<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 March 31, 1998
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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 33-60776
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Falcon Holding Group, L.P.
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(Exact name of Registrant as specified in its charter)
Delaware 95-4408577
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10900 Wilshire Boulevard - 15th Floor
Los Angeles, California 90024
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 824-9990
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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
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The Exhibit Index is located at Page E-1
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PART I - FINANCIAL INFORMATION
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
===================================================
<TABLE>
<CAPTION>
December 31, March 31,
1997* 1998
------------ ------------
(Unaudited)
(Dollars in Thousands)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 13,917 $ 11,162
Receivables:
Trade, less allowance of $825,000 and
$781,000 for possible losses 13,174 12,291
Affiliates 11,254 11,309
Other assets 14,576 15,647
Other investments 1,776 1,555
Property, plant and equipment, less accumulated depreciation
and amortization of $272,551,000 and $275,806,000 324,559 358,074
Franchise cost, less accumulated
amortization of $203,700,000 and $211,870,000 222,281 218,844
Goodwill, less accumulated amortization
of $18,531,000 and $20,010,000 66,879 71,487
Customer lists and other intangible costs, less
accumulated amortization of $25,517,000 and $28,578,000 59,808 88,360
Deferred loan costs, less accumulated amortization
of $7,144,000 and $7,681,000 12,134 11,597
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$ 740,358 $ 800,326
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LIABILITIES AND PARTNERS' DEFICIT
---------------------------------
LIABILITIES:
Notes payable $ 911,221 $ 1,001,054
Accounts payable 9,169 6,476
Accrued expenses 52,789 44,812
Customer deposits and prepayments 1,452 1,652
Deferred income taxes 7,553 7,026
Minority interest 354 346
Equity in losses of affiliated partnerships in excess of investment 3,202 3,251
TOTAL LIABILITIES ------------ ------------
985,740 1,064,617
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COMMITMENTS AND CONTINGENCIES
REDEEMABLE PARTNERS' EQUITY 171,373 171,373
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PARTNERS' DEFICIT:
General partner (13,200) (13,389)
Limited partners (403,555) (422,275)
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TOTAL PARTNERS' DEFICIT (416,755) (435,664)
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$ 740,358 $ 800,326
============ ============
</TABLE>
*As presented in the audited financial statements.
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 3
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
=======================================================
<TABLE>
<CAPTION>
Unaudited
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Three months ended
March 31,
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1997 1998
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(Dollars in Thousands)
<S> <C> <C>
REVENUES $ 63,984 $ 64,557
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EXPENSES:
Service costs 18,295 19,565
General and administrative expenses 11,179 11,678
Depreciation and amortization 29,793 31,079
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Total expenses 59,267 62,322
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Operating income 4,717 2,235
OTHER INCOME (EXPENSE):
Interest expense, net (20,384) (20,487)
Equity in net loss of investee partnerships (71) (248)
Other expense, net (163) (774)
Income tax benefit 566 365
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NET LOSS $ (15,335) $ (18,909)
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 4
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
=======================================================
<TABLE>
<CAPTION>
Unaudited
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Three months ended
March 31,
---------------------------
1997 1998
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(Dollars in Thousands)
<S> <C> <C>
Net cash provided by operating activities $ 15,322 $ 2,729
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CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of cable television systems -- (76,789)
Capital expenditures (10,624) (18,021)
Increase in intangible assets (326) (550)
Other 9 42
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Net cash used in investing activities (10,941) (95,318)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from notes payable 8,000 96,472
Repayment of debt (15,179) (6,638)
Other 24 --
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Net cash provided by (used in) financing activities (7,155) 89,834
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NET DECREASE IN CASH AND CASH
EQUIVALENTS (2,774) (2,755)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 13,633 13,917
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CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 10,858 $ 11,162
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 5
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
====================================================
NOTE 1 - BASIS OF PRESENTATION
Falcon Holding Group, L.P., a Delaware limited partnership (the
"Partnership" or "FHGLP"), owns and operates cable television systems serving
small to medium-sized communities and the suburbs of certain cities in 23 states
(the "Owned Systems"). The Partnership also controls, holds varying equity
interests in and manages certain other cable television systems for a fee (the
"Affiliated Systems" and, together with the Owned Systems, the "Systems"). The
Affiliated Systems operate cable television systems in 16 states. FHGLP is a
limited partnership, the sole general partner of which is Falcon Holding Group,
Inc., a California corporation ("FHGI").
The condensed consolidated financial statements include the
consolidated accounts of FHGLP, its subsidiary cable television operating
partnerships and corporations (the "Owned Subsidiaries") and those operating
partnerships' general partners which are owned by FHGLP. The condensed
consolidated financial statements also include the accounts of Enstar
Communications Corporation ("ECC"), a wholly-owned subsidiary of one of the
operating partnerships, which is the general partner of the 15 limited
partnerships operating under the name "Enstar" (the "Enstar Partnerships"),
which are Affiliated Systems.
NOTE 2 - INTERIM FINANCIAL STATEMENTS
The interim financial statements for the three months ended March 31,
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 months ended March 31,
1998 are not necessarily indicative of results for the entire year.
NOTE 3 - MINORITY INTEREST
Included in the operations of Falcon Telecable, one of the Owned
Subsidiaries, are the results of operations of Lake Las Vegas Cablevision, L.P.,
a Delaware limited partnership, which is a joint venture owned 66 2/3% by Falcon
Telecable. The minority interest reflects the 33 1/3% of the venture that Falcon
Telecable does not own.
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FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
====================================================
NOTE 4 - ACQUISITION
In March 1998 the Partnership paid to Falcon Classic Cable Income
Properties, L.P. ("Falcon Classic") $76.8 million (including $1.1 million of
interest as required by an agreement settling certain litigation arising from
the acquisition by the Partnership of the assets of Falcon Classic) in order to
purchase substantially all of the assets of Falcon Classic, other than the cable
television system serving the City of Somerset, Kentucky. The Partnership also
paid approximately $1.2 million to the settlement fund established in connection
with the settlement of the above-referenced litigation, $500,000 of which was
reimbursed by insurance on May 1, 1998. The acquisition of the City of Somerset
assets will be completed as soon as regulatory approvals can be obtained, of
which there can be no assurance. Falcon Classic had revenue of approximately
$32.1 million for the year ended December 31, 1997, including approximately $1.5
million from the City of Somerset.
NOTE 5 - SUBSEQUENT EVENTS
On April 3, 1998 the Partnership and its wholly-owned subsidiary
Falcon Funding Corporation ("FFC" and, collectively with the Partnership, the
"Issuers") consummated the issuance of $375,000,000 aggregate principal amount
of 8.375% Senior Debentures due 2010 (the "Senior Debentures") and $435,250,000
aggregate principal amount at maturity of 9.285% Senior Discount Debentures due
2010 (the "Senior Discount Debentures" and, collectively with the Senior
Debentures, the "Debentures") in a private placement exempt from registration
under the Securities Act of 1933, as amended (the "Securities Act"). The Issuers
are obligated to consummate an offer to exchange, pursuant to an effective
registration statement under the Securities Act, the Debentures for debentures
with terms identical to the corresponding Debentures, or to cause resales of the
Debentures to be registered under the Securities Act pursuant to a shelf
registration statement.
