNERSHIP..................................................................................6
ACTION BY WRITTEN CONSENT........................................................................6
THE PURCHASERS...................................................................................6
THE LIQUIDATION PLAN.............................................................................6
SELECTED HISTORICAL FINANCIAL DATA........................................................................9
SPECIAL FACTORS..........................................................................................10
Background of the Proposed Sale of the Assets...................................................10
Certain Conflicts of Interest...................................................................11
The Purchase Agreement..........................................................................12
Closing of the Sale.............................................................................13
Description of Assets...........................................................................14
Opinion of HPC Puckett..........................................................................14
Use of Proceeds and Cash Distributions..........................................................16
Recommendation of the General Partner; Fairness of the Liquidation Plan.........................17
Disadvantages of the Liquidation Plan...........................................................19
Consequences of Failure to Approve Liquidation Plan.............................................19
Amendment to the Partnership Agreement..........................................................19
Liquidation.....................................................................................20
Federal Income Tax Consequences of the Liquidation Plan.........................................20
General................................................................................20
Partnership Status.....................................................................21
Federal Income Tax Consequences........................................................21
No Appraisal Rights.............................................................................22
MARKET PRICES OF UNITS...................................................................................22
PARTNERSHIP SECONDARY TRADING AS REPORTED IN "THE PARTNERSHIP SPECTRUM"..................................23
DISTRIBUTIONS TO UNITHOLDERS.............................................................................23
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF..........................................................23
IDENTITY AND BACKGROUND OF CERTAIN PERSONS...............................................................23
Enstar Communications Corporation...............................................................23
FHGLP and FHGI..................................................................................25
Cablevision.....................................................................................26
Telecable.......................................................................................26
Falcon Cable Communications, LLC................................................................26
Falcon Communications, L.P......................................................................27
AVAILABLE INFORMATION....................................................................................27
</TABLE>
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EXHIBITS
<TABLE>
<S> <C> <C>
EXHIBIT A: ASSET PURCHASE AGREEMENT, DATED AS OF NOVEMBER 6, 1998,
BY AND AMONG THE PARTNERSHIP AND THE PURCHASERS .......................................A-1
EXHIBIT B: OPINION OF HPC PUCKETT & COMPANY,
DATED _______, 1998.....................................................................B-1
EXHIBIT C: ANNUAL REPORT OF PARTNERSHIP ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1997.......................................................................C-1
EXHIBIT D: QUARTERLY REPORT OF PARTNERSHIP ON FORM 10-Q FOR
THE QUARTER ENDED JUNE 30, 1998.........................................................D-1
</TABLE>
ii
<PAGE> 8
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
10900 WILSHIRE BOULEVARD, 15TH FLOOR
LOS ANGELES, CALIFORNIA 90024
_______________, 1998
CONSENT SOLICITATION STATEMENT
This Consent Solicitation Statement is furnished to the
holders (the "Unitholders") of the beneficial ownership interests in the limited
partnership interests (the "Units") in Enstar Income/Growth Program Six-B, L.P.,
a Georgia limited partnership (the "Partnership"), in connection with the
solicitation of written consents ("Consents") by Enstar Communications
Corporation, a Georgia corporation ("ECC" or the "General Partner"), on behalf
of the Partnership, to approve a plan of action (the "Liquidation Plan"), which
consists of: (i) the sale of all of the cable television systems of the
Partnership (the "Assets") for $10,473,200 in cash (the "Sale") to Falcon
Cablevision, a California limited partnership ("Cablevision"), and Falcon
Telecable, a California limited partnership ("Telecable" and, collectively with
Cablevision, the "Purchasers"), each of which is an affiliate of ECC, (ii) the
amendment of the Agreement and Certificate of Limited Partnership, dated as of
September 24, 1987, and as subsequently amended (the "Partnership Agreement"),
to permit (a) the purchase of the Assets by affiliates of ECC and (b) the
completion of the Liquidation Plan by the General Partner on behalf of the
Partnership (together, the "Amendments"); and (iii) one or more liquidating
distributions to the partners and, after providing for the payment of all
obligations of the Partnership, the dissolution and termination of the
Partnership and subsequent liquidation (the "Dissolution"), all as more fully
described in this document. The Liquidation Plan is a single proposal which must
be approved by Unitholders holding at least a majority of the Units.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
The Liquidation Plan is a single proposal, and consent to the
Liquidation Plan will constitute consent to each of the Sale, the Amendments and
the Dissolution. If approved and consummated, the Liquidation Plan will result
in the sale of all of the Assets to entities affiliated with the General
Partner.
AFTER CONSUMMATION OF THE LIQUIDATION PLAN, THE PARTNERSHIP
WILL NO LONGER BE SUBJECT TO REGISTRATION UNDER THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED, AND THEREFORE WILL NOT BE A REPORTING COMPANY WITH RESPECT TO
ITS UNITHOLDERS.
ECC does not intend to call a meeting of the Unitholders in
connection with this solicitation of Consents. Approval or disapproval by a
Unitholder of the Liquidation Plan is to be indicated by marking and signing the
enclosed Consent Card and returning it to Mackenzie Partners, Inc., which has
been engaged on behalf of the Partnership to act as soliciting agent (the
"Soliciting Agent"), in the enclosed self-addressed envelope which requires no
postage if mailed in the United States. The Liquidation Plan can be effected
only after Unitholders owning at least a majority of the outstanding Units have
consented to the Liquidation Plan. The enclosed Consent Card permits a
Unitholder to indicate approval, disapproval or abstention with respect to the
Liquidation Plan.
The close of business on ____________, 1998 (the "Record
Date") has been fixed for determining the Unitholders entitled to notice of the
solicitation of Consents and to consent to the Liquidation Plan. On the Record
Date, there were 36,626 outstanding Units entitled to vote on the Liquidation
Plan, which Units were held by 1,010 Unitholders. Consents of the Unitholders to
the Liquidation Plan will be solicited until 5:00 p.m., Los Angeles time on
_____________, 1998 or until such date as Unitholders holding at least a
majority of the Units consent, whichever occurs first (unless extended, in the
sole discretion of ECC acting on behalf of the Partnership).
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In no event, however, will Consents be accepted later than 60 days after the
Record Date. Unitholders will be notified as soon as practicable as to the
results of this solicitation.
Pursuant to the Partnership Agreement, the consent of
Unitholders holding at least a majority of the outstanding Units is required to
approve the Sale. Under Georgia law and the Partnership Agreement, any matter
upon which the Unitholders are entitled to act may be submitted for a vote by
written consent without a meeting. Any Consent given pursuant to this
solicitation may be revoked by the person giving it until 5:00 p.m., Los Angeles
time on _____________, 1998 (unless extended, in the sole discretion of ECC
acting on behalf of the Partnership) by sending a written notice of revocation
or a later dated Consent containing different instructions to the Soliciting
Agent before such date. Any written notice of revocation or subsequent Consent
should be sent to the Soliciting Agent, Mackenzie Partners, Inc., at 156 5th
Avenue, New York, New York 10010.
In addition to solicitation by use of the mails, directors,
officers and employees of Falcon Holding Group, L.P., a Delaware limited
partnership and the owner of all of the capital stock of ECC ("FHGLP"), may
solicit Consents in person or by telephone, facsimile or other means of
communication. Such directors, officers and employees will not receive
additional compensation for such services. In addition, the Soliciting Agent has
been retained to assist ECC in the solicitation of Consents for a base fee of
$7,500, plus reimbursement of expenses, estimated at approximately $12,000 in
the aggregate.
If Unitholders owning a majority of the Units on the Record
Date vote in favor of the Liquidation Plan, that approval will bind all
Unitholders. Neither the Partnership Agreement nor the Georgia Revised Uniform
Limited Partnership Act, under which the Partnership is governed, provides
rights of appraisal or other similar rights to Unitholders who dissent from the
vote of the majority in approving or disapproving the Liquidation Plan. See
"SPECIAL FACTORS--No Appraisal Rights."
The General Partner recommends that Unitholders vote "FOR" the
Liquidation Plan. See "SPECIAL FACTORS--Recommendation of the General Partner;
Fairness of the Liquidation Plan".
This Statement and the accompanying form of Unitholder Consent
are first being mailed to Unitholders on or about _____________, 1998.
THE DATE OF THIS STATEMENT IS _____________, 1998.
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<PAGE> 10
QUESTIONS AND ANSWERS ABOUT THE LIQUIDATION PLAN
Q: WHY IS THE PARTNERSHIP PROPOSING TO SELL THE ASSETS?
A: The General Partner of the Partnership believes that given the market
conditions for the Assets, the lack of channel capacity, the impending
upgrades mandated by certain of the Partnership's franchise agreements and
the Partnership's funding limitations, now is the appropriate time to
dispose of all of the Partnership's Assets.
Q: WHY IS THE PARTNERSHIP PROPOSING TO AMEND THE PARTNERSHIP AGREEMENT?
A: The Partnership Agreement provides that neither the General Partner nor its
affiliates may purchase material business assets from the Partnership. Due
to the fact that the Purchasers are entities affiliated with the General
Partner, the Partnership Agreement must be amended to permit the Purchasers
to purchase the Assets.
Q: WHY IS THE PARTNERSHIP DISSOLVING?
A: The Purchasers will be purchasing all of the Partnership's assets. The
proceeds of the Sale will be used to fund the Partnership's obligations and
the balance will be distributed to the partners. Consequently, after such
uses of the proceeds of the Sale, there will be no assets remaining in the
Partnership. Therefore, the Partnership will dissolve after completing the
Sale, funding its obligations and distributing the balance of the proceeds
of the Sale to the partners.
Q: DOES THE GENERAL PARTNER RECOMMEND VOTING IN FAVOR OF THE LIQUIDATION PLAN?
A: The General Partner of the Partnership has determined that the Liquidation
Plan is in the best interests of the Partnership and its Unitholders and
recommends that Unitholders vote FOR the approval and adoption of the
Liquidation Plan. The General Partner recommends acceptance of the
Purchasers' offer for the Assets (the "Falcon Offer") because, unlike other
offers to purchase the Partnership's assets, the Falcon Offer includes all
of the Partnership's Assets, contains no potential purchase price
adjustments and contains only limited closing conditions. In addition, the
Falcon Offer includes a purchase price for the Villa Rica cable system
which exceeds the highest of the other offers the Partnership has received
for that system by approximately 2.5%, and a purchase price for the Fisk,
Missouri cable system which exceeds the only offer for that system by
approximately 15%. The Partnership has solicited, but has not received any,
offers for its cable system in Ivins, Utah.
Q: WHAT WILL I RECEIVE IN THE LIQUIDATION PLAN?
A: If the Liquidation Plan is completed, you will receive one or more
liquidating distributions presently estimated to total approximately $225
per Unit. The Units were initially issued at a price of $250 per Unit and,
since such initial issuance, the Partnership has made aggregate cash
distributions to Unitholders of $53.00 per Unit.
Q: WHAT ARE THE CONSEQUENCES TO THE UNITHOLDERS IF THE LIQUIDATION PLAN IS NOT
CONSUMMATED?
A: If the Liquidation Plan is not consummated, it is likely that the
Partnership will be forced to operate under significant capital constraints
and it may be unable to obtain sufficient capital to maintain its existing
franchises. Consequently, the Partnership may seek to sell the Assets to a
non-affiliated entity. Based on the Partnership's solicitation of offers
for the Assets, any such sale to a non-affiliated entity may be on terms
less favorable to the Partnership than the terms of the Sale.
Q: WHAT ABOUT FUTURE DISTRIBUTIONS?
A: The Partnership has not paid distributions to the Unitholders since 1994.
If the Liquidation Plan is not consummated, given the Partnership's
significant capital requirements and existing restraints on obtaining
3
<PAGE> 11
additional funding, it does not contemplate being able to make
distributions to its Unitholders in the foreseeable future.
Q: WHEN DO YOU EXPECT THE LIQUIDATION PLAN TO BE COMPLETED?
A: We are working towards completing the Liquidation Plan as quickly as
possible. In addition to Unitholder approvals, we must also obtain certain
regulatory and third-party approvals. Although we cannot predict exactly
when such regulatory approvals will be received, we hope to complete the
Liquidation Plan during the first quarter of 1999.
Q: WILL I OWE ANY UNITED STATES FEDERAL INCOME TAX AS A RESULT OF THE
LIQUIDATION PLAN?
A: In general, you will recognize a gain or loss for United States federal
income tax purposes as a result of the Liquidation Plan. TAX MATTERS ARE
VERY COMPLICATED AND THE TAX CONSEQUENCES OF THE LIQUIDATION PLAN TO YOU
MAY DEPEND ON THE FACTS OF YOUR SITUATION. YOU SHOULD CONSULT YOUR TAX
ADVISOR TO UNDERSTAND FULLY THE TAX CONSEQUENCES OF THE LIQUIDATION PLAN TO
YOU.
Q: WHO CAN VOTE ON THE LIQUIDATION PLAN?
A: Unitholders as of the close of business on ___________, 1998, the record
date for the Notice of the Consent Solicitation, may vote on the
Liquidation Plan by completing the enclosed Consent Card.
Q: WHAT VOTE IS REQUIRED TO APPROVE THE LIQUIDATION PLAN?
A: Approval of the Liquidation Plan requires the affirmative vote of
Unitholders holding at least a majority of the outstanding Units.
Q: WHAT DO I NEED TO DO NOW?
A: After you have carefully reviewed this document, please indicate how you
want to vote on the enclosed Consent Card and sign and mail it in the
enclosed return envelope as soon as possible, so that your Units will be
represented. If you sign and send in the enclosed Consent Card and do not
indicate how you want to vote, your Consent Card will be treated as voting
FOR the approval of the Liquidation Plan. If you do not vote by sending in
your Consent Card, it will have the same effect as a vote AGAINST the
approval of the Liquidation Plan.
Q: MAY I CHANGE MY VOTE AFTER I MAIL MY UNITHOLDER CONSENT CARD?
A: Yes. You may change your vote at any time before __________, 1998 (unless
extended, in the sole discretion of ECC acting on behalf of the
Partnership). You can do this in one of two ways. First, you can send a
written notice dated later than your Consent Card stating that you would
like to revoke or change your vote. Second, you can complete and submit a
new Consent Card dated later than your original Consent Card. If you choose
either of these two methods, you must submit your notice of revocation or
new Consent Card to the Soliciting Agent. If you instructed a broker to
vote your Units, you must follow your broker's directions for changing
those instructions.
Q: DO UNITHOLDERS HAVE APPRAISAL RIGHTS?
A: Under applicable state law, Unitholders are not entitled to dissenters'
appraisal rights.
Q: SHOULD I SEND IN MY UNIT CERTIFICATES NOW?
A: NO. After the Liquidation Plan is completed you will receive written
instructions regarding the certificates representing your Units.
4
<PAGE> 12
WHO CAN HELP ANSWER YOUR QUESTIONS
If you have more questions about the Liquidation Plan you
should contact:
Enstar Communications Corporation
474 South Raymond Avenue, Suite 200
Pasadena, CA 91105
(626) 844-1700
Attention: Dan Do
If you would like additional copies of this Consent
Solicitation Statement, or if you have questions about how to complete and
return your Consent Card, you should contact:
Mackenzie Partners, Inc.
Attention: Robert Marese
Phone Number: (800) 322-2885
5
<PAGE> 13
SUMMARY
The following is a summary (the "Summary") of certain
information contained elsewhere in this Consent Solicitation Statement,
including the Exhibits hereto, which are a part of this Consent Solicitation
Statement. This Summary does not purport to be complete and is qualified in its
entirety by the more detailed information contained in this Consent Solicitation
Statement. Unitholders are urged to read this Consent Solicitation Statement,
including the Exhibits hereto, in its entirety.
<TABLE>
<S> <C>
THE PARTNERSHIP
Enstar Income/Growth
Program Six-B, L.P............ The Partnership is a Georgia limited partnership which owns and
operates three cable television systems. These systems serve customers
in the city of Ivins, Utah, in and around the city of Fisk, Missouri,
and in and around the city of Villa Rica, Georgia.
The principal offices of the Partnership are located at 10900 Wilshire
Boulevard, 15th Floor, Los Angeles, CA 90024, and its telephone number
is (310) 824-9990.
ACTION BY WRITTEN CONSENT
Purpose of the
Solicitation.................. Consents are being solicited by ECC to approve the Liquidation Plan,
which consists of (i) the sale of all of the Assets for $10,473,200 in
cash (the "Purchase Price") to affiliates of the General Partner, and
(ii) the amendment of the Partnership Agreement to permit (a) the
purchase of the Assets by affiliates of ECC, and (b) the completion of
the Liquidation Plan by the General Partner on behalf of the Partnership,
and (iii) one or more liquidating distributions to the partners and,
after providing for the payment of all obligations of the Partnership,
the dissolution and termination of the Partnership and subsequent
liquidation.
Record Date; Units Entitled
to Consent.................... Unitholders who own Units at the close of business on ___________, 1998
are entitled to vote by written consent. At the Record Date, there were
36,626 Units outstanding held by 1,010 Unitholders. Each Unit will
entitle the record owner thereof to one vote.
Vote Required.................. The Liquidation Plan, which consists of the Sale, the Amendments, and the
Plan of Dissolution, is presented as a single proposal and requires the
written Consents of Unitholders of record holding at least a majority of
all outstanding Units. Such approval shall constitute the approval of
the Partnership.
Termination of Consent
Solicitation................... Consents may be solicited until, and must be received, no later than
_________, 1998 at 5:00 p.m., Los Angeles time or until such date as
Unitholders holding at least a majority of the Units consent, whichever
occurs first (unless extended, in the sole discretion of ECC on behalf of
the Partnership).
THE PURCHASERS................. The principal offices of each of the Purchasers are located at 10900
Wilshire Boulevard, 15th Floor, Los Angeles, CA 90024. The telephone
number for each of the Purchasers is (310) 824-9990. Each Purchaser is
an affiliate of the General Partner and of FHGLP.
THE LIQUIDATION PLAN
General........................ The Liquidation Plan is a single proposal consisting of the Sale, the
Amendments and the Dissolution.
In connection with the Liquidation Plan, the Partnership, Cablevision
and Telecable entered into an Asset Purchase Agreement, dated as of
November 6, 1998 (the "Purchase Agreement"). Pursuant to the Purchase
Agreement, the Partnership has agreed to sell to the Purchasers, and
the Purchasers have agreed to purchase, subject to obtaining the
requisite Consents from the Unitholders, all of the Assets for
$10,473,200 in cash. The Purchase Price was determined based upon the
results of the broker's efforts to solicit offers to purchase the
Assets, the terms of the offers received and the determination by the
Purchasers of a reasonable fair market value for the Assets based upon
their experience as regular buyers and sellers of cable systems. In
addition, the Partnership has obtained the opinion of HPC Puckett &
Company that the Purchase Price is fair, from a financial point of
view, to the Partnership and the unaffiliated Unitholders.
</TABLE>
6
<PAGE> 14
<TABLE>
<S> <C>
Background of the Liquidation
Plan........................... Substantially all of the available channel capacity in the Partnership's
cable systems is being utilized and each of the Partnership's cable
systems requires upgrading. Existing franchise agreements for three of
the seven franchise areas in the Partnership's Villa Rica, Georgia
cable system require the Partnership to complete system upgrades by
early 1999. In addition, the Partnership is in the process of
negotiating the renewal of franchise agreements for two other
franchise areas covered by the Villa Rica cable system and the
Partnership believes that the renewed franchise agreements may require
the Partnership to upgrade the cable systems within those franchise
areas. If the Partnership is unable to obtain financing to fund the
upgrades required by its franchise agreements, the respective
franchising authorities may be entitled to terminate the franchise
agreements and the Partnership could lose valuable franchises. Because
the Villa Rica cable system is served by one headend and utilizes
integrated cable hardware, the Partnership's proposed upgrade program
would cover all of the seven franchise areas in the Partnership's
Villa Rica cable system (the "Villa Rica Upgrade") and is estimated to
require aggregate capital expenditures of approximately $7.5 million.
Because the Partnership does not presently have, and believes it will
be unable to obtain, the necessary funds to complete the Villa Rica
Upgrade, the Partnership engaged a business broker to solicit offers
to purchase the Assets. The Partnership received two preliminary
offers for certain of its assets (the "Initial Offers"), each of which
excluded the Ivins, Utah and Fisk, Missouri cable systems and
contained several potential purchase price adjustments and material
closing conditions. The Partnership concluded that it was not in the
best interests of Unitholders to accept either of the Initial Offers
because, among other things, neither Initial Offer constituted an
offer to purchase all of the Assets, and each Initial Offer was
subject to several potential purchase price adjustments and material
closing conditions. Subsequent to the Partnership's receipt of the
Initial Offers, the Partnership received the Falcon Offer from the
Purchasers (which are affiliates of FHGLP) to purchase all of the
Assets for $10,473,200 in cash. The Falcon Offer includes all of the
Assets, contains no potential purchase price adjustments and contains
only limited closing conditions. In addition, the Falcon Offer
includes a purchase price for the Villa Rica cable system which
exceeds the highest of the Initial Offers by approximately 2.5%..
After the Partnership received the Falcon Offer, the Partnership
received an additional offer, dated October 2, 1998, solely for its
Fisk, Missouri cable system (the "Fisk Offer"). The Partnership
concluded that it was not in the best interests of the Unitholders to
accept the Fisk Offer because, among other things, the Fisk Offer did
not constitute an offer to purchase all of the Assets, and the Falcon
Offer includes a price for the Fisk, Missouri cable system that
exceeds the Fisk Offer by approximately 15%.. See "SPECIAL
FACTORS--Background of the Proposed Sale of the Assets."
Recommendation of the General
Partner; Fairness of the
Liquidation
Plan........................... The General Partner has concluded that the Liquidation Plan is in the
best interests of the Partnership and the Unitholders and recommends the
approval of the Liquidation Plan. The General Partner considered a
number of factors in reaching its conclusion to recommend that the
Unitholders approve the Liquidation Plan. See "SPECIAL
FACTORS--Recommendation of the General Partner; Fairness of the
Liquidation Plan" and "--Opinion of HPC Puckett."
Security Ownership of the
General Partner............... As of the Record Date, no general partner of the Partnership, no
Purchaser and no executive officer or director of a general partner or
Purchaser owned directly or beneficially any Units.
Certain Conflicts of Interest.. As noted elsewhere in this Consent Solicitation Statement, the General
Partner recommends approval of the Liquidation Plan. In connection with
the Liquidation Plan, the Purchasers, each of which is an affiliate of
the General Partner, have entered into the Purchase Agreement with the
Partnership to purchase the Assets. If the Liquidation Plan receives the
requisite Consents of the Unitholders and, in the opinion of the General
Partner, no alternative offer for the Assets is rendered which is
superior to the terms of the Purchase Agreement, then the Partnership
will sell all of the Assets to the Purchasers. Accordingly, in light of
its affiliation with the Purchasers, the General Partner may be deemed to
have a conflict of interest. See "SPECIAL FACTORS--Certain Conflicts of
Interest" and "--The Purchase Agreement."
The Purchase Agreement......... Pursuant to the Purchase Agreement, the Purchasers will purchase all of
the Assets for $10,473,200 in cash. See "SPECIAL FACTORS--Background of
the Proposed Sale of the Assets," and "--The Purchase Agreement."
The Purchase Agreement is set forth as Exhibit A to this Statement.
Opinion of HPC Puckett......... On _______________, HPC Puckett & Company delivered to the General
Partner an opinion that the Purchase Price is fair, from a financial
point of view, to the Partnership and the unaffiliated Unitholders. See
"SPECIAL FACTORS--Opinion of HPC Puckett."
Consummation of the Sale....... The Partnership currently anticipates that the Sale will be consummated
as soon as practicable after receipt of (i) the requisite Consents of the
Unitholders to the Liquidation Plan, and (ii) the requisite consents of
regulatory authorities to transfer the Assets to the Purchasers. The
Purchase Agreement provides that the Purchasers may purchase an
individual cable television system that is included in the Assets as soon
as the necessary regulatory consents of governmental authorities have
been obtained with respect to such individual system. Accordingly, it is
possible that sales of the individual systems that constitute the Assets
may be consummated at different times.
</TABLE>
7
<PAGE> 15
<TABLE>
<S> <C>
No Appraisal Rights............ Unitholders have no appraisal rights in connection with the Liquidation
Plan. See "SPECIAL FACTORS--No Appraisal Rights."
Federal Income
Tax Consequences.............. Consummation of the Liquidation Plan will cause the Partnership to
recognize income for federal income tax purposes which income will be
allocable to the Unitholders. See "SPECIAL FACTORS--Federal Income Tax
Consequences of the Liquidation Plan."
Final Distributions
and Liquidation.............. Based upon the terms and conditions of the Sale, after repayment of the
Partnership's existing obligations, the Partnership presently estimates
that one or more liquidating distributions to the Unitholders will total
approximately $225 per Unit. After such liquidating distributions, the
Partnership will dissolve and terminate. See "SPECIAL
FACTORS--Liquidation."
</TABLE>
8
<PAGE> 16
SELECTED HISTORICAL FINANCIAL DATA
The following selected financial data of the Partnership for
each of the last five fiscal years have been derived from the Partnership's
financial statements audited by the Partnership's independent public
accountants. The following selected financial data for the six months ended June
30, 1998 and June 30, 1997 have been derived from the Partnership's unaudited
financial statements. Such unaudited financial statements have been prepared by
the Partnership on a basis consistent with the audited financial statements and,
in the opinion of the management, include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the
information. The results of the operations for the six months ended June 30,
1998 may not be indicative of results for the full year.
The selected financial data set forth below should be read in
conjunction with the audited financial statements and related notes thereto
included in the Partnership's Annual Report on Form 10-K for the year ended
December 31, 1997 and the unaudited financial statements and notes thereto
included in the Partnership's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998, copies of which are attached hereto as Exhibits C and D,
respectively.
<TABLE>
<CAPTION>
Six Months Ended
---------------------------------
June 30, June 30,
1997 1998
------------- ------------
<S> <C> <C>
Total revenues........................................................... $ 1,457,900 $ 1,521,700
Costs and expenses....................................................... (819,800) (860,600)
Depreciation and amortization............................................ (547,100) (554,100)
Operating income......................................................... 91,000 107,000
Interest expense......................................................... (64,500) (81,600)
Interest income.......................................................... 4,200 8,100
Gain on sale of cable assets............................................. -- 900
Net income............................................................... 30,700 34,400
Distributions to partners................................................ -- --
Per unit of limited partnership interest
Net loss.............................................................. 0.83 0.93
Distributions......................................................... -- --
BALANCE SHEET DATA
Total assets............................................................. $ 6,046,200 $ 5,833,500
Total debt............................................................... $ 1,077,100 $ 1,600,000
General partners' deficit................................................ (36,900) (37,000)
Limited partners' capital................................................ 3,611,000 3,609,300
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------
1993 1994 1995 1996 1997
----------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues..................... $ 1,797,000 $ 2,007,800 $ 2,211,900 $ 2,524,700 $ 2,917,600
Costs and expenses........... (1,167,800) (1,293,600) (1,291,200) (1,461,100) (1,675,100)
Depreciation and amortization (915,200) (1,004,200) (976,400) (1,054,200) (1,118,800)
Operating income (loss)...... (286,000) (290,000) (55,700) 9,400 123,700
Interest expense............. (150,500) (161,300) (195,400) (147,700) (140,800)
Interest income.............. 5,200 1,500 4,300 8,000 11,600
Net loss..................... (431,300) (449,800) (246,800) (130,300) (5,500)
Distributions to partners.... 443,900 259,000 -- -- --
Per unit of limited partnership interest:
Net loss................. $ (11.66) $ (12.16) $ (6.67) $ (3.52) $ (0.15)
Distributions............ 12.00 7.00 -- -- --
BALANCE SHEET DATA
Total assets................. $ 7,539,800 $ 7,027,700 $ 6,765,700 $ 6,656,500 $ 5,894,700
Total debt................... 2,013,200 1,907,500 1,630,700 1,288,400 1,750,000
General partners' deficit.... (26,300) (33,400) (35,900) (37,200) (37,300)
Limited partners' capital.... 4,655,600 3,953,900 3,709,600 3,580,600 3,575,200
</TABLE>
9
<PAGE> 17
SPECIAL FACTORS
The Partnership was formed in September 1987 to engage in the
ownership, operation, development and, where appropriate, sale or other
disposition of cable television systems in small and medium sized communities.
