<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 17, 1998
REGISTRATION NO. 333-55755
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
FALCON HOLDING GROUP, L.P.
FALCON FUNDING CORPORATION
(Exact Name of Registrants as Specified in Their Charters)
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<S> <C> <C>
DELAWARE 4841 95-4408577
CALIFORNIA 4841 95-4681480
(States or Other Jurisdictions of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification
Numbers)
</TABLE>
10900 WILSHIRE BOULEVARD--15TH FLOOR
LOS ANGELES, CALIFORNIA 90024
(310) 824-9990
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrants' Principal Executive Offices)
--------------------------
STANLEY S. ITSKOWITCH, ESQ.
FALCON HOLDING GROUP, INC.
10900 WILSHIRE BOULEVARD--15TH FLOOR
LOS ANGELES, CALIFORNIA 90024
(310) 824-9990
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrants' Agent for Service)
--------------------------
Please address a copy of all communications to:
EDWARD J. O'CONNELL
THOMAS D. TWEDT
Dow, Lohnes & Albertson, PLLC
1200 New Hampshire Avenue, N.W.
Washington, D.C. 20036
(202) 776-2000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
--------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION, DATED JULY 17, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
FALCON HOLDING GROUP, L.P.
[LOGO]
FALCON FUNDING CORPORATION
OFFER TO EXCHANGE 8.375% SERIES B SENIOR DEBENTURES DUE 2010 FOR ANY AND ALL
OUTSTANDING 8.375% SERIES A SENIOR DEBENTURES DUE 2010 AND TO EXCHANGE 9.285%
SERIES B SENIOR DISCOUNT DEBENTURES DUE 2010 FOR ANY AND ALL OUTSTANDING 9.285%
SERIES A SENIOR DISCOUNT DEBENTURES DUE 2010
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1998, UNLESS EXTENDED.
Falcon Holding Group, L.P., a Delaware limited partnership ("FHGLP"), and
Falcon Funding Corporation, a California corporation ("FFC," and each of FHGLP
and FFC being sometimes referred to herein individually as an "Issuer" and
collectively as the "Issuers"), hereby offer, upon the terms and subject to the
conditions set forth in this Prospectus and the accompanying Letter of
Transmittal (which together constitute the "Exchange Offer"), to exchange (i)
$1,000 original principal amount of 8.375% Series B Senior Debentures due 2010
of the Issuers (the "Senior Exchange Debentures") for each $1,000 original
principal amount of the Issuers' issued and outstanding 8.375% Series A Senior
Debentures due 2010 (the "Old Senior Debentures," and collectively with the
Senior Exchange Debentures, the "Senior Debentures"), and (ii) $1,000 original
principal amount at maturity of 9.285% Series B Senior Discount Debentures due
2010 of the Issuers (the "Senior Discount Exchange Debentures," and collectively
with the Senior Exchange Debentures, the "Exchange Debentures") for each $1,000
original principal amount at maturity of the Issuers' issued and outstanding
9.285% Series A Senior Discount Debentures due 2010 (the "Old Senior Discount
Debentures," and collectively with the Senior Discount Exchange Debentures, the
"Senior Discount Debentures") (the Old Senior Discount Debentures and the Old
Senior Debentures being sometimes referred to herein collectively as the "Old
Debentures," and the Old Debentures and the Exchange Debentures being sometimes
referred to herein collectively as the "Debentures"). As of the date of this
Prospectus, $375,000,000 aggregate original principal amount of the Old Senior
Debentures are outstanding, and $435,250,000 aggregate original principal amount
at maturity of the Old Senior Discount Debentures are outstanding.
The form and terms of the Exchange Debentures are the same as the form and
terms of the corresponding Old Debentures except that (i) the issuance of the
Exchange Debentures will have been registered under the Securities Act and,
therefore, the Exchange Debentures will not bear legends restricting the
transfer thereof and (ii) holders of the Exchange Debentures will not be
entitled to certain rights of holders of Old Debentures under the Registration
Rights Agreement (as defined). The Exchange Debentures will evidence the same
debt as the Old Debentures (which they replace) and will be issued under and be
entitled to the benefits of the Indenture, dated as of April 3, 1998 (the
"Indenture"), by and among the Issuers and U.S. Trust Company of New York, as
Trustee, governing the Old Debentures. See "The Exchange Offer" and "Description
of the Debentures."
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Old Debentures being tendered for exchange. The Exchange Offer will
expire at 5:00 p.m., New York City time, on , 1998, unless the
Issuers, in their sole discretion, extend the Exchange Offer (as such date may
be so extended, the "Expiration Date"), in which case the term "Expiration Date"
shall mean the latest date and time to which the Exchange Offer is extended. Old
Debentures tendered pursuant to the Exchange Offer may be withdrawn at any time
prior to the Expiration Date; otherwise such tenders are irrevocable.
SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
The Old Senior Discount Debentures were originally issued at a price of
$633.29 per $1,000 original principal amount at maturity, and each Senior
Discount Exchange Denbenture will be issued with original issue discount for
federal income tax purposes and will have an Accreted Value equal to that of the
Old Senior Discount Debenture exchanged therefor. No interest on the Senior
Discount Debentures will be payable prior to April 15, 2003; PROVIDED, HOWEVER,
that any time prior to April 15, 2003, the Issuers may elect to commence accrual
of cash interest on any interest payment date, in which case the outstanding
principal amount at maturity of a Senior Discount Debenture will be reduced to
the Accreted Value of such Debenture as of such interest payment date and
interest will be payable semiannually in cash on each interest payment date
thereafter.
The Debentures will mature on April 15, 2010. The Debentures will be
redeemable at the option of the Issuers, in whole or in part, at any time on or
after April 15, 2003, in the case of Senior Debentures, initially at 104.188% of
the principal amount thereof and, in the case of Senior Discount Debentures,
initially at 104.643% of the Accreted Value thereof, in each case plus accrued
and unpaid interest, if any, to the date of redemption, declining to 100% of
their principal amount, plus accrued and unpaid interest, if any, on or after
April 15, 2006. In addition, at any time prior to April 15, 2001, the Issuers
may redeem up to 35% of the aggregate principal amount or Accreted Value, as
applicable, of the Debentures with the net cash proceeds of one or more sales by
the Company of its Capital Stock (as defined) (other than Redeemable Capital
Stock (as defined)) at a redemption price, in the case of Senior Debentures,
equal to 108.375% of the principal amount thereof and, in the case of Senior
Discount Debentures, equal to 109.285% of the Accreted Value thereof, in each
case plus accrued and unpaid interest, if any, to the date of redemption. In the
event of a Change of Control (as defined), the holders of the Debentures will
have the right to require the Issuers to purchase their Debentures at a price
equal to 101% of their principal amount or Accreted Value, as the case may be,
plus accrued and unpaid interest, if any, to the date of purchase. There can be
no assurance, however, that the Company will have sufficient funds to pay the
purchase price for all of the Debentures that might be delivered by holders in
connection with a Change of Control. In addition, this provision may not afford
holders of the Debentures protection in the event of certain highly leveraged
transactions.
If the TCI Contribution (as defined) is not consummated on or before June
30, 1999, the interest rate on the Senior Debentures will increase by 0.75% per
annum, the Discount Debentures will bear cash interest on the Accreted Value
thereof (in addition to accretion of principal) at a rate of 0.75% per annum
until April 15, 2003, and thereafter the interest rate on the Senior Discount
Debentures will increase by 0.75% per annum; provided that such additional
interest will no longer be payable if the TCI Contribution is consummated on or
before December 31, 1999.
The Debentures will be joint and several senior unsecured obligations of the
Issuers, will rank PARI PASSU in right of payment with all existing and future
senior unsecured obligations of the Issuers and will be senior in right of
payment to all subordinated indebtedness of the Issuers. The Issuers do not
currently have any plans to incur any such subordinated indebtedness with
respect to which the Debentures would be senior in right of payment. FHGLP is a
holding company that has no material operations and conducts substantially all
of its business through subsidiaries. As a result, FHGLP's ability to make
interest and principal payments when due to the holders of the Debentures is
dependent upon the receipt of sufficient funds from FHGLP's subsidiaries. The
Debentures will be the obligations of the Issuers only, and the Issuers'
subsidiaries will not have any obligation to pay any amounts due under the
Debentures. Therefore, the Debentures will be effectively subordinated to all
existing and future indebtedness and other liabilities of the Issuers'
subsidiaries. As of March 31, 1998, after giving pro forma effect to the
Offering (as defined), the refinancing of the Bank Credit Agreement (as defined)
with proceeds from the New Credit Facility (as defined), the repurchase of all
of the Notes pursuant to both the Notes Tender (as defined) and the Notes
Redemption (as defined), and the consummation of the TCI Transaction, (i) the
Issuers (excluding indebtedness of their subsidiaries) would not have had any
indebtedness outstanding other than the Debentures (representing aggregate
indebtedness of approximately $650.6 million as of the date of issuance) and
(ii) the Issuers' subsidiaries would have had $936.5 million of indebtedness
outstanding, all of which would have been effectively senior to the Debentures.
In addition, the New Credit Facility is
ii
<PAGE>
collateralized by a pledge of the partnership and other equity interests of
substantially all of FHGLP's subsidiaries and a negative pledge on the assets of
such subsidiaries, subject to a subsequent grant of a security interest in such
assets if the TCI Transaction has not closed by December 31, 1998.
FFC is a wholly owned subsidiary of FHGLP and was incorporated solely for
the purpose of serving as a co-issuer of the Debentures. FFC does not have any
material operations or assets and will not have any revenues. Prospective
purchasers of the Debentures should not expect FFC to participate in servicing
the principal, interest, premium, if any, or any other payment obligations on
the Debentures.
The Exchange Offer is being made pursuant to the Registration Rights
Agreement, dated as of April 3, 1998 (the "Registration Rights Agreement"),
among the Issuers and Morgan Stanley & Co. Incorporated, Lazard Freres & Co.
LLC, Donaldson, Lufkin & Jenrette Securities Corporation, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, BancAmerica Robertson Stephens, BancBoston
Securities Inc., Chase Securities Inc., CIBC Oppenheimer, NationsBanc Montgomery
Securities LLC and TD Securities (USA) Inc., as the Placement Agents for the
initial offering of the Old Debentures (the "Placement Agents"). Upon
consummation of the Exchange Offer, holders of Old Debentures that were not
prohibited from participating in the Exchange Offer and did not tender their Old
Debentures will not have any registration rights under the Registration Rights
Agreement with respect to such nontendered Old Debentures and, accordingly, such
Old Debentures will continue to be subject to the restrictions on transfer
contained in the legend thereon.
Based upon interpretations by the staff of the Securities and Exchange
Commission (the "Commission") set forth in certain no-action letters issued to
third parties (including EXXON CAPITAL HOLDINGS CORP., SEC No-Action Letter
(April 13, 1989); MORGAN STANLEY & CO. INC., SEC No-Action Letter (June 5,
1991); and SHEARMAN & STERLING, SEC No-Action Letter (July 2, 1993)), the
Issuers believe that the Exchange Debentures issued pursuant to the Exchange
Offer in exchange for Old Debentures may be offered for resale, resold and
otherwise transferred by any holder thereof (other than any such holder that is
an "affiliate" of the Issuers within the meaning of Rule 405 under the
Securities Act of 1933, as amended (the "Securities Act")), without compliance
with the registration and prospectus delivery requirements of the Securities
Act, provided that such Exchange Debentures are acquired in the ordinary course
of such holder's business and that at the time of the consummation of the
Exchange Offer such holder has no arrangement or understanding with any person
to participate in the distribution of such Exchange Debentures. See "The
Exchange Offer--Resale of the Exchange Debentures." Holders of Old Debentures
wishing to accept the Exchange Offer must represent to the Issuers, as required
by the Registration Rights Agreement, that such conditions have been met and
that such holder is not an "affiliate" of the Issuers within the meaning of Rule
405 under the Securities Act. Each broker-dealer that is the beneficial owner
(within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), of Exchange Debentures received by such
broker-dealer for its own account pursuant to the Exchange Offer (a
"Participating Broker-Dealer") must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Debentures. The Letter
of Transmittal states that by so acknowledging and by delivering a prospectus, a
Participating Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by any person
subject to the prospectus delivery requirements of the Securities Act (other
than a Participating Broker Dealer (an "Excluded Participating Broker Dealer")
who either (x) acquired Debentures other than for its own account as a result of
market-making activities or other trading activities or (y) has entered into any
arrangement or understanding with any Issuer or any affiliate of any Issuer to
distribute the Exchange Debentures). See "Plan of Distribution."
The Old Debentures were originally issued and sold on April 3, 1998 in an
offering of $375,000,000 aggregate original principal amount of the Senior
Debentures and $435,250,000 aggregate original Principal Amount at Maturity of
the Discount Debentures (the "Offering"). The Offering was exempt from
registration under the Securities Act in reliance upon the exemptions provided
by Section 4(2), Rule 144A and Regulation S of the Securities Act. Accordingly,
the Old Debentures may not be reoffered, resold or otherwise pledged,
hypothecated or transferred in the United States unless so registered or
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unless an exemption from the registration requirements of the Securities Act and
applicable state securities laws is available.
The Issuers have not entered into any arrangement or understanding with any
person to distribute the Exchange Debentures to be received in the Exchange
Offer, and to the best of the Issuers' information and belief, each person
participating in the Exchange Offer is acquiring the Exchange Debentures in its
ordinary course of business and has no arrangement or understanding with any
person to participate in the distribution of the Exchange Debentures to be
received in the Exchange Offer. Any holder who is an "affiliate" of the Issuers
(within the meaning of Rule 405 under the Securities Act), who does not acquire
the Exchange Debentures in the ordinary course of business or who tenders in the
Exchange Offer for the purpose of participating in a distribution of the
Exchange Debentures could not rely on the position of the staff of the
Commission enunciated in the no-action letters and, in the absence of an
exemption therefrom, must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Failure to comply with such requirements in such instance may result in such
holder incurring liability under the Securities Act for which the holder is not
indemnified by the Issuers.
There has not previously been any public market for the Old Debentures or
the Exchange Debentures. Although the Debentures are designated for trading in
the Private Offerings, Resales and Trading through Automated Linkages ("PORTAL")
Market, there can be no assurance that an active market for the Exchange
Debentures will develop. Moreover, to the extent that Old Debentures are
tendered and accepted in the Exchange Offer, the trading market for untendered
and tendered but unaccepted Old Debentures could be adversely affected. The
Company has been advised by the Placement Agents that they presently intend to
make a market in the Exchange Debentures. However, the Placement Agents are not
obligated to do so, and any market-making activity with respect to the Exchange
Debentures may be discontinued at any time without notice. See "Risk
Factors--Lack of Public Market for the Debentures."
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE ISSUERS ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD DEBENTURES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING HEREBY TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
ISSUERS. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF
TRANSMITTAL NOR ANY EXCHANGE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1998 (90 DAYS AFTER COMMENCEMENT OF THE EXCHANGE
OFFER), ALL DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE DEBENTURES, WHETHER
OR NOT PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
The Exchange Debentures will be available initially only in book-entry form
and the Issuers expect that the Exchange Debentures issued pursuant to the
Exchange Offer will be represented by one or more Global Debentures (as
defined), which will be deposited with, or on behalf of, The Depository Trust
Company ("DTC") and registered in its name or in the name of Cede & Co., its
nominee. Beneficial interests in the Global Debentures will be shown on, and
transfers thereof will be effected through, records maintained by DTC and its
participants. After the initial issuance of the Global Debentures, Debentures in
certificated form will be issued in exchange for the Global Debentures only
under limited circumstances as set forth in the Indenture. See "Description of
the Debentures--Book-Entry; Delivery and Form."
iv
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary........................................................ 1
Risk Factors.............................................................. 17
The TCI Transaction....................................................... 27
Use of Proceeds........................................................... 31
Capitalization............................................................ 32
Selected Consolidated Financial Data...................................... 33
Pro Forma Condensed Combined Financial Data............................... 35
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 44
Business.................................................................. 59
Legislation and Regulation................................................ 79
Management................................................................ 86
Certain Relationships and Related Transactions............................ 94
Security Ownership of Certain Beneficial Owners and Management............ 97
Description of the Partnership Agreements................................. 99
Description of Certain Indebtedness....................................... 111
The Exchange Offer........................................................ 115
Description of the Debentures............................................. 125
Federal Income Tax Considerations......................................... 156
Plan of Distribution...................................................... 161
Legal Matters............................................................. 162
Experts................................................................... 162
Available Information..................................................... 162
Index to Financial Statements............................................. F-1
</TABLE>
------------------------
THIS PROSPECTUS INCLUDES "FORWARD LOOKING STATEMENTS" WITHIN THE MEANING OF
THE SECURITIES ACT. ALL STATEMENTS REGARDING THE ISSUERS' EXPECTED FINANCIAL
POSITION, BUSINESS AND FINANCING PLANS ARE FORWARD LOOKING STATEMENTS. ALTHOUGH
THE ISSUERS BELIEVE THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD LOOKING
STATEMENTS ARE REASONABLE, THE ISSUERS CAN GIVE NO ASSURANCE THAT SUCH
EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT. IMPORTANT FACTORS THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM SUCH EXPECTATIONS ("CAUTIONARY
STATEMENTS") ARE DISCLOSED IN THIS PROSPECTUS, INCLUDING, WITHOUT LIMITATION, IN
CONJUNCTION WITH THE FORWARD LOOKING STATEMENTS INCLUDED IN THIS PROSPECTUS AND
UNDER "RISK FACTORS." ALL SUBSEQUENT WRITTEN AND ORAL FORWARD LOOKING STATEMENTS
ATTRIBUTABLE TO THE ISSUERS OR PERSONS ACTING ON THE ISSUERS' BEHALF, ARE
EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS.
v
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PROSPECTUS SUMMARY
THE FOLLOWING IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND HISTORICAL AND PRO FORMA
FINANCIAL STATEMENTS AND THE DEBENTURES THERETO APPEARING ELSEWHERE IN THIS
PROSPECTUS. AS USED IN THIS PROSPECTUS, THE "COMPANY" REFERS TO FALCON HOLDING
GROUP, L.P., A DELAWARE LIMITED PARTNERSHIP ("FHGLP"), AND ITS SUBSIDIARIES
(INCLUDING CONSOLIDATED PARTNERSHIPS) UNLESS THE CONTEXT REQUIRES OTHERWISE. THE
COMPANY HAS ENTERED INTO A DEFINITIVE AGREEMENT WITH TCI FALCON HOLDINGS, LLC
("TCI"), AN AFFILIATE OF TELE-COMMUNICATIONS, INC., FALCON COMMUNICATIONS, L.P.,
A NEWLY ORGANIZED HOLDING COMPANY ("NEW FALCON"), THE EXISTING PARTNERS OF FHGLP
AND INVESTORS IN FALCON VIDEO (AS DEFINED) TO CONSOLIDATE UNDER THE COMMON
OWNERSHIP AND CONTROL OF NEW FALCON SUBSTANTIALLY ALL OF THE COMPANY'S EXISTING
CABLE OPERATIONS (THE "FALCON SYSTEMS") AND CERTAIN CABLE TELEVISION SYSTEMS
OWNED AND OPERATED BY AFFILIATES OF TCI (THE "TCI SYSTEMS"). FHGLP WILL RETAIN
ITS OWNERSHIP INTERESTS (RANGING FROM 0.5% TO 1.0%) IN THE SYSTEMS UNDER THE
MANAGEMENT OF ENSTAR COMMUNICATIONS CORPORATION ("ENSTAR"), AN INDIRECT
SUBSIDIARY OF FHGLP (THE "ENSTAR SYSTEMS"), AS WELL AS CERTAIN OTHER
NON-OPERATING ASSETS THAT WILL NOT BE TRANSFERRED TO NEW FALCON. FHGLP WILL OWN,
SUBJECT TO POSSIBLE ADJUSTMENT PURSUANT TO THE CONTRIBUTION AGREEMENT (AS
DEFINED), WHICH SPECIFIES THE ASSETS THAT WILL BE CONTRIBUTED TO NEW FALCON,
APPROXIMATELY 53% OF THE EQUITY OF NEW FALCON AND WILL SERVE AS THE MANAGING
GENERAL PARTNER OF NEW FALCON. TCI WILL OWN, SUBJECT TO POSSIBLE ADJUSTMENT
PURSUANT TO THE CONTRIBUTION AGREEMENT, APPROXIMATELY 47% OF THE EQUITY OF NEW
FALCON. IT IS CONTEMPLATED THAT, AS A RESULT OF THE TCI TRANSACTION, THE
DEBENTURES WILL BE ASSUMED BY NEW FALCON, WHICH WILL BE SUBSTITUTED FOR FHGLP AS
AN OBLIGOR UNDER THE DEBENTURES. THE TCI TRANSACTION IS PRESENTLY EXPECTED TO BE
COMPLETED IN THE THIRD QUARTER OF 1998, ALTHOUGH THERE CAN BE NO ASSURANCES AS
TO THE SUCCESSFUL COMPLETION OF THE TCI TRANSACTION. SEE "RISK
FACTORS--CONDITIONS OF CLOSING THE TCI TRANSACTION" AND "THE TCI TRANSACTION."
THE COMPANY
The Company owns or manages cable television systems in 26 states. On
December 30, 1997, FHGLP entered into a definitive agreement with TCI to
consolidate substantially all of the Company's cable television systems and
certain systems owned and operated by affiliates of TCI (the "TCI Transaction").
Upon consummation of the TCI Transaction, the Company will be the 13th largest
cable television operator in the United States, serving subscribers principally
in California, Oregon, Washington, Missouri and Alabama. After giving effect to
the TCI Transaction, the Company would have served approximately 1,070,000 basic
subscribers at March 31, 1998. Led by Marc B. Nathanson, the Chairman and Chief
Executive Officer, and Frank J. Intiso, the President and Chief Operating
Officer, the Company's senior management team has an average of over 19 years of
experience in the cable industry and has worked together for over a decade.
The Company's owned cable television systems (the "Owned Systems") are
located in 23 states, principally California, Oregon, Missouri, Georgia, North
Carolina, Texas and Kentucky. As of March 31, 1998, the Owned Systems passed
approximately 1,008,000 homes and served approximately 607,000 basic
subscribers. The Company also holds varying equity interests in and manages
certain other cable television systems (the "Affiliated Systems" and, together
with the Owned Systems, the "Falcon Systems"). The Affiliated Systems are
located in 14 states, including South Carolina, Kentucky, Illinois, Washington
and Tennessee. As of March 31, 1998, the Affiliated Systems passed approximately
262,000 homes and served approximately 170,000 basic subscribers.
The Company is a leading operator of cable systems primarily located in
small to medium-sized communities and suburban areas surrounding large and
medium-sized cities proximate to many of the major television markets in the
United States (also known as "Designated Market Areas" or "DMAs"). Management
believes that the Company's cable systems generally have higher operating cash
flow margins and more predictable operating cash flow and are subject to less
risk of increased competition than systems in large urban cities. In many of the
Company's markets, consumers have access to only a limited number of
over-the-air broadcast television signals. In addition, these markets typically
offer fewer competing entertainment alternatives than large urban cities.
Management also believes that its cable television
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systems generally have a more stable customer base and generally have lower
labor, operating and system construction costs than systems in urban markets.
The principal executive offices of the Company are located at 10900 Wilshire
Boulevard, 15th Floor, Los Angeles, California 90024, and the Company's
telephone number is (310) 824-9990.
BUSINESS STRATEGY
FOCUS ON SMALL AND MEDIUM-SIZED MARKETS. The Company's business strategy
has focused on serving small to medium-sized communities and the suburbs of
certain cities. The Company believes that given a similar technical and channel
capacity/utilization profile, its cable television systems generally involve
less risk of increased competition than systems in large urban cities. The
Falcon Systems, taken as a whole, are not dependent on any single local economy,
are resistant to regional economic fluctuations, and provide the Company with
stable revenue and operating cash flow streams. However, it is the goal of the
Company to consolidate its operations in fewer states while continuing its
geographic and economic market diversity and maintaining or increasing its
current revenue and cash flow.
CLUSTERING OF CABLE SYSTEM PROPERTIES. Management plans to continue its
acquisition strategy by pursuing opportunities to purchase cable television
systems in the Company's existing DMAs as well as by entering new DMAs, if and
when attractive acquisition opportunities become available. In addition to
opportunities to acquire systems, management expects to pursue opportunities to
exchange certain of its systems for other cable television properties with both
TCI and other cable operators, to further facilitate the Company's clustering
strategy, and to concentrate in fewer states.
REBUILD AND UPGRADE CABLE SYSTEMS. Through the upgrade of its cable plant,
including the utilization of addressable technology, fiber optic cable and
digital compression, the Company seeks to benefit from providing additional
tiers of programming and from the further development of advertising,
pay-per-view and home shopping services, as well as possible future services
such as Internet access, video-on-demand and other interactive services. Through
a significant capital expenditure program, the Company plans to increase this
channel capacity in most of its clusters by deploying fiber optic cable, digital
compression or both. However, many of the Falcon Systems currently have almost
no available channel capacity with which to add new channels or to further
expand pay-per-view offerings to customers. See "Risk Factors--Lack of Available
Channel Capacity for New Channels or Expanded Services."
MAXIMIZE REVENUES AND CASH FLOW MARGINS. The Company seeks to maximize
revenues by increasing subscriptions to basic, expanded basic, and other tiers
of satellite services and premium programming services through a combination of
innovative marketing programs, an emphasis on customer service and active
community relations. As a result of the Company's success in facilitating
revenue growth, combined with operating efficiencies generated by the Company's
clustering strategy, economies of scale, volume discounts for cable programming
and decentralized management structure, the Company believes its operating cash
flow margins have been and continue to be among the highest in the cable
television industry. The Company has, however, historically reported net losses.
See "Risk Factors--Substantial Leverage; History of Net Losses."
BENEFIT FROM PARTNERSHIP WITH TCI. The Company expects that it will derive
numerous operational synergies from its partnership with TCI, including
increased concentration of cable systems, purchasing discounts and other
economies arising from more streamlined management of Company assets and those
assets contributed by TCI. The Company will also benefit from the expertise and
valuable industry knowledge of TCI's Leo J. Hindery, Jr. and William R.
Fitzgerald, who will join New Falcon's Advisory Committee upon consummation of
the TCI Transaction.
2
<PAGE>
THE TCI TRANSACTION
On December 30, 1997, the Company entered into a definitive agreement with
TCI to consolidate substantially all of the Falcon Systems and all of the TCI
Systems into New Falcon, a newly organized holding company. Following the
consummation of the TCI Transaction, the Company will own approximately 53% and
TCI will own approximately 47% of the equity of New Falcon, subject to possible
adjustment pursuant to the Contribution Agreement. FHGLP will serve as the
managing general partner of New Falcon, and FHGLP will separately retain its
ownership interests (ranging from 0.5% to 1.0%) in the Enstar Systems, as well
as certain other non-operating assets.
Under the terms of the TCI Transaction, TCI will contribute certain cable
television systems serving approximately 293,000 basic subscribers in small and
medium-sized markets in California, Oregon, Washington, Missouri and Alabama. As
adjusted for the TCI Transaction, the concentration of the Company's subscribers
will increase to 69% in these five states, resulting in increased capital,
personnel, marketing and advertising sales efficiencies. Additionally, the
Company's increased concentration will provide greater critical mass to launch
new services and enhance revenue opportunities.
The Company plans to improve and integrate the TCI Systems through the
consolidation of certain headends, the streamlining of management and the
leveraging of economies of scale for marketing and advertising promotions.
Giving pro forma effect to the consummation of the TCI Transaction, certain
subscriber and operating data for the Company as of and for the three months
ended March 31, 1998 are as follows:
<TABLE>
<CAPTION>
PRO FORMA AT MARCH 31, 1998(1)
--------------------------------------------------
FALCON
SYSTEMS(2) TCI SYSTEMS NEW FALCON SYSTEMS
---------------- ------------ ------------------
<S> <C> <C> <C>
Homes passed................................................. 1,118,735 438,950 1,557,685
Basic subscribers............................................ 681,734 293,266 975,000
Basic penetration............................................ 60.9% 66.8% 62.6%
Basic subscribers per headend................................ 2,738 6,817 3,339
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA THREE MONTHS ENDED MARCH 31, 1998(1)
--------------------------------------------------
FALCON
SYSTEMS(2) TCI SYSTEMS NEW FALCON SYSTEMS
---------------- ------------ ------------------
(IN THOUSANDS OF DOLLARS, EXCEPT PER SUBSCRIBER
DATA)
<S> <C> <C> <C>
Total revenues............................................... $ 75,476 $ 30,071 $ 105,547
Operating loss............................................... $ (809) $ (5,347) $ (6,156)
Net loss..................................................... $ (25,974) $ (11,527) $ (37,501)
EBITDA(3).................................................... 38,610 11,525 50,135
EBITDA margin................................................ 51.2% 38.3% 47.5%
Average monthly revenue per basic subscriber................. $ 36.51 $ 34.20 $ 35.82
Average monthly EBITDA per basic subscriber.................. 18.88 13.10 17.14
</TABLE>
- ------------------------
(1) See "Selected Consolidated Financial Data" and "Pro Forma Condensed Combined
Financial Data."
(2) Includes Falcon Classic (as defined) and Falcon Video systems, but excludes
the Enstar Systems. Substantially all the Falcon Classic systems were
acquired in March 1998, and the remaining system was acquired in July 1998.
The Falcon Video systems are currently managed by FHGLP as part of the
Affiliated Systems, and Falcon Video will become an Owned Subsidiary
following consummation of the TCI Transaction. The Enstar Systems had
approximately 95,000 basic subscribers as of March 31, 1998, and the Company
will continue to manage the Enstar Systems following consummation of the TCI
Transaction.
(3) EBITDA is calculated as operating income before depreciation and
amortization. See footnote (6) to "Selected Consolidated Financial Data."
Upon consummation of the TCI Transaction, it is contemplated that FHGLP's
obligations under the Debentures will be assumed by New Falcon, which will be
substituted for FHGLP as an obligor thereunder. FHGLP commenced on April 20,
1998 an offer to purchase (the "Notes Tender") all of the $282.2 million
aggregate principal amount of the Company's outstanding 11% Senior Subordinated
Notes
3
<PAGE>
due 2003 (the "Notes"). The Notes Tender expired on May 18, 1998, and FHGLP
repurchased approximately $247.8 million aggregate principal amount of the Notes
on May 19, 1998 pursuant to the terms of the Notes Tender. The Company will
redeem the remaining outstanding Notes prior to October 15, 1998 in accordance
with the redemption provisions of the indenture governing the Notes. See
"Description of Certain Indebtedness--11% Senior Subordinated Notes due 2003."
If the TCI Transaction is consummated before all of the Notes have been
redeemed, New Falcon will initially assume (subject to a subsequent assumption
by New Falcon II, as described below) the rights and obligations of FHGLP under
the Notes. In addition, New Falcon will assume certain other FHGLP and TCI
indebtedness. See "Use of Proceeds" and "Capitalization."
On June 30, 1998, the Company entered into a new $1.5 billion senior bank
credit agreement (the "New Credit Facility"), which provides for three committed
credit facilities (one revolving credit facility and two term loans) and one
uncommitted supplemental credit facility (the terms of which will be negotiated
at the time the Company makes a request to draw on such facility). See
"Description of Certain Indebtedness--New Credit Facility." The Owned
Subsidiaries (as defined), other than Falcon Video, are the initial borrowers
under the New Credit Facility. Immediately prior to the TCI Closing (as
defined), Falcon Video will use proceeds from borrowings under the New Credit
Facility to satisfy in part its obligations under certain financing notes. Upon
the TCI Closing, the Company will use proceeds from additional borrowings under
the New Credit Facility to refinance any other senior indebtedness of the
Company, including without limitation certain existing senior indebtedness of
Falcon Video, the initial borrowings of Falcon Video under the New Credit
Facility, and the indebtedness of TCI to be assumed by New Falcon at the TCI
Closing. See "The TCI Transaction."
The consummation of the TCI Transaction is subject to, among other things,
the satisfaction of customary closing conditions and the receipt of certain
third-party and governmental approvals, including the consent of franchising
authorities. Although there can be no assurances that such closing conditions
will be satisfied or that the TCI Transaction will be consummated, management
presently anticipates that the TCI Transaction will be consummated during the
third quarter of 1998. See "Risk Factors--Conditions of Closing the TCI
Transaction."
Immediately following the consummation of the TCI Transaction, New Falcon
will contribute substantially all of its assets to Falcon Cable Communications,
LLC ("New Falcon II"), a newly formed limited liability company wholly owned by
New Falcon. New Falcon II will assume certain indebtedness, including any Notes
that remain outstanding and any indebtedness outstanding under the New Credit
Facility, but excluding the Debentures. New Falcon II will thereupon be
substituted for New Falcon as the obligor under the Notes and become the sole
borrower under the New Credit Facility. New Falcon II will then contribute the
TCI Systems to the Owned Subsidiaries. See "Risk Factors--Dependence on Receipt
of Funds From Operating Subsidiaries to Service Debentures; Structural
Subordination."
As part of the TCI Transaction, FHGLP will redeem a specified portion of the
partnership interests in FHGLP currently held by certain of the non-management
limited partners of FHGLP (the "Redeemed Partners") in exchange for a portion of
FHGLP's limited partnership interest in New Falcon (such portion being referred
to herein as the "New Falcon Interests"). Following the redemption, TCI will
purchase the New Falcon Interests from the Redeemed Partners for cash in the
approximate aggregate amount of $154.7 million. See "Risk Factors--Conditions of
Closing the TCI Transaction" and "--Obligations of FHGLP to Redeem Limited
Partnership Interests."
New Falcon is a California limited partnership that will operate under the
name "Falcon Communications, L.P.," and all of the systems owned and operated by
New Falcon will operate under the names "Falcon" or "Falcon Cable TV."
On June 24, 1998, AT&T Corp. and Tele-Communications, Inc. announced that
they have entered into an agreement under which AT&T Corp. would acquire
Tele-Communications, Inc. by merger. Although there can be no assurances as to
whether this merger will be consummated, the Company does not anticipate that
this proposed merger will have any material adverse effect upon the consummation
of the TCI Transaction.
4
<PAGE>
The following chart illustrates in summary form the structure of FHGLP, New
Falcon and certain affiliated entities upon consummation of the TCI Transaction
(including the assumption by New Falcon of all of the obligations of FHGLP under
the Debentures offered hereby).
[ORGANIZATIONAL CHART]
(1) FHGLP will retain its ownership interests (ranging from 0.5% to 1.0%) in
the Enstar Systems, as well as certain other non-operating assets. New
Falcon will provide management services to, and receive management fees
and reimbursement of expenses from, the Enstar Systems.
(2) Subject to possible adjustment pursuant to the Contribution Agreement.
(3) On May 19, 1998, FHGLP repurchased approximately $247.8 million
aggregate principal amount of the outstanding Notes and prior to October
15, 1998, FHGLP will redeem the approximately $34.4 million remaining
outstanding Notes.
(4) Includes the cable television systems acquired from Falcon Classic.
(5) These groups are for illustrative purposes only. The systems are, or
will be, owned by the Owned Subsidiaries.
5
<PAGE>
RISK FACTORS
Ownership of the Debentures involves certain risks, including that the
Company is, and will continue to be, highly leveraged, that the Company has a
history of net losses, that the Debentures will be effectively subordinated to
all future and existing indebtedness of the Issuers' subsidiaries and that FHGLP
may be required to repurchase certain limited partnership interests in the
future. These and other risks are described in detail under "Risk Factors," and
holders of the Old Debentures should consider carefully the risks described
therein, as well as the other information contained in this Prospectus, before
tendering the Old Debentures for the Exchange Debentures.
RECENT DEVELOPMENTS
FHGLP commenced the Notes Tender on April 20, 1998, and the Notes Tender
expired on May 18, 1998. FHGLP repurchased approximately $247.8 million
aggregate principal amount of the Notes on May 19, 1998 pursuant to the terms of
the Notes Tender with borrowings under the Company's prior senior bank credit
agreement (the "Bank Credit Agreement"). Under the indenture governing the
Notes, FHGLP has the right to redeem all or a portion of the Notes on or after
September 15, 1998 at 105.5% of the outstanding principal amount thereof, plus
accrued interest, to the redemption date. The Company will redeem the remaining
approximately $34.4 million aggregate principal amount of outstanding Notes
prior to October 15, 1998 in accordance with the redemption provisions of the
indenture governing the Notes (the "Notes Redemption"). The Company will use
borrowings under the New Credit Facility to effect the Notes Redemption. In
addition, in connection with the Notes Tender, FHGLP solicited and received
sufficient consents to amend the indenture governing the Notes to eliminate
certain covenants and events of default. See "Description of Certain
Indebtedness--11% Senior Subordinated Notes due 2003."
On June 30, 1998, the Company entered into the New Credit Facility. See
"Description of Certain Indebtedness--New Credit Facility." The Company borrowed
approximately $425.8 million under the New Credit Facility on June 30, 1998,
approximately $329 million of which was used to repay the remaining indebtedness
outstanding under the Bank Credit Agreement. The remaining proceeds resulted in
an excess cash balance of approximately $90 million (after payment of
approximately $4.5 million in fees and expenses related to the New Credit
Facility).
6
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Old Debentures: The Old Debentures were sold by the Issuers on April 3,
1998 to the Placement Agents pursuant to a Placement
Agreement, dated April 3, 1998 (the "Placement
Agreement"), among the Issuers and the Placement Agents.
The Placement Agents subsequently placed the Old
Debentures with (i) qualified institutional buyers
pursuant to Rule 144A under the Securities Act, (ii)
other institutional "accredited investors" (as defined
in Rule 501(a)(1), (2), (3) or (7) under the Securities
Act) and (iii) qualified buyers outside the United
States in reliance upon Regulation S under the
Securities Act.
Registration Rights Agreement: Pursuant to the Placement Agreement, the Issuers and the
Placement Agents entered into a Registration Rights
Agreement, dated as of April 3, 1998 (the "Registration
Rights Agreement"), which grants the holders of the Old
Debentures certain exchange and registration rights. The
Exchange Offer is intended to satisfy such exchange
rights, which terminate upon the consummation of the
Exchange Offer.
THE EXCHANGE OFFER
Securities Offered: $375,000,000 aggregate original principal amount of
8.375% Series B Senior Debentures due 2010 (the "Senior
Exchange Debentures") and $435,250,000 aggregate
original principal amount at maturity of 9.285% Series B
Senior Discount Debentures due 2010 (the "Senior
Discount Exchange Debentures"); PROVIDED, HOWEVER, that
any time prior to April 15, 2003, the Issuers may elect
to commence accrual of cash interest on the Senior
Discount Exchange Debentures on any interest payment
date, in which case the outstanding principal amount at
maturity of a Senior Discount Debenture will be reduced
to the Accreted Value of such Debenture as of such
interest payment date and interest will be payable
semiannually in cash on each interest payment date
thereafter.
The Exchange Offer: $1,000 original principal amount of Senior Exchange
Debentures in exchange for each $1,000 original
principal amount of Old Senior Debentures, and $1,000
original principal amount at maturity of Senior Discount
Exchange Debentures in exchange for each $1,000 original
principal amount at maturity of Old Senior Discount
Debentures.The Issuers will issue the Exchange
Debentures on or promptly after the Expiration Date.
Based upon interpretations by the staff of the
Commission set forth in certain no-action letters issued
to third parties (including EXXON CAPITAL HOLDINGS
CORP., SEC No-Action Letter (April 13, 1989); MORGAN
STANLEY & CO. INC., SEC No-Action Letter (June 5, 1991);
and SHEARMAN & STERLING, SEC No-Action Letter (July 2,
1993)), the Issuers believe that Exchange Debentures
issued pursuant to the Exchange Offer in exchange for
Old Debentures may be offered for resale, resold and
otherwise transferred by any holder thereof (other than
any such holder that is an "affiliate" of the Issuers
within the meaning of
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
Rule 405 under the Securities Act) without compliance
with the registration and prospectus delivery
requirements of the Securities Act, provided that such
Exchange Debentures are acquired in the ordinary course
of such holder's business and that at the time of the
consummation of the Exchange Offer such holder has no
arrangement or understanding with any person to partici-
pate in the distribution of such Exchange Debentures.
Any Participating Broker-Dealer that acquired Old
Debentures for its own account may be a statutory
underwriter. Each Participating Broker-Dealer that
receives Exchange Debentures for its own account
pursuant to the Exchange Offer must acknowledge that it
will deliver a prospectus in connection with any resale
of such Exchange Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus,
a Participating Broker-Dealer will not be deemed to
admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be
amended or supplemented from time to time, may be used
by any person subject to the prospectus delivery
requirements of the Securities Act (other than an
Excluded Participating Broker Dealer). The Issuers have
agreed that, for a period of up to 180 days after the
consummation of the Exchange Offer (subject to extension
under certain circumstances), they will use their
reasonable best efforts to keep the Exchange Offer
Registration Statement effective and to amend and
supplement this Prospectus in order to permit this
Prospectus to be lawfully delivered by all persons
subject to the prospectus delivery requirements of the
Securities Act (provided that, as set forth in the
Letter of Transmittal, such persons shall have expressed
that they may be subject to such requirements and have
undertaken to use their reasonable best efforts to
notify Holdings when they are no longer subject to such
requirements). See "Plan of Distribution."
Any holder who is an "affiliate" of the Issuers (within
the meaning of Rule 405 under the Securities Act), who
does not acquire the Exchange Debentures in the ordinary
course of business or who tenders in the Exchange Offer
for the purpose of participating in a distribution of
the Exchange Debentures could not rely on the position
of the staff of the Commission enunciated in the
above-mentioned no-action letters and, in the absence of
an exemption therefrom, must comply with the regis-
tration and prospectus delivery requirements of the
Securities Act in connection with any resale
transaction. Failure to comply with such requirements in
such instance may result in such holder incurring
liability under the Securities Act for which the holder
is not indemnified by the Issuers.
Expiration Date: 5:00 p.m., New York City time, on , 1998
unless the Exchange Offer is extended, in which case the
term "Expiration Date" means the latest date and time to
which the Exchange Offer is extended.
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
Principal Amount of and Accreted
Value on the Exchange Debentures
and the Old Debentures: Each Senior Exchange Debenture will have a principal
amount equal to that of the Old Senior Debenture for
which it is exchanged, and each Senior Discount Exchange
Debenture will have an Accreted Value equal to that of
the Old Senior Discount Debenture for which it is
exchanged.
Conditions to the Exchange Offer: The Exchange Offer is subject to certain customary
conditions, which may be waived by the Issuers. See "The
Exchange Offer-- Conditions."
Procedures for Tendering Old
Debentures: Each holder of Old Debentures wishing to accept the
Exchange Offer must complete, sign and date the
accompanying Letter of Transmittal, or a facsimile
thereof, or transmit an Agent's Message (as defined) in
connection with a book-entry transfer, in accordance
with the instructions contained herein and therein, and
mail or otherwise deliver such Letter of Transmittal, or
such facsimile, or such Agent's Message, together with
the Old Debentures and any other required documentation
to the Exchange Agent (as defined) at the address set
forth herein. By executing the Letter of Transmittal or
Agent's Message, each holder will be deemed to represent
to the Issuers that, among other things, the Exchange
Debentures acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of business of the
person receiving such Exchange Debentures, whether or
not such person is the holder, that neither the holder
nor any such other person has any arrangement or
understanding with any person to participate in the
distribution of such Exchange Debentures and that
neither the holder nor any such other person is an
"affiliate," as defined under Rule 405 of the Securities
Act, of the Issuers. See "The Exchange Offer--Purpose
and Effect of the Exchange Offer" and "--Procedures for
Tendering."
Untendered Old Debentures: Following the consummation of the Exchange Offer,
holders of Old Debentures eligible to participate but
who do not tender their Old Debentures will not have any
further exchange rights and such Old Debentures will
continue to be subject to certain restrictions on
transfer. Accordingly, the liquidity of the market for
such Old Debentures could be adversely affected.
Consequences of Failure to
Exchange: The Old Debentures that are not exchanged pursuant to
the Exchange Offer will remain restricted securities.
Accordingly, such Old Debentures may be resold only (i)
to the Issuers, (ii) pursuant to Rule 144A or Rule 144
under the Securities Act or pursuant to some other
exemption under the Securities Act, (iii) outside the
United States to a foreign person pursuant to the
requirements of Rule 904 under the Securities Act, or
(iv) pursuant to an effective registration statement
under the Securities Act. See "The Exchange
Offer--Consequences of Failure to Exchange."
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
Shelf Registration Statement: If (i) the Issuers determine that the Exchange Offer
would violate applicable law or the applicable
interpretations of the Commission, (ii) the Exchange
Offer is not for any other reason consummated by
September 30, 1998 or (iii) the Exchange Offer has been
completed and, in the opinion of counsel for the
Placement Agents, a registration statement must be filed
and a prospectus must be delivered by the Placement
Agents in connection with any offer or sale of the
Exchange Debentures, the Issuers shall file a shelf
registration statement (the "Shelf Registration
Statement") covering the Old Debentures. The Issuers
have agreed to use their best efforts to maintain the
effectiveness of the Shelf Registration Statement until
the date which is two years from the date of issuance of
the Old Debentures.
Special Procedures for Beneficial
Owners: Any beneficial owner whose Old Debentures are registered
in the name of a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender should
contact such registered holder promptly and instruct
such registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes to
tender on such owner's own behalf, such owner must,
prior to completing and executing the Letter of
Transmittal and delivering its Old Debentures, either
make appropriate arrangements to register ownership of
the Old Debentures in such owner's name or obtain a
properly completed bond power from the registered
holder. The transfer of registered ownership may take
considerable time.
Guaranteed Delivery Procedures: Holders of Old Debentures who wish to tender their Old
Debentures and whose Old Debentures are not immediately
available or who cannot deliver their Old Debentures,
the Letter of Transmittal or any other documents
required by the Letter of Transmittal to the Exchange
Agent (or comply with the procedures for book-entry
transfer) prior to the Expiration Date must tender their
Old Debentures according to the guaranteed delivery
procedures set forth in "The Exchange Offer--Guaranteed
Delivery Procedures."
Withdrawal Rights: Tenders may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date.
Acceptance of Old Debentures and
Delivery of Exchange Debentures: The Issuers will accept for exchange any and all Old
Debentures which are properly tendered in the Exchange
Offer prior to 5:00 p.m., New York City time, on the
Expiration Date. The Exchange Debentures issued pursuant
to the Exchange Offer will be delivered promptly
following the Expiration Date. See "The Exchange
Offer--Terms of the Exchange Offer."
Federal Income Tax Considerations: The exchange pursuant to the Exchange Offer will not be
a taxable event for federal income tax purposes. See
"Federal Income Tax Considerations."
Use of Proceeds: There will be no cash proceeds to the Issuers from the
exchange pursuant to the Exchange Offer.
Exchange Agent: U.S. Trust Company of New York
</TABLE>
10
<PAGE>
THE EXCHANGE DEBENTURES
<TABLE>
<S> <C>
General: The form and terms of the Exchange Debentures are the
same as the form and terms of the Old Debentures (which
they replace) except that (i) the Exchange Debentures
have been registered under the Securities Act and,
therefore, will not bear legends restricting the
transfer thereof, and (ii) the holders of Exchange
Debentures will not be entitled to certain rights under
the Registration Rights Agreement, including the
provisions providing for an increase in the interest
rate on the Old Debentures in certain circumstances
relating to the timing of the Exchange Offer, which
rights will terminate when the Exchange Offer is
consummated. See "The Exchange Offer--Purpose and Effect
of the Exchange Offer." The Exchange Debentures will
evidence the same debt as the Old Debentures and will be
entitled to the benefits of the Indenture. See
"Description of the Debentures."
Issuers: The Exchange Debentures will be the joint and several
obligations of FHGLP and FFC. Upon the consummation of
the TCI Transaction, FHGLP's obligations under the
Exchange Debentures will be assumed by New Falcon, which
will be substituted for FHGLP as an obligor under the
Exchange Debentures.
Senior Exchange Debentures:
Maturity Date: April 15, 2010.
Interest Payment Dates: Cash interest on the Senior Debentures will accrue at a
rate of 8.375% per annum and will be payable
semi-annually in arrears on April 15 and October 15 of
each year until maturity, commencing October 15, 1998.
TCI Contribution: If the TCI Contribution is not consummated on or before
June 30, 1999, the interest rate on the Senior
Debentures will thereafter increase by 0.75% per annum;
PROVIDED that such additional interest will no longer be
payable if the TCI Contribution is consummated on or
before December 31, 1999.
Senior Discount Debentures:
Maturity Date: April 15, 2010.
Accreted Value and Interest: The initial Accreted Value of the Senior Discount
Debentures will be $633.29 per $1,000 principal amount
at maturity. The Senior Discount Debentures will accrete
at an annual rate of 9.285% (computed on a semiannual
bond equivalent basis) based on the initial Accreted
Value, calculated from the Issue Date. Cash interest
will not accrue on the Senior Discount Debentures prior
to April 15, 2003; PROVIDED, HOWEVER, that at any time
prior to April 15, 2003, the Issuers may elect to
commence the accrual of cash interest on any Semiannual
Accrual Date (as defined), in which case the outstanding
principal amount at maturity of each Senior Discount
Debenture will be reduced to the Accreted Value of such
Senior Discount
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
Debenture as of such Semiannual Accrual Date and cash
interest will be payable on such Senior Discount
Debenture on each interest payment date thereafter.