The Senior Debentures were issued at a price of 99.732% of their
principal amount, for total gross proceeds to the Issuers of approximately
$374.0 million. The Senior Discount Debentures were issued at a price of 63.329%
per $1,000 aggregate principal amount at maturity, for total gross proceeds to
the Issuers of approximately $275.6 million, and will accrete to stated value at
an annual rate of 9.285% until April 15, 2003. After giving effect to offering
discounts, commissions and estimated expenses of the offering, the sale of the
Debentures generated net proceeds to the Issuers of approximately $631 million.
The Partnership used substantially all the net proceeds from the sale
of the Debentures to repay outstanding bank indebtedness. On April 20, 1998, the
Partnership made a tender offer for all of its 11% Senior Subordinated Notes due
2003 (the "11% Notes"). If such tender offer does not result in the purchase of
all of the 11% Notes, the Partnership will redeem any remaining outstanding 11%
Notes prior to October 15, 1998.
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<PAGE> 7
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
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 altogether 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,
pending business combination and acquisition transactions, 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 and the other periodic reports filed by the Partnership
with the Securities and Exchange Commission from time to time for additional
information regarding such matters and the effect thereof on the Partnership's
business.
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<PAGE> 8
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
RESULTS OF OPERATIONS
The Partnership's revenues increased from $64 million to $64.6
million, or by 0.9%, for the three months ended March 31, 1998 compared to the
corresponding period in 1997. Of the $573,000 net increase in revenues, $1.3
million was due to the acquisition in March 1998 of the Falcon Classic assets
discussed in Note 4 to the condensed consolidated financial statements. This
increase was partially offset by decreases of $424,000 in management fees and
$289,000 in cable service revenues. The $289,000 decrease in cable service
revenues was caused principally by decreases of $1.5 million due to reductions
in the number of regulated subscriptions for cable service and $975,000 due to
reductions in the number of premium subscriptions for cable service. These
decreases were partially offset by increases of $1.5 million related to
increases in regulated service rates implemented during 1997 and 1998 and by
$741,000 related to increases in unregulated service rates implemented during
1997. As of March 31, 1998, the Owned Systems had approximately 607,000 basic
subscribers and 183,000 premium service units.
Management and consulting fees earned by the Partnership decreased
from $1.5 million to $1.1 million for the three months ended March 31, 1998
compared to the corresponding period in 1997 primarily due to reductions in the
amounts received from Falcon Classic.
Service costs increased from $18.3 million to $19.6 million, or by
6.9%, for the three months ended March 31, 1998 compared to the corresponding
period in 1997. Service costs represent costs directly attributable to providing
cable services to customers. The $1.3 million increase was primarily caused by
an increase in programming fees paid to program suppliers (including primary
satellite fees), $411,000 of which was due to the acquisition of the Falcon
Classic assets.
General and administrative expenses increased from $11.2 million to
$11.7 million, or by 4.5%, for the three months ended March 31, 1998 compared to
the corresponding period in 1997. The $499,000 increase for the three months
ended March 31, 1998 compared to the corresponding period in 1997 related
primarily to increases in marketing expense and to $262,000 related to the
acquisition of the Falcon Classic assets.
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 decreased from
53.9% to 51.6% for the three months ended March 31, 1998 compared to the
corresponding period in 1997. The decrease was primarily caused by increases in
programming costs and marketing expenses in excess of revenue increases, as
described above, and to the acquisition of assets from Falcon Classic (which had
an EBITDA as a percentage of revenues of 47.7%), EBITDA decreased from $34.5
million to $33.3 million as a result of such factors, or by 3.5%. 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 $29.8 million to
$31.1 million, or by 4.3%, for the three months ended March 31, 1998 compared to
the corresponding period in 1997. The $1.3 million increase in depreciation and
amortization expense was primarily due to the acquisition of the Falcon Classic
assets.
-8-
<PAGE> 9
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
RESULTS OF OPERATIONS (CONCLUDED)
Operating income decreased from $4.7 million to $2.2 million, or by
52.6%, for the three months ended March 31, 1998 compared to the corresponding
period in 1997. The $2.5 million decrease was principally due to increases in
operating expenses in excess of increases in revenues and to an increase in
depreciation and amortization expense as discussed above.
Interest expense, including the effects of interest rate hedging
agreements, increased from $20.4 million to $20.5 million, or by 0.5%, for the
three months ended March 31, 1998 compared to the corresponding period in 1997.
The increase was primarily due to higher average debt balances outstanding. The
increase was partially offset by the effect of slightly lower average interest
rates (8.8% during the three months ended March 31, 1998 compared to 9.1% during
the corresponding period in 1997). Due to the Partnership electing to pay
interest expense on the 11% Notes in cash on March 15, 1998, there was no
payment-in-kind interest expense (in which interest payment requirements are met
by an increase in the principal amount of the notes) associated with the 11%
Notes for the three months ended March 31, 1998 compared to $7 million of
payment-in-kind interest expense for the corresponding period in 1997. Interest
rate hedging agreements resulted in additional interest expense of $53,000
during the three months ended March 31, 1998 compared to additional interest
expense of $250,000 during the corresponding period in 1997.
Other expense, net increased from $163,000 for the three months ended
March 31, 1997 to $774,000 for the corresponding period in 1998, primarily due
to a $690,000 casualty loss recorded during 1998 as a result of property damage
caused by a storm.
Due to the factors described above, the Partnership's net loss
increased from $15.3 million to $18.9 million, or by 23.3%, for the three months
ended March 31, 1998 compared to the corresponding period in 1997.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Partnership's primary need for capital has been to
acquire cable systems and to finance plant extensions, rebuilds and upgrades,
and to add addressable converters to certain of the Owned Systems. The
Partnership spent $76.3 million during 1997 on capital expenditures. In addition
to the purchase of substantially all of the Falcon Classic assets (except for
the cable system serving Somerset, Kentucky) in March 1998 for $76.8 million and
the anticipated subsequent purchase of Classic's Somerset, Kentucky cable system
for approximately $6.4 million, management's current plan calls for the
expenditure of approximately $101 million in capital expenditures in 1998,
including approximately $68.2 million to rebuild and upgrade certain of the
Owned Systems. The Partnership's proposed spending plans (including its plans
for 1998) are frequently reviewed and revised with respect to changes in
technology, acceptable leverage parameters (including those specified in its
debt agreements), franchise requirements, competitive circumstances and other
factors.