In 1989, the Partnership completed the offering of Units. A
total of 36,626 Units were sold at a price of $250 per Unit, representing gross
proceeds to the Partnership of $9,156,500. During January 1990, the Partnership
began its cable television business operations with the acquisition of a small
cable television system providing service to customers in Ivins, Utah. During
1990, the Partnership completed two additional acquisitions of cable television
systems serving the communities in and around Fisk, Missouri and Villa Rica,
Georgia. Under the terms of the Partnership Agreement, the Partnership will
terminate on December 31, 2037 unless terminated sooner under the provisions
thereof.
BACKGROUND OF THE PROPOSED SALE OF THE ASSETS
Substantially all of the available channel capacity in the
Partnership's cable systems is being utilized and each of the Partnership's
cable systems requires upgrading. Existing franchise agreements for three of the
seven franchise areas in the Partnership's Villa Rica, Georgia cable system
require the Partnership to complete system upgrades by early 1999. In addition,
the Partnership is negotiating the renewal of franchise agreements for two other
franchise areas covered by the Villa Rica cable system and the Partnership
believes that the renewed franchise agreements may require the Partnership to
upgrade the cable systems within those franchise areas. If the Partnership is
unable to obtain financing to fund the upgrades required by its franchise
agreements, the respective franchising authorities may be entitled to terminate
the franchise agreements and the Partnership could lose valuable franchises.
Because the Villa Rica cable system is served by one headend
and utilizes integrated cable hardware, the Villa Rica Upgrade program would
cover all of the seven franchise areas in the Villa Rica, Georgia cable system
and is estimated to require aggregate capital expenditures of approximately $7.5
million. The Partnership, however, does not presently have, and believes it will
be unable to obtain, the funds required to complete the Villa Rica Upgrade. The
Partnership only has approximately $800,000 of availability under its $2.5
million revolving loan facility. In addition, the Partnership Agreement provides
that the Partnership may not incur borrowings unless the amount of such
borrowings, together with all outstanding borrowings, does not exceed 33% of the
original capital raised by the Partnership (i.e., a maximum of approximately
$3.0 million of outstanding indebtedness). Consequently, even if the Partnership
used the approximately $800,000 of existing availability under its revolving
loan facility and was able to obtain the additional $500,000 of debt financing
permitted under the terms of the Partnership Agreement, the Partnership would
still lack approximately $6.2 million of additional funding necessary to
complete the Villa Rica Upgrade.
The Partnership considered seeking an amendment to the
Partnership Agreement to permit the Partnership to incur sufficient indebtedness
to fund completion of the Villa Rica Upgrade. Ultimately, however, the
Partnership concluded that such an amendment would not benefit the Partnership
because debt financing sufficient to complete the Villa Rica Upgrade was not
available. This conclusion was based in large part on the discussions held with
financing sources in 1996 and 1997 in connection with the refinancing by Enstar
Finance Company, LLC (an affiliate of ECC) of the long-term indebtedness of
several partnerships managed by ECC. Since financing was not available to fund
completion of the Villa Rica Upgrade, the Partnership instead engaged a business
broker to solicit offers from third parties to purchase the Partnership's
Assets. At the time the broker was engaged, FHGLP had concluded that it was not
interested in acquiring the Assets primarily due to limitations on the capital
available to FHGLP for system acquisitions under its debt agreements and the
pendancy of a restructuring of its partnership agreement.
Over a period of four months in early 1998, the Partnership
solicited offers to purchase the Assets. The Partnership distributed
solicitation materials to more than twenty-five potential purchasers and only
four responded by conducting due diligence at the Partnership. Ultimately, the
Partnership received the two Initial Offers, both dated May 15, 1998, each of
which excluded the Ivins, Utah and Fisk, Missouri cable systems and contained
several potential purchase price adjustments and material closing conditions.
The Partnership concluded
10
<PAGE> 18
that it was not in the best interests of the Unitholders to accept either of the
Initial Offers because, among other things, neither Initial Offer constituted an
offer to purchase all of the Assets, and each Initial Offer was subject to
several potential purchase price adjustments and material closing conditions.
Subsequent to the Partnership's receipt of the Initial Offers, the Partnership
received an offer from the Purchasers (which are affiliates of FHGLP) to
purchase all of the Assets for $10,473,200 in cash. The Falcon Offer includes a
price for the Villa Rica cable system which exceeds the highest of the Initial
Offers by approximately 2.5%, includes no potential purchase price adjustments
and contains only limited closing conditions. The Purchasers were able to make
the Falcon Offer because, subsequent to the Partnership's receipt of the Initial
Offers, FHGLP successfully refinanced its bond and bank indebtedness and reached
an agreement to restructure its partnership agreement and acquire a significant
number of cable systems from third parties. After the Partnership received the
Falcon Offer, the Partnership received an additional offer, dated October 2,
1998, solely for its Fisk, Missouri cable system. The Partnership concluded that
it was not in the best interests of the Unitholders to accept the Fisk Offer
because, among other things, the Fisk Offer did not constitute an offer to
purchase all of the Assets, and the Falcon Offer includes a price for the Fisk,
Missouri cable system that exceeds the Fisk Offer by approximately 15%.
Given current market conditions for the Assets, the impending
upgrades required by the Partnership's franchise agreement, and the
Partnership's funding limitations, the General Partner believes that accepting
the Falcon Offer is in the best interests of the Partnership and the
Unitholders. Accordingly, the Purchasers and the Partnership entered into the
Purchase Agreement pursuant to which the Purchasers have agreed to purchase from
the Partnership, and the Partnership has agreed to sell to the Purchasers,
subject to obtaining the requisite Consents from the Unitholders, all of the
Assets for a price of $10,473,200 in cash. The Purchase Price was determined
based upon the results of the broker's efforts to solicit offers to purchase the
Assets, the terms of the Initial Offers and the determination by the Purchasers
of a reasonable fair market value for the Assets based upon their experience as
regular buyers and sellers of cable systems. In addition, the Partnership has
obtained the opinion of HPC Puckett & Company that the Purchase Price is fair,
from a financial point of view, to the Partnership and the unaffiliated
Unitholders. The Falcon Offer includes all of the Assets, contains no potential
purchase price adjustments and contains only limited closing conditions. In
particular, the Falcon Offer is not contingent upon the satisfactory completion
of due diligence, nor is it contingent upon the Purchasers obtaining adequate
financing. The only material conditions to the closing of the Sale are the
attainment of the requisite Consents from the Unitholders, the attainment of the
required governmental regulatory consents, and the continued truth and accuracy
of the representations and warranties of the Partnership contained in the
Purchase Agreement. In addition, the Falcon Offer includes a purchase price for
the Villa Rica cable system which exceeds the highest of the Initial Offers by
approximately 2.5%, and a purchase price for the Fisk, Missouri cable system
which exceeds the Fisk Offer by approximately 15%.
CERTAIN CONFLICTS OF INTEREST
ECC is the corporate general partner of the Partnership and is
affiliated with each of the Purchasers, and each of them is under common control
by FHGLP. As a result of these affiliations, a conflict arises between the
Purchasers' desire to purchase the Assets at the lowest possible price and the
desire of the Unitholders to maximize the sale price of the Assets. Furthermore,
the Purchase Agreement was not negotiated at arm's length. The General Partner,
who as described above is an affiliate of the Purchasers, negotiated the terms
and provisions of the Purchase Agreement on behalf of the Partnership with the
Purchasers on terms the General Partner believes are customary for the sale of
similar assets.
In addition, the Partnership has 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. The Management Agreement is
terminable by the Partnership upon 60 days written notice to Enstar Cable.
Enstar Cable has engaged FHGLP to provide certain management services for the
Partnership and pays 80% of the management
11
<PAGE> 19
fees it receives to FHGLP in consideration of such services and reimburses FHGLP
for expenses incurred by FHGLP on its behalf. In addition, the Partnership
receives certain system operating management services from affiliates of Enstar
Cable 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. Until September 30,
1998, the Partnership purchased certain programming services from Cablevision
and, after such date, has purchased such services from alternative sources which
include other affiliates of the General Partner.
For the six months ended June 30, 1998, and for the years
ended December 31, 1997 and 1996, Cablevision charged the Partnership
approximately $296,400, $526,800 and $451,900, respectively, for programming
services. For the six months ended June 30, 1998, and for the years ended
December 31, 1997 and 1996, Enstar Cable charged the Partnership management fees
of approximately $76,100, $145,900 and $126,200, respectively, and reimbursement
expenses of $62,400, $121,900 and $105,200, respectively. For the six months
ended June 30, 1998, and for the years ended December 31, 1997 and 1996, the
Partnership reimbursed affiliates approximately $137,800, $266,100 and $243,000,
respectively, for system operating management services.
Because the Partnership did not generate sufficient cash flow
from operations in previous years, certain programming fees payable to
Cablevision, and certain management fees and reimbursed expenses payable to
Enstar Cable, have been deferred. On September 30, 1997, the Partnership entered
into a new revolving loan facility with Enstar Finance Company, LLC ("EFC"), a
wholly-owned subsidiary of the General Partner. The Partnership used borrowings
under the revolving loan facility to pay to Cablevision all of the $408,000 of
programming fees that had been deferred, and to pay to the General Partner
$387,500 of the Partnership's $632,100 receivable balance for deferred
management fees and reimbursed expenses. If the Partnership continues to
operate, it is uncertain if or when the Partnership will pay its receivable
balance to the General Partner, or if other affiliates of the General Partner,
such as Enstar Cable, will continue to defer amounts they are owed for
programming fees and management activities. Once the Partnership is terminated,
however, such affiliates of the General Partner will incur no additional
expenses on the Partnership's behalf. In addition, the General Partner intends
to cause the Partnership to pay all deferred expenses, including amounts owed to
the General Partner and its affiliates, with the proceeds of the Sale. In order
to repay such deferred expenses, the proceeds from the Sale will be reduced by
the aggregate amount of such deferred expenses. Such reduction will consequently
result in a reduction in the total liquidating distributions per Unit.
Accordingly, the General Partner's interest in it and its affiliates being
repaid in full at the earliest possible date may be deemed to conflict with the
Unitholders' interest in maximizing the value of their investment.
THE PURCHASE AGREEMENT
Pursuant to the Purchase Agreement, the Purchasers agreed to
purchase all of the Assets for $10,473,200 in cash plus the amount, if any, of
any capital expenditures incurred by the Partnership between the date of the
Purchase Agreement and the closing of the Sale in connection with line
extensions and/or rebuilds of the Partnership's cable systems.
In the Purchase Agreement, the Partnership represents and
warrants to the Purchasers, in summary, that (i) the Partnership was properly
formed under Georgia law and is qualified to transact business and is in good
standing in each state in which its ownership of assets or conduct of business
requires such qualification; (ii) the Partnership has the partnership power to
own and operate its cable systems and is authorized to execute and deliver the
Purchase Agreement and, upon obtaining the requisite consents of the
Unitholders, to consummate the Sale, (iii) the execution, delivery and
performance of the Purchase Agreement does not require any material action or
filing with any governmental authority except for compliance with the applicable
requirements of the local franchising authorities; (iv) except as disclosed, the
Purchase Agreement does not require any material consent by any person under any
cable system contract, (v) the execution, delivery and performance of the
Purchase Agreement will not result in any lien, constitute any breach or default
under, or give rise to a right of termination, cancellation, right of first
refusal or acceleration under any applicable legal requirement or any judgment,
order, decree, contract, license, lease, indenture, mortgage, loan agreement,
note or other agreement or instrument as to which the Partnership is a party;
(vi) the Partnership is not in breach or default under any cable system contract
or contract to which any of its assets may be bound; (vii) the Purchase
Agreement has been duly executed and delivered by the Partnership and is binding
upon the Partnership; (viii) each franchise and FCC license is valid and in full
force and
12
<PAGE> 20
effect; (ix) the Partnership has good and marketable title to, or valid
leasehold or license interest in, all of the Assets; (x) the Partnership is not
infringing upon any intellectual property held by others; (xi) neither the
Partnership nor any party to any cable system contract is in default or breach
thereof and that the real and personal property which are the subject of leases
that constitute the cable systems contract are currently used in the
construction, operation or maintenance of the Partnership; (xii) there is no
material litigation that will adversely affect the Purchase Agreement; (xiii)
the Partnership is in compliance with all legal requirements; and (xiv) the
Partnership has filed all reports required by the Securities and Exchange
Commission. The Purchasers' obligations under the Purchase Agreement are
conditioned upon the truth and accuracy of the Partnership's representations and
warranties as of the date of the Purchase Agreement and the continued truth and
accuracy thereof as of the Closing Date. If the Purchasers terminate the
Purchase Agreement as a result of the Partnership's representations or
warranties being materially false or inaccurate, then the Partnership will be
obligated to reimburse the Purchasers for their reasonable out-of-pocket
expenses.
Under the Purchase Agreement, the Purchasers' obligation to
purchase the Assets are subject to the following conditions precedent: (i) no
action, suit, proceeding, stay, order, judgment or decree shall have been filed
that seeks to enjoin, materially restrain or prohibit consummation of the Sale;
(ii) all material authorizations, consents, permits and approvals required for
the consummation of the Sale of the Assets shall have been obtained and remain
in full force and effect; (iii) the representations and warranties of the
Partnership shall be true and correct in all material respects as of the date of
the Purchase Agreement and as of the closing; and (iv) the Partnership shall
have received the requisite consents of the Unitholders to the Liquidation Plan.
The Purchasers have agreed to keep their offer open until no
later than March 31, 1999, except that such date will be extended to June 30,
1999 if all conditions to the consummation of the Sale have been satisfied by
March 31, 1999, except the receipt of one or more required consents of
governmental authorities and the General Partner believes that such pending
approvals are likely to be obtained by June 30, 1999. The Partnership cannot
sell any of the Assets to the Purchasers unless the Liquidation Plan receives
the requisite Consents from the Unitholders.
The Purchase Agreement may be terminated by the Partnership
if, prior to the closing date of the Sale (the "Closing Date"), it receives a
superior offer for the purchase of the Assets from a bona fide third party.
Based on the extensive sales effort conducted to date, the Partnership does not
expect a superior offer to be made. However, if such an offer were to be made,
the Partnership would be free to terminate the Asset Purchase Agreement and
accept the offer from the third party. The Partnership's sole liability to the
Purchasers upon such termination would be to reimburse the Purchasers for their
actual out-of-pocket costs related to the Liquidation Plan.
At the present time, the Purchasers intend to fulfill their
obligations under the Purchase Agreement through the use of cash on hand and/or
proceeds from the revolving secured credit facility maturing in 2006 (the
"Revolving Credit Facility") of Falcon Cable Communications, LLC, the general
partner of each of the Purchasers, with BankBoston, N.A. as Documentation Agent,
The Chase Manhattan Bank as Co-Syndication Agent, NationsBank, N.A. as
Syndication Agent, Toronto Dominion (Texas) Inc. as Administrative Agent, Bank
of America, N.T. & S.A. as Agent, and the other lenders thereunder. The
Revolving Credit Facility provides for prime-based and LIBOR-based interest rate
options. The prime-based margin ranges from 0% to 0.375%, and the LIBOR-based
margin ranges from 0.5% to 1.375%. The actual margins are based on the ratio of
the borrower's total consolidated debt to annualized consolidated cash flow. The
borrower must also pay a commitment fee, ranging from 0.25% to 0.375%, depending
on the applicable leverage ratio, on the unused portion of the available
borrowings under the Revolving Credit Facility. The borrower under the Revolving
Credit Facility intends to repay the borrowings through operating cash flow
and/or future borrowings.
CLOSING OF THE SALE
It is anticipated that the Sale will be consummated as soon as
practicable following receipt of (i) the requisite Consents of the Unitholders
to the Liquidation Plan, and (ii) the requisite consents of regulatory
authorities to transfer the Assets to the Purchasers. The Purchase Agreement
provides that the Purchasers may purchase an individual cable television system
that is included in the Assets as soon as the necessary regulatory consents of
governmental authorities have been obtained with respect to such individual
system. Accordingly, it is possible that sales of the individual systems that
constitute the Assets may be consummated at different times.
13
<PAGE> 21
For a general discussion of the tax consequences from the
Sale, see "SPECIAL FACTORS--Federal Income Tax Consequences of the Liquidation
Plan."
DESCRIPTION OF ASSETS
As of June 30, 1998, the Partnership owned the following cable
systems:
<TABLE>
<CAPTION>
Average
Monthly
Premium Revenue Per
Homes Basic Basic Service Premium Basic
System Passed(1) Subscribers Penetration(2) Units(3) Penetration(4) Subscriber
- ------ ------ ----------- ----------- ----- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Ivins, UT 942 317 33.7% 82 25.9% $33.45
Fisk, MO 770 397 51.6% 94 23.7% $21.10
Villa Rica, GA 9,699 6,672 68.8% 1,604 24.0% $35.63
------ ----- -----
Total 11,411 7,386 64.7% 1,780 24.1% $34.75
====== ===== =====
</TABLE>
- -------------------------
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 to cable service 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.
OPINION OF HPC PUCKETT
The Partnership retained HPC Puckett & Company ("HPC") in
July, 1998 to examine the proposed Liquidation Plan and to render an opinion to
the General Partner that the Purchase Price is fair, from a financial point of
view, to the Partnership and the unaffiliated Unitholders (the "Fairness
Opinion").
HPC is a cable television brokerage firm specializing in
brokerage, valuation and financing activities principally serving the cable
television industry. HPC was selected by the General Partner to provide its
services based upon HPC's qualifications, expertise, reputation and independence
from the Partnership. The Partnership imposed no conditions or limitations on
the scope of HPC's investigation or the methods and procedures to be followed in
rendering the Fairness Opinion, nor did it give HPC any instructions regarding
how to render the Fairness Opinion. HPC will receive a fee for the preparation
and rendering of the Fairness Opinion in the amount of $17,000.
On ________, 1998, HPC delivered to the General Partner the
Fairness Opinion which states that as of such date, the Purchase Price to be
received by the Partnership in connection with the Sale is fair, from a
financial point of view, to the Partnership and unaffiliated Unitholders. The
decision to enter into the Liquidation Plan, however, was made by the General
Partner.
The Fairness Opinion, a copy of which is attached as Exhibit B
hereto, sets forth assumptions made, matters considered, and limits on a review
undertaken by HPC. Unitholders are urged to read the Fairness Opinion in its
entirety. The Fairness Opinion, which is directed only to the Liquidation Plan,
was for the
14
<PAGE> 22
information of the General Partner and does not constitute a recommendation to
any Unitholder. This summary of the Fairness Opinion is qualified in its
entirety by reference to the full text of such Fairness Opinion.
For purposes of the Fairness Opinion, HPC: (i) reviewed the
Purchase Agreement; (ii) prepared a review of the operating cable television
systems owned by the Partnership; (iii) reviewed certain information relating to
the business, earnings, historical earnings, a reasonable analysis of
predictable earnings, cash flow, assets and prospects of the Partnership,
furnished to it by the management of the Partnership and developed through its
own investigations; (iv) prepared a Valuation and Appraisal for the Assets and,
in doing so, reviewed procedures and assumptions set forth in said appraisal in
order to determine the fair market value of the underlying assets of the
Partnership; (v) conducted discussions with members of senior management of the
Partnership regarding the business and prospects of the Partnership; (vi)
compared the results of operations of the Partnership with those of certain
companies which it deemed to be reasonably similar or "comparable" to the
Partnership in order to determine marketplace standards; (vii) compared the
proposed financial terms of the contemplated transaction with the financial
terms of certain other mergers and acquisitions which it deemed to be relevant;
(viii) reviewed the cable television industry respecting the relevant geographic
areas as to current standards, recent and anticipated developments, and the
Partnership's position as a viable operating concern in each of the same; (ix)
reviewed the Partnership's balance sheet, and its general financial condition,
with an emphasis on the capital structure of the Partnership in relation to
current and future anticipated requirements of the marketplace; (x) reviewed
certain marketing efforts and held discussions with the senior management of the
Partnership respecting other prospective purchasers and/or discussions with
prospective purchasers regarding other potential transactions; (xi) reviewed
"SPECIAL FACTORS--Recommendation of the General Partner; Fairness of the
Liquidation Plan" and "SPECIAL FACTORS--Disadvantages of the Liquidation Plan"
in this Consent Solicitation Statement; and (xii) reviewed such other financial
studies and analyses and performed such other investigations and took into
account such other matters as it deemed necessary. HPC Puckett did not give any
consideration to the tax consequences, if any, to the Partnership and its
Unitholders from the Sale.
In connection with the Fairness Opinion, HPC prepared a
Valuation and Appraisal of the Assets (the "Appraisal"). In the Appraisal, HPC
values the Assets at $10,050,000. To arrive at that value, HPC averaged the
results it obtained using two alternative methods for valuing the Assets. In the
first method, HPC valued the Assets based upon a gross multiple of ten times the
Partnership's projected cash flow for the next 12 months less the capital
expenditures required during such 12-month period. The first method of valuing
the Assets resulted in a value of $9,400,000. In the second method of valuing
the Assets, HPC prepared a valuation based on the capitalization of the
Partnership's projected net cash flow. This method involved an examination of
ten years of projected future cash flows discounted back to cumulative present
value. HPC accounted for the source and use of funds, including a consistent
multiple at the end of the ten-year period, and chose a discount rate of 15%.
The projected pre-tax operations cash flows, when coupled with the tenth-year
residual value (using a multiple of ten times cash flow) of the Assets, less
capital expenditures, were discounted to the present value at an acceptable
current cost of money. The second method of valuing the Assets resulted in a
value of $10,717,351. HPC selected the multiples it used in each of the
valuation methods based on HPC's expertise and experience in the cable
television industry.
In connection with its review, HPC assumed and relied upon,
without independent verification, the accuracy and completeness of the
information supplied or otherwise made available to HPC by the Partnership for
the purposes of the Fairness Opinion. The Fairness Opinion is necessarily based
on economic, market and other conditions as in effect on and information made
available to it as of the date of the Fairness Opinion. Events occurring after
that date could materially effect the assumptions and conclusions contained in
the Fairness Opinion.
A copy of the HPC Puckett Opinion shall be made available for
inspection and copying at the principal executive offices of the Partnership
during its regular business hours by Unitholders or their representatives who
have been so designated in writing. A copy of the HPC Puckett Opinion may also
be provided to Unitholders or their representatives who have been designated in
writing upon written request and at the expense of the requesting Unitholder.
15
<PAGE> 23
USE OF PROCEEDS AND CASH DISTRIBUTIONS
The following table sets forth the anticipated application of
the net proceeds from the Sale. The amount available for distribution to
Unitholders shown below assumes that all of the Assets are sold to the
Purchasers for the price and subject to the other terms and conditions contained
in the Purchase Agreement.
As promptly as practicable following the Sale, the General
Partner will discharge all of the liabilities of the Partnership and distribute
the remaining assets to the partners in accordance with the Partnership
Agreement. The Partnership presently estimates that the liquidating
distributions to the Unitholders would total approximately $225 per Unit. This
estimate is based on the following factors and other assumptions as of June 30,
1998, and assuming a closing as of March 31, 1999 and a liquidation of the
Partnership by June 30, 1999. HOWEVER, THERE CAN BE NO ASSURANCE AS TO THE
ACTUAL AMOUNTS DISTRIBUTED, OR AS TO THE AMOUNTS SET FORTH BELOW. ACTUAL AMOUNTS
MAY VARY MATERIALLY FROM THESE ESTIMATES.
In accordance with the Partnership Agreement, the initial and
any subsequent liquidating distributions will be distributed in proportion to,
and to the extent of, the positive capital account balances of the Unitholders
and the general partners.
<TABLE>
<S> <C>
Gross purchase price $ 10,473,200
Less: Note payable (1,500,000)
Less: Expenses of sale and liquidation (639,700)
--------------
Net distribution amount 8,333,500
Less: Distribution to general partners (83,335)
--------------
Distributions to Unitholders $ 8,250,165
==============
Estimated distributions to Unitholders per Unit $ 225
==============
</TABLE>
- ----------------
The Partnership estimates that the expenses of the Liquidation Plan will be
as follows:
<TABLE>
<S> <C>
Filing $ 5,000
Legal 110,000
Fairness opinion 17,000
Accounting and tax services 25,000
Solicitation and postage 53,000
Printing 75,000
Broker Commission 104,700
Closing 100,000
Miscellaneous/other 150,000
--------------
$ 639,700
==============
</TABLE>
From the inception of the Partnership through July 1994, the
Partnership made aggregate cash distributions to the Unitholders in the amount
of $1,941,305, or $53.00 per Unit. Such distributions were made from operating
cash flow. The Partnership has paid no distributions since 1994.
16
<PAGE> 24
RECOMMENDATION OF THE GENERAL PARTNER; FAIRNESS OF THE LIQUIDATION PLAN
The General Partner and the Purchasers believe that the
advantages of consummating the Sale at this time exceed any disadvantages of
consummating the Sale at this time. Accordingly, the General Partner recommends
the Unitholders approve the Liquidation Plan.
In reaching the conclusion to recommend that the Unitholders
approve the Liquidation Plan, the General Partner and the Purchasers considered
a number of factors, including but not limited to, the following:
o If the Liquidation Plan is approved, the Partnership will be able to
consummate the Sale for an amount the General Partner believes represents
a fair value of the Assets and upon terms which the General Partner
believes will entail minimal transaction costs and will permit an
efficient consummation of the Sale. The Purchase Price was determined
based upon the results of the broker's efforts to solicit offers to
purchase the Assets, the terms of the Initial Offers and the
determination by the Purchasers of a reasonable fair market value for the
Assets based upon their experience as regular buyers and sellers of cable
systems. In addition, the Partnership has obtained the opinion of HPC
Puckett & Company that the Purchase Price is fair, from a financial point
of view, to the Partnership and the unaffiliated Unitholders. The
Purchase Price includes a purchase price for the Villa Rica cable system
which exceeds the highest of the Initial Offers by approximately 2.5%,
and a purchase price for the Fisk, Missouri cable system which exceeds
the Fisk Offer by approximately 15%.
o The Purchase Agreement may be terminated by the Partnership if, prior to
the Closing Date, it receives a superior offer for the purchase of the
Assets from a bona fide third party.
o The Purchase Agreement contains only limited closing conditions. In
particular, the Purchasers' obligations under the Purchase Agreement are
not contingent upon the satisfactory completion of due diligence, nor are
such obligations contingent upon the Purchasers obtaining adequate
financing.
o The Purchase Price for the Assets under the Purchase Agreement is not
subject to reduction. Thus, unlike the Initial Offers and other property
sales situations in which the purchase price could decrease as a result
of due diligence uncertainties and other contingencies, there is no risk
of continuing price negotiations with respect to the Sale.
o Based on its business experience, the General Partner believes that a
sale of all the Assets in one transaction, such as pursuant to the
Liquidation Plan, generally yields greater net proceeds available for
distribution than a sale conducted on a system-by-system or
asset-by-asset basis. The General Partner believes that this is
particularly true where the cable systems are very small (as is the case
with the Partnership's cable systems). In addition, the General Partner
believes that selling all of the Assets at one time would generally
result in lower aggregate sale costs, unlike selling the Assets
individually (such as would have occurred had the Partnership accepted
either of the Initial Offers, which excluded the Ivins, Utah and Fisk,
Missouri cable systems, or the Fisk offer, which excluded the Ivins, Utah
and Villa Rica, Georgia cable systems). Selling all of the Assets at one
time and completing the dissolution and liquidation of the Partnership
promptly would also eliminate the need for the Partnership to incur
ongoing administrative and other expenses of continuing to operate the
Partnership during an extended sales period.
o Substantially all of the available channel capacity in the Partnership's
cable television systems is being utilized and each of such systems
requires upgrading. The Villa Rica Upgrade is presently estimated to
require aggregate capital expenditures of approximately $7.5 million.