Commencing on April 15, 2003, cash interest on the
Senior Discount Debentures will accrue at a rate of
9.285% per annum and will be payable semiannually in
arrears on April 15 and October 15 of each year until
maturity, commencing October 15, 2003.
Original Issue Discount: Each Senior Discount Debenture is being offered at an
original issue discount for federal income tax purposes.
Thus, although cash interest is not expected to accrue
on the Senior Discount Debentures prior to April 15,
2003, original issue discount (I.E., the difference
between the stated redemption price at maturity and the
issue price of the Senior Discount Debentures) will
accrete from the issue date of the Senior Discount
Debentures until April 15, 2003 and will be includable
as interest income periodically in a holder's gross
income for federal income tax purposes in advance of
receipt of the cash payments to which the income is
attributable. See "Federal Income Tax Considera-
tions--Original Issue Discount."
TCI Contribution: If the TCI Contribution is not consummated on or before
June 30, 1999, (i) from July 1, 1999 until April 15,
2003, the Company will pay cash interest on the Senior
Discount Debentures (in addition to accretion of
principal) equal to 0.75% per annum of the then
outstanding Accreted Value of Senior Discount Debentures
and (ii) from April 15, 2003 until the maturity of the
Senior Discount Debentures, the interest rate on the
Senior Discount Debentures will increase by 0.75% per
annum; PROVIDED that such additional interest will no
longer be payable if the TCI Contribution is consummated
on or before December 31, 1999.
Additional Terms of the
Debentures:
Ranking: The Debentures will be joint and several senior
unsecured obligations of the Issuers ranking PARI PASSU
in right of payment with all other existing and future
senior unsecured obligations of the Issuers. FHGLP is a
holding company that has no material operations and
conducts substantially all of its business through
subsidiaries. As a result, FHGLP's ability to make
interest and principal payments when due to holders of
the Debentures is dependent upon receipt of sufficient
funds from FHGLP's subsidiaries. The Debentures will be
the obligations of the Issuers only, and the Issuers'
subsidiaries will not have any obligation to pay any
amounts due under the Debentures. Therefore, the
Debentures will be effectively subordinated to all
existing and future liabilities of the Issuers'
subsidiaries. As of March 31, 1998, after giving pro
forma effect to the Offering, the refinancing of the
Bank Credit Agreement with proceeds from the New Credit
Facility, the repurchase of all of the Debentures
pursuant to the Debentures Tender and the consummation
of the TCI Transaction, (i) the Issuers (excluding
indebtedness of their
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
subsidiaries) would not have had any indebtedness
outstanding other than the Debentures and (ii) the
Issuers' subsidiaries would have had $936.5 million of
indebtedness outstanding, all of which would have been
effectively senior to the Debentures. In addition,
subject to certain limitations, the Indenture permits
the Company to incur additional indebtedness that would
be effectively senior to the Debentures.
Optional Redemption: The Debentures will be redeemable, at the Issuers'
option, in whole or in part, on or after April 15, 2003,
at the redemption prices set forth herein, plus accrued
and unpaid interest, if any, to the date of redemption.
In addition, at any time prior to April 15, 2001, the
Issuers may redeem up to 35% of the aggregate principal
amount or Accreted Value, as applicable, of the
Debentures with the net cash proceeds of one or more
sales by the Company of its Capital Stock (as defined)
(other than Redeemable Capital Stock (as defined)) at a
redemption price, in the case of Senior Debentures,
equal to 108.375% of the principal amount thereof and,
in the case of Senior Discount Debentures, equal to
109.285% of the Accreted Value thereof, in each case
plus accrued and unpaid interest, if any, to the date of
redemption.
Change of Control: In the event of a Change of Control, the Issuers must
commence an offer to purchase all of the Debentures then
outstanding at a purchase price equal to 101% of the
principal amount thereof in the case of Senior
Debentures, and 101% of the Accreted Value thereof in
the case of Senior Discount Debentures, in each case
plus accrued interest, if any, to the payment date.
There can be no assurance, however, that the Company
will have sufficient funds to pay the purchase price for
all of the Debentures that might be delivered by holders
in connection with a Change of Control.
Certain Covenants: The Indenture will contain certain covenants that will
restrict the ability of the Issuers and certain of their
subsidiaries to, among other things, (i) incur certain
indebtedness, (ii) make certain restricted payments,
(iii) create liens, (iv) pay dividends and make other
distributions, (v) enter into certain transactions with
affiliates or (vi) consummate certain mergers,
consolidations or transfers.
</TABLE>
For additional information concerning the Debentures, see "Description of the
Debentures."
13
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
Set forth below is summary consolidated financial data of the Company for
each of the years in the three-year period ended December 31, 1997 and for the
three-month periods ended March 31, 1997 and 1998. This data should be read in
conjunction with the Company's historical consolidated financial statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The summary consolidated financial data for the three-month periods
ended March 31, 1997 and 1998 have been derived from unaudited consolidated
financial statements of the Company, which in the opinion of management include
all adjustments (consisting of normal recurring adjustments) which are necessary
to present fairly the results of operations and financial position for the
periods and at the date presented. The results of operations for the three
months ended March 31, 1998 are not necessarily indicative of the results to be
expected for the full year. The unaudited pro forma data give effect to (i) the
Offering, (ii) the refinancing of the Bank Credit Agreement with proceeds from
the New Credit Facility, (iii) the repurchase of all of the Notes pursuant to
both the Notes Tender and the Notes Redemption, and (iv) the acquisition (the
"Falcon Classic Acquisition") of certain cable television systems from Falcon
Classic Cable Income Properties, L.P. ("Falcon Classic"), as if such
transactions had been consummated on January 1 of the respective periods
presented in the case of the operations statement data and other operating data
and on March 31, 1998 in the case of the balance sheet data. The unaudited New
Falcon pro forma data give effect to all of the transactions described in the
preceding sentence and to the TCI Transaction, including the consolidation of
systems currently owned by Falcon Video Communications, L.P. ("Falcon Video"),
as if such transactions had been consummated on January 1 of the respective
periods presented in the case of the operations statement data and other
operating data and on March 31, 1998 in the case of the balance sheet data.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
NEW FALCON
PRO FORMA PRO FORMA
1995(1) 1996(1) 1997 1997(2) 1997(2)
----------- ------------ ---------- ------------ ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
OPERATIONS STATEMENT
DATA
Revenues.............. $ 151,208 $ 217,320 $ 255,886 $ 274,894 $ 424,994
Costs and expenses.... (71,652) (97,180) (122,080) (132,194) (215,719)
Depreciation and
amortization........ (54,386) (100,415) (118,856) (135,054) (224,617)
----------- ------------ ---------- ------------ ------------
Operating income
(loss).............. 25,170 19,725 14,950 7,646 (15,342)
Interest expense,
net(3).............. (57,777) (71,602) (79,137) (85,894) (119,925)
Equity in net income
(loss) of investee
partnerships........ (5,705) (44) 443 447 447
Other income, net..... 13,077(4) 814 885 674 1,950
Income tax benefit.... -- 1,122 2,021 2,021 2,021
----------- ------------ ---------- ------------ ------------
Loss before
extraordinary
item................ $ (25,235) $ (49,985) $ (60,838) $ (75,106)(5) $(130,849)(5)
----------- ------------ ---------- ------------ ------------
----------- ------------ ---------- ------------ ------------
OTHER OPERATING DATA
EBITDA(6)............. $ 79,556 $ 120,140 $ 133,806 $ 142,700 $ 209,275
EBITDA margin......... 52.6% 55.3% 52.3% 51.9% 49.2%
Total debt to
EBITDA.............. 7.01x(7) 6.62x(7) 6.81x 7.22x 7.50x
Net cash provided by
operating
activities.......... $ 43,162 $ 90,631 $ 79,537
Net cash used in
investing
activities.......... (22,674) (284,247) (76,287)
Net cash provided by
(used in) financing
activities.......... (15,906) 192,199 (2,966)
Capital
expenditures(8)..... 37,149 57,668 76,323 $ 81,155 $ 99,488
Deficiency of earnings
to fixed
charges(9).......... (25,254) (51,252) (63,302) (77,574) (133,317)
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------------------
NEW
FALCON
PRO FORMA PRO FORMA
1997 1998(11) 1998(2) 1998(2)
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
OPERATIONS STATEMENT
DATA
Revenues.............. $ 63,984 $ 64,557 $ 68,136 $105,547
Costs and expenses.... (29,474) (31,243) (33,146) (55,412)
Depreciation and
amortization........ (29,793) (31,079) (33,900) (56,291)
--------- --------- --------- ---------
Operating income
(loss).............. 4,717 2,235 1,117 (6,156)
Interest expense,
net(3).............. (20,384) (20,487) (21,408) (30,433)
Equity in net income
(loss) of investee
partnerships........ (71) (248) (226) (226)
Other income, net..... (163) (774) (1,110) (1,051)
Income tax benefit.... 566 365 365 365
--------- --------- --------- ---------
Loss before
extraordinary
item................ $ (15,335) $(18,909) $(21,262) $(37,501)
--------- --------- --------- ---------
--------- --------- --------- ---------
OTHER OPERATING DATA
EBITDA(6)............. $ 34,510 $ 33,314 $ 35,017 $ 50,135
EBITDA margin......... 53.9% 51.6% 51.4% 47.5%
Total debt to
EBITDA.............. 6.25x 7.51x 7.48x 7.91x
Net cash provided by
operating
activities.......... $ 15,322 $ 2,729
Net cash used in
investing
activities.......... (10,941) (95,318)
Net cash provided by
(used in) financing
activities.......... (7,155) 89,834
Capital
expenditures(8)..... 10,624 18,021 $ 19,508 $ 24,111
Deficiency of earnings
to fixed
charges(9).......... (15,940) (19,319) (21,672) (37,911)
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
AS OF DECEMBER 31, 1997 -----------------------------------------
------------------------------- NEW FALCON
1995(1) 1996(1) 1997 ACTUAL PRO FORMA(2) PRO FORMA(2)
--------- --------- --------- ----------- ------------- -------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents............ $ 15,050 $ 13,633 $ 13,917 $ 11,162 $ 5,000 $ 5,000
Total assets......................... 585,258 774,323 740,358 800,326 819,772 1,457,972
Total debt........................... 669,019 885,786 911,221 1,001,054 1,047,715 1,587,157
Redeemable partners' equity(10)...... 271,902 271,902 171,373 171,373 171,373 75,000
Partners' deficit.................... (411,681) (456,499) (416,755) (435,664) (466,778) (281,358)
</TABLE>
- ------------------------------
(1) The December 31, 1995 consolidated balance sheet data include the assets
and liabilities of Falcon First, Inc. ("Falcon First"), which were acquired
on December 28, 1995. The consolidated statement of operations data for the
year ended December 31, 1995 exclude the operations of Falcon First due to
the proximity of the acquisition date to the end of the year, except that
management fees from Falcon First of $1.6 million are included in the
consolidated statement of operations data. On July 12, 1996, FHGLP acquired
the assets of Falcon Cable Systems Company ("FCSC") and, accordingly, the
results of the FCSC systems have been included from July 12, 1996.
Management fees and reimbursed expenses received in 1996 by FHGLP from FCSC
prior to July 12, 1996 amounted to $1.5 million and $1.0 million,
respectively, and are included in the 1996 consolidated statement of
operations data. The amounts attributable to management fees and reimbursed
expenses received by FHGLP from FCSC in 1995 were $2.6 million and $2.0
million, respectively.
(2) The unaudited pro forma financial statements and operating data may not be
indicative of the results that actually would have occurred if the
transactions described above had been completed and in effect for the
periods indicated or the results that may be obtained in the future. The
unaudited pro forma financial and operating data presented should be read
in conjunction with the audited historical financial statements and related
notes thereto of FHGLP and the TCI Systems and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included
elsewhere in this Prospectus. See "Pro Forma Condensed Combined Financial
Data."
(3) Interest expense, net includes payment-in-kind interest expense amounting
to $27.1 million, $26.6 million and $20.4 million for the years ended
December 31, 1995, 1996 and 1997, respectively, and $7.0 million for the
three months ended March 31, 1997. There was no payment-in-kind interest
expense for the three months ended March 31, 1998. See Note 7 to FHGLP's
consolidated financial statements.
(4) Other income (expense), net in 1995 includes a gain on sale of marketable
securities ($13.3 million).
(5) The pro forma operations statement data do not reflect the impact of
certain non-recurring expenses associated with the transactions. The FHGLP
pro forma operations statement data do not include the write-off, as an
extraordinary charge, of deferred loan costs of $11.7 and $11.3 million,
respectively, at December 31, 1997 and March 31, 1998, related to the
extinguishment of the Bank Credit Agreement and the repurchase of the
Notes, as well as an approximate $19.8 million in premiums and costs
related to the repurchase and redemption of the Notes. Additionally, the
New Falcon pro forma operations statement data do not include a one-time
charge of approximately $6.6 million in compensation expense related to the
payment to certain FHGLP employees of amounts due under the Incentive Plan
(as defined), as required by the Contribution Agreement. The pro forma
balance sheet data reflect the pro forma effect of these adjustments.
(6) EBITDA is calculated as operating income before depreciation and
amortization. Based on its experience in the cable television industry,
FHGLP believes that EBITDA and related measures of cash flow serve as
important financial analysis tools for measuring and comparing cable
television companies in several areas, such as liquidity, operating
performance and leverage. In addition, the covenants in the primary debt
instruments of FHGLP use EBITDA-derived calculations as a measure of
financial performance. EBITDA is not a measurement determined under
generally accepted accounting principles ("GAAP") and does not represent
cash generated from operating activities in accordance with GAAP. EBITDA
should not be considered by the reader as an alternative to net income as
an indicator of FHGLP's financial performance or as an alternative to cash
flows as a measure of liquidity. In addition, the Company's definition of
EBITDA may not be identical to similarly titled measures used by other
companies.
(7) Total debt to EBITDA has been computed on a pro forma basis for 1995 to
include the EBITDA of Falcon First of $15.9 million, making the combined
1995 EBITDA $95.4 million. Similarly, total debt to EBITDA has also been
computed on a pro forma basis for 1996 to include the EBITDA of FCSC of
$13.6 million, making the combined 1996 EBITDA $133.8 million. Without
these pro forma adjustments, 1995 data would include the debt incurred to
acquire Falcon First, but would exclude Falcon First's EBITDA resulting in
a debt to EBITDA historical ratio of 8.41x compared to a pro forma ratio of
7.01x, and 1996 data would include the debt to acquire FCSC, but would
exclude its EBITDA for the period January 1, 1996 through July 11, 1996
resulting in a total debt to EBITDA historical ratio of 7.37x compared to a
pro forma ratio of 6.62x.
(8) Excluding acquisitions of cable television systems.
(9) For purposes of this computation, earnings are defined as income (loss)
before income taxes and fixed charges, as adjusted for earnings and
distributions of less than 50% owned companies accounted for under the
equity method. Fixed charges are defined as the sum of (i) total interest
costs (including an estimated interest component of rental expenses) and
(ii) amortization of debt discount and expense.
(10) FHGLP's Third Amended and Restated Partnership Agreement, dated December
28, 1995 (the "Existing FHGLP Partnership Agreement"), provides that
certain limited partners of FHGLP have various liquidity rights, which
will be deferred, modified and reduced upon consummation of the TCI
Transaction. See "Risk Factors--Obligations of FHGLP to Redeem Limited
Partnership Interests," "Description of the Partnership Agreements" and
Note 2 to FHGLP's consolidated financial statements.
(11) In March, 1998, FHGLP acquired substantially all of the assets of Falcon
Classic and, accordingly, the results of these acquired systems have been
included from the date of their acquisition. Management fees and
reimbursed expenses received during the three months ended March 31, 1998
by FHGLP from Falcon Classic amounted to $190,000 and $114,000,
respectively, and are included in the unaudited statement of operations
data. The amounts attributable to management fees and reimbursed expenses
received by FHGLP from Falcon Classic in 1997 were $1.3 million and $1.0
million, respectively.
15
<PAGE>
SUMMARY SUBSCRIBER DATA
The following table sets forth certain operating statistics for (i) the
Owned Systems on a historical basis, (ii) the Owned Systems after giving pro
forma effect to the Falcon Classic Acquisition and (iii) the Owned Systems after
giving pro forma effect to the Falcon Classic Acquisition and the TCI
Transaction, including the consolidation of systems currently owned by Falcon
Video. Please refer to "Business-- Overview of the Falcon Systems" for the
historical operating statistics of the Affiliated Systems and the Enstar
Systems.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------- NEW FALCON
NEW FALCON PRO FORMA PRO FORMA
PRO FORMA PRO FORMA MARCH 31, MARCH 31, MARCH 31,
1995(1) 1996(2) 1997 1997 1997 1998(8) 1998 1998
----------- ----------- --------- ----------- ----------- ----------- ----------- -----------
(AT END OF PERIOD, EXCEPT AVERAGE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Homes passed(3)........ 691,941 924,030 937,786 1,013,593 1,567,651 1,007,614 1,012,733 1,557,685
Basic subscribers(4)... 442,166 570,708 562,984 611,968 974,772 606,937 611,127 975,000
Basic penetration(5)... 63.9% 61.8% 60.0% 60.4% 62.2% 60.2% 60.3% 62.6%
Premium service
units(6)............. 186,477 203,679 165,960 181,569 308,485 183,234 183,990 305,363
Premium
penetration(7)....... 42.2% 35.7% 29.5% 29.7% 31.6% 30.2% 30.1% 31.3%
Average monthly revenue
per basic
subscriber........... $ 32.77 $ 34.22 $ 36.67 $ 36.52 $ 35.78 $ 36.56 $ 36.51 $ 35.82
</TABLE>
- ------------------------------
(1) On December 28, 1995, the Company acquired all of the direct and indirect
ownership interests in Falcon First that it did not previously own and, as a
result, the systems of Falcon First became Owned Systems. On July 1, 1996,
the Company sold certain of the Falcon First systems. As a result,
comparisons of 1996 and 1995 to prior years must take these changes into
account. At December 31, 1997, 1996 and 1995, respectively, Falcon First had
approximately 97,549, 96,318 and 114,682 homes passed, 67,601, 68,212 and
77,258 basic subscribers and 22,230, 29,571 and 36,413 premium service
units, respectively. At December 31, 1994, the corresponding totals for
Falcon First were 113,403, 75,688 and 38,756, respectively. At July 1, 1996,
the Falcon First systems that were sold had approximately 18,957 homes
passed, 9,547 basic subscribers and 3,932 premium service units.
(2) On July 12, 1996, the Company acquired the assets of FCSC, and, as a result,
the systems of FCSC became Owned Systems. As a result, comparisons of 1996
to prior years must take this change into account. At December 31, 1997 and
1996, respectively, the FCSC systems had approximately 245,807 and 239,431
homes passed, 127,315 and 140,599 basic subscribers and 33,844 and 44,199
premium service units. At December 31, 1995 and 1994, the corresponding
totals for the FCSC systems were 233,304 and 228,522 homes passed, 140,642
and 138,196 basic subscribers and 52,694 and 59,732 premium service units.
(3) Homes passed refers to estimates by the Company of the approximate number of
dwelling units in a particular community that can be connected to the
distribution system without any further extension of principal transmission
lines. Such estimates are based upon a variety of sources, including billing
records, house counts, city directories and other local sources.
(4) A home with one or more television sets connected to a cable system is
counted as one basic subscriber. Bulk accounts are included on a "basic
customer equivalent" basis in which the total monthly bill for the account
is divided by the basic monthly charge for a single outlet in the area.
(5) Calculated as basic subscribers as a percentage of homes passed.
(6) Premium service units include only single channel services offered for a
monthly fee per channel and do not include tiers of channels offered as a
package for a single monthly fee. Prior to July 1, 1996, The Disney Channel
was offered as a premium service. Effective July 1, 1996, it was offered as
part of tiered services. As a result, the number of reported premium service
units was reduced by this service offering change. The number of Disney
Channel premium service units at June 30, 1996, December 31, 1995 and at
December 31, 1994 were: Owned Systems 19,124, Affiliated Systems 7,060;
Owned Systems 22,613, Affiliated Systems 18,970; and Owned Systems 21,309,
Affiliated Systems 29,641, respectively.
(7) Calculated as premium service units as a percentage of basic subscribers. A
customer may purchase more than one premium service, each of which is
counted as a separate premium service unit. This ratio may be greater than
100% if the average customer subscribes for more than one premium service.
(8) In March 1998, FHGLP acquired substantially all of the assets of Falcon
Classic. The number of homes passed, basic subscribers and premium service
units acquired, which are included in the March 31, 1998 totals, were
70,771, 45,816, and 14,206, respectively.
16
<PAGE>
RISK FACTORS
OWNERSHIP OF THE DEBENTURES INVOLVES A HIGH DEGREE OF RISK. HOLDERS OF THE
OLD DEBENTURES SHOULD CONSIDER CAREFULLY THE RISK FACTORS SET FORTH BELOW, AS
WELL AS THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE TENDERING THE
OLD DEBENTURES IN EXCHANGE FOR EXCHANGE DEBENTURES.
SUBSTANTIAL LEVERAGE; HISTORY OF NET LOSSES
The Company is, and will continue to be, highly leveraged. As of March 31,
1998, after giving pro forma effect to the Offering, the refinancing of the Bank
Credit Agreement with proceeds from the New Credit Facility, the repurchase of
all of the Notes pursuant to both the Notes Tender and the Notes Redemption and
the Falcon Classic Acquisition, the Company would have had approximately $1
billion of debt outstanding and a partners' deficit of $466.8 million. After
giving additional pro forma effect to the TCI Transaction, New Falcon would have
had approximately $1.6 billion of debt and a partners' deficit of $275.4
million. See "Capitalization" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." In addition, the Indenture will
allow the Company to incur additional indebtedness under certain circumstances.
See "Description of the Debentures--Covenants." The degree to which the Company
is leveraged could have important consequences to the holders of the Debentures,
including, but not limited to, the following: (i) increasing the Company's
vulnerability to adverse general economic and industry conditions; (ii)
affecting the proportion of the Company's operating cash flow required to pay
interest, principal and other amounts on indebtedness, thereby reducing the
funds available for operations; (iii) impairing the Company's ability to obtain
additional financing for future capital expenditures, acquisitions or other
general corporate purposes; and (iv) because certain of the Company's
indebtedness bears interest at variable rates, increasing the Company's
vulnerability to fluctuations in interest rates.
The Company reported net losses of $25.2 million, $50 million and $60.8
million for the years ended December 31, 1995, 1996 and 1997, respectively, and
$18.9 million for the three-month period ended March 31, 1998. Substantial
amounts of depreciation and amortization expense and interest expense totaling
$112.2 million, $172 million, and $198 million for the years ended December 31,
1995, 1996 and 1997, respectively, and $51.6 million for the three-month period
ended March 31, 1998 have contributed and will continue to contribute to the net
losses experienced by the Company.
Historically, cash generated from operating activities and borrowings has
been sufficient to fund FHGLP's debt service, working capital obligations and
capital expenditure requirements. The Company believes that it will continue to
generate cash and obtain financing sufficient to meet such requirements.
However, if the Company were unable to meet such requirements, the Company would
have to consider refinancing its indebtedness or obtaining new financing.
Although in the past the Company has been able both to refinance its
indebtedness and to obtain new financing, there can be no assurance that the
Company will be able to do so in the future or that, if the Company is able to
do so, the terms available will be acceptable to the Company. In the event that
the Company were unable to refinance its indebtedness or obtain new financing
under these circumstances, the Company would likely have to consider various
options, including the sale of certain assets to meet its required debt service,
reduction of planned capital expenditures or negotiation with lenders to
restructure applicable indebtedness. See "Selected Consolidated Financial Data,"
"Pro Forma Condensed Combined Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON RECEIPT OF FUNDS FROM OPERATING SUBSIDIARIES TO SERVICE
DEBENTURES; STRUCTURAL SUBORDINATION
As a holding company, FHGLP does not hold substantial assets other than its
direct or indirect investments in and advances to its operating subsidiaries
(the "Owned Subsidiaries"). As a result,
17
<PAGE>
FHGLP's ability to make interest and principal payments when due to holders of
the Debentures is dependent upon the receipt of sufficient funds from the Owned
Subsidiaries.
Immediately following the consummation of the TCI Transaction, New Falcon
will contribute substantially all of its assets to New Falcon II (excluding the
capital stock of FFC), subject to certain liabilities and indebtedness
(estimated to be approximately $970.9 million in the aggregate as of March 31,
1998) to be assumed by New Falcon II, including the approximately $34.4 million
aggregate principal amount Notes that remain outstanding after the Notes Tender
and any indebtedness outstanding under the New Credit Facility, but excluding
the Debentures. Thus, New Falcon II will be substituted as an obligor under the
Notes (which the Company has agreed to redeem prior to October 15, 1998) and
will become the sole borrower under the New Credit Facility. New Falcon will be
substituted as an obligor under the Debentures and FFC will continue to be an
obligor under the Debentures as a wholly owned subsidiary of New Falcon. In
addition, the TCI Systems contributed to New Falcon in the TCI Transaction will
be contributed by New Falcon II to the Owned Subsidiaries. As a result, New
Falcon's ability to make interest and principal payments when due on the
Debentures will be dependent on the receipt of sufficient funds from New Falcon
II, which in turn will be dependent upon distributions from the Owned
Subsidiaries.
RESTRICTIONS IMPOSED BY NEW CREDIT FACILITY ON ABILITY OF SUBSIDIARIES TO MAKE
DISTRIBUTIONS
The New Credit Facility imposes substantial restrictions, including the
satisfaction of certain financial conditions and the absence of an event of
default, on the ability of the Owned Subsidiaries to make distributions to
FHGLP. In addition, the New Credit Facility contains similar restrictions with
respect to the ability of New Falcon II to make distributions to New Falcon. The
ability of the Company or New Falcon II, as the case may be, to comply with such
conditions may be affected by events that are beyond their control. Expected
increases in the funding requirements of FHGLP combined with limitations on its
sources of cash may create liquidity issues for FHGLP in the future. If the
maturity of loans under the New Credit Facility were to be accelerated, all
indebtedness outstanding thereunder would be required to be paid in full before
the Owned Subsidiaries would be permitted to distribute any assets or cash to
FHGLP or before New Falcon II would be permitted to make such distributions to
New Falcon. Additionally, the Debentures will not be guaranteed by any of the
subsidiaries of the Company or New Falcon II and will therefore be effectively
subordinated to all indebtedness and other liabilities of such subsidiaries.
Furthermore, any right of FHGLP or New Falcon, as the case may be, to receive
assets of any of its subsidiaries upon such subsidiary's liquidation or
reorganization will be effectively subordinated to the claims of that
subsidiary's creditors, except to the extent, if any, that FHGLP or New Falcon,
as the case may be, is recognized as a creditor of such subsidiary, in which
case the claims of FHGLP or New Falcon, as the case may be, would still be
subordinate to the claims of such creditors who hold security in the assets of
such subsidiary to the extent of such assets and to the claims of such creditors
who hold indebtedness of such subsidiary senior to that held by FHGLP or New
Falcon, as the case may be. See "Description of Certain Indebtedness."
CONDITIONS OF CLOSING THE TCI TRANSACTION
The consummation of the TCI Transaction is subject to, among other things,
the satisfaction of customary closing conditions and the receipt of certain
third-party and governmental approvals, including the consent of franchising
authorities. In addition, if the stay of the cable multiple ownership rules
adopted by the Federal Communications Commission (the "FCC") is lifted, and the
court decision finding such rules unconstitutional is reversed, and if, as a
result of the foregoing, TCI or New Falcon would be in violation of the cable
multiple ownership rules, the TCI Transaction may require certain changes in the
relationship between FHGLP and TCI or the closing of the TCI Transaction may be
delayed or otherwise materially adversely affected. See "Legislation and
Regulation--Ownership." Each of TCI and FHGLP also has certain rights to
terminate the Contribution Agreement if the closing of the TCI Transaction has
not occurred by September 30, 1998, unless the reason for not closing is due to
failure to obtain certain
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franchise consents, in which case the right to terminate does not arise until
December 31, 1998. There can be no assurances that such closing conditions will
be satisfied or that the TCI Transaction will be completed. This Exchange Offer
is not conditioned on the consummation of the TCI Transaction, nor will either
Issuer be under any obligation to repurchase any Debentures if the TCI
Transaction is not completed. If the TCI Transaction is not consummated, FHGLP
would remain an obligor under the Debentures, and the existing liquidity rights
of certain non-management limited partners of FHGLP would remain in full effect
in accordance with the terms of the Existing FHGLP Partnership Agreement. 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 funds to meet such obligations on
terms acceptable to FHGLP, or at all. See "--Obligations of FHGLP to Redeem
Limited Partnership Interests."
OBLIGATIONS OF FHGLP TO REDEEM LIMITED PARTNERSHIP INTERESTS
The Existing FHGLP Partnership Agreement contains provisions that may
require FHGLP to purchase substantially all of the limited partnership interests
held by certain non-management limited partners. Redemption of such limited
partner interests is at the option of the holders, subject to certain timing
requirements set forth in the Existing FHGLP Partnership Agreement. In
contemplation of the TCI Transaction, by agreement of the non-management limited
partners, the dates on which FHGLP may be obligated to purchase their interests
pursuant to the liquidity rights were tolled in accordance with the Contribution
Agreement. The new dates are determined by adding to the original dates 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 TCI Transaction is not consummated and that the Contribution Agreement is
not terminated prior to December 31, 1998, FHGLP may be required to purchase
limited partnership interests constituting approximately 60% of the common
equity of FHGLP during the period of January 2000 to October 2000. 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 redemption values of all partnership interests (other than FHGLP's Class C
preferred partnership interests, which had a liquidation value of $51.4 million
at December 31, 1997) 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 estimated
redemption value of such non-preferred partnership interests at March 31, 1998
was approximately $120 million, based upon preliminary estimates by management
which are subject to change. For more details regarding rights and value of
interests held by various groups of FHGLP's limited partners, please refer to
Note 2 of FHGLP's consolidated financial statements for the year ended December
31, 1997. The actual redemption amount will be determined as provided in the
Existing FHGLP Partnership Agreement and may be greater than or less than
management's estimate, and such variations could be significant. Factors which
could cause significant variations in the redemption amount include without
limitation, material changes in the business or operations of FHGLP and
unforseen changes in the economic or regulatory environment.
Upon consummation of the TCI Transaction, the Existing FHGLP Partnership
Agreement will be terminated, and the existing liquidity rights of the
non-management partners will expire and be replaced by certain new put rights
provided to the non-management limited partners in the New FHGLP Partnership
Agreement. Under the New FHGLP Partnership Agreement (to which New Falcon will
be a party), New Falcon may be required to purchase limited partnership
interests of the non-management partners in FHGLP constituting approximately 48%
of the partnership interests of FHGLP, and these put rights become exercisable
eight years after the consummation of the TCI Transaction. In addition to these
liquidity rights, the non-management limited partners have certain rights to
require incorporation of FHGLP for the purpose of effecting an initial public
offering.
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Certain of the Company's debt agreements (including the New Credit Facility)
restrict the Company's ability to (i) make distributions to fund the purchase of
the limited partnership interests pursuant to the liquidity provisions of the
Existing FHGLP Partnership Agreement, (ii) incur indebtedness or issue debt
securities in connection with such purchase, and (iii) sell a substantial
portion of its assets. The Indenture for the Debentures does not restrict the
Company's ability to make distributions to fund the purchase of such limited
partnership interests of the non-management partners of FHGLP so long as the
Company is otherwise in compliance with the covenant in the Indenture relating
to the incurrence of indebtedness. See "Description of the Debentures." 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 funds to meet such obligations on
terms acceptable to FHGLP, or at all. If FHGLP fails to purchase certain
partnership interests within a specified period after FHGLP's purchase
obligations arise, absent an alternative arrangement with the partners, FHGLP
may be required to liquidate. With respect to the liquidity rights under the New
FHGLP Partnership Agreement, certain of the Company's loan agreements may
restrict the ability of FHGLP or New Falcon to obtain funds to satisfy such
liquidity rights, and if FHGLP or New Falcon, as the case may be, fails to
satisfy such rights within a specified period, absent an alternative arrangement
with the partners, FHGLP or New Falcon, as the case may be, may, among other
things, be subject to damages or be required to liquidate. See "Description of
the Partnership Agreements--Existing FHGLP Partnership Agreement," "--New FHGLP
Partnership Agreement," "Description of Certain Indebtedness--11% Senior
Subordinated Notes Due 2003" and "Description of the Debentures."
In addition to the foregoing liquidity rights relating to FHGLP, the New
Falcon Partnership Agreement provides that, at any time after the seventh
anniversary of the closing of the TCI Transaction (other than at certain times
specified in such partnership agreement), either TCI or FHGLP has the right to
offer to sell to the other the offering partner's partnership interest in New
Falcon. Under certain circumstances in connection with such offer, New Falcon
can be required to purchase partnership interests of TCI or FHGLP. See
"Description of the Partnership Agreements--New Falcon Partnership
Agreement--Partner Liquidity--Buy/Sell Rights."
SIGNIFICANT COMPETITION IN THE CABLE TELEVISION INDUSTRY
Cable television systems face competition from alternative methods of
receiving and distributing television signals and from other sources of news,
information and entertainment, such as off-air television broadcast programming,
newspapers, movie theaters, live sporting events, online computer services and
home video products, including videotape cassette recorders. Because the
Company's franchises are generally non-exclusive, there is the potential for
competition with the Company's systems from other operators of cable television
systems, including systems operated by local governmental authorities, and from
other distribution systems capable of delivering programming to homes or
businesses, including direct broadcast satellite ("DBS") systems and
multichannel, multipoint distribution service ("wireless cable") systems. In
recent years, there has been significant national growth in the number of
subscribers to DBS services, and such growth would be assisted if one or more
DBS providers is successful in delivering local broadcast signals. Legislation
has recently been introduced in Congress to amend the Copyright Act to authorize
carriage of local broadcast signals by DBS providers. Subscribership to wireless
cable can be expected to grow due to the allocation of additional spectrum in
the 28 GHz range for a new multichannel wireless video service. Additionally,
recent changes in federal law and recent administrative and judicial decisions
have removed many of the restrictions that historically have limited entry into
the cable television business by potential competitors such as telephone
companies, registered utility holding companies and their subsidiaries. Such
developments will enable local telephone companies to provide a wide variety of
video services in the telephone company's own service area which will be
directly competitive with services provided by cable television systems. Other
new technologies, including Internet-based services, may also become competitive
with services that cable operators can offer.
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Many of the Company's potential competitors have substantially greater
resources than the Company, and the Company cannot predict the extent to which
competition will materialize in its franchise areas from other cable television
operators, other distribution systems for delivering video programming and other
broadband telecommunications services to the home, or from other potential
competitors, or, if such competition materializes, the extent of its effect on
the Company. See "Business--Competition" and "Legislation and Regulation."
NON-EXCLUSIVE FRANCHISES; NON-RENEWAL OR TERMINATION OF FRANCHISES
Cable television companies operate under franchises granted by local
authorities which are subject to renewal and renegotiation from time to time.
The Company's business is dependent upon the retention and renewal of its local
franchises. A franchise is generally granted for a fixed term ranging from five
to 15 years, but in many cases is terminable if the franchisee fails to comply
with the material provisions thereof. The Company's franchises typically impose
conditions relating to the use and operation of the cable television system,
including requirements relating to the payment of fees, system bandwidth
capacity, customer service requirements, franchise renewal and termination. The
Cable Television Consumer Protection and Competition Act of 1992 (the "1992
Cable Act") prohibits franchising authorities from granting exclusive cable
television franchises and from unreasonably refusing to award additional
competitive franchises; it also permits municipal authorities to operate cable
television systems in their communities without franchises. The Cable
Communications Policy Act of 1984 (the "1984 Cable Act" and collectively with
the 1992 Cable Act, the "Cable Acts") provides, among other things, for an
orderly franchise renewal process in which franchise renewal will not be
unreasonably withheld or, if renewal is denied and the franchising authority
acquires ownership of the system or effects a transfer of the system to another
person, the operator generally is entitled to the "fair market value" for the
system covered by such franchise, but no value attributable to the franchise
itself. Although the Company believes that it generally has good relationships
with its franchise authorities, no assurances can be given that the Company will
be able to retain or renew such franchises or that the terms of any such
renewals will be on terms as favorable to the Company as the Company's existing
franchises. The non-renewal or termination of franchises relating to a
significant portion of the Company's subscribers could have a material adverse
effect on the Company's results of operations. See "Business--Franchises."
LACK OF AVAILABLE CHANNEL CAPACITY FOR NEW CHANNELS OR EXPANDED SERVICES
Many of the Falcon Systems have almost no available channel capacity with
which to add new channels or to further expand pay-per-view offerings to
customers. As a result, significant amounts of capital for future upgrades will
be required in order to increase available channel capacity, improve quality of
service and facilitate the expansion of new services, such as advertising,
pay-per-view, new unregulated tiers of satellite-delivered services and home
shopping, so that the Falcon Systems remain competitive within the industry. The
Company postponed a number of rebuild and upgrade projects that were planned for
1994 and 1995 because of the uncertainty related to implementation of the 1992
Cable Act and the impact thereof on the Company's business and access to
capital. As a result, even after giving effect to certain upgrades and rebuilds
that were started or completed in 1996 and 1997, the Company's systems are
significantly less technically advanced than had been expected prior to the
implementation of re-regulation. The Company believes that the delays in
upgrading many of its systems will, under present market conditions, most likely
have an adverse effect on the value of the systems compared to systems that have
been rebuilt to a higher technical standard.
REGULATION IN THE CABLE TELEVISION INDUSTRY
The cable television industry is subject to extensive regulation by federal,
local and, in some instances, state governmental agencies. The Cable Acts, both
of which amended the Communications Act of 1934 (as amended, the "Communications
Act"), established a national policy to guide the development and
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regulation of cable television systems. The Communications Act was recently
substantially amended by the Telecommunications Act of 1996 (the "1996 Telecom
Act"). Principal responsibility for implementing the policies of the Cable Acts
and the 1996 Telecom Act has been allocated between the FCC and state or local
regulatory authorities. Advances in communications technology as well as changes
in the marketplace and the regulatory and legislative environment are constantly
occurring. Thus it is not possible to predict the effect that ongoing or future
developments might have on the cable communications industry or on the
operations of the Company.
FEDERAL LAW AND REGULATION
The 1992 Cable Act and the FCC's rules implementing that Act generally have
increased the administrative and operational expenses of cable television
systems and have resulted in additional regulatory oversight by the FCC and
local or state franchise authorities. The Cable Acts and the corresponding FCC
regulations have established, among other things, (i) rate regulations, (ii)
mandatory carriage and retransmission consent requirements that require a cable
system under certain circumstances to carry a local broadcast station or to
obtain consent to carry a local or distant broadcast station, (iii) rules for
franchise renewals and transfers and (iv) other requirements covering a variety
of operational areas such as equal employment opportunity and technical
standards and customer service requirements. In addition, the 1996 Telecom Act
eliminated certain barriers to entry in the telecommunications and cable
industries, declaring that state or local laws or regulations may not prohibit
or have the effect of prohibiting the ability of an entity, such as a cable
operator, to provide interstate or intrastate telecommunications services. The
1996 Telecom Act also allows telephone companies to compete directly with cable
operators by repealing the previous telephone company-cable cross-ownership ban
and replacing the FCC's previous video dialtone regulations with an "open video
system" ("OVS") plan by which local exchange carriers can provide cable service
in their telephone service areas.
The 1996 Telecom Act deregulates rates for certain cable programming
services tiers ("CPSTs") in 1999 and, for certain small cable operators,
immediately eliminates rate regulation of CPSTs, and, in certain circumstances,
basic services and equipment. The FCC has developed regulations to implement
these provisions of the 1996 Telecom Act. Because cable service rate increases
have continued to outpace inflation under the FCC's existing regulations, the
Company expects Congress and the FCC to explore additional methods of regulating
cable services rate increases, including deferral or repeal of the March 31,
1999 sunset of CPST rate regulation. The Company is currently unable to predict
the ultimate effect of the 1992 Cable Act, the 1996 Telecom Act or the FCC's
implementing regulations, future Congressional action, or the litigation
challenging various aspects of this federal legislation and the FCC's
regulations implementing the legislation. However, any further limitation on the
ability of the Company to raise service rates could have an adverse effect on
revenues and cash flow.
STATE AND LOCAL REGULATION
Cable television systems generally operate pursuant to non-exclusive
franchises, permits or licenses granted by a municipality or other state or
local governmental entity. The terms and conditions of franchises vary
materially from jurisdiction to jurisdiction. A number of states subject cable
systems to the jurisdiction of centralized state governmental agencies. To date,
Nevada and New York are the only states in which the Company currently operates
that have enacted some form of regulation at the state level. Management cannot
predict whether any of the states in which it currently operates will engage in
such regulation in the future. See "Legislation and Regulation."
RELIANCE ON KEY PERSONNEL; MANAGEMENT CONFLICTS
Falcon's success is partially dependent upon the continued availability of
the services of certain key individuals, including Marc B. Nathanson, Chairman
of the Board of Directors and Chief Executive Officer of Falcon Holding Group,
Inc., the general partner of FHGLP ("FHGI" and, together with its
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predecessors, "Falcon"), and Frank J. Intiso, President and Chief Operating
Officer of FHGI. The Company does not have an employment contract with any of
its executive officers. In addition, Mr. Nathanson serves as Chief Executive
Officer of Falcon International Communications LLC ("FIC"), which position could
occupy up to approximately 20% of his time.
SIGNIFICANT CAPITAL EXPENDITURES
The Company intends to upgrade a significant portion of its cable television
systems over the next several years. Management's current plan calls for the
expenditure of approximately $101 million in 1998, including approximately $68
million to rebuild and upgrade certain of the Owned Systems (exclusive of any
capital expenditures related to the TCI Systems). The Company's level of capital
expenditures is presently expected to remain at or above the 1998 level for the
foreseeable future. The Company's inability to upgrade its cable television
systems could adversely affect its operations and competitive position. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Business."
ABILITY TO PURCHASE DEBENTURES UPON A CHANGE OF CONTROL
If a Change of Control Offer (as defined) is made, there can be no assurance
that the Company will have sufficient funds to pay the purchase price for all of
the Debentures that might be delivered by holders seeking to accept the Change
of Control Offer. In the event that a Change of Control Offer occurs at a time
when the Company does not have sufficient funds available to repurchase the
Debentures or at a time when the Company is prohibited from repurchasing the
Debentures under the terms of other indebtedness of the Company (and the Company
is unable either to obtain the consent of holders of such other indebtedness or
to repay such other indebtedness), an Event of Default would occur under the
Indenture. This provision may not, however, afford holders of the Debentures
protection in the event of certain highly leveraged transactions. Furthermore,
the New Credit Facility includes "change of control" provisions that permit the
lenders thereunder to accelerate the repayment of indebtedness thereunder. Any
acceleration of the obligations of the Company under the New Credit Facility
could materially and adversely affect the ability of the Company to effect a
purchase of the Debentures upon a Change of Control. In addition, the existence
of a holder's right to require the Company to repurchase its Debentures upon the
occurrence of a Change of Control may deter a third party from acquiring the
Company in a transaction which would constitute a Change of Control. See
"Description of Certain Indebtedness" and "Description of the Debentures."
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company. Although there is a developing body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of the
holders of Debentures to require the Company to repurchase such Debentures as a
result of a sale, lease, transfer, conveyance or other disposition of less than
all of the assets of the Company and its subsidiaries to another party may be
uncertain. See "Description of the Debentures--Certain Definitions."
ORIGINAL ISSUE DISCOUNT; LIMITATIONS ON HOLDERS' CLAIMS
The Senior Discount Debentures will be issued at a substantial original
issue discount from their principal amount at maturity. Consequently, holders of
the Senior Discount Debentures will be required to include amounts in their
gross income for federal income tax purposes in advance of receipt of the cash
payments to which the income is attributable. See "Federal Income Tax
Considerations" for a more detailed discussion of the federal income tax
consequences to the holders of the Senior Discount Debentures resulting from the
purchase, ownership or disposition thereof.
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Under the Indenture, in the event of an acceleration of the maturity of the
Senior Discount Debentures upon the occurrence of an Event of Default, holders
of the Senior Discount Debentures may be entitled to recover only the amount
which may be declared due and payable pursuant to the Indenture, which could be
less than the principal amount at maturity of such Senior Discount Debentures.
See "Description of the Debentures--Events of Default."
If a bankruptcy case is commenced by or against the Issuers under the United
States Bankruptcy Code (the "Bankruptcy Code"), the claim of a holder of Senior
Discount Debentures with respect to the principal amount thereof may be limited
to an amount equal to the sum of (i) the issue price of the Senior Discount
Debentures and (ii) that portion of the original issue discount (as determined
on the basis of such issue price) which is not deemed to constitute "unmatured
interest" for purposes of the Bankruptcy Code. Accordingly, under such
circumstances, even if sufficient funds are available, holders of Senior
Discount Debentures may receive a lesser amount than they may otherwise be
entitled to under the express terms of the Indenture. In addition, the same
rules as those used for the calculation of original issue discount under federal
income tax law could apply in a bankruptcy to determine the claim of a holder of
Senior Discount Debenture. Furthermore, a holder of Senior Discount Debentures
might be required to recognize gain or loss in the event of a distribution
related to such a bankruptcy case. See "Federal Income Tax Considerations."
NOMINAL ASSETS OF CO-OBLIGOR
FFC is a newly created California corporation formed solely for the purpose
of serving as a co-obligor under the Debentures. FFC is wholly owned by FHGLP,
has nominal assets and has no operations. Holders of the Debentures should not
expect FFC to participate in servicing the principal, interest, premium, if any,
or any other payment obligations on the Debentures.
LACK OF PUBLIC MARKET FOR THE DEBENTURES
The Old Debentures have not been registered under the Securities Act or
under the securities laws of any state and may not be resold unless the
Debentures are subsequently registered or an exemption from the registration
requirements of the Securities Act and applicable state securities laws is
available. The Exchange Debentures will be registered under the Securities Act,
but will constitute a new issue of securities with no established trading
market, and there can be no assurance as to (i) the liquidity of any such market
that may develop, (ii) the ability of holders of Exchange Debentures to sell
their Debentures or (iii) the price at which the holders of Exchange Debentures
would be able to sell their Debentures. If such a market were to exist, the
Exchange Debentures could trade at prices that may be higher or lower than their
principal amount or purchase price, depending on many factors, including
prevailing interest rates, the market for similar debentures and the financial
performance of the Company.
The Debentures are designated for trading among qualified institutional
buyers in the PORTAL market. The Company has been advised by the Placement
Agents that they presently intend to make a market in the Debentures. However,
the Placement Agents are not obligated to do so, and any market-making activity
with respect to the Debentures may be discontinued at any time without notice.
In addition, such market-making activity will be subject to the limits imposed
by the Securities Act and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and may be limited during the Exchange Offer or the pendency of
an applicable shelf registration statement. There can be no assurance that an
active trading market will exist for the Debentures or that such trading market
will be liquid.
CONSEQUENCES OF EXCHANGING OR FAILURE TO FOLLOW EXCHANGE OFFER PROCEDURES
Based upon interpretations by the staff of the Commission set forth in
certain no-action letters issued to third parties (including EXXON CAPITAL
HOLDINGS CORP., SEC No-Action Letter (April 13, 1989); MORGAN STANLEY & CO.
INC., SEC No-Action Letter (June 5, 1991); and SHEARMAN & STERLING, SEC
No-Action Letter
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(July 2, 1993)), the Issuers believe that Exchange Debentures issued pursuant to
the Exchange Offer in exchange for Old Debentures may be offered for resale,
resold and otherwise transferred by any holder thereof (other than any such
holder which is an "affiliate" of the Issuers within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that such
Exchange Debentures are acquired in the ordinary course of such holder's
business and that at the time of the consummation of the Exchange Offer such
holder has no arrangement or understanding with any person to participate in the
distribution of such Exchange Debentures.
Any Participating Broker-Dealer that acquired Old Debentures for its own
account may be a statutory underwriter. Each Participating Broker-Dealer that
receives Exchange Debentures for its own account pursuant to the Exchange Offer
must acknowledge that it will deliver a prospectus in connection with any resale
of such Exchange Debentures. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a Participating Broker-Dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by any person subject to the prospectus delivery
requirements of the Securities Act (other than an Excluded Participating Broker
Dealer). See "Plan of Distribution."
Any holder who is an "affiliate" of the Issuers (within the meaning of Rule
405 under the Securities Act), who does not acquire the Exchange Debentures in
the ordinary course of business or who tenders in the Exchange Offer for the
purpose of participating in a distribution of the Exchange Debentures could not
rely on the position of the staff of the Commission enunciated in the
above-mentioned no-action letters and, in the absence of an exemption therefrom,
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. Failure to comply with
such requirements in such instance may result in such holder incurring liability
under the Securities Act for which the holder is not indemnified by the Issuers.
To comply with the securities laws of certain jurisdictions, it may be
necessary to qualify for sale or register the Exchange Debentures prior to
offering or selling such Exchange Debentures. Upon consummation of the Exchange
Offer, holders that were not prohibited from participating in the Exchange Offer
and did not tender their Old Debentures will not have any registration rights
under the Registration Rights Agreement with respect to such nontendered Old
Debentures, and accordingly, such Old Debentures will continue to be subject to
the restrictions on transfer contained in the legend thereon. In general, Old
Debentures may only be offered or sold pursuant to Rule 144A or Rule 144 under
the Securities Act or pursuant to some other exemption under the Securities Act
and applicable state securities laws or pursuant to an effective registration
statement under the Securities Act. See "The Exchange Offer--Consequences of
Failure to Exchange."