The Amended and Restated Credit Agreement provides for maximum
available borrowings of $774 million at December 31, 1997, reducing to $185
million at December 31, 2004. As of March 31, 1998, the
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<PAGE> 10
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
amount outstanding under the Amended and Restated Credit Agreement was $695.6
million (including $76.8 million related to the acquisition of the Falcon
Classic Systems) and, subject to complying with covenants, the Partnership had
available to it additional borrowings thereunder of approximately $40.1 million.
The Amended and Restated Credit Agreement requires that interest be tied to the
ratio of consolidated total debt to consolidated annualized cash flow (in each
case, as defined therein), and further requires that the Partnership maintain
hedging arrangements with respect to at least 50% of the outstanding borrowings
thereunder. As of March 31, 1998, borrowings under the Amended and Restated
Credit Agreement bore interest at an average rate of 7.9% (including the effect
of interest rate hedging agreements). The Partnership has entered into fixed
interest rate hedging agreements with an aggregate notional amount at March 31,
1998 of $565 million. Agreements in effect at March 31, 1998 totaled $540
million, with the remaining $25 million to become effective as certain of the
existing contracts mature during the balance of 1998. The agreements serve as a
hedge against interest rate fluctuations associated with the Partnership's
variable rate debt. These agreements expire at various times through July 2001.
In addition to these agreements the Partnership has one interest rate swap
contract with a notional amount of $25 million under which it pays variable
LIBOR rates and receives fixed rate payments, and one $25 million interest rate
cap contract under which the Partnership pays variable LIBOR rates, subject to a
cap of 5.49%. The Amended and Restated Credit Agreement also contains various
restrictions relating to, among other things, mergers and acquisitions, a change
in control and the incurrence of additional indebtedness and also requires
compliance with certain financial covenants. The Partnership's management
believes that it was in compliance with all such requirements as of March 31,
1998.
On March 29, 1993, the Partnership issued $175 million aggregate
principal amount of its 11% Notes in connection with the Partnership's
formation. As a result of payment-in-kind interest payments under the 11% Notes,
the aggregate principal of the 11% Notes outstanding as of March 31, 1998 had
increased to $282.2 million. Future interest payments are permitted to be paid
in kind until the year 2000, when cash payment is required. However the
Partnership, as permitted by the terms of the Indenture, elected to begin to pay
interest payments in cash beginning with the payment due March 15, 1998. This
election required an amendment to the Amended and Restated Credit Agreement,
which had prohibited cash interest payments on the 11% Notes until September 30,
2000. The 11% Notes also contain various restrictions relating to, among other
things, mergers and acquisitions, a change in control and the incurrence of
additional indebtedness. The incurrence of additional indebtedness test limits
the ratio of the total debt of the Partnership to Operating Cash Flow (as
defined in the indenture) to 7.5 to 1 if such indebtedness is incurred through
December 31, 1999 and to 6.5 to 1 thereafter.
On April 3, 1998, as discussed in Note 5 to the condensed
consolidated financial statements, the Partnership consummated offerings of $375
million aggregate principal amount of the Senior Debentures and $435.2 million
aggregate principal amount at maturity of the Senior Discount Debentures. The
net proceeds of the Debentures of approximately $631 million were used to repay
certain outstanding indebtedness under the Amended and Restated Credit
Agreement. On April 20, 1998, the Partnership made a tender offer for all of the
11% Notes, which is expected to require approximately $303 million if 100% of
the 11% Notes are tendered, and which will be funded by bank borrowing. The
Partnership is also negotiating a new bank credit agreement which would replace
the Amended and Restated Credit Agreement in the second quarter of 1998, and
provide funds for the closing of its pending transaction with an affiliate of
Tele-
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<PAGE> 11
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Communications, Inc. (the "TCI Transaction") (see discussion in the
Partnership's Annual Report on Form 10-K for the year ended December 31, 1997).
In connection with the decision to make interest payments on the 11%
Notes in cash and the anticipated redemption of the 11% Notes, the Partnership
entered into various interest rate swap agreements with three banks on February
10, 1998 in order to reduce the interest cost. The agreements call for the
Partnership to receive payments at 11%; and to make payments at 7.625% for the
period September 16, 1997 through September 15, 1998 on a notional principal
amount of $282.2 million. The contracts further call for the Partnership to pay
at a fixed rate of 7.625% and receive interest at variable LIBOR-based rates for
the period September 16, 1998 through September 15, 2003 on a notional principal
amount of $297.7 million.
The Partnership (i.e., FHGLP) is a separate, stand-alone holding
company which employs all of the management personnel for the Systems. All of
the Owned Systems are owned by subsidiaries of the Partnership. Accordingly, to
fund its operations and to pay its expenses, including interest expense, the
Partnership is financially dependent on the receipt of funds from its Owned
Subsidiaries, management and consulting fees from domestic cable ventures, and
on the reimbursement of specified expenses by certain of the Affiliated Systems.
Expected increases in the funding requirements of the Partnership combined with
limitations on its sources of cash may create liquidity issues for the
Partnership in the future. The Amended and Restated Credit Agreement permits the
Owned Subsidiaries to remit to FHGLP no more than 4.25% of their net cable
revenues in any year. For the three months ended March 31, 1998, the Amended and
Restated Credit Agreement permitted the Owned Subsidiaries to remit
approximately $2.8 million to FHGLP, and $2.6 million was actually remitted. As
a result of the 1998 acquisition of the Falcon Classic assets, the Partnership
will no longer receive management fees and reimbursed expenses from Falcon
Classic. Receivables from the Affiliated Systems for services and reimbursements
described above amounted to approximately $11.3 million at March 31, 1998, which
amount includes $7.5 million of notes receivable from the Enstar Partnerships.
The Partnership has historically pursued a strategy of seeking to
acquire attractive acquisition candidates, with an emphasis on the acquisition
of systems which can be integrated with its existing operations. Over the past
two years, the Partnership has emphasized the acquisition of Affiliated Systems
due to its familiarity with these assets and because, in many cases, these
assets were already operationally integrated with Owned Systems located nearby.
The Partnership cannot predict whether it will have access to adequate capital
in the future to make further acquisitions of cable systems. The Partnership
frequently considers opportunities to sell assets that it views as
non-strategic.
The existing FHGLP partnership agreement contains provisions that may
require FHGLP to purchase substantially all of the limited partnership interests
in FHGLP held by its Group I, Group II and Group III limited partners
(constituting approximately 60% of the common equity of FHGLP), at the holders'
option. Certain of these interests are mandatorily redeemable at certain dates.