Existing franchise agreements for three of the seven franchise areas
require the Partnership to complete upgrades by early 1999. In addition,
the Partnership is in the process of negotiating the renewal of franchise
agreements for two other franchise areas covered by the Villa Rica cable
system and the Partnership believes that the renewed franchise agreements
may require the Partnership to upgrade the cable systems within those
franchise areas. Selling the Assets in connection with the Liquidation
Plan would eliminate the need for the Partnership to complete any of the
above-mentioned upgrades.
17
<PAGE> 25
o By selling the Assets now, the Partnership would eliminate the risks
inherent in the ownership of cable television systems, including, among
other things, the risk that the Partnership may be unable to obtain
funding to complete the upgrades required by its franchise agreements and
the loss of valuable cable franchises that may result if such upgrades
are not completed, the uncertainty of legislative and regulatory changes,
the rapid developments in the competitive environment facing cable
television operators and reduced subscriber rates (which in turn may be
affected by general and local economic conditions).
o Due to financial constraints, the Partnership has not made any
distributions to Unitholders in the past several years and, in light of
the capital required to complete the Villa Rica Upgrade, does not
anticipate being in a position to make distributions to Unitholders in
the foreseeable future. Approval of the Liquidation Plan will, however,
permit cash liquidating distributions to Unitholders presently estimated
to total approximately $225 per unit.
o The Liquidation Plan would provide liquidity to Unitholders. At present,
there is no established public trading market for the units, and
liquidity has been limited to sporadic sales which have occurred within
an informal secondary market.
o The General Partner believes that because the Purchasers are affiliates
of the General Partner, there is a greater certainty of closing.
The General Partner also considered the risk that by selling
the Assets at this time, the Partnership would not benefit from possible further
improvements in economic and market conditions which might produce increased
cash flow and possibly increase the sale prices of the Assets. The General
Partner believes, however, that this potential risk is outweighed by the
potential benefits to be realized from the Liquidation Plan. In addition, the
General Partner considered certain potential conflicts of interest involving the
General Partner and certain of its affiliates as described under "Special
Factors--Certain Conflicts of Interest," and their effect on the Unitholders.
The General Partner did not believe, however, that such potential conflicts of
interest adversely affected the procedural and substantive fairness of the
Liquidation Plan to the Unitholders because (i) the General Partner believes
that the Liquidation Plan represents the best price presently available for the
Assets, (ii) the consent of Unitholders holding at least a majority of the
outstanding Units is required to approve the Sale, (iii) the Partnership is
obtaining the opinion of HPC Puckett & Company that the Purchase Price is fair,
from a financial point of view to the Partnership and the unaffiliated
Unitholders, and (iv) the Purchase Agreement contains the provisions described
above.
The General Partner determined by a unanimous vote of its
directors and after considering the factors listed herein and above in "SPECIAL
FACTORS--Background of Proposed Sale of the Assets" that the Liquidation Plan,
including the transactions contemplated thereby, is fair to all Unitholders and
would serve the best interests of the Partnership and the Unitholders by
maximizing the proceeds from a disposition of the Assets and, consequently, the
per Unit liquidating distributions to the Unitholders.
The foregoing discussion of the information and factors
considered by the General Partner is not intended to be exhaustive, and such
were considered collectively by the General Partner in connection with its
review of the Liquidation Plan and the transactions contemplated thereby.
Although the General Partner did not find it practicable to, and did not,
quantify or otherwise assign relative weights to the specific factors considered
in reaching its determination, the General Partner accorded added weight to the
following factors: the fact that the Purchase Price is $10,473,200 in cash,
which includes a purchase price for the Villa Rica cable system which exceeds
the highest of the Initial Offers by 2.5%, and a purchase price for the Fisk,
Missouri cable system which exceeds the Fisk Offer by approximately 15%; the
opinion of HPC Puckett & Company that the Purchase Price is fair, from a
financial point of view, to the Partnership and the unaffiliated Unitholders;
the absence of cash distributions to Unitholders since 1994; the fact that the
Partnership does not presently have, and believes that it will be unable to
obtain, the funds required to complete the Villa Rica Upgrade; the certainty of
the price to be received under the Purchase Agreement; the fact that the
Purchase Agreement contains only limited closing conditions (including the fact
that the Purchasers' obligations under the Purchase Agreement are not contingent
upon the satisfactory completion of due diligence or upon the Purchasers
obtaining adequate financing); and the savings to
18
<PAGE> 26
Unitholders in administrative and sale costs gained by selling all of the Assets
and liquidating pursuant to the Liquidation Plan.
DISADVANTAGES OF THE LIQUIDATION PLAN
The principal disadvantage which would result to Unitholders
from the approval of the Liquidation Plan is that the Partnership would not
benefit from any future improvements in economic and market conditions for the
Assets, which improvements could produce increased cash flow and possibly
increase the sale price of all or any of the Assets in the future.
CONSEQUENCES OF FAILURE TO APPROVE LIQUIDATION PLAN
If the Unitholders fail to approve the Liquidation Plan, the
Partnership will continue to own the Assets. In such event, the General Partner
expects that the Partnership would operate the Assets and may, under appropriate
conditions, seek or receive offers for the Assets as described below. To the
extent the Partnership continues to own the Assets, the Partnership will be
required to make substantial capital expenditures for upgrades of the
Partnership's cable systems. The Partnership does not presently have access to
sufficient funding to complete such upgrades, and the Partnership Agreement
prevents the Partnership from incurring additional indebtedness in an amount
sufficient to complete such upgrades. If the Unitholders do not approve the
Liquidation Plan, the Partnership might seek to amend the Partnership Agreement
to permit the Partnership to incur additional indebtedness in an amount
sufficient to complete such upgrades. However, even if the Unitholders voted to
approve such an amendment, the General Partner presently believes that the
Partnership is unlikely to meet the requisite lending criteria necessary to
obtain the needed funding.
If the Unitholders fail to approve the Liquidation Plan,
consistent with the Partnership Agreement, the General Partner may receive or
solicit offers for the sale of one or more of the Assets as opportunities arise.
In any such sale, the Partnership would benefit from any increase in value of
the affected Assets over the value of a sale at the time pursuant to the
Liquidation Plan, and would suffer a detriment to the extent of decrease in such
value. Failure by the Unitholders to approve the Liquidation Plan will not
affect their rights under the Partnership Agreement.
AMENDMENT TO THE PARTNERSHIP AGREEMENT
Pursuant to Section 9.6.1 of the Partnership Agreement, the
General Partner may not sell substantially all of the assets of the Partnership
without the prior consent of the Unitholders. Additionally, pursuant to 9.9 of
the Partnership Agreement, neither the General Partner nor any Affiliate (as
defined in the Partnership Agreement) of the General Partner is generally
permitted to purchase any material business assets, such as cable systems or
franchises, from the Partnership. Thus, because the Purchasers are Affiliates of
the General Partner, in order to permit the Purchasers to purchase the Assets,
the Partnership Agreement must be amended to permit the Purchasers to purchase
the Assets. This amendment to the Partnership Agreement requires the approval of
Unitholders holding at least a majority of the outstanding Units. In addition,
consent is being solicited to amend Section 9.1 of the Partnership Agreement to
specifically permit effectuation of the Liquidation Plan. The text of the
Amendments are as follows:
Section 9.1 of the Partnership Agreement is proposed to be
amended to add the underlined language set forth below:
Notwithstanding any other provision of this
Agreement, the General Partners shall have the
authority to effectuate the Liquidation Plan, as such
term is defined in the Consent Solicitation
Statement, dated as of ________, 1998, filed with the
Securities and Exchange Commission on Schedule 14A on
____, 1998 as such document may be amended (the
"Consent Solicitation Statement").
Section 9.9 of the Partnership Agreement is proposed to be
amended to add the underlined language set forth below:
19
<PAGE> 27
9.9 Contracts with the Partnership. The terms of any
contract between the Partnership and the General
Partners or their affiliates must be in writing and
must be no less favorable to the Partnership than
those of comparable contracts entered into by
non-affiliated persons or companies dealing at arm's
length, and such contracts must be terminable by the
Partnership without penalty on not less than 60 days
written notice. Except for the Purchasers (as defined
in the Consent Solicitation Statement), neither the
General Partners nor their affiliates shall purchase
any material business assets, such as Systems or
Franchises, from the Partnership.
LIQUIDATION
As soon as practicable following the closing of the Sale, the
General Partner on behalf of the Partnership will cause the Partnership to: (i)
pay all costs associated with the Sale, including costs associated with the
solicitation of Consents from the Unitholders; (ii) estimate and reserve for all
such costs associated with the Sale for which invoices have not yet been
received; and (iii) provide a further contingency reserve for all other expenses
and liabilities of the Partnership. The General Partner will then cause the
Partnership to distribute the balance of the cash from the Sale to the
Unitholders and general partners as provided in the Partnership Agreement.
The remaining assets of the Partnership, and any remainder of
the contingency reserve, will be distributed to the Unitholders as soon as
practicable after the closing of the Sale. The Partnership will terminate and be
dissolved upon the disposition of all of the net assets of the Partnership.
FEDERAL INCOME TAX CONSEQUENCES OF THE LIQUIDATION PLAN
GENERAL
The following discussion generally summarizes the federal
income tax consequences expected to arise from the consummation of the
Liquidation Plan. This summary is not intended to be and should not be
considered an opinion respecting the federal or state income tax consequences to
a particular Unitholder. Due to the complexity of the tax issues involved,
Unitholders are urged to consult with their personal tax advisors regarding
their individual circumstances and the tax reporting consequences of the
transaction.
This summary is based upon the Internal Revenue Code of 1986,
as amended (the "Code"); existing final, temporary and proposed Treasury
regulations thereunder (the "Regulations"); published rulings and practices of
the Internal Revenue Service (the "IRS"); and court decisions, each as currently
in effect. There can be no assurance that the IRS will agree with the
conclusions herein or that future legislation or administrative changes or court
decisions will not significantly modify the federal income tax law regarding the
matters described herein, potentially with retroactive effect. This
interpretation is also subject to subsequent issuance of Treasury regulations
and procedures for federal income tax reporting.
This summary does not discuss all the federal income tax
aspects of the Liquidation Plan that may be relevant and material to a
particular Unitholder in light of the Unitholder's personal circumstances, or to
certain types of Unitholders subject to special treatment. For example,
insurance companies, subchapter S corporations, partnerships, pension and
profit-sharing plans, tax-exempt organizations, non-U.S. taxpayers and others
may be subject to special rules not discussed below. This summary also does not
address other federal, state, local or foreign tax consequences of consummation
of the Liquidation Plan.
Based upon the description of the Liquidation Plan contained
in this Consent Solicitation Statement, and assuming the Liquidation Plan will
be consummated on June 30, 1999, the Partnership's independent accountants have
advised the Partnership that the Sale will result in a total gain allocable to
the Unitholders for federal income tax purposes in 1999 (after taking into
account reductions in each Unitholder's share of the Partnership's indebtedness)
of approximately $7.4 million or an average of approximately $201 per Unit, and
will be taxed at regular rates due to depreciation and amortization recapture.
The amount of gain actually realized by a particular Unitholder may differ from
the estimates set forth above as a result of the operation of the Partnership
Agreement. The varying capital account balances of the Unitholders result from,
among other things, the date each
20
<PAGE> 28
Unitholder was admitted to the Partnership, the amount paid by each Unitholder
for such Unit and the allocations of Partnership income or loss to each
Unitholder.
PARTNERSHIP STATUS
Under current law, a "partnership" is not a taxable entity and
incurs no federal income tax liability. Instead, each partner is required to
take into account in computing such partner's income tax liability such
partner's allocable share of the partnership's items of income, gain, loss,
deduction and credit (hereinafter referred to as "income or loss"). The
distribution of cash attributable to partnership income is generally not a
separate taxable event. This tax treatment, however, depends entirely upon the
Partnership's classification as a "partnership" (rather than as an "association
taxable as a corporation") for federal income tax purposes. This summary
assumes, and the General Partner believes, that the Partnership has been and
will continue to be properly classified as a "partnership" for federal income
tax purposes. No opinion of counsel or of the Partnership's independent
accountants or ruling from the IRS is currently being sought with respect to
this partnership status issue.
FEDERAL INCOME TAX CONSEQUENCES
Realization of Gain or Loss. Consummation of the Liquidation
Plan will cause the Partnership to recognize income for federal income tax
purposes, which income will be allocated to the Unitholders. In general, such
income will equal the excess of the "amount realized" over the Partnership's
"adjusted basis" in the Assets. The amount realized will equal the amount paid
by the Purchasers, reduced by any expenses of sale. The "adjusted basis" of an
asset will equal its cost (including nondeductible capital expenditures made by
the Partnership at the time of purchase) with certain additions or subtractions
for expenditures, transaction costs, depreciation and other items during the
period of time from acquisition of the asset until consummation of the Sale. In
addition, the reduction in each Unitholder's share of the Partnership's
indebtedness will be treated as a deemed cash distribution, which will reduce
such Unitholder's basis in its interest.
Under the Taxpayer Relief Act of 1997 (the "1997 Act"), the
maximum rate of tax on the adjusted net capital gain of a non-corporate
Unitholder is 20%. Nevertheless, under Section 1245 of the Code, a portion of
the amount previously allowed as depreciation expense with respect to personal
property of the Partnership will be "recaptured" upon sale (and taxed at
different rates) rather than being characterized as capital gain. In the case of
non-corporate Unitholders, Section 1245 gain will be taxed at ordinary income
tax rates. The Partnership is required to separately state, and the Unitholders
will be required to account separately for, their distributive share of all
gains and losses. Each Unitholder's allocable share of capital gain, Section
1245 gain, and Partnership net taxable income or loss will be reflected on the
final Schedule K-1 sent to each Unitholder.
Passive Activity Losses. Under Section 469 of the Code, a
non-corporate taxpayer or personal service corporation generally can deduct
"passive activity losses" in any year only to the extent of the person's passive
activity income for that year. Closely-held corporations may not offset such
losses against so-called "portfolio" income. Substantially all post-1986 losses
of Unitholders from the Partnership should be considered passive activity
losses. Unitholders may have "suspended" passive losses from the Partnership
(i.e., post-1986 net taxable losses in excess of statutorily permitted
"phase-in" amounts which have not been used to offset income from other passive
activities) which may be available to shelter gain from the Liquidation Plan.
Each Unitholder should consult such Unitholder's tax advisor regarding the
effect that the passive activity loss rules will have upon such Unitholder's tax
situation.
Unrelated Business Income. For most tax-exempt Unitholders,
only a portion of the gain from the sale of the Assets will be treated as
unrelated business income. Under Section 514(a) of the Code, gain from the sale
of "debt-financed property" is treated as unrelated business income generally in
an amount equal to a ratio determined by comparing the property's debt to its
cost basis. If the Assets are sold for net proceeds which results in estimated
total gain allocable to the Unitholders of approximately $7.4 million, the
portion of the gain that will be treated as unrelated business income is
estimated to be approximately $7.2 million (or approximately $195 per Unit).
Additional unrelated business income may result to a tax-exempt Unitholder which
borrowed funds to purchase its Units. Tax-exempt Unitholders should consult
their own tax advisors regarding the unrelated trade or business income that may
result from the sale of the Assets.
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<PAGE> 29
Liquidation of the Partnership. The Partnership expects to
make one or more liquidating distributions from the proceeds of the Sale in
accordance with the Partnership Agreement. See "Distributions to Unitholders."
These distributions will first reduce a Unitholder's basis in such Unitholder's
Units and, to the extent the amount of the distributions is in excess of that
basis, such excess will be taxed as capital gain, and as long-term capital gain
if the Unitholder's holding period exceeds one year. If upon the subsequent
termination of the Partnership a Unitholder has a basis remaining for such
Unitholder's Unit, the amount of such remaining basis will give rise, in the
year of the termination, to a long-term or short-term capital loss, depending on
a Unitholder's holding period.
NO APPRAISAL RIGHTS
If Unitholders owning at least a majority of the Units on the
Record Date vote in favor of the Liquidation Plan, such approval will bind all
Unitholders. The Partnership Agreement and the Georgia Revised Uniform Limited
Partnership Act, under which the Partnership is governed, do not give rights of
appraisal or similar rights to Unitholders who dissent from the vote of the
majority in approving or disapproving the Liquidation Plan. Accordingly,
dissenting Unitholders do not have the right to have their Units appraised and
to have the value of their Units paid to them because they disapprove of the
action of a majority in interest of the Unitholders.
MARKET PRICES OF UNITS
No established market for the Units was ever expected to
develop, and the secondary market transactions for the Units have been limited
and sporadic. It is not known to what extent the transactions in the secondary
market are between buyers and willing sellers, each having access to relevant
information regarding the financial affairs of the Partnership, expected value
of its assets, and its prospects for the future. Sellers in the secondary market
who desire to dispose of their Units but who have limited means to effectuate
such sales are often willing to accept substantial discounts from what might
otherwise be regarded as the fair value of the interest being sold, to
facilitate the sales. Secondary market prices generally do not reflect the
current market value of the Partnership's assets, nor are they indicative of
total return, since prior cash distributions and tax benefits received by the
original investor are not reflected in the price. Nonetheless, notwithstanding
these qualifications, the secondary market prices, to the extent that the
reported data are reliable, are indicative of the prices at which the Units
trade in the illiquid secondary market.
The following table sets forth the high and low sales prices
at which the Units traded in the secondary market as reported by Partnership
Spectrum in certain of its semimonthly publications of "The Partnership
Spectrum":
22
<PAGE> 30
PARTNERSHIP SECONDARY TRADING AS REPORTED
IN "THE PARTNERSHIP SPECTRUM"
<TABLE>
<CAPTION>
HIGH LOW NUMBER OF TRADES
1996
<S> <C> <C> <C>
May/June................. $47.10 $40.00 5
July/August.............. NRT* NRT 0
September/October........ $40.05 $32.31 3
November/December........ $40.05 $40.05 1
1997
January/February......... $40.55 $40.55 1
March/April.............. $43.00 $25.00 3
May/June................. $43.14 $43.14 1
July/August.............. $45.00 $42.00 5
September/October........ $48.50 $48.00 2
November/December........ $51.60 $48.00 3
1998
January/February......... $49.00 $49.00 1
March/April.............. $49.00 $49.00 2
May/June................. $86.36 $86.36 1
July/August.............. $75.00 $75.00 2
</TABLE>
- ---------------
* NRT = No Reported Trades
Partnership Spectrum has advised that its methodology for
compiling trade prices is as follows: trade price information reflects per unit
transaction prices for trades involving the purchase of Units by third-party
investors during the applicable period. Firms supplying trade price data are
instructed to provide information only on those transactions whereby third-party
investors acquired Units from or through such firms. If the firm acted as an
agent, the per Unit price is to include any commissions charged the buyer (but
not including commissions paid to retail brokers representing buyers). Due to
commissions and mark-ups, sellers of Units typically receive less than the
amounts paid for Units by buyers as set forth in the above table.
DISTRIBUTIONS TO UNITHOLDERS
From the inception of the Partnership through July 1994, the
Partnership made aggregate cash distributions to the Unitholders in the amount
of $1,941,305, or $53.00 per Unit. Such distributions were made from operating
cash flow. The Partnership has paid no distributions since 1994.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
On the Record Date, there were 36,626 Units issued and
outstanding and entitled to vote on matters upon which Unitholders may vote or
consent, which Units were held by 1,010 Unitholders. According to publicly
available information, and to the best knowledge of ECC, as of the Record Date,
only one entity, Madison Liquidity Partnership Investors 36, L.L.P. ("Madison"),
owned more than 5% of the outstanding Units. As of the Record Date, Madison held
2,085 Units or approximately 5.7% of the Partnership's outstanding Units. The
General Partner and its affiliates do not own any of the Units.
IDENTITY AND BACKGROUND OF CERTAIN PERSONS
ENSTAR COMMUNICATIONS CORPORATION
Enstar Communications Corporation is the corporate general
partner of the Partnership and is a wholly-owned subsidiary of FGHLP. ECC is a
Georgia corporation whose principal business is to engage in the
cable/telecommunications business, both as a general partner of 15 limited
partnerships formed to own and operate
23
<PAGE> 31
cable television systems, and through a wholly-owned operating subsidiary. The
address of ECC's principal executive offices is 10900 Wilshire Boulevard, 15th
Floor, Los Angeles, California 90024.
Set forth below is certain general information about the
Directors and Executive Officers of ECC:
<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 Controller
</TABLE>
Marc B. Nathanson, 52, has been Chairman of the Board and
Chief Executive Officer of FHGI (as defined below) and its predecessor 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. He has been the Chairman and Chief Executive Officer of Falcon
Cable Communications, LLC since September 1998. Prior to 1975, Mr. Nathanson was
Vice President of Marketing for Teleprompter Corporation, at that time the
largest multiple-system 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"). 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 29-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 also
a Director of TV Por Cable Nacional, S.A. de C.V., an Advisory Board Member of
TVA, (Brazil) and a Director of GRB Entertainment. Mr. Nathanson is also
Chairman of the Board and Chief Executive Officer of Falcon International
Communications, LLC ("FIC"). Effective November 1, 1998, Mr. Nathanson was
appointed by President Clinton as the Chair of the Broadcasting Board of
Governors for the International Bureau of Broadcasting. He also serves on the
Board of 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 the University of California, Los Angeles ("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. Mr. Nathanson received the "Entrepreneur of the Year
Award" from Inc. Magazine in 1994. He is a U.S. citizen and his business address
is the same as the address for ECC, which is set forth above.
Frank J. Intiso, 51, was appointed President and Chief
Operating Officer of FHGI in September 1995, and between 1982 and that date held
the positions of Executive Vice President and Chief Operating Officer. 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. He has been
President and Chief Operating Officer of Falcon Cable Communications, LLC since
September 1998. Mr. Intiso is responsible for the day-to-day operations of all
cable television systems under the management of FHGI. Mr. Intiso has a Masters
Degree in Business Administration from UCLA, and is a Certified Public
Accountant. He serves as chair of the California Cable Television Association,
and is on the boards of Cable Advertising Bureau, Cable In The Classroom,
Community Antenna Television Association and 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. He is a
U.S. citizen and his business address is the same as the address for ECC, which
is set forth above.
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<PAGE> 32
Stanley S. Itskowitch, 59, has been a Director of FHGI and its
predecessors since 1975, and Senior Vice President and General Counsel from 1987
to 1990 and has been Executive Vice President and General Counsel since February
1990. He has been Executive Vice President and General Counsel of Enstar
Communications Corporation since October 1988. He has been Executive Vice
President and General Counsel of Falcon Cable Communications, LLC since
September 1998. 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).
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
FIC. He is a U.S. citizen and his business address is the same as the address
for ECC, which is set forth above.
Michael K. Menerey, 46, has been Executive Vice President,
Chief Financial Officer and Secretary of FHGI and Enstar Communications
Corporation since February 1988. Prior to that time, he had been Chief Financial
Officer and Secretary of FHGI and its predecessors since 1984 and of Enstar
Communications Corporation since October 1988. He has been Executive Vice
President, Chief Financial Officer and Secretary of Falcon Cable Communications,
LLC since September 1998. 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. He is a U.S. citizen and his
business address is the same as the address for ECC, which is set forth above.
Joe A. Johnson, 53, has been Executive Vice President -
Operations of FHGI since September 1995. He has been Executive Vice
President-Operations of Enstar Communications Corporation since January 1996. He
has been Executive Vice President-Operations of Falcon Cable Communications, LLC
since September 1998. He was a Divisional Vice President of FHGI between 1989
and 1992. 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. He is a U.S. citizen and
his business address is the same as the address for ECC, which is set forth
above.
Thomas J. Hatchell, 48, has been Executive Vice President -
Operations of FHGI and Enstar Communications Corporation since February 1998. He
has been Executive Vice President-Operations of Falcon Cable Communications, LLC
since September 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 Falcon's San Luis Obispo, California region. He was Vice President -
Construction of an affiliate of Falcon from June 1980 to June 1981. In addition,
he served as a General Manager of the cable system in Tulare County, California,
from 1977 to 1980. Prior to that time, Mr. Hatchell served as a cable executive
with the Continental Telephone Company. He is a U.S. citizen and his business
address is the same as the address for ECC, which is set forth above.
Abel C. Crespo, 38, has been Controller of FHGI and Enstar
Communications Corporation since January 1997. Mr. Crespo joined Falcon in
December 1984, and has held various accounting positions during that time, most
recently that of Senior Assistant Controller. Mr. Crespo holds a Bachelor of
Science degree in Business Administration from California State University, Los
Angeles. He is a U.S. citizen and his business address is the same as the
address for ECC, which is set forth above.
FHGLP AND FHGI
FHGLP is a Delaware limited partnership whose principal
business is to own and operate cable television systems. FHGLP's general partner
is Falcon Holding Group, Inc., a California corporation ("FHGI"), whose
principal business is to hold interests in entities that own and operate cable
television systems. The address of FHGLP's and FHGI's principal executive
offices is 10900 Wilshire Boulevard, 15th Floor, Los Angeles, California 90024.
25
<PAGE> 33
Set forth below are the directors and executive officers of
FHGI. For additional information regarding the individuals set forth below, see
"--Enstar Communications Corporation."
<TABLE>
<CAPTION>
NAME POSITION
- ---- --------
<S> <C>
Marc B. Nathanson Chairman of the Board; Chief Executive Officer and Director
Frank J. Intiso President and Chief Operating Officer
Stanley S. Itskowitch Executive Vice President, General Counsel and Director
Michael K. Menerey Executive Vice President, Chief Financial Officer and Secretary
Joe A. Johnson Executive Vice President - Operations
Thomas J. Hatchell Executive Vice President - Operations
</TABLE>
CABLEVISION
Cablevision is a California limited partnership whose
principal business is to engage in the cable/telecommunications business. Falcon
Cable Communications, LLC, a Delaware limited liability company ("FCCLLC"), is
the general partner of Cablevision. The address of Cablevision's principal
executive offices is 10900 Wilshire Boulevard, 15th Floor, Los Angeles,
California 90024.