Issuance of the Exchange Debentures in exchange for the Old Debentures
pursuant to the Exchange Offer will be made only after a timely receipt by the
Issuers of such Old Debentures, a properly completed and duly executed Letter of
Transmittal and all other required documents. Therefore, holders of the Old
Debentures desiring to tender such Old Debentures in exchange for Exchange
Debentures should allow sufficient time to ensure timely delivery. The Issuers
are under no duty to give notification of defects or irregularities with respect
to the tenders of Old Debentures for exchange. Old Debentures that are not
tendered or are tendered but not accepted will, following the consummation of
the Exchange Offer, continue to be subject to the existing restrictions upon
transfer thereof, and, upon consummation of the Exchange Offer, certain
registration rights with respect to the Debentures under the Registration Rights
Agreement will terminate. In addition, any holder of Old Debentures who tenders
in the Exchange Offer for the purpose of participating in a distribution of the
Exchange Debentures may be deemed to have received restricted securities, and if
so, will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives Exchange Debentures for its own account in
exchange for Old Debentures, where such Old Debentures were acquired by such
broker-dealer as a result of market-making activities or other trading
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activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Debentures. See "Plan of Distribution." To the
extent that Old Debentures are tendered and accepted in the Exchange Offer, the
trading market for untendered and tendered but unaccepted Old Debentures could
be adversely affected. See "The Exchange Offer."
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THE TCI TRANSACTION
Pursuant to the Contribution and Purchase Agreement, dated as of December
30, 1997, as amended (the "Contribution Agreement"), FHGLP, TCI, the existing
partners of FHGLP and the investors in Falcon Video have agreed to consolidate
under the ownership and control of New Falcon, a holding company owned by FHGLP
and TCI, substantially all of the Falcon Systems and all of the TCI Systems. As
a result of the TCI Transaction, New Falcon will own systems that served
approximately 975,000 basic subscribers in 25 states as of March 31, 1998. New
Falcon will also manage the Enstar Systems, which served approximately 95,000
basic subscribers as of March 31, 1998. As such, New Falcon will own or manage
systems that served approximately 1,070,000 basic subscribers in 26 states as of
March 31, 1998. The TCI Systems will be consolidated into the Owned
Subsidiaries. As used in this Prospectus, the "TCI Transaction" refers
individually and collectively, as the context may require, to the transactions
contemplated by the Contribution Agreement, as it may be amended, modified or
supplemented. See "Business-- Overview of the Falcon Systems" and "--Overview of
the TCI Systems."
FHGLP will own approximately 53% of the equity of New Falcon and will serve
as the managing general partner of New Falcon. TCI will own approximately 47% of
the equity of New Falcon. The respective ownership percentages of FHGLP and TCI
in New Falcon are subject to possible adjustment pursuant to the Contribution
Agreement. The actual ownership percentages of FHGLP and TCI will be based on
the relative net fair market value as of closing of the capital contributions to
be made by FHGLP and TCI to New Falcon. The values of the contributed Falcon
Systems and the TCI Systems have been agreed to and are specified in the
Contribution Agreement. To calculate the value of each partner's contribution,
the value of its systems will be adjusted to reflect additional current assets
to be contributed to New Falcon, the amount of certain capital expenditures made
by the partner prior to the contribution, and the amount of liabilities to be
assumed by New Falcon. A partner may also be required to contribute cash to New
Falcon to offset any diminution in the value of its contributed systems from
certain causes (such as casualty losses or certain undisclosed liabilities), but
these contributions will not result in an adjustment to the partners' percentage
interests.
FHGI will continue to serve as the sole general partner of FHGLP. As such,
subject to certain governance provisions set forth in the New Falcon Partnership
Agreement, Falcon and its senior management will continue to manage the business
and day-to-day operations of New Falcon. For additional information regarding
the governance and management of New Falcon following consummation of the TCI
Transaction, see "Description of the Partnership Agreements--New Falcon
Partnership Agreement."
The Company expects to benefit substantially from its partnership with TCI,
one of the leading cable television operators in the world. The Company expects
that it will derive numerous operational synergies from its partnership with
TCI, including increased concentration of cable systems, purchasing discounts
and other economies arising from more streamlined management of Company assets
and those assets contributed by TCI. The Company also expects that its
partnership with TCI may increase the Company's access to and recognition in the
capital markets. Furthermore, the Company expects to benefit from access to
TCI's substantial resources in the areas of technical and engineering research.
The Company believes that its partnership with TCI will result in increased
availability of certain technological innovations, including state-of-the-art
digital converters, cable modems, and HITS digitally compressed cable television
programming services. The Company will also benefit from the expertise and
valuable industry knowledge of TCI's Leo J. Hindery, Jr. and William R.
Fitzgerald, who will join New Falcon's Advisory Committee upon consummation of
the TCI Transaction. See "Management" and "Certain Relationships and Related
Transactions."
The TCI Transaction will consist of the following principal steps (with
references to the "TCI Closing" referring to the closing of the TCI
Transaction):
(1) Immediately prior to the TCI Closing, it is anticipated that Falcon
Video will use borrowings under the New Credit Facility to satisfy in part
its obligations under certain outstanding notes. Falcon
27
<PAGE>
Video will satisfy its remaining obligations under such notes by issuing
limited partnership interests in Falcon Video to the holders of those notes,
which the holders will in turn contribute to FHGLP at the TCI Closing (Step
6).
(2) At the TCI Closing, concurrently with the initial asset
contributions by FHGLP to New Falcon (Step 3), TCI will contribute to New
Falcon substantially all of the assets relating to the TCI Systems, and New
Falcon will assume indebtedness in the approximate amount of $429.7 million
and certain other liabilities of TCI. Following the TCI Closing, the TCI
Systems will be contributed to the Owned Subsidiaries.
(3) At the TCI Closing, FHGLP will contribute to New Falcon
substantially all of its assets, including the capital stock of FFC, and New
Falcon will assume certain indebtedness in the amount of $936.5 million and
other liabilities of FHGLP, including the Debentures and (subject to
subsequent assumption by New Falcon II) any Notes that remain outstanding
and the indebtedness outstanding under the New Credit Facility. See
"Description of Certain Indebtedness" and "Description of the Debentures."
The contributed assets will consist principally of FHGLP's equity interests
in the Owned Subsidiaries and the Falcon Video systems, and equity interests
in the managing general partners of the Owned Subsidiaries and Video
Investors (as defined). FHGLP will make its asset contributions to New
Falcon in two separate steps: in the first step, concurrently with the asset
contributions by TCI to New Falcon (Step 2), FHGLP will contribute all of
its assets other than the Falcon Video-related interests contributed to
FHGLP in Step 6; in the second step, immediately after the contributions to
FHGLP in Step 6, FHGLP will contribute those Falcon Video-related interests
to New Falcon. As a result of FHGLP's contributions to New Falcon (and
subject to subsequent contributions by New Falcon to New Falcon II), New
Falcon will own, directly or indirectly, greater than 99% of the partnership
interests in the Owned Subsidiaries, each of which will, in turn, have as
its managing general partner a limited partnership which will be owned 99%
or greater by New Falcon.
The assets to be contributed by FHGLP to New Falcon exclude FHGLP's
equity interests in Enstar interest ranging from 0.5% to 1.0% and its
subsidiaries, certain passive minority investments held by FHGLP in
international cable television businesses and any cash on hand that FHGLP
elects not to contribute. See "Business--The Affiliated Systems";
"--International Activities"; and "--Other Investments."
(4) At the TCI Closing, the Debentures and the Notes (which the Company
has agreed to redeem prior to October 15, 1998) will be assumed by New
Falcon, which will be substituted for FHGLP as an obligor thereunder
(subject, in the case of the Notes, to a subsequent assumption by New Falcon
II). FFC will continue to be an obligor under the Debentures as a
wholly-owned subsidiary of New Falcon. As of May 25, 1998, the aggregate
principal amount of the Notes outstanding was approximately $34.4 million.
(5) At the TCI Closing, FHGLP will redeem a specified portion of the
partnership interests in FHGLP currently held by the Redeemed Partners in
exchange for the New Falcon Interests. Following the redemption, TCI will
purchase such New Falcon Interests from the Redeemed Partners for cash in
the approximate aggregate amount of $154.7 million.
(6) At the TCI Closing, after the redemption of the Redeemed Partners
and the purchase of their New Falcon Interests by TCI (Step 5), (a) the
limited partners of Falcon Video will contribute their interests in Falcon
Video (including the interests issued in respect of certain notes, as
described in Step 1) to FHGLP in exchange for limited partnership interests
in FHGLP, (b) the holders of certain equity participation units and warrants
previously issued by Falcon Video will contribute those securities to FHGLP
in exchange for limited partnership interests in FHGLP, and (c) the limited
partners of Falcon Video Communications Investors, L.P., the managing
general partner of Falcon Video ("Video Investors"), other than FHGLP, will
contribute their interests in Video Investors (other than a 1% interest that
will be retained by a trust established for the benefit of members of the
28
<PAGE>
family of Marc B. Nathanson) to FHGLP in exchange for limited partnership
interests in FHGLP. FHGLP will then contribute these interests and
securities to New Falcon in the second step of FHGLP's contributions (Step
3). As a result of these contributions, Falcon Video will become an Owned
Subsidiary and its systems, which served approximately 71,000 basic
subscribers as of March 31, 1998, will be consolidated under the ownership
and control of New Falcon following the TCI Closing.
(7) FHGLP will amend its Incentive Plan prior to the TCI Closing to
provide for payments by FHGLP at the TCI Closing to participants in an
aggregate amount of approximately $6.6 million and to reduce by such amount
FHGLP's obligations to make future payments to participants under the
Incentive Plan. At the TCI Closing New Falcon will assume (subject to a
subsequent assumption by New Falcon II) the obligations of FHGLP under the
Incentive Plan, as so amended, other than the obligation to make the
payments at the TCI Closing. See "Management--1993 Incentive Performance
Plan."
(8) Immediately after the TCI Closing New Falcon II will borrow funds
under the New Credit Facility to refinance the TCI indebtedness assumed by
New Falcon II at the TCI Closing and to refinance the initial borrowings of
Falcon Video under the New Credit Facility and Falcon Video's existing
senior indebtedness.
(9) At the TCI Closing, the existing partners of FHGLP will amend and
restate the FHGLP Partnership Agreement, and two additional persons will be
admitted to FHGLP as limited partners by virtue of their contributions to
FHGLP of their interests in Falcon Video (Step 6). Among other things, the
New FHGLP Partnership Agreement will defer and reduce the liquidity rights
of the non-management partners under the Existing FHGLP Partnership
Agreement, which rights will become an obligation of New Falcon. For
additional information regarding the new partnership agreement and a
description of certain new liquidity and other rights, see "Description of
the Partnership Agreements--New FHGLP Partnership Agreement."
(10) Concurrently with or immediately following the TCI Closing, the
partnership agreements of the Owned Subsidiaries, including Falcon Video,
and the partnership agreements of the managing general partners of the Owned
Subsidiaries, including Video Investors, will be amended as appropriate to
substitute New Falcon (or New Falcon II as described below) for FHGLP as a
partner effective as of the TCI Closing, to provide for distributions to the
partners, to reflect the contribution of assets to the Owned Subsidiaries
and to make certain other related changes.
The Company will redeem the remaining approximately $34.4 million aggregate
principal amount of outstanding Notes prior to October 15, 1998, in accordance
with the redemption provisions of the indenture governing the Notes. The Notes
are redeemable at the option of the obligor, in whole or in part, at any time on
or after September 15, 1998, at 105.5% of the outstanding principal amount, plus
accrued interest to the redemption date. If the TCI Transaction is consummated
before all of the Notes have been redeemed, New Falcon will initially assume
(subject to a subsequent assumption by New Falcon II, as described below) the
rights and obligations of FHGLP under the Notes. See "Capitalization" and
"Description of Certain Indebtedness--11% Senior Subordinated Notes Due 2003."
On June 30, 1998, the Company entered into the New Credit Facility, which
provides for three committed credit facilities (one revolving credit facility
and two term loans) and one uncommitted $350 million supplemental credit
facility (the terms of which will be negotiated at the time the Company makes a
request to draw on such facility). See "Description of Certain Indebtedness--New
Credit Facility." The Owned Subsidiaries, other than Falcon Video, are the
initial borrowers under the New Credit Facility. The Company borrowed
approximately $425.8 million under the New Credit Facility on June 30, 1998,
approximately $329 million of which was used to repay the remaining indebtedness
outstanding under the Bank Credit Agreement. The remaining proceeds resulted in
an excess cash balance of approximately $90 million (after payment of
approximately $4.5 million in fees and expenses related to
29
<PAGE>
the New Credit Facility). Immediately prior to the TCI Closing, Falcon Video
will use proceeds from borrowings under the New Credit Facility to satisfy in
part its obligations under certain financing notes (See Step 1). Upon the TCI
Closing, the Company will use proceeds from additional borrowings under the New
Credit Facility to refinance any other senior indebtedness of the Company,
including without limitation certain existing senior indebtedness of Falcon
Video, the initial borrowings of Falcon Video under the New Credit Facility, and
the indebtedness of TCI to be assumed by New Falcon at the TCI Closing. The
Company also intends to fund the Notes Redemption with proceeds from borrowings
under the New Credit Facility.
Immediately following the consummation of the TCI Transaction, New Falcon
will contribute substantially all of its assets to New Falcon II (excluding the
capital stock of FFC), and New Falcon II will assume certain indebtedness of New
Falcon, including any Notes that remain outstanding after the Notes Tender and
any indebtedness outstanding under the New Credit Facility, but excluding the
Debentures. Thus, New Falcon II will be substituted for New Falcon as an obligor
under the Notes and will become the sole borrower under the New Credit Facility,
and FFC will continue to be an obligor under the Debentures as a wholly-owned
subsidiary of New Falcon. In addition, New Falcon II will assume the obligations
of the Owned Subsidiaries under the New Credit Facility. New Falcon II will then
contribute the TCI Systems to the Owned Subsidiaries. See "Risk
Factors--Dependence on Receipt of Funds From Operating Subsidiaries to Service
Debentures; Structural Subordination."
The consummation of the TCI Transaction is subject to, among other things,
the satisfaction of customary closing conditions and the receipt of certain
third-party and governmental approvals, including the consent of franchising
authorities. Although there can be no assurances that such closing conditions
will be satisfied or that the TCI Transaction will be consummated, management
presently anticipates that the TCI Transaction will be completed in the third
quarter of 1998.
On June 24, 1998, AT&T Corp. and Tele-Communications, Inc. announced that
they have entered into an agreement under which AT&T Corp. would acquire
Tele-Communications, Inc. by merger. Although there can be no assurances as to
whether this merger will be consummated, the Company does not anticipate that
this proposed merger will have any material adverse effect upon the consummation
of the TCI Transaction.
30
<PAGE>
USE OF PROCEEDS
This Exchange Offer is intended to satisfy certain of the Issuers'
obligations under the Registration Rights Agreement. The Issuers will not
receive any cash proceeds from the issuance of the Exchange Debentures offered
hereby. In consideration for issuing the Exchange Debentures contemplated in
this Prospectus, the Issuers will receive Old Debentures in like original
principal amount at maturity, the form and terms of which are the same as the
form and terms of the Exchange Debentures (which replace the Old Debentures),
except as otherwise described herein.
The net proceeds received by the Company from the Offering were
approximately $631 million after giving effect to discounts, commissions and
other expenses payable by the Issuers. The Company used the net proceeds from
the Offering to repay indebtedness outstanding under the Bank Credit Agreement.
At March 31, 1998, outstanding indebtedness under the Bank Credit Agreement was
approximately $695.6 million. The weighted average interest rate on borrowings
outstanding under the Bank Credit Agreement as of December 31, 1997 was 7.69%.
31
<PAGE>
CAPITALIZATION
The following table sets forth (i) the actual capitalization of FHGLP at
March 31, 1998; (ii) the Company's capitalization at March 31, 1998, after
giving pro forma effect to the Offering, the refinancing of the Bank Credit
Agreement with proceeds from the New Credit Facility, the repurchase of all of
the Notes pursuant to both the Notes Tender and the Notes Redemption, and the
Falcon Classic Acquisition as if such transactions had been consummated as of
March 31, 1998; and (iii) New Falcon's capitalization giving pro forma effect to
all of the transactions described in the preceding sentence and the TCI
Transaction, including the consolidation of systems currently owned by Falcon
Video, as if such transactions had been consummated as of March 31, 1998. See
"The TCI Transaction" and "Pro Forma Condensed Combined Financial Data."
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
------------------------------------------
NEW FALCON
ACTUAL PRO FORMA PRO FORMA
------------ -------------- ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Long-term Debt
Bank Credit Agreement(1)....................... $ 695,600 -- --
New Credit Facility(2)......................... -- $ 373,815 $ 920,757
Senior Debentures.............................. -- 375,000 375,000
Senior Discount Debentures..................... -- 275,639 275,639
11% Senior Subordinated Notes.................. 282,193 -- --
Other.......................................... 23,261 23,261 15,761
------------ -------------- ------------
Total debt................................... 1,001,054 1,047,715 1,587,157
Redeemable partners' equity...................... 171,373 171,373 75,000
Partners' deficit.............................. (435,664) (466,778) (281,358)
------------ -------------- ------------
Total capitalization......................... $ 736,763 $ 752,310 $ 1,380,799
------------ -------------- ------------
------------ -------------- ------------
</TABLE>
- ------------------------
(1) As of June 29, 1998, the amount outstanding under the Bank Credit Agreement
was approximately $329 million. Borrowings since April 3, 1998 were used
primarily to repurchase outstanding Notes pursuant to the Notes Tender. See
"Prospectus Summary--Recent Developments."
(2) On June 30, 1998, the Company repaid and discharged the Bank Credit
Agreement with proceeds from the New Credit Facility and as of June 30,
1998, the amount outstanding under the New Credit Facility was approximately
$425.8 million. See "Description of Certain Indebtedness--New Credit
Facility."
32
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
Set forth below are selected consolidated financial data of the Company for
each of the years in the five-year period ended December 31, 1997 and for the
three-month periods ended March 31, 1997 and 1998. This data should be read in
conjunction with the Company's historical consolidated financial statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The selected consolidated financial data for the three month
periods ended March 31, 1997 and 1998 have been derived from unaudited
consolidated financial statements of the Company, which in the opinion of
management include all adjustments (consisting of normal recurring adjustments)
which are necessary to present fairly the results of operations and financial
position for the periods and at the date presented. The results of operations
for the three months ended March 31, 1998 are not necessarily indicative of the
results to be expected for the full year. The unaudited pro forma data give
effect to (i) the Offering, (ii) the refinancing of the Bank Credit Agreement
with proceeds from the New Credit Facility, (iii) the repurchase of all of the
Notes pursuant to both the Notes Tender and the Notes Redemption, and (iv) the
Falcon Classic Acquisition as if such transactions had been consummated on
January 1 of the respective periods presented in the case of the operations
statement data and other operating data and on March 31, 1998, in the case of
the balance sheet data. The unaudited New Falcon pro forma data give effect to
all of the transactions described in the preceding sentence and to the TCI
Transaction, including the consolidation of systems currently owned by Falcon
Video, as if such transactions had been consummated on January 1 of the
respective periods presented in the case of the operations statement data and
other operating data and on March 31, 1998 in the case of the balance sheet
data.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
----------------------------------------------------------------------------- -------------------------
NEW FALCON
PRO FORMA PRO FORMA
1993 1994 1995(1) 1996(1) 1997 1997(2) 1997(2) 1997 1998(11)
-------- -------- -------- --------- --------- ----------- ----------- ----------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS STATEMENT DATA
Revenues................. $146,469 $147,229 $151,208 $ 217,320 $ 255,886 $ 274,894 $ 424,994 $ 63,984 $ 64,557
Costs and expenses....... (67,025) (67,711) (71,652) (97,180) (122,080) (132,194) (215,719) (29,474) (31,243)
Depreciation and
amortization........... (57,771) (60,935) (54,386) (100,415) (118,856) (135,054) (224,617) (29,793) (31,079)
-------- -------- -------- --------- --------- ----------- ----------- ----------- -----------
Operating income
(loss)................. 21,673 18,583 25,170 19,725 14,950 7,646 (15,342) 4,717 2,235
Interest expense,
net(3)................. (49,122) (49,859) (57,777) (71,602) (79,137) (85,894) (119,925) (20,384) (20,487)
Equity in net income
(loss) of investee
partnerships........... (3,596) (1,782) (5,705) (44) 443 447 447 (71) (248)
Other income (expense),
net.................... (403) (455) 13,077(4) 814 885 674 1,950 (163) (774)
Income tax benefit....... -- -- -- 1,122 2,021 2,021 2,021 566 365
-------- -------- -------- --------- --------- ----------- ----------- ----------- -----------
Loss before extraordinary
item................... $(31,448) $(33,513) $(25,235) $ (49,985) $ (60,838) $ (75,106)(5) $(130,849)(5) $(15,335) $(18,909)
-------- -------- -------- --------- --------- ----------- ----------- ----------- -----------
-------- -------- -------- --------- --------- ----------- ----------- ----------- -----------
OTHER OPERATING DATA
EBITDA(6)................ $ 79,444 $ 79,518 $ 79,556 $ 120,140 $ 133,806 $ 142,700 $ 209,275 $ 34,510 $ 33,314
EBITDA margin............ 54.2% 54.0% 52.6% 55.3% 52.3% 51.9% 49.2% 53.9% 51.6%
Total debt to EBITDA..... 6.71x 6.77x 7.01x(7) 6.62x(7) 6.81x 7.22x 7.50x 6.25x 7.51x
Net cash provided by
operating activities... $ 51,642 $ 49,076 $ 43,162 $ 90,631 $ 79,537 $ 15,322 $ 2,729
Net cash used in
investing activities... (27,562) (36,065) (22,674) (284,247) (76,287) (10,941) (95,318)
Net cash provided by
(used in) financing
activities............. (25,221) (18,169) (15,906) 192,199 (2,966) (7,155) 89,834
Capital
expenditures(8)........ 25,798 28,232 37,149 57,668 76,323 $ 81,155 $ 99,488 10,624 18,021
Deficiency of earnings to
fixed charges(9)....... (31,448) (33,513) (25,254) (51,252) (63,302) (77,574) (133,317) (15,940) (19,319)
<CAPTION>
NEW FALCON
PRO FORMA PRO FORMA
1998 1998
----------- -----------
<S> <C> <C>
OPERATIONS STATEMENT DATA
Revenues................. $ 68,163 $105,547
Costs and expenses....... (33,146) 55,412
Depreciation and
amortization........... (33,900) (56,291)
----------- -----------
Operating income
(loss)................. 1,117 (6,156)
Interest expense,
net(3)................. (21,408) (30,433)
Equity in net income
(loss) of investee
partnerships........... (226) (226)
Other income (expense),
net.................... (1,110) (1,051)
Income tax benefit....... 365 365
----------- -----------
Loss before extraordinary
item................... $(21,262) $(37,501)
----------- -----------
----------- -----------
OTHER OPERATING DATA
EBITDA(6)................ $ 35,017 $ 50,135
EBITDA margin............ 51.4% 47.5%
Total debt to EBITDA..... 7.48x 7.91x
Net cash provided by
operating activities...
Net cash used in
investing activities...
Net cash provided by
(used in) financing
activities.............
Capital
expenditures(8)........ $ 19,508 $ 24,111
Deficiency of earnings to
fixed charges(9)....... (21,672) (37,911)
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
AS OF MARCH
31, 1998
AS OF DECEMBER 31, ------------
-----------------------------------------------------
1993 1994 1995(1) 1996(1) 1997 ACTUAL
--------- --------- --------- --------- --------- ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents...................................... $ 15,626 $ 10,468 $ 15,050 $ 13,633 $ 13,917 $ 11,162
Total assets................................................... 432,668 425,402 585,258 774,323 740,358 800,326
Total debt..................................................... 532,938 538,626 669,019 885,786 911,221 1,001,054
Redeemable partners' equity(10)................................ 93,964 93,964 271,902 271,902 171,373 171,373
Partners' deficit.............................................. (236,096) (256,758) (411,681) (456,499) (416,755) (435,664)
<CAPTION>
NEW FALCON PRO
PRO FORMA(2) FORMA(2)
-------------- --------------
<S> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents...................................... $ 5,000 $ 5,000
Total assets................................................... 819,772 1,457,972
Total debt..................................................... 1,047,715 1,587,157
Redeemable partners' equity(10)................................ 171,373 75,000
Partners' deficit.............................................. (466,778) (281,358)
</TABLE>
- ------------------------------
(1) The December 31, 1995 consolidated balance sheet data include the assets
and liabilities of Falcon First, which were acquired on December 28, 1995.
The consolidated statement of operations data for the year ended December
31, 1995 exclude the operations of Falcon First due to the proximity of the
acquisition date to the end of the year, except that management fees from
Falcon First of $1.6 million are included in the consolidated statement of
operations data. On July 12, 1996, FHGLP acquired the assets of FCSC and,
accordingly, the results of the FCSC systems have been included from July
12, 1996. Management fees and reimbursed expenses received in 1996 by FHGLP
from FCSC prior to July 12, 1996 amounted to $1.5 million and $1.0 million,
respectively, and are included in the 1996 consolidated statement of
operations data. The amounts attributable to management fees and reimbursed
expenses received by FHGLP from FCSC in 1995 were $2.6 million and $2.0
million, respectively.
(2) The unaudited pro forma financial and operating data may not be indicative
of the results that actually would have occurred if the transactions
described above had been completed and in effect for the periods indicated
or the results that may be obtained in the future. The unaudited pro forma
financial and operating data presented should be read in conjunction with
the audited historical financial statements and related notes thereto of
FHGLP and the TCI Systems and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus. See "Pro Forma Condensed Combined Financial Data."
(3) Interest expense, net includes payment-in-kind interest expense amounting
to $17.5 million, $24.5 million, $27.1 million, $26.6 million and $20.4
million for the three years ended December 31, 1993, 1994, 1995, 1996 and
1997, respectively, and $7.0 million for the three months ended March 31,
1997. There was no payment-in-kind interest expense for the three months
ended March 31, 1998. See Note 7 to FHGLP's 1997 consolidated financial
statements.
(4) Other income (expense), net in 1995 includes a gain on sale of marketable
securities ($13.3 million).
(5) The pro forma operations statement data do not reflect the impact of
certain non-recurring expenses associated with the transactions. The pro
forma operations statement data do not include the write-off, as an
extraordinary charge, of deferred loan costs of $11.7 and $11.3 million,
respectively, as of December 31, 1997 and March 31, 1998 related to the
extinguishment of the Bank Credit Agreement and the repurchase of the Notes
as well as an approximate $19.8 million in premiums and costs related to
the repurchase of the Debentures. Additionally, the New Falcon pro forma
operations statement data do not include a one-time charge of approximately
$6.6 million in compensation expense related to the payment to certain
FHGLP employees of amounts due under the Incentive Plan, as required by the
Contribution Agreement. The pro forma balance sheet data reflect the pro
forma effect of these adjustments.
(6) EBITDA is calculated as operating income before depreciation and
amortization. Based on its experience in the cable television industry,
FHGLP believes that EBITDA and related measures of cash flow serve as
important financial analysis tools for measuring and comparing cable
television companies in several areas, such as liquidity, operating
performance and leverage. In addition, the covenants in the primary debt
instruments of FHGLP use EBITDA-derived calculations as a measure of
financial performance. EBITDA is not a measurement determined under GAAP
and does not represent cash generated from operating activities in
accordance with GAAP. EBITDA should not be considered by the reader as an
alternative to net income as an indicator of FHGLP's financial performance
or as an alternative to cash flows as a measure of liquidity. In addition,
the Company's definition of EBITDA may not be identical to similarly titled
measures used by other companies.
(7) Total debt to EBITDA has been computed on a pro forma basis for 1995 to
include the EBITDA of Falcon First of $15.9 million, making the combined
1995 EBITDA $95.4 million. Similarly, total debt to EBITDA has also been
computed on a pro forma basis for 1996 to include the EBITDA of FCSC of
$13.6 million, making the combined 1996 EBITDA $133.8 million. Without
these pro forma adjustments, 1995 data would include the debt incurred to
acquire Falcon First, but would exclude Falcon First EBITDA resulting in a
total debt to EBITDA historical ratio of 8.41x compared to a pro forma
ratio of 7.01x, and 1996 data would include the debt to acquire FCSC, but
would exclude its EBITDA for the period January 1, 1996 through July 11,
1996 resulting in a total debt to EBITDA historical ratio of 7.37x compared
to a pro forma ratio of 6.62x.
(8) Excluding acquisitions of cable television systems.
(9) For purposes of this computation, earnings are defined as income (loss)
before income taxes and fixed charges, as adjusted for earnings and
distributions of less than 50% owned companies accounted for under the
equity method. Fixed charges are defined as the sum of (i) total interest
costs (including an estimated interest component of rental expenses) and
(ii) amortization of debt discount and expense.
(10) The Existing Partnership Agreement provides that certain limited partners
of FHGLP have various redemption rights, which will be deferred and
reduced upon consummation of the TCI Transaction. See "Risk
Factors--Obligations of FHGLP to Redeem Limited Partnership Interests,"
"Description of the Partnership Agreements" and Note 2 to FHGLP's
Consolidated Financial Statements.
(11) In March, 1998, FHGLP acquired substantially all of the assets of Falcon
Classic and, accordingly, the results of these acquired systems have been
included from the date of their acquisition. Management fees and
reimbursed expenses received during the three months ended March 31, 1998
by FHGLP from Falcon Classic amounted to $190,000 and $114,000,
respectively, and are included in the unaudited statement of operations
data. The amounts attributable to management fees and reimbursed expenses
received by FHGLP from Falcon Classic in 1997 were $1.3 million and $1.0
million, respectively.
34
<PAGE>
PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The unaudited pro forma condensed combined financial data presented below
are derived from the historical consolidated financial statements of the Company
and the TCI Systems and reflect management's present estimate of pro forma
adjustments, including a preliminary estimate of purchase price allocations.
These preliminary estimates represent management's best estimate based on
currently available information. Final purchase price allocation following the
closing of the TCI Transaction could be materially different from the
preliminary estimates, although management does not expect any material
variations at this time. Factors which could cause material changes in the
purchase price allocation include without limitation, material adverse changes
in the results of operations of the Falcon Systems or the TCI Systems and
unforseen changes in the economic or regulatory environment. The unaudited pro
forma data for the year ended December 31, 1997 give effect to (i) the Offering,
(ii) the refinancing of the Bank Credit Agreement with proceeds from the New
Credit Facility, (iii) both the Notes Tender and the Notes Redemption, and (iv)
the Falcon Classic Acquisition as if such transactions had been consummated on
January 1 of the respective periods presented in the case of the statement of
operations data and on March 31, 1998 in the case of the balance sheet data. The
unaudited New Falcon pro forma data give effect to all of the transactions
described in the preceding sentence and to the TCI Transaction, including the
consolidation of systems currently owned by Falcon Video, as if such
transactions had been consummated on January 1 of the respective periods
presented in the case of the statement of operations data and on March 31, 1998
in the case of the balance sheet data.
The unaudited pro forma condensed combined financial statements may not be
indicative of the results that actually would have occurred if the transactions
described above had been completed and in effect for the periods indicated or
the results that may be obtained in the future. The unaudited pro forma
condensed combined financial data presented below should be read in conjunction
with the audited historical consolidated financial statements and related notes
thereto of the Company and the TCI Systems and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Prospectus.
The Falcon Classic Acquisition is being accounted for as the purchase by
FHGLP of the Falcon Classic systems. The TCI Transaction will be accounted for
as a contribution by FHGLP of the Falcon Systems to New Falcon at their
historical cost basis and the purchase by New Falcon of the Falcon Video systems
and the TCI Systems.
The pro forma condensed combined statements of operations do not reflect the
impact of certain non-recurring expenses associated with the transactions. The
pro forma data do not include the write-off, as an extraordinary charge, of
deferred loan costs of $11.7 and $11.3 million, respectively, at December 31,
1997 and March 31, 1998 related to the extinguishment of the Bank Credit
Agreement and the repurchase of the Notes, as well as the approximate $19.8
million in premiums and costs related to the repurchase of the Notes.
Additionally, the New Falcon pro forma data do not include a one-time charge of
approximately $6.6 million in compensation expense related to the payment to
certain FHGLP employees of amounts due under the Incentive Plan, as required by
the Contribution Agreement. Such adjustments are reflected in the pro forma
condensed combined balance sheets.
35
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
--------------------- --------------------
THE FALCON FALCON TCI
COMPANY CLASSIC ADJUSTMENTS PRO FORMA VIDEO SYSTEMS ADJUSTMENTS
---------- --------- ------------ ----------- --------- --------- ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............................ $ 255,886 $ 20,299 $ (1,291)(1) $ 274,894 $ 32,145 $ 113,897 $ 4,058(7)
Expenses:
Costs and expenses................ (122,080) (11,248) 1,134(2) (132,194) (15,908) (64,113) (3,504)(8)
Depreciation and amortization..... (118,856) (8,080) (8,118)(3) (135,054) (16,086) (22,509) (50,968)(9)
---------- --------- ------------ ----------- --------- --------- ------------
Operating income (loss)......... 14,950 971 (8,275) 7,646 151 27,275 (50,414)
Other income (expense):
Interest expense, net............. (79,137) (1,490) (5,267)(4) (85,894) (10,985) (5,832) (17,214)(10)
Equity in net income of investee
partnerships.................... 443 4(5) 447
Other income (expense), net....... 885 (61) (150)(6) 674 (84) 1,360(11)
Income tax benefit (expense)........ 2,021 2,021 (8,808) 8,808(12)
---------- --------- ------------ ----------- --------- --------- ------------
Income (loss) before extraordinary
item.............................. $ (60,838) $ (580) $ (13,688) $ (75,106) $ (10,834) $ 12,551 $ (57,460)
---------- --------- ------------ ----------- --------- --------- ------------
---------- --------- ------------ ----------- --------- --------- ------------
<CAPTION>
NEW FALCON
PRO FORMA
-----------
<S> <C>
Revenues............................ $ 424,994
Expenses:
Costs and expenses................ (215,719)
Depreciation and amortization..... (224,617)
-----------
Operating income (loss)......... (15,342)
Other income (expense):
Interest expense, net............. (119,925)
Equity in net income of investee
partnerships.................... 447
Other income (expense), net....... 1,950
Income tax benefit (expense)........ 2,021
-----------
Income (loss) before extraordinary
item.............................. $(130,849)
-----------
-----------
</TABLE>
36
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
----------------- -----------------
THE FALCON FALCON TCI
COMPANY CLASSIC ADJUSTMENTS PRO FORMA VIDEO SYSTEMS ADJUSTMENTS
-------- ------- ----------- --------- ------- -------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................................ $64,557 $ 3,796 $ (190)(1) $ 68,163 $ 7,694 $ 28,421 $ 1,269(7)
Expenses:
Costs and expenses.................... (31,243 ) (2,099) 196(2) (33,146) (4,094) (16,977) (1,195)(8)
Depreciation and amortization......... (31,079 ) (1,321) (1,500)(3) (33,900) (3,609) (5,791) (12,991)(9)
-------- ------- ----------- --------- ------- -------- -----------
Operating income (loss)............... 2,235 376 (1,494) 1,117 (9) 5,653 (12,917)
Other income (expense):
Interest expense, net................. (20,487 ) (86) (835)(4) (21,408) (2,786) (1,448) (4,791)(10)
Equity in net income of investee
partnerships........................ (248 ) 22(5) (226)
Other income (expense), net........... (774 ) 28,991 (29,327)(6) (1,110) 59
Income tax benefit (expense)............ 365 365 (1,793) 1,793(12)
-------- ------- ----------- --------- ------- -------- -----------
Income (loss) before extraordinary
item.................................. $(18,909) $29,281 $(31,634) $(21,262) $(2,795) $ 2,471 $(15,915)
-------- ------- ----------- --------- ------- -------- -----------
-------- ------- ----------- --------- ------- -------- -----------
<CAPTION>
NEW FALCON PRO
FORMA
---------------
<S> <C>
Revenues................................ $105,547
Expenses:
Costs and expenses.................... (55,412)
Depreciation and amortization......... (56,291)
---------------
Operating income (loss)............... (6,156)
Other income (expense):
Interest expense, net................. (30,433)
Equity in net income of investee
partnerships........................ (226)
Other income (expense), net........... (1,051)
Income tax benefit (expense)............ 365
---------------
Income (loss) before extraordinary
item.................................. $(37,501)
---------------
---------------
</TABLE>
37
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
(1) To eliminate FHGLP management fee income from Falcon Classic.
(2) To eliminate Falcon Classic's management fee expense to FHGLP.
(3) To record additional depreciation and amortization expense attributable to
the allocation of the purchase price (cash of $83.5 million) to tangible
and intangible assets acquired and liabilities assumed from Falcon Classic,
based on preliminary estimates of their respective fair values as of the
acquisition date. These preliminary estimates represent management's best
estimate based on currently available information. Final purchase price
allocation following the closing of the TCI Transaction could be materially
different from the preliminary estimates, although management does not
expect any material variations at this time.
<TABLE>
<CAPTION>
THREE
MONTHS
YEAR ENDED ENDED
12/31/97 3/31/98
----------- -----------
USEFUL LIFE
-------------
(IN YEARS) ($ IN 000'S)
<S> <C> <C> <C>
Record additional estimated depreciation expense........................................... 3-15 $ 3,312 $ 671
Record additional estimated amortization expense:
Franchise cost........................................................................... 12 (1,964) (357)
Goodwill................................................................................. 20 279 46
Customer lists and other intangible assets............................................... 5 6,491 1,140
----------- -----------
$ 8,118 $ 1,500
----------- -----------
----------- -----------
</TABLE>
(4) To increase interest expense to reflect the Falcon Classic Acquisition, the
Notes Tender and the terms of the Debentures as if the Falcon Classic
Acquisition, the Notes Tender and the Offering had been in effect during
the entire period; and to record the amortization on new debt discount and
issuance costs estimated at $28.8 million in connection with the New Credit
Facility and the Debentures. The average interest rates used to compute pro
forma interest expense on the New Credit Facility were 6.9% for the year
ended December 31, 1997 and 7.2% for the three months ended March 31, 1998.
The effect on pro forma income (loss) before extraordinary items of a 1/8%
change in interest rates would be approximately $470,000 per year (without
giving effect to the Company's interest rate hedging agreements).
<TABLE>
<CAPTION>
THREE
YEAR MONTHS
ENDED ENDED
12/31/97 3/31/98
-------- --------
($ IN 000'S)
<S> <C> <C>
Eliminate historical interest expense related to borrowings
by Falcon Classic........................................ $ (1,490) $ (86)
Eliminate amortization expense on historical deferred loan
costs for the Bank Credit Agreement...................... (825) (214)
Eliminate amortization expense on historical deferred costs
for the Notes............................................ (874) (219)
Eliminate historical interest expense on the Notes......... (29,584) (7,760)
Eliminate historical interest expense on the Bank Credit
Agreement................................................ (44,493) (11,584)
Record estimated interest expense on the Debentures........ 57,593 14,399
Record estimated interest expense on borrowings under the
New Credit Facility...................................... 22,408 5,666
Record amortization expense on new debt discount........... 84 21
Record amortization expense on new debt issuance costs..... 2,448 612
-------- --------
$ 5,267 $ 835
-------- --------
-------- --------
</TABLE>
(5) To eliminate FHGLP's general partners' share of losses of Falcon Classic.
(6) To increase other expenses for anticipated legal fees related to the
settlement of litigation and to eliminate gain on the sale of Falcon
Classic's Cable Systems.
38
<PAGE>
(7) To eliminate FHGLP management fee income from Falcon Video, to adjust TCI
Systems revenues to reflect revenue from additional assets acquired and to
eliminate certain revenues not being acquired pursuant to the Contribution
Agreement, and to conform to FHGLP's accounting treatment of franchise fees
charged to subscribers, as follows:
<TABLE>
<CAPTION>
THREE
YEAR MONTHS
ENDED ENDED
12/31/97 3/31/98
-------- --------
($ IN 000'S)
<S> <C> <C>
Eliminate FHGLP management fee income from Falcon Video.... $(1,582 ) $ (381)
Adjust TCI Systems revenues (See detail of TCI Systems
adjustments)............................................. 5,640 1,650
-------- --------
$ 4,058 $ 1,269
-------- --------
-------- --------
</TABLE>
(8) To eliminate Falcon Video's management fee expense to FHGLP, to adjust TCI
Systems expenses to reflect additional assets acquired and to eliminate
certain expenses related to revenues not being acquired pursuant to the
Contribution Agreement and to conform to FHGLP's accounting treatment of
franchise fees charged to subscribers, as follows:
<TABLE>
<CAPTION>
THREE
YEAR MONTHS
ENDED ENDED
12/31/97 3/31/98
-------- --------
($ IN 000'S)
<S> <C> <C>
Eliminate Falcon Video's management fee expense to FHGLP... $(1,582 ) $ (374)
Adjust TCI Systems expenses (See detail of TCI Systems
adjustments)............................................. 5,086 1,569
-------- --------
$ 3,504 $ 1,195
-------- --------
-------- --------
</TABLE>
(9) To record additional depreciation and amortization expense attributable to
the allocation of the fair value to tangible and intangible assets acquired
and liabilities assumed of Falcon Video ($143.2 million) and the TCI
Systems ($500.2 million), based on preliminary estimates of their
respective fair values as of the acquisition date. These preliminary
estimates represent management's best estimate based on currently available
information. Final allocation following the closing of the TCI Transaction
could be materially different from the preliminary estimates, although
management does not expect any material variations at this time.
<TABLE>
<CAPTION>
THREE
MONTHS
YEAR ENDED ENDED
12/31/97 3/31/98
----------- -----------
USEFUL LIFE
-------------
(IN YEARS) ($ IN 000'S)
<S> <C> <C> <C>
Record additional estimated depreciation expense........................................... 3-15 $ (340) $ (31)
Record additional estimated amortization expense:
Franchise cost........................................................................... 12 (5,654) (1,448)
Goodwill................................................................................. 20 4,145 1,034
Customer lists and other intangible assets............................................... 5 52,816 13,436
----------- -----------
$ 50,968 $ 12,991
----------- -----------
----------- -----------
</TABLE>
(10) To increase interest expense to reflect the merger with Falcon Video and
the assumption of the TCI Systems' indebtedness. The average interest
rates used to compute the pro forma interest expense on the New Credit
Facility were 6.4% for the year ended December 31, 1997 and 6.7% for the
three months ended March 31, 1998. The effect on pro forma income (loss)
before
39
<PAGE>
extraordinary items of a 1/8% change in interest rates would be
approximately $1.2 million (without giving effect to the Company's
interest rate hedging agreements).
<TABLE>
<CAPTION>
THREE
YEAR MONTHS
ENDED ENDED
12/31/97 3/31/98
-------- --------
($ IN 000'S)
<S> <C> <C>
Eliminate historical interest expense of Falcon Video...... $(10,985) $(2,786)
Eliminate historical interest expense of the TCI Systems... (5,832) (1,448)
Record estimated interest expense on borrowings under the
New Credit Facility incurred to refinance the Falcon
Video and TCI Systems debt............................... 34,031 9,025
-------- --------
$ 17,214 $ 4,791
-------- --------
-------- --------
</TABLE>
(11) To eliminate the historical loss recorded in 1997 on the sale of an
international investment. The international investments of FHGLP are not
being contributed to New Falcon pursuant to the Contribution Agreement.
(12) To eliminate historical tax expense of the TCI Systems, which assets were
formerly held by a corporation.
DETAIL OF TCI SYSTEMS ADJUSTMENTS
The audited combined statement of operations of the TCI Systems for the year
ended December 31, 1997 has been adjusted to reflect additional assets acquired
(which acquisitions were not material individually or in the aggregate), to
eliminate certain revenues and expenses not being acquired pursuant to the
Contribution Agreement and to conform to FHGLP's accounting treatment of
franchise fees charged to subscribers, as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED 12/31/97 ENDED 3/31/98
-------------------- ----------------------
REVENUES EXPENSES REVENUES EXPENSES
--------- --------- ----------- ---------
($ IN 000'S) ($ IN 000'S)
<S> <C> <C> <C> <C>
Reclassify franchise fee pass-through............................................. $ 5,517 $ (5,517) $ 1,508 $ (1,508)
Eliminate revenues and expenses not being acquired................................ (2,122) 1,908 (4) 22
Add Ellensburg, WA................................................................ 1,850 (1,240) -- --
Add Pomeroy, WA................................................................... 179 (107) 55 (31)
Add Clatskanie, OR................................................................ 216 (130) 91 (52)
--------- --------- ----------- ---------
$ 5,640 $ (5,086) $ 1,650 $ (1,569)
--------- --------- ----------- ---------
--------- --------- ----------- ---------
</TABLE>
40
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS
MARCH 31, 1998
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
-------------------- ------------------
FALCON FALCON TCI NEW FALCON
THE COMPANY CLASSIC ADJUSTMENTS PRO FORMA VIDEO SYSTEMS ADJUSTMENTS PRO FORMA
----------- ------- ----------- ------------ -------- -------- ------------- ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Cash and cash
equivalents.............. $ 11,162 $2,508 $ (8,670)(1) $ 5,000 $ 5,880 -- $ (5,880)(11) $ 5,000
Receivables:
Trade.................... 12,291 1,132 -- 13,423 1,451 $ 2,557 -- 17,431
Affiliates............... 11,309 -- (35)(2) 11,274 -- -- (8,600)(12) 2,674
Other assets............... 15,647 494 -- 16,141 790 -- (3)(13) 16,928
Other investments.......... 1,555 -- -- 1,555 -- -- (1,519)(14) 36
Property, plant and
equipment, net........... 358,074 820 703(3) 359,597 38,528 88,309 91,658(15) 578,092
Franchise cost, net........ 218,844 -- 1,448(3) 220,292 47,710 333,195 (277,868)(15) 323,329
Goodwill, net.............. 71,487 -- 565(3) 72,052 1,513 -- 50,006(15) 123,571
Customer lists and other
intangible assets, net... 88,360 -- 2,932(3) 91,292 (43) 700 269,816(15) 361,765
Deferred loan costs, net... 11,597 -- 17,549(4) 29,146 -- -- -- 29,146
----------- ------- ----------- ------------ -------- -------- ------------- ------------
$ 800,326 $4,954 $ 14,492 $ 819,772 $ 95,829 $424,761 $ 117,610 $ 1,457,972
----------- ------- ----------- ------------ -------- -------- ------------- ------------
----------- ------- ----------- ------------ -------- -------- ------------- ------------
LIABILITIES:
Bank debt.................. $ 695,600 -- $(321,785)(5) $ 373,815 $ 74,700 -- $ 472,242(16) $ 920,757
Notes Payable
Debentures............... -- -- 650,639(6) 650,639 -- -- -- 650,639
11% Notes................ 282,193 -- (282,193)(7) -- -- -- -- --
Other...................... 23,261 -- -- 23,261 54,286 -- (61,786)(17) 15,761
----------- ------- ----------- ------------ -------- -------- ------------- ------------
1,001,054 -- 46,661 1,047,715 128,986 -- 410,456 1,587,157
Cash overdraft............. -- -- -- -- -- 1,841 -- 1,841
Accounts payable........... 6,476 $ 948 -- 7,424 1,035 600 -- 9,059
Accrued expenses and
other.................... 44,812 2,831 (35)(8) 47,608 5,905 3,458 -- 56,971
Customer deposits and
prepayments.............. 1,652 148 -- 1,800 130 -- -- 1,930
Deferred income taxes...... 7,026 -- -- 7,026 -- 121,362 (121,362)(18) 7,026
Minority interest.......... 346 -- -- 346 -- -- -- 346
Equity in losses of
affiliated partnerships
in excess of
investment............... 3,251 -- 7(9) 3,258 -- -- (3,258)(19) --
----------- ------- ----------- ------------ -------- -------- ------------- ------------
1,064,617 3,927 46,633 1,115,177 136,056 127,261 285,836 1,664,330
Redeemable partners'
equity..................... 171,373 -- -- 171,373 -- -- (96,373)(20) 75,000
Partners' equity (deficit)... (435,664) 1,027 (32,141)(10) (466,778) (40,227) 297,500 (71,853)(21) (281,358)
----------- ------- ----------- ------------ -------- -------- ------------- ------------
$ 800,326 $4,954 $ 14,492 $ 819,772 $ 95,829 $424,761 $ 117,610 $ 1,457,972
----------- ------- ----------- ------------ -------- -------- ------------- ------------
----------- ------- ----------- ------------ -------- -------- ------------- ------------
</TABLE>
41
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS
(1) To reduce the cash balance to reflect the reduction of debt and the
retention of $5 million for ongoing business needs.
(2) To eliminate receivables of FHGLP management fees from Falcon Classic.