Limited partnership interests held by the Group IV limited partner become
redeemable at a later date, subject to certain shared liquidity rights. In
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<PAGE> 12
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
contemplation of the TCI Transaction, by agreement of the Group I, Group II,
Group III and Group IV partners, the dates on which the partners may exercise
certain put rights and the dates by which FHGLP is required to redeem certain
partnership interests were tolled in accordance with the document governing the
TCI Transaction (the "Contribution Agreement"). The new dates are determined by
adding to the original date the number of days in the period beginning on
December 1, 1997 and ending ninety days after the earlier of December 31, 1998
or the date that the Contribution Agreement is terminated in accordance with its
terms. As a result, assuming that the Contribution Agreement is not terminated
prior to December 31, 1998, FHGLP may be required to purchase the partnership
interests held by the Group I, Group II and Group III partners during the period
of January 2000 to October 2000, with the Class C partnership interests held by
the Group IV partner becoming mandatorily redeemable in July 2005. If the
Contribution Agreement is terminated prior to December 31, 1998, FHGLP may be
required to redeem certain partnership interests earlier than the dates set
forth above. Subject to certain customary exceptions, the Contribution Agreement
may not be terminated without the consent of FHGLP prior to December 31, 1998.
The purchase price for such partnership interests (other than Class C
partnership interests) will generally be determined through a third party
appraisal mechanism, as specified in the existing FHGLP partnership agreement,
at the time such interests are redeemed, or through negotiation. The purchase
price is to be paid in cash or, under certain circumstances, may be paid through
the issuance of debt or equity securities. The redemption value of the Class C
partnership interests will generally be their liquidation value as determined in
accordance with a formula set forth in the existing FHGLP partnership agreement.
Certain of the Partnership's debt agreements (including the Amended and Restated
Credit Agreement and the 11% Notes) restrict the Partnership's ability to (i)
make distributions to fund the purchase of these partnership interests pursuant
to the provisions described above, (ii) incur indebtedness or issue debt
securities in connection with such purchase or (iii) sell a substantial amount
of its assets. The obligations of FHGLP to redeem any significant amount of its
limited partnership interests would result in a material liquidity demand on
FHGLP, and there can be no assurance that FHGLP would be able to raise such
funds on terms acceptable to FHGLP, or at all. However, upon completion of the
TCI Transaction, the existing liquidity rights will be terminated and be
replaced by certain new liquidity rights provided to the non-management limited
partners in the FHGLP partnership agreement as amended upon the closing of the
TCI Transaction.
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 Partnership's management 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 Partnership's
management 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. Replacement costs will be
capitalized in accordance with generally accepted accounting principles and
amortized over the lives of the assets. Maintenance costs will be expensed as
incurred. The Partnership's management expects to install
-12-
<PAGE> 13
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES (CONCLUDED)
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, is expected to be approximately $1.5 million.
In addition to evaluating internal systems, the Partnership's
management 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 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's management continues to closely
monitor Year 2000 developments with vendors and service suppliers.
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Cash provided by operating activities (including interest expense and
management fee income) decreased from $15.3 million to $2.7 million, or by
82.2%, for the three months ended March 31, 1998 compared to the corresponding
period in 1997, a decrease of $12.6 million. The decrease resulted primarily
from a net decrease of $5.6 million in other operating items (receivables, other
assets, payables, accrued expenses and subscriber deposits and prepayments) and
from the fact that in 1997, unlike 1998, the Partnership incurred $7 million of
payment-in-kind interest expense related to the 11% Notes.
Cash used in investing activities increased from $10.9 million to
$95.3 million, or by 771.2%, for the three months ended March 31, 1998 compared
to the corresponding period in 1997. The increase was primarily due to the 1998
acquisition of Falcon Classic assets for $76.8 million and to an increase in
capital expenditures of $7.4 million.
Cash from financing activities changed from a $7.2 million use of
cash to $89.8 million of cash provided for the three months ended March 31, 1998
compared to the corresponding period in 1997. The change was due primarily to
additional borrowings of debt in 1998 related to the acquisition of the Falcon
Classic assets and to the increase in capital expenditures.
INFLATION
Certain of the Partnership's expenses, such as those for wages and
benefits, equipment repair and replacement, and billing and marketing generally
increase with inflation. However, the Partnership does not believe that its
financial results have been, or will be, adversely affected by inflation in a
material way, provided that it is able to increase its service rates
periodically, of which there can be no assurance, due to the re-regulation of
rates charged for certain cable services.
-13-
<PAGE> 14
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEMS 1-5. Not applicable.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibit 10.61 First Amendment to
Contribution and Purchase Agreement dated as
of March 23, 1998 by and among Falcon
Holding Group, L.P., Falcon Communications,
L.P., and TCI Falcon Holdings, LLC.
Exhibit 10.62 Second Amendment to
Contribution and Purchase Agreement dated as
of April 2, 1998, between Falcon Holding
Group, L.P., Falcon Communications, L.P. and
TCI Falcon Holdings, LLC.
Exhibit 10.63 Waiver Letter, dated as of
March 27, 1998, among Falcon Holding Group,
L.P., Falcon Communications, L.P. and TCI
Falcon Holdings, LLC relating to the Amended
and Restated Agreement of Limited
Partnership of Falcon Communications, L.P.,
dated as of December 30, 1997.
(b) No Reports on Form 8-K were filed for the
quarter for which this Report is filed.
<PAGE> 15
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.
FALCON HOLDING GROUP, L.P.
a DELAWARE LIMITED PARTNERSHIP
------------------------------
(Registrant)
By: FALCON HOLDING GROUP
General Partner
Date: May 12, 1998 By: /s/ Michael K. Menerey
----------------------------
Michael K. Menerey, Executive
Vice President, Secretary and
Chief Financial Officer
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.61 First Amendment to Contribution and Purchase Agreement dated as of
March 23, 1998 by and among Falcon Holding Group, L.P., Falcon
Communications, L.P., and TCI Falcon Holdings, LLC.
10.62 Second Amendment to Contribution and Purchase Agreement dated as of
April 2, 1998, between Falcon Holding Group, L.P., Falcon
Communications, L.P. and TCI Falcon Holdings, LLC.
10.63 Waiver Letter, dated as of March 27, 1998, among Falcon Holding
Group, L.P., Falcon Communications, L.P. and TCI Falcon Holdings, LLC
relating to the Amended and Restated Agreement of Limited Partnership
of Falcon Communications, L.P., dated as of December 30, 1997.
</TABLE>
E-1
<PAGE> 1
EXHIBIT 10.61
FIRST AMENDMENT TO
CONTRIBUTION AND PURCHASE AGREEMENT
THIS FIRST AMENDMENT TO CONTRIBUTION AND PURCHASE AGREEMENT is made and
entered into as of March 23, 1998 by and among Falcon Holding Group, L.P., a
Delaware limited partnership ("FHGLP"); Falcon Communications, L.P., a
California limited partnership ("NewFalcon"); and TCI Falcon Holdings, LLC, a
Delaware limited liability company ("TCI").
PRELIMINARY STATEMENT
A. The parties hereto and certain other persons entered into the
Contribution and Purchase Agreement on December 30, 1997 (the "Contribution
Agreement"). FHGLP and TCI desire to modify the Contribution Agreement in
certain respects to contemplate, authorize and approve certain transactions as
described herein. Section 15.5(b) of the Contribution Agreement provides that
FHGLP and TCI may enter into this Amendment without the consent or waiver of any
other party to the Contribution Agreement, and Section 11.17 of the Contribution
Agreement provides for an agreement by each FHGLP Partner that any action that
may be taken by FHGLP under the Contribution Agreement may be taken by FHGLP's
General Partner in the General Partner's sole discretion.
