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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report: February 6, 1997
(Date of earliest event reported)
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.,
a California limited partnership
(Exact name of registrant as specified in its charter)
CALIFORNIA COMMISSION FILE: 95-4200409
(State or other jurisdiction 0-18266 (I.R.S. Employer
of incorporation or Identification No.)
organization)
10900 Wilshire Boulevard, 15th Floor
Los Angeles, California 90024
(Address of principal executive offices, including zip code)
(310) 824-9990
(Registrant's phone number, including area code)
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ITEM 5. OTHER EVENTS
As previously disclosed in prior filings with the Securities and
Exchange Commission (the "Commission"), Falcon Classic Cable Income Properties,
L.P. (the "Partnership" or "Falcon Classic") may, in the sole discretion of its
General Partner, sell individual cable systems and may also sell all or
substantially all of the Partnership's assets to the General Partner or its
affiliates, which include Falcon Holding Group, L.P. ("FHGLP"). Any such sale
would be subject to certain terms and conditions set forth in Falcon Classic's
Agreement of Limited Partnership (the "Partnership Agreement") and summarized
below and in prior filings with the Commission. The Partnership has stated in
its prior filings with the Commission that the General Partner and its
affiliates may consider and otherwise investigate the exercise of the purchase
rights provided to them under the Partnership Agreement from time to time at
their discretion.
The Partnership Agreement provides that any sale of Partnership
assets to the General Partner or any of its affiliates must be made in cash
pursuant to the "Appraisal Process." "Appraisal Process" is defined in the
Partnership Agreement as an appraisal undertaken by three independent
nationally recognized experts in the cable television field to determine the
fair market value of the cable systems to be appraised. One such appraiser
must be appointed by the General Partner, one by the Partnership's Conflicts
Committee and the third by the first two appraisers acting jointly. The
Partnership Agreement specifies that the Conflicts Committee be comprised of
the independent members of the Advisory Committee (i.e., the members of the
Advisory Committee that are not affiliates of, or otherwise have certain
material business or professional relationships with, the General Partner or
its affiliates). The appraised value pursuant to the Appraisal Process will be
deemed to be the median of the three appraised values and, if any appraised
value is expressed as a range, then in calculating the median, the mean amount
of the range of such appraised value shall be used. No appraisals arising in
affiliated transactions may be conducted at the Partnership's expense.
Appraisers selected pursuant to the Appraisal Process may not have any interest
in, nor any material business or professional relationship with, the
Partnership, the General Partner or any of its affiliates. For the purposes of
determining whether or not the business or professional relationship or joint
investment is material, the gross revenue derived by the appraiser from the
Partnership, the General Partner or any affiliate shall not exceed 5% of the
annual gross revenue derived by the appraiser from all sources. Except under
certain circumstances, sales of assets by the Partnership to the General
Partner or its affiliates prior to January 1, 1997 would have required an
affirmative vote of a majority of limited partner interests outstanding and not
owned by the General Partner or its affiliates. No such vote is required or
will be sought thereafter. Though the General Partner is not required to
purchase the Partnership's cable systems, it or one of its affiliates may
determine to do so subject to the foregoing restrictions. Limited partners
will not be entitled to share in any profits of the General Partner or its
affiliates from the operation or sale of any cable systems subsequent to the
sale of such cable systems to the General Partner or any affiliate.
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As previously disclosed, in a meeting held in Los Angeles on August
27, 1996, the General Partner formally advised the Partnership's Advisory
Committee and Conflicts Committee that it desired to explore on a preliminary
basis the possibility of exercising the purchase rights contained in the
Partnership Agreement. Accordingly, the General Partner requested that the
Appraisal Process be commenced and that, in compliance therewith, the Conflicts
Committee select an independent nationally recognized expert in the cable
television field to determine the fair market value of the assets of each of the
Partnership's cable systems. The three appraisers were selected as follows:
(i) the Conflicts Committee selected Arthur Andersen LLP; (ii) the General
Partner selected Kane Reece Associates, Inc.; and (iii) those two firms
selected Communications Equity Associates (the "Appraisers"). Pursuant to the
Partnership Agreement, the sole obligation of the Conflicts Committee in
connection with the Appraisal Process was to select one of the three
Appraisers.
On February 6, 1997, each of the Appraisers delivered summaries of
the results of their appraisals (the "Appraisals"). These Appraisals address
the value of the appraised Partnership assets and do not give effect to any
debt or other liabilities of the Partnership. As noted below, the Partnership
has significant amounts of debt outstanding under its bank credit agreement.
Certain of these materials are presently in draft form and subject to
review and revision. Summaries of such reports will be filed with the
Commission promptly after final reports are available from each Appraiser.
Based solely upon the draft Appraisals, as of December 31, 1996, the
Partnership understands the appraised values of the five cable systems owned
by the Partnership to be as follows ($ in thousands):
Communications
Equity
Kane Reece Arthur Associates, Inc.