(3) To eliminate the historical book values of the tangible and intangible
assets of Falcon Classic and allocate the estimated fair values assigned to
those assets, as follows:
<TABLE>
<CAPTION>
AT 3/31/98
-------------
($ IN 000'S)
<S> <C>
Property, plant and equipment................................................................. $ 703
Franchise cost................................................................................ 1,448
Goodwill...................................................................................... 565
Customer lists and other intangibles.......................................................... 2,932
------
$ 5,648
------
------
</TABLE>
(4) To eliminate historical deferred loan costs and record new debt issuance
costs incurred in connection with the New Credit Facility and Debentures,
as follows:
<TABLE>
<CAPTION>
AT 3/31/98
-----------
($ IN
000'S)
<S> <C>
Eliminate historical deferred loan costs--Bank Credit Agreement............................... $ (6,672)
Eliminate historical deferred loan costs--11% Notes........................................... (4,628)
Record new debt discount and issuance costs................................................... 28,849
-----------
$ 17,549
-----------
-----------
</TABLE>
(5) To record changes in bank debt, as follows:
<TABLE>
<CAPTION>
AT 3/31/98
-----------
($ IN
000'S)
<S> <C>
Record the issuance of the Debentures......................................................... $(650,639)
Record estimated debt discount and issuance costs............................................. 28,849
Record estimated increase in bank debt for the Notes Tender................................... 302,000
Record estimated decrease in cash balance as additional reduction of bank debt................ (8,670)
Record estimated increase in bank debt for the acquisition of Falcon Classic.................. 6,675
-----------
$(321,785)
-----------
-----------
</TABLE>
(6) To record the issuance of the Debentures.
(7) To record redemption of $282.2 million of the Debentures pursuant to the
Debentures Tender.
(8) To record the elimination of Falcon Classic's accrued management fees
payable to FHGLP.
(9) To eliminate FHGLP's investment, through affiliates, in Falcon Classic.
(10) To record changes in partners' deficit, as follows:
<TABLE>
<CAPTION>
AT 3/31/98
-----------
($ IN
000'S)
<S> <C>
Eliminate Falcon Classic's partners' equity................................................... $ (1,027)
Record estimated premium and costs paid in Notes Tender....................................... (19,807)
Record the write-off of historical deferred loan costs--Bank Credit Agreement................. (6,672)
Record the write-off of historical deferred loan costs--11% Notes............................. (4,628)
Eliminate FHGLP's investment, through affiliates, in Falcon Classic........................... (7)
-----------
$ (32,141)
-----------
-----------
</TABLE>
(11) To reduce the cash balance to maintain $5 million for ongoing business
needs.
(12) To eliminate receivables of FHGLP for intercompany notes from Enstar
Finance Company.
(13) To eliminate prepaid expenses of FHGLP for Enstar Finance Company.
42
<PAGE>
(14) To eliminate an investment that will be retained by FHGLP.
(15) To eliminate the historical book values of the tangible and intangible
assets of Falcon Video and the TCI Systems and allocate the estimated fair
values assigned to those assets, as follows:
<TABLE>
<CAPTION>
AT 3/31/98
-------------------------------
FALCON TCI
VIDEO SYSTEMS TOTAL
--------- --------- ---------
($ IN 000'S)
<S> <C> <C> <C>
Property, plant and equipment............................................ $ 9,884 $ 81,774 $ 91,658
Franchise cost........................................................... (24,712) (253,156) (277,868)
Goodwill................................................................. 9,986 40,020 50,006
Customer lists........................................................... 60,443 209,403 269,846
Deferred costs........................................................... (30) -- (30)
--------- --------- ---------
$ 55,571 $ 78,041 $ 133,612
--------- --------- ---------
--------- --------- ---------
</TABLE>
(16) To record changes in bank debt, as follows:
<TABLE>
<CAPTION>
AT 3/31/98
-----------
($ IN
000'S)
<S> <C>
Refinance TCI Systems' indebtedness........................................................... $ 430,738
Partial redemption of the Falcon Video mezzanine Debentures................................... 40,588
Payment pursuant to the Incentive Plan........................................................ 6,555
Less historical cash balance of Falcon Video.................................................. (5,880)
Plus historical cash balance of Enstar Finance Company........................................ 241
-----------
$ 472,242
-----------
-----------
</TABLE>
(17) To eliminate the historical balance of Falcon Video's mezzanine notes upon
redemption and to eliminate intercompany notes payable of Enstar Finance
Company.
<TABLE>
<CAPTION>
AT 3/31/98
-----------
($ IN
000'S)
<S> <C>
Eliminate historical balance of Falcon Video's mezzanine Debentures........................... $ (54,286)
Eliminate historical balance of intercompany notes............................................ (7,500)
-----------
$ (61,786)
-----------
-----------
</TABLE>
(18) To eliminate the historical balance of deferred income taxes for the TCI
Systems.
(19) To eliminate FHGLP's equity in losses of Falcon Video in excess of
investment, and to eliminate FHGLP's equity in losses of Enstar in excess
of investment, which will be retained by FHGLP.
(20) To adjust for put rights of certain FHGLP limited partners and to
reclassify the balance in part. See "Risk Factors--Partner Liquidity
Rights" and the "Description of the Partnership Agreements--New FHGLP
Partnership Agreement."
(21) To record changes in partners' deficit, as follows:
<TABLE>
<CAPTION>
AT 3/31/98
-----------
($ IN
000'S)
<S> <C>
TCI assets contributed........................................................................ $ 496,903
Refinance TCI Systems' indebtedness........................................................... (429,738)
Eliminate TCI Systems' historical balance of partners' equity................................. (297,500)
Record Falcon Video partners' contribution in excess of their historical deficit.............. 71,080
Reclassify residual value of redeemable partners' equity...................................... 96,373
Less payment pursuant to the Incentive Plan................................................... (6,555)
Eliminate FHGLP's partners' equity for Enstar Finance Company................................. (1,246)
Eliminate an investment that will be retained by FHGLP........................................ (1,519)
Eliminate FHGLP's equity in losses of Enstar in excess of investment.......................... 349
-----------
$ (71,853)
-----------
-----------
</TABLE>
43
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The 1992 Cable Act required the FCC to, among other things, implement
extensive regulation of the rates charged by cable television systems for basic
and programming service tiers, installation and customer premises equipment
leasing. Compliance with those rate regulations has had a negative impact on the
Company's revenues and cash flow. The 1996 Telecom Act substantially changed the
competitive and regulatory environment for cable television and
telecommunications service providers. Among other changes, the 1996 Telecom Act
provides that the regulation of CPST rates will be terminated altogether in
1999. Because cable service rate increases have continued to outpace inflation
under the FCC's existing regulations, the Company 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 Company's business. Accordingly, the Company's historical
financial results as described herein are not necessarily indicative of future
performance. See "Legislation and Regulation."
This Prospectus 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 Company. 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
Company, as discussed more fully elsewhere in this Prospectus.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
The Company'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. 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 Company 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 a $349,000 reduction in the
amounts received from Falcon Classic. $73,000 of this reduction was due to the
March, 1998 sale of the Falcon Classic assets to the Partnership; the balance
was due to the one-time receipt by the Partnership during the three months ended
March 31, 1997 of previously deferred fees 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.
44
<PAGE>
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.
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.
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, net, 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 Company 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 of expense 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 Company'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.
EBITDA is calculated as operating income before depreciation and
amortization. See footnote 6 to "Selected Consolidated Financial Data." 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, or by 3.5%, as a
result of these factors.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
FHGLP's revenues increased from $217.3 million to $255.9 million, or by
17.7%, during 1997 compared to 1996. Of the $38.6 million net increase in
revenues, $31 million was due to the acquisition of the FCSC assets in July
1996, as discussed in Note 3 to the consolidated financial statements and $8.7
million was due to increased cable service revenues. These increases were
partially offset by a decrease of $1.1 million in management fees. The $8.7
million increase in cable service revenues was caused principally by increases
of $14 million due to increases in regulated service rates implemented during
1996 and 1997, $4.5 million related to increases in unregulated service rates
implemented during 1996 and in May 1997
45
<PAGE>
and $1.6 million due to the July 1, 1996 restructuring of The Disney Channel
from a premium channel to a tier channel. These increases were partially offset
by decreases of $5 million due to reductions in the number of premium
subscriptions for cable service, $2.8 million related to decreases in other
revenues (primarily installation revenue), $1.9 million related to reductions in
the number of regulated subscriptions for cable service and $1.8 million related
to the Eastern Georgia cable systems sold on July 1, 1996. As of December 31,
1997, the Owned Systems had approximately 563,000 basic subscribers and 166,000
premium service units.
Management and consulting fees earned by FHGLP decreased from $6.3 million
during 1996 to $5.2 million during 1997. The decreased fees resulted primarily
from the absence in 1997 of management fees earned from FCSC, which was managed
by FHGLP prior to July 12, 1996, partially offset by increased fees related to
recording in 1997 the balance of previously deferred 1995 management fees from
Falcon Classic.
Service costs increased from $60.3 million to $75.6 million, or by 25.4%,
during 1997 compared to 1996. Service costs represent costs directly
attributable to providing cable services to customers. Of the $15.3 million
increase in service costs, $9.8 million related to the acquisition of FCSC
assets, $4.2 million related to increases in programming fees paid to program
suppliers (including primary satellite fees) and $1.2 million related to
increases in property taxes, franchise fees and personnel costs. The increase in
programming costs included $279,000 related to the July 1, 1996 restructuring of
The Disney Channel discussed above.
General and administrative expenses increased from $36.9 million to $46.4
million, or by 25.9%, during 1997 compared to 1996. Of the $9.5 million
increase, $6 million related to the acquisition of FCSC assets, $2.8 million
related to increases in bad debt expense, $1.0 million related to the absence in
1997 of reimbursed expenses from FCSC, which was managed by FHGLP prior to July
12, 1996 and $677,000 related to a reduction in reimbursement from Falcon
International Communications ("FIC"), an affiliated entity of expenses incurred
in connection with international investments. These increases were partially
offset by a decrease of $849,000 related primarily to reduced insurance premiums
as a result of self-insuring the Company's cable distribution plant and
subscriber connections during 1997 and a $345,000 decrease in costs associated
with reregulation by the FCC.
Depreciation and amortization expense increased from $100.4 million to
$118.8 million, or by 18.4%, during 1997 compared with 1996. The $18.4 million
increase in depreciation and amortization expense was primarily due to the
acquisition of the FCSC assets partially offset by accelerated 1996 depreciation
related to asset retirements and to intangible assets becoming fully amortized.
Operating income decreased from $19.7 million to $14.9 million, or by 24.2%,
during 1997 compared to 1996. The $4.8 million decrease was principally due to
increases in operating expenses in excess of revenues and to an increase in
depreciation and amortization expense as discussed above.
Interest expense, net, including the effects of interest rate hedging
agreements, increased from $71.6 million to $79.1 million, or by 10.5%, during
1997 compared to 1996. The $7.5 increase in interest expense related primarily
to increased debt incurred to consummate the acquisition of the FCSC assets,
partially offset by lower average interest rates (7.7% during 1997 compared to
8% during 1996). Payment-in-kind interest expense associated with the Notes
(under which interest payment requirements are met by delivery of additional
Notes) amounted to $20.4 million during 1997 compared to $26.6 million in 1996
(the Company elected to pay interest expense in cash on March 15, 1998).
Interest rate hedging agreements resulted in additional interest expense of
$350,000 during 1997 and $1.0 million in 1996.
Due to the factors described above, the Company's net loss increased from
$50 million to $60.8 million, or by 21.7%, during 1997 compared to 1996.
EBITDA is calculated as operating income before depreciation and
amortization. See footnote 6 to "Selected Consolidated Financial Data." EBITDA
as a percentage of revenues decreased from 55.3%
46
<PAGE>
during 1996 to 52.3% in 1997. The decrease was primarily caused by increases in
programming costs and bad debt expense in excess of revenue increases as
described above, and to the acquisition of assets from FCSC (which had an EBITDA
as a percentage of revenues of 49%). EBITDA increased from $120.1 million to
$133.8 million, or by 11.4%, as a result of these factors.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
The Company's revenues increased from $151.2 million to $217.3 million, or
by 43.7%, during 1996 compared to 1995. Of the $66.1 million net increase in
revenues, $58.6 million was due to the acquisition in December 1995 of the
Falcon First assets and in July 1996 of the FCSC assets, as discussed in Note 3
to the consolidated financial statements and $9.8 million was due to increased
cable service revenues. These increases were partially offset by a decrease of
$2.3 million in management fees. The $9.8 million increase in cable service
revenues was caused principally by increases of $9.3 million due to increases in
regulated service rates implemented in April and October 1996, $2.2 million due
to increases related to other revenue producing items (primarily advertising
sales) and $1.1 million due to the restructuring of The Disney Channel from a
premium channel to a tier channel on July 1, 1996. These increases were
partially offset by decreases of $1.5 million due to reductions in the number of
regulated subscriptions for cable service, $1.1 million due to reductions in the
number of premium subscriptions for cable service and $241,000 related to rate
decreases implemented in 1995 to comply with the 1992 Cable Act. As of December
31, 1996, the Owned Systems had approximately 571,000 basic subscribers and
approximately 204,000 premium service units.
Management and consulting fees earned by the Company decreased from $8.6
million to $6.3 million during 1996 primarily due to the absence in 1996 of
management fees earned from Falcon First and FCSC, which were managed by FHGLP
prior to December 28, 1995 and July 12, 1996, respectively.
Service costs increased from $41.6 million to $60.3 million, or by 44.9%,
during 1996 compared to 1995. Service costs represent costs directly
attributable to providing cable services to customers. Of the $18.7 million
increase in service costs, $18.4 million was due to the acquisition of Falcon
First and FCSC assets and $1.9 million related to increases in programming fees
paid to program suppliers (including primary satellite fees). These increases
were partially offset by a net decrease of $1.7 million in other service costs
primarily related to increases in capitalized labor associated with increased
construction activity. The increase in programming costs included a $269,000
increase related to the restructuring of The Disney Channel discussed above.
General and administrative expenses increased from $30 million to $36.9
million, or by 22.8%, during 1996 compared to 1995. The $6.9 million increase
was caused principally by a $10.5 million increase related to the acquisition of
the Falcon First and FCSC assets partially offset by decreases of $928,000
related to the absence in 1996 of reimbursed expenses from FCSC, which was
managed by FHGLP prior to July 12, 1996, $900,000 related to certain one-time
charges occurring in 1995, $500,000 related to the recovery of previously
reserved bad debt expense and to $1.8 million related to other general and
administrative expenses.
Depreciation and amortization expense increased from $54.4 million to $100.4
million, or by 84.6%, during 1996 compared with 1995. Depreciation expense
increased by $37.1 million due to the acquisition of Falcon First and FCSC
assets during 1996, by $6.6 million due to accelerated depreciation related to
asset retirements and adjustments of the estimated useful lives of certain
tangible assets due to rebuilds and by approximately $2.1 million due to the
depreciation of property, plant and equipment additions. These increases were
partially offset by intangible assets becoming fully amortized and as a result
of the estimated useful lives of certain other intangible assets being extended.
Operating income decreased from $25.2 million to $19.7 million during 1996
compared to 1995. The $5.5 million decrease was principally due to a $7.5
million decrease in operating income related to the
47
<PAGE>
acquisition of the Falcon First and FCSC assets partially offset by increases in
revenues in excess of increases in operating expenses as discussed above.
Interest expense, net, including the effects of interest rate hedging
agreements, increased from $57.8 million to $71.6 million, or by 23.9%, during
1996 compared to 1995. Interest expense increased by $19.3 million primarily due
to the increased debt incurred to consummate the acquisitions of the Falcon
First and FCSC assets. These increases were partially offset by the absence in
1996 of $3.5 million of amortization of deferred loan costs and the effect of
lower average interest rates (8.0% during 1996 compared to 8.1% during 1995).
Payment-in-kind interest expense associated with the Notes (under which interest
payment requirements are met by delivery of additional Notes) and, in 1995 only,
payment-in-kind interest expense associated with Falcon Telecable's $20 million
aggregate principal amount of 11.56% notes payable, amounted to $26.6 million
during 1996 compared to $27.1 million in 1995. Interest rate hedging agreements
resulted in additional interest expense of $1.0 million during 1996 and $729,000
in 1995.
Due to the factors described above, the Company's net loss increased from
$25.2 million to $50 million, or by 98.1%, during 1996 compared to 1995.
EBTDA is calculated as operating income before depreciation and amortization
See footnote 6 to "Selected Consolidated Financial Data." EBITDA as a percentage
of revenues increased from 52.6% during 1995 to 55.3% in 1996. The increase was
primarily caused by revenue increases as described above. EBITDA increased from
$79.6 million to $120.1 million, or by 51%.
YEAR END RESULTS ADJUSTED FOR MATERIAL ACQUISITIONS
The historical results of operations of the Company for 1995 did not include
the results of Falcon First or FCSC, and for the period January 1, 1996 through
July 11, 1996 did not include the results of FCSC. Results of operations of the
Company in 1996 compared to 1995 were significantly affected by the acquisitions
of Falcon First on December 28, 1995 and of FCSC on July 12, 1996. Falcon First
and FCSC were managed by FHGLP prior to and subsequent to their acquisitions and
have been affected by the same trends in operating costs and revenues as all of
the Company's cable systems. Accordingly, the Company believes that it is more
meaningful to compare 1997 historical operations to 1996 operations, and to
compare 1996 operations to 1995 operations, on an as adjusted basis assuming
that the acquisitions of Falcon First and FCSC had occurred on January 1, 1995.
The adjusted results include the historical results of Falcon First and FCSC, as
well as the effect of increased amortization for both periods relating to the
allocated purchase price of the intangible assets acquired, and the effect of
increased interest expense related to the increase in debt incurred to finance
the acquisitions. Set forth in the table below are adjusted results of
operations for 1995 and 1996 prepared on this basis and 1997 historical results
of operations. The as adjusted results are not necessarily indicative of what
would have occurred had the acquisitions been made as of that date or of results
which may occur in the future.
48
<PAGE>
<TABLE>
<CAPTION>
AS ADJUSTED YEAR ENDED ACTUAL YEAR ENDED
DECEMBER 31, DECEMBER 31,
------------------------ -----------------
1995 1996 1997
----------- ----------- -----------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
OPERATIONS STATEMENT DATA
Revenues......................................... $ 231,498 $ 244,905 $ 255,886
Costs and expenses............................... (112,141) (111,124) (122,080)
Depreciation and amortization.................... (118,772) (126,832) (118,856)
----------- ----------- -----------------
Operating income................................. 585 6,949 14,950
Interest expense, net............................ (94,975) (83,333) (79,137)
Equity in net income (loss) of investee
partnerships................................... 66 (44) 443
Other income, net................................ 20,355 649 885
Income tax benefit............................... 5,994 1,122 2,021
----------- ----------- -----------------
Loss before extraordinary item................... $ (67,975) $ (74,657) $ (60,838)
----------- ----------- -----------------
----------- ----------- -----------------
OTHER OPERATING DATA
EBITDA(1)........................................ $ 119,357 $ 133,781 $ 133,806
EBITDA to revenues............................... 51.6% 54.6% 52.3%
</TABLE>
- ------------------------
(1) See footnote 6 to "Selected Consolidated Financial Data."
1997 HISTORICAL COMPARED TO 1996 (AS ADJUSTED FOR THE ACQUISITION OF FCSC)
FHGLP's revenues increased from $244.9 million to $255.9 million, or by
4.5%, during 1997 compared to 1996. Of the $11 million net increase in revenues,
$10.7 million was due to increased cable service revenues and $333,000 was due
to increases in management fees. The $10.7 million increase in cable service
revenues was caused principally by increases of $12.6 million due to increases
in regulated service rates implemented during 1996 and 1997, $4 million related
to increases in unregulated service rates implemented during 1996 and in May
1997, $1.6 million due to the July 1, 1996 restructuring of The Disney Channel
from a premium channel to a tier channel and $1.1 million due to increases in
advertising sales. These increases were partially offset by decreases of $4.5
million due to reductions in the number of premium subscriptions for cable
service, $1.8 million related to the Eastern Georgia cable systems sold on July
1, 1996, $1.7 million due to reductions in the number of regulated subscriptions
for cable service and $780,000 related to decreases in other revenues. As of
December 31, 1997, the Owned Systems had approximately 563,000 basic subscribers
and 166,000 premium service units. Excluding the Eastern Georgia cable systems
sold on July 1, 1996, FHGLP's revenues increased 5.3% during 1997 compared to
1996.
Management and consulting fees earned by FHGLP increased from $4.9 million
during 1996 to $5.2 million during 1997. The increased fees resulted primarily
from recording in 1997 the balance of previously deferred 1995 fees from Falcon
Classic.
Service costs increased from $68.9 million to $75.6 million, or by 9.7%,
during 1997 compared to 1996. Service costs represent costs directly
attributable to providing cable services to customers. Of the $6.7 million
increase in service costs, $5 million related to increases in programming fees
paid to program suppliers (including primary satellite fees) and $1.7 million
related to increases in property taxes, franchise fees and personnel costs. The
increase in programming costs included $340,000 related to the July 1, 1996
restructuring of The Disney Channel discussed above.
General and administrative expenses increased from $42.2 million to $46.4
million, or by 10.1%, during 1997 compared to 1996. Of the $4.2 million
increase, $2.9 million related to increases in bad debt expense, $1.0 million
related to the absence in 1997 of reimbursed expenses from FCSC, which was
49
<PAGE>
managed by FHGLP prior to July 12, 1996, $810,000 related to increases in
personnel costs and $677,000 related to a reduction in reimbursement from Falcon
International Communications, LLC ("FIC"), an affiliate of the Company, of
expenses incurred in connection with international investments. These increases
were partially offset by a decrease of $797,000 related primarily to reduced
insurance premiums as a result of self-insuring the Company's cable distribution
plant and subscriber connections during 1997 and a $334,000 decrease in costs
associated with reregulation by the FCC.
Depreciation and amortization expense decreased from $126.8 million to
$118.8 million, or by 6.3%, during 1997 compared with 1996. The $8 million
decrease in depreciation and amortization expense was primarily due to
accelerated 1996 depreciation related to asset retirements and to intangible
assets becoming fully amortized.
Operating income increased from $6.9 million to $14.9 million, or by 115.1%,
during 1997 compared to 1996. The $8 million increase was primarily due to a
decrease in depreciation and amortization expense as discussed above. Excluding
the Eastern Georgia cable systems sold on July 1, 1996, the Company's operating
income increased by $8.9 million.
Interest expense, net, including the effects of interest rate hedging
agreements, decreased from $83.3 million to $79.1 million, or by 5%, during 1997
compared to 1996. The decrease was primarily due to lower average interest rates
(8.9% during 1997 compared to 9.1% during 1996) and lower average debt balances
outstanding. Payment-in-kind interest expense associated with the Notes, under
which interest payment requirements are met by delivery of additional Notes,
amounted to $20.4 million during 1997 compared to $26.6 million in 1996.
Interest rate hedging agreements resulted in additional interest expense of
$350,000 during 1997 and $1.0 million in 1996.
Due to the factors described above, the Company's net loss decreased from
$74.7 million to $60.8 million, or by 18.5%, during 1997 compared to 1996.
EBITDA as a percentage of revenues decreased from 54.6% during 1996 to 52.3%
in 1997. The decrease was primarily caused by increases in programming costs and
bad debt expense as a percent of revenue. EBITDA remained relatively unchanged
at $133.8 million during 1997 and 1996. Excluding the Eastern Georgia cable
systems sold on July 1, 1996, the Company's EBITDA increased from $132.9 million
to $133.8 million, or by 0.7%. See footnote 6 to "Selected Consolidated
Financial Data."
1996 COMPARED TO 1995 (AS ADJUSTED FOR THE ACQUISITIONS OF FALCON FIRST AND
FCSC).
The Company's revenues increased from $231.5 million to $244.9 million, or
by 5.8%, during 1996 compared to 1995. Of the $13.4 million net increase in
revenues, $13 million was due to increased cable service revenues and $444,000
was due to increases in management fees. The $13 million increase in cable
service revenues was caused principally by increases of $13.3 million due to
increases in regulated service rates implemented in April and October 1996, $3.1
million due to increases related to other revenue-producing items (primarily
advertising sales) and $1.7 million due to the restructuring of The Disney
Channel from a premium channel to a tier channel on July 1, 1996. These
increases were partially offset by decreases of $1.7 million due to reductions
in the number of regulated subscriptions for cable service, $1.6 million related
to cable systems sold during 1996, $1.4 million due to reductions in the number
of premium subscriptions for cable service and $388,000 related to rate
decreases implemented in 1995 to comply with the 1992 Cable Act. As of December
31, 1996, the Owned Systems had approximately 571,000 basic subscribers and
approximately 204,000 premium service units. Excluding the Eastern Georgia cable
systems sold on July 1, 1996, the Company's revenues increased 6.6% during 1996
compared to 1995.
Service costs increased from $67.9 million to $69 million, or by 1.6%,
during 1996 compared to 1995. Service costs represent costs directly
attributable to providing cable services to customers. The $1.1 million increase
in service costs was primarily caused by a $1.8 million increase in programming
fees paid to program suppliers (including primary satellite fees), partially
offset by a $759,000 decrease in property
50
<PAGE>
taxes. The increase in programming costs included a $340,000 increase related to
the restructuring of The Disney Channel discussed above.
General and administrative expenses decreased from $44.3 million to $42.2
million, or by 4.7%, during 1996 compared to 1995. Of the $2.1 million decrease,
$900,000 related to certain one-time charges occurring in 1995, $500,000 related
to the recovery of previously reserved bad debt expense, and $687,000 related
primarily to decreases in personnel costs and other expenses.
Depreciation and amortization expense increased from $118.8 million to
$126.8 million, or by 6.8%, during 1996 compared with 1995. Depreciation expense
increased by approximately $6.8 million due to accelerated depreciation related
to asset retirements and adjustments of the estimated useful lives of certain
tangible assets due to rebuilds and by approximately $4.5 million due to the
depreciation of property, plant and equipment additions. These increases were
substantially offset by intangible assets becoming fully amortized and as a
result of the estimated useful lives of certain other intangible assets being
extended.
Operating income increased from $585,000 to $6.9 million during 1996
compared to 1995. The $6.4 million increase was principally due to increases in
revenues in excess of increases in operating expenses as discussed above.
Excluding the Eastern Georgia cable systems sold on July 1, 1996, the Company's
operating income increased by $7.2 million.
Interest expense, net, including the effects of interest rate hedging
agreements, decreased from $95 million to $83.3 million, or by 12.3%, during
1996 compared to 1995. The decrease was due to interest expense of $3.5 million
related to the increased amortization of deferred loan costs recorded during
1995, the effect of lower average interest rates (9.1% during 1996 compared to
9.4% during 1995) and lower average debt balances outstanding. Payment-in-kind
interest expense associated with the Notes (under which interest payment
requirements are met by delivery of additional Notes) and, in 1995 only,
payment-in-kind interest expense associated with Falcon Telecable's $20 million
aggregate principal amount of 11.56% Notes payable, amounted to $26.6 million
during 1996 compared to $27.1 million in 1995. Interest rate hedging agreements
resulted in additional interest expense of $1.0 million during 1996 and $729,000
in 1995.
Due to the factors described above, the Company's net loss increased from
$68 million to $74.7 million, or by 9.8%, during 1996 compared to 1995.
EBITDA as a percentage of revenues increased from 51.6% during 1995 to 54.6%
in 1996. The increase was primarily caused by revenue increases as described
above. EBITDA increased from $119.4 million to $133.8 million, or by 12.1%.
Excluding the Eastern Georgia cable systems sold on July 1, 1996, the Company's
EBITDA increased from $117.7 million to $132.9 million, or by 12.9%. See
footnote 6 to "Selected Consolidated Financial Data."
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company'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 Company spent $76.3
million during 1997 on capital expenditures. In addition to the purchase of
substantially all of the Falcon Classic systems in March 1998 for $76.8 million
and the subsequent July 1998 purchase of Falcon Classic's Somerset system for
approximately $6.5 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 Company'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.
51
<PAGE>
As noted in "Business--Overview of the Falcon Systems--The Owned Systems,"
many of the Falcon Systems have almost no available channel capacity with which
to add new channels or to further expand pay-per-view offerings to customers. As
a result, significant amounts of capital for future upgrades will be required in
order to increase available channel capacity, improve quality of service and
facilitate the expansion of new services, such as advertising, pay-per-view, new
unregulated tiers of satellite-delivered services and home shopping, so that the
Falcon Systems remain competitive within the industry. For the three-year period
ended December 31, 1997, capital expenditures for line extensions, rebuilds and
upgrades, and new equipment for the Company totaled approximately $171.2
million, with approximately $88 million of these capital expenditures being
attributable to upgrading and rebuilding existing distribution plant.
The Company postponed a number of rebuild and upgrade projects that were
planned for 1994 and 1995 because of the uncertainty related to implementation
of the 1992 Cable Act and the impact thereof on the Company's business and
access to capital. As a result, even after giving effect to certain upgrades and
rebuilds that were started or completed in 1996 and 1997, the Company's systems
are significantly less technically advanced than had been expected prior to the
implementation of re-regulation. The Company believes that the delays in
upgrading many of its systems will, under present market conditions, most likely
have an adverse effect on the value of the systems compared to systems that have
been rebuilt to a higher technical standard. The Company's management has
selected a technical standard that incorporates a fiber-to-the feeder
architecture for the majority of its systems that are to be rebuilt. A system
built with this type of architecture can provide for future channels of analog
video service. Such a system will also permit the introduction of high-speed
data transmission and telephony services in the future after incurring
incremental capital expenditures related to these services, as well as new
digital services. The Company is also evaluating the use of digital compression
technology in its systems. See "Business--Technological Developments" and
"--Digital Compression."
The Company's future capital expenditure plans are, however, all subject to
the availability of adequate capital on terms satisfactory to the Company, as to
which there can be no assurances. The Company plans to finance capital
expenditures with cash flow from operations and borrowings under the New Credit
Facility. Subject to the Company's ability to remain in compliance with certain
covenants of the New Credit Facility and the Indenture for the Debentures, the
Company presently intends to spend approximately $101 million for capital
expenditures in 1998.
On July 12, 1996, the Company amended its principal credit facility with the
Bank Credit Agreement, which provided for aggregate borrowing capacity of $775
million, in order to finance the $247.4 million acquisition of the assets of
FCSC, pay transaction and financing costs of approximately $5.6 million and
prepay $28.6 million of subordinated debt. As of March 31, 1998, the amount
outstanding under the Bank Credit Agreement was $695.6 million and borrowings
under the Bank Credit Agreement bore interest at an average rate of 7.9%
(including the effect of interest rate hedging agreements).
The Company 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 Company's variable rate debt. These agreements expire at
various times through July 2001. In addition to these agreements, the Company
has an 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 Company pays variable LIBOR
rates subject to a cap of 5.49%.
On June 30, 1998, the Company entered into the New Credit Facility, which
provides for three committed credit facilities (one revolving credit facility
and two term loans) and one uncommitted $350 million supplemental credit
facility (the terms of which will be negotiated at the time the Company makes a
request to draw on such facility). See "Description of Certain Indebtedness--New
Credit
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Facility." The Owned Subsidiaries, other than Falcon Video, are the initial
borrowers under the New Credit Facility. The Company borrowed approximately
$425.8 million under the New Credit Facility on June 30, 1998 approximately $329
million of which was used to repay the remaining indebtedness outstanding under
the Bank Credit Agreement. The remaining proceeds resulted in an excess cash
balance of approximately $90 million (after payment of approximately $4.5
million in fees and expenses related to the New Credit Facility). At June 30,
1998, the weighted average interest rate under the New Credit Facility was 9.4%,
and the Company's aggregate remaining borrowing capacity under the New Credit
Facility (excluding the supplemental credit facility) was $125 million.
Management believes that borrowings under the New Credit Facility together with
cash flow from operations will be adequate to meet the Company's liquidity needs
for the forseeable future.
On March 29, 1993, FHGLP issued $175 million aggregate principal amount of
its 11% Senior Subordinated Notes due 2003 in connection with FHGLP's formation.
As a result of payment-in-kind interest payments under the Notes, the aggregate
principal of the Notes outstanding as of March 31, 1998 had increased to $282.2
million. Future interest payments are permitted to be paid in kind until 2000,
when cash payment is required. However FHGLP, as permitted by the terms of the
Indenture for the Notes, elected to begin to pay interest payments in cash
beginning with the payment due March 15, 1998. This election required an
amendment to the Bank Credit Agreement, which had prohibited cash interest
payments on the Notes until September 30, 2000. FHGLP commenced the Notes Tender
on April 20, 1998, and the Notes Tender expired on May 18, 1998, and FHGLP
repurchased approximately $247.8 million aggregate principal amount of the Notes
on May 19, 1998 in accordance with the terms of the Notes Tender. The Company
will redeem the remaining approximately $34.4 million aggregate principal amount
of the outstanding Notes prior to October 15, 1998. In addition, in connection
with the Notes Tender, FHGLP solicited and received sufficient consents to amend
the indenture governing the Notes to eliminate certain covenants and events of
default. See "Description of Certain Indebtedness--11% Senior Subordinated Notes
due 2003."
On April 3, 1998, the Company consummated the offering of the Debentures.
The net proceeds of approximately $631 million were used to repay certain
outstanding indebtedness under the Bank Credit Agreement. Semiannual interest
payments with respect to Senior Debentures will be approximately $15.7 million
in the aggregate, commencing on October 15, 1998. No interest on the Senior
Discount Debentures will be payable prior to April 15, 2003, unless the Issuers
elect to pay cash interest. After April 15, 2003, semiannual interest payments
will be approximately $35.9 million in the aggregate. The Company anticipates
that cash flow from operations and, if necessary, borrowings under the New
Credit Facility (or a successor credit facility) will be adequate to meet its
interest payment obligations under the Debentures.
If the closing of the TCI Transaction occurs prior to consummation of the
Notes Redemption, New Falcon will assume the rights and obligations of FHGLP
under the Indenture for the remaining outstanding Notes and will be substituted
for FHGLP as an obligor under such Notes. In addition, New Falcon will assume
certain other indebtedness of FHGLP and TCI, including the Debentures and
amounts outstanding under the New Credit Facility. Immediately following the
consummation of the TCI Transaction, New Falcon will contribute substantially
all of its assets to New Falcon II (excluding the capital stock of FFC), subject
to certain indebtedness to be assumed by New Falcon II, including any Notes and
any indebtedness then outstanding under the New Credit Facility, but excluding
the Debentures. Thus, New Falcon II will be substituted for New Falcon as the
obligor under such Notes and become the sole borrower under the New Credit
Facility.
In connection with the decision to make interest payments on the Notes in
cash and the anticipated redemption of the Notes, the Company entered into
various interest rate swap agreements with three banks on February 10, 1998 in
order to reduce interest costs. The agreements call for the Company 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
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Company 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.
On June 6, 1997, FHGLP and Enstar formed Enstar Finance Company, LLC
("EFC"), an unrestricted subsidiary under the Indenture. On September 30, 1997,
EFC obtained a secured bank facility with $35 million of availability from two
agent banks in order to obtain funds that would be loaned to certain Enstar
limited partnerships. The lenders advanced $7.5 million to EFC, which in turn
advanced those funds to a number of Enstar limited partnerships. The EFC bank
facility is non-recourse to the Company and matures on August 31, 2001, at which
time all funds previously advanced will be due in full.
Beginning in August 1997, FHGI elected to self-insure the Company's cable
distribution plant and subscriber connections against property damage as well as
possible business interruptions caused by such damage. The decision to
self-insure was made due to the geographical diversification of the Company's
asset base and due to significant increases in the cost of insurance coverage
and decreases in the amount of insurance coverage available. The Company
continues to purchase insurance coverage in amounts it views as appropriate for
all other property, liability, automobile, workers' compensation and other types
of insurable risks.
FHGLP is a holding company which employs all of the Company's management
personnel. Prior to October 1995, FHGLP conducted certain international
investment and development activities. In October 1995, FHGLP sold certain of
its international investments to FIC for approximately $6.3 million. FHGLP was
reimbursed $1.9 and $1.1 million in 1995 and 1996, respectively, for operating
costs related to these investments. The Company expects to incur no further
liquidity obligations in respect of international investments, although the
amount of reimbursement FHGLP receives from FIC with respect to the salaries of
certain of its employees has been significantly reduced for 1997 and subsequent
periods. All of the Owned Systems are owned by subsidiaries of FHGLP.
Accordingly, FHGLP is financially dependent on the receipt of permitted payments
from the Owned Systems, management and consulting fees from domestic cable
ventures, and the reimbursement of specified expenses by certain of the
Affiliated Systems to fund its operations. Expected increases in the funding
requirements of FHGLP combined with limitations on its sources of cash may
create liquidity issues for FHGLP in the future. Specifically, the former bank
credit agreement permitted the Owned Subsidiaries to remit to FHGLP no more than
3.75% of their net cable revenues, as defined, in any year. The Bank Credit
Agreement increased that amount to 4.25% effective July 12, 1996. For the year
ended December 31, 1996, the limit was approximately $8.4 million ($3.5 million
was actually remitted), for 1997 the limit was approximately $10.4 million ($6.8
million was actually remitted), and for the three-month period ended March 31,
1998, the limit was $2.8 million ($2.6 million was actually remitted). As a
result of the 1998 acquisition of the Falcon Classic systems, FHGLP 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 Systems. If the
TCI Transaction is consummated as presently structured, as to which there can be
no assurance, the management personnel will become employees of New Falcon and
New Falcon will be the obligor on the Debentures, but New Falcon II will be the
obligor under any Notes that remain outstanding after the Notes Tender and will
be the sole borrower under the New Credit Facility. Consequently, New Falcon
will have the same liquidity issues as outlined above and will continue to be
dependent on distributions from New Falcon II, subject to restrictions in the
New Credit Facility. See "Risk Factors--Dependence on Receipt of Funds From
Operating Subsidiaries to Service Debentures; Structural Subordination."
The Company 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 Company 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 Company
cannot predict whether it will have access to adequate
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capital in the future to make further acquisitions of cable systems. The Company
frequently considers opportunities to sell assets that it views as
non-strategic.
Effective as of December 31, 1997, FHGLP and certain other parties entered
into a settlement agreement resolving and settling a putative class action
lawsuit relating to FHGLP's acquisition of the Falcon Classic systems. In
exchange for a complete dismissal of the lawsuit with prejudice and releases,
and without admitting or conceding any fault, liability or wrongdoing
whatsoever, FHGLP and the other defendants agreed to establish a settlement fund
which, net of agreed-upon insurance proceeds, amounted to $750,000 plus interest
at 10% on the gross settlement amount of $1,250,000 from January 1, 1998 through
closing of the sale, as defined in the settlement agreement. FHGLP estimates its
portion of the total net amount of the settlement, including its legal fees,
will be approximately $1.0 million. The defendants also agreed to pay interest
at a rate of 10% per annum on the projected net sales proceeds of $64 million
from January 1, 1998 through the closing of the sale of substantially all of the
Falcon Classic systems, which occurred in March 1998. Such interest increased
the aggregate sales price of these systems by $1.1 million.
A putative class action complaint has been filed against certain Falcon
Systems in Missouri alleging that the systems' practice of charging a fee to
subscribers whose payments are late constitutes an invalid liquidated damages
provision. Plaintiffs seek recovery of all late fees paid to those systems as a
class purporting to consist of all subscribers in Missouri who were assessed
such fees during the applicable limitations period. Similar lawsuits have been
filed against various other MSOs around the country. Although there can be no
assurances, based in part upon the outcome of other similar lawsuits against
other MSOs, the Company's management does not believe that the disposition of
the Missouri lawsuit will have a material adverse effect on the Company. In
addition, the Company understands that certain of the TCI Systems are involved
with similar lawsuits.
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 of FHGLP
become redeemable at a later date, subject to certain shared liquidity rights.
In 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 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 preferred 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 all such
partnership interests (other than Class C preferred partnership interests, which
are valued at their liquidation value as determined in accordance with the
Existing FHGLP Partnership Agreement) 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
estimated purchase price of such non-preferred partnership interests at March
31, 1998 was approximately $120 million, based on preliminary estimates by
management which are subject to change. 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
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will generally be determined based on a formula due to the preferred status of
such Class C interests. The Class C interests had an aggregate liquidation value
of $51.4 million as of December 31, 1997. Certain of the Company's debt
agreements (including the New Credit Facility) restrict the Company'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 funds
to meet such obligations on terms acceptable to FHGLP, or at all. FHGLP has not
identified a source for funding any material redemption obligation at this time.
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 New FHGLP Partnership Agreement and the
New Falcon Partnership Agreement. See "Risk Factors-- Obligations of FHGLP to
Redeem Limited Partnership Interests," "The TCI Transaction" and "Description of
the Partnership Agreements--Existing FHGLP Partnership Agreement" and "--New
FHGLP Partnership Agreement."
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 Company'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. Management has commenced an assessment of its Year 2000 business risks and
its exposure to computer systems, to operating equipment which is date sensitive
and to the interface systems of its vendors and service providers. Based on a
preliminary study, the Company's management has concluded that certain of its
information systems were not Year 2000 compliant and has elected to replace such
software and hardware with Year 2000 compliant applications and equipment,
although the decision to replace major portions of such software and hardware
had previously been made without regard to the Year 2000 issue based on
operating and performance criteria. 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. Management
expects to install substantially all of the new systems in 1998, with the
remaining systems to be installed in the first half of 1999. The total
anticipated cost, including replacement software and hardware, is expected to be
approximately $1.5 million.
In addition to evaluating internal systems, the Company's management is
currently assessing its exposure to risks associated with its operating and
revenue generating equipment and has also initiated communications with
significant third party vendors and service suppliers to determine the extent to
which the Company's interface systems are vulnerable should those third parties
fail to solve their own Year 2000 problems on a timely basis. Management
currently expects that the cost to replace non-compliant equipment will be
determined during the third quarter of 1998. There can be no assurance that the
systems of other companies on which the Company's systems rely will be timely
converted and that the failure to do so would not have an adverse impact on the
Company's business. The Company continues to closely monitor developments with
its vendors and service suppliers.
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The following table sets forth, on a historical basis, for the periods
indicated certain items from FHGLP's Consolidated Statements of Cash Flows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------- THREE MONTHS ENDED
1995 1996 1997 MARCH 31, 1998
---------- ----------- ---------- -------------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Net cash provided by operating activities:
Net loss............................................. $ (25,235) $ (49,985) $ (60,838) $ (18,909)
Payment-in-kind interest expense..................... 27,127 26,580 20,444 --
Depreciation and amortization........................ 54,386 100,415 118,856 31,079
Gain on sale of securities........................... (13,267) (2,264) -- --
Other................................................ 151 15,885 1,075 (9,441)
---------- ----------- ---------- --------
$ 43,162 $ 90,631 $ 79,537 $ 2,729
---------- ----------- ---------- --------
---------- ----------- ---------- --------
Net cash used in investing activities:
Capital expenditures................................. $ (37,149) $ (57,668) $ (76,323) $ (18,021)
Sale of available-for-sale securities................ 13,487 9,502 -- --
Acquisitions of cable television systems, net of
cash............................................... 2,655 (247,397) -- (76,789)
Proceeds from sale of cable systems.................. -- 15,000 -- --
Other................................................ (1,667) (3,684) 36 (508)
---------- ----------- ---------- --------
$ (22,674) $ (284,247) $ (76,287) $ (95,318)
---------- ----------- ---------- --------
---------- ----------- ---------- --------
Net cash (used in) provided by financing activities:
Net borrowings, (repayments)......................... $ (9,866) $ 191,022 $ (3,222) $ 89,834
Capital contributions................................ -- 5,000 93 --
Deferred loan costs.................................. (6,320) (3,823) (29) --
Other................................................ 280 -- 192 --
---------- ----------- ---------- --------
$ (15,906) $ 192,199 $ (2,966) $ 89,834
---------- ----------- ---------- --------
---------- ----------- ---------- --------
</TABLE>
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 Company 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 the 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
cash provided of $89.8 million 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.
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1997 COMPARED TO 1996
Cash provided by operating activities (including interest expense and
management fee income) decreased from $90.6 million to $79.5 million, or by
12.3%, for the year ended December 31, 1997 compared to the corresponding period
in 1996. The $11.1 million decrease resulted primarily from a net decrease of $5
million of cash provided or used by other operating items (changes in
receivables, cable materials and supplies, payables, accrued expenses and
subscriber deposits and prepayments), and a $6.1 million decrease in
payment-in-kind interest expense related to the Debentures.
Cash used in investing activities decreased from $284.2 million to $76.3
million, or by 73.2%, for the year ended December 31, 1997 compared to the
corresponding period in 1996. The decrease was primarily due to the 1996
acquisition of FCSC's cable assets for $247.4 million, partially offset by an
increase in capital expenditures of $18.7 million. Additionally, 1996 included
cash proceeds from the sale of a system and net proceeds received upon the sale
of its shares in Comcast UK.
Cash from financing activities decreased from cash provided of $192.2
million for the year ended December 31, 1996 to a use of cash of $3 million in
1997. The change was due primarily to decreased borrowing activity in 1997.
1996 COMPARED TO 1995
Cash provided by operating activities (including interest expense and
management fee income) increased from $43.2 million to $90.6 million, or by
109.7%, for the year ended December 31, 1996 compared to the corresponding
period in 1995. The $47.4 million increase resulted primarily from a net
increase of $47.9 million of cash provided or used by other operating items
(changes in receivables, cable materials and supplies, payables, accrued
expenses and subscriber deposits and prepayments).
Cash used in investing activities increased from $22.7 million to $284.2
million, or by 1,152.0%, for the year ended December 31, 1996 compared to the
corresponding period in 1995. The change was due primarily to the $247.4 million
acquisition on July 12, 1996 of the FCSC assets and an increase in capital
expenditures of $20.5 million. These increases were partially offset by $15
million of cash provided in 1996 in connection with the sale of a system and $4
million less proceeds from the sale of securities.
Cash flows from financing activities increased from a use of cash of $15.9
million for the year ended December 31, 1995 to cash provided of $192.2 million
in 1996, or a change of $208.1 million. The change was due primarily to
increased net borrowings in 1996.
INFLATION
Certain of the Company's expenses, such as those for wages and benefits,
equipment repair and replacement, and billing and marketing generally increase
with inflation. However, the Company 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. See "Legislation and Regulation."
RECENT ACCOUNTING PRONOUNCEMENTS
The Company has considered the effects of recently issued accounting
pronouncements from the Financial Accounting Standards Board and the American
Institute of Certified Public Accountants and currently believes that the impact
of such standards will not have a material impact on the Company's financial
position and results of operations.
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BUSINESS
INTRODUCTION
The Company owns or manages cable television systems in 26 states. On
December 30, 1997, FHGLP entered into a definitive agreement with TCI to
consolidate substantially all of the Company's cable television systems and
certain systems owned and operated by affiliates of TCI. Upon consummation of
the TCI Transaction, the Company will be the 13th largest cable television
operator in the United States, serving subscribers principally in California,
Oregon, Washington, Missouri and Alabama. After giving effect to the TCI
Transaction, the Company would have served approximately 1,070,000 basic
subscribers at March 31, 1998.
The Company's Owned Systems are located in 23 states, principally
California, Oregon, Missouri, Georgia, North Carolina, Texas and Kentucky. As of
March 31, 1998, the Owned Systems passed approximately 1,008,000 homes and
served approximately 607,000 basic subscribers. The Company also holds varying
equity interests in and manages certain other cable television systems. The
Affiliated Systems are located in 14 states, including South Carolina, Kentucky,
Illinois, Washington and Tennessee. As of March 31, 1998, the Affiliated Systems
passed approximately 262,000 homes and served approximately 170,000 basic
subscribers.
The Company is a leading operator of cable systems primarily located in
small to medium-sized communities and suburban areas surrounding large and
medium-sized cities proximate to many of the major DMAs. Management believes
that the Company's cable systems generally have higher operating cash flow
margins and more predictable operating cash flow and are subject to less risk of
increased competition than systems in large urban cities. In many of the
Company's markets, consumers have access to only a limited number of
over-the-air broadcast television signals. In addition, these markets typically
offer fewer competing entertainment alternatives than large urban cities.
Management believes that its cable television systems generally have a more
stable customer base and generally have lower labor, operating and system
construction costs than systems in urban markets.
A cable television system receives television, radio and data signals at the
system's "headend" site by means of over the air antennas, microwave relay
systems and satellite earth stations. These signals are then modulated,
amplified and distributed, primarily through coaxial and fiber optic
distribution systems, to customers who pay a fee for this service. Cable
television systems may also originate their own television programming and other
information services for distribution through the system. Cable television
systems generally are constructed and operated pursuant to non-exclusive
franchises or similar licenses granted by local governmental authorities for a
specified term of years.
The Falcon Systems offer customers various levels (or "tiers") of cable
services consisting of broadcast television signals of local network,
independent and educational stations, a limited number of television signals
from so-called "super stations" originating from distant cities (such as WGN),
various satellite-delivered, non-broadcast channels (such as Cable News Network
("CNN"), MTV: Music Television ("MTV"), the USA Network ("USA"), ESPN, Turner
Network Television ("TNT"), WTBS and The Disney Channel), programming originated
locally by the cable television system (such as public, educational and
governmental access programs) and informational displays featuring news,
weather, stock market and financial reports and public service announcements. A
number of the satellite services are also offered in certain packages. For an
extra monthly charge, the Falcon Systems offer "premium" television services to
their customers. These services (such as Home Box Office ("HBO") and Showtime)
are satellite channels that consist principally of feature films, live sporting
events, concerts and other special entertainment features, usually presented
without commercial interruption.
A customer generally pays an initial installation charge and fixed monthly
fees for basic, expanded basic, other tiers of satellite services, premium
programming services and the lease of cable-related equipment. Such monthly
service fees constitute the primary source of revenues for the Falcon Systems.