TELECABLE
Telecable is a California limited partnership whose principal
business is to engage in the cable/telecommunications business. FCCLLC is the
general partner of Telecable. The address of Telecable's principal executive
offices is 10900 Wilshire Boulevard, 15th Floor, Los Angeles, California 90024.
FALCON CABLE COMMUNICATIONS, LLC
FCCLLC is a Delaware limited liability company whose principal
business is to own and operate cable television systems. FCCLLC is wholly owned
by Falcon Communications, L.P., a California limited partnership ("FCLP"). The
address of FCCLLC's principal executive offices is 10900 Wilshire Boulevard,
15th Floor, Los Angeles, California 90024.
Set forth below are the executive officers of FCCLLC. For
additional information regarding the individuals set forth below, see "--Enstar
Communications Corporation."
<TABLE>
<CAPTION>
NAME POSITION
- ---- --------
<S> <C>
Marc B. Nathanson Chairman and Chief Executive Officer
Frank J. Intiso President and Chief Operating Officer
Stanley S. Itskowitch Executive Vice President, General Counsel
Michael K. Menerey Executive Vice President, Chief Financial Officer and Secretary
Joe A. Johnson Executive Vice President - Operations
Thomas J. Hatchell Executive Vice President - Operations
</TABLE>
26
<PAGE> 34
FALCON COMMUNICATIONS, L.P.
FCLP is a California limited partnership whose principal
business is to own and operate cable television systems. FHGLP is the managing
general partner of FCLP and owns approximately 54% of the equity of FCLP. TCI
Falcon Holdings, LLC, a Delaware limited liability company and an affiliate of
Tele-Communications, Inc. ("TCI Falcon"), is a general partner of FCLP and owns
approximately 46% of the equity of FCLP. The address of FCLP's principal
executive offices is 10900 Wilshire Boulevard, 15th Floor, Los Angeles,
California 90024.
FCLP's partnership agreement provides for an Advisory
Committee consisting of six individual representatives, three of whom are to be
appointed by FHGLP, two of whom are to be appointed by TCI Falcon and one of
whom is to be appointed by joint designation of FHGLP and TCI Falcon. FHGLP has
appointed Marc B. Nathanson (Chairman), Frank J. Intiso and Stanley S.
Itskowitch as its initial representatives; TCI Falcon has appointed Leo J.
Hindery, Jr. and William R. Fitzgerald as its initial representatives; and FHGLP
and TCI Falcon have designated John S. Evans as their initial joint
representative.
For additional information regarding Messrs. Nathanson, Intiso
and Itskowitch, see "-Enstar Communications Corporation." Additional information
regarding the other members of the Advisory Committee is set forth below.
Leo J. Hindery, Jr., 50, has served as the President and Chief
Operating Officer and a Director of Tele-Communications, Inc. ("TCI") since
March 1997 and has been a Director of TCI since May 1997. Mr. Hindery is also
President and Chief Executive Officer of TCI Communications, Inc. and is
Chairman of the Board of TCI Ventures Group. Mr. Hindery was previously founder,
Managing General Partner and Chief Executive Officer of InterMedia Partners, a
cable TV operator, and its affiliated entities since 1988. Mr. Hindery is
Chairman, a Director and a member of the Executive Committee of the NCTA, and is
also a Director of Cablevision Systems Corporation, Lenfest Group, TCI Music,
Inc., Telecommunications International, Inc., USA Networks, Inc. and the @ Home
Network. Mr. Hindery is also Chairman and Director of C-SPAN. He is a U.S.
citizen and his business address is: c/o Tele-Communications, Inc., Terrace
Tower II, 5619 DTC Parkway, Englewood, Colorado 80111.
William R. Fitzgerald, 41, has served as Executive Vice
President and Chief Operating Officer of TCI Communications, Inc. since November
1998, and has served as a Director of TCI Communications, Inc. since January 30,
1998. Prior to November 1998, he served as Executive Vice President of Corporate
Development and Partnership Relations for TCI Communications, Inc. Prior to
joining TCI Communications, Inc. in March 1996, he was a Senior Vice President
and Partner with Daniels & Associates, a leading brokerage and investment
banking firm to the communications industry. Before joining Daniels &
Associates, Mr. Fitzgerald was Vice President at The First National Bank of
Chicago. He is a U.S. citizen and his business address is: c/o
Tele-Communications, Inc., Terrace Tower II, 5619 DTC Parkway, Englewood,
Colorado 80111.
John S. Evans, 54, is Chairman and Chief Executive Officer of
Evans Telecommunications Company, an investment, consulting and operating
company in the cable television and telecommunications industries. From 1983 to
1994, he was President and Chief Operating Officer of Hauser Communications and
was co-founder of C-SPAN. Mr. Evans serves as a trustee of the C-SPAN
Educational Foundation and is a director of C-SPAN, the NCTA, the Virginia Cable
Television Association, The Eisenhower World Affairs Institute and The Hollings
Cancer Center. He is a U.S. citizen and his business address is c/o Evans
Telecommunications Company, 1617 White Street, Key West, Florida 33040.
AVAILABLE INFORMATION
This Statement does not purport to be a complete description
of all agreements and matters relating to the condition of the Partnership, the
Assets and the transactions described herein. Attached to this Statement as
Exhibit C is the Partnership's Annual Report on Form 10-K for the year ended
December 31, 1997, and attached to this Statement as Exhibit D is the
Partnership's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998,
each of which provides additional information regarding the Partnership. With
respect to statements contained in this Statement as to the content of any
contract or other document filed as an exhibit to the Form 10-K or Form 10-Q,
each such statement is qualified in all respects by reference to such reports
and the schedules thereto, which may be obtained without charge upon written
request to the Partnership. To make such a
27
<PAGE> 35
request, a Unitholder should write to Enstar Communications Corporation, 474
South Raymond, Suite 200, Pasadena, California 91105, Attention: Investor
Relations; or call (626) 844-1700.
All documents filed by the Partnership with the Securities and
Exchange Commission after the date of this Consent Solicitation Statement, but
before the Partnership takes action pursuant to this Consent Solicitation
Statement, shall be deemed to be incorporated by reference into this Consent
Solicitation Statement. Copies of these documents will be available without
charge upon oral or written request to Enstar Communications Corporation, 474
South Raymond, Suite 200, Pasadena, California 91105, Attention: Investor
Relations. Copies will be sent by first class mail within one business day of
receipt of such request. Such documents may also be accessed electronically by
means of the Securities and Exchange Commission's Web site at
http://www.sec.gov. Any statement contained in a document incorporated or deemed
to be incorporated by reference in this Consent Solicitation Statement shall be
deemed to be modified or superseded for purposes of this Consent Solicitation
Statement to the extent that a statement contained in this Consent Solicitation
Statement (or in any other subsequently filed document that also is or is deemed
to be incorporated by reference in this Consent Solicitation Statement) modifies
or supersedes such statement. Any statement so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute a part of this
Consent Solicitation Statement.
28
<PAGE> 36
EXHIBIT A
ASSET PURCHASE AGREEMENT
by and among
FALCON CABLEVISION,
a California limited partnership,
FALCON TELECABLE,
a California limited partnership,
and
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.,
a Georgia limited partnership,
Dated as of November 6, 1998
<PAGE> 37
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of November 6, 1998 (this
"Agreement"), by and among Falcon Cablevision, a California limited partnership
("Cablevision"), and Falcon Telecable, a California limited partnership
("Telecable" and, together with Cablevision, the "Purchasers" and each a
"Purchaser"), and Enstar Income/Growth Program Six-B, L.P., a Georgia limited
partnership ("Seller").
RECITALS
A. Enstar Communications Corporation, a Georgia corporation
(the "General Partner"), is a general partner of Seller.
B. Pursuant to Sections 9.1(f) and 9.6.1 of the Amended and
Restated Agreement of Limited Partnership of Seller, dated as of January 30,
1989 (the "Partnership Agreement") (capitalized terms used in this Agreement and
not otherwise defined herein shall have the meaning ascribed thereto in the
Partnership Agreement), the General Partner may cause the sale of all or
substantially all of the Cable Systems of the Seller with the prior consent of
Limited Partners holding more than 50% of the outstanding Units.
C. The Purchasers desire to purchase all of the Cable Systems
of the Seller, and Seller desires to sell all of the Cable Systems of Seller to
the Purchasers.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound hereby, the parties
hereto hereby agree as follows:
ARTICLE I.
DEFINITIONS
SECTION 1.1. DEFINED TERMS. The following terms, as used in
this Agreement, shall have the following meanings (and such meanings shall be
equally applicable to both the singular and plural forms of the terms defined
herein):
"Bill of Sale" shall mean such bills of sale, instruments of
conveyance and such other documents of assignment and assumption as may be
necessary to effect the Sale of the Cable Systems.
"Cable Systems" shall mean, collectively, all right, title and
interest of the Seller in all assets, rights, privileges, interests, claims and
properties, whether tangible or intangible, owned, used or held by the Seller
for use in connection with the provision of cable television
<PAGE> 38
services and, if required by the context, the three specific Cable Systems owned
and operated by the Seller in Ivins, Utah (the "Ivins Cable System"), Fisk,
Missouri (the "Fisk Cable System"), and Villa Rica, Georgia (the "Villa Rica
Cable System").
"Cable System Contracts" shall mean all contracts, purchase
orders and other agreements of the Seller to the extent relating to the
construction, operation or maintenance of the Cable Systems. Cable System
Contracts shall not include any Local Authorization or FCC License.
"Closing" shall mean the consummation of the Sale.
"Closing Date" shall have the meaning provided in Section 2.1
of this Agreement.
"Communications Act" shall mean the Communications Act of
1934, as amended.
"FCC" shall mean the Federal Communications Commission.
"FCC Consents" shall mean consents of the FCC to the transfer
of the FCC Licenses to the Purchasers in connection with the Sale.
"FCC Licenses" shall mean the licenses and permits of the FCC
held by the Seller in connection with the operation of the Cable Systems.
"Franchise Areas" shall mean the areas in which the Seller is
authorized to provide cable television service under the Local Authorizations
and the areas served by any of the Cable Systems in which Seller provides cable
television service without a Local Authorization, if any.
"Governmental Authority" shall mean any federal, state,
municipal or local governmental authority or political subdivision thereof.
"Legal Requirement" shall mean the requirements of any law,
ordinance, statute, rule, regulation, code, order, judgment, decree, injunction,
franchise, determination, approval, permit, license, authorization or other
requirement of any Governmental Authority.
"Lien" shall mean, with respect to any asset, any mortgage,
lien, pledge, charge, security interest, adverse claim or encumbrance of any
kind in respect of such asset.
"Limited Partner Consents" shall mean the consent of Limited
Partners holding more than 50% of the outstanding Units to the Sale and to an
amendment to the Partnership Agreement expressly permitting the Sale to the
Purchasers.
"Local Authority" shall mean any Governmental Authority having
jurisdiction to grant a cable television franchise with respect to all or a
portion of any Cable System.
"Local Authority Consent" shall mean any approval,
authorization or consent of a Local Authority necessary for a change in control
of a Local Authorization or otherwise in connection with the consummation of the
Sale.
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"Local Authorizations" shall mean all authorizations,
approvals, franchises, licenses and permits of Local Authorities granted to the
Seller which permit the operation of the Cable Systems as amended, modified or
supplemented.
"Material Adverse Effect" shall mean a material adverse effect
on the business, condition (financial or otherwise), results of operations, cash
flow or prospects of the business of the Seller or any of the Cable Systems.
"Permitted Liens" shall mean (i) Liens for Taxes not yet due
and payable; (ii) any carrier's, warehousemen's, mechanic's, materialmen's,
repairmen's, employees' or other like Lien arising in the ordinary course of
business; (iii) easements, rights-of-way, restrictions, encroachments and other
similar encumbrances which do not materially interfere with the use of the Cable
Systems as presently used; and (iv) rights of first refusal in favor of, and
restrictions imposed by, Governmental Authorities.
"Person" shall mean and include an individual, a corporation,
a partnership (general, limited or limited liability), a joint venture, a
limited liability company, an association, a trust or any other organization or
entity, including a Governmental Authority.
"Purchase Price" shall mean (i) $10,473,200 in the aggregate,
allocated among the Cable Systems as provided in Schedule 2.1, plus (ii) the
amount, if any, of any capital expenditures incurred by the Seller between the
date hereof and the Closing Date in connection with line extensions and/or
rebuilds of the Cable Systems. Any amounts included in the Purchase Price
pursuant to clause (ii) of the forgoing sentence shall be allocated to the Cable
System in connection with which the Seller incurred the applicable capital
expenditures.
"Right of First Refusal" shall mean any right of first refusal
of a Local Authority in regard to or arising as a result of the Sale.
"Sale" shall have the meaning provided in Section 2.1 of this
Agreement.
"Taxes" shall mean all taxes, fees, duties, imposts, levies,
withholdings, tax deficiencies, assessments, and charges, including, without
limitation, all net income, gross income, gross receipts, sales, use,
value-added, ad valorem, transfer, franchise, profits, license, withholding,
payroll, employment, excise, estimated, severance, stamp, occupation, property
or other taxes and customs duties of any kind whatsoever, together with any
interest and any penalties, additions to tax or additional amounts relating
thereto, imposed by any Governmental Authority (domestic or foreign).
"Unapproved FCC Assets" shall mean all equipment relating to
Unapproved FCC Licenses.
"Unapproved FCC License" shall mean an FCC License as to which
all FCC Consents have not been obtained or do not remain in full force and
effect immediately prior to the Closing Date.
"Unapproved Franchise Areas" shall mean Franchise Areas
covered by Unapproved Local Authorizations.
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"Unapproved Franchise Assets" shall mean, with respect to all
Unapproved Franchise Areas, all Unapproved Local Authorizations and all related
real property and equipment.
"Unapproved Local Authorizations" shall mean a Local
Authorization (other than Right of First Refusal Local Authorizations) as to
which all Local Authority Consents have not been obtained or do not remain in
full force and effect immediately prior to the Closing Date.
ARTICLE II.
PURCHASE AND SALE
SECTION 2.1. PURCHASE AND SALE.
(a) Subject to the satisfaction or waiver in writing of the
conditions set forth herein and to the other terms, conditions and provisions
hereof, on a date as soon as practicable following the satisfaction or waiver of
the conditions set forth herein (the "Closing Date"), the Seller shall execute
and deliver to each Purchaser a Bill of Sale pursuant to which the Seller shall
sell, convey, assign, transfer and deliver to the Purchasers, and the Purchasers
shall purchase, acquire, accept and pay for, all of the Seller's right, title
and interest in all Cable Systems owned by the Seller, including, subject to
Section 2.2, the Seller's rights under the Cable System Contracts and each
Purchaser shall execute and deliver a Bill of Sale and thereby assume and agree
to perform in accordance with their terms the Cable System Contracts, FCC
Licenses and Local Authorizations (the "Sale"). Schedule 2.1 hereto sets forth
the Cable Systems of the Seller to be purchased by each respective Purchaser and
the portion of the Purchase Price to be paid by each such Purchaser.
Notwithstanding anything to the contrary herein, if the conditions to the
parties' obligations have been satisfied or waived with respect to one or more
of the Cable Systems (the "Early Cable Systems"), but not with respect to all of
the Cable Systems, the Seller and the applicable Purchaser(s) shall be entitled
to consummate the Sale with respect to Early Cable Systems without consummating
the Sale with respect to all of the Cable Systems. If the Seller and the
applicable Purchaser(s) consummate the Sale with respect to Early Cable Systems
without consummating the Sale with respect to all Cable Systems, the Seller and
applicable Purchaser(s) of any remaining Cable System(s) shall be entitled to
consummate the Sale with respect to such remaining Cable System(s) when the
conditions to the parties' obligations with respect to each such remaining Cable
System are satisfied or waived.
(b) At the Closing, the Purchasers shall, severally but not
jointly, deliver to the Seller the Purchase Price related to the respective
Cable Systems to be purchased by them in immediately available funds (by wire
transfer to an account designated in writing by the Seller prior to the Closing
Date).
SECTION 2.2. LACK OF CONSENTS. If the Sale requires the
consent of another Person under any Cable System Contract and such consent has
not been obtained prior to the Closing Date or does not remain in full force and
effect at the Closing Date, such failure to obtain such consent or failure of
such consent to be in full force and effect shall not itself constitute a breach
of any provision hereof. The Seller shall, with respect to each such Cable
System Contract, use its reasonable commercial efforts to: (i) keep each such
Cable System
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Contract in effect and obtain such consent; (ii) provide to the appropriate
Purchaser the benefits of each such Cable System Contract through subcontract or
otherwise; (iii) cooperate in any reasonable arrangement designed to provide
such benefits to such Purchaser; and (iv) enforce any rights of the appropriate
Purchaser included in the Cable Systems under or with respect to any such Cable
System Contract against all other Persons (including termination of the
foregoing in accordance with the terms thereof upon the election of such
Purchaser), in each case of clauses (i)-(iv) to the extent that any Purchaser
performs all obligations of the Seller under such Cable System Contract. If all
such consents under any such Cable System Contract are obtained after the
Closing Date, the Seller shall promptly assign such Cable System Contract to the
appropriate Purchaser and such Purchaser shall assume all obligations under such
Cable System Contract with respect to periods following such assignment, in each
case without the payment of additional consideration by any Purchaser or the
Seller.
SECTION 2.3. LACK OF REGULATORY APPROVALS.
(a) If immediately prior to the Closing Date any Local
Authority Consent or FCC Consent has not been obtained or does not remain in
full force and effect immediately prior to the Closing Date, such failure to
obtain such Local Authority Consent or FCC Consent or such failure of such Local
Authority Consents or FCC Consent to be in full force and effect shall not
itself constitute a breach of any provision hereof.
(b) If at any time following the Closing Date, the Seller is
able to transfer to the appropriate Purchaser (or a designee of such Purchaser)
an Unapproved Local Authorization or an Unapproved FCC License, the Seller shall
promptly transfer to such Purchaser (or such designee of such Purchaser) such
Unapproved Local Authorization and all related Unapproved Franchise Assets and
such Unapproved FCC License and all related Unapproved FCC Assets, as the case
may be. Such Purchaser (or such designee of such Purchaser), as the case may be,
shall assume, pay, perform and discharge the obligations arising after the
Closing Date under or in respect of any such Unapproved Local Authorization or
Unapproved FCC License so transferred.
SECTION 2.4. RECEIPT OF CONSENTS. It is the intent of the
parties that the arrangements described in Sections 2.2 and 2.3 continue for the
shortest possible time, and to this end they agree to use reasonable commercial
efforts to obtain all consents (including Local Authority Consents) to the Sale
referred to in said Sections as promptly as practicable following the Closing
Date. The Purchasers shall coordinate the efforts to obtain such consents, and
the Purchasers shall be responsible for all costs, expenses, liabilities,
obligations and burdens with respect to such consents (allocated to the
appropriate Cable System).
SECTION 2.5. NO ASSUMPTION OF LIABILITIES. The Seller shall
retain, shall continue to be responsible after the Closing for, shall pay,
perform and discharge, and shall indemnify and hold the Purchasers and each of
their Affiliates harmless from and against, all liabilities and obligations
(whether incurred, accrued, arising or known prior to, at or after the Closing,
whether or not known, suspected, asserted or claimed at the Closing or at any
time theretofore or thereafter, whether or not reflected or provided for, or
required to be reflected or provided for, in any balance sheet of the Seller and
whether fixed, liquidated, unliquidated, absolute, contingent or otherwise)
which relate to or arise out of the business, assets or operations of the Seller
as heretofore, currently or hereafter conducted through the Closing Date,
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any of the Cable Systems or the past operation, condition or use of any of the
Cable Systems, including those related to: (i) product liability; (ii) general
tort liability; (iii) any other activity undertaken by the Seller or relating to
any of the Cable Systems; or (iv) any obligation or liability of the Seller to
any of its partners or in respect of any management fee or sales fee; other,
however, than obligations under the Cable System Contracts, FCC Licenses and
Local Authorizations specifically assumed by a Purchaser.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to the Purchasers that:
SECTION 3.1. EXISTENCE AND POWER. The Seller (i) is a limited
partnership duly organized, validly existing and in good standing under the laws
of the State of Georgia, (ii) is authorized to transact business and is in good
standing in each state in which its ownership of assets or conduct of business
requires such qualification, and (iii) has all partnership powers required to
carry on its business as conducted on the date hereof, with such exceptions to
clauses (i), (ii) and (iii) as would not have a Material Adverse Effect or
materially and adversely affect the ability of the Seller to consummate the
Sale.
SECTION 3.2. AUTHORIZATION. The Seller has the partnership
power to own and operate the Cable Systems. The Seller has the partnership power
to enter into this Agreement and, upon obtaining the Limited Partner Consents,
to consummate the Sale. The execution and delivery by the Seller of this
Agreement and, subject to obtaining the Limited Partner Consents, the
consummation by the Seller of the Sale has been duly authorized by all necessary
partnership action.
SECTION 3.3. GOVERNMENTAL AUTHORIZATION. The execution and
delivery of this Agreement by the Seller, and the performance by the Seller of
this Agreement, and the consummation by the Seller of the Sale, require no
material action by or in respect of, or material filing with, any Governmental
Authority other than the transfer of FCC Licenses from Seller to the Purchasers
and compliance with any applicable requirements of the Local Authorizations.
SECTION 3.4. CONSENTS. Except as set out in Schedule 3.4, no
consent by any Person under any Cable System Contract is required or necessary
for the execution and delivery of this Agreement by the Seller, or the
performance by the Seller of this Agreement, or the consummation of the Sale
contemplated to be consummated by it pursuant hereto, except as would not have a
Material Adverse Effect.
SECTION 3.5. NON-CONTRAVENTION.
(a) The execution, delivery and performance of this Agreement
by the Seller, and the consummation by the Seller of the Sale, do not and on or
before the Closing Date will not, (x) subject to obtaining the Limited Partner
Consents, contravene the Partnership Agreement or (y) subject to obtaining the
consents described in Section 3.3 and subject to obtaining, taking or making the
actions and filings described in Schedule 3.4, result in the imposition of any
Lien upon any assets of the Seller pursuant to, or constitute a breach or
default (including any event
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that, with the passage of time or giving of notice, or both, would become a
breach or default) under or give rise to a right of termination, cancellation,
first refusal or acceleration under any applicable Legal Requirement or any
judgment, injunction, order, decree, contract, license, lease, indenture,
mortgage, loan agreement, note or other agreement or instrument as to which the
Seller is a party or by which any of its properties may be bound, the effect of
which would be to materially impair the ability of the Seller to perform its
obligations under this Agreement.
(b) The Seller is not in breach or default (including any
event that, with the passage of time or giving of notice, or both, would become
a breach or default) under any Cable System Contract or contract by which any of
its assets may be bound, the effect of which would be to impair the ability of
the Seller in any material respect to operate any Cable System as presently
operated.
SECTION 3.6. BINDING EFFECT. This Agreement has been duly
executed and delivered by the Seller, and when executed by the parties hereto,
this Agreement constitutes a valid and binding obligation of the Seller,
enforceable against the Seller in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights generally
or by the principles governing the availability of equitable remedies.
SECTION 3.7. SYSTEMS; AUTHORIZATIONS; LICENSES.
(a) Each Local Authorization (x) is validly held by the Seller
in accordance with and as required by the terms thereof and according to all
material applicable Legal Requirements and (y) is in full force and effect and
has not been revoked or canceled and the Seller is in material compliance
therewith. To the knowledge of the Seller, no proceeding to revoke, cancel or
modify in any manner any such Local Authorization has been initiated or
threatened.
(b) Each FCC License (x) is validly held by the Seller in
accordance with and as required by the terms thereof and according to all
material applicable Legal Requirements and (y) is in all material respects in
full force and effect and has not been revoked or canceled and the Seller is in
material compliance therewith. To the knowledge of the Seller, no proceeding to
revoke, cancel or modify in any manner any such FCC License has been initiated
or threatened.
SECTION 3.8. ASSETS. The Seller has good and marketable title
to, or a valid leasehold or license interest in, all assets purported to be
owned, leased or licensed by the Seller which constitute the Cable Systems, free
and clear of all Liens other than Permitted Liens and other than any Liens which
shall be fully satisfied, discharged and released effective as of the Closing.
Each Bill of Sale is sufficient to transfer to the applicable Purchaser good
and, subject to Permitted Liens, marketable title to the Cable Systems to be
acquired by such Purchaser.
SECTION 3.9. INTELLECTUAL PROPERTY. To the knowledge of the
Seller, the conduct of its business does not infringe upon the patents,
trademarks, trade names or other intellectual property rights of any Person,
with such exceptions as would not result in a Material Adverse Effect.
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SECTION 3.10. CABLE SYSTEM CONTRACTS.
(a) The Seller is not in material default or breach of any
Cable System Contract and, to the knowledge of the Seller, (i) there exists no
state of facts which after notice or lapse of time or both would constitute such
a material default or breach and (ii) no other party to such Cable System
Contract is in default or breach thereunder.
(b) The real property and personal property which are the
subject of leases that constitute Cable System Contracts are currently used in
the construction, operation or maintenance of the Seller business.
SECTION 3.11. LITIGATION. There are no actions, suits or
proceedings pending and, to the knowledge of the Seller, there are no claims,
grievances, governmental investigations, actions, suits or proceedings
threatened, against or affecting the Seller with respect to its business or
relating in any way to this Agreement or the transactions contemplated hereby at
law or in equity or before or by any Governmental Authority, or before or by an
arbitrator or arbitration board. Except as set forth in Schedule 3.11, there are
no judgments, decrees or orders outstanding against the Seller with respect to
its business or any of the Cable Systems or the Sale.
SECTION 3.12. COMPLIANCE WITH LEGAL REQUIREMENTS. (i) The
Seller is in compliance with all applicable Legal Requirements and (ii) the
Seller's business is being conducted in compliance with all applicable Legal
Requirements, with such exceptions to clauses (i) and (ii) as would not have a
Material Adverse Effect or materially delay the Closing.
SECTION 3.13. REPORTS AND FINANCIAL STATEMENTS. The Seller has
filed all reports required to be filed with the Securities Exchange Commission
("SEC") since January 1, 1995 (collectively, the "SEC Reports"), and has
previously furnished or made available to the Purchasers true and complete
copies of all the SEC Reports. None of the SEC Reports, as of their respective
dates (as amended through the date hereof), contained any untrue statement of
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. Each of the balance sheets (including the
related notes) included in the SEC Reports presents fairly, in all material
respects, the consolidated financial position of the Seller as of the respective
dates thereof, and the other related statements (including the related notes)
included therein present fairly, in all material respects, the results of
operations and the changes in financial position of the Seller for the
respective periods or as of the respective dates set forth therein, all in
conformity with generally accepted accounting principles consistently applied
during the periods involved, except as otherwise noted therein and subject, in
the case of the unaudited interim financial statements, to normal year-end
adjustments and any other adjustments described therein. All of the SEC Reports,
as of their respective dates (as amended through the date hereof), complied in
all material respects with the requirements of the Securities Exchange Act of
1934 and the applicable rules and regulations thereunder.
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ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
The Purchasers, severally and not jointly, represent and
warrant to Seller that:
SECTION 4.1. EXISTENCE AND POWER. Each Purchaser, is a limited
partnership duly organized, validly existing and in good standing under the laws
of the state of its formation.
SECTION 4.2. AUTHORIZATION. Each Purchaser has the partnership
power to enter into this Agreement and to consummate the acquisition of the
Cable System(s) to be acquired by it in the Sale. The execution and delivery by
each Purchaser of this Agreement and the consummation by each Purchaser of the
Sale has been duly authorized by all necessary partnership action.
