-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SnXqku88i5nDLEZkcnyp94SxiJwWpM8LVBtuGdGt8AqycaXVDoKQxbExgE5OYw5B U6qnvZDvaM+/8k0Dp/3Izw== 0000950148-97-002818.txt : 19971113 0000950148-97-002818.hdr.sgml : 19971113 ACCESSION NUMBER: 0000950148-97-002818 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971113 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENSTAR INCOME PROGRAM II-1 LP CENTRAL INDEX KEY: 0000757595 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 581628877 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-14508 FILM NUMBER: 97716664 BUSINESS ADDRESS: STREET 1: 10900 WILSHIRE BLVD 15TH FLOOR CITY: LOS ANGELES STATE: CA ZIP: 90024 BUSINESS PHONE: 3108249990 MAIL ADDRESS: STREET 1: 474 SOUTH RAYMOND AVE #200 CITY: PASADENA STATE: CA ZIP: 91105 10-Q 1 FORM 10-Q 1 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 September 30, 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 0-14508 -------- Enstar Income Program II-1, L.P. - -------------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) Georgia 58-1628877 - ------------------------------- ---------------------- (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 2 PART I - FINANCIAL INFORMATION ENSTAR INCOME PROGRAM II-1, L.P. CONDENSED BALANCE SHEETS ==============================================
December 31, September 30, 1996* 1997 ----------- ----------- (Unaudited) ASSETS: Cash and cash equivalents $ 2,849,600 $ 2,104,400 Accounts receivable, less allowance of $4,700 and $9,800 for possible losses 75,000 41,800 Prepaid expenses and other assets 29,200 338,800 Property, plant and equipment, less accumulated depreciation and amortization of $4,145,800 and $4,334,100 1,891,100 3,283,100 Franchise cost, net of accumulated amortization of $17,500 and $24,400 64,600 62,700 Deferred charges, net 8,900 7,800 ----------- ----------- $ 4,918,400 $ 5,838,600 =========== =========== LIABILITIES AND PARTNERSHIP CAPITAL ----------------------------------- LIABILITIES: Accounts payable $ 229,800 $ 410,100 Due to affiliates 173,900 210,400 ----------- ----------- TOTAL LIABILITIES 403,700 620,500 ----------- ----------- COMMITMENTS AND CONTINGENCIES PARTNERSHIP CAPITAL (DEFICIT): General partners (28,800) (21,700) Limited partners 4,543,500 5,239,800 ----------- ----------- TOTAL PARTNERSHIP CAPITAL 4,514,700 5,218,100 ----------- ----------- $ 4,918,400 $ 5,838,600 =========== ===========
*As presented in the audited financial statements. See accompanying notes to condensed financial statements. -2- 3 ENSTAR INCOME PROGRAM II-1, L.P. CONDENSED STATEMENTS OF OPERATIONS ==============================================
Unaudited ---------------------------- Three months ended September 30, ---------------------------- 1996 1997 ----------- ----------- REVENUES $ 699,600 $ 754,000 ----------- ----------- OPERATING EXPENSES: Service costs 199,300 174,200 General and administrative expenses 66,700 61,000 General Partner management fees and reimbursed expenses 100,600 116,900 Depreciation and amortization 59,500 86,600 ----------- ----------- 426,100 438,700 ----------- ----------- OPERATING INCOME 273,500 315,300 ----------- ----------- OTHER INCOME (EXPENSE): Interest income 31,000 31,500 Interest expense -- (4,700) Gain on sale of cable assets 2,000 -- ----------- ----------- 33,000 26,800 ----------- ----------- NET INCOME $ 306,500 $ 342,100 =========== =========== Net income allocated to General Partners $ 3,100 $ 3,400 =========== =========== Net income allocated to Limited Partners $ 303,400 $ 338,700 =========== =========== NET INCOME PER UNIT OF LIMITED PARTNERSHIP INTEREST $ 10.14 $ 11.31 =========== =========== AVERAGE LIMITED PARTNERSHIP UNITS OUTSTANDING DURING PERIOD 29,936 29,936 =========== ===========
See accompanying notes to condensed inancial statements. -3- 4 ENSTAR INCOME PROGRAM II-1, L.P. CONDENSED STATEMENTS OF OPERATIONS ==============================================
Unaudited ----------------------------- Nine months ended September 30, ----------------------------- 1996 1997 ----------- ----------- REVENUES $ 2,015,800 $ 2,240,200 ----------- ----------- OPERATING EXPENSES: Service costs 589,600 606,900 General and administrative expenses 237,300 180,000 General Partner management fees and reimbursed expenses 280,000 347,400 Depreciation and amortization 241,400 227,300 ----------- ----------- 1,348,300 1,361,600 ----------- ----------- OPERATING INCOME 667,500 878,600 ----------- ----------- OTHER INCOME (EXPENSE): Interest income 89,000 105,800 Interest expense (1,400) (10,700) Gain on sale of cable assets 2,700 -- Other income -- 13,200 ----------- ----------- 90,300 108,300 ----------- ----------- NET INCOME $ 757,800 $ 986,900 =========== =========== Net income allocated to General Partners $ 7,600 $ 9,900 =========== =========== Net income allocated to Limited Partners $ 750,200 $ 977,000 =========== =========== NET INCOME PER UNIT OF LIMITED PARTNERSHIP INTEREST $ 25.06 $ 32.64 =========== =========== AVERAGE LIMITED PARTNERSHIP UNITS OUTSTANDING DURING PERIOD 29,936 29,936 =========== ===========
See accompanying notes to condensed financial statements. -4- 5 ENSTAR INCOME PROGRAM II-1, L.P. STATEMENTS OF CASH FLOWS ==============================================
Unaudited ----------------------------- Nine months ended September 30, ----------------------------- 1996 1997 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 757,800 $ 986,900 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 241,400 227,300 Gain on sale of cable assets (2,700) -- Increase (decrease) from changes in: Accounts receivable, prepaid expenses and other assets (33,800) (276,400) Accounts payable and due to affiliates 228,200 216,800 ----------- ----------- Net cash provided by operating activities 1,190,900 1,154,600 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (506,800) (1,605,800) Increase in intangible assets (13,700) (10,500) Proceeds from sale of property, plant and equipment 11,000 -- ----------- ----------- Net cash used in investing activities (509,500) (1,616,300) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Distributions to partners (283,500) (283,500) ----------- ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 397,900 (745,200) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,657,300 2,849,600 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,055,200 $ 2,104,400 =========== ===========