In
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addition to customer revenues, the Falcon Systems receive revenue from
additional fees paid by customers for pay-per-view programming of movies and
special events and from the sale of available advertising spots on
advertiser-supported programming. The Falcon Systems also offer to their
customers home shopping services, which pay the Company a share of revenues from
sales of products in the System's service areas, in addition to paying the
System a separate fee in return for carrying their shopping service. Certain
other new channels have also recently offered the Falcon Systems certain
inducements in return for carrying their service. Due to a general lack of
channel capacity available for adding new channels, management cannot predict
the impact of such potential benefits on the Company's business.
Led by the Chairman of the Board and Chief Executive Officer of FHGI, Marc
B. Nathanson, and the President and Chief Operating Officer of FHGI, Frank J.
Intiso, Falcon's senior management has on average over 19 years of experience in
the cable industry and has worked together for over a decade. Mr. Nathanson, a
30-year veteran of the cable business, is a director and a member of the
Executive Committee of the National Cable Television Association and a past
winner of its prestigious Vanguard Award for outstanding contributions to the
growth and development of the cable television industry. Mr. Intiso is a 19-year
veteran of the cable industry. He also serves as Immediate Past Chair of the
California Cable Television Association and is active in various industry boards
including the Board of the Community Antenna Television Association ("CATA").
BUSINESS STRATEGY
FOCUS ON SMALL AND MEDIUM-SIZED MARKETS. The Company has followed a
systematic approach to acquiring, consolidating, operating and developing cable
television systems based on the primary goal of increasing operating cash flow
while maintaining the quality of its services. The Company's business strategy
has focused on serving small to medium-sized communities and the suburbs of
certain cities, including Los Angeles, St. Louis, Eugene, Salem, Portland
(Oregon), Norfolk, Little Rock, San Luis Obispo, Seattle, San Jose, Corpus
Christi and Huntsville. The Company believes that given a similar technical and
channel capacity/utilization profile, its cable television systems generally
involve less risk of increased competition than systems in large urban cities.
Because the Company operates in geographically and economically diverse markets
across the United States, the Falcon Systems, taken as a whole, are not
dependent on any single local economy, are resistant to regional economic
fluctuations, and provide the Company with stable revenue and operating cash
flow streams. However, it is the goal of the Company to consolidate its
operations in fewer states while continuing its geographic and economic market
diversity and maintaining or increasing its current revenue and cash flow.
CLUSTERING OF CABLE SYSTEM PROPERTIES. To date, the Company has sought to
acquire cable television systems in communities that are within the same DMAs as
other cable television systems owned or managed by Falcon in order to maximize
the economies of scale and operating efficiencies associated with "clusters" of
systems. Management plans to continue its acquisition strategy by pursuing
opportunities to purchase cable television systems in the Company's existing
DMAs as well as by entering new DMAs, if and when attractive acquisition
opportunities become available. Any such acquisitions, which could be
substantial in size, may involve cable systems owned by affiliated entities. In
addition to opportunities to acquire systems, management expects to pursue
opportunities to exchange certain of its systems for other cable television
properties with both TCI and other cable operators, to further facilitate the
Company's clustering strategy, and to concentrate in fewer states.
REBUILD AND UPGRADE CABLE SYSTEMS. Through the upgrade of its cable plant,
including the utilization of addressable technology, fiber optic cable and
digital compression, the Company seeks to benefit from providing additional
tiers of programming and from the further development of advertising,
pay-per-view and home shopping services, as well as possible future services
such as Internet access, video-on-demand and other interactive services. In
addition to these potential revenue growth opportunities, upgraded plant will
provide enhanced picture quality and system reliability, reduced operating costs
and improved overall customer satisfaction. Currently, the Owned Systems have an
average capacity of 48 channels and
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approximately 74% of their subscribers are served by systems that utilize
addressable technology. Through a significant capital expenditure program, the
Company plans to increase this channel capacity in most of its clusters by
deploying fiber optic cable, digital compression or both.
However, many of the Falcon Systems have almost no available channel
capacity with which to add new channels or to further expand pay-per-view
offerings to customers. As a result, significant amounts of capital for future
upgrades will be required in order to increase available channel capacity,
improve quality of service and facilitate the expansion of new services such as
advertising, pay-per-view, new unregulated tiers of satellite-delivered services
and home shopping, so that the Falcon Systems remain competitive within the
industry. See "Risk Factors--Lack of Available Channel Capacity for New Channels
or Expanded Service," "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"Legislation and Regulation."
MAXIMIZE REVENUES AND CASH FLOW MARGINS. The Company seeks to maximize
revenues by increasing subscriptions to basic, expanded basic, and other tiers
of satellite services and premium programming services through a combination of
innovative marketing programs, an emphasis on customer service and active
community relations. As a result of the Company's success in facilitating
revenue growth, combined with operating efficiencies generated by the Company's
clustering strategy, economies of scale, volume discounts for cable programming
and decentralized management structure, the Company believes its operating cash
flow margins have been and continue to be among the highest in the cable
television industry.
BENEFIT FROM PARTNERSHIP WITH TCI. The Company expects to benefit
substantially from its partnership with TCI, one of the leading cable television
operators in the world. The Company expects that it will derive numerous
operational synergies from its partnership with TCI, including increased
concentration of cable systems, purchasing discounts and other economies arising
from more streamlined management of Company assets and those assets contributed
by TCI. The Company also expects that its partnership with TCI may increase the
Company's access to and recognition in the capital markets. Furthermore, the
Company expects to benefit from access to TCI's substantial resources in the
areas of technical and engineering research. The Company believes that its
partnership with TCI will result in increased availability of certain
technological innovations, including state-of-the-art digital converters, cable
modems and HITS digitally compressed programming services. The Company will also
benefit from the expertise and valuable industry knowledge of TCI's Leo J.
Hindery, Jr. and William R. Fitzgerald, who will join New Falcon's Advisory
Committee upon consummation of the TCI Transaction.
USE DECENTRALIZED MANAGEMENT TO KEEP "CLOSE TO THE CUSTOMER." The Company
manages the Falcon Systems through 42 separate regional service centers in 26
states. In some circumstances, both Owned Systems and Affiliated Systems are
operated through the same regional service center to take advantage of cost
efficiencies. The Company believes that its decentralized management structure,
by enhancing management presence at the system and state level, increases its
sensitivity to the needs of its customers, enhances the effectiveness of its
customer service efforts, eliminates the need for maintaining a large
centralized corporate staff and facilitates the maintenance of good relations
with local governmental authorities.
MARKET AND PACKAGE PROGRAMMING TIERS. The Company has made substantial
changes in the way in which it packages and sells its services and equipment in
the course of its implementation of the FCC's rate regulations promulgated under
the 1992 Cable Act. Pursuant to the FCC's rules, the Company has set rates for
cable-related equipment (E.G., converter boxes and remote control devices) and
installation services based upon actual costs plus a reasonable profit and has
unbundled these charges from the charges for the provision of cable service. In
addition, in some systems, the Company began offering programming services on an
a la carte basis that were previously offered only as part of a package.
Services offered on an a la carte basis typically were made available for
purchase both individually and on a combined basis at a lower rate than the
aggregate a la carte rates. The FCC subsequently amended its
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rules to exclude from rate regulation newly created packages of program services
consisting only of programming new to a cable system. The FCC also decided that
newly-created packages containing previously offered non-premium programming
services will henceforth be subject to rate regulation, whether or not the
services also are available on an existing a la carte basis. With respect to a
la carte programming packages created by the Company and numerous other cable
operators, the FCC decided that where only a few services had been moved from
regulated tiers to a non-premium programming package, the package will be
treated as if it were a tier of new program services, and thus not subject to
rate regulation. Substantially all of the a la carte programming packages
offered by the Company have received this desirable treatment. These amendments
to the FCC's rules have allowed the Company to resume its core marketing
strategy and reintroduce program service packaging. As a result, in addition to
the basic service package, customers in substantially all of the systems may
purchase an expanded group of regulated services, additional unregulated
packages of satellite-delivered services and premium services. The premium
services may be purchased on either an a la carte or a discounted package basis.
See "Legislation and Regulation."
The TCI Systems to be owned and operated by New Falcon upon consummation of
the TCI Transaction did not implement the type of programming tier marketing
strategy that Falcon utilized in the wake of cable rate regulation. As a result,
those TCI Systems do not generally have, as the Falcon Systems do, multiple
levels of unregulated programming tiers and programming packages. Under current
FCC regulations, New Falcon generally does not expect to be able to implement in
the TCI Systems the same type of unregulated programming tier structures that
exist in the Falcon Systems.
The Company has employed a variety of targeted marketing techniques to
attract new customers by focusing on delivering value, choice, convenience and
quality. The Company employs direct mail, radio and local newspaper advertising,
telemarketing and door-to-door selling utilizing demographic "cluster codes" to
target specific messages to target audiences. In many systems, the Company
offers discounts to customers who purchase premium services on a limited trial
basis in order to encourage a higher level of service subscription. The Company
also has a coordinated strategy for retaining customers that includes televised
retention advertising to reinforce the initial decision to subscribe and
encourage customers to purchase higher service levels.
ENHANCE QUANTITY AND QUALITY OF PRODUCTS AND SERVICES WITH SYSTEM
UPGRADES. The Company believes that the increase in channel capacity resulting
from the rebuild of its systems and the introduction of digital compression
technology create attractive opportunities to enhance value and to market
additional services to its existing and prospective customers. A typical rebuild
involves state-of-the-art fiber to the feeder technology, with a typical
bandwidth of 750 MHz and nodes of 500 homes. This platform delivers significant
improvements in service reliability and picture quality. In addition, a 750 MHz
system generally provides up to 95 channels of analog capacity. This additional
capacity is used to add channels to existing service tiers, to create new
service tiers, to introduce multiplexing of premium services and to increase the
number of pay-per-view channels. Finally, when marketing the new and expanded
service to its customers, the Company generally upgrades its addressable
technology by deploying advanced analog converters with a digital music service
and/or an interactive program guide.
Digital compression can be used to deliver even more channels over an
already rebuilt system and, in some cases, is used to add additional channels in
lieu of or in advance of a rebuild. TCI has led the cable industry in developing
digital technology and is technologically capable of delivering digital video
services in approximately 70% of the systems that it is contributing to New
Falcon. The Company continues to evaluate digital compression as both a
complement and/or a substitute for analog rebuilds.
EMPHASIZE CUSTOMER SERVICE AND COMMUNITY RELATIONS. The Company places a
strong emphasis on customer service and community relations and believes that
success in these areas is critical to its business. The Company has developed
and implemented a wide range of monthly internal training programs for its
employees, including its regional managers, that focus on the Company's
operations and employee
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interaction with customers. The effectiveness of the Company's training program
as it relates to the employees' interaction with customers is monitored on an
ongoing basis, and a portion of the regional managers' compensation is tied to
achieving customer service targets. The Company conducts an extensive customer
survey on a periodic basis and uses the information in its efforts to enhance
service and better address the needs of its customers. In addition, the Company
is participating in the industry's Customer Service Initiative which emphasizes
an on-time guarantee program for service and installation appointments. The
Company's corporate executives and regional managers lead the Company's
involvement in a number of programs benefiting the communities the Company
serves, including, among others, CABLE IN THE CLASSROOM, Drug Awareness, Holiday
Toy Drive and the Cystic Fibrosis Foundation. Cable in the Classroom is the
cable television industry's public service initiative to enrich education
through the use of commercial-free cable programming. In addition, a monthly
publication, Cable in the Classroom magazine, provides educational program
listings by curriculum area, as well as feature articles on how teachers across
the country use the programs.
THE TCI TRANSACTION
Pursuant to the Contribution Agreement, FHGLP, TCI, the existing partners of
FHGLP and the investors in Falcon Video have agreed to consolidate under the
ownership and control of New Falcon, a holding company to be owned by FHGLP and
TCI, substantially all of the Falcon Systems and all of the TCI Systems. As a
result of the TCI Transaction, New Falcon will own systems that served
approximately 975,000 basic subscribers in 25 states as of March 31, 1998. New
Falcon will also manage the Enstar Systems, which served approximately 95,000
basic subscribers as of March 31, 1998. As such, New Falcon will own or manage
systems that served approximately 1,070,000 basic subscribers in 26 states as of
March 31, 1998. The TCI Systems will be consolidated into and operated by the
Owned Subsidiaries. As used in this Prospectus, the "TCI Transaction" refers
individually and collectively, as the context may require, to the transactions
contemplated by the Contribution Agreement, as it may be amended, modified or
supplemented. See "--Overview of the TCI Systems" and "--Overview of the Falcon
Systems."
FHGLP will own approximately 53% of the equity of New Falcon and will serve
as the managing general partner of New Falcon. TCI will own approximately 47% of
the equity of New Falcon. The respective ownership percentages of FHGLP and TCI
in New Falcon are subject to possible adjustment pursuant to the Contribution
Agreement. The actual ownership percentages of FHGLP and TCI will be based on
the relative net fair market value of the capital contributions to be made by
FHGLP and TCI to New Falcon. The values of the contributed Falcon Systems and
the TCI Systems have been agreed to and are specified in the Contribution
Agreement. To calculate the value of each partner's contribution, the value of
its systems will be adjusted to reflect additional current assets to be
contributed to New Falcon, the amount of certain capital expenditures made by
the partner prior to the contribution, and the amount of liabilities to be
assumed by New Falcon. A partner may also be required to contribute cash to New
Falcon to offset any diminution in the value of its contributed systems from
certain causes (such as casualty losses or certain undisclosed liabilities), but
these contributions will not result in an adjustment to the partners' percentage
interests. For a description of the principal steps involved in the TCI
Transaction, see "The TCI Transaction."
FHGI will continue to serve as the sole general partner of FHGLP. As such,
subject to certain governance provisions set forth in the New Falcon Partnership
Agreement, Falcon and its senior management will continue to manage the business
and day-to-day operations of New Falcon. For additional information regarding
the governance and management of New Falcon following consummation of the TCI
Transaction, see "Description of the Partnership Agreements--New Falcon
Partnership Agreement."
The Company expects to benefit substantially from its partnership with TCI,
one of the leading cable television operators in the world. The Company expects
that it will derive numerous operational synergies from its partnership with
TCI, including increased concentration of cable systems, purchasing discounts
and other economies arising from more streamlined management of Company assets
and those assets
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contributed by TCI. The Company also expects that its partnership with TCI may
increase the Company's access to and recognition in the capital markets.
Furthermore, the Company expects to benefit from access to TCI's substantial
resources in the areas of technical and engineering research. The Company
believes that its partnership with TCI will result in increased availability of
certain technological innovations, including state-of-the art digital
converters, cable modems, and HITS digitally compressed cable television
programming services. The Company will also benefit from the expertise and
valuable industry knowledge of TCI's Leo J. Hindery, Jr. and William R.
Fitzgerald, who will join New Falcon's Advisory Committee upon consummation of
the TCI Transaction. See "Management" and "Certain Relationships and Related
Transactions."
The Company will redeem the approximately $34.4 million aggregate principal
amount of remaining outstanding Notes prior to October 15, 1998, in accordance
with the redemption provisions of the indenture governing the Notes. The Notes
are redeemable at the option of the obligor, in whole or in part, at any time on
or after September 15, 1998, at 105.5% of the outstanding principal amount, plus
accrued interest to the redemption date. If the TCI Transaction is consummated
before all of the Notes have been redeemed, New Falcon will initially assume
(subject to a subsequent assumption by New Falcon II, as described below) the
rights and obligations of FHGLP under the Notes. See "Capitalization" and
"Description of Certain Indebtedness--11% Senior Subordinated Notes Due 2003."
Management anticipates that, immediately following the consummation of the
TCI Transaction, New Falcon will contribute substantially all of its assets,
excluding the capital stock of FFC, to New Falcon II, subject to certain
indebtedness to be assumed by New Falcon II, including any Notes that remain
outstanding and indebtedness outstanding under the New Credit Facility, but
excluding the Debentures. Thus, New Falcon II will be substituted for New Falcon
as the obligor under the Notes and became the sole borrower under the New Credit
Facility, and FFC will continue to be an obligor under the Debentures as a
wholly-owned subsidiary of New Falcon. See "Risk Factors--Dependence Upon
Receipt of Funds From Operating Subsidiaries to Service Debentures; Structural
Subordination."
The consummation of the TCI Transaction is also subject to, among other
things, the satisfaction of customary closing conditions and the receipt of
certain third-party and governmental approvals, including the consent of
franchising authorities. Although there can be no assurances that such closing
conditions will be satisfied or that the TCI Transaction will be consummated,
management presently anticipates that the TCI Transaction will be completed in
the third quarter of 1998. See "Risk Factors--Conditions of Closing the TCI
Transaction."
On June 24, 1998, AT&T Corp. and Tele-Communications, Inc. announced that
they have entered into an agreement under which AT&T Corp. would acquire
Tele-Communications, Inc. by merger. Although there can be no assurances as to
whether this merger will be consummated, the Company does not anticipate that
this proposed merger will have any material adverse effect upon the consummation
of the TCI Transaction.
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OVERVIEW OF THE FALCON SYSTEMS
The following table sets forth certain operating statistics for the Falcon
Systems as of the dates indicated.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------------- AS OF
1993(1) 1994 1995(2) 1996(3) 1997 MARCH 31, 1998
---------- ---------- ---------- ---------- ---------- --------------
(AT END OF PERIOD, EXCEPT AVERAGE DATA)
<S> <C> <C> <C> <C> <C> <C>
HOMES PASSED(4)
Owned Systems.................... 546,702 562,616 691,941 924,030 937,786 1,007,614
Affiliated Systems*.............. 501,872 513,954 407,754 178,294 180,823 111,121
Enstar Systems................... 138,926 140,154 141,922 148,907 150,319 150,672
---------- ---------- ---------- ---------- ---------- --------------
Total............................ 1,187,500 1,216,724 1,241,617 1,251,231 1,268,928 1,269,407
BASIC SUBSCRIBERS(5)
Owned Systems.................... 342,406 360,835 442,166 570,708 562,984 606,937
Affiliated Systems*.............. 322,369 330,179 260,005 118,603 118,829 74,797
Enstar Systems................... 92,015 95,311 96,972 96,384 94,898 95,086
---------- ---------- ---------- ---------- ---------- --------------
Total............................ 756,790 786,325 799,143 785,695 776,711 776,820
BASIC PENETRATION(6)
Owned Systems.................... 62.6% 64.1% 63.9% 61.8% 60.0% 60.2%
Affiliated Systems*.............. 64.2 64.2 63.8 66.5 65.7 67.3
Enstar Systems................... 66.2 68.0 68.3 64.7 63.1 63.1
Combined......................... 63.7% 64.6% 64.4% 62.8% 61.2% 61.2%
PREMIUM SERVICE UNITS(7)
Owned Systems.................... 154,846 165,137 186,477 203,679 165,960 183,234
Affiliated Systems*.............. 151,965 158,326 108,225 45,909 40,548 25,376
Enstar Systems................... 32,881 36,632 35,585 31,750 26,504 25,798
---------- ---------- ---------- ---------- ---------- --------------
Total............................ 339,692 360,095 330,287 281,338 233,012 234,408
PREMIUM PENETRATION(8)
Owned Systems.................... 45.2% 45.8% 42.2% 35.7% 29.5% 30.2%
Affiliated Systems*.............. 47.1 48.0 41.6 38.7 34.1 33.9
Enstar Systems................... 35.7 38.4 36.7 32.9 27.9 27.1
Combined......................... 44.9% 45.8% 41.3% 35.8% 30.0% 30.2%
AVERAGE MONTHLY REVENUE PER BASIC
SUBSCRIBER(9)
Owned Systems.................... $ 32.71 $ 32.43 $ 32.77 $ 34.22 $ 36.67 $ 36.56
Affiliated Systems*.............. 30.28 32.50 31.75 34.50 36.81 36.13
Enstar Systems................... 30.01 29.69 30.41 32.71 35.00 35.39
Combined......................... $ 31.36 $ 32.13 $ 32.15 $ 34.08 $ 36.49 $ 36.51
</TABLE>
- ------------------------
* As of December 31, 1997, Affiliated Systems consisted of the cable systems
owned by Falcon Classic and Falcon Video. Substantially all of the Falcon
Classic systems became Owned Systems in March 1998, and, therefore, at March
31, 1998 the Affiliated Systems consisted of the Falcon Classic Somerset
system and Falcon Video. The Falcon Somerset System became an Owned System
in July 1998. Following the consummation of the TCI Transaction, the Falcon
Video systems will become Owned Systems.
(1) The December 31, 1993 data for the Affiliated Systems do not include the
statistics for the systems owned by Vista Communications Limited Partnership
III ("Vista"). Vista sold those systems on
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December 23, 1994. Accordingly, in order to provide a comparable
presentation, the statistics for the Vista systems have been removed from
the table above for 1993.
(2) On December 28, 1995, the Company acquired all of the direct and indirect
ownership interests in Falcon First that it did not previously own, and, as
a result, the systems of Falcon First became Owned Systems; previously they
were reported as Affiliated Systems. On July 1, 1996, the Company sold
certain of the Falcon First systems. As a result, comparisons of 1996 and
1995 to prior years must take these changes into account. At December 31,
1997, 1996 and 1995, respectively, Falcon First had approximately 97,549,
96,318 and 114,682 homes passed, 67,601, 68,212 and 77,258 basic subscribers
and 22,230, 29,571 and 36,413 premium service units, respectively. At
December 31, 1994, the corresponding totals for Falcon First were 113,403,
75,688 and 38,756, respectively. At July 1, 1996, the Falcon Systems that
were sold had approximately 18,957 homes passed, 9,547 basic subscribers and
3,932 premium service units.
(3) On July 12, 1996, the Company acquired the assets of FCSC, and, as a result,
the systems of FCSC became Owned Systems; previously they were reported as
Affiliated Systems. As a result, comparisons of 1996 to prior years must
take this change into account. At December 31, 1997 and 1996, respectively,
the FCSC systems had approximately 245,807 and 239,431 homes passed, 127,315
and 140,599 basic subscribers and 33,844 and 44,199 premium service units.
At December 31, 1995 and 1994, the corresponding totals for the FCSC systems
were 233,304 and 228,522 homes passed, 140,642 and 138,196 basic subscribers
and 52,694 and 59,732 premium service units.
(4) Homes passed refers to estimates by the Company of the approximate number of
dwelling units in a particular community that can be connected to the
distribution system without any further extension of principal transmission
lines. Such estimates are based upon a variety of sources, including billing
records, house counts, city directories and other local sources.
(5) A home with one or more television sets connected to a cable system is
counted as one basic subscriber. Bulk accounts are included on a "basic
customer equivalent" basis in which the total monthly bill for the account
is divided by the basic monthly charge for a single outlet in the area.
(6) Basic subscribers as a percentage of homes passed.
(7) Premium service units include only single channel services offered for a
monthly fee per channel and do not include tiers of channels offered as a
package for a single monthly fee. Prior to July 1, 1996, The Disney Channel
was offered as a premium service. Effective July 1, 1996, it was offered as
part of tiered services. As a result, the number of reported premium service
units was artificially reduced by this service offering change. The number
of Disney Channel premium service units at June 30, 1996, December 31, 1995
and at December 31, 1994 were: Owned Systems 19,124, Affiliated Systems
7,060; Owned Systems 22,613, Affiliated Systems 18,970; and Owned Systems
21,309, Affiliated Systems 29,641, respectively.
(8) Premium service units as a percentage of basic subscribers. A customer may
purchase more than one premium service, each of which is counted as a
separate premium service unit. This ratio may be greater than 100% if the
average customer subscribes for more than one premium service.
(9) Average monthly revenue per basic subscriber for the one-year period ending
on the respective dates indicated, except for 1994 data which reflects the
fourth quarter of 1994 only and for the three months ended March 31, 1998.
Management believes that the fourth quarter is more relevant for 1994
because the FCC's amended rate regulation rules became effective during the
third quarter of 1994. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Legislation and
Regulation."
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THE OWNED SYSTEMS
The Owned Systems are divided into 37 separate operating regions located in
23 states. The following is a brief description of the operating regions located
in states that include at least 5% of the basic subscribers of the Owned
Systems. In certain cases, operating regions serve customers in more than one
state and, thus, totals by operating region may exceed basic subscriber totals
for a given state.
CALIFORNIA. As of March 31, 1998, the Company's six operating regions in
California had 137,640 basic subscribers, which comprised approximately 23% of
the basic subscribers of the Owned Systems. The systems in the California
regions have an average channel capacity of 51, approximately 93% of which are
currently utilized. Approximately 94% of the customers in the California regions
are served by systems that utilize addressable technology.
OREGON. As of March 31, 1998, the Company's eight Oregon operating regions
had 98,490 basic subscribers, which comprised approximately 16% of the basic
subscribers of the Owned Systems. The systems in the Oregon operating regions
have an average channel capacity of 48, approximately 96% of which are currently
utilized. Approximately 92% of the customers in these operating regions are
served by systems that utilize addressable technology.
MISSOURI. As of March 31, 1998, the Company's four operating regions in
Missouri had 73,778 basic subscribers, which comprised approximately 12% of the
basic subscribers of the Owned Systems. The Missouri systems have an average
channel capacity of 46, approximately 95% of which are currently utilized.
Approximately 94% of the customers in the Missouri regions are served by systems
that utilize addressable technology.
GEORGIA. As of March 31, 1998, the Company's Georgia systems had 44,362
basic subscribers, which comprised approximately 7% of the basic subscribers of
the Owned Systems. The systems had average channel capacity of 54, of which 98%
are utilized. Approximately 87% of the customers are served by addressable
technology.
NORTH CAROLINA. As of March 31, 1998, the Company's two North Carolina
operating regions had 37,073 basic subscribers, which comprised approximately 6%
of the basic subscribers of the Owned Systems. These systems have an average
channel capacity of 39, approximately 99% of which are utilized. Addressable
technology is currently being introduced in one of the North Carolina operating
regions, and approximately 30% of the customers in the state had the technology
available to them at March 31, 1998.
TEXAS. As of March 31, 1998, the Company's three Texas operating regions
had 31,857 basic subscribers, which comprised approximately 5% of the basic
subscribers of the Owned Systems. These systems currently have an average
channel capacity of 53, approximately 88% of which are currently utilized.
Approximately 67% of the customers in the Texas regions are served by systems
that utilize addressable technology.
KENTUCKY. As of March 31, 1998, the Company's Kentucky systems had 29,902
basic subscribers which comprised 5% of the basic subscribers of the Owned
Systems. The Kentucky systems have an average channel capacity of 38,
approximately 96% of which are currently utilized. Approximately 62% of the
customers are served by systems that utilize addressable technology.
OTHER OPERATING REGIONS. The Company also owns and operates systems through
eleven additional regional centers in Athens, Alabama; Benton, Arkansas;
Plattsburgh, New York; Centreville, Maryland; Suffolk, Virginia; Colville,
Washington; Shawnee, Oklahoma; Sebastian, Florida; St. George, Utah; Scottsburg,
Indiana; and Au Gres, Michigan. None of these regions are in states that have
basic subscribers that are in excess of 5% of the total basic subscribers of the
Owned Systems.
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The following is a summary of certain operating data, as of March 31, 1998,
for the Owned Systems:
<TABLE>
<CAPTION>
PREMIUM AVERAGE MONTHLY
HOMES BASIC BASIC SERVICE PREMIUM REVENUE PER
STATE PASSED SUBSCRIBERS PENETRATION UNITS PENETRATION BASIC SUBSCRIBER(1)
- --------------------------- ---------- ----------- ------------- ------------ ------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Alabama.................... 39,528 25,658 64.9% 10,119 39.4% $ 36.09
Arkansas................... 45,926 21,203 46.2% 5,043 23.8% 37.68
California................. 241,256 137,639 57.1% 45,283 32.9% 37.33
Florida.................... 14,719 9,691 65.8% 1,979 20.4% 36.42
Georgia.................... 54,396 44,362 81.6% 11,675 26.3% 40.50
Illinois................... 3,424 1,842 53.8% 669 36.3% 35.03
Indiana.................... 7,180 4,785 66.6% 1,066 22.3% 36.86
Kansas..................... 3,512 2,455 69.9% 622 25.3% 35.69
Kentucky................... 33,898 29,902 88.2% 6,358 21.3% 34.18
Louisiana.................. 5,494 2,753 50.1% 1,546 56.2% 39.65
Maryland................... 27,103 15,123 55.8% 7,456 49.3% 38.67
Michigan................... 7,324 3,749 51.2% 892 23.8% 32.56
Missouri................... 116,348 73,778 63.4% 17,390 23.6% 35.70
Mississippi................ 1,911 1,142 59.8% 224 19.6% 36.63
No. Carolina............... 63,871 37,073 58.0% 10,964 29.6% 37.57
Nevada..................... 6,320 1,720 27.2% 1,340 77.9% 32.99
New York................... 26,092 15,887 60.9% 4,662 29.3% 32.08
Oklahoma................... 17,938 11,044 61.6% 4,717 42.7% 40.10
Oregon..................... 159,365 98,490 61.8% 24,430 24.8% 35.02
Texas...................... 50,611 31,857 62.9% 10,677 33.5% 36.02
Utah....................... 31,262 9,434 30.2% 4,869 51.6% 29.36
Virginia................... 35,097 16,700 47.6% 8,832 52.9% 41.84
Washington................. 15,039 10,650 70.8% 2,421 22.7% 34.35
---------- ----------- ------------
1,007,614 606,937 60.2% 183,234 30.2% $ 36.56
---------- ----------- ------------
---------- ----------- ------------
</TABLE>
- ------------------------
(1) Average monthly revenue per basic subscriber has been computed based on
revenue for the three months ended March 31, 1998.
THE AFFILIATED SYSTEMS
The Company controls and holds varying equity interests in the Affiliated
Systems, which it manages pursuant to agreements that provide for fees generally
based on revenues and the reimbursement of certain expenses. The Affiliated
Systems are owned separately by several partnerships, namely, Falcon Classic,
Falcon Video, as well as certain partnerships of which Enstar is an indirect,
wholly owned subsidiary of FHGLP, is the corporate general partner
(collectively, the "Affiliated Partnerships"). On December 28, 1995, FHGLP
acquired the direct and indirect ownership interests in Falcon First that it did
not previously own, and as a result, the systems of Falcon First became Owned
Systems; previously they were reported as Affiliated Systems. On July 12, 1996,
FHGLP acquired the assets of FCSC and, as a result, the systems of FCSC became
Owned Systems; previously they were reported as Affiliated Systems. As a result,
comparisons of 1996 and 1995 to prior years must take these changes into
account. Due to the date of the acquisition of Falcon First, no operating
results of Falcon First were included in the Company's 1995 results of
operations. As a result, the management fees received by the Company from Falcon
First similarly have not been eliminated in consolidation of the Company's 1995
results of operations and are treated as having been received from the
Affiliated Systems. The operating results of the FCSC systems have been included
from July 12, 1996. The management fees and reimbursed expenses received by the
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Company from FCSC prior to July 12, 1996 have not been eliminated in
consolidation and are also treated as having been received from the Affiliated
Systems.
As discussed elsewhere in this Prospectus, FHGLP acquired substantially all
of the assets of Falcon Classic in March 1998 and will acquire all of the Falcon
Video systems upon consummation of the TCI Transaction.
Through the Affiliated Systems, the Company manages cable television systems
which at March 31, 1998 served approximately 170,000 basic subscribers in 14
states, including South Carolina, Kentucky, Illinois, Washington and Tennessee.
In 1995, 1996 and 1997, the Company recognized aggregate revenues of $8.6
million, $6.3 million and $5.2 million, respectively, from management agreements
with the Affiliated Systems and its consulting agreements with NYNEX Cable Comms
("NYNEX") and Telecab (as described below). Subject to customary conditions,
most of the management agreements continue for the lives of the respective
managed entities. Falcon Classic and Falcon Video are scheduled to terminate in
2004 and 2007, respectively; however, the Company expects that the systems of
these entities will become Owned Systems in 1998 and that the management
agreements with these entities will be terminated. Additionally, as noted above,
the Company manages the partnerships of which Enstar is the general partner. The
partnership agreements of these partnerships are scheduled to terminate at
various times from 2033 to 2037. The consulting agreement with NYNEX expired on
September 12, 1997. The Company received $336,000, $343,000 and $248,000 under
this agreement in 1995, 1996 and 1997, respectively. The consulting agreement
with Telecab was assigned to an affiliate in February 1996. The Company received
$270,000 and $37,000 under this agreement in 1995 and 1996, respectively.
Certain of the credit agreements and partnership agreements of the Affiliated
Partnerships restrict, in certain circumstances, the payment of cash management
fees by the Affiliated Systems to the Company. In addition, the Company may
provide additional financing to certain of the Affiliated Partnerships in the
form of deferral of amounts owed to the Company. Marc B. Nathanson, certain
members of management and FHGLP hold varying equity interests in the Affiliated
Partnerships. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources" and "Certain
Relationships and Related Transactions."
OVERVIEW OF THE TCI SYSTEMS
The following table sets forth certain operating statistics for the TCI
Systems as of the dates indicated.
<TABLE>
<CAPTION>
AS OF MARCH
AS OF DECEMBER 31, 31, 1998
-------------------- --------------
1996 1997 1998
--------- --------- --------------
<S> <C> <C> <C>
Homes passed(1)......................................... 436,343 449,042 438,950
Basic subscribers(2).................................... 299,083 292,959 293,266
Basic penetration(3).................................... 68.5% 65.2% 66.8%
Premium service units(4)................................ 130,004 101,977 96,753
Premium penetration(5).................................. 43.5% 34.8% 33.0%
Average monthly revenue per basic subscriber(6)......... $ 29.18 $ 33.65 $ 34.20
</TABLE>
- ------------------------
(1) Homes passed refers to estimates by TCI of the approximate number of
dwelling units in a particular community that can be connected to the
distribution system without any further extension of principal transmission
lines.
(2) A home with one or more television sets connected to a cable system is
counted as one basic subscriber. Bulk accounts are included on a "basic
customer equivalent" basis in which the total monthly bill for the account
is divided by the basic monthly charge for a single outlet in the area.
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(3) Basic subscribers as a percentage of homes passed.
(4) Premium service units include single channel services offered for a monthly
fee per channel and include tiers of channels offered as a package for a
single monthly fee.
(5) Premium service units as a percentage of basic subscribers. A customer may
purchase more than one premium service, each of which is counted as a
separate premium service unit. This ratio may be greater than 100% if the
average customer subscribes for more than one premium service.
(6) Average monthly revenue per basic subscriber for the one-year period ending
on December 31, and for the three months ended March 31, 1998.
The TCI Systems are divided into 16 separate operating regions located in
five states. Subsequent to the TCI Transaction, four of the 16 TCI regions will
be consolidated into and operated from existing Falcon operating regions. The
following is a brief description of the operating regions.
WASHINGTON. As of March 31, 1998 (and including the subscribers served by
the Ellensburg systems), the five operating regions in Washington had 114,357
basic subscribers, which comprised approximately 39% of the basic subscribers of
the TCI Systems. The systems in the Washington regions have an average analog
channel capacity of 45, approximately 98% of which are currently utilized.
Approximately 88% of the customers in Washington are served by systems that
utilize addressable technology and approximately 82% of the customers are served
by systems that offer digital video service.
OREGON. As of March 31, 1998, the six operating regions in Oregon had
97,327 basic subscribers, which comprised approximately 33% of the basic
subscribers of the TCI Systems. The systems in the Oregon regions have an
average analog channel capacity of 42, approximately 91% of which are currently
utilized. Approximately 96% of the customers in Oregon are served by systems
that utilize addressable technology and approximately 63% of the customers are
served by systems that offer digital video services.
CALIFORNIA. As of March 31, 1998, the one operating region in California
had 36,082 basic subscribers, which comprised approximately 12% of the basic
subscribers of the TCI Systems. The systems in the California regions have an
average analog channel capacity of 43, approximately 98% of which are currently
utilized. All of the customers in California are served by systems that utilize
addressable technology and approximately 96% of the customers are served by
systems that offer digital video services.
MISSOURI. As of March 31, 1998, the two operating regions in Missouri had
24,441 basic subscribers, which comprised approximately 8% of the basic
subscribers of the TCI Systems. The systems in the Missouri regions have an
average analog channel capacity of 39, all of which are currently utilized. All
of the customers in Missouri are served by systems that utilize addressable
technology and approximately 60% of the customers are served by systems that
offer digital video services.
ALABAMA. As of March 31, 1998, the two operating regions in Alabama had
21,059 basic subscribers, which comprised approximately 7% of the basic
subscribers of the TCI Systems. The systems in the Alabama regions have an
average analog channel capacity of 48, approximately 94% of which are currently
utilized. Approximately 82% of the customers in Alabama are served by systems
that utilize addressable technology.
See "The TCI Transaction."
INTERNATIONAL ACTIVITIES
The international investments described below will not be contributed to New
Falcon as part of the TCI Transaction and will continue to be held by FHGLP. In
order to focus its limited capital resources on the upgrade and rebuild needs of
the Owned Systems, FHGLP does not expect to pursue any further
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international investments. See "Certain Relationships and Related Transactions."
As of March 31, 1998, FHGLP held the following international investments:
NYNEX CABLE COMMS. FHGLP holds a 1.1% carried interest in the results of
certain systems operated under franchises that FHGLP contributed to NYNEX. NYNEX
is operating and constructing advanced fiber optic cable and telephone networks
in the United Kingdom. On October 22, 1996, NYNEX, Cable and Wireless plc. and
Bell Canada International Inc. merged their respective interests to form Cable
and Wireless Communications. FHGLP believes that NYNEX is now obligated to make
the carried interest payment to FHGLP, and FHGLP is evaluating its rights and
remedies in that regard. NYNEX has not provided FHGLP with information required
to make the calculation of the carried interest and the amount of the carried
interest, if any, is therefore unknown at this time. FHGLP also provided
consulting services to NYNEX for an annual fee of $356,700. This consulting
agreement expired on September 12, 1997.
TELECAB. FHGLP has made a 5% equity investment of $2.5 million in Duhamel
Falcon Cable Mexico L.L.C., a Delaware limited liability company ("DFC Mexico").
DFC Mexico was formed with Hellman & Friedman Capital Partners II, L.P. (which
is also a partner in FHGLP), Mexican Duhamel Cable, Limited Partnership and
Duhamel Cable Partners, Limited Partnership to make an investment in Telecab.
Telecab is a large cable television operator in Mexico which owns and operates
cable television systems in various Mexican cities, including Tijuana, Ensenada,
Mexicali, Chihuahua and Ciudad Juarez. FHGLP 's investment is part of an
investment of approximately $41 million by DFC Mexico for an ownership interest
of 34% of Telecab. FHGLP entered into a consulting agreement with Telecab to
provide it with certain services in connection with the operation of Telecab's
cable television systems. On February 20, 1996, in connection with FHGLP's
wind-up of its international activities, this agreement was assigned to FIC, a
separately capitalized affiliated company whose members and management also
include certain limited partners and management of FHGLP. DFC Mexico is
presently in an arbitration proceeding (which includes FHGLP ) with the Mexican
partners regarding the resolution of certain disagreements regarding the
management policies of Telecab. The resolution of the arbitration proceeding may
result in either DFC Mexico's shares being purchased by the Mexican partners or
DFC Mexico purchasing the shares of the Mexican partners in Telecab. FHGLP's
current carrying value of the investment in Telecab on its books is
approximately $1.5 million.
OTHER INVESTMENTS
LAKE LAS VEGAS PROJECT. FHGLP is an equity owner in, and the general
partner of, Falcon Lake Las Vegas Cablevision, L.P. ("Falcon Lake Las Vegas").
This limited partnership was formed in September 1993 to design, construct and
operate an advanced fiber optic cable network in Lake Las Vegas, a master
planned community being developed around a man-made lake southeast of Las Vegas,
Nevada. FHGLP's partner in this project is an affiliate of Transcontinental
Properties, Inc., which is controlled by Ronald Boeddeker of Las Vegas, Nevada
and the Bass Family interests of Fort Worth, Texas. Upon its completion, Lake
Las Vegas is targeted to have 5,000 dwelling units and up to 11,000 hotel units,
although there are presently fewer than 50 homes occupied in the development.
The Company recently completed building a fiber-to-the-curb cable television
system, and the system is now operational.
FALCON/CAPITAL CABLE. During 1988, one of the Owned Subsidiaries made a
$1.3 million investment in, and became co-general partner of, Falcon/Capital
Cable, which has approximately 29,000 basic subscribers in six midwestern
states. FHGLP does not manage these systems and has not included the basic
subscribers of these systems in the number of basic subscribers of the Falcon
Systems. The terms of Falcon/ Capital Cable's senior bank debt and subordinated
debt were refinanced on February 11, 1998, which resulted in a decrease in the
percentage of equity of Falcon/Capital Cable owned by the Company.
ENSTAR COMMUNICATIONS CORPORATION. Enstar, an indirect subsidiary of FHGLP,
controls and holds varying equity interests in 15 limited partnerships.
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ENSTAR FINANCE COMPANY, LLC. On June 6, 1997, FHGLP and Enstar formed EFC,
an unrestricted subsidiary. On September 30, 1997, EFC obtained a secured bank
facility of $35 million from two agent banks in order to provide funds that
would be loaned to certain Enstar limited partnerships. The lenders advanced
$7.5 million to EFC, which in turn advanced those funds to a number of Enstar
limited partnerships. The EFC loan is non-recourse to FHGLP and matures on
August 31, 2001, at which time all funds previously advanced will be due in
full.
The Company's interests in the Enstar entities described above will not be
contributed to New Falcon as part of the TCI Transaction and will be held
directly by FHGLP following the TCI Transaction.
CUSTOMER RATES AND SERVICES
The Company's cable television systems offer customers packages of services
that include the local network, independent and educational television stations,
a limited number of television signals from distant cities, numerous
satellite-delivered, non-broadcast channels (such as CNN, MTV, USA, ESPN, TNT
and The Disney Channel) and certain information and public access channels. For
an extra monthly charge, the Falcon Systems provide certain premium television
services, such as HBO and Showtime. The Company also offers other cable
television services to its customers, including pay-per-view programming. For
additional charges, in most of the Falcon Systems, the Company also rents remote
control devices and VCR compatible devices (devices that make it easier for a
customer to tape a program from one channel while watching a program on
another).
The service options offered by the Company vary from system to system,
depending upon a system's channel capacity and viewer interests. Rates for
services also vary from market to market and according to the type of services
selected.
Pursuant to the 1992 Cable Act, most cable television systems are subject to
rate regulation of the basic service tier, the non-basic service tiers other
than premium (per channel or program) services, the charges for installation of
cable service, and the rental rates for customer premises equipment such as
converter boxes and remote control devices. These rate regulation provisions
affect all of the Company's systems not deemed to be subject to effective
competition under the FCC's definition. See "Legislation and Regulation."
At March 31, 1998, the Company's monthly rates for basic cable service for
residential customers of the Owned Systems, excluding special senior citizen
discount rates, ranged from $13.17 to $33.02 and premium service rates ranged
from $5.00 to $11.95, excluding special promotions offered periodically in
conjunction with the Company's marketing programs. A one-time installation fee,
which the Company may wholly or partially waive during a promotional period, is
usually charged to new customers. Commercial customers, such as hotels, motels
and hospitals, are charged a negotiated, non-recurring fee for installation of
service and monthly fees based upon a standard discounting procedure. Most
multi-unit dwellings are offered a negotiated bulk rate in exchange for
single-point billing and basic service to all units. These rates are also
subject to regulation.
For the years ended December 31, 1995, 1996 and 1997, and for the three
months ended March 31, 1998 subscriber fees accounted for 84.9%, 86.9%, 87.4%
and 87.8%, respectively, of the Company's revenues. Management fees accounted
for 5.7%, 2.9%, 2.0% and 1.7%, respectively, of the Company's revenues, with
other services, comprised of, among other things, installation fees, franchise
fees and other charges, advertising and home shopping revenues, accounting for
9.4%, 10.2%, 10.6% and 10.6%,, respectively.
EMPLOYEES
As of May 1, 1998, the Company had approximately 1,080 full-time employees
and 43 part-time employees. The Company considers its relations with its
employees to be good. As of March 31, 1998, the
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Affiliated Systems had approximately 136 full-time and 5 part-time employees.
There are no collective bargaining agreements relating to any of such employees.
TECHNOLOGICAL DEVELOPMENTS
As part of its commitment to customer service, the Company emphasizes high
technical standards and prudently seeks to apply technological advances in the
cable television industry to the Owned Systems on the basis of cost
effectiveness, capital availability, enhancement of product quality, service
delivery and industry-wide acceptance. Currently, the Owned Systems have an
average channel capacity of 48, substantially all of which is presently
utilized. The Company believes that system upgrades would enable it to provide
customers with greater programming diversity, better picture quality and
alternative communications delivery systems made possible by the introduction of
fiber optic technology and by the possible future application of digital
compression. The implementation of the Company's capital expenditure plans is,
however, dependent in part on the availability of adequate capital on terms
satisfactory to the Company, of which there can be no assurance. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
The use of fiber optic cable as an alternative to coaxial cable is playing a
major role in expanding channel capacity and improving the performance of cable
television systems. Fiber optic cable is capable of carrying hundreds of video,
data and voice channels and, accordingly, its utilization is essential to the
enhancement of a cable television system's technical capabilities. The Company's
current policy is to utilize fiber optic technology in substantially all rebuild
projects which it undertakes. The benefits of fiber optic technology over
traditional coaxial cable distribution plant include lower ongoing maintenance
and power costs and improved picture quality and reliability.
As of March 31, 1998, approximately 74% of the customers of the Owned
Systems were served by systems that utilize addressable technology. Addressable
technology permits the cable operator to activate from a central control point
the cable television services to be delivered to a customer if that customer has
also been supplied with an addressable converter. To date, the Company has
supplied addressable converter boxes to customers of the Falcon Systems
utilizing addressable technology who subscribe to one or more premium services
and, in selected regions, to customers who subscribe to certain new product
tiers. As a result, if the system utilizes addressable technology and the
customer has been supplied with an addressable converter, the Company can
upgrade or downgrade services immediately, without the delay or expense
associated with dispatching a technician to the home. Addressable technology
also reduces pay service theft, is an effective enforcement tool in collecting
delinquent payments and allows the Company to offer pay-per-view services.
DIGITAL COMPRESSION
The Company has been closely monitoring developments in the area of digital
compression, a technology that is expected to enable cable operators to increase
the channel capacity of cable television systems by permitting a significantly
increased number of video signals to fit in a cable television system's existing
bandwidth. Depending on the technical characteristics of the existing system,
the Company believes that the utilization of digital compression technology in
the future could enable the Owned Systems to increase channel capacity in
certain systems in a manner that could, in the short term, be more cost
efficient than rebuilding such systems with higher capacity distribution plant.
However, unless the system has sufficient unused channel capacity and bandwidth,
the use of digital compression to increase channel offerings is not a substitute
for the rebuild of the Falcon Systems, which will improve picture quality,
system reliability and quality of service. The use of digital compression in the
Owned Systems also could expand the number and types of services these systems
offer and enhance the development of current and future revenue sources in these
systems. The Company's management plans to introduce this technology in selected
markets in 1998. This issue is under frequent management review.
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PROGRAMMING
The Company has various contracts to obtain basic and premium programming
for its systems from program suppliers whose compensation is generally based on
a fixed fee per customer or a percentage of the gross receipts for the
particular service. Some program suppliers provide volume discount pricing
structures or offer marketing support to the Company. Certain other new channels
have also recently offered the Falcon Systems certain inducements in return for
carrying their service. Due to a lack of channel capacity available for adding
new channels, the Company's management cannot predict the impact of such
potential benefits on its business. In addition, the FCC may require that
certain such payments from programmers be offset against the programming fee
increases which can be passed through to subscribers under the FCC's rate
regulations. The Company's programming contracts are generally for a fixed
period of time and are subject to negotiated renewal. The Company does not have
long-term programming contracts for the supply of a substantial amount of its
programming. Accordingly, no assurance can be given that the Company's
programming costs will not continue to increase substantially, or that other
materially adverse terms will not be added to the Company's programming
contracts. Management believes, however, that the Company's relations with its
programming suppliers generally are good.
The Company's cable programming costs have increased in recent years and are
expected to continue to increase due to additional programming being provided to
basic customers, the requirements to carry channels under retransmission
carriage agreements entered into with certain programming sources, increased
costs to produce or purchase cable programming generally (including sports
programming), inflationary increases and other factors. The 1996 retransmission
carriage agreement negotiations resulted in the Company agreeing to carry one
new service in certain of its systems (serving approximately 49,000 basic
subscribers), for which it will receive reimbursement of certain costs related
to launching the service. All other negotiations were completed with essentially
no change to the previous agreements. Under the FCC's rate regulations,
increases in programming costs for regulated cable services occurring after the
earlier of March 1, 1994, or the date a system's basic cable service became
regulated, may be passed through to customers. See "Legislation and
Regulation--Federal Regulation--Carriage of Broadcast Television Signals."
FRANCHISES
Cable television systems are generally constructed and operated under
non-exclusive franchises granted by local governmental authorities. These
franchises typically contain many conditions, such as time limitations on
commencement and completion of construction; conditions of service, including
number of channels, types of programming and the provision of free service to
schools and certain other public institutions; and the maintenance of insurance
and indemnity bonds. The provisions of local franchises are subject to federal
regulation under the 1984 Cable Act, the 1992 Cable Act and the 1996 Telecom
Act. See "Legislation and Regulation."