B. The General Partner has determined that it would be desirable for
FHGLP to obtain additional financing by making an offer (the "Offering") to sell
and issue $500 million or more aggregate principal amount of debentures (the
"Debentures") as described in an Offering Memorandum prepared by FHGLP (the
"Offering Memorandum"). The Board of Representatives of FHGLP has authorized
FHGLP and the General Partner to pursue the Offering in their discretion. If the
Offering is consummated as presently contemplated: (i) FHGLP would form a new
wholly-owned subsidiary to be called Falcon Funding Corporation ("FFC") to serve
as a joint and several co-issuer of the Debentures; (ii) the proceeds from the
Offering, which would be received solely by FHGLP, would be used primarily to
pay down existing indebtedness outstanding to certain Falcon Entities under
their existing senior bank credit agreement (the "Bank Credit Agreement") and
for other business purposes as determined by the General Partner; (iii) at the
closing pursuant to the Contribution Agreement (the "Closing") NewFalcon would
assume FHGLP's rights and obligations and be substituted for FHGLP as an obligor
under the Debentures and FHGLP would contribute its entire ownership interest in
FFC to NewFalcon; and (iv) immediately following the Closing, NewFalcon would
contribute all of its assets (excluding its ownership interest in FFC) to a
newly-formed limited liability company wholly owned by NewFalcon ("NewFalcon
II"), subject to certain indebtedness to be assumed by NewFalcon II, including
FHGLP's 11% Senior Subordinated Notes due 2003 (the "11% Notes"), but excluding
the Debentures.
C. As permitted by Section 2.8(e) of the Contribution Agreement, the
General Partner has determined that it would also be desirable for the Falcon
Entities to enter into a $1.3 billion
<PAGE> 2
revolving and term loan senior bank facility (the "New Senior Financing") as
described in the Offering Memorandum. The Board of Representatives of FHGLP has
authorized FHGLP and the General Partner to pursue the New Senior Financing in
their discretion. If the New Senior Financing is consummated as presently
contemplated, the proceeds from the New Senior Financing would be used to (i)
repay amounts outstanding under the Bank Credit Agreement, (ii) fund the
acquisition of the Somerset System, (iii) refinance obligations of Falcon Video,
(iv) refinance the debt to be assumed by NewFalcon from TCI, (v) fund the Notes
Redemption or Notes Tender Offer (each as defined below) and (vi) fund capital
expenditures and for other general business purposes. Prior to the Closing, the
Restricted Companies under the Bank Credit Agreement (and immediately prior to
the Closing for a portion of the facilities under the New Senior Financing,
Falcon Video) will be the borrowers under the New Senior Financing. Immediately
following the Closing, NewFalcon II will assume the obligations of the initial
borrowers under the New Senior Financing.
D. The Board of Representatives has authorized FHGLP and the General
Partner in their discretion to satisfy the 11% Notes in full prior to their
stated maturity date, either by redeeming the Notes on or after September 15,
1998 in accordance with the redemption provisions of the Notes (a "Notes
Redemption") or by making a tender offer for the Notes in accordance with the
tender offer rules and regulations of the Securities Exchange Act of 1934 (a
"Notes Tender Offer") at such date as the General Partner shall determine. The
Notes Redemption or the Notes Tender Offer would be consummated by FHGLP if the
General Partner elects to consummate such a transaction prior to the Closing and
by NewFalcon II if NewFalcon elects to consummate such a transaction after the
Closing, in either case through borrowings under the New Senior Financing.
E. Except for the assets related to the Classic System that serves the
City of Somerset, Kentucky (the "Somerset System"), all of the Classic Systems
assets have been acquired pursuant to the Classic Purchase Agreement by the
Falcon Entities party thereto. The acquisition of the Somerset System is subject
to the satisfaction of certain additional conditions that have not yet been
satisfied. FHGLP and TCI desire to amend the Contribution Agreement to
contemplate that the acquisition of the Somerset System may not have occurred
prior to the Closing.
NOW, THEREFORE, FHGLP, TCI and NewFalcon agree as follows:
1. Definitions. All capitalized terms used herein and not otherwise
defined herein shall have the same meanings assigned to them in the Contribution
Agreement. All section references refer to the sections of the Contribution
Agreement unless otherwise expressly indicated.
2. Offering and New Senior Financing. For all purposes under the
Contribution Agreement, the following transactions are agreed to, consented to
and authorized: the incurring by FHGLP (and the assumption by NewFalcon pursuant
to Section 4.2) of new Indebtedness pursuant to the Debentures, the incurring of
new Indebtedness by the Falcon Entities prior to,
2
<PAGE> 3
contemporaneously with or immediately following the Closing pursuant to the New
Senior Financing, and the terms of the Offering and New Senior Financing as
described in the Offering Memorandum. As it may be desirable for FHGLP and the
General Partner to negotiate different or additional terms with respect to such
Indebtedness and the agreements and documents that will govern such
Indebtedness, it is further agreed to, consented to and authorized that, without
any additional consent of TCI or any other party to the Contribution Agreement,
FHGLP and the General Partner may negotiate, execute, deliver and perform, on
behalf of FHGLP, the Falcon Entities, NewFalcon and NewFalcon II, any and all
agreements and other documents that FHGLP and the General Partner shall deem
necessary or advisable in connection with the Offering, the Debentures and the
New Senior Financing, with such changes and modifications to the terms of such
Indebtedness and the related agreements and documents as FHGLP and the General
Partner shall deem necessary or advisable, so long as such changes and
modifications to the terms of such Indebtedness do not differ materially and
adversely from the terms described in the Offering Memorandum and do not result
in any adverse tax consequences to TCI. Notwithstanding the foregoing, FHGLP and
the General Partner acknowledge and confirm that they will continue to consult
regularly with TCI concerning the structure of any such new Indebtedness
consistent with the provisions of the Contribution Agreement. If FHGLP issues
the Debentures prior to the Closing, then (a) the amount in clause (2) of
Section 2.8(a) shall be increased by the amount of Indebtedness of FHGLP
pursuant to Debentures issued prior to the Closing that is assumed by NewFalcon
pursuant to Section 4.2, and (b) FHGLP shall not enter into the Payment
Agreements referred to in Section 2.8(a) if the amount in clause (2) of Section
2.8(a), as modified by the preceding clause (a), is at least equal to the amount
in clause (1) of Section 2.8(a).