See accompanying notes to condensed financial statements. -5- 6 ENSTAR INCOME PROGRAM II-1, L.P. NOTES TO CONDENSED FINANCIAL STATEMENTS ============================================== 1. INTERIM FINANCIAL STATEMENTS The accompanying condensed interim financial statements for the three and nine months ended September 30, 1997 and 1996 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 nine months ended September 30, 1997 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 $37,700 and $112,000 for the three and nine months ended September 30, 1997. 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. 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 $79,200 and $235,400 for the three and nine months ended September 30, 1997. Management fees and reimbursed expenses due the Corporate General Partner are non-interest bearing. 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 $149,100 and $452,300 for the three and nine months ended September 30, 1997. Programming fees are included in service costs in the statements of operations. 3. 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. -6- 7 ENSTAR INCOME PROGRAM II-1, 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 programming service tiers will be phased out altogether in 1999. The regulatory environment will continue to change pending, among other things, the outcome of legal challenges and FCC rulemaking and enforcement activity in respect of the 1992 Cable Act and the 1996 Telecom Act. 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, 1996 for additional information regarding such matters and the effect thereof on the Partnership's business. RESULTS OF OPERATIONS The Partnership's revenues increased from $699,600 to $754,000, or by 7.8%, and from $2,015,800 to $2,240,200, or by 11.1%, for the three and nine months ended September 30, 1997 as compared to the corresponding periods in 1996. Of the $54,400 increase in revenues for the three months ended September 30, 1997 as compared to the corresponding period in 1996, $48,200 was due to increases in regulated service rates that were implemented by the Partnership in the fourth quarter of 1996 and the third quarter of 1997 and $9,100 was due to an increase in the number of subscriptions, primarily for premium and basic service. These increases were partially offset by a $2,900 decrease in other revenue producing items. Of the $224,400 increase in revenues for the nine months ended September 30, 1997 compared to the corresponding period in 1996, $160,800 was due to increases in regulated service rates, $46,500 was due to the restructuring of The Disney Channel from a premium channel to a tier channel effective July 1, 1996, $13,400 was due to increases in other revenue producing items and $3,700 was due to an increase in the number of subscriptions, primarily for basic service. As of September 30, 1997, the Partnership had approximately 7,000 homes subscribing to cable service and 1,700 premium service units. -7- 8 ENSTAR INCOME PROGRAM II-1, L.P. RESULTS OF OPERATIONS (CONTINUED) Service costs decreased from $199,300 to $174,200, or by 12.6%, and increased from $589,600 to $606,900, or by 2.9%, for the three and nine months ended September 30, 1997 as compared to the corresponding periods in 1996. Service costs represent costs directly attributable to providing cable services to customers. The decrease for the quarter was principally due to increased capitalization of labor and overhead costs related to the rebuild of the Partnership's Taylorville, Illinois cable system. Programming expense accounted for the majority of the increase in the first nine months of 1997 as compared to the corresponding 1996 period. Programming expense increased primarily as a result of higher rates charged by program suppliers. General and administrative expenses decreased from $66,700 to $61,000, or by 8.5%, and from $237,300 to $180,000, or by 24.1%, for the three and nine months ended September 30, 1997 as compared to the corresponding periods in 1996. The decreases for the three and nine months were primarily due to decreases in personnel costs and insurance premiums. Personnel costs decreased due to the transfer of certain employees to the Corporate General Partner's operations. Management fees and reimbursed expenses increased from $100,600 to $116,900, or by 16.2%, and from $280,000 to $347,400, or by 24.1%, for the three and nine months ended September 30, 1997 as compared to the corresponding periods in 1996. Management fees increased in direct relation to increased revenues as described above. Reimbursable expenses increased primarily due to higher allocated personnel costs resulting from the transfer of personnel to the Corporate General Partner's staff from the Partnership's operations. 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 47.6% to 53.3% and from 45.1% to 49.4% during the three and nine months ended September 30, 1997 compared to the corresponding periods in 1996. The change was primarily due to higher revenues. EBITDA increased from $333,000 to $401,900, or by 20.7%, and from $908,900 to $1,105,900, or by 21.7%, during the three and nine months ended September 30, 1997 compared to the corresponding periods in 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 $59,500 to $86,600, or by 45.6%, for the three months and decreased from $241,400 to $227,300, or by 5.8%, for the nine months ended September 30, 1997 as compared to the corresponding periods in 1996. The increase for the three months was the result of placing into service a portion of the Taylorville, Illinois system rebuild. The nine months' decrease was due to the effect of certain plant assets becoming fully depreciated in 1996. Depreciation and amortization expense will continue to increase significantly in future periods as remaining portions of the system rebuild are placed into service. -8- 9 ENSTAR INCOME PROGRAM II-1, L.P. RESULTS OF OPERATIONS (CONTINUED) Operating income increased from $273,500 to $315,300, or by 15.3%, and from $667,500 to $878,600, or by 31.6%, for the three and nine months ended September 30, 1997 as compared to the corresponding periods in 1996, principally due to increased revenues as described above. Interest income increased from $31,000 to $31,500, or by 1.6%, and from $89,000 to $105,800, or by 18.9%, for the three and nine months ended September 30, 1997 as compared to the corresponding periods in 1996. These increases were primarily due to a change in investment policy that yielded a greater return on invested cash. Interest income also increased due to higher cash balances available for investment. Due to the factors described above, the Partnership's net income increased from $306,500 to $342,100, or by 11.6%, and from $757,800 to $986,900, or by 30.2%, for the three and nine months ended September 30, 1997 as compared to the corresponding periods in 1996. 