As of March 31, 1998, the Owned Systems held 482 franchises. These
franchises, all of which are non-exclusive, provide for the payment of fees to
the issuing authority. Annual franchise fees imposed on the Owned Systems range
up to 5% of the gross revenues generated by a system. For the past three years,
franchise fee payments made by the Owned Systems have averaged approximately
3.1% of total gross system revenues. The 1984 Cable Act prohibits franchising
authorities from imposing franchise fees in excess of 5% of gross revenues and
also permits the cable operator to seek renegotiation and modification of
franchise requirements which have become commercially impracticable.
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The following table groups the franchises of the Owned Systems by date of
expiration and presents the number of franchises for each group of franchises
and the approximate number and percentage of basic subscribers for each group as
of March 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF BASIC PERCENTAGE OF BASIC
YEAR OF FRANCHISE EXPIRATION FRANCHISES SUBSCRIBERS SUBSCRIBERS
- -------------------------------------------------- ------------- ----------- -------------------
<S> <C> <C> <C>
Prior to 1999..................................... 133 194,692 32.1%
1999-2003......................................... 147 152,410 25.1
2004 and after.................................... 202 224,294 37.0
--- ----------- ---
Total............................................. 482 571,396 94.2%
--- ----------- ---
--- ----------- ---
</TABLE>
The Company operates numerous cable television systems which serve multiple
communities and, in some circumstances, portions of such systems extend into
jurisdictions for which it believes no franchise is necessary. In the aggregate,
approximately 35,541 basic subscribers, comprising approximately 5.8% of the
Owned Systems' basic subscribers, are served by such portions of such systems.
In general, the Company does not believe that the loss of any single franchise
would cause a substantial reduction in the economies of scale discussed above.
See "--Business Strategy." In certain instances, however, where a single
franchise comprises a large percentage of the customers in an operating region,
the loss of such franchise could decrease the economies of scale achieved by the
Company's clustering strategy. The Company has never had a franchise revoked for
any of its systems and believes that it has satisfactory relationships with
substantially all of its franchising authorities.
The 1984 Cable Act provides, among other things, for an orderly franchise
renewal process in which franchise renewal will not be unreasonably withheld or,
if renewal is denied and the franchising authority acquires ownership of the
system or effects a transfer of the system to another person, the operator
generally is entitled to the "fair market value" for the system covered by such
franchise, but no value attributable to the franchise itself. In addition, the
1984 Cable Act, as amended by the 1992 Cable Act, establishes comprehensive
renewal procedures which require that an incumbent franchisee's renewal
application be assessed on its own merit and not as part of a comparative
process with competing applications. See "Legislation and Regulation."
COMPETITION
Cable television systems compete with other communications and entertainment
media, including over-the-air television broadcast signals which a viewer is
able to receive directly using the viewer's own television set and antenna. The
extent to which a cable system competes with over-the-air broadcasting depends
upon the quality and quantity of the broadcast signals available by direct
antenna reception compared to the quality and quantity of such signals and
alternative services offered by a cable system. Cable systems also face
competition from alternative methods of distributing and receiving television
signals and from other sources of entertainment such as live sporting events,
movie theaters and home video products, including videotape recorders and
videodisc players. In recent years, the FCC has adopted policies providing for
authorization of new technologies and a more favorable operating environment for
certain existing technologies that provide, or may provide, substantial
additional competition for cable television systems. The extent to which cable
television service is competitive depends in significant part upon the cable
television system's ability to provide an even greater variety of programming
than that available over the air or through competitive alternative delivery
sources.
Individuals presently have the option to purchase home satellite dishes,
which allow the direct reception of satellite-delivered broadcast and
nonbroadcast program services formerly available only to cable television
subscribers. Most satellite-distributed program signals are being electronically
scrambled to permit reception only with authorized decoding equipment for which
the consumer must pay a fee. The
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1992 Cable Act enhances the right of cable competitors to purchase nonbroadcast
satellite-delivered programming. See "Legislation and Regulation--Federal
Regulation."
Television programming is now also being delivered to individuals by
high-powered DBS satellites utilizing video compression technology. This
technology has the capability of providing more than 100 channels of programming
over a single high-powered DBS satellite with significantly higher capacity
available if, as is the case with DIRECTV, multiple satellites are placed in the
same orbital position. Unlike cable television systems, however, DBS satellites
are limited by law in their ability to deliver local broadcast signals. However,
DBS provider, EchoStar, has announced plans to deliver a limited number of local
broadcast signals in a limited number of markets and has initiated efforts to
have the practice legalized. If DBS providers are ultimately permitted to
deliver local broadcast signals, cable television systems would lose a
significant competitive advantage. DBS service can be received virtually
anywhere in the continental United States through the installation of a small
rooftop or side-mounted antenna, and it is more accessible than cable television
service where cable plant has not been constructed or where it is not cost
effective to construct cable television facilities. DBS service is being heavily
marketed on a nationwide basis by several service providers. In addition,
medium-power fixed-service satellites can be used to deliver direct-to-home
satellite services over small home satellite dishes, and one provider,
PrimeStar, currently provides service to subscribers using such a satellite.
Multichannel multipoint distribution systems ("wireless cable") deliver
programming services over microwave channels licensed by the FCC received by
subscribers with special antennas. Wireless cable systems are less capital
intensive, are not required to obtain local franchises or to pay franchise fees,
and are subject to fewer regulatory requirements than cable television systems.
To date, the ability of wireless cable services to compete with cable television
systems has been limited by channel capacity (35-channel maximum) and the need
for unobstructed line-of-sight over-the-air transmission. Although relatively
few wireless cable systems in the United States are currently in operation or
under construction, virtually all markets have been licensed or tentatively
licensed. The use of digital compression technology may enable wireless cable
systems to deliver more channels.
Private cable television systems compete to service condominiums, apartment
complexes and certain other multiple unit residential developments. The
operators of these private systems, known as satellite master antenna television
("SMATV") systems, often enter into exclusive agreements with apartment building
owners or homeowners' associations which preclude franchised cable television
operators from serving residents of such private complexes. However, the 1984
Cable Act gives franchised cable operators the right to use existing compatible
easements within their franchise areas upon nondiscriminatory terms and
conditions. Accordingly, where there are preexisting compatible easements, cable
operators may not be unfairly denied access or discriminated against with
respect to the terms and conditions of access to those easements. There have
been conflicting judicial decisions interpreting the scope of the access right
granted by the 1984 Cable Act, particularly with respect to easements located
entirely on private property. Under the 1996 Telecom Act, SMATV systems can
interconnect non-commonly owned buildings without having to comply with local,
state and federal regulatory requirements that are imposed upon cable systems
providing similar services, as long as they do not use public rights-of-way.
The FCC has initiated a new interactive television service which will permit
non-video transmission of information between an individual's home and
entertainment and information service providers. This service will provide an
alternative means for DBS systems and other video programming distributors,
including television stations, to initiate the new interactive television
services. This service may also be used by the cable television industry.
The FCC has allocated spectrum in the 28 GHz range for a new multichannel
wireless service that can be used to provide video and telecommunications
services. The FCC recently completed the process of awarding licenses to use
this spectrum via a market-by-market auction. It cannot be predicted at this
time whether such a service will have a material impact on the operations of
cable television systems.
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The 1996 Telecom Act eliminates the restriction against ownership (subject
to certain exceptions) and operation of cable systems by local telephone
companies within their local exchange service areas. Telephone companies are now
free to enter the retail video distribution business through any means, such as
DBS, wireless cable, SMATV or as traditional franchised cable system operators.
Alternatively, the 1996 Telecom Act authorizes local telephone companies to
operate "open video systems" without obtaining a local cable franchise, although
telephone companies operating such systems can be required to make payments to
local governmental bodies in lieu of cable franchise fees. Up to two-thirds of
the channel capacity on an "open video system" must be available to programmers
unaffiliated with the local telephone company. The open video system concept
replaces the FCC's video dialtone rules. The 1996 Telecom Act also includes
numerous provisions designed to make it easier for cable operators and others to
compete directly with local exchange telephone carriers.
The cable television industry competes with radio, television, print media
and the Internet for advertising revenues. As the cable television industry
continues to develop programming designed specifically for distribution by
cable, advertising revenues may increase.
Premium programming provided by cable systems is subject to the same
competitive factors which exist for other programming discussed above. The
continued profitability of premium services may depend largely upon the
continued availability of attractive programming at competitive prices.
Advances in communications technology, as well as changes in the marketplace
and the regulatory and legislative environment, are constantly occurring. Thus,
it is not possible to predict the competitive effect that ongoing or future
developments might have on the cable industry. See "Legislation and Regulation."
PROPERTIES
The Company owns substantially all of the assets related to the Owned
Systems' cable television operations, including program production equipment,
headend equipment (towers, antennae, electronic equipment and satellite earth
stations), cable plant (distribution equipment, amplifiers, customer drops and
hardware), converters, test equipment, tools and maintenance equipment and
vehicles. The Company owns or leases parcels of real property for signal
reception sites (antenna towers and headends), microwave facilities and business
offices. The Company believes that its properties, both owned and leased, are in
good condition and are suitable and adequate for the Company's business
operations.
The Company leases office space for both its corporate headquarters (located
in Los Angeles, California) and its corporate financial center (located in
Pasadena, California). The office building in which the Company leases space for
the corporate financial center is owned by a partnership owned by Marc B.
Nathanson and his wife, Jane Nathanson. The Company has increased the amount of
space it leases from such partnership. The terms of the current lease for the
corporate financial center have been negotiated on an arm's-length basis. The
Company also assumed a lease for office space in a building owned by Marc B.
Nathanson and his wife in connection with the acquisition of the assets of FCSC.
The property will be purchased by the Company in 1998 for a purchase price
determined by two independent appraisals. See "Certain Relationships and Related
Transactions."
LEGAL PROCEEDINGS
The Company is periodically a party to various legal proceedings. Such legal
proceedings are ordinary and routine litigation proceedings that are incidental
to the Company's business, and management presently believes that the outcome of
all pending legal proceedings will not, in the aggregate, have a material
adverse effect on the financial condition of the Company.
FHGLP, certain of its affiliates, and certain third parties have been named
as defendants in an action entitled FRANK O'SHEA I.R.A. ET AL. V. FALCON CABLE
SYSTEMS COMPANY, ET AL., Case No. BC 147386, pending in the Superior Court of
the State of California, County of Los Angeles. Plaintiffs in this action are
certain
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former unitholders of FCSC purporting to represent a class consisting of former
unitholders of FCSC other than those affiliated with FCSC and/or its controlling
persons. The complaint in the action alleges, among other things, that
defendants breached their fiduciary and contractual duties to unitholders, and
acted negligently, with respect to the purchase from former unitholders of their
interests in FCSC in 1996. In particular, the complaint in this action alleges,
among other things, (a) that the appraisals conducted to determine the price at
which the purchase of the former unitholders' interests would occur were
"inadequate," "defective" and "unreasonable" and that the appraisal firms who
conducted the appraisals (two out of three of which are named as defendants)
acted negligently or recklessly in performing the appraisals; (b) that the price
paid per unit was unfair and was intended to unfairly benefit the defendants at
the expense of the public unitholders, in that allegedly the price paid did not
fairly reflect the intrinsic value of the partnership assets, was not based on
arms-length negotiation, and was less than the per unit value that could be
derived from an alleged estimate of asset value submitted by FCSC to its lenders
in connection with its borrowings and (c) that the sums paid the unitholders
should not have been based on a calculation that reflected payment to the
General Partner of a "sales fee" as defined in the FCSC partnership agreement.
As relief, the complaint seeks damages (and prejudgment interest) in an
unspecified amount, and/or the imposition of a constructive trust upon the FCSC
partnership assets purchased by certain defendants, and/or rescission of the
transaction. The defendants have filed answers denying the material allegations
of the complaint in this action, and the action is currently in the pre-trial
discovery stage. The court has set a trial date for October 1998 for this
matter. FHGLP believes it has substantial and meritorious defenses to the
claims.
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LEGISLATION AND REGULATION
The cable television industry is regulated by the FCC, some state
governments and substantially all local governments. In addition, various
legislative and regulatory proposals under consideration from time to time by
Congress and various federal agencies have in the past materially affected, and
may in the future materially affect, the Company and the cable television
industry. The following is a summary of federal laws and regulations affecting
the growth and operation of the cable television industry and a description of
certain state and local laws. The Company believes that the regulation of its
industry remains a matter of interest to Congress, the FCC and other regulatory
authorities. There can be no assurance as to what, if any, future actions such
legislative and regulatory authorities may take or the effect thereof on the
Company.
FEDERAL REGULATION
The primary federal statute dealing with the regulation of the cable
television industry is the Communications Act of 1934 (the "Communications
Act"), as amended. The three principal amendments to the Communications Act that
shaped the existing regulatory framework for the cable television industry were
the 1984 Cable Act, the 1992 Cable Act and the 1996 Telecom Act.
The FCC, the principal federal regulatory agency with jurisdiction over
cable television, has promulgated regulations to implement the provisions
contained in the Communications Act. The FCC has the authority to enforce these
regulations through the imposition of substantial fines, the issuance of cease
and desist orders and/or the imposition of other administrative sanctions, such
as the revocation of FCC licenses needed to operate certain transmission
facilities often used in connection with cable operations. A brief summary of
certain of these federal regulations as adopted to date follows.
RATE REGULATION
The 1992 Cable Act replaced the FCC's previous standard for determining
"effective competition," under which most cable systems were not subject to
local rate regulation, with a statutory provision that resulted in nearly all
cable television systems becoming subject to local rate regulation of basic
service. The 1996 Telecom Act expanded the definition of effective competition
to include situations where a local telephone company or its affiliate, or any
multichannel video provider using telephone company facilities, offers
comparable video service by any means except DBS. A finding of effective
competition exempts both basic and nonbasic tiers from regulation. Additionally,
the 1992 Cable Act required the FCC to adopt a formula, enforceable by
franchising authorities, to assure that basic cable rates are reasonable;
allowed the FCC to review rates for nonbasic service tiers (other than
per-channel or per-program services) in response to complaints filed by
franchising authorities and/or cable customers; prohibited cable television
systems from requiring subscribers to purchase service tiers above basic service
in order to purchase premium services if the system is technically capable of
doing so; required the FCC to adopt regulations to establish, on the basis of
actual costs, the price for installation of cable service, remote controls,
converter boxes and additional outlets; and allowed the FCC to impose
restrictions on the retiering and rearrangement of cable services under certain
limited circumstances. The 1996 Telecom Act limits the class of complainants
regarding nonbasic tier rates to franchising authorities only and ends FCC
regulation of nonbasic tier rates on March 31, 1999. Because cable service rate
increases have continued to outpace inflation under the FCC's existing
regulations, the Company expects Congress and the FCC to explore additional
methods of addressing this issue, including deferral or repeal of the March 31,
1999 sunset of CPST rate regulations, and legislation recently was introduced in
Congress to repeal the sunset provision.
The FCC's regulations contain standards for the regulation of basic and
nonbasic cable service rates (other than per-channel or per-program services).
Local franchising authorities and/or the FCC are empowered to order a reduction
of existing rates which exceed the maximum permitted level for either basic
and/or nonbasic cable services and associated equipment, and refunds can be
required. The rate
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regulations adopt a benchmark price cap system for measuring the reasonableness
of existing basic and nonbasic service rates. Alternatively, cable operators
have the opportunity to make cost-of-service showings which, in some cases, may
justify rates above the applicable benchmarks. The rules also require that
charges for cable-related equipment (E.G., converter boxes and remote control
devices) and installation services be unbundled from the provision of cable
service and based upon actual costs plus a reasonable profit. The regulations
also provide that future rate increases may not exceed an inflation-indexed
amount, plus increases in certain costs beyond the cable operator's control,
such as taxes, franchise fees and increased programming costs. Cost-based
adjustments to these capped rates can also be made in the event a cable operator
adds or deletes channels. In addition, new product tiers consisting of services
new to the cable system can be created free of rate regulation as long as
certain conditions are met, such as not moving services from existing tiers to
the new tier. These provisions currently provide limited benefit to the
Company's systems due to the lack of channel capacity previously discussed.
There is also a streamlined cost-of-service methodology available to justify a
rate increase on basic and regulated nonbasic tiers for "significant" system
rebuilds or upgrades.
Numerous franchising authorities have become certified by the FCC to
regulate the rates charged by the Company for basic cable service and for
associated basic cable service equipment. In addition, a number of the Company's
customers and/or franchising authorities have filed complaints with the FCC
regarding the rates charged for nonbasic cable service.
The Company has adjusted its regulated programming service rates and related
equipment and installation charges in substantially all of its systems so as to
bring these rates and charges into compliance with the applicable benchmark or
equipment and installation cost levels.
FCC regulations adopted pursuant to the 1992 Cable Act require cable systems
to permit customers to purchase video programming on a per channel or a per
program basis without the necessity of subscribing to any tier of service, other
than the basic service tier, unless the cable system is technically incapable of
doing so. Generally, an exemption from compliance with this requirement for
cable systems that do not have such technical capability is available until a
cable system obtains the capability, but not later than December 2002.
CARRIAGE OF BROADCAST TELEVISION SIGNALS
The 1992 Cable Act adopted new television station carriage requirements.
These rules allow commercial television broadcast stations which are "local" to
a cable system, I.E., the system is located in the station's Area of Dominant
Influence, to elect every three years whether to require the cable system to
carry the station, subject to certain exceptions, or whether the cable system
will have to negotiate for "retransmission consent" to carry the station. Local
non-commercial television stations are also given mandatory carriage rights,
subject to certain exceptions, within the larger of: (i) a 50-mile radius from
the station's city of license; or (ii) the station's Grade B contour (a measure
of signal strength). Unlike commercial stations, noncommercial stations are not
given the option to negotiate retransmission consent for the carriage of their
signal. In addition, cable systems will have to obtain retransmission consent
for the carriage of all "distant" commercial broadcast stations, except for
certain "superstations," I.E., commercial satellite-delivered independent
stations, such as WGN. The Company has thus far not been required to pay cash
compensation to broadcasters for retransmission consent or been required by
broadcasters to remove broadcast stations from the cable television channel
line-ups. The Company has, however, agreed to carry some services in specified
markets pursuant to retransmission consent arrangements which it believes are
comparable to those entered into by most other large cable operators, and for
which it pays monthly fees to the service providers, as it does with other
satellite providers. The second election between must-carry and retransmission
consent for local commercial television broadcast stations was October 1, 1996,
and the Company has agreed to carry one new service in specified markets
pursuant to these retransmission consent arrangements. The next election between
must-carry and retransmission consent for local commercial television broadcast
stations will be October 1, 1999.
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The FCC is currently conducting a rulemaking proceeding regarding the
carriage responsibilities of cable television systems during the transition of
broadcast television from analog to digital transmission. Specifically, the FCC
is exploring whether to amend the signal carriage rules to accommodate the
carriage of digital broadcast television signals.
NONDUPLICATION OF NETWORK PROGRAMMING
Cable television systems that have 1,000 or more customers must, upon the
appropriate request of a local television station, delete the simultaneous or
nonsimultaneous network programming of certain lower priority distant stations
affiliated with the same network as the local station.
DELETION OF SYNDICATED PROGRAMMING
FCC regulations enable television broadcast stations that have obtained
exclusive distribution rights for syndicated programming in their market to
require a cable system to delete or "black out" such programming from certain
other television stations which are carried by the cable system. The extent of
such deletions will vary from market to market and cannot be predicted with
certainty. However, it is possible that such deletions could be substantial and
could lead the cable operator to drop a distant signal in its entirety.
PROGRAM ACCESS
The 1992 Cable Act contains provisions that are intended to foster the
development of competition to traditional cable systems by regulating the access
of competing video providers to vertically integrated, satellite-distributed
cable programming services. The FCC has commenced a rulemaking proceeding to
seek comment on proposed modifications to its existing rules implementing the
statute, including: (1) establishing specific deadlines for resolving program
access complaints; (2) improving the discovery process, such as requiring the
disclosure of the rates that vertically integrated programmers charge cable
operators; (3) imposing monetary damages for program access violations; (4)
possibly applying the program access rules to certain situations in which
programming is moved from satellite delivery to terrestrial delivery; and (5)
revising the manner in which the rules apply to program buying cooperatives. It
is not clear to what extent, if any, the provisions of the 1992 Cable Act cover
programming distributed by means other than satellite or by programmers
unaffiliated with MSOs. Legislation has recently been introduced in Congress to
strengthen the program access provisions of the 1992 Cable Act.
FRANCHISE FEES
Franchising authorities may impose franchise fees, but such payments cannot
exceed 5% of a cable system's annual gross revenues. Under the 1996 Telecom Act,
franchising authorities may not exact franchise fees from revenues derived from
telecommunications services.
RENEWAL OF FRANCHISES
The 1984 Cable Act established renewal procedures and criteria designed to
protect incumbent franchisees against arbitrary denials of renewal. While these
formal procedures are not mandatory unless timely invoked by either the cable
operator or the franchising authority, they can provide substantial protection
to incumbent franchisees. Even after the formal renewal procedures are invoked,
franchising authorities and cable operators remain free to negotiate a renewal
outside the formal process. Nevertheless, renewal is by no means assured, as the
franchisee must meet certain statutory standards. Even if a franchise is
renewed, a franchising authority may impose new and more onerous requirements
such as upgrading facilities and equipment, although the municipality must take
into account the cost of meeting such requirements.
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The 1992 Cable Act makes several changes to the process under which a cable
operator seeks to enforce his renewal rights which could make it easier in some
cases for a franchising authority to deny renewal. While a cable operator must
still submit its request to commence renewal proceedings within thirty to
thirty-six months prior to franchise expiration to invoke the formal renewal
process, the request must be in writing and the franchising authority must
commence renewal proceedings not later than six months after receipt of such
notice. The four-month period for the franchising authority to grant or deny the
renewal now runs from the submission of the renewal proposal, not the completion
of the public proceeding. Franchising authorities may consider the "level" of
programming service provided by a cable operator in deciding whether to renew.
For alleged franchise violations occurring after December 29, 1984, franchising
authorities are no longer precluded from denying renewal based on failure to
substantially comply with the material terms of the franchise where the
franchising authority has "effectively acquiesced" to such past violations.
Rather, the franchising authority is estopped if, after giving the cable
operator notice and opportunity to cure, it fails to respond to a written notice
from the cable operator of its failure or inability to cure. Courts may not
reverse a denial of renewal based on procedural violations found to be "harmless
error."
CHANNEL SET-ASIDES
The 1984 Cable Act permits local franchising authorities to require cable
operators to set aside certain channels for public, educational and governmental
access programming. The 1984 Cable Act further requires cable television systems
with thirty-six or more activated channels to designate a portion of their
channel capacity for commercial leased access by unaffiliated third parties.
While the 1984 Cable Act allowed cable operators substantial latitude in setting
leased access rates, the 1992 Cable Act requires leased access rates to be set
according to a formula determined by the FCC. The FCC has recently changed the
formula in order to produce lower rates and thereby encourage the use of leased
access.
COMPETING FRANCHISES
The 1992 Cable Act prohibits franchising authorities from unreasonably
refusing to grant franchises to competing cable television systems and permits
franchising authorities to operate their own cable television systems without
franchises.
OWNERSHIP
The 1996 Telecom Act repealed the 1984 Cable Act's prohibition against local
exchange telephone companies ("LECs") providing video programming directly to
customers within their local telephone exchange service areas. However, with
certain limited exceptions, a LEC may not acquire more than a 10% equity
interest in an existing cable system operating within the LEC's service area.
The 1996 Telecom Act also authorized LECs and others to operate "open video
systems" without obtaining a local cable franchise. See "Business--Competition."
The 1984 Cable Act and the FCC's rules prohibit the common ownership,
operation, control or interest in a cable system and a local television
broadcast station whose predicted grade B contour (a measure of a television
station's signal strength as defined by the FCC's rules) covers any portion of
the community served by the cable system. The 1996 Telecom Act eliminates the
statutory ban and directs the FCC to review its rule within two years, and the
FCC recently initiated such a review. Finally, in order to encourage competition
in the provision of video programming, the FCC adopted a rule prohibiting the
common ownership, affiliation, control or interest in cable television systems
and wireless cable facilities having overlapping service areas, except in very
limited circumstances. The 1992 Cable Act codified this restriction and extended
it to co-located SMATV systems. Permitted arrangements in effect as of October
5, 1992 are grandfathered. The 1996 Telecom Act exempts cable systems facing
effective competition from the wireless cable and SMATV restriction. In
addition, a cable operator can purchase a SMATV system serving the same area and
technically integrate it into the cable system. The 1992 Cable
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Act permits states or local franchising authorities to adopt certain additional
restrictions on the ownership of cable television systems.
Pursuant to the 1992 Cable Act, the FCC has imposed limits on the number of
cable systems which a single cable operator can own. In general, no cable
operator can have an attributable interest in cable systems which pass more than
30% of all homes nationwide. Attributable interests for these purposes include
voting interests of 5% or more (unless there is another single holder of more
than 50% of the voting stock), officerships, directorships, general partnership
interests and limited partnership interests (unless the limited partners have no
material involvement in the limited partnership's business.) The FCC has stayed
the effectiveness of these rules pending the outcome of the appeal from a U.S.
District Court decision holding the multiple ownership limit provision of the
1992 Cable Act unconstitutional. In the event the stay is lifted, and the court
decision is reversed, TCI may need to assess, based on its other attributable
interests then existing, its compliance with the multiple ownership limits. See
"Risk Factors-- Conditions of Closing the TCI Transaction" and "Description of
the Partnership Agreements--New Falcon Partnership Agreement--Cross-Ownership
Provisions."
The FCC has also adopted rules which limit the number of channels on a cable
system which can be occupied by programming in which the entity which owns the
cable system has an attributable interest. The limit is 40% of the first 75
activated channels.
The FCC also recently commenced a rulemaking proceeding to examine, among
other issues, whether any limitations on cable-DBS cross-ownership are warranted
in order to prevent anticompetitive conduct in the video services market.
FRANCHISE TRANSFERS
The 1992 Cable Act requires franchising authorities to act on any franchise
transfer request submitted after December 4, 1992 within 120 days after receipt
of all information required by FCC regulations and by the franchising authority.
Approval is deemed to be granted if the franchising authority fails to act
within such period.
TECHNICAL REQUIREMENTS
The FCC has imposed technical standards applicable to the cable channels on
which broadcast stations are carried, and has prohibited franchising authorities
from adopting standards which are in conflict with or more restrictive than
those established by the FCC. Those standards are applicable to all classes of
channels which carry downstream National Television System Committee (the
"NTSC") video programming. The FCC also has adopted additional standards
applicable to cable television systems using frequencies in the 108-137 MHz and
225-400 MHz bands in order to prevent harmful interference with aeronautical
navigation and safety radio services and has also established limits on cable
system signal leakage. Periodic testing by cable operators for compliance with
the technical standards and signal leakage limits is required and an annual
filing of the results of these measurements is required. The 1992 Cable Act
requires the FCC to periodically update its technical standards to take into
account changes in technology. Under the 1996 Telecom Act, local franchising
authorities may not prohibit, condition or restrict a cable system's use of any
type of subscriber equipment or transmission technology.
The FCC has adopted regulations to implement the requirements of the 1992
Cable Act designed to improve the compatibility of cable systems and consumer
electronics equipment. Among other things, these regulations generally prohibit
cable operators from scrambling their basic service tier. The 1996 Telecom Act
directs the FCC to set only minimal standards to assure compatibility between
television sets, VCRs and cable systems, and to rely on the marketplace.
Pursuant to the 1992 Cable Act, the FCC has adopted rules to assure the
competitive availability to consumers of customers premises equipment, such as
converters, used to access the services offered by
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cable television systems and other multichannel video programming distributions
("MVPD"). Pursuant to those rules, consumers are given the right to attach
compatible equipment to the facilities of their MVPD so long as the equipment
does not harm the network, does not interfere with the services purchased by
other customers, and is not used to receive unauthorized services. As of July 1,
2000, MVPDs (other than DBS operators) are required to separate security from
non-security functions in the customer premises equipment which they sell or
lease to their customers and offer their customers the option of using component
security modules obtained from the MVPD with set-top units purchased or leased
from retail outlets. As of January 1, 2005, MVPDs will be prohibited from
distributing new set-top equipment integrating both security and non-security
functions to their customers.
POLE ATTACHMENTS
The FCC currently regulates the rates and conditions imposed by certain
public utilities for use of their poles unless state public service commissions
are able to demonstrate that they regulate the rates, terms and conditions of
cable television pole attachments. The states of California, Illinois, Kentucky,
Louisiana, Michigan, New York, Oregon, Utah and Washington, where the Company
operates cable systems, have certified to the FCC that they regulate the rates,
terms and conditions for pole attachments. In the absence of state regulation,
the FCC administers such pole attachment rates through use of a formula which it
has devised. As directed by the 1996 Telecom Act, the FCC has adopted a new rate
formula for any attaching party, including cable systems, which offer
telecommunications services. This new formula will result in significantly
higher attachment rates for cable systems which choose to offer such services,
but does not begin to take effect until 2001.
OTHER MATTERS
Other matters subject to FCC regulation include certain restrictions on a
cable system's carriage of local sports programming; rules governing political
broadcasts; customer service standards; obscenity and indecency; home wiring;
EEO; privacy; closed captioning; sponsorship identification; system
registration; and limitations on advertising contained in nonbroadcast
children's programming.
COPYRIGHT
Cable television systems are subject to federal copyright licensing covering
carriage of broadcast signals. In exchange for making semi-annual payments to a
federal copyright royalty pool and meeting certain other obligations, cable
operators obtain a statutory license to retransmit broadcast signals. The amount
of this royalty payment varies, depending on the amount of system revenues from
certain sources, the number of distant signals carried, and the location of the
cable system with respect to over-the-air television stations. Any future
adjustment to the copyright royalty rates will be done through an arbitration
process supervised by the U.S. Copyright Office.
Cable operators are liable for interest on underpaid and unpaid royalty
fees, but are not entitled to collect interest on refunds received for
overpayment of copyright fees.
Copyrighted music performed in programming supplied to cable television
systems by pay cable networks (such as HBO) and basic cable networks (such as
USA Network) is licensed by the networks through private agreements with the
American Society of Composers and Publishers ("ASCAP") and BMI, Inc. ("BMI"),
the two major performing rights organizations in the United States. As a result
of extensive litigation, both ASCAP and BMI now offer "through to the viewer"
licenses to the cable networks which cover the retransmission of the cable
networks' programming by cable systems to their customers.
Copyrighted music performed by cable systems themselves, E.G., on local
origination channels or in advertisements inserted locally on cable networks,
must also be licensed. Cable industry negotiations with ASCAP, BMI and SESAC,
Inc. (a third and smaller performing rights organization) are in progress.
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LOCAL REGULATION
Because a cable television system uses local streets and rights-of-way,
cable television systems generally are operated pursuant to nonexclusive
franchises, permits or licenses granted by a municipality or other state or
local government entity. Franchises generally are granted for fixed terms and in
many cases are terminable if the franchise operator fails to comply with
material provisions. Although the 1984 Cable Act provides for certain procedural
protections, there can be no assurance that renewals will be granted or that
renewals will be made on similar terms and conditions. Upon receipt of a
franchise, the cable system owner usually is subject to a broad range of
obligations to the issuing authority directly affecting the business of the
system. The terms and conditions of franchises vary materially from jurisdiction
to jurisdiction, and even from city to city within the same state, historically
ranging from reasonable to highly restrictive or burdensome. The specific terms
and conditions of a franchise and the laws and regulations under which it was
granted directly affect the profitability of the cable television system. Cable
franchises generally contain provisions governing charges for basic cable
television services, fees to be paid to the franchising authority, length of the
franchise term, renewal, sale or transfer of the franchise, territory of the
franchise, design and technical performance of the system, use and occupancy of
public streets and the number and types of cable services provided. The 1996
Telecom Act prohibits a franchising authority from either requiring or limiting
a cable operator's provision of telecommunications services.
The 1984 Cable Act places certain limitations on a franchising authority's
ability to control the operation of a cable system operator, and the courts have
from time to time reviewed the constitutionality of several general franchise
requirements, including franchise fees and access channel requirements, often
with inconsistent results. On the other hand, the 1992 Cable Act prohibits
exclusive franchises, and allows franchising authorities to exercise greater
control over the operation of franchised cable television systems, especially in
the area of customer service and rate regulation. Moreover, franchising
authorities are immunized from monetary damage awards arising from regulation of
cable television systems or decisions made on franchise grants, renewals,
transfers and amendments.
The foregoing describes all material regulations and legislation relevant to
the Issuers as part of the cable television industry, but it does not purport to
describe all present and proposed federal, state and local regulations and
legislation relating to the cable television industry. Other existing federal
regulations, copyright licensing and, in many jurisdictions, state and local
franchise requirements, currently are the subject of a variety of judicial
proceedings, legislative hearings and administrative and legislative proposals
which could change, in varying degrees, the manner in which cable television
systems operate. Neither the outcome of these proceedings nor their impact upon
the cable television industry can be predicted at this time.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF FHGI
FHGI serves as the sole general partner of FHGLP which, in turn, will serve
as the managing general partner of New Falcon. The directors and executive
officers of FHGI are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------ --- ------------------------------------------------
<S> <C> <C>
Marc B. Nathanson....... 53 Chairman of the Board, Chief Executive Officer
and a Director
Frank J. Intiso......... 51 President and Chief Operating Officer
Stanley S. Itskowitch... 59 Executive Vice President, General Counsel and a
Director
Michael K. Menerey...... 46 Executive Vice President, Chief Financial
Officer and Secretary
Joe A. Johnson.......... 53 Executive Vice President--Operations
Thomas J. Hatchell...... 49 Executive Vice President--Operations
Jon W. Lunsford......... 38 Executive Vice President--Finance
</TABLE>
Pursuant to certain management rights agreements with FHGLP, Hellman &
Friedman Capital Partners and Hellman & Friedman Capital Partners II, L.P. have
the right until December 31, 1999 to designate an aggregate of two directors of
FHGI. To date, such entities have concurred in the designation of Marc B.
Nathanson and Stanley S. Itskowitch as the sole directors of FHGI. In the event
such entities did not so concur, Mr. Nathanson, through his voting control of
FHGI, would have the option of increasing the size of the Board of Directors of
FHGI to a maximum of nine members. Upon consummation of the TCI Transaction, the
foregoing management rights agreements will terminate.
The following sets forth certain biographical information with respect to
the directors and executive officers of Falcon.
MARC B. NATHANSON, 53, has been Chairman of the Board and Chief Executive
Officer of FHGI and its predecessors since 1975, and prior to September 19, 1995
also served as President. Prior to 1975, Mr. Nathanson was Vice President of
Marketing for Teleprompter Corporation, then the largest MSO in the United
States. He also held executive positions with Warner Cable and Cypress
Communications Corporation. He is a former President of the California Cable
Television Association and a member of Cable Pioneers. He is currently a
director and a member of the Executive Committee of the National Cable
Television Association ("NCTA"). At the 1986 NCTA convention, Mr. Nathanson was
honored by being named the recipient of the Vanguard Award for outstanding
contributions to the growth and development of the cable television industry.
Mr. Nathanson is a 30-year veteran of the cable television industry. He is a
founder of the Cable Television Administration and Marketing Society ("CTAM")
and the Southern California Cable Television Association. Mr. Nathanson has
served as Chairman of the Board, Chief Executive Officer and President of Enstar
since October 1988. Mr. Nathanson is a Director of T.V. Por Cable Nacional, S.A.
de C.V., an Advisory Board member of TVA, (Brazil) and a director of GRB
Entertainment. Mr. Nathanson is also Chairman of the Board and Chief Executive
Officer of Falcon International Communications LLC. Mr. Nathanson was appointed
by President Clinton and confirmed by the U.S. Senate on August 14, 1995 for a
three-year term on the Board of Governors of International Broadcasting of the
United States Information Agency. He also serves on the Board of Radio Free
Asia, Radio Free Europe and Radio Liberty. Mr. Nathanson is a trustee of the
Annenburg School of Communications at the University of Southern California and
a member of the Board of Visitors of the Anderson School of Management at UCLA.
In addition, he serves on the Board of the UCLA Foundation and the UCLA Center
for Communications Policy and is on the Board of Governors of AIDS Project Los
Angeles and Cable Positive.
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FRANK J. INTISO, 51, was appointed President and Chief Operating Officer of
FHGI in September 1995. Between 1982 and September 1995, Mr. Intiso held the
positions of Executive Vice President and Chief Operating Officer, with
responsibility for the day-to-day operations of all cable television systems
under the management of Falcon. Mr. Intiso has also served as Executive Vice
President and as a Director of Enstar since October 1988. Mr. Intiso has a
Masters Degree in Business Administration from UCLA and is a Certified Public
Accountant. He currently serves as Immediate Past Chair of the California Cable
Television Association and is on the boards of the Cable Advertising Bureau,
Cable in the Classroom, Community Antenna Television Association and California
Cable Television Association. He is a member of the American Institute of
Certified Public Accountants, the American Marketing Association, the American
Management Association and the Southern California Cable Television Association.
STANLEY S. ITSKOWITCH, 59, has been a Director of FHGI and its predecessors
since 1975. He served as Senior Vice President and General Counsel of FHGI from
1987 to 1990 and has been Executive Vice President and General Counsel since
February 1990. He has been President and Chief Executive Officer of F.C.
Funding, Inc. (formerly Fallek Chemical Company), which is a marketer of
chemical products, since 1980. He is a Certified Public Accountant and a former
tax partner in the New York office of Touche Ross & Co. (now Deloitte & Touche
LLP). He has a J.D. Degree and an L.L.M. Degree in Tax from New York University
School of Law. Mr. Itskowitch has also served as Senior Vice President or
Executive Vice President and as a director of Enstar since October 1988. Mr.
Itskowitch is also Executive Vice President and General Counsel of FIC.
MICHAEL K. MENEREY, 46, has been Executive Vice President, Chief Financial
Officer and Secretary of FHGI since February 1998 and was Chief Financial
Officer and Secretary of its predecessors between 1984 and 1998. Mr. Menerey is
a Certified Public Accountant and is a member of the American Institute of
Certified Public Accountants and the California Society of Certified Public
Accountants, and he was formerly associated with BDO Seidman. Mr. Menerey has
also served as Chief Financial Officer, Secretary and as a director of Enstar
since October 1988.
JOE A. JOHNSON, 53, has been Executive Vice President of Operations of FHGI
since September 1995, and was a Divisional Vice President of Falcon between 1989
and 1992. From 1982 to 1989, he held the positions of Vice President and
Director of Operations for Sacramento Cable Television, Group W Cable of Chicago
and Warner Amex. From 1975 to 1982, Mr. Johnson held Cable System and Regional
Manager positions with Warner Amex and Teleprompter. Mr. Johnson is also a
member of the Cable Pioneers.
THOMAS J. HATCHELL, 49, has been Executive Vice President of Operations of
FHGI since February 1998. From October 1995 to February 1998, he was Senior Vice
President of Operations of Falcon International Communications, L.P. and its
predecessor company and was a Senior Vice President of FHGI from January 1992 to
September 1995. Mr. Hatchell was a Divisional Vice President of FHGI between
1989 and 1992. From 1981 to 1989, he served as Vice President and Regional
Manager for Falcon's San Luis Obispo, California region. He was Vice President
of Construction of an affiliate of Falcon from June 1980 to June 1981. In
addition, he served as a General Manager of the cable system in Tulare County,
California from 1977 to 1980. Prior to that time, Mr. Hatchell served as a cable
executive with the Continental Telephone Company.
JON W. LUNSFORD, 38, has been Executive Vice President--Finance of FHGI
since February 1998, and was Vice President--Finance of Falcon between 1994 and
1998. From 1991 to 1994, he served as Director of Corporate Finance at
Continental Cablevision, Inc. Prior to 1991, Mr. Lunsford was a Vice President
with Crestar Bank.
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OTHER OFFICERS OF FALCON
The following sets forth certain biographical information with respect to
certain additional members of FHGI management.
LYNNE A. BUENING, 44, has been Vice President of Programming of Falcon since
November 1993. From 1989 to 1993, she served as Director of Programming for
Viacom Cable, a division of Viacom International Inc. Prior to that, Ms. Buening
held programming and marketing positions in the cable, broadcast and newspaper
industries.
OVANDO COWLES, 44, has been Vice President of Advertising Sales and
Production of Falcon since January 1992. From 1988 to 1991, he served as a
Director of Advertising Sales and Production at Cencom Cable Television in
Pasadena, California from 1985 to 1988. He was an Advertising Sales Account
Executive at Choice TV, an affiliate of Falcon.
ABEL C. CRESPO, 38, has been Controller of Falcon since January 1997. Mr.
Crespo joined Falcon in December 1984, and has held various accounting positions
during that time, most recently Senior Assistant Controller. Mr. Crespo holds a
Bachelor of Science degree in Business Administration from California State
University, Los Angeles.
HOWARD J. GAN, 51, has been Vice President of Regulatory Affairs of Falcon
and its predecessors since 1988. He was General Counsel at Malarkey-Taylor
Associates, a Washington, D.C.-based telecommunications consulting firm, from
1986 to 1988. Mr. Gan was Vice President and General Counsel at the Cable
Television Information Center from 1978 to 1983. In addition, he was an attorney
and an acting Branch Chief of the Federal Communications Commission's Cable
Television Bureau from 1975 to 1978.
R.W. ("SKIP") HARRIS, 50, has been Vice President of Marketing of Falcon
since June 1991. He is a member of the CTAM Premium Television Committee. Mr.
Harris was National Director of Affiliate Marketing for The Disney Channel from
1985 to 1991. He was also a sales manager, regional marketing manager and
director of marketing for Cox Cable Communications from 1978 to 1985.
JOAN SCULLY, 63, has been Vice President of Human Resources of FHGI and its
predecessors since May 1988. From 1987 to May 1988, she was self-employed as a
management consultant to cable and transportation companies. She served as
Director of Human Resources of a Los Angeles-based cable company from 1985
through 1987. Prior to that time, she served as a human resource executive in
the entertainment and aerospace industries. Ms. Scully holds a Masters Degree in
Human Resources Management from Pepperdine University.
RAYMOND J. TYNDALL, 50, has been Vice President of Engineering of Falcon
since October 1989. From 1975 to September 1989, he held various technical
positions with Choice TV and its predecessors. From 1967 to 1975, he held
various technical positions with Sammons Communications. He is a certified
National Association of Radio and Television Engineering ("NARTE") engineer in
lightwave, microwave, satellite and broadband and is a member of the Cable
Pioneers.
In addition, Falcon has six Divisional Vice Presidents who are based in the
field. They are Donald L. Amick, Daniel H. DeLaney, Ron L. Hall, Michael E.
Kemph, Michael D. Singpiel and Robert S. Smith.
BOARD OF REPRESENTATIVES OF FHGLP
The Existing FHGLP Partnership Agreement provides for the establishment of a
Board of Representatives of FHGLP, which has the authority to approve annual
budgets and whose approval is required in order for FHGLP to undertake certain
actions specified in the Existing FHGLP Partnership Agreement. The Board of
Representatives consists of eleven members, six of whom are appointed by Falcon
(of whom a minimum of two must be outsiders since they may not be members of
Falcon management), two of whom are appointed by Hellman & Friedman Capital
Partners II, L.P., one of whom is appointed by Hellman & Friedman Capital
Partners, one of whom is appointed by Boston Ventures Limited Partnership II and
one
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of whom is appointed by Madison Dearborn Partners VI. Pursuant to the Existing
FHGLP Partnership Agreement, the size of the Board of Representatives and the
identity of the partners appointing its members will change if certain current
partners cease to be partners. Upon consummation of the TCI Transaction, FHGLP
will be governed by the New FHGLP Partnership Agreement which does not provide
for a Board of Representatives. See "Description of the Partnership
Agreements--New FHGLP Partnership Agreement."
As of March 15, 1998, the members of the Board of Representatives of FHGLP
who also are members of Falcon management are: Marc B. Nathanson, Frank J.
Intiso, Stanley S. Itskowitch and Michael K. Menerey. The other members of the
Board of Representatives of FHGLP are:
<TABLE>
<S> <C>
Leonard J. Baxt(1)(2) Joseph M. Niehaus
John L. Bunce, Jr.(1)(2) Steven Rattner(2)
Roy F. Coppedge, Lawrence M. Unrein
III(1)(2)
Paul J. Finnegan
</TABLE>
- ------------------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
The following sets forth certain biographical information with respect to
the members of the Board of Representatives of FHGLP who are not members of
management. Each of such persons has been a member of the Board of
Representatives since the formation of FHGLP except for Messrs. Finnegan, Unrein
and Niehaus, who were first appointed in 1995, 1996 and 1997, respectively.
LEONARD J. BAXT, 50, has been a member of the Washington, D.C. office of the
law firm of Dow, Lohnes & Albertson, PLLC ("DL&A") since 1980. Mr. Baxt heads
the Corporate Department of DL&A and specializes in the acquisition and
financing of media and telecommunications companies.
JOHN L. BUNCE, JR., 39, is a General Partner of Hellman & Friedman. Prior to
joining Hellman & Friedman in 1988, Mr. Bunce was a Vice President with the
venture capital firm of TA Associates. Previously, he was employed in the
Mergers & Acquisitions and Corporate Finance Departments of Lehman Brothers Kuhn
Loeb. Mr. Bunce is a director of Western Wireless Corporation, MobileMedia
Corporation and T.V. Por Cable Nacional, S.A. de C.V. and numerous private
companies. Mr Bunce is also a director of FIC.
ROY F. COPPEDGE, III, 50, has been a General Partner of Boston Ventures and
a director of Boston Ventures Management, Inc. since August 1983. Prior to that
date, he was a First Vice President of The First National Bank of Boston and
headed the bank's U.S. Merchant Banking group. He is currently a director of
American Media, Inc. and Sinclair Broadcast Group, Inc. Mr. Coppedge is also a
director of FIC.
PAUL J. FINNEGAN, 45, has been a Vice President of Madison Dearborn
Partners, Inc., the general partner of Madison Dearborn Capital Partners, L.P.
since January 1993. Previously, he served in various positions at First Capital
Corporation of Chicago and its affiliates. Mr. Finnegan currently serves a
director of Omnipoint Corporation and as a member of the Board of Trustees of
The Skyline Fund.
JOSEPH M. NIEHAUS, 35, is a General Partner of Hellman & Friedman. Prior to
joining Hellman & Friedman in 1989, Mr. Niehaus was employed in the Merchant
Banking and Mergers & Acquisitions Departments of Morgan Stanley & Co.
Incorporated. Mr. Niehaus is a director of Hoyts Cinemas Limited, Hoyts Cinemas
America Limited and numerous private companies. Mr. Niehaus is also a director
of FIC.
STEVEN RATTNER, 45, is Deputy Chief Executive of Lazard Freres & Co. LLC,
which he joined in 1989 as a General Partner. Between 1986 and 1989, Mr. Rattner
was a Managing Director at Morgan Stanley & Co. Incorporated.
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LAWRENCE M. UNREIN, 42, is a Vice President at J.P. Morgan Investment
Management ("JPMIM"). Mr. Unrein is head of the Private Equity Group. Prior to
joining JPMIM in 1997, Mr. Unrein spent 17 years with AT&T Investment Management
Corp., an investment management subsidiary of AT&T, where he was responsible for
managing the public and private equity and fixed income portion of $80 billion
in corporate employee benefit funds. He serves on the Board of Directors at
Hamilton Services Corp. He is the Treasurer at Malcolm Baldridge, Quality Award
Foundation. He is also on numerous Private Equity Advisory Boards such as Morgan
Stanley Capital Partners, New Enterprises Associates, APA Excelsior, Accel,
Asian Infrastructure, Butler Capital, Hellman & Friedman, TA Associates,
Saunders, Karp, Megrue, North Bridge Ventures and Prudential Asia.
ADVISORY COMMITTEE OF NEW FALCON
The New Falcon Partnership Agreement provides for an Advisory Committee
consisting of six individual representatives of the partners, three of whom are
to be appointed by FHGLP, two of whom are to be appointed by TCI and one of whom
is to be appointed by joint designation of FHGLP and TCI. FHGLP must consult
with the Advisory Committee on certain partnership matters and must obtain the
Advisory Committee's approval before taking certain other actions on behalf of
New Falcon. For additional information regarding the governance and management
of New Falcon following consummation of the TCI Transaction, see "Description of
the Partnership Agreements--New Falcon Partnership Agreement."
FHGLP has appointed Marc B. Nathanson (Chairman), Frank J. Intiso and
Stanley S. Itskowitch as its initial representatives; TCI has appointed Leo J.
Hindery, Jr. and William R. Fitzgerald as its initial representatives; and FHGLP
and TCI have designated John S. Evans as their initial joint representative.
The following sets forth certain biographical information with respect to
the members of the Advisory Committee of New Falcon who are not members of
Falcon management.
LEO J. HINDERY, JR., 50, has served as the President and Chief Operating
Officer and a Director of Tele-Communications, Inc. ("TCI Parent") since March
1997 and has been a director of TCI Parent since May 1997. Mr. Hindery is also
President and Chief Executive Officer of TCI Communications, Inc. and is
Chairman of the Board of TCI Ventures Group. Mr. Hindery was previously founder,
Managing General Partner and Chief Executive Officer of InterMedia Partners, a
cable TV operator, and its affiliated entities since 1988. Mr. Hindery is
Chairman, a director and a member of the Executive Committee of the NCTA, and is
also a director of Cablevision Systems Corporation, Lenfest Group, TCI Music,
Inc., Telecommunications International, Inc., USA Networks, Inc. and the @ Home
Network. Mr. Hinderey is also Chairman and a director of C-SPAN.