SECTION 4.3. GOVERNMENTAL AUTHORIZATION. The execution and
delivery of this Agreement by each Purchaser, and the performance by each
Purchaser of this Agreement, and the consummation by each Purchaser of the
acquisition of the Cable System(s) to be acquired by it in the Sale, require no
material action by or in respect of, or material filing with, any Governmental
Authority other than the transfer of FCC Licenses from the Seller to the
Purchasers and compliance with any applicable requirements of the Local
Authorizations.
SECTION 4.4. NON-CONTRAVENTION. The execution, delivery and
performance of this Agreement by each Purchaser, and the consummation by each
Purchaser of the acquisition of the Cable Systems to be acquired by it in the
Sale, do not or on or before the Closing Date will not, (a) contravene the
partnership agreement of any Purchaser or (b) subject to obtaining the consents
described in Schedule 4.4 constitute a breach or default (including any event
that, with the passage of time or giving of notice, or both, would become a
breach or default) under or give rise to a right of termination, cancellation,
first refusal or acceleration under any applicable material Legal Requirement or
any material judgment, injunction, order, decree, contract, license, lease,
indenture, mortgage, loan agreement, note or other agreement or instrument as to
which any Purchaser is a party or by which any of its properties may be bound,
the effect of which would be to materially impair the ability of any Purchaser
to perform its obligations under this Agreement.
SECTION 4.5. BINDING EFFECT. This Agreement has been duly
executed and delivered by each Purchaser, and when executed by the parties
hereto, this Agreement constitutes a valid and binding obligation of each
Purchaser, enforceable against each Purchaser in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights generally
or by the principles governing the availability of equitable remedies.
SECTION 4.6. LITIGATION. There are no actions, suits or
proceedings pending and, to the knowledge of any Purchaser, there are no claims,
grievances, governmental investigations, actions, suits or proceedings
threatened, against or affecting any Purchaser at law or in equity or before or
by any Governmental Authority, or before or by an arbitrator or arbitration
board which
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would materially delay the Closing. There are no judgments, decrees or orders
outstanding against any Purchaser with respect to the Sale.
SECTION 4.7. COMPLIANCE WITH LEGAL REQUIREMENTS. Each
Purchaser is in compliance with all applicable Legal Requirements, except as
would not materially delay the Closing.
SECTION 4.8. QUALIFICATION OF PURCHASERS. Each Purchaser is,
and pending Closing will be, legally, technically, financially and otherwise
qualified under the Communications Act to acquire and operate the Cable Systems.
To the knowledge of the Purchasers, there are no facts or proceedings which
would reasonably be expected to disqualify any Purchaser under the
Communications Act from acquiring or operating the Cable Systems or would cause
the FCC to not approve the transfer of control of the FCC Licenses to the
applicable Purchaser. No Purchaser has any knowledge of any fact or circumstance
relating to any Purchaser or any of their Affiliates that would reasonably be
expected to (i) cause the filing of any material objection to the FCC
application for transfer of control of the FCC Licenses as provided for in this
Agreement, or (ii) cause the FCC to deny the FCC application for transfer of
control of the FCC Licenses as provided for in this Agreement, or (iii) lead to
a delay in the processing of the FCC application for transfer of control of the
FCC Licenses as provided for in this Agreement. No waiver of any FCC rule or
policy is necessary to be obtained by any Purchaser and/or Affiliates thereof
for the grant of the FCC Consents as provided for in this Agreement, nor will
processing pursuant to any exception to a rule of general applicability be
requested or required in connection with the consummation by any Purchaser of
the transactions contemplated hereby.
ARTICLE V.
CONDITIONS
SECTION 5.1. MUTUAL CONDITIONS. The obligations of the Seller
and the Purchasers to take the actions required to be taken by them pursuant to
Article II shall be subject to the satisfaction of each of the following
conditions, each of which may be waived by the Seller or the Purchasers:
(a) No actions suits or proceedings shall be pending which
seek to restrain or prohibit (or the effect of which would be to restrain or
prohibit), and no order, stay, judgment or decree shall have been issued by any
court and be in effect restraining or prohibiting, the consummation of the Sale
in any respect.
(b) All consents required to be obtained in connection with
the Sale shall have been obtained and remain in full force and effect.
SECTION 5.2. ACCURACY OF REPRESENTATIONS AND WARRANTIES.
(a) The obligations of the Seller to take the actions required
to be taken by it pursuant to Article II shall be subject to the satisfaction of
the following condition, which may be waived by the Seller: the representations
and warranties of each of the Purchasers set forth in Article IV shall be true
and correct as of the date of this Agreement and as of the Closing except
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as would not have a Material Adverse Effect on the ability of any Purchaser to
consummate the transactions contemplated hereby.
(b) The obligations of each Purchaser to take the actions
required to be taken by it pursuant to Article II shall be subject to the
satisfaction of the following condition, which may be waived by the Purchasers:
the representations and warranties of the Seller set forth in Article III shall
be true and correct as of the date of this Agreement and as of the Closing
except as would not have a Material Adverse Effect on (i) the ability of any
Purchaser to consummate the transactions contemplated hereby or (ii) the
business, operations, financial condition or results of operation of the Seller.
SECTION 5.3. ADDITIONAL CONDITIONS. Without limiting the
generality of Sections 5.1 and 5.2, the obligations of the Seller and each
Purchaser to take the actions required to be taken by them pursuant to Article
II are subject to the receipt by the Seller of the Limited Partner Consents.
ARTICLE VI.
COVENANTS
SECTION 6.1. PRESERVATION OF BUSINESS. Except as contemplated
by this Agreement, the Seller will use its best efforts to preserve its business
organization intact, to keep available to the Purchasers the services of its
present employees, and to preserve for the Purchasers the goodwill of the
suppliers, customers and others having business relations with the Seller.
SECTION 6.2. CONSUMMATION OF THE SALE. Each of the parties
hereto agrees that it shall, prior to, on and after the Closing, take or cause
to be taken and cause their respective affiliates to take or cause to be taken
such actions, and execute, deliver and file or cause to be executed, delivered
and filed, such certificates, documents and instruments, and obtain such
consents, as may be necessary or reasonably requested in connection with the
consummation of the Sale contemplated by this Agreement or in order to fully
effectuate the purposes, terms and conditions of this Agreement.
ARTICLE VII.
MISCELLANEOUS
SECTION 7.1. TERMINATION.
(a) TERMINATION. This Agreement may be terminated at any
time prior to the Closing:
(i) by the Seller if the Seller's fiduciary duties
require it to accept an offer for the purchase of any Cable System from a bona
fide third party;
(ii) by the Seller or any Purchaser if the Sale shall
not have been consummated on or before March 31, 1999, unless the failure to
consummate the Sale is the
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result of a willful and material breach of this Agreement by the party seeking
to terminate this Agreement; provided, however, that the March 31, 1999
termination date shall be extended to June 30, 1999 if (i) all conditions to the
Closing have been satisfied on or before March 31, 1999 except the receipt of
one or more required Local Authority Consents and (ii) the General Partner, in
its reasonable judgment, believes that the pending Local Authority Consents are
likely to be obtained on or before June 30, 1999; and
(iii) by any Purchaser if, prior to the Closing, any
Local Authority revokes, modifies, terminates or fails to renew any Local
Authorization that has been granted to the Seller and is in effect on the date
hereof.
(B) IN THE EVENT OF TERMINATION. In consideration of the
Purchasers entering into this Agreement, the Seller agrees that, in the event
the Closing does not occur by March 31, 1999 for any reason (except as such date
may be extended to June 30, 1998 in accordance with Section 7.1(a)(i)), the
Seller shall reimburse each Purchaser for such Purchaser's reasonable
out-of-pocket expenses (including, without limitation, the fees and expenses of
any lawyers, accountants, investment bankers or others engaged by the Purchaser)
incurred in connection with the preparation, negotiation, execution, delivery
and performance of this Agreement.
SECTION 7.2. EXPENSES. Except as expressly set forth herein,
the fees and expenses (including, without limitation, the fees and expenses of
any lawyers, accountants, investment bankers or others engaged by such party) in
connection with this Agreement and the transactions contemplated hereby will be
borne by the party incurring such expenses. Any charges, taxes, user fees or
other similar costs or expenses incurred in connection with this Agreement and
the transactions contemplated hereby shall be allocated among the parties in a
manner that is customary for agreements of this type.
SECTION 7.3. HEADINGS. The section headings herein are for
convenience of reference only, do not constitute part of this Agreement and will
not be deemed to limit or otherwise affect any of the provisions hereof.
References to Sections, Schedules and Exhibits, unless otherwise indicated, are
references to Sections, Schedules and Exhibits hereof.
SECTION 7.4. ASSIGNMENT. This Agreement and all provisions
hereof will be binding upon and inure to the benefit of the parties hereto and
their respective successors, however, neither this Agreement nor any right,
interest, or obligation hereunder may be assigned by the Seller (other than by
operation of law) without the prior written consent of each Purchaser, and any
such assignment or purported assignment without such consent shall be void. Any
Purchaser, however, may assign its rights, interest and obligations hereunder
without the Seller's prior written consent.
SECTION 7.5. ENTIRE AGREEMENT. This Agreement embodies the
entire agreement and understanding of the parties with respect to the
transactions contemplated hereby and supersede all prior written or oral
commitments, arrangements or understandings with respect thereto.
SECTION 7.6. AMENDMENT; WAIVER.
12
<PAGE> 49
(a) This Agreement may only be amended or modified in writing
signed by the party against whom enforcement of any such amendment or
modification is sought.
(b) Any party hereto may, by an instrument in writing, waive
compliance with any term or provision of this Agreement on the part of such
other party hereto. The waiver by any party hereto of a breach of any term or
provision of this Agreement will not be construed as a waiver of any subsequent
breach.
SECTION 7.7. COUNTERPARTS. This Agreement may be executed in
two or more counterparts, all of which will be considered one and the same
agreement and each of which will be deemed an original. All signatures need not
be on one counterpart.
SECTION 7.8. GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY
THE LAWS OF THE STATE OF CALIFORNIA (REGARDLESS OF THE LAWS THAT MIGHT BE
APPLICABLE UNDER PRINCIPLES OF CONFLICTS OF LAW) AS TO ALL MATTERS, INCLUDING
BUT NOT LIMITED TO MATTERS OF VALIDITY, CONSTRUCTION, EFFECT AND PERFORMANCE.
SECTION 7.9. SEVERABILITY. If any one or more of the
provisions of this Agreement is held to be invalid, illegal or unenforceable,
the validity, legality or enforceability of the remaining provisions of this
Agreement will not be affected thereby, and the Seller and the Purchasers will
use their reasonable efforts to substitute one or more valid, legal and
enforceable provisions which insofar as practicable implement the purposes and
intent hereof. To the extent permitted by applicable law, each party waives any
provision of law which renders any provision of this Agreement invalid, illegal
or unenforceable in any respect.
SECTION 7.10. THIRD PERSON BENEFICIARIES. This Agreement is
not intended and shall not be construed to confer upon any Person (other than
the Seller and the Purchasers) any rights or remedies whatsoever.
SECTION 7.11. SPECIFIC PERFORMANCE. The Purchasers and the
Seller recognize that any breach of any covenant or agreement contained in this
Agreement may give rise to irreparable harm for which money damages would not be
an adequate remedy, and accordingly agree that, in addition to other remedies,
any non-breaching party will be entitled to enforce the agreements and covenants
contained herein of the Purchasers and the Seller, as the case may be, by a
decree of specific performance without the necessity of proving the inadequacy
as a remedy of money damages.
(SIGNATURE PAGE FOLLOWS)
13
<PAGE> 50
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
FALCON CABLEVISION, A CALIFORNIA
LIMITED PARTNERSHIP
By: Falcon Cable Communications, LLC
Its General Partner
By: STANLEY S. ITSKOWITCH
---------------------------
Name: Stanley S. Itskowitch
Title: Executive Vice President
and General Counsel
FALCON TELECABLE, A CALIFORNIA
LIMITED PARTNERSHIP
By: Falcon Cable Communications, LLC
Its General Partner
By: STANLEY S. ITSKOWITCH
---------------------------
Name: Stanley S. Itskowitch
Title: Executive Vice President
and General Counsel
ENSTAR INCOME/GROWTH PROGRAM SIX-B,
L.P., A GEORGIA LIMITED PARTNERSHIP
By: Enstar Communications Corporation
General Partner
By: STANLEY S. ITSKOWITCH
---------------------------
Name: Stanley S. Itskowitch
Title: Executive Vice President
and General Counsel
14
<PAGE> 51
SCHEDULE 2.1
ALLOCATION OF PURCHASE PRICE AND CABLE SYSTEMS ACQUIRED
<TABLE>
<CAPTION>
Cable System Purchasers Purchase Price
------------ ---------- --------------
<S> <C> <C>
Ivins, Utah Falcon Telecable $ 104,700
-------
Fisk, Missouri Falcon Telecable $ 118,500
-------
Villa Rica, Georgia Falcon Cablevision $10,250,000
-----------
TOTAL $10,473,200
===========
</TABLE>
<PAGE> 52
SCHEDULE 3.4
CONSENTS REQUIRED UNDER CABLE SYSTEM CONTRACTS
<TABLE>
<CAPTION>
GOVERNMENTAL AUTHORITIES
CABLE SYSTEM REQUIRED TO CONSENT
------------ ------------------------
<S> <C>
Ivins, UT Ivins, UT
Fisk, Missouri Fisk, MO
Qulin, MO
Villa Rica, Georgia Bowdon, GA
Bremen, GA
Buchanan, GA
Carroll County, GA
Haralson County, GA
Temple, GA
Villa Rica, GA
</TABLE>
<PAGE> 53
SCHEDULE 4.4
PURCHASERS CONSENTS
None
<PAGE> 54
EXHIBIT B
[HPC Puckett & Company Letterhead]
_________ __, 1998
Enstar Income/Growth Program Six-B, L.P.
10900 Wilshire Boulevard, 15th Floor
Los Angeles, California 90024
Gentlemen:
Enstar Income/Growth Program Six-B, L.P. ("Enstar") has entered into an
agreement with Falcon Cablevision, and Falcon Telecable (collectively, the
"Purchasers") with respect to the sale by Enstar of its cable television assets
serving certain areas of Georgia, Missouri and Utah. In consideration with the
proposed sale transaction ("Sale Transaction"), Enstar will receive from
Purchasers Ten Million Four Hundred Seventy Three Thousand Two Hundred Dollars
($10,473,200), in cash at closing. The proposed Sale Transaction is expected to
be considered by the holders of limited partnership interests of Enstar
("Unitholders") pursuant to that certain Asset Purchase Agreement, dated as of
September __, 1998, among Enstar and the Purchasers (the "Purchase Agreement").
You have asked us whether or not, in our opinion, the purchase price to be
received by Enstar in the Sale Transaction is fair, from a financial point of
view, to the Partnership and the unaffiliated Unitholders.
In arriving at the opinion set forth below, we have, among other things:
1. Reviewed the Purchase Agreement;
2. Prepared a review of the operating cable television systems owned by
Enstar;
3. Reviewed certain information relating to the business, earnings,
historical earnings, a reasonable analysis of predictable earnings,
cash flow, assets and prospects of Enstar, furnished to us by the
management of Enstar and developed through our own investigations;
<PAGE> 55
Enstar Income/Growth Program Six-B, L.P.
_________ __, 1998
Page Two
4. Prepared a Valuation and Appraisal for the assets of Enstar dated
August 20, 1998 and, in doing so, reviewed procedures and assumptions
set forth in said appraisal in order to determine the fair market
value of the underlying assets of Enstar;
5. Conducted discussions with members of management of Enstar regarding
the business and prospects of Enstar;
6. Compared the results of operation of Enstar with those of certain
companies which we deem to be reasonably similar or "comparable" to
Enstar in order to determine marketplace standards;
7. Compared the proposed financial terms of the Sale Transaction with the
financial terms of certain other mergers and acquisitions which we
deem to be relevant;
8. Reviewed the cable television industry in the relevant geographic
areas as to current standards, recent and anticipated developments,
and Enstar's position as a viable operating concern in each of the
same.
9. Reviewed Enstar's balance sheet, and its general financial condition,
with an emphasis on the capital structure of Enstar in relation to
current and future anticipated requirements of the marketplace;
10. Reviewed Enstar's balance sheet, and its general financial condition,
with an emphasis on the capital structure of Enstar in relation to
current and future anticipated requirements of the marketplace;
11. Reviewed the section of the Consent Solicitation Statement entitled
"SPECIAL FACTORS -- Recommendations of the General Partner, Fairness
of the Liquidation Plan" and "SPECIAL FACTORS -- Disadvantages of the
Liquidation Plan" submitted to the Securities Exchange Commission in
conjunction with the Sale Transaction (the "Consent Solicitation
Statement") which included an enumeration of the factors considered in
the recommendation and a detailing of the advantages and disadvantages
of the proposed Liquidation Plan'
12. Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary; and
13. We have not given any consideration to the tax consequences, if any,
to Enstar and its Unitholders from the sale of the assets in the
proposed transaction.
<PAGE> 56
Enstar Income/Growth Program Six-B, L.P.
_________ __, 1998
Page Three
In preparing our opinion, we have relied on the accuracy and completeness
of all information supplied or otherwise made available to us by the management
of Enstar and we have not independently verified such information. This opinion
does not constitute a recommendation to any Unitholder of Enstar as to how such
Unitholder should vote on the Sale Transaction. This opinion does not address
the relative merits of the Sale Transaction as compared with any other
transactions. We have no knowledge of any preferential consideration to any
Unitholder of Enstar.
In rendering this Opinion, we have not been engaged to act at an agent or
fiduciary of, and to the extent permitted by law, Enstar has expressly waived
any duties or liabilities we may otherwise be deemed to have had to Enstar, the
Unitholders of Enstar or any other third party. It is understood that this
letter will be included in its entirety as an exhibit in the Consent
Solicitation and we hereby consent to said inclusion.
On the basis of, and subject to the foregoing, we are of the opinion that
the purchase price to be received by Enstar in the Sale Transaction is fair,
from a financial point of view, to the Partnership and the unaffiliated
Unitholders.
Sincerely yours,
HPC PUCKETT & COMPANY
------------------------------
Thomas F. Puckett
Chairman
TFP/ss
<PAGE> 57
EXHIBIT C
================================================================================
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, 1997
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: 0-18495
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
GEORGIA 58-1754588
- ---------------------------------------- ----------------------
(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
------------------- -------------------
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
------ ------
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 - all of the registrant's 36,626 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.
================================================================================
The Exhibit Index is located at Page E-1.
<PAGE> 58
PART I
ITEM 1. BUSINESS
INTRODUCTION
Enstar Income/Growth Program Six-B, 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 September 23,
1987. The general partners of the Partnership are Enstar Communications
Corporation, a Georgia corporation (the "Corporate General Partner"), and Robert
T. Graff, Jr. (the "Individual General Partner" and, together with the Corporate
General Partner, the "General Partners"). On September 30, 1988, ownership of
the Corporate 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 is Falcon Holding Group, L.P. ("FHGLP"), which provides
certain management services to the Partnership. The general partner of FHGLP is
Falcon Holding Group, Inc., a California corporation ("FHGI"). See Item 13.,
"Certain Relationships and Related Transactions." The General Partner, FHGLP and
affiliated companies are responsible for the day to day management of the
Partnership and its operations. See "Employees" below.
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."
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 additional fees paid by customers for pay-per-view
programming of movies and special events and 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 new channels have also recently offered the cable systems managed
by FHGLP, 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
-2-
<PAGE> 59
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."
During January 1990, the Partnership began its cable television
business operations with the acquisition of a small cable television system
providing service to approximately 200 customers in the city of Ivins, Utah.
During 1990, two additional acquisitions were completed serving the communities
in and around Fisk, Missouri and Villa Rica, Georgia. As of December 31, 1997,
the Partnership served approximately 7,200 basic subscribers. The Partnership
does not expect to make any additional material acquisitions during the
remaining term of the Partnership.
FHGLP receives a management fee and reimbursement of expenses from the
Corporate General Partner for managing the Partnership's cable television
operations. See Item 11., "Executive Compensation."
The Chief Executive Officer of FHGLP is Marc B. Nathanson. Mr.
Nathanson has managed FHGLP or its predecessors since 1975. Mr. Nathanson is a
veteran of more than 28 years in the cable industry and, prior to forming
FHGLP'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 Corporate General Partner and FHGLP 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. As a result,
the Partnership's cable television systems generally have a more stable customer
base than similar systems in 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 be
phased out altogether in 1999. Because cable service rate increases have
continued to outpace inflation under the FCC's existing regulations, the
Partnership expects Congress and the FCC to explore additional methods of
regulating cable service rate increases, including deferral or repeal of the
March 31, 1999 sunset of CPST rate regulations and legislation recently was
introduced in Congress to repeal the sunset provision. 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. See "Legislation and Regulation" and Item 7., "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
The Partnership's management has concluded that the Partnership is
unable to fund its liquidity requirements including approximately $1.9 million
for the required upgrade of its systems in two
-3-
<PAGE> 60
franchise areas in Georgia. In view of such liquidity issues and due to
limitations on indebtedness imposed by the partnership agreement, the Corporate
General Partner has initiated discussions with a business broker to explore
selling the Partnership's systems. The Partnership's management believes that
the sale of these assets would allow the Partnership to pay off its bank debt
and other obligations and liquidate as soon as practicable thereafter. There can
be no assurance that the Partnership's systems can be sold in the near term at
an acceptable price, if at all. The Corporate General Partner or its affiliates
may purchase the Partnership's cable systems depending upon the offers received
from prospective outside buyers. Any such sale would require the consent of the
holders of a majority of the Partnership's limited partnership units and, if
such sale were to the Corporate General Partner or an affiliate thereof, would
require an amendment to the partnership agreement.
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 almost no available channel capacity with which to add new channels or to
further expand their use of 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 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."
The Partnership's 1997 capital expenditures approximated $577,200 to
extend its systems passed new serviceable homes in their franchise areas and to
upgrade certain equipment. The Partnership's future capital expenditure plans
are, however, all subject to the availability of adequate capital on terms
satisfactory to the Partnership, of which there can be no assurance. The
Partnership's upgrade program is estimated to require aggregate capital
expenditures of approximately $7.5 million. These upgrades cover seven franchise
areas and are currently required in two existing franchise agreements. The cost
to upgrade the two franchise areas is estimated to be approximately $1.9 million
and must be completed by February 1999.
On September 30, 1997, the Partnership entered into a loan agreement
with an affiliate for a revolving loan facility (the "Facility") of $2,528,900
of which $1,750,000 was advanced to the Partnership at closing. Such funds
together with available cash were used to repay outstanding borrowings under the
Partnership's previous credit facility and deferred expenses owed to the
Corporate General Partner and an affiliated partnership. The Partnership has
relatively little borrowing capacity remaining under the Facility and would
require additional sources of capital to undertake its upgrade program.
-4-
<PAGE> 61
The partnership agreement, however, contains certain limitations on the
Partnership's indebtedness. The partnership agreement provides that without the
approval of a majority of interests of limited partners, the Partnership may not
incur any borrowings unless the amount of such borrowings together with all
outstanding borrowings does not exceed 33% of the original capital raised by the
Partnership, or a maximum of $3,052,500 permitted debt outstanding. In order to
obtain the appropriate amount of capital to upgrade the Partnership's systems as
discussed above, this provision of the partnership agreement would need to be
amended to increase the Partnership's leverage. There can be no assurance that
the Partnership will be able to effect such an amendment to the partnership
agreement, nor that it will seek to do so. 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 reregulation. The Partnership
believes that the delays in upgrading its systems have had an adverse effect on
the value of those systems compared to systems that have been rebuilt to a
higher technical standard. See "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 Corporate General Partner manages the Partnership's systems on a
decentralized basis. The Corporate 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.
Marketing
The Partnership has made substantial changes in the way in which it
packages and sells its services and equipment in the course of its
implementation of the FCC's rate regulations promulgated under the 1992 Cable
Act. Pursuant to the FCC's rules, the Partnership has set rates for cable
related equipment (e.g., converter boxes and remote control devices) and
installation services based upon actual costs plus a reasonable profit and has
unbundled these charges from the charges for the provision of cable service. In
addition, in some systems, the Partnership began offering programming services
on an a la carte basis that were previously offered only as part of a package.
Services offered on an a la carte basis typically were made available for
purchase both individually and on a combined basis at a lower rate than the
aggregate a la carte rates. The FCC subsequently amended its rules to exclude
from rate regulation newly created packages of program services consisting only
of programming new to a cable system. The FCC also decided that newly-created
packages containing previously offered non-premium programming services will
henceforth be subject to rate regulation, whether or not the services also are
available on an existing a la carte basis. With respect to a la carte
programming packages created by the Partnership and numerous other cable
operators, the FCC decided that where only a few services had been moved from
regulated tiers to a non-premium programming package, the package will be
treated as if it were a tier of new program services, and thus not subject to
rate regulation. Substantially all of the a la carte programming packages
offered by the Partnership have received this desirable treatment. These
amendments to the FCC's rules have allowed the Partnership to resume its core
marketing strategy and reintroduce program service packaging. As a result, 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
premium services may be purchased on either an a la carte or a discounted
packaged basis. See "Legislation and Regulation."
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
-5-
<PAGE> 62
"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. FHGLP 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 FHGLP'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. FHGLP 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 the Partnership's customers. 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. FHGLP'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.
-6-
<PAGE> 63
DESCRIPTION OF THE PARTNERSHIP'S SYSTEMS
The table below sets forth certain operating statistics for the
Partnership's cable systems as of December 31, 1997.
<TABLE>
<CAPTION>
Average
Monthly
Premium Revenue Per
Homes Basic Basic Service Premium Basic
System Passed1 Subscribers Penetration2 Units3 Penetration4 Subscriber5
- ------ ------- ----------- ------------ ------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Ivins, UT 863 330 38.2% 90 27.3% $ 32.43
Fisk, MO 770 388 50.4% 107 27.6% $ 21.61
Villa Rica, GA 9,593 6,494 67.7% 1,796 27.7% $ 34.99
----- ----- -----
Total 11,226 7,212 64.2% 1,993 27.6% $ 34.15
===== ===== =====
</TABLE>
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 to cable service 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, 1997.
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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, including pay-per-view programming
and, in certain test markets, the Sega Channel. 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, 1997, the Partnership's monthly rates for basic cable
service for residential customers, excluding special senior citizen discount
rates, ranged from $16.24 to $20.96 and premium service rates ranged from $5.00
to $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 Partnership has no employees. The various personnel required to
operate the Partnership's business are employed by the Corporate General
Partner, its subsidiary corporation and FHGLP. The cost of such employment is
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 Corporate
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 12 in systems that serve 5% of its customers and an average channel
capacity of 35 in systems that serve 95% of its customers and on average utilize
100% of such systems' respective channel capacity. The Partnership believes that
system upgrades would enable it to provide customers with greater programming
diversity, better picture quality and
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alternative communications delivery systems made possible by the introduction of
fiber optic technology and by the possible future application of digital
compression. The implementation of the Partnership's capital expenditure plans
is, however, dependent in part on the availability of adequate capital on terms
satisfactory to the Partnership. The Corporate General Partner has concluded
that the Partnership is not able to obtain the necessary capital and, thus, has
initiated discussions with a business broker to sell the assets of the
Partnership. 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.