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 and capital requirements relating to the expansion, improvement and upgrade of its cable systems. At September 30, 1997, the Partnership had no debt outstanding. The Partnership relies upon cash flow from operations to meet operating requirements and fund necessary capital expenditures. Although the Partnership currently has a significant cash balance, there can be no assurance that the Partnership's cash flow will be adequate to meet its future liquidity requirements. The Partnership is required to rebuild its Taylorville, Illinois cable system at an estimated total cost of $2,490,000 as a condition of its franchise agreement and is also rebuilding portions of its cable systems in surrounding communities at an estimated additional cost of approximately $789,000. Rebuild construction began in October 1996 and is expected to be completed in the second half of 1997. The Partnership has budgeted expenditures of $2,460,000 in 1997 to complete the entire rebuild. Construction costs related to the rebuild approximated $1,582,400 during the first nine months of 1997. Other capital expenditures budgeted for 1997 include approximately $400,000 for the improvement and upgrade of other assets. As a result, the Partnership intends, if possible, to maintain cash reserves. In the future, the Partnership may also need to borrow. The Corporate General Partner had engaged in discussions with a number of possible financing sources regarding the availability and terms of a 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 provide funds that would in turn be advanced to the Partnership and certain of the other related partnerships managed by the Corporate General Partner. The Partnership's maximum loan commitment will approximate $799,600, which it becomes eligible to borrow at such time as the Partnership enters into a loan agreement with EFC. The partnership agreement requires borrowings from -9- 10 ENSTAR INCOME PROGRAM II-1, L.P. LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) an affiliate to be repaid within 12 months. Such funds would be used to provide capital to fund future rebuild and upgrade requirements. 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, with the possible exception of the short-term period permitted by the partnership agreement. Advances by EFC under its partnership loan facilities are independently collateralized by the individual partnership borrowers so that no partnership is liable for borrowings made to other partnerships. Borrowings bear interest at the lender's base rate (8.5% at September 30, 1997), as defined, plus 0.625%, or at an offshore rate, as defined, plus 1.875%. The Partnership will be permitted to prepay amounts outstanding under the facility at any time without penalty, and will be able to reborrow throughout the term of the facility up to the maximum commitment then available so long as no event of default exists. The Partnership will also be required to pay a commitment fee of 0.5% per annum on the unused portion of its facility when it becomes eligible to borrow, and an annual administrative fee. The facility will contain certain financial tests and other covenants including, among others, restrictions on incurrence of indebtedness, investments, sale of assets, acquisitions and other covenants, defaults and conditions. The facility will also contain restrictions on the payment of distributions to partners if an event of default exists. The Partnership paid distributions totaling $94,500 and $283,500 during the three and nine months ended September 30, 1997, and expects to continue to pay distributions at this level during the remainder of 1997. There can, however, be no assurances regarding the level, timing or continuation of future distributions. NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 Cash provided by operating activities decreased by $36,300 from $1,190,900 to $1,154,600 for the nine months ended September 30, 1997 as compared with the corresponding period in 1996. Changes in receivables, prepaid expenses and other assets used $242,600 more cash in the first nine months of 1997 due to the timing of receivable collections and the payment of prepaid expenses. The Partnership used $11,400 more cash to pay liabilities owed to the General Partner and third party creditors during the nine months ended September 30, 1997 than in the comparable period of 1996 due to differences in the timing of payments. Cash generated by Partnership operations increased by $217,700 after adding back non-cash depreciation and amortization charges. The Partnership used $1,106,800 more cash in investing activities in the nine months ended September 30, 1997 than in the corresponding nine months of 1996, due to a $1,099,000 increase in expenditures for tangible assets, partially offset by a $3,200 decrease in expenditures for intangible assets. The Partnership received proceeds of $11,000 in the first half of 1996 related to the sale of equipment and other assets. -10- 11 ENSTAR INCOME PROGRAM II-1, L.P. INFLATION Certain of the Partnership's expenses, such as those for wages and benefits, equipment repair and replacement, and billing and marketing generally increase with inflation. However, the Partnership does not believe that its financial results have been, or will be, adversely affected by inflation in a material way. -11- 12 ENSTAR INCOME PROGRAM II-1, L.P. PART II. OTHER INFORMATION ITEMS 1-5. Not applicable. ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibit 10.18 - Franchise agreement between Enstar Communications Corporation and County of Christian, IL. (b) No reports on Form 8-K were filed during the quarter for which this report is filed. 13 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 PROGRAM II-1, L.P. a GEORGIA LIMITED PARTNERSHIP ----------------------------- (Registrant) By: ENSTAR COMMUNICATIONS CORPORATION General Partner Date: November 12, 1997 By: /s/ Michael K. Menerey ----------------------------- Michael K. Menerey, Chief Financial Officer 14 ENSTAR INCOME PROGRAM II-1, L.P. EXHIBIT INDEX
Exhibit Number Description - ------ 10.18 Franchise agreement between Enstar Communications Corporation and County of Christian, IL.