3. FFC and NewFalcon II. For all purposes under the Contribution
Agreement, the following transactions and other matters are agreed to, consented
to and authorized: (a) the formation of FFC by FHGLP prior to the Closing; (b)
the formation of NewFalcon II by NewFalcon prior to the Closing; (c) the
contribution by FHGLP of its entire ownership interest in FFC to NewFalcon at
the Closing; (d) the contribution by NewFalcon of all its assets (other than its
interest in FFC and its interest in NewFalcon II) to NewFalcon II immediately
following the Closing, subject to the indebtedness assumed by NewFalcon at the
Closing, including the 11% Notes, but excluding the Debentures; and (e)
immediately following the Closing the assumption by NewFalcon II of the
obligations of the Falcon Entities under the New Senior Financing. FFC shall be
treated as a Falcon Entity for all purposes under the Contribution Agreement
and, for purposes of Section 3.5, the net fair market value of FFC shall be
deemed to equal $0. FFC shall have no assets and no operations prior to the
Closing.
4. 11% Notes. For all purposes under the Contribution Agreement, the
following transactions and other matters are agreed to, consented to and
authorized: the satisfaction in full of the 11% Notes, prior to,
contemporaneously with, or after the Closing, by means of a Notes Redemption, a
Notes Tender Offer or any other means and on any such terms that the General
Partner shall determine. Accordingly, it is further agreed to, consented to and
authorized that, without any additional consent of TCI or any other party to the
Contribution Agreement, FHGLP and the General Partner may negotiate, execute,
deliver and perform, on behalf of FHGLP, the
3
<PAGE> 4
Falcon Entities, NewFalcon and NewFalcon II, any and all agreements and other
documents that FHGLP and the General Partner shall deem necessary or advisable
in connection with the satisfaction of the Notes, with such changes and
modifications to the terms of such Indebtedness and the related agreements and
documents as FHGLP and the General Partner shall deem necessary or advisable.
5. Classic Systems.
(a) The parenthetical in clause (1) of Section 3.5(b) is amended
to read in its entirety as follows:
(except that, if the closing of the acquisition of the Somerset System
under the Classic Purchase Agreement has not occurred as of the Closing,
the amount shown next to the name of Falcon Cable Media on Schedule 3.5(b)
shall be reduced by $6,840,468)
(b) TCI irrevocably waives the condition to Closing specified in
Section 12.2(h).
(c) FHGLP represents to TCI that the amount of $6,840,468 in
paragraph 5(a) was determined as follows: (1) under the Classic Purchase
Agreement, a portion of the total purchase price under the Classic Purchase
Agreement was allocated to cable television systems serving communities in the
vicinity of Somerset, Kentucky, including the Somerset System (the "Somerset
Region"), based on appraisals of the Classic Systems; (2) a portion of the total
purchase price allocated to the Somerset Region under the Classic Purchase
Agreement was allocated pro rata to the Somerset System based on the ratio of
the total number of subscribers of the Somerset System to the total number of
subscribers of all cable television systems in the Somerset Region (including
the Somerset System); (3) the ratio of the portion of the total purchase price
allocated to the Somerset System under clause (2) to the total purchase price
under the Classic Purchase Agreement was presumed to equal the percentage of the
value of the Classic Systems represented by the Somerset System; and (4) the
percentage determined under clause (3) multiplied by the amount specified in the
parenthetical in clause (1) of Section 3.5(b) (before its amendment by paragraph
5(a)) equals $6,840,468.
6. Employee Matters. FHGLP and TCI agree that TCI will provide to FHGLP
by May 29, 1998, or such other date as FHGLP and TCI may agree, an updated list
of employees of the TCI Systems and that, notwithstanding Section 11.6(b), FHGLP
may provide to TCI at any time on or before by June 30, 1998, or such other date
as FHGLP and TCI may agree, the notice described in Section 11.6(b) identifying
the employees of the TCI Systems to which the Falcon Entities do not intend to
offer employment as of the Closing Date.
7. Authority. FHGLP and TCI acknowledge and agree that they are
entering into this Amendment pursuant to Section 15.5(b). TCI hereby
acknowledges and agrees that, subject to
4
<PAGE> 5
the express consent rights of TCI described in this Amendment, FHGLP and the
General Partner may, and are authorized to in their discretion, take all actions
prior to the Closing with respect to the transactions specifically authorized by
this Amendment, that FHGLP or the General Partner could take after the Closing
without the consent or waiver of TCI. Without limiting the generality of the
foregoing, FHGLP and the General Partner may, and are authorized to in their
discretion, take all actions that either of them may deem necessary or advisable
in connection with consummating or implementing any of the transactions
specifically authorized by this Amendment, including making modifications to the
structure of the new Indebtedness or other transactions and to the terms of such
new Indebtedness and other transactions (so long as such modifications do not
differ materially and adversely from the terms described in the Offering
Memorandum and do not result in any adverse tax consequences to TCI), and to
consummate prior to or contemporaneously with the Closing any of the
transactions specifically authorized by this Amendment, that could be
consummated after the Closing without the consent or waiver of TCI.
8. Effect of Amendment. FHGLP and TCI hereby agree that the
Contribution Agreement is hereby deemed amended in all respects necessary to
give effect to the consents, agreements and waivers contained in this Amendment,
whether or not a particular Section or provision of the Contribution Agreement
has been referred to in this Amendment. Except as amended hereby, the
Contribution Agreement shall remain unchanged and in full force and effect, and
this Amendment shall be governed by and subject to the terms of the Contribution
Agreement, as amended hereby. From and after the date of this Amendment, each
reference in the Contribution Agreement to "this Agreement," "hereof,"
"hereunder" or words of like import, and all references to the Contribution
Agreement in any and all agreements, instruments, documents, notes, certificates
and other writings of every kind and nature (other than in this Amendment or as
otherwise expressly provided) shall be deemed to mean the Contribution
Agreement, as amended by this Amendment.
9. NewFalcon Agreement.
(a) TCI acknowledges and agrees that by executing and delivering
this Amendment TCI shall be deemed to have agreed to, consented to, and
authorized FHGLP and the General Partner to take action with respect to, all
transactions specifically authorized by this Amendment for all purposes under
the NewFalcon Agreement. Without limiting the generality of the foregoing, TCI
hereby ratifies the agreements of TCI set forth in Paragraph 2 of that letter
agreement dated March 23, 1998.
(b) FHGLP, NewFalcon and TCI acknowledge and agree that,
notwithstanding Section 13.1(d) of the NewFalcon Agreement to the contrary, the
contribution by NewFalcon of all of its assets to NewFalcon II (other than its
interest in NewFalcon II and its interest in the FFC) will not result in the
dissolution and liquidation of NewFalcon and that Section 13.1(d) will not apply
to such contribution transaction for any purpose.
5
<PAGE> 6
(c) TCI Communications, Inc. acknowledges and agrees that this
First Amendment shall in no way impair or otherwise affect any of its
agreements, covenants and obligations under the NewFalcon Agreement.