As of December 31, 1997, approximately 5% of the customers of the
Partnership's systems were served by systems that utilize addressable
technology. Addressable technology permits the cable operator to activate from a
central control point the cable television services to be delivered to a
customer if that customer has also been supplied with an addressable converter
box. To date, the Partnership has supplied addressable converter boxes to
customers of the systems utilizing addressable technology who subscribe to one
or more premium services and, in selected regions, to customers who subscribe to
certain new product tiers. As a result, if the system utilizes addressable
technology and the customer has been supplied with an addressable converter box,
the Partnership can upgrade or downgrade services immediately, without the delay
or expense associated with dispatching a technician to the home. Addressable
technology also reduces pay service theft, is an effective enforcement tool in
collecting delinquent payments and allows the Partnership to offer pay-per-view
services.
DIGITAL COMPRESSION
The Partnership has been closely monitoring developments in the area of
digital compression, a technology that is expected to 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 in the future could 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, 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 in the systems also could expand the number and types of services
these systems offer and enhance the development of current and future revenue
sources. Equipment vendors are beginning to market products to provide this
technology, but the Partnership's management has no plans to install it at this
time based on the current technological profile of its systems and its present
understanding of the costs as compared to the benefits of the digital equipment
currently available. This issue is under frequent management review.
PROGRAMMING
The Partnership purchases basic and premium programming for its systems
from Falcon Cablevision. In turn, Falcon Cablevision charges the Partnership for
these costs based on an estimate of what the Corporate General Partner could
negotiate for such services for the 15 partnerships managed by the Corporate
General Partner as a group (approximately 92,700 basic subscribers at December
31, 1997), which
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is generally based on a fixed fee per customer or a percentage of the gross
receipts for the particular service. Certain other new channels have also
recently offered Cablevision 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
certain such payments from programmers be offset against the programming fee
increases which can be passed through to subscribers under the FCC's rate
regulations. Falcon Cablevision's programming contracts are generally for a
fixed period of time and are subject to negotiated renewal. Falcon Cablevision
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 continue to
increase substantially in the near future, or that other materially adverse
terms will not be added to Falcon Cablevision's programming contracts.
Management believes, however, that Falcon Cablevision'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 Villa Rica system, 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 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, 1997, the Partnership held 10 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.
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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, 1997.
<TABLE>
<CAPTION>
Number of Percentage of
Year of Number of Basic Basic
Franchise Expiration Franchises Subscribers Subscribers
- -------------------- ---------- ----------- -----------
<S> <C> <C> <C>
Prior to 1999 4 4,601 63.8%
1999-2003 3 544 7.5%
2004 and after 3 1,893 26.2%
----- ----- ----
Total 10 7,038 97.5%
===== ===== ====
</TABLE>
The Partnership operates cable television systems which serve multiple
communities and, in some circumstances, portions of such systems extend into
jurisdictions for which the Partnership believes no franchise is necessary. In
the aggregate, approximately 174 customers, comprising approximately 2.5% of the
Partnership's customers, are served by unfranchised portions of such systems. 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 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 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
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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. 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.
Multichannel multipoint distribution systems ("wireless cable") deliver
programming services over microwave channels licensed by the FCC 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 may enable wireless cable
systems to deliver more channels.
Private cable television systems compete for service to 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 will provide an
alternative means for DBS systems and other video programming distributors,
including television stations, to initiate the new interactive television
services. This service may also be used by the cable television industry.
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 is in the process of awarding
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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.
The 1996 Telecom Act eliminates the restriction against ownership 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" 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. The open video system concept replaces the FCC's video
dialtone rules. The 1996 Telecom Act also includes numerous provisions designed
to make it easier for cable operators and others to compete directly with local
exchange telephone carriers.
The cable television industry competes with radio, television, print
media and the Internet for advertising revenues. As the cable television
industry continues to develop programming designed specifically for distribution
by cable, advertising revenues may increase. 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 expanded the definition of effective competition to include
situations where a local telephone company or its 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. Because
cable service rate increases have continued to outpace inflation under the FCC's
existing regulations, Congress and the FCC can be expected to explore additional
methods of addressing this issue, including deferral or repeal of the March 31,
1999 sunset of CPST rate regulations and legislation recently was introduced in
Congress to repeal the sunset provision.
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
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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 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 associated
basic cable service equipment.
The Partnership has adjusted its regulated programming service rates
and related equipment and installation charges in a majority of its service
areas so as to bring these rates and charges into compliance with the applicable
benchmark or equipment and installation cost levels.
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, this exemption from compliance with the
statute 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.
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 will have to 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.
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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 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 video providers to vertically integrated, satellite-distributed
cable programming services. The FCC has commenced a rulemaking proceeding to
seek comment on proposed modifications to its existing rules implementing the
statute, including: (1) establishing specific deadlines for resolving program
access complaints; (2) improving the discovery process, such as requiring the
disclosure of the rates that vertically integrated programmers charge cable
operators; (3) imposing monetary damages for program access violations; (4)
possibly applying the program access rules to certain situations in which
programming is moved from satellite delivery to terrestrial delivery; and (5)
revising the manner in which the rules apply to program buying cooperatives. It
is not clear to what extent, if any, the provisions of the 1992 Cable Act cover
programming distributed by means other than satellite or by programmers
unaffiliated with multiple system operators. Legislation also is expected to be
introduced shortly in Congress to strengthen the program access provisions of
the 1992 Cable Act.
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
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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, 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. The FCC has
recently changed the formula in order to produce lower rates and thereby
encourage the use of leased access.
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" without obtaining a local cable franchise. See "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. 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),
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officerships, directorships and general partnership interests. 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 (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, inter
alia, 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 the marketplace. The FCC must adopt rules to assure the competitive
availability to consumers of customer premises equipment, such as converters,
used to access the services offered by cable systems and other multichannel
video programming distributors.
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. The state of Utah where the Partnership
operates a cable system has certified to the FCC that it regulates the rates,
terms and conditions for pole attachments. In the absence of state regulation,
the FCC administers such pole attachment rates through use of a formula which it
has devised. As directed by the 1996 Telecom Act, the FCC has adopted a new rate
formula for any attaching party, including cable systems, which offer
telecommunications services. This new formula will
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result in significantly higher attachment rates for cable systems which choose
to offer such services, but does not begin to take effect until 2001.
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;
EEO; 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 performed 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, 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.
Copyrighted music performed 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 number
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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.
The foregoing does not purport to describe all present and proposed
federal, state and local regulations and legislation relating to the cable
television industry. Other existing federal regulations, copyright licensing
and, in many jurisdictions, state and local franchise requirements, currently
are the subject of a variety of judicial proceedings, legislative hearings and
administrative and legislative proposals which could change, in varying degrees,
the manner in which cable television 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.
The Partnership owns substantially all of the assets related to its
cable television operations, including its program production equipment, headend
(towers, antennae, 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
in the future. The approximate number of equity security holders of record was
1,004 as of December 31, 1997. 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.
DISTRIBUTIONS
The amended Partnership Agreement generally provides that all cash
distributions, as defined, be allocated 1% to the general partners and 99% to
the limited partners until the limited partners have received aggregate cash
distributions equal to their original capital contributions. The Partnership
Agreement also provides that all Partnership operating profits be allocated to
the partners in the same proportion as cash flow distributions are made.
However, even after the limited partners have received cash flow equal to their
initial investment, the general partners will only receive a 1% distribution of
proceeds from a disposition or refinancing of a system until the limited
partners have received an annual simple interest return of at least 8% of their
initial investment less any distributions from previous dispositions or
refinancing of systems. Thereafter, proceeds from a disposition or refinancing
of a system shall be distributed 80% to the limited partners and 20% to the
general partners. Gains from dispositions of systems are first allocated in the
same manner as the proceeds from such dispositions. This occurs until the
dispositions result in the aggregate fair market value of the Partnership's
remaining system(s) being less than or equal to 50% of the aggregate
contributions to the capital of the Partnership by the partners. Once this level
of dispositions has occurred, gain is allocated to the partners so that
distributions upon liquidation of the Partnership in accordance with capital
account balances will result in the same amounts being distributed to the
partners as if distributions were made in the same manner as they are prior to a
liquidation.
Any losses, whether resulting from operations or the sale or
disposition of a system, are allocated 99% to the limited partners and 1% to the
general partners until the limited partners' capital account balances are equal
to or less than zero. Thereafter, all losses are allocated to the Corporate
General Partner.
Upon dissolution of the Partnership, distributions are to be made to
the partners in accordance with their capital account balances. No partners
other than general partners shall be obligated to restore any negative capital
account balance existing upon dissolution of a partnership. All allocations to
individual limited partners will be based on their respective limited
partnership ownership interests.
The policy of the Corporate General Partner (although there is no
contractual obligation to do so) is to cause the Partnership to make cash
distributions on a monthly 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 month to
month depending upon the Partnership's results of operations and the Corporate
General Partner's determination of whether otherwise available funds are needed
for the Partnership's ongoing working capital and other liquidity requirements.
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.
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The Partnership began making periodic cash distributions from
operations in January 1990 and discontinued distributions in July 1994. No
distributions were made during 1995, 1996 and 1997.
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
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 assurance can be given regarding the
level or timing of future distributions, if any. The Partnership's new Facility
does not restrict the payment of distributions to partners unless an event of
default exists thereunder or the Maximum Leverage Ratio, as defined, is greater
than 4 to 1. However, due to the Partnership's pending rebuild requirements,
management does not anticipate paying distributions at any time in the
foreseeable future. See Item 7., "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources."
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ITEM 6. SELECTED FINANCIAL DATA
Set forth below is selected financial data of the Partnership for the
five years ended December 31, 1997. 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 1993 1994 1995 1996 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $ 1,797,000 $ 2,007,800 $ 2,211,900 $ 2,524,700 $ 2,917,600
Costs and expenses (1,167,800) (1,293,600) (1,291,200) (1,461,100) (1,675,100)
Depreciation and amortization (915,200) (1,004,200) (976,400) (1,054,200) (1,118,800)
----------- ----------- ----------- ----------- -----------
Operating income (loss) (286,000) (290,000) (55,700) 9,400 123,700
Interest expense (150,500) (161,300) (195,400) (147,700) (140,800)
Interest income 5,200 1,500 4,300 8,000 11,600
----------- ----------- ----------- ----------- -----------
Net loss $ (431,300) $ (449,800) $ (246,800) $ (130,300) $ (5,500)
=========== =========== =========== =========== ===========
Distributions to partners $ 443,900 $ 259,000 $ -- $ -- $ --
=========== =========== =========== =========== ===========
PER UNIT OF LIMITED
PARTNERSHIP INTEREST:
Net loss $ (11.66) $ (12.16) $ (6.67) $ (3.52) $ (0.15)
=========== =========== =========== =========== ===========
Distributions $ 12.00 $ 7.00 $ -- $ -- $ --
=========== =========== =========== =========== ===========
OTHER OPERATING DATA
Net cash provided by operating
activities $ 495,600 $ 532,900 $ 408,700 $ 957,000 $ 1,379,800
Net cash used in investing
activities (582,500) (447,900) (548,100) (700,100) (604,800)
Net cash provided by (used in)
financing activities 165,300 (47,900) (13,900) 56,800 (823,700)
EBITDA1 629,200 714,200 920,700 1,063,600 1,242,500
EBITDA to revenues 35.0% 35.6% 41.6% 42.1% 42.6%
Total debt to EBITDA 3.2x 2.7x 1.8x 1.2x 1.4x
Capital expenditures $ 578,500 $ 438,400 $ 526,700 $ 673,300 $ 577,200
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
-----------------------------------------------------------------------
BALANCE SHEET DATA 1993 1994 1995 1996 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total assets $ 7,539,800 $ 7,027,700 $ 6,765,700 $ 6,656,500 $ 5,894,700
Total debt 2,013,200 1,907,500 1,630,700 1,288,400 1,750,000
General partners' deficit (26,300) (33,400) (35,900) (37,200) (37,300)
Limited partners' capital 4,655,600 3,953,900 3,709,600 3,580,600 3,575,200
</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 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.
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<PAGE> 80
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 be phased out altogether in
1999. Because cable service rate increases have continued to outpace inflation
under the FCC's existing regulations, the Partnership expects Congress and the
FCC to explore additional methods of regulating cable service rate increases,
including deferral or repeal of the March 31, 1999 sunset of CPST rate
regulations and legislation recently was introduced in Congress to repeal the
sunset provision. 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
1997 COMPARED TO 1996
The Partnership's revenues increased from $2,524,700 to $2,917,600, or
by 15.6%, for the year ended December 31, 1997 as compared to 1996. Of the
$392,900 increase, $188,300 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, $125,900 was due to increases in the number of
subscriptions for basic, premium and tier services, $46,100 was due to increases
in other revenue producing items including advertising sales revenue and $32,600
was due to the July 1, 1996 restructuring of The Disney Channel from a premium
channel to a tier channel. As of December 31, 1997, the Partnership had
approximately 7,200 basic subscribers and 2,000 premium service units.
Service costs increased from $825,200 to $976,600, or by 18.3%, for the
year ended December 31, 1997 as compared to 1996. Service costs represent costs
directly attributable to providing cable services to customers. Programming fees
accounted for the majority of the increase. The increase was also due to
increases in franchise fees, personnel costs, pole rent expense and copyright
fees. The increase in programming fees was primarily due to higher rates charged
by program suppliers and increases in the number of subscriptions for services.
Franchise fees and copyright fees increased in direct relation to increased
revenues as described above. Personnel costs charged to the Partnership by
affiliates increased due to staff additions and wage increases, while pole rent
expense increased due to extensions of the Partnership's systems to pass new
serviceable homes in their franchise areas.
General and administrative expenses increased from $404,500 to
$430,700, or by 6.5%, for the year ended December 31, 1997 as compared to 1996,
primarily due to an increase in bad debt expense and personnel costs charged to
the Partnership by affiliates.
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<PAGE> 81
Management fees and reimbursed expenses increased from $231,400 to
$267,800, or by 15.7%, for the year ended December 31, 1997 as compared to 1996.
Management fees increased in direct relation to increased revenues as described
above and reimbursed expenses increased primarily due to higher allocated
personnel costs resulting from staff additions and wage increases.
Operating income before income taxes, depreciation and amortization
(EBITDA) is a commonly used financial analysis tool for measuring and comparing
cable television companies in several areas, such as liquidity, operating
performance and leverage. EBITDA as a percentage of revenues increased from
42.1% during 1996 to 42.6% in 1997. The increase was primarily due to increased
revenues. EBITDA increased from $1,063,600 to $1,242,500, or by 16.8%, for the
year ended December 31, 1997 compared to 1996. EBITDA should be considered in
addition to and not as a substitute for net income and cash flows determined in
accordance with generally accepted accounting principles as an indicator of
financial performance and liquidity.
Depreciation and amortization expense increased from $1,054,200 to
$1,118,800, or by 6.1%, for the year ended December 31, 1997 as compared to
1996, primarily due to a reduction in the estimated remaining life of existing
plant, which must be rebuilt by 1999 as required by two franchise agreements.
Operating income increased from $9,400 to $123,700 for the year ended
December 31, 1997 as compared to 1996, primarily due to increases in revenues as
described above.
Interest expense, net of interest income, decreased from $139,700 to
$129,200, or by 7.5%, for the year ended December 31, 1997 as compared to 1996,
primarily due to a decrease in average borrowings.
Due to the factors described above, the Partnership's net loss
decreased from $130,300 to $5,500, or by 95.8%, for the year ended December 31,
1997 as compared to 1996.
1996 COMPARED TO 1995
The Partnership's revenues increased from $2,211,900 to $2,524,700, or
by 14.1%, for the year ended December 31, 1996 as compared to 1995. Of the
$312,800 increase, $154,600 was due to increases in the number of subscriptions
for basic and premium services, $126,300 was due to increases in regulated
service rates that were implemented by the Partnership in the second and fourth
quarters of 1996, $29,200 was due to the July 1, 1996 restructuring of The
Disney Channel from a premium channel to a tier channel and $2,700 was due to
increases in other revenue producing items. As of December 31, 1996, the
Partnership had approximately 7,000 basic subscribers and 2,100 premium service
units.
Service costs increased from $705,000 to $825,200, or by 17.0%, for the
year ended December 31, 1996 as compared to 1995. Service costs represent costs
directly attributable to providing cable services to customers. Programming
fees, property taxes, franchise fees and copyright fees accounted for the
majority of the increase. The increase in programming fees was primarily due to
higher rates charged by program suppliers and increases in the number of
subscriptions for service. The increase in property taxes was due to
non-recurring credits taken against expense in the second quarter of 1995 to
adjust estimated property taxes to reflect actual tax assessments in Georgia.
General and administrative expenses increased from $383,500 to
$404,500, or by 5.5%, for the year ended December 31, 1996 as compared to 1995,
primarily due to an increase in bad debt expense and compliance costs associated
with reregulation by the FCC. A decrease in capitalization of labor and overhead
costs also accounted for the increase for the year.
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<PAGE> 82
Management fees and reimbursed expenses increased from $202,700 to
$231,400, or by 14.2%, for the year ended December 31, 1996 as compared to 1995.
Management fees increased in direct relation to increased revenues as described
above. Reimbursed expenses increased primarily due to higher allocated personnel
costs, rent expense, dues and subscription expense, professional service fees
and compliance costs associated with reregulation by the FCC.
Operating income before income taxes, depreciation and amortization
(EBITDA) is a commonly used financial analysis tool for measuring and comparing
cable television companies in several areas, such as liquidity, operating
performance and leverage. EBITDA as a percentage of revenues increased from
41.6% during 1995 to 42.1% in 1996. The increase was primarily due to increased
revenues. EBITDA increased from $920,700 to $1,063,600, or by 15.5%, for the
year ended December 31, 1996 compared to 1995. EBITDA should be considered in
addition to and not as a substitute for net income and cash flows determined in
accordance with generally accepted accounting principles as an indicator of
financial performance and liquidity.
Depreciation and amortization expense increased from $976,400 to
$1,054,200, or by 8.0%, for the year ended December 31, 1996 as compared to
1995, primarily due to a reduction in the estimated remaining life of existing
plant which will be rebuilt in 1998 and 1999. The increase in depreciation was
partially offset by decreased amortization expense due to the effect of certain
intangible assets becoming fully amortized in December 1995.
The Partnership generated operating income of $9,400 for the year ended
December 31, 1996 as compared to an operating loss of $55,700 in 1995, primarily
due to increases in revenues as described above.
Interest expense, net of interest income, decreased from $191,100 to
$139,700, or by 26.9%, for the year ended December 31, 1996 as compared to 1995
primarily due to lower average interest rates and due to a decrease in average
borrowings.
Due to the factors described above, the Partnership's net loss
decreased from $246,800 to $130,300, or by 47.2%, for the year ended December
31, 1996 as compared to 1995.
DISTRIBUTIONS TO PARTNERS
As provided in the partnership agreement, distributions to partners are
funded from such amounts after providing for working capital and other liquidity
requirements including debt service and capital expenditures not otherwise
funded by borrowings. The Partnership discontinued distributions to partners in
July 1994 due to liquidity requirements and financial market conditions. The
Partnership's new credit Facility does not restrict the payment of distributions
unless an event of default exists thereunder or the Maximum Leverage Ratio, as
defined, is greater than 4 to 1.
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 relating to the
expansion, improvement and upgrade of its cable systems. In general, these
requirements involve expansion, improvement and upgrade of the Partnership's
existing cable systems.
As of the date of this Report, substantially all of the available
channel capacity in the Partnership's systems is being utilized and each of such
systems requires upgrading. The desired upgrade program is presently estimated
to require aggregate capital expenditures of approximately $7.5 million.
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<PAGE> 83
These upgrades cover seven franchise areas in Georgia and are currently required
in two existing franchise agreements. The cost to upgrade the two franchise
areas is estimated to be approximately $1.9 million and must be completed by
February 1999. Three of the remaining five franchise agreements are under
negotiation for renewal. Capital expenditures amounted to $577,200 during 1997.
Funding upgrade capital expenditures beyond 1997, however, will require
new sources of capital. In an effort to obtain the necessary capital, the
Corporate General Partner had engaged in discussions with a number of possible
financing sources regarding the availability and terms of a replacement bank
facility for the Partnership. These discussions were not successful. The
Corporate General Partner was generally advised that an individual facility of
the size needed by the Partnership is too small to interest most banks which
lend to the cable television industry. Accordingly, on June 6, 1997, the
Corporate General Partner and an affiliated partnership formed Enstar Finance
Company, LLC ("EFC"). On September 30, 1997, 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 Corporate General Partner. The Partnership entered into a loan
agreement with EFC for a revolving loan facility of $2,528,900 of which
$1,750,000 was advanced to the Partnership at closing. Such funds together with
available cash were used to repay the Partnership's previous note payable
balance of $1,077,100 and related interest expense, deferred management fees and
reimbursed expenses of $387,500 due the Corporate General Partner and deferred
programming fees of $408,000 owed to an affiliated partnership.
Based on discussions with prospective lenders, the Corporate General
Partner believes that this structure provides capital to the Partnership on
terms more favorable than could be obtained on a "stand-alone" basis. Advances
by EFC under its partnership loan facilities are independently collateralized by
the individual partnership borrowers so that no partnership is liable for
advances made to other partnerships. The Partnership's Facility will mature on
August 31, 2001, at which time all funds previously advanced will be due in
full. Borrowings bear interest at the lender's base rate (8.5% at December 31,
1997), as defined, plus 0.625%, or at an offshore rate, as defined, 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. At closing,
the Partnership paid to EFC a $25,700 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 Corporate General Partner believes the Partnership was in
compliance with the covenants at December 31, 1997.
The Facility does not restrict the payment of distributions to partners
unless an event of default exists thereunder or the Maximum Leverage Ratio, as
defined, is greater than 4 to 1. As previously disclosed, however, in response
to the FCC's amended rate regulation rules and the Partnership's capital
expenditure requirements, distributions to Unitholders were discontinued in July
1994. As stated at the time of the announcement of this decision, management
believes that it is critical for the Partnership to preserve its liquidity
though the retention of cash. As a result, and because of the pending system
upgrade requirements discussed above, the Partnership does not anticipate paying
distributions at any time in the foreseeable future.
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The Corporate General Partner contributed $244,600 of its $632,100
receivable balance from the Partnership for past due management fees and
reimbursed expenses as an equity contribution to EFC. As a result, this balance
was not repaid on September 30, 1997 and remains an outstanding obligation of
the Partnership.
The Partnership has relatively little borrowing capacity remaining
under the Facility and would require additional sources of capital to undertake
its upgrade program. The partnership agreement, however, contains certain
limitations on the Partnership's indebtedness. The partnership agreement
provides that without the approval of a majority of interests of limited
partners, the Partnership may not incur any borrowings unless the amount of such
borrowings together with all outstanding borrowings does not exceed 33% of the
original capital raised by the Partnership, or a maximum of $3,052,500 permitted
debt outstanding. In order to obtain the appropriate amount of capital to
upgrade the Partnership's systems as discussed above, this provision of the
partnership agreement would need to be amended to increase the Partnership's
leverage. There can be no assurance that the Partnership will be able to effect
such an amendment to the partnership agreement, nor that it will seek to do so.
The Corporate General Partner has concluded that the Partnership is not able to
obtain the necessary capital to complete its franchise required upgrades and,
accordingly, has initiated discussions with a business broker to sell the assets
of the Partnership. However, there can be no assurance that these systems can be
sold in the near term at an acceptable price, if at all. The Corporate General
Partner or its affiliates may purchase the Partnership's cable systems depending
upon the offers received from prospective outside buyers. Any such sale would
require the consent of the holders of a majority of the Partnership's limited
partnership units and, if such sale were to the Corporate General Partner or an
affiliate thereof, would require an amendment to the partnership agreement.
Beginning in August 1997, the Corporate 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.
While the Corporate General Partner has made the election to
self-insure for these risks based upon a comparison of historical damage
sustained over the past five years with the cost and amount of insurance
currently available, there can be no assurance that future self-insured losses
will not exceed prior costs of maintaining insurance for these risks.
Approximately 90% of the Partnership's subscribers are served by its system in
Villa Rica, Georgia 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.
The "Year 2000" issue refers to certain contingencies that could result
from computer programs being written using two digits rather than four to define
the year. Many existing computer systems, including certain of the Partnership's
systems, process transactions based on two digits for the year of the
transaction (for example, "97" for 1997). These computer systems may not operate
effectively when the last two digits become "00," as will occur on January 1,
2000.
The Corporate General Partner has commenced an assessment of its Year
2000 business risks and its exposure to computer systems, to operating equipment
which is date sensitive and to its vendors and service providers. Based on a
preliminary study, the Corporate General Partner has concluded that certain of
its information systems were not Year 2000 compliant and has elected to replace
such software and hardware with Year 2000 compliant applications and equipment,
although the decision to replace major portions of such software and hardware
had previously been made without regard to the Year 2000 issue based on
operating and performance criteria. The Corporate General Partner expects to
install substantially all of the
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new systems in 1998, with the remaining systems to be installed in the first
half of 1999. The total anticipated cost, including replacement software and
hardware, will be borne by FHGLP.
In addition to evaluating its internal systems, the Corporate General
Partner has also initiated communications with its 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. There can be no assurance that the systems of
other companies on which the Partnership's systems rely will be timely converted
and that the failure to do so would not have an adverse impact on the
Partnership's systems. The Partnership continues to closely monitor developments
with its vendors and service suppliers.
1997 VS. 1996
Cash provided by operating activities increased by $422,800 from
$957,000 to $1,379,800 for the year ended December 31, 1997 as compared to 1996.
Cash increased by $139,400 from the collection of receivable balances, including
an insurance settlement for storm damage to the Partnership's Georgia cable
systems. Changes in prepaid expenses and accounts payable provided $88,600 more
cash due to differences in the timing of payments.
The Partnership used $95,300 less cash in investing activities during
1997 than in 1996 primarily due to a decrease of $96,100 in expenditures for
tangible assets. Financing activities used $880,500 more cash in 1997 than in
1996. The Partnership used $1,652,800 more cash to pay previously deferred
amounts owed to the Corporate General Partner and Falcon Cablevision. The
Partnership also used $946,200 more cash to repay debt under its previous credit
facility and $31,500 more cash for the payment of deferred loan costs related to
the new Facility. Borrowings of $1,750,000 under the new Facility partially
offset increased uses of cash for financing activities during 1997.
1996 VS. 1995
Cash provided by operating activities increased by $548,300 from
$408,700 to $957,000 for the year ended December 31, 1996 as compared to 1995.
This increase was primarily due to a $387,900 reduction in receivable balances
that resulted, in part, from an insurance settlement for storm damage to the
Partnership's Georgia cable systems. The Partnership used $4,400 less cash for
the payment of prepaid expenses and $34,400 more cash in the payment of
liabilities owed to third party creditors due to the differences in the timing
of payments.
The Partnership used $152,000 more cash in investing activities during
1996 than in 1995 due to increases of $146,600 in expenditures for tangible
assets and $5,700 for intangible assets. Financing activities provided $70,700
more cash in 1996 than in 1995 primarily due to a $136,200 increase in the
deferral of payments owed to the Corporate General Partner for management fees
and reimbursed expenses. The increase in cash was partially offset by a $65,400
increase in debt repayments.
INFLATION
Certain of the Partnership's expenses, such as those for equipment
repair and replacement, 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 it
is able to increase its service rates periodically, of which there can be no
assurance. See "Legislation and Regulation."