Associates, Inc. Andersen LLP (MEDIAN)
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Redmond, OR $ 7,680 $ 5,882 $ 6,200
Burke County, NC 20,570 17,685 19,000
Somerset, KY 33,590 30,277 31,000
Centreville, MD 23,980 20,445 23,000
California City, CA 3,500 2,791 2,800
As noted above, the Appraisal Process dictates that the appraised
value of an asset to be appraised shall be the median Appraisal for such
asset.
The reports related to each Appraisal will set forth certain matters
considered by the respective Appraisers. In connection with rendering their
Appraisals, the Appraisers performed a variety of financial analyses which will
be summarized in the respective Appraisals. No limitations were imposed by the
Partnership with respect to the investigations made or the
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procedures followed by the Appraisers in rendering their Appraisals. The General
Partner is under no obligation to exercise its purchase right in full or in
part, nor can there be any assurance that the Partnership would otherwise be
able to sell all or any portion of its assets at prices consistent with the
Appraisals. Actual sales in the marketplace could be at valuations materially
above or below those reflected by the Appraisals. Such Appraisals should
accordingly not be assumed to be a representation as to the implied value of
limited partnership interests in the Partnership, nor as to the proceeds that
might be realized by the Partnership in connection with a sale or other
disposition of all or any portion of the assets of the Partnership, whether to
the General Partner, an affiliate or otherwise.
Based upon the aggregate of the median Appraisals of the Partnership's
cable systems (the "Aggregate Appraised Valuation") and assuming a hypothetical
liquidation of the Partnership on December 31, 1996 involving the sale of those
systems on that date for an amount equal to the Aggregate Appraised Valuation,
the estimated cash distribution to unitholders would have been approximately
$851.00 per limited partnership unit (the "Hypothetical Estimated Per Unit
Distribution") (based upon 71,879 units outstanding). The Hypothetical Estimated
Per Unit Distribution was calculated assuming net liabilities on the balance
sheet of the Partnership, excluding property, plant and equipment and intangible
assets ("Net Liabilities"), of approximately $20.2 million (as of December 31,
1996). The Hypothetical Estimated Per Unit Distribution assumes that the Net
Liabilities as of December 31, 1996 represent the only payments, other than
certain reserved expenses, that would have been required to be made by the
Partnership prior to the distribution of cash to the unitholders. This
assumption will likely prove to be invalid. Specifically, this method assumes
all of the cable systems are sold in a single transaction. If the Partnership
sells the assets over time in separate transactions, for example, it could incur
significant transaction costs and there would be a significant delay in the
distribution of funds to limited partners. Accordingly, the Hypothetical
Estimated Per Unit Distribution is presented for illustrative purposes only and
does not necessarily represent amounts the Partnership could have distributed to
unitholders on December 31, 1996 or any date thereafter. In the event any of the
Partnership's cable systems are sold, the actual timing and amount of any
related distribution to partners cannot be predicted at this time.
The Appraisals, by their respective terms, are based upon numerous
sources of information including data supplied by the General Partner, which
included certain projections regarding 1997 operating results for the
Partnership prepared in the ordinary course of its business. The Partnership
does not as a matter of course make public any forecasts as to its future
financial performance. THE PROJECTIONS WERE PREPARED SOLELY FOR INTERNAL USE
AND NOT WITH A VIEW TO PUBLIC DISCLOSURE OR COMPLIANCE WITH THE PUBLISHED
GUIDELINES OF THE COMMISSION OR THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC
ACCOUNTANTS REGARDING PROJECTIONS AND WERE NOT PREPARED WITH THE ASSISTANCE OF,
OR REVIEWED BY, INDEPENDENT ACCOUNTANTS. SUCH PROJECTIONS WERE PROVIDED TO THE
APPRAISERS SOLELY FOR THE PURPOSES OF THEIR APPRAISALS. NONE OF THE GENERAL
PARTNER, THE PARTNERSHIP, ANY AFFILIATE OR ANY PARTY TO WHOM THE PROJECTIONS
WERE PROVIDED ASSUMES ANY RESPONSIBILITY FOR THE VALIDITY, REASONABLENESS,
ACCURACY OR COMPLETENESS OF THE
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PROJECTIONS. WHILE PRESENTED WITH NUMERICAL SPECIFICITY, THE PROJECTIONS ARE
BASED ON A VARIETY OF ASSUMPTIONS RELATING TO THE BUSINESSES OF THE
PARTNERSHIP, INDUSTRY PERFORMANCE, GENERAL BUSINESS AND ECONOMIC CONDITIONS AND
OTHER MATTERS WHICH ARE SUBJECT TO SIGNIFICANT UNCERTAINTIES AND CONTINGENCIES,
MANY OF WHICH ARE BEYOND THE PARTNERSHIP'S CONTROL, AND, THEREFORE, SUCH
PROJECTIONS ARE INHERENTLY IMPRECISE AND THERE CAN BE NO ASSURANCE THAT THEY
WILL BE REALIZED. ALSO, ACTUAL FUTURE RESULTS MAY VARY MATERIALLY FROM THOSE
SHOWN IN THE PROJECTIONS. THE PARTNERSHIP IS NOT UNDER ANY OBLIGATION TO UPDATE
THE PROJECTIONS AT ANY FUTURE TIME.