10. Financing Costs. FHGLP, NewFalcon and TCI acknowledge and agree that
with reference to Section 5.7(a) of the NewFalcon Agreement, and without in any
way limiting the generality of said Section, to the extent FHGLP has incurred or
accrued any costs and expenses in connection with arranging and carrying out the
financings pursuant to the Offering and the New Senior Financing and the
satisfaction of the 11% Notes, including, with respect to the satisfaction of
the 11% Notes, any charges in excess of their accreted value, including without
limitation, any redemption premium and any payments to the note holders that may
be necessary to obtain their consent in connection with a tender offer
(collectively, the "Financing Costs") prior to the Closing (or prior to the
final determination of the Falcon Adjustments pursuant to the Contribution
Agreement), such Financing Costs shall be included as an increase in the value
of FHGLP's Current Assets as if FHGLP were contributing cash to NewFalcon in the
amount of such Financing Costs. Notwithstanding the preceding sentence, if the
payments to the note holders in connection with a tender offer for the 11% Notes
exceed the redemption price for the 11% Notes at September 15, 1998 pursuant to
the Note Indenture, such excess will be treated in a manner to be agreed upon
between TCI and FHGLP, and such excess shall not be treated as Financing Costs
for purposes of the preceding sentence unless specifically agreed to by TCI.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have duly executed this First
Amendment as of the date first above written.
FALCON HOLDING GROUP, L.P.
By: Falcon Holding Group, Inc.
By: /s/ Stanley S. Itskowitch
-----------------------------------
Name: Stanley S. Itskowitch
Title: Executive Vice President
FALCON COMMUNICATIONS, L.P.
By: Falcon Holding Group, L.P.
By: Falcon Holding Group, Inc.
By: /s/ Stanley S. Itskowitch
-----------------------------------
Name: Stanley S. Itskowitch
Title: Executive Vice President
TCI FALCON HOLDINGS, LLC
By: /s/ William R. Fitzgerald
-----------------------------------
Name: William R. Fitzgerald
Title: Vice President
TCI COMMUNICATIONS, INC.
By: /s/ William R. Fitzgerald
-----------------------------------
Name: William R. Fitzgerald
Title: Vice President
<PAGE> 1
EXHIBIT 10.62
April 2, 1998
TCI Falcon Holdings, LLC
c/o Tele-Communications, Inc.
Terrace Tower II
5619 DTC Parkway
Englewood, Colorado 80111-3000
Gentlemen:
Reference is made to (i) the Contribution and Purchase Agreement (the
"Contribution Agreement"), dated as of December 30, 1997, between Falcon Holding
Group, L.P. ("FHGLP"), Falcon Communications, L.P. ("NewFalcon"), TCI Falcon
Holdings, LLC ("TCI"), and certain other persons, and (ii) the First Amendment
to Contribution and Purchase Agreement (the "First Amendment"), entered into as
of March 23, 1998, among FHGLP, NewFalcon, and TCI. Capitalized terms used in
this letter and not otherwise defined in this letter have the meanings assigned
to them in the First Amendment.
This letter, when countersigned by TCI below, will constitute an amendment
to the Contribution Agreement, as previously amended by the First Amendment, as
follows:
1. For all purposes under the Contribution Agreement, all terms and
provisions of the First Amendment (including all consents, agreements, and
waivers contained in the First Amendment), are incorporated in this amendment as
if stated herein, except that references in the First Amendment to the terms of
the Debentures as described in the Offering Memorandum shall be deemed to
include the terms described on Schedule 1 attached to this letter, to the extent
such terms differ from the terms of the Offering Memorandum.
2. FHGLP and TCI agree that the Contribution Agreement is hereby deemed
amended in all respects necessary to give effect to the consents, agreements,
and waivers contained in this amendment, whether or not a particular Section or
provision of the Contribution Agreement is referred to in the First Amendment
and thereby incorporated herein. Except as amended hereby, the Contribution
Agreement, as previously amended by the First Amendment, shall remain unchanged
and in full force and effect, and this amendment shall be governed by and
subject to the terms of the Contribution Agreement, as amended by the First
Amendment and as amended hereby. From and after the date of this amendment, each
reference in the Contribution Agreement to "this Agreement," "hereof,"
"hereunder," or words of like import, and all references to the Contribution
Agreement in any and all agreements, instruments, documents, notes,
certificates, and other writings of every kind and nature (other than in this
amendment or as otherwise expressly provided) shall be deemed to mean the
Contribution Agreement, as amended by the First Amendment and this amendment.
<PAGE> 2
TCI Falcon Holdings, LLC
April 2, 1998
Page 2
3. This amendment may be referred to as the Second Amendment to
Contribution and Purchase Agreement.
Please indicate your agreement to the foregoing by executing below and
returning one fully executed original to Falcon Holding Group, L.P.
FALCON HOLDING GROUP, L.P.
By: Falcon Holding Group, Inc.
By: /s/ Stanley S. Itskowitch
----------------------------------
Name: Stanley S. Itskowitch
Title: Executive Vice President
FALCON COMMUNICATIONS, L.P.
By: Falcon Holding Group, L.P.
By: Falcon Holding Group, Inc.
By: /s/ Stanley S. Itskowitch
----------------------------------
Name: Stanley S. Itskowitch
Title: Executive Vice President
AGREED AND ACCEPTED AS OF
THIS 2nd DAY OF APRIL 1998
TCI FALCON HOLDINGS, LLC
By: /s/ William R. Fitzgerald
------------------------------------
Name: William R. Fitzgerald
Title: Vice President
<PAGE> 3
MORGAN STANLEY March 31, 1998
- --------------------------------------------------------------------------------
High Yield New Issue Summary
<TABLE>
<S> <C>
Issuer: Falcon Holding Group, L.P.
Type of Security: Senior Debentures
Amount: $375,000,000.00
Maturity: April 15, 2010
Coupon: 8.375%
Issue Price per Note: $997.32 (99.732%)
Yield: 8.410%
Spread to UST: 275 bps
Ratings: B2/B
Underwriters: MSDW, Lazard, DLJ, ML, BARS, BoB,
Chase, CIBC, Nations, TD
Distribution Method: 144A with Registration Rights
Trade Date: 3/31/98
Settlement date: 4/3/98
Type of Settlement: Flat (same day funds)
Use of Proceeds: To repay indebtedness outstanding under
the Bank Credit Agreement
Call Schedule: Beginning April 15:
2003 @ 104.188
2004 @ 102.792
2005 @ 101.396
2006 and thereafter @100.000
Equity Clawback: Prior to April 15, 2001, the company
may redeem up to 35% of the aggregate
principal amount at maturity of the
Notes with the net proceeds of one or
more Equity Offerings at a price of
108.375% of Accreted Value.
Cusips: 144A: 30606PAA7
AI: 30606PAB5
Reg S: U30589AA0
Gross Spread: 2.500%
Selling Concession: 0.250%
External Reallowance: 0.125%
</TABLE>
<PAGE> 4
MORGAN STANLEY March 31, 1998
- --------------------------------------------------------------------------------
High Yield New Issue Summary
<TABLE>
<S> <C>
Issuer: Falcon Holding Group, L.P.