WILLIAM R. FITZGERALD, 41, is Executive Vice President of Corporate
Development for TCI Communications, Inc. and has served as a Director of TCI
Communications, Inc. since January 30, 1998. Prior to joining TCI
Communications, Inc. in March 1996, he was a Senior Vice President and Partner
with Daniels & Associates, a leading brokerage and investment banking firm to
the communications industry. Before joining Daniels & Associates, Mr. Fitzgerald
was Vice President at The First National Bank of Chicago.
JOHN S. EVANS, 54, is Chairman and Chief Executive Officer of Evans
Telecommunications Company, an investment, consulting and operating company in
the cable television and telecommunications industries. From 1983 to 1994, he
was President and Chief Operating Officer of Hauser Communications and was co-
founder of C-SPAN. Mr. Evans serves as a trustee of the C-SPAN Educational
Foundation and is a director of C-SPAN, the NCTA, the Virginia Cable Television
Association, The Eisenhower World Affairs Institute and The Hollings Cancer
Center.
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DIRECTORS AND EXECUTIVE OFFICERS OF FFC
The following persons are the sole directors and officers of FFC:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- -------------------------------------------
<S> <C> <C>
Marc B. Nathanson.........................
53 Chief Executive Officer and a Director
Frank J. Intiso...........................
51 President and a Director
Stanley S. Itskowitch.....................
59 General Counsel and a Director
Michael K. Menerey........................
46 Chief Financial Officer, Secretary and a
Director
</TABLE>
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid or accrued by FHGLP to
the Chief Executive Officer of FHGI and to each of the four other most highly
compensated executive officers of FHGI for services rendered during the three
years ended December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------- ALL OTHER
SALARY BONUS COMPENSATION(1)
---------- ---------- ----------------
<S> <C> <C> <C>
Marc B. Nathanson, Chairman and Chief Executive Officer
1997................................................................ $ 615,424(2) $ 122,460(2) $ 2,400
1996................................................................ 291,020(2) 56,998(2) 2,610
1995................................................................ 619,619(2) 123,952(2) 2,174
Frank J. Intiso, President and Chief Operating Officer
1997................................................................ 588,432 111,072 2,400
1996................................................................ 587,923 106,800 2,610
1995................................................................ 539,085 98,753 2,530
Stanley S. Itskowitch, Executive Vice President and General Counsel
1997................................................................ 309,976(2) 52,530(2) 2,047
1996................................................................ 191,962(2) 32,845(2) 2,140
1995................................................................ 95,154(2) 14,287(2) 461
Michael K. Menerey, Executive Vice President, Chief Financial Officer
and Secretary
1997................................................................ 255,548(2) 47,754(2) 1,721
1996................................................................ 247,023(2) 45,806(2) 1,725
1995................................................................ 227,938 42,642 1,564
Jon W. Lunsford, Executive Vice President--Finance
1997................................................................ 200,769 40,000 1,440
1996................................................................ 191,461 38,000 1,425
1995................................................................ 170,000 34,000 1,255
</TABLE>
- ------------------------
(1) These amounts relate to term life insurance premiums paid by FHGLP.
(2) Net of reimbursement for salary and bonus FHGLP received from FIC related to
the time of Mr. Nathanson ($204,000 and $41,000, $500,000 and $100,002, and
$107,216 and $21,448), Mr. Itskowitch ($71,000 and $18,000, $175,000 and
$35,000, and $242,640 and $48,513) and Mr. Menerey ($431 and $86, $968 and
$194), spent on international activities in 1997, 1996 and in 1995,
respectively.
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PROFIT SHARING PLAN
FHGLP maintains a cash or deferred profit sharing plan referred to as the
Smart 401K Plan (the "Plan"), covering substantially all of its employees. The
Plan allows participants to elect to make a contribution in an amount up to 20%
of their annual compensation, which otherwise would have been payable to the
participant as salary. Additionally, subject to certain limitations, FHGLP can
contribute to the Plan on a discretionary basis, as determined by management, an
amount that does not exceed 15% of the annual aggregate compensation, as
defined, paid to participating employees. In general, participants in the Plan
vest in any FHGLP contributions according to the following schedule:
<TABLE>
<CAPTION>
YEARS OF SERVICE PERCENTAGE VESTED
- ---------------------------------------------------------------------------- -------------------
<S> <C>
Less than 3 years........................................................... 0%
3........................................................................... 20
4........................................................................... 40
5........................................................................... 60
6........................................................................... 80
7........................................................................... 100
</TABLE>
The following executive officers named in the Summary Compensation Table are
participants in the Plan and, as of December 31, 1997 were 100% vested: Marc B.
Nathanson, Frank J. Intiso, Stanley S. Itskowitch and Michael K. Menerey.
There were no contributions charged against operations for the Plan in 1995,
1996, 1997 or for the three months ended March 31, 1998.
1993 INCENTIVE PERFORMANCE PLAN
On December 30, 1993, FHGLP assumed the obligations of FHGI for its 1993
Incentive Performance Plan (the "Incentive Plan"). The value of the interests in
the Incentive Plan is tied to the equity value of certain Partnership Units in
FHGLP held by FHGI. In connection with the assumption by FHGLP, FHGI agreed to
fund any benefits payable under the Incentive Plan through additional capital
contributions to FHGLP, the waiver of its rights to receive all or part of
certain distributions from FHGLP and a contribution of a portion of its
Partnership Units to FHGLP. The benefits which are payable under the Incentive
Plan are equal to the amount of distributions which FHGI would have otherwise
received with respect to 3,780.14 of the Units of FHGLP held by FHGI, 237.98 of
the Class A Units of FHGLP held by FHGI and a portion of FHGI's interest in
certain of the partnerships that are the general partners of the Affiliated
Partnerships. Benefits are payable under the Incentive Plan only when
distributions would otherwise be paid to FHGI with respect to the
above-described Units and interests. The Incentive Plan is scheduled to
terminate on January 5, 2003, at which time FHGLP is required to distribute the
Units described above to the participants in the Incentive Plan. At such time,
FHGI is required to contribute the Units to FHGLP to fund such distributions.
The participants in the Incentive Plan are present and former employees of FHGLP
and its operating affiliates, all of whom are 100% vested. Prior to the closing
of the TCI Transaction, FHGLP will amend the Incentive Plan to provide for
payments by FHGLP at the closing of the TCI Transaction to participants in an
aggregate amount of approximately $6.6 million and to reduce by such amount
FHGLP's obligations to make future payments to participants under the Incentive
Plan. At the closing of the TCI Transaction, New Falcon will assume the
obligations of FHGLP under the Incentive Plan, as so amended, other than the
obligation to make the payments at closing of the TCI Transaction. See "The TCI
Transaction." Following consummation of the TCI Transaction, the Company intends
to consider and adopt one or more new management incentive plans.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended December 31, 1997 and for the three months
ended March 31, 1998, Marc B. Nathanson, Chairman of the Board and Chief
Executive Officer, Frank J. Intiso, President and Chief Operating Officer,
Stanley S. Itskowitch, Executive Vice President and General Counsel, and Michael
K. Menerey, Executive Vice President, Chief Financial Officer and Secretary,
participated in deliberations with the Board of Representatives of FHGLP with
respect to executive officer compensation.
The Company leases certain office space for its corporate financial center
(located in Pasadena, California) from a partnership owned by Marc B. Nathanson
and his wife (the "Pasadena Lease"). The Pasadena Lease commenced on October 1,
1990 and was for a term of five years. The Company has negotiated a new lease
expiring September 30, 2005. The base rent is currently approximately $31,000
per month, and increased to approximately $35,000 per month in the first quarter
of 1998 due to additional space required in connection with the TCI Transaction.
The Company believes that the terms of the new Pasadena lease are consistent
with leases between unaffiliated parties involving similarly situated
properties. The Company also assumed a lease for office space in a building
owned by Marc B. Nathanson and his wife in connection with the acquisition of
the assets of FCSC. The rent on this property is less than $60,000 per year.
This property will be purchased by the Company in 1998 for a purchase price
determined by the average of two independent appraisals.
In addition, the Company provides certain accounting, bookkeeping and
clerical services to Marc B. Nathanson. Mr. Nathanson pays for a portion of the
costs relating to these services, and the Company pays the balance. The net
amount paid by the Company in 1995, 1996, 1997 and for the three months ended
March 31, 1998 was approximately $180,000, $118,300, $163,000 and $51,000,
respectively.
COMPENSATION OF DIRECTORS
The directors of FHGI receive no compensation for their services as
directors thereof. The members of the Board of Representatives of the Company
receive no compensation for their service on the Board of Representatives other
than reimbursement of expenses. Following consummation of the TCI Transaction,
members of the Advisory Committee who are not affiliated with the Company will
receive $10,000 per year and will be reimbursed for expenses.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
FHGLP and its affiliates, including Marc B. Nathanson and other members of
Falcon's senior management team, currently own varying interests in, and FHGLP
controls the general partners of, the Affiliated Partnerships and certain other
entities engaged in the cable television business. FHGLP receives management
fees from the Affiliated Partnerships, and receives additional reimbursement of
certain expenses from Falcon Classic.
FALCON CABLE SYSTEMS COMPANY. On July 12, 1996, FHGLP acquired the assets
of FCSC. See "Business--The Affiliated Systems." In connection with this
transaction, FCSC paid a $6.2 million disposition fee to Falcon Cable Investors
Group, its general partner ("FCIG"), which in turn distributed the fee, along
with cash on hand of approximately $1.6 million, to its partners. As a result,
FCIG distributed funds as follows: Marc B. Nathanson, approximately $3.9
million; Hellman and Friedman Capital Partners, II, L.P., approximately $2.3
million; Frank J. Intiso, approximately $759,000; Steven Rattner, approximately
$68,000; and FHGLP, approximately $758,000. FCSC also paid FHGLP approximately
$5.2 million of previously deferred fees.
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. In March 1998, FHGLP acquired
substantially all of the assets of Falcon Classic. In connection with this sale,
Falcon Classic made a distribution of approximately $587,000 to Falcon Classic
Cable Investors Group ("FCCIG"), its general partner, in respect of its
ownership interest in Falcon Classic. After repaying its $221,000 note payable
to Falcon Classic, FCCIG distributed $365,600 as follows: Marc B. Nathanson,
approximately $103,800; Hellman and Friedman Capital Partners II, L.P.,
approximately $193,900; Frank J. Intiso, approximately $6,700; Stanley S.
Itskowitch, approximately $14,600; Michael K. Menerey, approximately $6,700;
Leonard Baxt, approximately $1,400; Steven Rattner, approximately $5,300; and
FHGLP, approximately $33,200. The remaining distribution relates to the July 16,
1998 sale of the City of Somerset system, which will result in proceeds of
approximately $63,200 to FCCIG, which proceeds will be distributed to the FCCIG
partners in essentially the same proportion as the payments enumerated above.
FALCON VIDEO COMMUNICATIONS, L.P. The partners of Falcon Video have agreed
to combine Falcon Video's assets with those of FHGLP concurrent with the closing
of the TCI Transaction. See "The TCI Transaction." If the TCI Transaction has
not occurred, then at any time subsequent to May 15, 1999, either FHGLP or
certain limited partners of Falcon Video may initiate the sale of the
partnership based on an appraised value. In such a circumstance, FHGLP may
submit a bid for the assets of Falcon Video at or above their appraised value.
If a limited partner initiates the sale process, then the limited partners may
agree to either (i) sell the assets to FHGLP at its bid, (ii) sell such assets
to an unaffiliated third party at a price equal to at least 105% of the price
which FHGLP agreed to pay or (iii) not effect a sale of the assets. If FHGLP
initiates the sale process, any such sale to an unaffiliated third party must be
at a price equal to at least 102.5% of the price which FHGLP agreed to pay. The
limitations on the price at which sales may be made described above terminate on
May 15, 2001. In addition, the Amended and Restated Partnership Agreement of
Falcon Video prohibits any Falcon entity from directly or indirectly acquiring,
managing, operating or otherwise participating in any business or operation
which (i) constitutes a media property or provides the same or equivalent
services as a media property (including, by way of example, a satellite master
antenna television system, multi-point distribution service or direct broadcast
service), and is conducted wholly or partially within any community or other
area served by the cable television systems owned by Falcon Video or (ii) which
otherwise competes in any material respect with any investments of Falcon Video.
FALCON INTERNATIONAL COMMUNICATIONS LLC. On October 4, 1995, FHGLP sold its
investments and loans in the Philippines and India to FIC, a newly-formed,
separately capitalized entity, the members of which include members of FHGLP's
management and certain of its limited partners. The sales price of approximately
$6.3 million in cash was determined to be the fair market value of the assets
and was supported by an appraisal conducted by an independent third party. In
addition, FHGLP received an
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additional $1.9 million, $1.1 million and $398,000 in cash as reimbursement for
1995, 1996 and 1997 operating costs, respectively, related to international
investments. There is also an insurance cost allocation agreement between FHGLP
and FIC. In order to focus its limited capital resources on the upgrade and
rebuild needs of the Owned Systems, FHGLP does not expect to pursue any further
international investments. See "Business--International Activities."
INDEMNIFICATION OF THE GENERAL PARTNER. The Existing FHGLP Partnership
Agreement provides that FHGI, as the general partner of FHGLP (the "General
Partner") will be indemnified by FHGLP for acts performed within the scope of
its authority under the Existing FHGLP Partnership Agreement if such General
Partner (i) acted in good faith and in a manner that it reasonably believed to
be in, or not opposed to, the best interests of FHGLP and the partners and (ii)
had no reasonable grounds to believe that its conduct was negligent. In
addition, the Existing FHGLP Partnership Agreement provides that the General
Partner will not be liable to FHGLP or its limited partners for errors in
judgment or other acts or omissions not amounting to negligence or misconduct.
Therefore, limited partners will have a more limited right of action than they
would have absent such provisions. In addition, FHGLP maintains, at its expense
and in such reasonable amounts as its management shall determine, insurance on
behalf of the General Partner, and such other persons as the General Partner
shall determine, against any liability that may be asserted against or expense
that may be incurred by such person and against which FHGLP would be entitled to
indemnify such person pursuant to the Partnership Agreement for certain wrongful
or allegedly wrongful acts, including certain errors, misstatements, misleading
statements, omissions, neglect or breaches of duty. To the extent that the
exculpatory provisions purport to include indemnification for liabilities
arising under the Securities Act, it is the opinion of the Commission that such
indemnification is contrary to public policy and therefore unenforceable.
MANAGEMENT LOANS
In September 1994, FHGLP loaned Jon W. Lunsford, Executive Vice
President--Finance, an aggregate of $125,000 pursuant to a promissory note
secured by a second trust deed on real property. This loan bears interest at the
rate of 7.05% per annum, payable annually, and the unpaid principal and related
accrued interest is due and payable on December 31, 2002. Effective December 31,
1994 and continuing until the loan is repaid, two-thirds of each annual bonus
payment, if any, payable to Mr. Lunsford will be applied first as payment
against accrued interest payable and secondly as a principal payment against the
loan balance.
OTHER
The Company has leased certain office space for its corporate financial
center (located in Pasadena, California) from a partnership owned by Marc B.
Nathanson and his wife, Jane Nathanson. The lease commenced on October 1, 1990
and has been extended through September 30, 2005. The rent is currently
approximately $31,000 per month, increased to approximately $35,000 per month in
the first quarter of 1998 due to additional space required in connection with
the TCI Transaction and is indexed for inflation. The terms of the current lease
have been negotiated on an arms' length basis. It is expected that any future
modifications to the leasing agreement will be approved by the members of the
Board of Representatives of FHGLP other than Marc B. Nathanson. The Company also
assumed a lease for office space in a building owned by Marc B. Nathanson and
his wife in connection with the acquisition of the assets of FCSC. The rent on
this property is less than $60,000 per year. This property will be purchased by
FHGLP in 1998 for $282,500, a price determined by two independent appraisals.
As noted herein, certain executive officers of FHGLP have ownership
interests in the Affiliated Partnerships and in other domestic and international
cable operations in addition to their equity interests in FHGLP. Conflicts of
interest may arise at various times in respect of the allocation of time,
personnel and other resources as between the Owned Systems the Affiliated
Systems and other ventures. However,
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the Affiliated Partnerships each have Advisory Committees or similar bodies
which, among other things, act in the case of conflicts of interest.
Leonard J. Baxt is a member of the Board of Representatives and a limited
partner of FHGLP. Mr. Baxt is also a member of DL&A, which has served as counsel
to FHGLP in connection with the Exchange Offer, the Offering, the TCI
Transaction, the Notes Tender and the Notes Redemption. DL&A has provided other
legal services to FHGLP from time to time and received customary fees for such
services.
For a description of certain other transactions involving management, see
"Management--Compensation Committee Interlocks and Insider Participation."
TRANSACTIONS WITH TCI
Pursuant to the New Falcon Partnership Agreement, TCI Communications, Inc.,
an affiliate of TCI and the direct or indirect owner, of substantially all of
the cable television systems wholly-owned and operated in the continental United
States by TCI Parent, has agreed to use commercially reasonable efforts to (i)
cause to be offered to New Falcon and its subsidiaries equipment, billing
services, the At Home Internet access service, HITS and other goods and services
that are made available to TCI Communications, Inc. or the cable television
systems owned by TCI Communications, Inc., at a cost equal to the direct cost
incurred by TCI Communications, Inc. for such goods and services and (ii) make
available to New Falcon on a royalty-free basis any technological innovations
that TCI Communications, Inc. develops, or becomes aware of and has access to,
for other cable television systems owned by or otherwise affiliated with TCI
Communications, Inc.
As a result of its relationship with TCI, the Company has the ability to
purchase its programming at rates approximating those available to TCI. The
Company has a contract with Satellite Services, Inc. ("SSI"), a subsidiary of
TCI, to obtain basic and premium programming. SSI contracts with various
programmers to purchase programming. Following consummation of the TCI
Transaction, the Company has the option (but is not required) to purchase
programming for the Company's systems through its contract with SSI for which it
will pay SSI's cost plus an administrative fee.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table and footnotes set forth, as of March 31, 1998, the
beneficial ownership of general partnership interests and Class A and Class B
limited partnership interests of FHGLP by (i) each person who is known to FHGLP
to own beneficially more than 5% of such partnership interests of FHGLP and (ii)
all executive officers of FHGLP and the members of the Board of Representatives
of FHGLP.
<TABLE>
<CAPTION>
NUMBER OF UNITS
TYPE OF ASSIGNED TO
PARTNERSHIP PARTNERSHIP PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNERS INTEREST INTEREST OWNERSHIP
- ----------------------------------------- ------------------ ------------------- -----------
<S> <C> <C> <C>
Marc B. Nathanson(1)(2).................. General Partner -- 100.0%
Limited Partner 36,107 36.1%
Hellman & Friedman(3).................... Limited Partner 35,446 35.4%
Leeway & Co.(4).......................... Limited Partner 10,732 10.7%
Boston Ventures(5)....................... Limited Partner 6,816 6.8%
Falcon First Communications, LLC(6)(7)... Limited Partner 2,043 2.1%
Frank J. Intiso(1)(8).................... Limited Partner 1,808 1.8%
Stanley S. Itskowitch(1)(9).............. Limited Partner 645 *
Michael K. Menerey(1)(10)................ Limited Partner 67 *
Steven Rattner(11)....................... Limited Partner 310 *
Leonard J. Baxt(12)...................... Limited Partner 82 *
All executive officers and members of the
Board of Representatives of FHGLP as a
group (13 persons)(13)................. General Partner 39,019 100.0%
Limited Partner 39.0%
</TABLE>
- ------------------------
* Less than 1%
(1) The address for each of such persons is c/o Falcon Cable TV, 10900 Wilshire
Blvd., 15th Floor, Los Angeles, California 90024.
(2) Marc B. Nathanson individually holds of record no partnership units of
FHGLP. However, by virtue of Mr. Nathanson's ownership of a majority of the
voting securities of FHGI, the general partner of FHGLP, he has voting and
investment power as to the 11,195 limited partnership units of FHGLP held
of record by FHGI. Although FHGI has equity ownership, and therefore
investment power, over 11.2% of the partnership units of FHGLP, pursuant to
the Existing FHGLP Partnership Agreement, this constitutes only a 9.1%
voting power percentage. In addition, because Mr. Nathanson is co-trustee
of two irrevocable trusts that own a majority of the voting securities of
Advance TV of California Inc., he shares voting and investment power as to
the 3,308 limited partnership units of FHGLP held of record by such entity.
Mr. Nathanson also is the general partner of Advance Company, Ltd. and
therefore has voting and investment power as to the 1,254 limited
partnership units of FHGLP held of record by such limited partnership. As
the owner of a majority of the voting securities of Blackhawk Holding
Company, Inc., Mr. Nathanson has voting and investment power as to the
6,472 limited partnership units of FHGLP held by such corporation. Also, as
trustee of a revocable trust, the Falcon Cable Trust, Mr. Nathanson has
voting and investment power as to the 13,878 limited partnership units of
FHGLP held by such trust. Mr. Nathanson also beneficially owns 0.46% of
Falcon Classic Cable Income Properties, L.P. and 2.58% of Falcon Video
Communications, L.P., each an Affiliated Partnership.
(3) Of such 35,446 limited partnership units, 8,924 are held of record by
Hellman & Friedman Capital Partners and 26,522 are held of record by
Hellman & Friedman Capital Partners II, L.P., both of which
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entities are controlled by Hellman & Friedman. Hellman & Friedman has
equity ownership, and therefore investment power over 35.4% of the
partnership units of FHGLP pursuant to the Existing FHGLP Partnership
Agreement; Hellman & Friedman Capital Partners has an 8.9% voting power
percentage and Hellman & Friedman Capital Partners II, L.P. has a 28.7%
voting power percentage, which results in Hellman & Friedman having voting
power over 37.6% of the partnership units of FHGLP. The address is One
Maritime Plaza, 12th Floor, San Francisco, California 94111.
(4) Of such 10,732 limited partnership units, 5,342 are held of record by
Leeway & Co. An additional 5,390 are held of record by MLC Investors, L.P.,
of which Leeway & Co. is the general partner. The address is c/o State
Street Bank and Trust Company, Master Trust Division-W6C, One Enterprise
Drive, North Quincy, Massachusetts 02171.
(5) Of such 6,816 limited partnership units, 6,644 are held of record by Boston
Ventures Limited Partnership II and 172 are held of record by Boston IIA
Investment Corporation, both of which entities are controlled by Boston
Ventures. The address is 21 Custom House Street, Boston, Massachusetts
02110.
(6) Represents Class B partnership interests held of record by Falcon First
Communications, LLC ("FFC LLC"). Madison Dearborn Partners VI, of which Mr.
Finnegan is a general partner, is the sole manager of FFC LLC. Excludes the
Class C partnership units held of record by FFC LLC, which generally do not
have voting rights and are entitled to participate in the profits of FHGLP
under limited circumstances after receipt of a preferred return as
described in the Existing FHGLP Partnership Agreement. Except for its
partnership interest in FHGLP, FFC LLC is otherwise unaffiliated with any
other Falcon entity. The address is c/o Madison Dearborn Partners, Inc.,
Three First National Plaza, Suite 3800, Chicago, Illinois 60670-0501.
(7) All information in this table excludes Class C partnership interests, which
generally do not have voting rights and participate in the profits of FHGLP
under limited circumstances after receipt of a preferred return as
described in the Existing FHGLP Partnership Agreement. All such Class C
partnership interests are held of record by FFC LLC.
(8) Frank J. Intiso beneficially owns 0.04% of Falcon Classic and 0.35% of
Falcon Video, each an Affiliated Partnership.
(9) Stanley S. Itskowitch beneficially owns 0.09% of Falcon Classic and 0.35%
of Falcon Video, each an Affiliated Partnership.
(10) Michael K. Menerey beneficially owns 0.04% of Falcon Classic and 0.15% of
Falcon Video, each an Affiliated Partnership.
(11) The address is c/o Lazard Freres & Co. LLC, Thirty Rockefeller Plaza, New
York, New York 10020.
(12) The address is c/o Dow, Lohnes & Albertson, PLLC, 1200 New Hampshire
Avenue, N.W., Washington, D.C. 20036-6802.
(13) Each of John L. Bunce, Roy F. Coppedge, III, Paul J. Finnegan, Joseph M.
Niehaus and Lawrence M. Unrein serves on the Board of Representatives of
FHGLP as the designee of an affiliated partner of FHGLP. Each such person
disclaims beneficial ownership of the partnership interest owned by the
related entity. Except as otherwise identified in the table, no member of
the Board of Representatives is the record owner of any partnership
interests in FHGLP.
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DESCRIPTION OF THE PARTNERSHIP AGREEMENTS
The following is a summary of the material terms of the Existing FHGLP
Partnership Agreement, the Fourth Amended and Restated Agreement of Limited
Partnership of Falcon Holding Group, L.P. (the "New FHGLP Partnership
Agreement") and the Amended and Restated Agreement of Limited Partnership of
Falcon Communications, L.P. (the "New Falcon Partnership Agreement")
(collectively, the "Partnership Agreements"). Copies of the Partnership
Agreements have been filed with the Commission. The statements under this
caption are summaries, and investors are encouraged to read the full text of the
Partnership Agreements. All capitalized terms not otherwise defined herein shall
have the meanings ascribed to them in the respective Partnership Agreements.
EXISTING FHGLP PARTNERSHIP AGREEMENT
ORGANIZATION AND DURATION. FHGLP was organized on February 11, 1993 as a
Delaware limited partnership to assume the cable management and operations of
FHGI. Unless sooner terminated in accordance with the terms of the Existing
FHGLP Partnership Agreement, FHGLP will continue until January 1, 2015.
GENERAL PARTNER. FHGI is the sole general partner of FHGLP and, except for
certain partnership matters specified in the Existing FHGLP Partnership
Agreement requiring the approval of the Board of Representatives or the limited
partners, FHGI has the exclusive authority to manage the business, operations
and affairs of FHGLP and the exclusive right to exercise all rights incident to
the ownership of all partnership and other interests held by FHGLP.
BOARD OF REPRESENTATIVES. The Existing FHGLP Partnership Agreement provides
for a Board of Representatives consisting of up to eleven individual
representatives of the partners, as follows:
(1) Four members are designated by FHGI in its sole discretion. FHGI's
current designees are Marc B. Nathanson, Frank J. Intiso, Stanley S.
Itskowitch and Michael Menerey.
(2) Two additional "independent" members are designated by FHGI with the
approval of a majority of the members of the Board of Representatives
(other than the four FHGI representatives). The current "independent"
designees are Leonard J. Baxt and Steven Rattner.
(3) So long as any of the Group II Partners continues to be a partner of
FHGLP, two members are designated by Hellman & Friedman Capital Partners
II, L.P. and one member is designated by Hellman & Friedman Capital
Partners, a California Limited Partnership, subject to approval by FHGI
in certain circumstances. The current Group II designees are John L.
Bunce, Jr., Lawrence M. Unrein and Joseph M. Niehaus.
(4) So long as any of the Group I Partners continues to be partner of FHGLP,
one member is designated by Boston Ventures Limited Partnership II,
subject to approval by FHGI in certain circumstances. The current Group I
designee is Roy F. Coppedge, III.
(5) So long as any of the Group III Partners continues to be a partner in
FHGLP and none of the Group I partners continues to be a partner in
FHGLP, one member of the Board of Representatives is designated by Leeway
& Co., subject to certain permitted FHGI approval rights. So long as any
of the Group III partners continues to be a partner in FHGLP and none of
the Group II partners continues to be a partner in FHGLP, two members of
the Board of Representatives are designated by Leeway & Co., subject to
certain permitted FHGI approval rights. There are currently no Group III
designees.
(6) So long as the Group IV Partner and the Original Group IV Members
continue to beneficially own a certain specified minimum ownership
percentage in FHGLP or its corporate successor,
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one member is designated by Madison Dearborn Partners VI, subject to
approval by FHGI in certain circumstances. The current Group IV designee
is Paul J. Finnegan.
See "Management" for additional biographical information regarding the members
of the Board of Representatives.
The Existing FHGLP Partnership Agreement prohibits FHGLP and its
subsidiaries from taking certain actions without the approval of at least a
majority of the members of the Board of Representatives, including:(1) making
any expenditures inconsistent with the annual operating budget or capital
expenditure budget, with certain permitted exceptions; (2) sale or other
disposition of assets in a single transaction having an aggregate value in
excess of $15 million; (3) purchase or other acquisition of assets in a single
transaction having an aggregate value in excess of $15 million or that are not
reasonably related to the business of FHGLP; (4) incurrence of any indebtedness,
with certain permitted exceptions; (5) issuance of any equity interest in FHGLP
or a subsidiary, with certain permitted exemptions; (6) making any voluntary or
optional prepayment on any indebtedness, except pursuant to any revolving credit
arrangements; (7) purchase or redemption of any partnership interest in FHGLP or
any subsidiary, with certain permitted exceptions; (8) making any distributions
of cash or property to the partners of FHGLP with respect to their partnership
interest in FHGLP, with certain permitted exceptions; (9) entering into any
transaction or agreement with the general partner or its affiliates, with
certain permitted exceptions; and (10) making certain amendments to any
agreement pursuant to which FHGLP manages cable television systems. In addition,
the Board of Representatives must approve, under procedures set forth in the
Existing FHGLP Partnership Agreement, an annual operating budget and an annual
capital expenditure budget for FHGLP and its subsidiaries and the aggregate
compensation of the Partnership's designated senior management.
LIMITED PARTNERS. The Existing FHGLP Partnership Agreement provides for
three different classes of limited partnership interests: Class A, Class B and
Class C. The Class C partnership interests are non-voting interests (with the
exception of certain permitted approval rights). Each non-management limited
partner is designated as a Group I Partner, a Group II Partner, a Group III
Partner or a Group IV Partner. See "--Partner Liquidity." The Group I Partners,
the Group II Partners and the Group III Partners principally hold Class B
partnership interests and the Group IV Partner holds Class B and Class C
partnership interests.
APPROVAL RIGHTS OF LIMITED PARTNERS. The Existing FHGLP Partnership
Agreement prohibits FHGLP and its subsidiaries from taking certain actions
without the approval of limited partners holding at least a two-thirds voting
interest, including: (1) effecting a merger or consolidation, with certain
permitted exceptions, (2) sale or other disposition of assets in a single
transaction having an aggregate value in excess of $15 million; (3) purchase or
other acquisition of assets in a single transaction having an aggregate value in
excess of $15 million or that are not reasonably related to the business of
FHGLP; (4) incurrence of any indebtedness, with certain permitted exceptions;
(5) issuance of any equity interest in FHGLP or any subsidiary, with certain
permitted exemptions; (6) making any voluntary or optional prepayment on any
indebtedness, except pursuant to any revolving credit arrangements; (7) purchase
or redemption of any partnership interest in FHGLP or any subsidiary, with
certain permitted exceptions; (8) making any distributions of cash or property
to the partners of FHGLP with respect to their partnership interest in FHGLP,
with certain permitted exceptions; (9) entering into any transaction or
agreement with the general partner or its affiliates, with certain permitted
exceptions; (10) making certain amendments to any agreement pursuant to which
FHGLP manages cable television systems; and (11) paying any compensation to any
member of the Board of Representatives, with certain permitted exceptions. The
Existing FHGLP Partnership Agreement also prohibits FHGLP and its subsidiaries
from incurring any indebtedness, which would restrict FHGLP's ability to satisfy
its obligations with respect to the partners' liquidity rights. This restriction
is materially more limiting than the corresponding provisions of the Company's
debt agreements in effect on December 28, 1995 (including the bank credit
agreement, as then in place, and the Debentures), and requires the consent of
the partner designee of the partners whose liquidity rights would be affected.
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CAPITAL CONTRIBUTIONS AND DISTRIBUTIONS. Other than the capital
contributions already made by the partners to FHGLP, the Existing FHGLP
Partnership Agreement does not require any additional capital contributions. The
Class C partnership interests have certain preferences over the Class A and
Class B partnership interests with respect to the allocation of income and
distributions by FHGLP. Otherwise, all distributions made by FHGLP are generally
made in proportion to the partners' percentage interests. Distributions prior to
liquidation of FHGLP are made at the discretion of FHGI, except that FHGLP is
required to make annual distributions of available cash (subject to contractual
restrictions on distributions by FHGLP) to the extent of the partners' aggregate
estimated tax liabilities as a result of the allocation to them of FHGLP's
income and gain. No such distributions have been made since the formation of
FHGLP.
PARTNER LIQUIDITY. In 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 (either as a result of a
partner exercising a put right or pursuant to the existing mandatory redemption
provisions) were tolled in accordance with the Contribution Agreement. The new
dates are determined by adding to the original date the number of days in the
period (the "tolling 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 of the date of the
Prospectus, the number of days in the tolling period cannot be finally
determined. Assuming that the Contribution Agreement is not terminated prior to
December 31, 1998, the tolling period will be approximately sixteen months. The
various dates included in the discussion below assume a tolling period equal to
approximately sixteen months. If the Contribution Agreement is terminated prior
to December 31, 1998, the tolling period would be less than sixteen months and
FHGLP may be required to redeem certain partnership interests earlier than the
dates set forth below. Subject to certain customary exceptions, the Contribution
Agreement may not be terminated without the consent of FHGLP prior to December
31, 1998.
The Group I Partners may require FHGLP to redeem all of their partnership
interests on or before January 2000 (subject to a shorter tolling period as
described above). Subject to certain conditions, FHGLP is required to redeem,
and the Group II Partners are required to sell, the partnership interests held
by the Group II Partners between November 1999 and October 2000 (subject to a
shorter tolling period as described above). If the Group I Partners exercise
their put right (the election is required to be made between December and March
prior to the above effective date), the partnership interests held by the Group
II Partners may not be redeemed until the partnership interests held by the
Group I Partners have been redeemed. The partnership interests held by the Group
III Partners must be redeemed concurrently with the redemption of the
partnership interests held by the Group II Partners unless the Group III
Partners exercise an option to not be so redeemed. If the Group III Partners
exercise their option not to be so redeemed, on the earlier of July 2001
(subject to a shorter tolling period as described above) or approximately nine
months after FHGLP redeems the partnership interests held by the Group II
Partners (and on each second anniversary thereafter), there will be a 90-day
period during which FHGLP may elect to redeem the partnership interests held by
the Group III Partners, on the one hand, and the Group III Partners may require
FHGLP to redeem their partnership interests, on the other hand (which redemption
shall be effective within 180 days after the election). The Class C partnership
interests held by the Group IV Partner may be repurchased by FHGLP at any time,
and from time to time, at a price equal to the redemption value thereof, and are
subject to mandatory redemption in July 2005 (subject to a shorter tolling
period as described above). The Group IV Partner has the option to require FHGLP
to redeem its Class B partnership interests at any time after July 2005 (subject
to a shorter tolling period as described above). Under certain circumstances,
the Group IV Partner may elect to participate in a redemption of the partnership
interests held by the Group II Partners. The redemption values of the Class B
partnership interests will generally be determined through negotiation or a
third party appraisal mechanism, as specified in the Existing FHGLP Partnership
Agreement, at the time the interests are redeemed. The redemption value of the
Class C partnership interests will be equal to its stated value, as determined
in accordance with the Existing FHGLP Partnership Agreement. The purchase price
for the
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redeemed interests must be paid in cash, or under certain circumstances, may be
paid through the issuance of debt or equity securities. If FHGLP fails to
purchase certain of the limited partnership interests within a specified period
after FHGLP's purchase obligations arise, absent an alternative arrangement with
the partners, FHGLP may be required to liquidate. See "Risk Factors--Obligations
of FHGLP to Redeem Limited Partnership Interests." The liquidity rights
described above will be terminated in connection with the consummation of the
TCI Transaction and be replaced by certain liquidity rights provided to the non-
management partners in the New FHGLP Partnership Agreement. See "New FHGLP
Partnership Agreement."
CONVERSION OF FHGLP INTO A CORPORATION. With the approval of limited
partners holding greater than a fifty percent voting interest, the limited
partners may elect at any time to require that FHGLP be converted into a
corporation (a "Corporate Conversion"), except that if the conversion into a
corporation is for the purpose of effecting an initial public offering (a
"Public Corporate Conversion"), only the consent of each of FHGI, a specified
Group I Partner, a specified Group II Partner and a specified Group III Partner
is required. The Existing FHGLP Partnership Agreement does not afford the Group
IV Partner a separate right to approve a Corporate Conversion but contains
provisions that preserve certain substantive rights and preferences of the
partners following a Corporate Conversion and generally require that the Group
IV Partner be treated no less favorably than the Group II Partners with respect
to certain aspects of a Corporate Conversion. In the event of a Public Corporate
Conversion, the Class C partnership interests will be converted into that number
of shares of common stock of the successor corporation that have a value equal
to the redemption value of the Class C interests immediately prior to the Public
Corporate Conversion, and the Class A and Class B partnership interests will be
converted pro rata into the remaining shares of common stock of the successor
corporation allocated for distribution to the partners of FHGLP, subject to a
Class A holder's election to receive super-voting stock. In the event of a
Corporate Conversion, the Class C partnership interests will be converted into
shares of preferred stock of the successor corporation with a redemption
preference equal to the redemption value of the Class C interests immediately
prior to the Corporate Conversion, and the Class A and Class B partnership
interests will be converted pro rata into all the shares of common stock
allocated for distribution to the partners of FHGLP. In addition, upon any
Corporate Conversion, the successor corporation shall enter into a Registration
Rights Agreement with the FHGLP partners pursuant to which the partners would
have certain rights to elect to register their stock in the successor
corporation under the Securities Act. Generally, the put and call rights
applicable to the limited partnership interests are tolled or terminated during
or following an effective registration of the successor interests following a
Corporate Conversion.
AMENDMENTS. In general, the Existing FHGLP Partnership Agreement may not be
amended without the approval of FHGI and limited partners holding at least a
two-thirds voting interest. Certain amendments require unanimous approval by the
limited partners or the approval of specified limited partners.
WITHDRAWAL OF PARTNERS AND ASSIGNMENT OF PARTNERSHIP INTERESTS. With
certain permitted exceptions, without the approval of limited partners holding
at least a two-thirds voting interest, the Existing FHGLP Partnership Agreement
prohibits FHGI from withdrawing as general partner of FHGLP or assigning its
partnership interest. The Existing FHGLP Partnership Agreement also prohibits
any limited partner of FHGLP from assigning its partnership interest without the
consent of FHGI, subject to certain permitted exceptions.
DISSOLUTION AND LIQUIDATION. The principal events upon which FHGLP will
dissolve are: (1) the expiration of the term of FHGLP (January 1, 2015); (2) the
sale or other disposition of all or substantially all of the assets of FHGLP;
(3) subject to contractual restrictions, with the consent of FHGI and limited
partners holding at least a two-thirds voting interest; (4) an election to
dissolve FHGLP made by limited partners holding greater than a fifty percent
voting interest if Marc B. Nathanson voluntarily ceases to be active in the
business of FHGLP (subject to certain permitted exceptions) or Marc B. Nathanson
involuntarily ceases to be active in the business of FHGLP and a successor has
not been designated by
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FHGI and approved by limited partners holding greater than a fifty percent
voting interest within one year; (5) the withdrawal of FHGI as the general
partner unless the partners of FHGLP vote to continue FHGLP; and (6) the
happening of any event that, under applicable law, causes the dissolution of a
limited partnership. In the event of liquidation, the Class C partnership
interests have priority in liquidation over the other partnership interests in
the amount of its then stated value.
NEW FHGLP PARTNERSHIP AGREEMENT
ORGANIZATION AND DURATION. The New FHGLP Partnership Agreement will become
effective concurrently with the Closing of the TCI Transaction. Unless sooner
terminated in accordance with the terms of the New FHGLP Partnership Agreement,
FHGLP will continue until January 1, 2025.
GENERAL PARTNER. FHGI will remain the sole general partner of FHGLP and,
except for certain partnership matters specified in the New FHGLP Partnership
Agreement requiring the approval of the limited partners, FHGI will have the
exclusive authority to manage the business, operations and affairs of FHGLP and
the exclusive right to exercise all rights incident to the ownership of all
partnership or corporate interests held by FHGLP. Under the New FHGLP
Partnership Agreement, FHGLP will be prohibited from entering into certain
transactions with Marc B. Nathanson or any Nathanson Controlled Entity without
the consent of (1) limited partners (excluding Nathanson Controlled Entities)
which hold more than 50% of the outstanding limited partnership interests
(excluding these held by Nathanson Controlled Entities) and (2) so long as the
Hellman Partners have not disposed of any of the partnership interests in FHGLP
held by the Hellman Partners, the Hellman Partners.
CAPITAL CONTRIBUTIONS AND DISTRIBUTIONS. Other than the capital
contributions already made by the partners to FHGLP and the contributions to be
made pursuant to the Contribution Agreement, the New FHGLP Partnership Agreement
will not require any additional capital contributions. Distributions prior to
liquidation of FHGLP will be made at the discretion of FHGI, except that FHGLP
will be required to make annual distributions of available cash (subject to
contractual restrictions on distributions by FHGLP) to the extent of
distributions from New Falcon with respect to the partners' aggregate estimated
tax liabilities as a result of the allocation to them of New Falcon's income and
gain. Profits and losses will be allocated, and distributions will be made, in
proportion to the partners' percentage interests, except that following a
dissolution of FHGLP, distributions will be made first to the two holders of
certain Preferred Interests until such partners have received the Preferred
Return; second, to all other partners (excluding the holders of the Preferred
Interests) until all partners (including the holders of the Preferred Interests)
have received distributions in proportion to their percentage interests; and
thereafter, to all partners (including the holders of the Preferred Interests)
in proportion to their percentage interests. The Preferred Return equals $6
million plus a 10% return from the date of the closing of the TCI Transaction.
PUT/CALL RIGHTS. For purposes of the following put/call provisions, (1) New
Falcon is the "Purchaser" if FHGLP has not purchased TCI's entire interest in
New Falcon pursuant to the buy/sell provisions of the New Falcon Partnership
Agreement, and (2) FHGLP is the "Purchaser" if FHGLP has purchased TCI's entire
interest in New Falcon pursuant to the buy/sell provisions of the New Falcon
Partnership Agreement. See "--New Falcon Partnership Agreement."
LIMITED PARTNERS' PUT RIGHTS. If the non-management limited partners of
FHGLP have made an election (which election may not be made earlier than 7 1/2
years after consummation of the TCI Transaction) to require FHGLP to effect an
Incorporation (as defined herein) of FHGLP or an election to require FHGLP to
make an election to require New Falcon to effect an Incorporation of New Falcon,
then (regardless of whether TCI approves such election), at any time after the
date that is six months after the non-management limited partners' election and
prior to the date on which the successor corporation has consummated a Qualified
Public Offering, the non-management limited partners of FHGLP (other than
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Belo Ventures, Inc.) (by a vote of non-management limited partners holding an
aggregate partnership interest equal to at least 51% of the aggregate limited
partnership interest held by them, other than Belo Ventures, Inc., on the date
of the closing of the TCI Transaction) will have the right to elect to require
that the Purchaser purchase all of the non-management partners' partnership
interests in FHGLP (including the partnership interest held by Belo Ventures,
Inc.).
At any time prior to the date on which the successor corporation to FHGLP or
New Falcon, as applicable, consummates a Qualified Public Offering and after (A)
if the non-management limited partners of FHGLP have made an election to require
FHGLP to effect an Incorporation of FHGLP or an election to require FHGLP to
make an election to require New Falcon to effect an Incorporation of New Falcon,
the date that is six months after such election, or (B) if the non-management
limited partners of FHGLP have not made such an election, but FHGI has made an
election to require FHGLP to effect an Incorporation of FHGLP or FHGLP has made
an election to require New Falcon to effect an Incorporation of New Falcon, the
later of the date that is six months after such election or the date that is
eight years and nine months after the closing of the TCI Transaction, or (C) in
all other events, the date that is eight years and nine months after the closing
of the TCI Transaction, the non-management limited partners of FHGLP (other than
Belo Ventures, Inc.) (by a vote of non-management limited partners holding
partnership interests representing an aggregate percentage interest at least
equal to the aggregate percentage interest represented by the partnership
interests held by the Specified Investors on the date of the closing of the TCI
Transaction) will have the right to elect to require that the Purchaser purchase
all of the non-management partners' partnership interests in FHGLP (including
the partnership interest held by Belo Ventures, Inc.).
Any non-management limited partner of FHGLP that did not join in an election
by the non-management limited partners to require the Purchaser to purchase the
partnership interests of the non-management limited partners may elect to
exclude its partnership interest in FHGLP from the purchase and sale and, upon
such election, all put and call rights with respect to such partner's
partnership interest in FHGLP will automatically terminate. Under specified
circumstances, following an election by the non-management limited partners of
FHGLP to require the Purchaser to purchase all of their partnership interests in
FHGLP, the Purchaser will have the right to request that the purchase and sale
be deferred for sixty days to permit the consummation of a Qualified Public
Offering. See "Risk Factors--Obligations of FHGLP to Redeem Limited Partnership
Interests."
PURCHASER'S CALL RIGHT. At any time prior to the date on which the
successor corporation to FHGLP or New Falcon, as applicable, consummates a
Qualified Public Offering and after (A) if the non-management limited partners
of FHGLP have made an election to require FHGLP to effect an Incorporation of
FHGLP or an election to require FHGLP to make an election to require New Falcon
to effect an Incorporation of New Falcon, the date that is six months after such
election, or (B) if the non-management limited partners of FHGLP have not made
such an election, the date that is eight years and nine months after the closing
of the TCI Transaction, the Purchaser will have the right to elect to require
each of the non-management limited partners of FHGLP to sell its entire interest
in FHGLP to the Purchaser.
If the Incorporation of FHGLP occurs without the concurrent consummation of
a Qualified Public Offering, the corporate successor to FHGLP will succeed to
all rights and assume all obligations of FHGLP pursuant to the put/call
provisions of the New FHGLP Partnership Agreement, which rights and obligations
(and if FHGLP has not purchased TCI's entire interest in New Falcon pursuant to
the buy/sell provisions of the New Falcon Partnership Agreement, the rights and
obligations of New Falcon) will survive the Incorporation of FHGLP and the
dissolution and liquidation of FHGLP. If the Incorporation of FHGLP occurs
concurrently with the consummation of a Qualified Public Offering and the
liquidation of FHGLP, the put/call provisions of the New FHGLP Partnership
Agreement will terminate upon the Incorporation of FHGLP. If the Incorporation
of New Falcon occurs without the concurrent consummation of a Qualified Public
Offering, the corporate successor to New Falcon will succeed to all rights and
assume all obligations of New Falcon pursuant to the put/call provisions of the
New FHGLP Partnership
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Agreement, which rights and obligations will survive the Incorporation of New
Falcon and the dissolution and liquidation of FHGLP. If the Incorporation of New
Falcon occurs concurrently with the consummation of a Qualified Public Offering
and the liquidation of FHGLP, the put/call provisions of the New FHGLP
Partnership Agreement will terminate upon the Incorporation of New Falcon.
CONVERSION OF FHGLP INTO A CORPORATION. FHGI will have the right to elect
at any time, without the approval of FHGLP's limited partners, to convert FHGLP
to a corporation for the purpose of effecting an initial public offering (an
"Incorporation"). The non-management limited partners of FHGLP (by a vote of at
least 51% of the aggregate limited partnership interests held by them on the
date of the closing of the TCI Transaction) will have the right to elect to
require that FHGLP effect an Incorporation at any time after the purchase by
FHGLP of TCI's entire interest in New Falcon pursuant to the buy/sell provisions
of the New Falcon Partnership Agreement (see "--New Falcon Partnership
Agreement--Partner Liquidity-- Buy/Sell Rights"), but in no event earlier than
seven years and six months after the closing of the TCI Transaction.
Consummation of an Incorporation of FHGLP shall be conditioned on the concurrent
public offering and sale of equity securities in the successor corporation on
such terms and conditions as FHGI deems appropriate, and the successor
corporation shall offer to enter into a Registration Rights Agreement pursuant
to which the partners of FHGLP could elect to register their stock in the
successor corporation under the Securities Act. As part of an Incorporation of
FHGLP, FHGI will have the right to require, at its sole discretion, (1) that
FHGI retain control of the successor corporation and have exclusive authority to
manage the operations and affairs of the successor corporation, and/or (2) that
FHGLP and New Falcon be consolidated such that the owners of FHGLP immediately
prior to the Incorporation of FHGLP, on the one hand, and TCI (or one or more
direct or indirect owners of TCI), on the other hand, shall be the owners of the
successor corporation immediately after the Incorporation of FHGLP. The relative
ownership interests of the owners of the successor corporation immediately after
the Incorporation of FHGLP shall be the same as their relative ownership
interests immediately prior to the Incorporation of FHGLP.