E-1 EX-10.18 2 EXHIBIT 10.18 1 EXHIBIT 10.18 FRANCHISE AGREEMENT THIS AGREEMENT is between the County of Christian County, Illinois ("County") and Enstar Communications Corporation ("Enstar"). WHEREAS, the County Board has agreed to renew Enstar's franchise pursuant to the terms reflected in this instrument to which Enstar has agreed. NOW, THEREFORE, in consideration of the foregoing and the mutual promises contained herein, it is agreed as follows: Section 1. Short Title. This Agreement may be referred to and cited as the "Enstar Franchise Agreement." Section 2. Definitions. For the purposes of this Agreement the following terms, phrases, words and their derivations shall have the meaning defined herein, unless the context clearly indicates that another meaning is intended. Words used in the present tense include the future, words in the plural number include the singular number, and words in the singular number include the plural number. 1 2 "Application" means seeking an extension of its franchise, its subsequent renewal proposals, the public hearings held relevant to the proposed renewal, and all related correspondence. "Cable Act" means The Cable Communications Policy Act of 1984 as modified by the Cable Television Consumer Protection and Competition Act of 1992, and the Telecommunications Act of 1996. "Cable Television System" means any non-broadcast facility consisting of a set of transmission paths and associated signal reception, transmission and control equipment, that is designed to distribute to subscribers or other users audio, video and other forms of communications services via electronic or electrical signals. "Channel" is a band of frequencies in the electromagnetic spectrum, capable of carrying one audio-visual television signal. "County" means Christian County in the State of Illinois in its present form or in any later reorganized, consolidated, enlarged or reincorporated form, which is legally authorized to grant a cable television franchise under state and federal law. The "County" may also be referred to as "Franchising Authority" or "Grantor". "Enstar" means Enstar Communications Corporation, which may also be referred to as "Grantee". 2 3 "FCC" means the Federal Communications Commission. "Franchise" means the rights granted pursuant to this Agreement to construct, own and operate a cable television system along the public ways in the County, or within specified areas in the County. "Franchise Area" means that portion of the County for which a franchise is granted under the authority of this Agreement. If not otherwise stated in an exhibit to this Agreement, the Franchise Area shall be the legal and geographic limits of the County, including all territory which may be hereafter annexed to the County "Franchising Authority" means Christian County, Illinois, its County Board acting as the County's duly elected governing body, its lawful successor or such other person or body duly authorized to grant a cable television franchise. "Grantee" means a person or business entity, or its lawful successor or Assignee, which has been granted a franchise by the County Board pursuant to this Agreement. "Gross Subscriber Receipts" as the term is used in calculating franchise fees means revenues actually received by the Grantee from television services it provides to its subscribers in the Franchise Area after deducting the following: a) any fees or assessments levied on subscribers 3 4 or users of the system which are collected by the Grantee for payment to a governmental entity; b) franchise fees paid by the Grantee to the County; c) state or local sales or property taxes imposed on the Grantee and paid to a governmental entity; and d) federal copyright fees paid by the Grantee to the Copyright Tribunal in Washington, DC. "Normal Business Hours" means those hours during which most similar businesses in the community are open to serve customers. In all cases, "normal business hours" must indicate some evening hours at least one night per week and/or some weekend hours. "Normal Operating Conditions" means those service conditions which are within the control of the Grantee. Those conditions which are not within the control of the Grantee include, but are not limited to, natural disasters, civil disturbances, power outages, telephone network outages, and severe or unusual weather conditions. Those conditions which are ordinarily within the control of the Grantee include, but are not limited to, special promotions, pay-per-view events rate increases, regular peak or seasonal demand periods, and maintenance or upgrade of the cable system. "Public Way" or "Right-of-Way" means the surface, the air space above the surface and the area below the surface of any public street, highway, lane, path, alley, sidewalk, boulevard, drive, bridge, tunnel, park, parkways, waterways, or other public right-of-way including public 4 5 utility easements or rights-of-way and any temporary or permanent fixtures or improvements located thereon now or hereafter held by the County which shall entitle the County and the Grantee to the use thereof for the purpose of installing and maintaining the Grantee's cable television system. "School" means any public elementary or secondary school. "Service Interruption" means the loss of picture or sound on one or more cable channels. "Subscriber" means any person who receives monthly cable television service provided by the Grantee's cable television system. Section 3. Grant of Authority. (a) There is hereby granted by the County to the Grantee the right and privilege to construct, operate, maintain and extend a cable system to all places within the County. The rights granted hereunder shall be non-exclusive and shall not be transferred or assigned without the prior approval of the County as specified in Section 14 of this Agreement, which approval shall not be unreasonably withheld. (b) The Grantee shall have the right to use and occupy roads, streets, alleys, public ways and easements for the purposes of installing its wires, cables, and associated equipment in or on poles, by direct burial, or in underground conduits as necessary for the operation of the cable system. This