Type of Security: Senior Discount Debentures
Amount: $435,250,000.00 (Face)
$275,639,472.50 (Proceeds)
Maturity: April 15, 2010
Coupon: Non-Cash first 5 Years; cash thereafter
(April 15 and October 15)
Option Cash
Interest Payments: Any time prior to 4/15/03, the Issuer
may elect to commence the accrual of
cash interest on any Semi-annual
Accrual Date, in which case the
outstanding principal amount at
maturity of each Senior Discount
Debenture will be reduced to the
Accreted Value of such Semi-annual
Accrual Date and cash interest will be
payable on such Debenture on each
interest payment date thereafter.
Yield: 9.285%
Issue Price per Note: $633.29 (63.329%)
Spread to UST: 363.5 bps
Ratings: B2/B
Underwriters: MSDW, Lazard, DLJ, ML, BARS, BoB,
Chase, CIBC, Nations, TD
Distribution Method: 144A with Registration Rights
Trade Date: 3/31/98
Settlement Date: 4/3/98
Type of Settlement: Flat (same day funds)
First Cash Pay: October 15, 2003
Use of Proceeds: To repay indebtedness outstanding under
the Bank Credit Agreement
Call Schedule: Beginning April 15:
2003 @ 104.643
2004 @ 103.095
2005 @ 101.548
2006 and thereafter @ 100.000
Equity Clawback: Prior to April 15, 2001 the company may
redeem up to 35% of the aggregate
principal amount at maturity of the
Notes with the net proceeds of one or
more Equity Offerings at a price of
109.285% of Accreted Value.
Cusips: 144A 30606PAD1
AI: 30606PAE9
Reg S: U30589AB8
Gross Spread: 3.000%
Selling Concession: 0.250%
External Reallowance: 0.125%
</TABLE>
<PAGE> 5
FALCON HOLDING GROUP, L.P.
- --------------------------------------------------------------------------------
Pricing Details
<TABLE>
<S> <C>
Settlement Date: 4/3/98
Proceeds: $275,639,472.50
Face Amount: $435,250,000.00
Yield: 9.285%
Price (%): 63.329
Price per Bond: $633.29
</TABLE>
<TABLE>
<CAPTION>
Semi-Annual Accrual Date Period Accreted Value
------------------------- ------------------ -------------------------------------
(w/out truncating new issue price but
truncating of accreted value)
<S> <C> <C> <C>
Settlement 4/3/98 0
10/15/98 1.06667 $633.29
4/15/99 2.06667 $664.70
10/15/99 3.06667 $695.56
4/15/00 4.06667 $727.85
10/15/00 5.06667 $761.64
4/15/01 6.06667 $797.00
10/15/01 7.06667 $834.00
4/15/02 8.06667 $872.72
10/15/02 9.06667 $913.23
4/15/03 10.06667 $955.63
$1,000.00
</TABLE>
<PAGE> 1
EXHIBIT 10.63
March 27, 1998
TCI Falcon Holdings, LLC
c/o Tele-Communications, Inc.
Terrace Tower II
5619 DTC Parkway
Englewood, Colorado 80111-3000
Gentlemen:
Reference is made to (i) the Contribution and Purchase Agreement dated as
of December 30, 1997 between Falcon Holding Group, L.P. ("FHGLP"), Falcon
Communications, L.P. ("NewFalcon"), TCI Falcon Holdings, LLC ("TCI"), and
certain other persons (the "Contribution Agreement"), (ii) the Amended and
Restated Agreement of Limited Partnership of Falcon Communications, L.P., dated
as of December 30, 1997 (the "NewFalcon Agreement") between FHGLP and TCI; and
(iii) an Offering Memorandum draft dated March 19, 1998 describing certain
proposed financing transactions of FHGLP, NewFalcon and subsidiaries of
NewFalcon. Capitalized terms used in this letter and not otherwise defined in
this letter shall have the meanings assigned to them in the Contribution
Agreement, the NewFalcon Agreement or under "Description of the Debentures" in
the Offering Memorandum, as appropriate.
TCI hereby waives compliance by NewFalcon with the limitation on
Indebtedness contained in Section 5.1(b)(2)(G) of the NewFalcon Agreement in
connection with any assumption or incurrence of Indebtedness by NewFalcon or any
of its Subsidiaries that is consummated prior to, concurrently with, or
immediately following, the closing of the Contribution Agreement, as a result
of, in connection with, or related to, the consummation and implementation of
the transactions contemplated by the Contribution Agreement and/or the Offering
Memorandum (including, without limitation, the offering of Debentures or other
debt securities, the refinancing of FHGLP's existing indebtedness, including
indebtedness outstanding under its existing Bank Credit Agreement and its Notes,
the refinancing of indebtedness assumed by NewFalcon from TCI, and the
consummation of, and drawing of any available facilities under, a New Credit
Facility), so long as, after giving effect to the assumption or incurrence of
any such Indebtedness, the Operating Cash Flow Ratio does not exceed 8.0:1. This
waiver does not extend to the assumption or incurrence of Indebtedness by
NewFalcon or any of its Subsidiaries, including the drawing of any available
facilities under a New Credit Facility, that is not consummated prior to,
concurrently with, or immediately following the closing of the Contribution
Agreement.
<PAGE> 2
TCI Falcon Holdings, LLC
March 27, 1998
Page 2
Please indicate your agreement to the foregoing by executing below and
returning one fully executed original to Mr. Stanley Itskowitch at the address
for FHGLP set forth in the NewFalcon Agreement.
FALCON HOLDING GROUP, L.P.
By: Falcon Holding Group, Inc.
By: /s/ Stanley S. Itskowitch
------------------------------------
Name: Stanley S. Itskowitch
Title: Executive Vice President
FALCON COMMUNICATIONS, L.P.
By: Falcon Holding Group, L.P.
By: Falcon Holding Group, Inc.
By: /s/ Stanley S. Itskowitch
------------------------------------
Name: Stanley S. Itskowitch
Title: Executive Vice President
AGREED AND ACCEPTED AS OF
THIS 27th DAY OF MARCH 1998
TCI FALCON HOLDINGS, LLC
By: /s/ William R. Fitzgerald
---------------------------------
Name: William R. Fitzgerald
Title: Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT MARCH 31, 1998, AND THE STATEMENTS OF OPERATIONS FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 11,162
<SECURITIES> 0
<RECEIVABLES> 24,381
<ALLOWANCES> 781
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 633,880
<DEPRECIATION> 275,806
<TOTAL-ASSETS> 800,326
<CURRENT-LIABILITIES> 63,563
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 800,326
<SALES> 0
<TOTAL-REVENUES> 64,557
<CGS> 0
<TOTAL-COSTS> 62,322
<OTHER-EXPENSES> 1,022
<LOSS-PROVISION> 1,056
<INTEREST-EXPENSE> 20,487
<INCOME-PRETAX> (19,274)
<INCOME-TAX> (365)
<INCOME-CONTINUING> (18,909)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,909)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