Each of the Appraisers is a nationally recognized cable system
appraisal firm and is continually engaged in the valuation of cable systems.
Each of the Appraisers, other than Arthur Andersen LLP, has from time to time
provided valuation services to the Partnership and its affiliates for which
they have received customary compensation.
The General Partner has made no decision whether to purchase any or all
of the Partnership's five cable television systems. Any decision by the General
Partner will, as permitted by the Partnership Agreement, be made on a
system-by-system basis. Any decision by the General Partner or its affiliates
to acquire any of the Partnership's cable systems will further be subject to,
among other things, (i) the availability of the necessary financing on terms
acceptable to the acquiring affiliate; (ii) the relative attractiveness of
available alternative and investment opportunities; (iii) the receipt of any
necessary regulatory approvals and consents; and (iv) other future developments
relating to the Partnership and the cable television industry, general economic
conditions and other future developments.
Although the foregoing reflects activities which the General Partner
and certain of its affiliates are currently exploring with respect to the
Partnership, the foregoing is subject to change at any time. Accordingly, there
can be no assurance that the sale of cable television systems of the
Partnership in accordance with the rights of the General Partner and its
affiliates under the terms of the Partnership Agreement as described above or
otherwise will be pursued or, if pursued, when and if any of them will be
successfully consummated. For additional information on the terms of the
Partnership Agreement, see "Item 1--Business--Introduction" and Item 13--
"Certain Relationships and Related Transactions--Conflicts of Interest" in the
Partnership's Annual Report on Form 10-K for the year ended December 31, 1995
and the full text of the Partnership Agreement filed as Exhibit 3.2 thereto.
FORWARD-LOOKING STATEMENTS IN THIS REPORT ARE MADE PURSUANT TO THE
SAFE HARBOR PROVISIONS OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED. INVESTORS ARE CAUTIONED THAT SUCH FORWARD-LOOKING STATEMENTS
INVOLVE RISKS AND UNCERTAINTIES INCLUDING, WITHOUT LIMITATION, THE EFFECTS OF
LEGISLATIVE AND REGULATORY CHANGES; THE POTENTIAL OF INCREASED LEVELS OF
COMPETITION FOR THE PARTNERSHIP; TECHNOLOGICAL CHANGES; THE PARTNERSHIP'S
DEPENDENCE UPON THIRD-PARTY PROGRAMMING; THE POTENTIAL EXERCISE OF THE PURCHASE
RIGHT AS DESCRIBED ABOVE; THE ABSENCE
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OF UNITHOLDER PARTICIPATION IN THE GOVERNANCE AND MANAGEMENT OF THE
PARTNERSHIP; LIMITATIONS ON BORROWINGS BY THE PARTNERSHIP CONTAINED IN THE
PARTNERSHIP AGREEMENT; THE MANAGEMENT FEES PAYABLE TO THE GENERAL PARTNER; THE
EXONERATION AND INDEMNIFICATION PROVISIONS CONTAINED IN THE PARTNERSHIP
AGREEMENT RELATING TO THE GENERAL PARTNER AND OTHER; POTENTIAL CONFLICTS OF
INTEREST INVOLVING THAT GENERAL PARTNER AND ITS AFFILIATES; THE POTENTIAL
LIABILITY OF UNITHOLDERS TO CREDITORS OF THE PARTNERSHIP TO THE EXTENT OF ANY
DISTRIBUTION MADE TO SUCH UNITHOLDER IF, IMMEDIATELY AFTER SUCH DISTRIBUTION
(WHETHER OR NOT THE PARTNERSHIP CONTINUES TO EXIST), THE REMAINING ASSETS OF
THE PARTNERSHIP ARE NOT SUFFICIENT TO PAY ITS THEN OUTSTANDING LIABILITIES OF
THE PARTNERSHIP; AND OTHER RISKS DETAILED FROM TIME TO TIME IN THE
PARTNERSHIP'S ANNUAL REPORT ON FORM 10-K AND OTHER PERIODIC REPORTS FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION.
* * * *
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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 hereunto duly authorized.
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
a California limited partnership
By: Falcon Classic Cable Investors, L.P.
General Partner
By: Falcon Holding Group, L.P.
General Partner
By: Falcon Holding Group, Inc.
General Partner
Date: February 13, 1997. By: /s/ Michael K. Menerey
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Name: Michael K. Menerey
Title: Chief Financial Officer
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