authority, however, does not obviate the need for 5 6 obtaining permits from the County for construction involving the disturbance of public streets, sidewalks or thoroughfares and for compliance with all County regulations and requirements relative to construction and operation of facilities in the public rights-of-way. Section 4. Compliance with Applicable Laws and Ordinances. The Franchisee shall, at all times during the life of this Agreement, be subject to all lawful exercise of the police power by the County consistent with the Franchisee's contractual rights, and shall be required to comply fully with all federal and state statutes and regulations governing cable communications. Section 5. Provision of Service. (a) 1. A Grantee which is not already serving the entire franchise area shall provide service to all portions of the franchise area reaching a minimum density of thirty (30) dwelling units per linear strand mile, as measured from the nearest coaxial cable line, within twelve (12) months after the grant of a franchise. 2. Grantee shall provide aerial or buried drop lines to new subdivisions within the franchise area at the request of the developer provided that the developer contracts and agrees with the Grantee to pay the cost of the extension of the service. 3. Grantee shall extend and make cable television service available to any resident within the franchise area who requests connection at the standard connection charge if the connection to the 6 7 resident would require no more than a standard one hundred and fifty (150) foot aerial drop or a seventy-five (75) foot buried drop line or extension from the nearest coaxial feeder cable. With respect to requests for connection requiring an aerial or buried drop line in excess of the maximum standard distance, Grantee shall extend and make available cable television service to such residents at a connection charge not to exceed its actual costs for the distance exceeding the standard one hundred and fifty (150) feet of aerial or seventy-five (75) feet of underground cable respectively. 4. In areas with fewer than thirty (30) residential units per proposed cable bearing strand mile, Grantee shall offer a cost-sharing arrangement with residents. A dwelling unit will be counted for this purpose if its lot fronts a street. The cost-sharing arrangement shall consist of the following: 5. At the request of a resident desiring service, Grantee shall determine the cost of the plant extension required to provide service to the potential subscriber from the closest point on the cable system where it is technically feasible. The cost of construction shall be allocated based on the following formula: 6. If a request for extension of service into a residential area requires the construction of cable plant which does not pass at least thirty (30) potential subscribers per proposed cable bearing strand mile, 7 8 Grantee and residents who agree to subscribe to cable service will each bear their proportionate share of construction costs. For example, if there are five (5) dwelling units per proposed cable bearing strand mile, Grantee's share will equal 5/30ths or one sixth (1/6) of the construction cost. The remaining cost will be shared equally by each subscriber. 7. Should additional residents actually subscribe to cable television service in areas where subscribers have already paid a proportionate share under the extension cost sharing formula, subscribers who have previously paid a proportionate share under the extension formula shall be reimbursed pro rata for their contribution or a proportional share thereof. In such case, the pro rata shares shall be recalculated and each new subscriber shall pay the new pro rata share, and all subscribers who previously paid a proportionate share shall receive pro rata refunds. In the event such subscribers (or prior subscribers) have been disconnected or have moved and owe the Grantee money which has not been recovered, Grantee shall have the right to first apply the refund to amounts owed the Grantee and give the balance, if any to the subscriber. At such time as there are thirty (30) potential subscribers per cable bearing strand mile, the subscribers shall receive their pro rata share of construction costs. In any event, one (1) year after the completion of a project, subscribers who have paid a share of line extension costs are no longer eligible for refunds, and the amounts paid in construction costs will be credited to the plant account of Grantee. 8 9 8. Where the density of residential dwelling and occupied commercial or industrial structures, adverse terrain, or other factors render extension of the system and offering of cable service impractical, technically infeasible or would create an economic hardship, the County may, upon petition of the Grantee, either waive the extension of the system into such areas, or allow the extension and offer of service on special terms or conditions which are reasonable and fair to the County, the Grantee and potential subscribers in such areas. (b) The Franchisee shall extend service to each school passed by the cable system. No charge shall be made for installation or for basic service, except the Franchisee may: 1.) charge for its cost of installation if more than one connection is desired at each building; or 2.) charge for that portion of the cost of installation which exceeds One Hundred Dollars ($100.00). If during the term of this Agreement, new schools are constructed within the County, the County may also require the extension of service to such schools under the same terms and conditions as for existing public buildings. (c) The initial subscriber rates are to be as specified in Exhibit "A" hereto. Subscriber rates may be later modified as allowed by federal law or regulation. (d) Regular basic service shall consist of a minimum of 12 channels. The Franchisee shall create and provide such other categories of service as it may deem necessary, except that the total number of channels available in all categories of service shall not be less than 35 9 10 channels. The programming carried shall be determined by the Franchisee; provided, however, the