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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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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The General Partners of the Partnership may be considered, for certain
purposes, the functional equivalents of directors and executive officers. The
Corporate General Partner is Enstar Communications Corporation, and Robert T.
Graff, Jr. is the Individual General Partner. As part of Falcon Cablevision's
September 30, 1988 acquisition of the Corporate General Partner, Falcon
Cablevision received an option to acquire Mr. Graff's interest as Individual
General Partner of the Partnership and other affiliated cable limited
partnerships that he previously co-sponsored with the Corporate General Partner,
and Mr. Graff received the right to cause Falcon Cablevision to acquire such
interests. These arrangements were modified and extended in an amendment dated
September 10, 1993 pursuant to which, among other things, the Corporate General
Partner obtained the option to acquire Mr. Graff's interest in lieu of the
purchase right described above which was originally granted to Falcon
Cablevision. Since its incorporation in Georgia in 1982, the Corporate 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, 1997 the Corporate General Partner managed cable television systems
with approximately 92,700 basic subscribers.
Falcon Cablevision was formed in 1984 as a California limited
partnership and has been engaged in the ownership and operation of cable
television systems since that time. Falcon Cablevision is a wholly-owned
subsidiary of FHGLP. FHGI is the sole general partner of FHGLP. FHGLP currently
operates cable systems through a series of subsidiaries and also controls the
general partners of 15 other 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 Corporate General Partner:
NAME POSITION
- ---- --------
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
Jon W. Lunsford Executive Vice President - Finance
Abel C. Crespo Controller
MARC B. NATHANSON, 52, 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, at that time the largest
multiple-system 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"). At the 1986 NCTA convention, Mr. Nathanson was honored by
being named the recipient of the Vanguard Award for outstanding
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contributions to the growth and development of the cable television industry.
Mr. Nathanson is a 28-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 also
a Director of TV Por Cable Nacional, S.A. de C.V., an Advisory Board Member of
TVA, (Brazil) and a Director of GRB Entertainment. Mr. Nathanson is also
Chairman of the Board and Chief Executive Officer of Falcon International
Communications, LLC ("FIC"). Mr. Nathanson was appointed by President Clinton
and confirmed by the U.S. Senate on August 14, 1995 for a three year term on the
Board of Governors of International Broadcasting of the United States
Information Agency. He also serves on the Board of 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 the University of
California, Los Angeles ("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. Mr. Nathanson
received the "Entrepreneur of the Year Award" from Inc. Magazine in 1994.
FRANK J. INTISO, 51, was appointed President and Chief Operating Officer of FHGI
in September 1995, and between 1982 and that date held the positions of
Executive Vice President and Chief Operating Officer. 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 is responsible
for the day-to-day operations of all cable television systems under the
management of FHGI. Mr. Intiso has a Masters Degree in Business Administration
from UCLA, and is a Certified Public Accountant. He serves as chair of the
California Cable Television Association, and is on the boards of Cable
Advertising Bureau, Cable In The Classroom, Community Antenna Television
Association and 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, 59, has been a Director of FHGI and its predecessors
since 1975, and Senior Vice President and General Counsel from 1987 to 1990 and
has been Executive Vice President and General Counsel since February 1990. He
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). 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 FIC.
MICHAEL K. MENEREY, 46, has been Executive Vice President, Chief Financial
Officer and Secretary of FHGI and Enstar Communications Corporation since
February 1998. Prior to that time, he had been Chief Financial Officer and
Secretary of FHGI and its predecessors since 1984 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.
JOE A. JOHNSON, 53, has been Executive Vice President - Operations of FHGI since
September 1995. He has been Executive Vice President-Operations of Enstar
Communications Corporation since January 1996. He was a Divisional Vice
President of FHGI between 1989 and 1992. 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.
THOMAS J. HATCHELL, 48, has been Executive Vice President - 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
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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 Falcon's San
Luis Obispo, California region. He was Vice President - Construction of an
affiliate of Falcon from June 1980 to June 1981. In addition, he served as a
General Manager of the cable system in Tulare County, California, from 1977 to
1980. Prior to that time, Mr. Hatchell served as a cable executive with the
Continental Telephone Company.
JON W. LUNSFORD, 38, has been Executive Vice President - Finance of FHGI and
Enstar Communications Corporation since February 1998. Prior to that time, he
had been Vice President - Finance and Corporate Development of FHGI since
September 1994 and of Enstar Communications Corporation since January 1996. From
1991 to 1994, he served as Director of Corporate Finance at Continental
Cablevision, Inc. Prior to 1991, Mr. Lunsford was a Vice President with Crestar
Bank.
ABEL C. CRESPO, 38, has been Controller of FHGI and Enstar Communications
Corporation since January 1997. Mr. Crespo joined Falcon in December 1984, and
has held various accounting positions during that time, most recently that of
Senior Assistant Controller. Mr. Crespo holds a Bachelor of Science degree in
Business Administration from California State University, Los Angeles.
CERTAIN KEY PERSONNEL
The following sets forth, as of December 31, 1997, biographical
information about certain officers of FHGI who share certain responsibilities
with the officers of the Corporate General Partner with respect to the operation
and management of the Partnership.
LYNNE A. BUENING, 44, 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, 44, has been Vice President of Advertising Sales and Production
of FHGI since January 1992. From 1988 to 1991, he served as a Director of
Advertising Sales and Production at Cencom Cable Television in Pasadena,
California. He was an Advertising Sales Account Executive at Choice TV, an
affiliate of Falcon, from 1985 to 1988. From 1983 to 1985, Mr. Cowles served in
various sales and advertising positions.
HOWARD J. GAN, 51, has been Vice President of Regulatory Affairs of FHGI and its
predecessors since 1988. He was General Counsel at Malarkey-Taylor Associates, a
Washington, DC based telecommunications consulting firm, from 1986 to 1988. He
was Vice President and General Counsel at the Cable Television Information
Center 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
1975 to 1978.
R.W. ("SKIP") HARRIS, 50, has been Vice President of Marketing of FHGI since
June 1991. He is a member of the CTAM Premium Television Committee. 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.
JOAN SCULLY, 62, 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.
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RAYMOND J. TYNDALL, 50, 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 Donald L. Amick, Daniel H. DeLaney, Ron L. Hall, Michael E.
Kemph, Michael D. Singpiel and Robert S. Smith.
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.
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 Corporate
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 FHGLP to provide certain management services
for the Partnership and pays FHGLP a portion of the management fees it receives
in consideration of such services and reimburses FHGLP for expenses incurred by
FHGLP 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 Corporate
General Partner also performs certain supervisory and administrative services
for the Partnership, for which it is reimbursed.
For the fiscal year ended December 31, 1997, the Manager charged the
Partnership management fees of approximately $145,900 and reimbursed expenses of
$121,900. The Partnership reimbursed affiliates approximately $266,100 for
system operating management services. In addition, certain programming services
are purchased through Falcon Cablevision. The Partnership paid Falcon
Cablevision approximately $526,800 for these programming services for fiscal
year 1997.
PARTICIPATION IN DISTRIBUTIONS
The General Partners are 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."
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 3, 1998, 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. In 1989, FHGI issued to Hellman &
Friedman Capital Partners, A California Limited Partnership ("H&F"), a
$1,293,357 convertible debenture due 1999 convertible under certain
circumstances into ten percent of the common stock of FHGI and entitling H&F to
elect one director to the board of directors of FHGI. H&F elected Marc B.
Nathanson pursuant to such right. In 1991, FHGI issued to Hellman & Friedman
Capital Partners II, A California Limited Partnership ("H&FII"), additional
convertible debentures due 1999 in the aggregate amount of $2,006,198
convertible under certain circumstances into approximately 6.3% of the common
stock of FHGI and entitling H&FII to elect one director to the board of
directors of FHGI. As of March 3, 1998, H&FII had not exercised this right.
FHGLP also held 12.1% of the interests in the General Partner, and Falcon Cable
Trust, Frank Intiso and H&FII held 58.9%, 12.1% and 16.3% of the General
Partner, respectively. Such interests entitle the holders thereof to an
allocable share of cash distributions and profits and losses of the General
Partner in proportion to their ownership. Greg A. Nathanson is Marc B.
Nathanson's brother.
As of March 3, 1998, Marc B. Nathanson and members of his family owned,
directly or indirectly, outstanding partnership interests (comprising both
general partner interests and limited partner interests) aggregating
approximately 0.46% of Falcon Classic Cable Income Properties, L.P. ("Falcon
Classic") and 2.58% of Falcon Video Communications ("Falcon Video"). In
accordance with the respective partnership agreements of these two partnerships,
after the return of capital to and the receipt of certain preferred returns by
the limited partners of such partnerships, FHGLP and certain of its officers and
directors had rights to future profits greater than their ownership interests of
capital in such partnerships. See Item 13., "Certain Relationships and Related
Transactions."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CONFLICTS OF INTEREST
In March 1993, FHGLP, a new entity, assumed the management services
operations of FHGI. Effective March 29, 1993, FHGLP began receiving management
fees and reimbursed expenses which had previously been paid by the Partnership,
as well as the other affiliated entities mentioned above, to FHGI. The
management of FHGLP is substantially the same as that of FHGI.
FHGLP also manages the operations of Falcon Classic, Falcon Video and,
through its management of the operation of Falcon Cablevision (a subsidiary of
FHGLP), the partnerships of which Enstar Communications Corporation is the
Corporate General Partner, including the Partnership. On September 30, 1988,
Falcon Cablevision acquired all of the outstanding stock of Enstar
Communications Corporation. Certain members of management of the Corporate
General Partner have also been involved in the management of other cable
ventures. FHGLP contemplates entering into other cable ventures, including
ventures similar to the Partnership.
On March 6, 1998, FHGLP acquired four of the five Falcon Classic cable
systems. FHGLP intends to acquire the fifth system as soon as regulatory
approvals can be obtained, at which point Falcon Classic will be liquidated.
FHGLP executed various agreements on December 30, 1997 related to a series of
transactions that, if successfully consummated in 1998, would involve the
contribution by Falcon Video of its assets into the newly-formed entity of which
FHGLP would be the managing general partner. The consummation of transactions is
subject to, among other things, the satisfaction of customary closing conditions
and obtaining required regulatory and other third-party consents, including the
consent of franchising authorities, and to obtaining satisfactory financing
arrangements on acceptable terms.
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Accordingly, there can be no assurance that the transactions will be
successfully completed, or if successfully completed, when they might be
completed. The Corporate General Partner cannot determine at this time the
potential impact from these Falcon Classic and Falcon Video transactions on the
Partnership, but it is possible that certain programming costs could increase.
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 partnerships. See Item 7.,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
These affiliations subject FHGLP and the Corporate General Partner and
their management to certain conflicts of interest. Such conflicts of interest
relate to the time and services management will devote 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.
FHGLP and the Corporate General Partner will resolve all conflicts of
interest in accordance with their fiduciary duties.
FIDUCIARY RESPONSIBILITY AND INDEMNIFICATION OF THE GENERAL PARTNERS
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 Partners will be
indemnified by the Partnership for acts performed within the scope of their
authority under the partnership agreement if such general partners (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 their conduct was negligent. In addition, the
partnership agreement provides that the General Partners 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 Corporate General Partner shall determine, a liability
insurance policy which insures the Corporate General Partner, FHGI and its
affiliates (which includes FHGLP), officers and directors and such other persons
as the Corporate 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.
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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.
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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 30, 1998.
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
By: Enstar Communications Corporation,
Corporate 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 30th day of March 1998.
<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
Corporate General Partner of the Registrant.
-38-
<PAGE> 95
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Report of Independent Auditors F-2
Balance Sheets - December 31, 1996 and 1997 F-3
Financial Statements for each of
the three years in the period
ended December 31, 1997:
Statements of Operations F-4
Statements of Partnership Capital (Deficit) F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-7
All schedules have been omitted because they are either not required, not
applicable or the information has otherwise been supplied.
F-1
<PAGE> 96
REPORT OF INDEPENDENT AUDITORS
Partners
Enstar Income/Growth Program Six-B, L.P. (A Georgia Limited Partnership)
We have audited the accompanying balance sheets of Enstar Income/Growth Program
Six-B, L.P. (a Georgia limited partnership) as of December 31, 1996 and 1997,
and the related statements of operations, partnership capital (deficit), and
cash flows for each of the three years in the period ended December 31, 1997.
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/Growth Program
Six-B, L.P. at December 31, 1996 and 1997, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Los Angeles, California
February 20, 1998
F-2
<PAGE> 97
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
BALANCE SHEETS
========================================
<TABLE>
<CAPTION>
December 31,
-------------------------
1996 1997
----------- -----------
ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 353,500 $ 304,800
Accounts receivable, less allowance of $1,900 and
$2,500 for possible losses 67,200 101,500
Insurance claim receivable 250,500 --
Prepaid expenses and other assets 61,600 48,800
Property, plant and equipment, less accumulated
depreciation and amortization 3,593,400 3,477,400
Franchise cost, net of accumulated
amortization of $2,256,400 and $2,615,600 2,053,300 1,714,100
Intangible costs, net of accumulated amortization
of $322,300 and $380,800 277,000 248,100
----------- -----------
$ 6,656,500 $ 5,894,700
=========== ===========
LIABILITIES AND PARTNERSHIP CAPITAL
-----------------------------------
LIABILITIES:
Accounts payable $ 145,700 $ 176,500
Due to affiliates 1,679,000 430,300
Note payable 1,288,400 --
Note payable - affiliate -- 1,750,000
----------- -----------
TOTAL LIABILITIES 3,113,100 2,356,800
----------- -----------
COMMITMENTS AND CONTINGENCIES
PARTNERSHIP CAPITAL (DEFICIT):
General partners (37,200) (37,300)
Limited partners 3,580,600 3,575,200
----------- -----------
TOTAL PARTNERSHIP CAPITAL 3,543,400 3,537,900
----------- -----------
$ 6,656,500 $ 5,894,700
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 98
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
STATEMENTS OF OPERATIONS
========================================
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES $ 2,211,900 $ 2,524,700 $ 2,917,600
----------- ----------- -----------
OPERATING EXPENSES:
Service costs 705,000 825,200 976,600
General and administrative expenses 383,500 404,500 430,700
General Partner management fees
and reimbursed expenses 202,700 231,400 267,800
Depreciation and amortization 976,400 1,054,200 1,118,800
----------- ----------- -----------
2,267,600 2,515,300 2,793,900
----------- ----------- -----------
Operating income (loss) (55,700) 9,400 123,700
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (195,400) (147,700) (140,800)
Interest income 4,300 8,000 11,600
----------- ----------- -----------
(191,100) (139,700) (129,200)
----------- ----------- -----------
NET LOSS $ (246,800) $ (130,300) $ (5,500)
=========== =========== ===========
Net loss allocated to General Partners $ (2,500) $ (1,300) $ (100)
=========== =========== ===========
Net loss allocated to Limited Partners $ (244,300) $ (129,000) $ (5,400)
=========== =========== ===========
NET LOSS PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ (6.67) $ (3.52) $ (0.15)
=========== =========== ===========
WEIGHTED AVERAGE LIMITED
PARTNERSHIP UNITS OUTSTANDING
DURING THE YEAR 36,626 36,626 36,626
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 99
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
STATEMENTS OF PARTNERSHIP CAPITAL (DEFICIT)
===========================================
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
----------- ----------- -----------
<S> <C> <C> <C>
PARTNERSHIP CAPITAL (DEFICIT),
January 1, 1995 $ (33,400) $ 3,953,900 $ 3,920,500
Net loss for year (2,500) (244,300) (246,800)
----------- ----------- -----------
PARTNERSHIP CAPITAL (DEFICIT),
December 31, 1995 (35,900) 3,709,600 3,673,700
Net loss for year (1,300) (129,000) (130,300)
----------- ----------- -----------
PARTNERSHIP CAPITAL (DEFICIT),
December 31, 1996 (37,200) 3,580,600 3,543,400
Net loss for year (100) (5,400) (5,500)
----------- ----------- -----------
PARTNERSHIP CAPITAL (DEFICIT),
December 31, 1997 $ (37,300) $ 3,575,200 $ 3,537,900
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 100
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
STATEMENTS OF CASH FLOWS
========================================
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (246,800) $ (130,300) $ (5,500)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 976,400 1,054,200 1,118,800
Amortization of deferred loan costs 5,200 1,300 6,700
Increase (decrease) from changes in:
Receivables (311,100) 76,800 216,200
Prepaid expenses and other assets (8,700) (4,300) 12,800
Accounts payable (6,300) (40,700) 30,800
----------- ----------- -----------
Net cash provided by operating activities 408,700 957,000 1,379,800
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (526,700) (673,300) (577,200)
Increase in intangible assets (21,400) (27,100) (27,600)
Proceeds from sale of property, plant
and equipment -- 300 --
----------- ----------- -----------
Net cash used in investing activities (548,100) (700,100) (604,800)
----------- ----------- -----------
Cash flows from financing activities:
Repayment of debt (276,800) (342,200) (1,288,400)
Borrowings from affiliate -- -- 1,750,000
Deferred loan costs (5,000) (5,100) (36,600)
Due to affiliate 267,900 404,100 (1,248,700)
----------- ----------- -----------
Net cash provided by (used in)
financing activities (13,900) 56,800 (823,700)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (153,300) 313,700 (48,700)
Cash and cash equivalents at beginning of year 193,100 39,800 353,500
----------- ----------- -----------
Cash and cash equivalents at end of year $ 39,800 $ 353,500 $ 304,800
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 101
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
NOTES TO FINANCIAL STATEMENTS
========================================
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
FORM OF PRESENTATION
Enstar Income/Growth Program Six-B, L.P., a Georgia limited partnership
(the "Partnership"), owns and operates cable television systems in rural areas
of Georgia, Utah and Missouri.
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 $277,000 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.
INTANGIBLE COSTS
Intangible costs include covenants-not-to-compete and deferred charges
which are amortized using the straight-line method over two years or the life of
the covenant and certain fees paid to the Corporate General Partner and other
system acquisition costs which are amortized using the straight-line method over
two to 12 years. Costs related to borrowings are capitalized and amortized to
interest expense over the life of the related loan.
F-7
<PAGE> 102
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
NOTES TO FINANCIAL STATEMENTS
========================================
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
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 goodwill and other intangible assets, to determine whether events or
circumstances warrant revised estimates of useful lives.
REVENUE RECOGNITION
Revenues from cable services are recognized as the services are
provided.
INCOME TAXES
As a partnership, Enstar Income/Growth Program Six-B, 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, 1997, the book basis of the Partnership's net assets exceeds its
tax basis by $2,390,000.
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 the Partnership's net loss for 1997 in the
financial statements is $5,500 as compared to its tax income of $252,900 for the
same period. The difference is principally due to timing differences in
depreciation and amortization expense.
EARNINGS PER UNIT OF LIMITED PARTNERSHIP INTEREST
Earnings and losses have been allocated 99% to the limited partners and
1% to the general partners. Earnings and losses per unit of limited partnership
interest are based on the weighted average number of units outstanding during
the year. The General Partners do not own units of partnership interest in the
Partnership, but rather hold a participation interest in the income, losses and
distribution of the Partnership.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the
1997 presentation.
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.
F-8
<PAGE> 103
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
NOTES TO FINANCIAL STATEMENTS
========================================
NOTE 2 - PARTNERSHIP MATTERS
The Partnership was formed on September 23, 1987 to acquire, construct,
improve, develop and operate cable television systems in various locations in
the United States. The partnership agreement provides for Enstar Communications
Corporation (the "Corporate 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.
On September 30, 1988, Falcon Cablevision, a California limited
partnership, purchased all of the outstanding capital stock of the Corporate
General Partner.
The Partnership was formed with an initial capital contribution of
$1,100 comprised of $1,000 from the Corporate General Partner and $100 from the
initial limited partner. Sale of interests in the Partnership began November
1988, and the initial closing took place in January 1989. The Partnership
continued to raise capital until November 1989, at which time the Partnership
had raised a total of $9,156,400. The Partnership began its cable television
business operations in January 1990 with the acquisition of its first cable
television property.
The amended partnership agreement generally provides that all cash
distributions, as defined, be allocated 1% to the general partners and 99% to
the limited partners until the limited partners have received aggregate cash
distributions equal to their original capital contributions. The amended
partnership agreement also provides that all partnership operating profits be
allocated to the partners in the same proportion as cash flow distributions are
made. However, even after the limited partners have received cash flow equal to
their initial investment, the general partners will only receive a 1%
distribution of proceeds from a disposition or refinancing of a system until the
limited partners have received an annual simple interest return of at least 8%
of their initial investment less any distributions from previous dispositions or
refinancing of systems. Thereafter, proceeds from a disposition or refinancing
of a system shall be distributed 80% to the limited partners and 20% to the
general partners. Gains from dispositions of systems are first allocated in the
same manner as the proceeds from such dispositions. This occurs until the
dispositions result in the aggregate fair market value of the Partnership's
remaining system(s) being less than or equal to 50% of the aggregate
contributions to the capital of the Partnership by the partners.
Any losses, whether resulting from operations or the sale or
disposition of a system, are allocated 99% to the limited partners and 1% to the
general partners until the limited partners' capital account balances are equal
to zero. Thereafter, all losses are allocated to the Corporate General Partner.
Upon dissolution of the Partnership, distributions are to be made to
the partners in accordance with their capital account balances. No partners
other than general partners shall be obligated to restore any negative capital
account balance existing upon dissolution of the Partnership. All allocations to
individual limited partners will be based on their respective limited
partnership ownership interests.
The amended partnership agreement limits the amount of debt the
Partnership may incur.
F-9
<PAGE> 104
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
NOTES TO FINANCIAL STATEMENTS
========================================
NOTE 3 - POTENTIAL LIQUIDATION OF PARTNERSHIP ASSETS
The Corporate General Partner has initiated discussions with a business
broker to explore selling the Partnership's cable systems. The Corporate General
Partner believes the sale of these assets would allow the Partnership to pay off
its bank debt and other obligations and liquidate as soon as practicable
thereafter. The Partnership is required by provisions in its franchise
agreements to rebuild two of its cable systems in Georgia at an approximate cost
of $1.9 million. The Partnership has insufficient borrowing capacity available
under its current credit facility (approximately $779,000) and is unable to seek
adequate sources of capital due to limitations on indebtedness imposed by the
partnership agreement. The partnership agreement provides that without the
approval of a majority of interests of limited partners, the Partnership may not
incur borrowings unless the amount of such borrowings together with all
outstanding borrowings does not exceed 33% of the original capital raised by the
Partnership, or a maximum of $3,052,500 permitted debt outstanding, versus the
Partnership's current facility of $2,528,900 (See Note 7). This provision of the
partnership agreement would need to be amended to increase the Partnership's
leverage. There can be no assurance that the Partnership would be able to effect
such an amendment to the partnership agreement, nor that it will seek to do so.
Neither are there any guarantees that the Partnership's systems can be sold in
the near term at an acceptable price, if at all. The Corporate General Partner
or its affiliates may purchase the Partnership's cable systems depending upon
the offers received from prospective outside buyers. Any such sale would require
the consent of the holders of a majority of the Partnership's limited
partnership units and, if such sale were to the Corporate General Partner or an
affiliate thereof, would require an amendment to the partnership agreement.
NOTE 4 - INSURANCE CLAIM RECEIVABLE
Insurance claim receivable at December 31, 1996 represents an
uncollected insurance claim arising from storm-related system damage which
occurred in 1995.
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1996 1997
----------- -----------
<S> <C> <C>
Cable television systems $ 6,041,600 $ 6,531,200
Vehicles, furniture and
equipment, and leasehold
improvements 173,300 190,800
----------- -----------
6,214,900 6,722,000
Less accumulated depreciation
and amortization (2,621,500) (3,244,600)
----------- -----------
$ 3,593,400 $ 3,477,400
=========== ===========
</TABLE>
F-10
<PAGE> 105
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
NOTES TO FINANCIAL STATEMENTS
========================================
NOTE 6 - 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.
Notes Payable
The carrying amount approximates fair value due to the variable rate
nature of the notes payable.
NOTE 7 - NOTE PAYABLE - AFFILIATE
On September 30, 1997, the Partnership refinanced its existing debt
with a credit facility from a subsidiary of the Corporate 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
Corporate General Partner. The Partnership entered into a loan agreement with
EFC for a revolving loan facility (the "Facility") of $2,528,900 of which
$1,750,000 was advanced to the Partnership at closing. Such funds together with
available cash were used to repay the Partnership's previous note payable
balance of $1,077,100 and related interest expense, deferred management fees and
reimbursed expenses of $387,500 due the Corporate General Partner and deferred
programming fees of $408,000 owed to an affiliated partnership.
The Partnership's Facility will mature on August 31, 2001, at which
time all funds previously advanced will be due in full. Borrowings bear interest
at the lender's base rate (8.5% at December 31, 1997), as defined, plus 0.625%,
or at an offshore rate, as defined, 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 $25,700
facility fee. This represented the Partnership's pro rata portion of a similar
fee paid by EFC to its lenders. In connection with this refinancing, the
Partnership wrote off $3,200 in deferred loan costs relating to the former bank
credit agreement.
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
F-11
<PAGE> 106
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
NOTES TO FINANCIAL STATEMENTS
========================================
NOTE 7 - NOTE PAYABLE - AFFILIATE (CONTINUED)
of default exists thereunder or the Maximum Leverage Ratio, as defined, is
greater than 4 to 1. The Corporate General Partner believes the Partnership was
in compliance with the covenants at December 31, 1997.
The Corporate General Partner contributed a $244,600 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 8 - COMMITMENTS AND CONTINGENCIES
The Partnership leases tower sites associated with its systems under
operating leases expiring in various years through 2002.
Future minimum rental payments under non-cancelable operating
leases that have remaining terms in excess of one year as of December 31, 1997
are as follows:
<TABLE>
<CAPTION>
Year Amount
---- --------
<S> <C>
1998 $ 7,100
1999 6,600
2000 6,600
2001 1,700
--------
$ 22,000
========
</TABLE>
Rentals, other than pole rentals, charged to operations approximated
$13,800, $17,300 and $18,300 in 1995, 1996 and 1997, respectively. Pole rentals
approximated $41,300, $40,800 and $47,500 in 1995, 1996 and 1997, respectively.
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 companies within their
local exchange service areas; and (iv) liberalizes certain of the FCC's
cross-ownership restrictions. Because cable service rate increases have
continued to outpace inflation under the FCC's existing regulations, the
Partnership expects Congress and the FCC to explore additional methods of
regulating cable service rate increases, including deferral or repeal of the
March 31, 1999 sunset of CPST rate regulations and legislation recently was
introduced in Congress to repeal the sunset provision.
F-12
<PAGE> 107
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
NOTES TO FINANCIAL STATEMENTS
========================================
NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Capital expenditures of approximately $1.9 million will be necessary to
upgrade an existing cable television system by February 1999 as required by two
franchise agreements. The Partnership is unable to obtain adequate capital to
accomplish the upgrade. Consequently, the Corporate General Partner has
initiated discussions with a business broker to sell the Partnership's assets.
See Note 3.
Beginning in August 1997, the Corporate 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.
While the Corporate General Partner has made the election to
self-insure for these risks based upon a comparison of historical damage
sustained over the past five years with the cost and amount of insurance
currently available, there can be no assurance that future self-insured losses
will not exceed prior costs of maintaining insurance for these risks.