County may suggest changes from time-to-time that it believes will better satisfy public needs in terms of broad categories of programming. (e) The Grantee shall provide written information of each of the following areas at the time of installation of service, at least annually to all subscribers, and at any time upon request: products and services offered; prices and options for programming services and conditions of subscription to programming and other services; installation and services maintenance policies; instructions on how to use the cable service; channel positions of programming carried on the system; and billing and complaint procedures, including the address and telephone number of the local franchise authority's cable office. Section 6. Liability and Indemnification. (a) By its acceptance of this Agreement, the Grantee specifically agrees that it will indemnify and hold the County, including all its officials, employees and agents, harmless against any and all claims arising out of the grant of this franchise and the operation of Grantee's cable system. The Grantee shall pay all expenses incurred by the County in defending itself against all such claims, including all out-of-pocket expenses such as the reasonable value of any service rendered by the County Attorney or any employees of the County. (b) The Grantee shall maintain throughout the terms of this Agreement comprehensive liability insurance insuring the County, including its officials, employees and agents, and the Grantee with 10 11 regard to all damages with respect to operations performed by, or on behalf of, the Grantee in the minimum amounts as specified below: 1. A general comprehensive liability policy indemnifying, defending and saving harmless the County, its officers, boards, commissions, agents or employees from any and all claims by any person whatsoever on account of injury to or death of a person or persons occasioned by the operations of the Grantee under the franchise herein granted, or alleged to have been so caused or occurred, with a minimum liability of Five Hundred thousand Dollars ($500,000) per personal injury, death of any one person or damage to property and One Million Dollars ($1,000,000) for personal injury, death of any two or more persons in any one occurrence or damage to property. 2. All insurance policies called for herein shall be in a form satisfactory to the County and shall require thirty (30) days written notice of any cancellation to both the County and the Grantee. The Grantee shall, in the event of any such cancellation notice, obtain, pay all premiums for, and file with the County, written evidence of the issuance of replacement policies within thirty (30) days following receipt by the County or the Grantee of any notice of cancellation. In recognition of the foregoing each party agrees to cause their respective insurance carriers to waive any rights of subrogation. (c) The Grantee shall, on or before the effective date of this Agreement, establish a performance bond in the amount of ten thousand 11 12 dollars ($10,000), which shall be used for insuring that the Grantee will fulfill and perform each term and condition of this Agreement. (d) Because the County will suffer damages from any violation of this Agreement, which damages may be difficult to quantify, the County and the Franchisee agree to the following schedule of liquidated damages: (1) Failure to file reports or supply information as required - $50 per day (2) Failure to perform annual sweep and balance tests - $100 per day (3) Failure to perform maintenance and retain maintenance records as required - $100 per day. (4) Failure to maintain insurance or replenish security fund/ performance as required - $100 per day. (5) Failure to achieve or maintain technical performance standards - $100 per day. (6) Failure to maintain customer service standards - $50 per day. (7) Other material violations - $100 per day violations per day that each violation continues. Before assessing the Franchisee for liquidated damages, the County shall give written notification to the Franchisee in advance so that the Franchisee will have notice of the violation and an opportunity to correct it. The liquidated damages shall not commence accruing for uncorrected violation until the 30th day following the date the notice was received by the Franchisee. In the event the Grantee is prevented or delayed in the performance of any of its obligations under this Agreement 12 13 by reason of flood, fires, hurricanes, tornadoes, earthquakes or other acts of God, unavoidable casualty, insurrections, war, riot, sabotage, unavailability of materials or supplies, vandalism, strikes, boycotts, lockouts, labor disputes, shortage of labor, unusually severe weather conditions, acts or omissions or delays by utility companies upon whom Grantee is dependent for pole attachments or easement use, Grantee is unable to obtain necessary financing or any other event which is beyond the reasonable control of the Grantee, the Grantee shall have a reasonable time under the circumstances to perform its obligations under this Agreement or to procure a reasonable and comparable substitute for such obligations. Under such circumstances the Grantee shall not be held in default or noncompliance with the provisions of the Agreement nor shall it suffer any penalty or relating thereto. (e) All insurance and bond instruments must be approved as to form by the County Attorney prior to their effectiveness. Section 7. Technical Requirements. The Grantee shall maintain and extend its system so as to provide high quality signals and reliable service. The system shall meet or exceed any applicable technical performance standards of the FCC. Section 8. Emergency Use of Facilities. In the case of any emergency or disaster, the Grantee shall, upon request of the County, make available its facilities to the County for emergency use during the emergency or disaster period. Section 9. Other Business Licenses. This Agreement authorizes only the operation of a cable system as provided for herein, and does not take 13 14 the place of any other franchise, license, or permit which might be required of the Grantee by law. Section 10. Duration and Acceptance of Agreement. This Agreement and the rights, privileges, and authority hereby granted shall take effect and be in force from the effective date of this Agreement and shall continue in force throughout its term provided that within sixty (60) days after the date of adoption of this Agreement by the County Board the Grantee shall provide evidence of satisfactory compliance with the performance bond and insurance requirements hereof. Failure of the Grantee to do so within said time period shall operate to make this Agreement null and void without further action by the County. Section 11. Franchise Fee. (a) The Grantee shall pay a franchise fee to compensate the County for all costs associated with administering and regulating the cable system. The amount of the franchise fee shall be 5% of the Grantee's annual Gross Subscriber Receipts, as defined herein. Such fee shall be paid on an annual basis. Grantee shall be entitled to list the franchise fee as a separate line item on monthly bills. (b) Due to federal and local requirements to notify cable subscribers of any increases in monthly rates or charges, increased franchise fee amounts due to the County shall begin accruing sixty (60) days after the effective date of this franchise. (c) At the County's request, the Grantee shall file a report showing Grantee's Gross Subscriber Receipts for the calendar year and the amount of franchise fees due to the County. Such reports may be 14 15 requested once per calendar year. The Grantee shall have an obligation to maintain financial records of its Gross Subscriber Receipts and Grantee fee payments for audit purposes for a period of three years, and the County shall have the right to audit the Grantee's books at the offices where such books are maintained. Section 12. Customer Service. (a) Cable System Office Hours and Telephone Availability The Grantee will maintain a local, toll-free or collect call telephone access line which will be available to its subscribers 24 hours per day, seven days per week. Trained company representatives will be available to respond to customer telephone inquiries during normal business hours. After normal business hours, the access line may be answered by a service or an automated response system, including an answering machine. Inquiries received after normal business hours must be responded to by a trained company representative on the next business day. Customer service center and bill payment locations will be open at least during normal business hours and will be conveniently located. (b) Installation, Outages and Service Calls 1. Standard installations will be performed within seven (7) business days after an order has been placed. "Standard" installations are those that are located up to 125 feet from the existing distribution system. 2. Excluding conditions beyond the control of the Grantee, the Grantee will begin working on "service interruptions" promptly and in no 15 16 event later than 24 hours after the interruption becomes known. The Grantee must begin actions to correct other service problems the next business day after notification of the service problem. 3. The "appointment window" alternatives for installations, service calls, and other installation activities will be either a specific time or a four-hour time block during normal business hours. The Grantee may schedule service calls and other installation activities outside of normal business hours for the express convenience of the customer. 4. A Grantee may not cancel an appointment with a customer after the close of business on the business day prior to the scheduled appointment. 5. If Grantee's representative is running late for an appointment with a customer and will not be able to keep the appointment as scheduled, the customer will be contacted. The appointment will be rescheduled, as necessary, at a time which is convenient for the customer. Section 13. System Maintenance. (a) The Franchisee shall maintain the system at the highest commercially practical level of technical quality. To that end, it shall perform, at a minimum, all tests required to be performed by a Cable Operator pursuant to FCC regulations. 16 17 (b) The Franchisee shall retain a copy of all maintenance logs and records for a period of two years. Upon request of the County, the Franchisee shall provide copies of such documentation to the County. (c) No less than once a year the Franchisee shall perform a sweep and balance of the system activities to ensure that the entire system is performing as required. Section 14. TRANSFER OR ASSIGNMENT OF FRANCHISE (a) A Grantee may transfer or assign its franchise to another entity (the "Assignee") upon thirty (30) days notice to the County. The Grantee shall provide to the County a reasonable showing that the proposed Assignee or Transferee possesses the technical and financial qualifications to operate the cable TV system properly. The proposed Transferee or Assignee shall provide the County with a written statement that it agrees to comply with all material terms of the franchise to be transferred. The County shall not unreasonably delay or deny the assignment or transfer of a franchise. The reasonableness of the County's actions shall be subject to judicial review by a court of appropriate jurisdiction. The proposed transfer or assignment shall be deemed approved if no action is taken by the County within sixty (60) days of the written request for transfer by the Grantee. (b) The Grantee may secure financing or an indebtedness by trust, mortgage, or other instrument of hypothecation of the franchise, in whole or in part, without requiring the consent of the City. Consent shall not be required to assign a franchise from one business entity to another which is operated or managed by the Grantee or any affiliated entity. In 17 18 addition, so long as the manager and/or general partner of the Grantee remains the same, consent shall not be required to transfer the interests of any limited partner of the Grantee, who has no day to day operational control of the Grantee or the system. (c) A Grantee may transfer or assign its franchise to