Approximately 90% of the Partnership's subscribers are served by its system in
Villa Rica, Georgia 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 9 - TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES
The Partnership has a management and service agreement (the
"Agreement") with a wholly owned subsidiary of the Corporate 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
$110,600, $126,200 and $145,900 in 1995, 1996 and 1997, 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
Corporate General Partner and its subsidiaries are charged a proportionate share
of these expenses. 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. Reimbursed expenses were $92,100, $105,200 and
$121,900 in 1995, 1996 and 1997, respectively.
The payment of management fees and reimbursed expenses was deferred in
prior years. On September 30, 1997, the Partnership obtained new financing and
subsequently used such borrowings and other available cash to pay $387,500 of
its cumulative deferred balance, which approximated $632,100. The remainder of
these deferred amounts was contributed as an equity contribution by the
Corporate General Partner to EFC. See Note 7.
The Partnership also receives certain system operating management
services from affiliates of the Corporate General Partner in addition to the
Manager due to the fact that there are no such employees directly employed by
the Partnership. 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
F-13
<PAGE> 108
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
NOTES TO FINANCIAL STATEMENTS
========================================
NOTE 9 - TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES (CONTINUED)
$243,900, $243,000 and $266,100 in 1995, 1996 and 1997, 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.
Certain programming services have been purchased through Falcon
Cablevision. Falcon Cablevision charges the Partnership for these costs based on
an estimate of what the Corporate General Partner could negotiate for such
programming services for the 15 partnerships managed by the Corporate General
Partner as a group. Programming fee expense was $370,900, $451,900 and $526,800
in 1995, 1996 and 1997, respectively. The payment of programming fees to
Cablevision was deferred in prior years. On September 30, 1997, the Partnership
utilized borrowings from its Facility together with available cash to pay its
cumulative deferred programming expense balance, which approximated $408,000.
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, 1995, 1996 and 1997, cash paid for
interest amounted to $237,900, $148,700 and $114,400, respectively.
F-14
<PAGE> 109
EXHIBIT D
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 0-18495
---------
Enstar Income/Growth Program Six-B, L.P.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Georgia 58-1754588
- ------------------------------- ----------------------
(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
-----------------
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report.
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
----- -----
Exhibit Index located at Page E-1.
<PAGE> 110
PART I - FINANCIAL INFORMATION
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
CONDENSED BALANCE SHEETS
===========================================
<TABLE>
<CAPTION>
December 31, June 30,
1997* 1998
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 304,800 $ 519,100
Accounts receivable, less allowance of $2,500 and
$2,400 for possible losses 101,500 72,700
Prepaid expenses and other assets 48,800 55,500
Property, plant and equipment, less accumulated
depreciation and amortization of $3,244,600 and $3,581,900 3,477,400 3,427,500
Franchise cost, net of accumulated
amortization of $2,615,600 and $2,796,100 1,714,100 1,539,300
Intangible costs, net of accumulated amortization
of $380,800 and $383,400 248,100 219,400
----------- -----------
$ 5,894,700 $ 5,833,500
=========== ===========
LIABILITIES AND PARTNERSHIP CAPITAL
-----------------------------------
LIABILITIES:
Accounts payable $ 176,500 $ 196,300
Due to affiliates 430,300 464,900
Note payable - affiliate 1,750,000 1,600,000
----------- -----------
TOTAL LIABILITIES 2,356,800 2,261,200
----------- -----------
COMMITMENTS AND CONTINGENCIES
PARTNERSHIP CAPITAL (DEFICIT):
General partners (37,300) (37,000)
Limited partners 3,575,200 3,609,300
----------- -----------
TOTAL PARTNERSHIP CAPITAL 3,537,900 3,572,300
----------- -----------
$ 5,894,700 $ 5,833,500
=========== ===========
</TABLE>
*As presented in the audited financial statements.
See accompanying notes to condensed financial statements.
-2-
<PAGE> 111
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
CONDENSED STATEMENTS OF OPERATIONS
===========================================
<TABLE>
<CAPTION>
Unaudited
---------------------------------
Three months ended
June 30,
---------------------------------
1997 1998
----------- -----------
<S> <C> <C>
REVENUES $ 727,100 $ 768,100
OPERATING EXPENSES:
Service costs 243,300 251,300
General and administrative expenses 101,900 112,600
General Partner management fees
and reimbursed expenses 68,100 71,000
Depreciation and amortization 275,900 281,700
----------- -----------
689,200 716,600
----------- -----------
OPERATING INCOME 37,900 51,500
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 2,100 5,000
Interest expense (31,400) (40,500)
Gain on sale of cable assets -- 900
----------- -----------
(29,300) (34,600)
----------- -----------
NET INCOME $ 8,600 $ 16,900
=========== ===========
Net income allocated to General Partners $ 100 $ 200
=========== ===========
Net income allocated to Limited Partners $ 8,500 $ 16,700
=========== ===========
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 0.23 $ 0.46
=========== ===========
AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 36,626 36,626
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
-3-
<PAGE> 112
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
CONDENSED STATEMENTS OF OPERATIONS
===========================================
<TABLE>
<CAPTION>
Unaudited
---------------------------------
Six months ended
June 30,
---------------------------------
1997 1998
----------- -----------
<S> <C> <C>
REVENUES $ 1,457,900 $ 1,521,700
----------- -----------
OPERATING EXPENSES:
Service costs 483,400 510,400
General and administrative expenses 202,000 211,700
General Partner management fees
and reimbursed expenses 134,400 138,500
Depreciation and amortization 547,100 554,100
----------- -----------
1,366,900 1,414,700
----------- -----------
OPERATING INCOME 91,000 107,000
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 4,200 8,100
Interest expense (64,500) (81,600)
Gain on sale of cable assets -- 900
----------- -----------
(60,300) (72,600)
----------- -----------
NET INCOME $ 30,700 $ 34,400
=========== ===========
Net income allocated to General Partners $ 300 $ 300
=========== ===========
Net income allocated to Limited Partners $ 30,400 $ 34,100
=========== ===========
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 0.83 $ 0.93
=========== ===========
AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 36,626 36,626
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
-4-
<PAGE> 113
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
STATEMENTS OF CASH FLOWS
===========================================
<TABLE>
<CAPTION>
Unaudited
------------------------------
Six months ended
June 30,
------------------------------
1997 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 30,700 $ 34,400
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 547,100 554,100
Amortization of deferred loan costs 900 3,900
Gain on sale of cable assets -- (900)
Increase (decrease) from changes in:
Receivables 241,500 28,800
Prepaid expenses and other assets (500) (6,700)
Accounts payable 16,800 19,800
----------- -----------
Net cash provided by operating activities 836,500 633,400
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (272,900) (294,000)
Increase in intangible assets (1,900) (9,300)
Proceeds from sale of property, plant and equipment -- 900
----------- -----------
Net cash used in investing activities (274,800) (302,400)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Due to affiliates (446,500) 34,600
Repayment of debt (211,300) (150,000)
Deferred loan costs -- (1,300)
----------- -----------
Net cash used in financing activities (657,800) (116,700)
----------- -----------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (96,100) 214,300
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 353,500 304,800
----------- -----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 257,400 $ 519,100
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
-5-
<PAGE> 114
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
=======================================
1. INTERIM FINANCIAL STATEMENTS
The accompanying condensed interim financial statements for the three
and six months ended June 30, 1998 and 1997 are unaudited. These condensed
interim financial statements should be read in conjunction with the audited
financial statements and notes thereto included in the Partnership's latest
Annual Report on Form 10-K. In the opinion of management, such statements
reflect all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the results of such periods. The results of
operations for the three and six months ended June 30, 1998 are not necessarily
indicative of results for the entire year.
2. TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES
The Partnership has a management and service agreement with a wholly
owned subsidiary of the Corporate General Partner (the "Manager") for a monthly
management fee of 5% of revenues, excluding revenues from the sale of cable
television systems or franchises. Management fee expense approximated $38,400
and $76,100 for the three and six months ended June 30, 1998.
In addition to the monthly management fee described above, 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 Corporate General Partner and its subsidiary are
charged a proportionate share of these expenses. The Corporate General Partner
has contracted with Falcon Holding Group, L.P. ("FHGLP"), an affiliated
partnership, to provide corporate 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
subscribers or homes passed (dwelling units within a system) within the
designated service areas. The total amount charged to the Partnership for these
services approximated $32,600 and $62,400 for the three and six months ended
June 30, 1998. The payment of management fees and reimbursed expenses was
deferred in prior years. On September 30, 1997, the Partnership obtained new
financing and subsequently used such borrowings and other available cash to pay
$387,500 of its previously deferred management fees and reimbursed expenses,
which approximated $632,100. The remainder of these deferred amounts, $244,600,
was contributed as an equity contribution by the Corporate General Partner to
its subsidiary, Enstar Finance Company, LLC ("EFC"), and remains an outstanding
obligation of the Partnership. In the normal course of business, the Partnership
pays interest and principal to EFC, its primary lender.
The Partnership also receives certain system operating management
services from affiliates of the Corporate General Partner in addition to the
Manager due to the fact that there are no employees directly employed by the
Partnership. 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 $71,700 and $137,800 for the three and
six months ended June 30, 1998. 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.
-6-
<PAGE> 115
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
=======================================
2. TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES (CONTINUED)
Certain programming services have been purchased through an affiliate of
the Partnership. In turn, the affiliate charges the Partnership for these costs
based on an estimate of what the Corporate General Partner could negotiate for
such programming services for the 15 partnerships managed by the Corporate
General Partner as a group. The Partnership recorded programming fee expense of
$149,700 and $296,400 for the three and six months ended June 30, 1998.
Programming fees are included in service costs in the statements of operations.
3. SALE OF PARTNERSHIP ASSETS
As reported in the Partnership's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998, the Partnership concluded that it is not able to
obtain the appropriate amount of capital to make the necessary upgrades to its
cable systems and initiated discussions with a business broker to sell the
Partnership's cable systems. The Partnership subsequently engaged a business
broker to solicit offers for its cable systems, but received only two
preliminary offers (the "Initial Offers"), each of which excluded the Ivins,
Utah and Fisk, Missouri cable systems and was subject to multiple potential
purchase price adjustments and material closing contingencies. The Partnership
concluded that it was not in the best interests of unitholders to accept either
of the Initial Offers because, among other things, neither Initial Offer
constituted an offer to purchase all of the cable systems, and each Initial
Offer was subject to material terms and conditions prior to closing. Subsequent
to the Partnership's receipt of the Initial Offers, the Partnership received an
offer from certain affiliates of FHGLP (the "Purchasers") to purchase all of the
Partnership's cable systems for $10,473,200, a price which exceeded the highest
of the Initial Offers, and which contained only limited closing conditions that
are more favorable to the Partnership than those in the Initial Offers.
The General Partner believes that accepting the Falcon Offer is in the
best interests of the Partnership and the unitholders. Accordingly, the
Partnership and the Purchasers are in the process of finalizing an asset
purchase agreement for the purchase and sale of all of the Partnership's assets,
subject to limited partner approval as discussed below. If the sale is
consummated, the General Partner will make one or more liquidating distributions
to the partners and, after providing for the payment of the Partnership's
obligations, cause the Partnership to dissolve and be liquidated. After
repayment of the Partnership's existing obligations, the Partnership presently
estimates that liquidating distributions to unitholders would total between $220
and $230 per unit, less applicable taxes, if any. The sale will require the
holders of at least a majority of the Partnership's limited partnership units to
consent to the sale, to certain amendments to the Partnership's partnership
agreement and to the liquidation.
-7-
<PAGE> 116
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
=======================================
4. EARNINGS PER UNIT OF LIMITED PARTNERSHIP INTEREST
Earnings and losses per unit of limited partnership interest is based
on the average number of units outstanding during the periods presented. For
this purpose, earnings and losses have been allocated 99% to the Limited
Partners and 1% to the General Partners. The General Partners do not own units
of partnership interest in the Partnership, but rather hold a participation
interest in the income, losses and distributions of the Partnership.
-8-
<PAGE> 117
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
The Cable Television Consumer Protection and Competition Act of 1992
(the "1992 Cable Act") required the Federal Communications Commission ("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
Telecommunications Act of 1996 (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 cable programming service tier ("CPST") rates
will be terminated on March 31, 1999. Because cable service rate increases have
continued to outpace inflation under the FCC's existing regulations, the
Partnership expects Congress and the FCC to explore additional methods of
regulating cable service rate increases, including deferral or repeal of the
March 31, 1999 termination of CPST rate regulation. 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. In addition to the information
provided herein, reference is made to the Partnership's Annual Report on Form
10-K for the year ended December 31, 1997 for additional information regarding
such matters and the effect thereof on the Partnership's business.
RESULTS OF OPERATIONS
The Partnership's revenues increased from $727,100 to $768,100, or by
5.6%, and from $1,457,900 to $1,521,700, or by 4.4%, for the three and six
months ended June 30, 1998 as compared to the corresponding periods in 1997. Of
the $41,000 increase in revenues for the three months ended June 30, 1998 as
compared to the corresponding period in 1997, $23,800 was due to increases in
regulated service rates that were implemented by the Partnership in 1997 and
$17,200 was due to increases in the number of subscriptions for basic, premium
and tier services. Of the $63,800 increase in revenues for the six months ended
June 30, 1998 as compared to the corresponding period in 1997, $44,400 was due
to increases in regulated service rates that were implemented by the Partnership
in 1997 and $26,200 was due to increases in the number of subscriptions for
basic, premium and tier services. These increases were partially offset by a
decrease of $6,800 in other revenue producing items such as advertising sales
revenue. As of June 30, 1998, the Partnership had approximately 7,400 basic
subscribers and 1,800 premium service units.
Service costs increased from $243,300 to $251,300, or by 3.3%, and
from $483,400 to $510,400, or by 5.6%, for the three and six months ended June
30, 1998 as compared to the corresponding periods in 1997.
-9-
<PAGE> 118
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
RESULTS OF OPERATIONS (CONTINUED)
Service costs represent costs directly attributable to providing cable services
to customers. The increases were primarily due to increases in programming fees
resulting from higher rates charged by program suppliers.
General and administrative expenses increased from $101,900 to
$112,600, or by 10.5%, and from $202,000 to $211,700, or by 4.8%, for the three
and six months ended June 30, 1998 as compared to the corresponding periods in
1997. The increases were primarily due to higher professional fees, including
audit expense and investor services costs.
Management fees and reimbursed expenses increased from $68,100 to
$71,000, or by 4.3%, and from $134,400 to $138,500, or by 3.1%, for the three
and six months ended June 30, 1998 as compared to the corresponding periods in
1997. Management fees increased in direct relation to increased revenues as
described above. Reimbursed expenses remained relatively unchanged.
Depreciation and amortization expense increased from $275,900 to
$281,700, or by 2.1%, and from $547,100 to $554,100, or by 1.3%, for the three
and six months ended June 30, 1998 as compared to the corresponding periods in
1997. The increases were due to asset additions related to the upgrade and
extension of the Partnership's plant.
Operating income increased from $37,900 to $51,500, or by 35.9%, and
from $91,000 to $107,000, or by 17.6%, for the three and six months ended June
30, 1998 as compared to the corresponding periods in 1997. The increases were
primarily due to increases in revenues as described above.
Interest income increased from $2,100 to $5,000 and by $4,200 to
$8,100 for the three and six months ended June 30, 1998 as compared to the
corresponding periods in 1997. The increases were primarily due to higher
average cash balances available for investment in the 1998 periods as compared
to the corresponding periods in 1997.
Interest expense increased from $31,400 to $40,500, or by 29.0%, and
from $64,500 to $81,600, or by 26.5%, for the three and six months ended June
30, 1998 as compared to the corresponding periods in 1997. The increases were
primarily due to increases in average borrowings in the three and six months
ended June 30, 1998 as compared to the corresponding periods in 1997.
Due to the factors described above, the Partnership's net income
increased from $8,600 to $16,900, or by 96.5%, and from $30,700 to $34,400, or
by 12.1%, for the three and six months ended June 30, 1998 as compared to the
corresponding periods in 1997.
Based on its experience in the cable television industry, the
Partnership believes that operating income before depreciation and amortization
(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. EBITDA is not a
measurement determined under generally accepted accounting principles ("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 financial performance or as an alternative to cash
flows as a measure of liquidity.
-10-
<PAGE> 119
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
RESULTS OF OPERATIONS (CONTINUED)
In addition, the definition of EBITDA may not be identical to similarly titled
measures used by other companies. EBITDA as a percentage of revenues increased
from 43.2% to 43.4% and decreased from 43.8% to 43.4% during the three and six
months ended June 30, 1998 compared to the corresponding periods in 1997. The
three months' increase was due to higher revenues. The decrease for the six
months was primarily due to higher programming fees. EBITDA increased from
$313,800 to $333,200, or by 6.2%, and from $638,100 to $661,100, or by 3.6%,
during the three and six months ended June 30, 1998 as compared to the
corresponding periods in 1997.
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 relating to the
expansion, improvement and upgrade of its cable systems.
As of the date of this Report, substantially all of the available
channel capacity in the Partnership's systems is being utilized and each of such
systems requires upgrading. The desired upgrade program is presently estimated
to require aggregate capital expenditures of approximately $7.5 million. These
upgrades cover seven franchise areas in Georgia and are currently required in
three existing franchise agreements. The cost to upgrade the three franchise
areas is estimated to be approximately $2.9 million and must be completed by
February and May 1999, respectively. Two of the remaining four franchise
agreements are under negotiation for renewal.
The Partnership has insufficient borrowing capacity remaining under
the Facility (as defined below) and would require additional sources of capital
to undertake its upgrade program. The partnership agreement, however, contains
certain limitations on the Partnership's indebtedness. The partnership agreement
provides that without the approval of the holders of a majority of the
Partnership's limited partnership units, the Partnership may not incur any
borrowings unless the amount of such borrowings together with all outstanding
borrowings does not exceed 33% of the original capital raised by the
Partnership, or a maximum of $3,052,500 permitted debt outstanding. In order to
obtain the appropriate amount of capital to upgrade the Partnership's systems as
discussed above, this provision of the partnership agreement would need to be
amended to increase the Partnership's leverage. The Partnership does not intend
to seek such an amendment to the partnership agreement. As reported in the
Partnership's Quarterly Report on Form 10-Q for the quarter ended March 31,
1998, the Partnership concluded that it is not able to obtain the appropriate
amount of capital to make the necessary upgrades to its cable systems and
initiated discussions with a business broker to sell the Partnership's cable
systems. The Partnership subsequently engaged a business broker to solicit
offers for its cable systems, but received only two preliminary offers (the
"Initial Offers"), each of which excluded the Ivins, Utah and Fisk, Missouri
cable systems and was subject to multiple potential purchase price adjustments
and material closing contingencies. The Partnership concluded that it was not in
the best interests of unitholders to accept either of the Initial Offers
because, among other things, neither Initial Offer constituted an offer to
purchase all of the cable systems, and each Initial Offer was subject to
material terms and conditions prior to closing. Subsequent to the Partnership's
receipt of the Initial Offers, the Partnership received an offer from certain
affiliates of FHGLP (the "Purchasers") to
-11-
<PAGE> 120
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
purchase all of the Partnership's cable systems for $10,473,200, a price which
exceeded the highest of the Initial Offers, and which contained only limited
closing conditions that are more favorable to the Partnership than those in the
Initial Offers.
The General Partner believes that accepting the Falcon Offer is in the
best interests of the Partnership and the unitholders. Accordingly, the
Partnership and the Purchasers are in the process of finalizing an asset
purchase agreement for the purchase and sale of all of the Partnership's assets,
subject to limited partner approval as discussed below. If the sale is
consummated, the General Partner will make one or more liquidating distributions
to the partners and, after providing for the payment of the Partnership's
obligations, cause the Partnership to dissolve and be liquidated. After
repayment of the Partnership's existing obligations, the Partnership presently
estimates that liquidating distributions to unitholders would total between $220
and $230 per unit, less applicable taxes, if any. The sale will require the
holders of at least a majority of the Partnership's limited partnership units to
consent to the sale, to certain amendments to the Partnership's partnership
agreement and to the liquidation.
On September 30, 1997, the Partnership entered into a loan agreement
with EFC for a revolving loan facility of $2,528,900 (the "Facility") of which
$1,750,000 was advanced to the Partnership at closing. Such funds together with
available cash were used to repay the Partnership's previous note payable
balance of $1,077,100 and related interest expense, deferred management fees and
reimbursed expenses of $387,500 due the Corporate General Partner and deferred
programming fees of $408,000 owed to an affiliated partnership. The Partnership
prepaid $150,000 of its outstanding borrowings under the Facility on June 22,
1998. All outstanding borrowings under the Facility would be repaid in full with
the proceeds from the sale of the Partnership's assets as described above.
The Partnership's Facility will mature on August 31, 2001, at which
time all funds previously advanced will be due in full. Borrowings bear interest
at the lender's base rate (8.5% at June 30, 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
and its ratio of debt to cash flow exceeds 4.25 to 1, or it 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 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 Partnership believes it was in compliance with the covenants at
June 30, 1998.
The Facility does not restrict the payment of distributions to
partners unless an event of default exists thereunder or the ratio of debt to
cash flow is greater than 4 to 1. As previously disclosed, however, in response
to the FCC's amended rate regulation rules and the Partnership's capital
expenditure requirements, distributions to Unitholders were discontinued in July
1994. As stated at the time of the announcement of this decision, the
Partnership believes that it is critical to preserve its liquidity though the
retention of cash. As a result, and because of the pending system upgrade
requirements discussed above, the Partnership does
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<PAGE> 121
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
not anticipate paying distributions at any time in the foreseeable future except
in connection with a liquidation of the Partnership as described above.
The Corporate General Partner contributed $244,600 of its $632,100
receivable balance from the Partnership for past due management fees and
reimbursed expenses as an equity contribution to EFC. As a result, this balance
was not repaid on September 30, 1997 and remains an outstanding obligation of
the Partnership. Such receivable balance would be repaid from the proceeds of
the sale of the Partnership's assets as described above.
Beginning in August 1997, the Partnership elected to self-insure its
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.
While the Partnership has made the election to self-insure for these
risks based upon a comparison of historical damage sustained over the past five
years with the cost and amount of insurance currently available, there can be no
assurance that future self-insured losses will not exceed prior costs of
maintaining insurance for these risks. Approximately 90% of the Partnership's
subscribers are served by its system in Villa Rica, Georgia 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.
The "Year 2000" issue refers to certain contingencies that could
result from computer programs being written using two digits rather than four to
define the year. Many existing computer systems, including certain of the
Partnership's computer systems, process transactions based on two digits for the
year of the transaction (for example, "98" for 1998). These computer systems may
not operate effectively when the last two digits become "00," as will occur on
January 1, 2000.
The Corporate General Partner has commenced an assessment 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. Based on a preliminary study, the Corporate
General Partner has concluded that certain of the Partnership's information
systems were not Year 2000 compliant and has elected to replace such software
and hardware with Year 2000 compliant applications and equipment, although the
decision to replace major portions of such software and hardware had previously
been made without regard to the Year 2000 issue. The Corporate General Partner
expects to install substantially all of the new systems in 1998, with the
remaining systems to be installed in the first half of 1999. The total
anticipated cost, including replacement software and hardware, will be borne by
FHGLP.
In addition to evaluating internal systems, the Partnership is
currently assessing its exposure to risks associated with its operating and
revenue generating equipment and has also initiated communications with
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
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<PAGE> 122
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
timely basis. The Partnership currently expects that the cost to replace
non-compliant equipment will be determined during the third quarter of 1998.
Such costs will be borne by the Partnership. There can be no assurance that the
systems of other companies on which the Partnership's systems rely will be
timely converted and that the failure to do so would not have an adverse impact
on the Partnership's business. The Partnership continues to closely monitor
developments with its vendors and service suppliers.
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
Cash provided by operating activities decreased by $203,100 in the six
months ended June 30, 1998 from the corresponding period in 1997. Changes in
receivables and prepaid expenses provided $218,900 less cash in the first six
months of 1998 primarily due to the collection of an insurance claim in the
first three months of 1997. The Partnership used $3,000 less cash for accounts
payable in the first half of 1998 due to differences in the timing of payments.
The Partnership used $27,600 more cash in investing activities during
the six months ended June 30, 1998 than in the comparable six months of 1997 due
to increases of $21,100 in expenditures for tangible assets and $7,400 in
spending for intangible assets. Financing activities used $541,100 less cash in
the first six months of 1998 than in the comparable 1997 period. The Partnership
used $481,100 more cash in the first half of 1997 than in the equivalent period
of 1998 to pay past due balances for management fees and reimbursed expenses
owed to the Corporate General Partner and programming expense owed to
Cablevision. Additionally, the Partnership used $61,300 less cash for the
repayment of debt in the 1998 period, partially offset by an increase of $1,300
in expenditures for deferred loan costs related to its Facility with EFC.
INFLATION
Certain of the Partnership's expenses, such as those for equipment
repair and replacement, 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 it
is able to increase its service rates periodically, of which there can be no
assurance.
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<PAGE> 123
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
PART II. OTHER INFORMATION
ITEMS 1-5. Not applicable.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibit 10.25 - Franchise Ordinance thereto
granting a non-exclusive community antenna
television franchise for the City of Bowdon,
Georgia and a resolution amending the
franchise agreement.
(b) No reports on Form 8-K were filed during the
quarter for which this report is filed.
<PAGE> 124
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
a GEORGIA LIMITED PARTNERSHIP
-----------------------------
(Registrant)
By: ENSTAR COMMUNICATIONS CORPORATION
General Partner
Date: August 13, 1998 By: /s/ Michael K. Menerey
-----------------------------
Michael K. Menerey,
Executive Vice President,
Chief Financial Officer and
Secretary
<PAGE> 125
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
CONSENT CARD
CONSENT IS SOLICITED ON BEHALF OF ENSTAR COMMUNICATIONS CORPORATION ("ECC"), AS
GENERAL PARTNER AND ON BEHALF OF ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P. (THE
"PARTNERSHIP"). ECC RECOMMENDS CONSENT ON THE LIQUIDATION PLAN.
Unitholders should not send any Units with this Consent card. Unitholders are
urged to mark, sign, date and mail promptly this Consent card in the envelope
provided. The Consent card must be received at the address of the Soliciting
Agent by no later than 5:00 p.m., Los Angeles time on _________, 1998 (unless
such date and/or time is extended in the sole discretion of ECC acting on behalf
of the Partnership). THIS CARD SHALL BE DEEMED TO APPROVE THE LIQUIDATION PLAN
IF NOT INDICATED TO THE CONTRARY.
EACH CONSENT CARD MUST BE SIGNED AND DATED.
Sign exactly as addressed to you. Joint owners should each sign. If signing as
executor, administrator, attorney, trustee, or guardian, give title as such. If
a corporation, sign in full corporate name by authorized officer. If a
partnership, sign in the name of authorized person.
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THE LIQUIDATION PLAN
The undersigned hereby votes all Units beneficially owned by the undersigned
with respect to the Liquidation Plan as follows:
<TABLE>
<S> <C> <C>
[ ] Approve [ ] Disapprove [ ] Abstain
</TABLE>
Please refer to the Consent Solicitation Statement, dated __________, 1998, for
a full description of the Liquidation Plan.
-----------------------------------
Signature
-----------------------------------
Title
-----------------------------------
Dated:______________________, 199__
PLEASE SIGN, DATE AND RETURN THIS CONSENT CARD USING THE ENCLOSED ENVELOPE.
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