an affiliated entity upon thirty (30) days notice to the City. Consent of the County shall not be required for such an assignment, provided that; a) the County is provided with a reasonable showing that the proposed Assignee possesses the technical and financial qualifications to operate the cable TV system and , b) that the Assignee agrees to comply with the terms of this Agreement. Section 15. NOTICE TO GRANTEE Except as otherwise provided in this Agreement, the County shall not meet to take any action involving the Grantee's franchise unless the County has notified the Grantee by certified mail at least thirty (30) days prior to such meeting, as to its time, place and purpose. The notice provided for in this section shall be in addition to, and not in lieu of, any other notice to the Grantee provided for in this Agreement. All notices, requests, demands and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given if mailed by certified mail return receipt requested, addressed to the Grantee's corporate office as follows: Enstar Cable TV 18 19 10900 Wilshire Boulevard, 15th Floor Los Angeles, California 90024 Attn: Howard Gan And to: Enstar Cable TV 11 Clearing Avenue Taylorville, IL 62568 Attn: Regional Manager Section 16. Miscellaneous Provisions. (a) Whenever this Agreement shall set forth any time for an act to be performed by or on behalf of the Franchisee, such time shall be deemed of the essence. (b) This Agreement may not be amended except by written instrument executed by both parties hereto. (c) This Agreement shall be interpreted under the laws of the State of Illinois. (d) If any provisions of this Agreement is found by any court, government agency or other body having jurisdiction to be invalid, illegal or unenforceable, the parties shall negotiate appropriate changes to such provision, and the remaining provisions, to the extent practical, shall remain in full force and effect. 19 20 Section 17. Term of Agreement. This Agreement shall take effect as of the date of its adoption, provided that one executed copy is delivered by Enstar to the County Clerk within sixty (60) days of the adoption date. If not so executed and delivered as stated, this Agreement shall be null and void. Once effective, this Agreement shall remain in effect for a period of fifteen (15) years, unless extended or renewed as provided for in Section 18 hereof. Provided, however, if the requirements of Sections 6(b) and (c) and 10 of this Agreement are not satisfied within sixty (60) days of the effective date, this Agreement shall become null and void. Section 18. Renewal. This Franchise Agreement shall be renewed pursuant to the renewal requirements contained in Section 626 of the Cable Act. Section 19. Effective Date. This Franchise Agreement shall become effective upon the date of its adoption by the County. Any failure by the County to follow proper procedures under state or local law in adopting this Agreement shall not abrogate the rights or obligations of either the Grantee or the County under this Agreement. If, following adoption of this Agreement it is subsequently determined that proper legal procedures have not been followed by the County, it shall be the responsibility of the County to rectify any procedural defects and ratify the terms of this Franchise Agreement. IN WITNESS WHEREOF, the parties hereto have set their hands and seals as follows: 20 21 COUNTY OF CHRISTIAN COUNTY, ILLINOIS Attest: By: /s/ Wm C. Cuntin /s/ Perry E. Ryan ------------------------- ---------------------------- County Chairman County Clerk Date: 12 June 1997 ------------------------- ENSTAR COMMUNICATIONS CORPORATION Attest: By: /s/ Howard Gan /s/ Susan Spanknoble ------------------------- ---------------------------- Assistant to Howard Gan, VP Its V.P. ------------------ Date: 10 July 1997 ------------------ A fully executed copy of this Agreement was deposited and filed with the County of Christian County, Illinois, on the 12th day of June, 1997. /s/ Perry E. Ryan ---------------------------- County Clerk 21 22
(Effective: 10/1/96) ENSTAR CABLE TV - Christian Co. (Taylorville),. IL Exhibit A CHANNEL LINE-UP-------------------- RATES--------------------------- 2 QVC BASIC $23.69 3 WCIA 3-CBS CHAMPAIGN, IL TIER (=) 3.33 4 WAND 17-ABC DECATUR, IL SATELLITE PACKAGE 1 (+) 7.05 5 KSDK 5-NBC ST. LOUIS, MO BASIC ON ADDITIONAL OUTLET 0.00 6 ESPN 7 THE MOVIE CHANNEL INSTALLATION/SERVICE (per hr.) 45.00 8 WFHL 23-IND DECATUR, IL INSTALL MATERIALS (if any) At Cost 9 WILL-TV 12-PBS URBANA-CHAMPAIGN, IL REMOTE 0.23 10 WICK 20-NBC SPRINGFIELD,IL NON-ADDRESSABLE CONVERTER 1.17 11 KPLR-TV 11-IND ST. LOUIS, MO RADIO SERVICE 1.95 12 LOCAL-CHARACTER GENERATED 13 WRSP-TV 55-FOX SPRINGFIELD, IL WIRE MAINTENANCE AGREEMENT 1.50 14 LIFETIME CABLE PROGRAM GUIDE 1.75 15 CINEMAX LATE PAYMENT FEE 1.50 16 USA NETWORK RETURNED CHECK FEE 25.00 17 WGN-TV LOST/STOLEN CONVERTER EQUIP Prices Vary 18 ARTS & ENTERTAINMENT DAMAGED CONVERTER EQUIPMENT Actual Cost 19 MTV to Repair 21 HBO 22 COUNTRY MUSIC TV PREMIUM SERVICES (*)----------------------- 23 THE DISNEY CHANNEL CINEMAX 11.95 24 WTBS 17-IND ATLANTA, GA HBO 11.95 25 THE FAMILY CHANNEL THE MOVIE CHANNEL 11.95 26 TNT 27 THE DISCOVERY CHANNEL SHOWTIME 11.95 28 SHOWTIME ------------------------------------------- 29 CNN HEADLINE NEWS All Broadcast TV stations carried on a channel 30 THE NASHVILLE NETWORK higher than 13 can only be received via cable 31 CNN through a converter box, unless you have a 32 THE WEATHER CHANNEL cable ready TV set. Converter boxes are available 33 AMERICAN MOVIE CLASSICS for rent at the low rate listed above. 34 NICKELODEON 35 CNBC The above rates may not include applicable 36 LOCAL WEATHER taxes fees and assessments. Any such amounts will be 98 SCI-FI CHANNEL itemized on your bill. 99 C-SPAN
22 EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AT SEPTEMBER 30, 1997, AND THE STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1997 SEP-30-1997 2,104,400 0 51,600 9,800 0 0 7,617,200 4,334,100 5,838,600 620,500 0 0 0 0 0 5,838,600 0 2,240,200 0 1,361,600 (119,000) 23,300 10,700 986,900 0 986,900 0 0 0 986,900 32.64 0
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