CONVERSION OF NEW FALCON INTO A CORPORATION. At any time after the date
that is seven years and six months after the closing of the TCI Transaction, the
non-management limited partners of FHGLP (by a vote of non-management limited
partners holding at least 51% of the aggregate limited partnership interests
held by them on the date of the closing of the TCI Transaction) will have the
right to require that FHGLP make an election pursuant to the New Falcon
Partnership Agreement to require New Falcon to effect an Incorporation, which
election shall be subject to the approval of TCI as provided in the New Falcon
Partnership Agreement See "--New Falcon Partnership Agreement--Conversion of New
Falcon to Corporation." At any time after the date that is eight years and six
months after the closing of the TCI Transaction, the non-management limited
partners of FHGLP (by a vote of non-management limited partners holding
partnership interests representing an aggregate percentage interest at least
equal to the aggregate percentage interest represented by the partnership
interests held by the Specified Investors on the date of the closing of the TCI
Transaction), will have the right to require that FHGLP make an election
pursuant to the New Falcon Partnership Agreement to require New Falcon to effect
an Incorporation, which election shall be subject to the approval of TCI as
provided in the New Falcon Partnership Agreement. The non-management limited
partners will not be permitted to require FHGLP to make such election at any
time that FHGLP is prohibited from making such an election under the New Falcon
Partnership Agreement. Upon any Incorporation of New Falcon that involves the
receipt by FHGLP of shares of capital stock in a successor corporation to New
Falcon, FHGLP will dissolve in accordance with the liquidation provisions of the
New FHGLP Partnership Agreement and distribute such shares in kind to the
partners of FHGLP.
AMENDMENTS. With certain specified exceptions, the New FHGLP Partnership
Agreement may be amended by FHGI in its sole discretion. Among the specified
exceptions, if an amendment would treat any limited partner differently from
FHGI or any Nathanson Controlled Entity and would adversely affect such partner,
a majority in interest of the affected limited partners would have to approve
the amendment,
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and if such limited partners included any of the Hellman Partners (and the
Hellman Partners had not disposed of any of their partnership interests since
the date of the New FHGLP Partnership Agreement) each affected Hellman Partner
would have to approve such amendment.
WITHDRAWAL OF PARTNERS AND ASSIGNMENT OF PARTNERSHIP INTERESTS. The New
FHGLP Partnership Agreement will prohibit FHGI from withdrawing as the general
partner of FHGLP, assigning its interest, or taking certain other actions, if
the withdrawal by FHGI, the assignment by FHGI of its interest or such other
action would violate the New Falcon Partnership Agreement. The withdrawal of
FHGI, the assignment by FHGI of its interest and other actions that would result
in FHGI no longer having management control over FHGLP would violate the New
Falcon Partnership Agreement unless TCI consented. Subject to certain permitted
exceptions, the New FHGLP Partnership Agreement will prohibit any limited
partner from assigning its partnership interest without the approval of FHGI.
DISSOLUTION AND LIQUIDATION. The principal events upon which FHGLP will
dissolve are: (1) the withdrawal of FHGI as general partner unless the partners
vote to continue the partnership; (2) the expiration of the term of FHGLP
(January 1, 2025); (3) the sale or other disposition of all or substantially all
of the assets of FHGLP, including a sale of all of FHGLP's partnership interest
in New Falcon pursuant to the buy/sell provisions of the New Falcon Partnership
Agreement (see "--New Falcon Partnership Agreement--Partner Liquidity--Buy/Sell
Rights"); (4) the consummation of an Incorporation of New Falcon; (5) the
dissolution and liquidation of New Falcon, other than upon a purchase by FHGLP
of all of TCI's interest in New Falcon pursuant to the buy/sell provisions of
the New Falcon Partnership Agreement (see "--New Falcon Partnership
Agreement--Partner Liquidity--Buy/Sell Rights"); (6) an election by FHGI to
dissolve the partnership and cause to be distributed to the partners in kind
interests in New Falcon; (7) an election to liquidate and dissolve the
partnership made by FHGI with the approval of (A) limited partners (excluding
Nathanson Controlled Entities) which hold more than 50% of the outstanding
limited partnership interests (excluding interests held by Nathanson Controlled
Entities) and (B) so long as the Hellman Partners have not disposed of any of
their partnership interests in FHGLP, the Hellman Partners.
NEW FALCON PARTNERSHIP AGREEMENT
ORGANIZATION AND DURATION. New Falcon was formed on October 23, 1997 as a
California limited partnership in connection with the TCI Transaction and will
conduct substantially all of the business currently conducted by FHGLP following
consummation of the TCI Transaction. See "The TCI Transaction." Unless sooner
terminated in accordance with the terms of the New Falcon Partnership Agreement,
New Falcon will continue until July 1, 2013. See "--Partner Liquidity--Buy/Sell
Rights."
GENERAL PARTNERS. FHGLP is the managing general partner and a limited
partner of New Falcon, and TCI is a general partner of New Falcon. Other than
with respect to certain partnership matters that require the approval of New
Falcon's Advisory Committee (see "--Advisory Committee") and certain additional
partnership matters that require the approval of TCI (see "--Approval Rights of
TCI"), FHGLP will have the exclusive authority to manage the business,
operations and affairs of New Falcon and the exclusive right to exercise all
rights incident to the ownership of all partnership or corporate interests held
by New Falcon. FHGI, in turn, is the sole general partner of FHGLP and will have
the exclusive authority to manage the business, operations and affairs of FHGLP,
subject to certain limitations. See "--New FHGLP Partnership Agreement."
ADVISORY COMMITTEE. The New Falcon Partnership Agreement provides for an
Advisory Committee consisting of six individual representatives of the partners,
three of whom are to be appointed by FHGLP, two of whom are to be appointed by
TCI and one of whom is to be appointed by joint designation of FHGLP and TCI.
FHGLP has appointed Marc B. Nathanson (Chairman), Frank J. Intiso and Stanley S.
Itskowitch as its initial representatives; TCI has appointed Leo J. Hindery, Jr.
and William R. Fitzgerald as its initial representatives; and FHGLP and TCI have
designated John S. Evans as their initial joint
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representative. See "Management" for additional biographical information
regarding the members of the Advisory Committee.
The New Falcon Partnership Agreement will prohibit Falcon and FHGLP from
causing New Falcon or its subsidiaries (including the Owned Subsidiaries) to
take certain actions without the affirmative vote of a majority of the members
of the Advisory Committee, including: (1) the acquisition or disposition of
assets in any one transaction having an aggregate value in excess of $15
million, with certain permitted exceptions; and (2) conducting or entering into
any line of business other than the ownership and operation of cable television
systems and related and ancillary businesses that involve the distribution of
video programming or data to subscribers (including businesses engaged in the
production of cable television programming and the provision of Internet access,
but excluding other related or ancillary businesses, such as personal
communications, alternative access, and other telephony-related investments or
businesses). In addition, FHGLP must consult with the Advisory Committee before
entering into any agreement pursuant to which New Falcon or any of its
subsidiaries (including the Owned Subsidiaries) would incur indebtedness in
excess of $1 million, although the approval of the Advisory Committee is not
required for such agreement.
APPROVAL RIGHTS OF TCI. The New Falcon Partnership Agreement will prohibit
FHGI and FHGLP from causing New Falcon or its subsidiaries (including the Owned
Subsidiaries) to take certain actions without the approval of TCI. The following
is a summary of certain material actions or events, in addition to those
described elsewhere in this Prospectus, that require TCI's approval: (1) any
merger, consolidation, recapitalization or other reorganization, with certain
permitted exceptions; (2) any sale or disposition of assets in any one
transaction having an aggregate value in excess of $30 million (or, in excess of
$500,000 if the cumulative aggregate value of all assets sold in dispositions of
over $500,000 exceeds $100 million (subject to certain adjustments); (3) any
sale or disposition of assets that would result in the allocation of income or
gain to TCI pursuant to Internal Revenue Code Section 704(c); (4) any purchase
or acquisition of assets in any one transaction having an aggregate value in
excess of $30 million (or, in excess of $500,000 if the cumulative aggregate
value of all assets purchased in acquisitions of over $500,000 exceeds $100
million); (5) the exercise of New Falcon's call right under the New FHGLP
Partnership Agreement or any other action that is within the discretion of New
Falcon pursuant to the put/call provisions of the New FHGLP Partnership
Agreement (see "--New FHGLP Partnership Agreement--Put/Call Rights"); (6) the
incurrence of Indebtedness if, after giving effect to such Indebtedness, New
Falcon's Operating Cash Flow Ratio would exceed 7.5:1; (7) the issuance or
redemption of any partnership interest or convertible interest, with certain
permitted exceptions; (8) any transaction with FHGLP or any affiliate of FHGLP,
with certain permitted exceptions; (9) the adoption or amendment of any
Management Incentive Plan; (10) the incurrence of Net Overhead Expenses in any
fiscal year beginning after the closing of the TCI Transaction that exceed 4.5%
of the Gross Revenues of New Falcon and its subsidiaries; or (11) the
liquidation or dissolution of New Falcon, except in accordance with the
provisions of the New Falcon Partnership Agreement. TCI has agreed to increase
the debt incurrence test in connection with the transactions described in the
Prospectus.
OTHER APPROVAL RIGHTS. On December 30, 1997, New Falcon entered into an
agreement with Belo, a partner of Falcon Video, prohibiting any sale or
disposition of assets by New Falcon or its Subsidiaries (including the Owned
Subsidiaries) without Belo's approval that would result in the allocation of
income or gain to Belo pursuant to Internal Revenue Code Section 704(c), with
specified exceptions.
CAPITAL CONTRIBUTIONS AND DISTRIBUTIONS. FHGLP and TCI will contribute to
New Falcon those assets described above under "The TCI Transaction." Under
certain circumstances, FHGLP and/or TCI may be required under the Contribution
Agreement to contribute cash to New Falcon after the closing of the TCI
Transaction in order to make the actual value of their respective asset
contributions as determined after the closing equal the value of their
respective asset contributions as estimated at closing. TCI may be required
under the Contribution Agreement to contribute certain assets to the partnership
that were not
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contributed at closing pending receipt of certain necessary approvals and
consents. FHGLP will be required to contribute to New Falcon cash in the amount
of any payments made by New Falcon after the closing of the TCI Transaction
under the Incentive Plan to be assumed by New Falcon at the closing. Other than
as described above, neither FHGLP nor TCI will be required to make any
additional capital contributions to New Falcon.
All distributions by New Falcon will be made in proportion to the partners'
percentage interests. Distributions prior to liquidation of New Falcon will be
made at the discretion of FHGLP, except that New Falcon will be required to make
annual distributions of cash (subject to contractual restrictions on
distributions by New Falcon) to the extent of the estimated tax liabilities of
the partners as a result of the allocation to them of New Falcon's income and
gain.
PARTNER LIQUIDITY-BUY/SELL RIGHTS. At any time after the seventh
anniversary of the closing of the TCI Transaction (other than at certain times
specified in the New Falcon Partnership Agreement), either TCI or FHGLP (the
"Offering Partner") will have the right to offer to sell (an "Offer") to the
other partner (the "Responding Partner") the Offering Partner's entire
partnership interest in New Falcon for a price per partnership unit equal to the
Offering Partner's good faith estimate of the amount per partnership unit that
would be distributed to the partners if New Falcon were liquidated in accordance
with the New Falcon Partnership Agreement, subject to certain special
assumptions (the "Offer Unit Price"). The Responding Partner will have the right
to accept or reject the Offering Partner's Offer.
If the Responding Partner accepts the Offering Partner's Offer, the
Responding Partner will have the right under certain circumstances to require
New Falcon (in lieu of the Responding Partner) to purchase the Offering
Partner's entire partnership interest in New Falcon. If the Responding Partner
accepts the Offering Partner's Offer but defaults in its obligation to purchase
the Offering Partner's entire partnership interest in New Falcon, the Offering
Partner will have the right to elect either (1) to purchase, or to require New
Falcon to purchase, the Responding Partner's entire partnership interest in New
Falcon at a price per partnership unit equal to 95% of the Offer Unit Price or
(2) to cause New Falcon to be liquidated and dissolved in accordance with the
liquidation provisions of the New Falcon Partnership Agreement.
If the Responding Partner rejects the Offering Partner's Offer, the Offering
Partner will have the right to elect to cause New Falcon to be liquidated and
dissolved in accordance with the liquidation provisions of the New Falcon
Partnership Agreement. If the price per partnership unit that the partners would
receive pursuant to the general liquidation provisions of the New Falcon
Partnership Agreement (the "Liquidation Unit Price") is less than the Offer Unit
Price, the Responding Partner will have the right to elect to purchase, or under
certain circumstances to require that New Falcon purchase, the Offering
Partner's entire partnership interest in New Falcon at a price per partnership
unit equal to the Liquidation Unit Price.
The partners may agree at any time to abandon the purchase and sale of a
partner's partnership interest in New Falcon or the liquidation and dissolution
of New Falcon pursuant to a subsequent election by the Offering Partner. Neither
partner will be permitted to make an Offer (1) during the pendency of a purchase
and sale of partnership interests pursuant to a previous Offer or any subsequent
election pursuant to the New Falcon Partnership Agreement's buy/sell provisions
or (2) during the pendency of an Incorporation of New Falcon pursuant to a
previous election by FHGLP. See "--Conversion of New Falcon to Corporation."
CONVERSION OF NEW FALCON TO CORPORATION. FHGLP will have the right to elect
at any time (other than certain times specified in the New Falcon Partnership
Agreement), with the approval of TCI, which shall not be unreasonably withheld,
to convert New Falcon to a corporation for the purpose of effecting an initial
public offering (an "Incorporation"). FHGLP and TCI have agreed that adverse,
uncompensated tax consequences to TCI would be a reasonable basis for TCI to
withhold its approval. Under current tax law, an Incorporation would likely
result in adverse tax consequences to TCI. Consummation of an Incorporation of
New Falcon shall be conditioned on the concurrent public offering and sale of
equity
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securities in the successor corporation on such terms and conditions as FHGLP
deems appropriate, with the approval of TCI, which shall not be unreasonably
withheld, and the successor corporation shall offer to enter into a Registration
Rights Agreement pursuant to which FHGLP, TCI and the partners of FHGLP, as
applicable, could elect to register their stock in the successor corporation
under the Securities Act. As part of an Incorporation of New Falcon, FHGLP will
have the right to require, at its sole discretion, (1) that FHGI retain control
of the successor corporation and have exclusive authority to manage the
operations and affairs of the successor corporation, and/or (2) that FHGLP and
New Falcon be consolidated such that the owners of FHGLP immediately prior to
the Incorporation of New Falcon, on the one hand, and TCI (or one or more direct
or indirect owners of TCI), on the other hand, shall be the owners of the
successor corporation immediately after the Incorporation of New Falcon. The
relative ownership interests of the owners of the successor corporation
immediately after the Incorporation of New Falcon shall be the same as their
relative ownership interests immediately prior to the Incorporation of New
Falcon. Upon any Incorporation of New Falcon that involves the receipt by FHGLP
of shares of capital stock in a successor corporation to New Falcon, FHGLP shall
dissolve in accordance with the liquidation provisions of the New FHGLP
Partnership Agreement and distribute such shares in kind to the partners of
FHGLP. FHGLP will not be permitted to make an election to effect an
Incorporation of New Falcon (1) within one year of making a previous election to
effect an Incorporation of New Falcon that was not approved by TCI, or (2)
during the pendency of a purchase and sale of partnership interests pursuant to
an Offer or any subsequent election pursuant to the New Falcon Partnership
Agreement's buy/sell provisions. See "--Partner Liquidity--Buy/Sell Rights."
LIMITATIONS ON THE ACTIVITIES OF NEW FALCON. Following the closing of the
TCI Transaction, the New Falcon Partnership Agreement will prohibit New Falcon
and its subsidiaries from: (1) immediately engaging in wireless communications
services that use radio spectrum for cellular, PCS, SMR, paging, mobile
telecommunications, or other voice data or wireless services, with certain
permitted exceptions; (2) prior to January 1, 1999, engaging in Restricted
Telephony Activities, with certain permitted exceptions; and (3) acquiring an
equity interest in Enstar or any of its subsidiaries.
CROSS-OWNERSHIP PROVISIONS. The New Falcon Partnership Agreement contains
provisions relating to cross-ownership restrictions under the Communications
Act, any rule, regulation or policy of the FCC under the Communications Act or
any subsequent law ("Ownership Restrictions"). If a partner's interest in New
Falcon causes a violation by New Falcon or its subsidiaries of any Ownership
Restriction, then such partner is to take steps to cure the violation subject to
certain exceptions. In addition, the New Falcon Partnership Agreement provides
that the managing general partner will not permit New Falcon or its subsidiaries
to enter into an agreement to acquire an interest in any business that it knows
would cause either of the partners to be in violation of an Ownership
Restriction.
ADMISSION OF ADDITIONAL PARTNERS AND AMENDMENTS. New Falcon will be able to
issue additional equity interests in New Falcon, and admit new persons as
additional partners of New Falcon, only with the approval of TCI and, if such
approval is required and received, only in accordance with the terms of such
approval. The New Falcon Partnership Agreement may be amended only by FHGLP with
the approval of TCI, except that certain specified ministerial amendments may be
made by FHGLP without the approval of TCI.
REMOVAL. Under certain very limited circumstances specified in the New
Falcon Partnership Agreement where FHGLP's conduct has resulted in material harm
to New Falcon or TCI, TCI may elect to purchase all of FHGLP's partnership
interest in New Falcon (at a price determined in accordance with the New Falcon
Partnership Agreement) and, upon consummation of such purchase, remove FHGLP as
a partner.
WITHDRAWAL OF PARTNERS AND ASSIGNMENT OF PARTNERSHIP INTERESTS. Without
TCI's consent, the New Falcon Partnership Agreement will prohibit (1) FHGLP from
withdrawing as the managing general partner of New Falcon, (2) FHGI from
withdrawing as the general partner of FHGLP, and (3) FHGLP and FHGI
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from taking certain actions if, as a result of such actions, FHGLP would no
longer have management control over New Falcon or FHGI would no longer have
management control over FHGLP. Subject to certain permitted exceptions, the New
Falcon Partnership Agreement will prohibit FHGLP from assigning its partnership
interest without the approval of TCI and will prohibit TCI from assigning its
partnership interest without the approval of FHGLP.
DISSOLUTION AND LIQUIDATION. The principal events upon which New Falcon
will dissolve are: (1) the withdrawal of FHGLP as managing general partner
unless the partners vote to continue the partnership; (2) the expiration of the
term of New Falcon (July 1, 2013); (3) an election to liquidate and dissolve the
partnership made by the Offering Partner pursuant to the buy/sell provisions of
the New Falcon Partnership Agreement (see "--Partner Liquidity--Buy/Sell
Rights"); (4) the sale or other disposition of all or substantially all of the
assets of New Falcon; (5) subject to any contractual restrictions on the
dissolution of New Falcon, an election to liquidate and dissolve the partnership
made by FHGLP with the approval of TCI; (6) an election to liquidate and
dissolve the partnership made by TCI if Marc B. Nathanson ceases to be active in
the business of New Falcon on a regular and consistent basis and a successor
shall not have been designated by FHGLP and approved by TCI within nine months;
and (7) the termination of the Contribution Agreement in accordance with its
terms prior to the closing of the TCI Transaction.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The following is a summary of certain debt instruments to which FHGLP is a
party. The statements under this caption are summaries of the material terms of
such agreements. All capitalized terms not otherwise defined herein shall have
the meanings ascribed to them in the respective agreements governing the debt
instruments.
11% SENIOR SUBORDINATED NOTES DUE 2003
FHGLP issued $175 million aggregate principal amount of the Notes on March
29, 1993 in connection with its formation and capitalization. The Notes
represent unsecured general obligations of FHGLP, subordinated in right of
payment to all senior indebtedness of FHGLP in the manner and to the extent set
forth in the indenture governing the Notes (the "Notes Indenture"). In addition,
the Notes are effectively subordinated to the claims of creditors of FHGLP's
subsidiaries, including the Owned Subsidiaries.
FHGLP completed the Notes Tender on May 19, 1998 and will redeem the
approximately $34.4 million aggregate principal amount of remaining outstanding
Notes prior to October 15, 1998 in accordance with the redemption provisions of
the Notes Indenture. In connection with the Notes Tender, FHGLP solicited the
consent of holders of the Notes to certain amendments to the Notes Indenture
(the "Proposals") eliminating certain events of default under and substantially
all of the covenants in the Notes Indenture, except the covenant to pay interest
on and principal of the Notes when due. FHGLP received sufficient consents to
approve the Proposals, and FHGLP and the Trustee executed a Supplemental
Indenture, dated as of May 5, 1998, giving effect to the Proposals.
The Notes mature on September 15, 2003 and bear interest at 11% per annum
from the date of issuance or from the most recent interest payment date to which
interest has been paid or provided for. Interest payment dates are semi-annual,
commencing September 15, 1993. Through September 15, 2000, FHGLP, at its option,
may pay all or any portion of accrued interest on the Notes by delivering to the
holders thereof, in lieu of cash, additional Notes having an aggregate principal
amount equal to the amount of accrued interest not paid in cash. Additional
Notes amounting to $8.9 million for 1993, $20.8 million for 1994, $23.1 million
for 1995, $25.7 million for 1996 and $28.7 million for 1997 were issued as
payment-in-kind for interest. As a result of the issuance of these additional
Notes, the aggregate principal amount of the Notes outstanding as of March 31,
1998 was $282.2 million. FHGLP elected to make the interest payment due March
15, 1998 in cash, and under the terms of the Debentures, is required to continue
to make cash payments. FHGLP obtained an amendment to the Bank Credit Agreement
on February 6, 1998 to permit FHGLP to pay interest on the Debentures in cash
prior to September 30, 2000.
The Notes are redeemable at the option of FHGLP, in whole or in part, (i) at
any time on or after September 15, 1998, at 105.5% of the outstanding principal
amount, plus accrued interest to the redemption date, (ii) at any time on or
after September 15, 1999, at 102.75% of outstanding principal amount, plus
accrued interest to the redemption date, and (iii) at any time on or after
September 15, 2000, at 100% of outstanding principal amount, plus accrued
interest to the redemption date.
NEW CREDIT FACILITY
On June 30, 1998, the Company entered into the New Credit Facility with
BankBoston, N.A. as Documentation Agent, The Chase Manhattan Bank as
Co-Syndication Agent, NationsBank, N.A. as Syndication Agent, Toronto Dominion
(Texas) Inc. as Administrative Agent, Bank of America, N.T. & S.A. as Agent, and
the other lenders signatory thereto. Until the TCI Closing, the Owned
Subsidiaries, other than Falcon Video, will be the co-borrowers under the New
Credit Facility and the Restricted Companies under the New Credit Facility will
be all of the subsidiaries of FHGLP (but not including FHGLP itself and also
excluding New Falcon, Falcon Video, Video Investors and subsidiaries of FHGLP
that are designated by the Company as Excluded Companies from time to time).
Immediately prior to the TCI Closing, Falcon Video will become a borrower for a
portion of Facility A (as defined) but will not become a Restricted
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Company until after the TCI Closing and the discharge of Falcon Video's existing
senior indebtedness. Immediately after the TCI Closing, New Falcon II will
assume all of the obligations of the Owned Subsidiaries, including Falcon Video,
under the New Credit Facility and become the sole borrower thereunder, and the
Restricted Companies will be New Falcon II and all of its subsidiaries
(excluding subsidiaries of FHGLP that are designated by the Company as Excluded
Companies from time to time and excluding, until Falcon Video's existing senior
indebtedness is discharged immediately after the TCI Closing, Falcon Video and
Falcon Video Communications Investors, L.P.).
The New Credit Facility provides for three committed credit facilities: a
$650 million reducing revolving credit facility maturing in December 2006
("Facility A"); a $200 million amortizing term loan maturing in June 2007
("Facility B"); and a $300 million amortizing term loan maturing in December
2007 ("Facility C"). The lenders under the New Credit Facility may also make
available in their discretion as requested by the Company up to $350 million in
additional revolving credit and/or term loans pursuant to one or more
supplemental credit facilities (the terms of which will be negotiated at the
time the Company makes a request to draw on such facility).
The New Credit Facility provides for prime-based and LIBOR-based interest
rate options. Facility A's base margin ranges from 0% to 0.375%, and its LIBOR
margin ranges from 0.5% to 1.375%. Facility B's base margin ranges from 0.5% to
1.0%, and its LIBOR margin ranges from 1.5% to 2.0%. Facility C's base margin
ranges from 0.75% to 1.25%, and its LIBOR margin ranges from 1.75% to 2.25%. The
actual margins are based on the ratio of the borrowers' total consolidated debt
to annualized consolidated cash flow (each as calculated in accordance with the
provisions of the New Credit Facility). Prior to the closing of the TCI
Transaction, Facility A's LIBOR margin is set at a minimum of 1.0%. Facility C's
base rate margin is set at a minimum of 1.0%, and its LIBOR margin is set at a
minimum of 2.0%. If the TCI Transaction does not close by December 31, 1998,
each of the stated margins is increased by 0.25% for all three facilities, but
will automatically revert to the stated margins upon closing of the TCI
Transaction. The Company must also pay a commitment fee, ranging from 0.25% to
0.375%, depending on the applicable leverage ratio, on the unused portion of the
available borrowings under Facility A and a commitment fee of 0.375% on the
unused portion of the available borrowings under Facility B.
At the closing of the New Credit Facility on June 30, 1998, the Company
borrowed approximately $126 million under Facility B and all $300 million
available under Facility C. Thus, as of June 30, 1998, the aggregate amount
outstanding under the New Credit Facility was approximately $425.8 million and,
subject to covenant compliance, approximately $125 million in additional funds
was available to the Company under the New Credit Facility for borrowing
(excluding the supplemental facilities). As of June 30, 1998, borrowings under
the New Credit Facility bore interest at an average rate of 9.4% (including the
effect of interest rate hedging agreements). The Company used approximately $329
million of the aggregate proceeds from the borrowings under Facility B and
Facility C to repay the remaining indebtedness outstanding under the Bank Credit
Agreement. The remaining proceeds resulted in an excess cash balance of
approximately $90 million (after payment of approximately $4.5 million in fees
and expenses related to the New Credit Facility). The Company is required to
borrow the remaining approximately $74 million available under Facility B no
later than September 30, 1998.
Immediately prior to the TCI Closing, the lenders will make a loan to Falcon
Video (and not to any other borrower and without recourse to any other borrower)
sufficient to permit Falcon Video to satisfy in part its obligations under
certain financing notes. See "The TCI Transaction." Prior to the TCI Closing,
Falcon Video will not be responsible for any other borrowings under the New
Credit Facility and the other borrowers will not be responsible for the Falcon
Video borrowings. Upon closing the TCI Transaction, the loan to Falcon Video
will be discharged and become part of Facility A. Upon the TCI Closing, the
Company will use proceeds from additional borrowings under the New Credit
Facility to refinance any other senior indebtedness of the Company, including
without limitation certain existing senior indebtedness of Falcon Video, the
initial borrowings of Falcon Video under the New Credit Facility, and the
indebtedness of TCI to be assumed by New Falcon at the TCI Closing. The Company
also intends to fund
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the redemption of the remaining outstanding Notes with proceeds from borrowings
under the New Credit Facility. See "Prospectus Summary--Recent Developments."
The aggregate borrowing availability under Facility A is subject to
quarterly principal reductions, commencing on the last day of the quarter
beginning June 30, 2001, amortized as follows: 10% in years four and five, 15%
in year six, 22.5% in year seven, 27.5% in year eight, and 15% in year nine.
Facility B requires quarterly principal installments of $500,000 commencing
March 31, 1999, with the principal balance due at final maturity. Facility C
requires quarterly principal installments of $750,000 commencing March 31, 1999,
with the principal balance due at final maturity. The New Credit Facility also
provides for other mandatory principal reductions with proceeds arising from
asset sales and other financings, subject to certain exceptions permitting the
Company to use such proceeds to fund certain permitted investments and
acquisitions. The Company may prepay the loans outstanding under the New Credit
Facility at any time without premium or penalty (except for LIBOR breakage
costs).
The Company's obligations under the New Credit Facility are collateralized
by all of the partnership interests and other equity interests of the Restricted
Companies (as described above) under the New Credit Facility, including a pledge
of New Falcon's membership interest in New Falcon II. The Company also granted a
negative pledge on all of the Restricted Companies' assets, subject to a
subsequent grant of a security interest in the Restricted Companies' assets if
the TCI Transaction has not closed by December 31, 1998.
The New Credit Facility also contains various financial covenants which,
among other things, limit the amount of indebtedness the Restricted Companies
may incur. The New Credit Facility also contains various other restrictions
(subject to permitted exceptions), including limits on distributions,
investments, acquisitions, and capital expenditures. The New Credit Facility
does permit the Company to make scheduled interest payments on the Debentures
and to fund the Notes Redemption.
SUBORDINATED NOTES
On October 21, 1991, one of the Owned Subsidiaries issued $15 million
aggregate principal amount of 11.56% Subordinated Notes due 2001 to refinance
certain outstanding indebtedness. At December 31, 1997, the aggregate principal
amount outstanding under these notes was $15 million. These notes mature on
March 31, 2001. The agreement governing these notes contains certain covenants
which are substantially the same as the covenants under the New Credit Facility.
OTHER INDEBTEDNESS
Other Notes payable consist primarily of $7.5 million owed by Enstar Finance
Company, LLC. On June 6, 1997, FHGLP and Enstar formed EFC, an unrestricted
subsidiary. On September 30, 1997, EFC obtained a secured bank facility of $35
million from two agent banks in order to provide funds that would be loaned to
certain Enstar partnerships. The lenders advanced $7.5 million to EFC, which in
turn advanced those funds to a number of Enstar partnerships. The EFC loan is
non-recourse to FHGLP and matures on August 31, 2001, at which time all funds
previously advanced will be due in full.
INTEREST RATE HEDGING AGREEMENTS
The Company utilizes interest rate hedging agreements to establish long-term
fixed interest rates on a portion of its variable-rate debt. The New Credit
Facility requires the Company to maintain hedging arrangements with respect to
at least 50% of its total outstanding indebtedness, excluding the Debentures,
for a two-year period at rates satisfactory to the Administrative Agent in order
to manage the interest rate sensitivity on its borrowings. At March 31, 1998,
the Company participated in interest rate hedging contracts with an aggregate
notional principal amount of $565 million, under which the Company pays interest
at fixed rates ranging from 5.22% to 6.55% (weighted average rate of 5.81%) and
receives interest at variable LIBOR rates. Certain of these contracts relating
to approximately $25 million of aggregate
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notional principal amount were not yet effective at March 31, 1998, but are
scheduled to go into effect during 1998 as certain of the existing contracts
mature. The hedging contracts expire at various dates through July 2001. In
addition to these swaps, the Company has an 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 Company pays variable LIBOR rates subject to a cap of 5.49%.
In connection with the decision to make interest payments on the Notes in
cash and the Notes Tender and Notes Redemption, the Company entered into various
interest rate swap agreements with three banks on February 10, 1998 in order to
reduce interest costs. The agreements call for the Company 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 Company to pay at a fixed rate of 7.625% and
receive interest at variable LIBOR rates for the period September 16, 1998
through September 15, 2003 on a notional principal amount of $297.7 million.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Debentures were originally sold by the Issuers on April 3, 1998 to
the Placement Agents pursuant to the Purchase Agreement. The Placement Agents
subsequently placed the Old Debentures with (i) qualified institutional buyers
in reliance on Rule 144A under the Securities Act and (ii) qualified buyers
outside the United States in reliance upon Regulation S under the Securities
Act. As a condition of the Purchase Agreement, the Issuers entered into the
Registration Rights Agreement with the Placement Agents pursuant to which the
Issuers have agreed, for the benefit of the holders of the Old Debentures, at
the Issuers' cost, to file a registration statement for the Exchange Offer (the
"Exchange Offer Registration Statement") (of which this Prospectus is a part)
with the Commission with respect to the Exchange Offer for the Exchange
Debentures. Upon the Exchange Offer Registration Statement being declared
effective, the Issuers will offer the Exchange Debentures in exchange for
surrender of the Old Debentures. For each Old Debenture surrendered to the
Issuers pursuant to the Exchange Offer, the holder of such Old Debenture will
receive an Exchange Debenture having an original Principal Amount at Maturity
equal to that of the surrendered Old Debenture.
Based upon interpretations by the staff of the Commission set forth in
certain no-action letters to third parties (including EXXON CAPITAL HOLDINGS
CORP., SEC No-Action Letter (April 13, 1989); MORGAN STANLEY & CO. INC., SEC
No-Action Letter (June 5, 1991); and SHEARMAN & STERLING, SEC No-Action Letter
(July 2, 1993)), the Issuers believe that the Exchange Debentures issued
pursuant to the Exchange Offer in exchange for Old Debentures will in general be
freely tradeable after the Exchange Offer without compliance with the
registration and prospectus delivery requirements of the Securities Act.
However, any purchaser of Old Debentures who is an "affiliate" of the Issuers
(within the meaning of Rule 405 under the Securities Act), who does not acquire
the Exchange Debentures in the ordinary course of business or who tenders in the
Exchange Offer for the purpose of participating in a distribution of the
Exchange Debentures could not rely on the position of the staff of the
Commission enunciated in such no-action letters and, in the absence of an
exemption therefrom, must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Failure to comply with such requirements in such instance may result in such
holder incurring liability under the Securities Act for which the holder is not
indemnified by the Issuers.
As contemplated by the above-mentioned no-action letters and the
Registration Rights Agreement, each holder accepting the Exchange Offer is
required to represent to the Issuers in the Letter of Transmittal that (i) the
Exchange Debentures are to be acquired by the holder or the person receiving
such Exchange Debentures, whether or not such person is the holder, in the
ordinary course of business, (ii) the holder or any such other person is not
engaging in the distribution of the Exchange Debentures, (iii) the holder or any
such other person has no arrangement or understanding with any person to
participate in the distribution of the Exchange Debentures, (iv) neither the
holder nor any such other person is an "affiliate" of the Issuers within the
meaning of Rule 405 under the Securities Act, and (v) the holder or any such
other person acknowledges that if such holder or any other person participates
in the Exchange Offer for the purpose of distributing the Exchange Debentures it
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale of the Exchange Debentures and
cannot rely on the above-mentioned no-action letters. As indicated above, each
Participating Broker-Dealer that receives an Exchange Debenture for its own
account in exchange for Old Debentures must acknowledge that it (i) acquired the
Old Debentures for its own account as a result of market-making activities or
other trading activities, (ii) has not entered into any arrangement or
understanding with the Issuers or any "affiliate" of the Issuers (within the
meaning of Rule 405 under the Securities Act) to distribute the Exchange
Debentures to be received in the Exchange Offer and (iii) will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such Exchange Debentures. For a description of the procedures for
resales by Participating Broker-Dealers, see "Plan of Distribution."
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In the event that changes in the law or the applicable interpretations of
the staff of the Commission do not permit the Issuers to effect such an Exchange
Offer, the Exchange Offer is not consummated by September 30, 1998 or the
Exchange Offer has been completed and in the opinion of counsel for the
Placement Agents a Registration Statement must be filed and a Prospectus
delivered by the Placement Agents in connection with any offering or sale of the
Old Debentures, the Issuers will (i) file the Shelf Registration Statement
covering resales of the Old Debentures; (ii) use their best efforts to cause the
Shelf Registration Statement to be declared effective under the Securities Act
and (iii) use their best efforts to keep effective the Shelf Registration
Statement until the earlier of (i) two years after the date of the original
issuance of the Old Debentures or (ii) such time as all of the applicable Old
Debentures have been sold thereunder. The Issuers will, in the event of the
filing of the Shelf Registration Statement, provide to each applicable holder of
the Old Debentures copies of the prospectus which is a part of the Shelf
Registration Statement, notify each such holder when the Shelf Registration
Statement has become effective and take certain other actions as are required to
permit unrestricted resale of the Old Debentures. A holder of the Old Debentures
that sells such Old Debentures pursuant to the Shelf Registration Statement
generally will be required to be named as a selling security holder in the
related prospectus and to deliver a prospectus to purchasers, will be subject to
certain of the civil liability provisions under the Securities Act in connection
with such sales and will be bound by the provisions of the Registration Rights
Agreement which are applicable to such a holder (including certain
indemnification obligations).
The Registration Rights Agreement provides that the Issuers will file an
Exchange Offer Registration Statement with the Commission. In the event that
Exchange Offer is not consummated and the Shelf Registration Statement is not
declared effective on or prior to September 30, 1998, the interest rate on the
Old Senior Debentures will be increased by 0.5% per annum and interest on the
Old Senior Discount Debentures (in addition to accrual of original issue
discount during the period ending April 15, 2003 and in addition to interest
otherwise due on such Debentures after such date) will accrue at a rate of 0.5%
per annum of the Accreted Value thereof on the preceding semi-annual accrual
date, and be payable in cash semi-annually, commencing October 15, 1998, until
(i) the Exchange Offer is consummated, (ii) the Shelf Registration Statement is
declared effective by the Commission or (iii) the Old Debentures become freely
tradable without registration under the Securities Act, at which time, in any
such case, the interest rate with respect to the Old Debentures shall return to
the rate established on the date such Debentures were originally issued, as
adjusted by any other provision of the Indenture subsequent to such date.
Holders of Old Debentures will be required to make certain representations
to the Issuers (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver information to
be used in connection with the Shelf Registration Statement, if required, and to
provide comments on the Shelf Registration Statement within the time periods set
forth in the Registration Rights Agreement in order to have their Old Debentures
included in the Shelf Registration Statement and benefit from the provisions
regarding Additional Interest set forth above.
Following the consummation of the Exchange Offer, holders of the Old
Debentures who were eligible to participate in the Exchange Offer but who did
not tender their Old Debentures will not have any further registration rights
and such Old Debentures will continue to be subject to certain restrictions on
transfer. Accordingly, the liquidity of the market for such Old Debentures could
be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Issuers will accept any and all Old
Debentures validly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. The Issuers will issue (i) $1,000 principal amount
of Senior Exchange Debentures for $1,000 principal amount Old Senior Debentures,
and (ii) $1,000 original principal amount at maturity of Senior Exchange
Discount Debentures in exchange for each $1,000 original principal amount at
maturity of outstanding Old Senior Discount Debentures accepted in
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the Exchange Offer. Holders may tender some or all of their Old Debentures
pursuant to the Exchange Offer. However, Old Debentures may be tendered only in
integral multiples of $1,000.
The form and terms of the Exchange Debentures are the same as the form and
terms of the Old Debentures except that (i) the Exchange Debentures have been
registered under the Securities Act and hence will not bear legends restricting
the transfer thereof and (ii) the holders of the Exchange Debentures will not be
entitled to certain rights under the Registration Rights Agreement, including
the provisions providing for an increase in the interest rate on the Old
Debentures in certain circumstances relating to the timing of the Exchange
Offer, all of which rights will terminate when the Exchange Offer is terminated.
The Exchange Debentures will evidence the same debt as the Old Debentures and
will be entitled to the benefits of the Indenture.
As of the date of this Prospectus, $325,000,000 aggregate original principal
amount of the Old Senior Debentures are outstanding, and $435,250,000 aggregate
original principal amount at maturity of the Old Senior Discount Debentures are
outstanding. The Issuers have fixed the close of business on , 1998 as
the record date for the Exchange Offer for purposes of determining the persons
to whom this Prospectus and the Letter of Transmittal will be mailed initially.
Holders of Old Debentures do not have any appraisal or dissenters' rights
under Delaware law, California law or the Indenture in connection with the
Exchange Offer. The Issuers intend to conduct the Exchange Offer in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations of the Commission thereunder.
The Issuers shall be deemed to have accepted validly tendered Old Debentures
when, as and if the Issuers have given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the Exchange Debentures from the Issuers.
If any tendered Old Debentures are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Old Debentures will be
returned, without expense, to the tendering holder thereof as promptly as
practicable after the Expiration Date.
Holders who tender Old Debentures in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old
Debentures pursuant to the Exchange Offer. The Issuers will pay all charges and
expenses, other than transfer taxes in certain circumstances, in connection with
the Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The Issuers shall keep the Exchange Offer open for at least 20 business days
(or longer if required by applicable law) after the date notice of the Exchange
Offer is mailed to holders of Old Debentures. The term "Expiration Date" shall
mean 5:00 p.m., New York City time, on , 1998, unless the Issuers, in
their sole discretion, extend the Exchange Offer, in which case the term
"Expiration Date" shall mean the latest date and time to which the Exchange
Offer is extended.
In order to extend the Exchange Offer, the Issuers will notify the Exchange
Agent of any extension by oral or written notice and will mail to the registered
holders an announcement thereof, each prior to 11:00 a.m., New York City time,
on the next business day after the previously scheduled expiration date.
The Issuers reserve the right, in their sole discretion, (i) to delay
accepting any Old Debentures, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "--Conditions"
shall not have been satisfied, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent or (ii) to amend the terms of the
Exchange Offer in any manner.
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Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof to the
registered holders.
PROCEDURES FOR TENDERING
Only a holder of Old Debentures may tender such Old Debentures in the
Exchange Offer. To tender in the Exchange Offer, a holder must complete, sign
and date the Letter of Transmittal, or a facsimile thereof, have the signatures
thereon guaranteed if required by the Letter of Transmittal or transmit an
Agent's Message in connection with a book-entry transfer, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, or Agent's Message,
together with the Old Debentures and any other required documents, to the
Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date.
In addition, either (i) certificates for such Old Debentures must be received by
the Exchange Agent prior to the Expiration Date along with the Letter of
Transmittal, (ii) a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such Old Debentures into the Exchange Agent's account at The
Depository Trust Company ("DTC" or the "Book-Entry Transfer Facility") pursuant
to the procedure for book-entry transfer described below, must be received by
the Exchange Agent prior to the Expiration Date or (iii) the holder must comply
with the guaranteed delivery procedures described below. To be tendered
effectively, the Old Debentures, or Book-Entry Confirmation, as the case may be,
the Letter of Transmittal and other required documents must be received by the
Exchange Agent at the address set forth below under "--Exchange Agent" prior to
5:00 p.m., New York City time, on the Expiration Date. DELIVERY OF DOCUMENTS TO
THE BOOK ENTRY TRANSFER FACILITY IN ACCORDANCE WITH ITS PROCEDURE DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
DTC has authorized DTC participants that hold Old Debentures on behalf of
beneficial owners of Old Debentures through DTC to tender their Old Debentures
as if they were holders. To effect a tender of Old Debentures, DTC participants
should either (i) complete and sign the Letter of Transmittal (or a manually
signed facsimile thereof), have the signature thereon guaranteed if required by
the instructions to the Letter of Transmittal, and mail or deliver the Letter of
Transmittal (or such manually signed facsimile) to the Exchange Agent pursuant
to the procedure set forth in "Procedures for Tendering" or (ii) transmit their
acceptance to DTC through the DTC Automated Tender Offer Program ("ATOP") for
which the transaction will be eligible and follow the procedure for book-entry
transfer set forth in "--Book-Entry Transfer."
By executing the Letter of Transmittal or Agent's Message, each holder will
make to the Issuers the representations set forth above in the third paragraph
under the heading "--Purpose and Effect of the Exchange Offer."
The tender by a holder and the acceptance thereof by the Issuers will
constitute agreement between such holder and the Issuers in accordance with the
terms and subject to the conditions set forth herein and in the Letter of
Transmittal or Agent's Message.
THE METHOD OF DELIVERY OF OLD DEBENTURES, THE LETTER OF TRANSMITTAL OR
AGENT'S MESSAGE AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE
ELECTION AND SOLE RISK OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL,
HOLDERS MAY WISH TO CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD DEBENTURES SHOULD BE
SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.
Any beneficial owner whose Old Debentures are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered
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holder promptly and instruct such registered holder to tender on such beneficial
owner's behalf. See "Instructions to Registered Holder and/or Book-Entry
Transfer Facility Participant from Beneficial Owner" included with the Letter of
Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined below) unless
the Old Debentures tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a member firm of the
Medallion System (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Old Debentures listed therein, such Old Debentures must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Old
Debentures with the signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Old Debentures or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, offices of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Issuers of their authority to so act must be submitted with the Letter of
Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Debentures and withdrawal of tendered Old
Debentures will be determined by the Issuers in their sole discretion, which
determination will be final and binding. The Issuers reserve the absolute right
to reject any and all Old Debentures not properly tendered or any Old Debentures
the Issuers' acceptance of which would, in the opinion of counsel for the
Issuers, be unlawful. The Issuers also reserve the right in their sole
discretion to waive any defects, irregularities or conditions of tender as to
particular Old Debentures. The Issuers' interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Debentures must be
cured within such time as the Issuers shall determine. Although the Issuers
intend to notify holders of defects or irregularities with respect to tenders of
Old Debentures, neither the Issuers, the Exchange Agent nor any other person
shall incur any liability for failure to give such notification. Tenders of Old
Debentures will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Old Debentures received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
ACCEPTANCE OF OLD DEBENTURES FOR EXCHANGE; DELIVERY OF EXCHANGE
For each Old Debenture accepted for exchange, the holder of such Old
Debenture will receive an Exchange Debenture having a Principal Amount at
Maturity equal to that of the surrendered Old Debenture. For purposes of the
Exchange Offer, the Issuers shall be deemed to have accepted properly tendered
Old Debentures for exchange when, as and if the Issuers have given oral or
written notice thereof to the Exchange Agent.
In all cases, the issuance of Exchange Debentures for Old Debentures that
are accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of certificates for such Old Debentures or
a timely Book-Entry Confirmation of such Old Debentures into the Exchange
Agent's account at the Book-Entry Transfer Facility, a properly completed and
duly executed Letter of Transmittal or Agent's Message and all other required
documents. If any tendered Old Debentures are not accepted for any reason set
forth in the terms and conditions of the Exchange Offer, such unaccepted or
non-exchanged Old Debentures will be returned without expense to the tendering
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holder thereof (or, in the case of Old Debentures tendered by book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the book-entry transfer procedures described below, such
non-exchanged Old Debentures will be credited to an account maintained with such
Book-Entry Transfer Facility) as promptly as practicable after the Expiration
Date.
BOOK-ENTRY TRANSFER
The Exchange Agent will establish a new account or utilize an existing
account with respect to the Old Debentures at DTC promptly after the date of
this Prospectus, and any financial institution that is a participant in DTC and
whose name appears on a security position listing as the owner of Old Debentures
may make a book-entry tender of Old Debentures by causing DTC to transfer such
Old Debentures into the Exchange Agent's account in accordance with DTC's
procedures for such transfer. However, although tender of Old Debentures may be
effected through book- entry transfer into the Exchange Agent's account at DTC,
the Letter of Transmittal (or a manually signed facsimile thereof), properly
completed and validly executed, with any required signature guarantees, or an
Agent's Message in lieu of the Letter of Transmittal, and any other required
documents, must, in any case, be received by the Exchange Agent at its address
set forth below under the caption "Exchange Agent" on or prior to the Expiration
Date, or the guaranteed delivery procedures described below must be complied
with. The confirmation of book-entry transfer of Old Debentures into the
Exchange Agent's account at DTC as described above is referred to herein as a
"Book-Entry Confirmation." Delivery of documents to DTC in accordance with DTC's
procedures does not constitute delivery to the Exchange Agent.
The term "Agent's Message" means a message transmitted by DTC to, and
received by, the Exchange Agent and forming a part of a Book-Entry Confirmation,
which states that DTC has received an express acknowledgment from the
participant in DTC tendering the Old Debentures stating (i) the aggregate
principal amount of Old Debentures which have been tendered by such participant,
(ii) that such participant has received and agrees to be bound by the terms of
the Letter of Transmittal and (iii) that the Issuers may enforce such agreement
against the participant.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Debentures and (i) whose Old Debentures
are not immediately available, (ii) who cannot deliver their Old Debentures, the
Letter of Transmittal or any other required documents to the Exchange Agent or
(iii) who cannot complete the procedures for book-entry transfer, prior to the
Expiration Date, may effect a tender if:
(a) the tender is made through a firm which is a member of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States (an "Eligible Institution");
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate
number(s) of such Old Debentures and the principal amount of Old
Debentures tendered, stating that the tender is being made thereby and
guaranteeing that, within five New York Stock Exchange trading days after
the Expiration Date, the Letter of Transmittal (or facsimile thereof) (or
in the case of a book-entry transfer, an Agent's Message) together with
the certificate(s) representing the Old Debentures (or a confirmation of
book-entry transfer of such Debentures into the Exchange Agent's account
at the Book-Entry Transfer Facility), and any other documents required by
the Letter of Transmittal will be deposited by the Eligible Institution
with the Exchange Agent; and
(c) the certificate(s) representing all tendered Old Debentures in proper
form for transfer (or a confirmation of book-entry transfer of such Old
Debentures into the Exchange Agent's account
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at the Book-Entry Transfer Facility), together with a Letter of
Transmittal (or facsimile thereof), properly completed and duly executed,
with any required signature guarantees (or, in the case of a book-entry
transfer, an Agent's Message) and all other documents required by the
Letter of Transmittal are received by the Exchange Agent upon five New
York Stock Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Debentures according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Debentures may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date; otherwise such tenders are irrevocable.
To withdraw a tender of Old Debentures in the Exchange Offer, a telegram,
telex, letter or facsimile transmission notice of withdrawal must be received by
the Exchange Agent at its address set forth herein prior to 5:00 p.m., New York
City time, on the Expiration Date. Any such notice of withdrawal must (i)
specify the name of the person having deposited the Old Debentures to be
withdrawn (the "Depositor"), (ii) identify the Old Debentures to be withdrawn
(including the certificate number(s) and principal amount of such Old
Debentures, or, in the case of Old Debentures transferred by book-entry
transfer, the name and number of the account at the Book-Entry Transfer Facility
to be credited), (iii) be signed by the holder in the same manner as the
original signature on the Letter of Transmittal by which such Old Debentures
were tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee with respect to the Old
Debentures register the transfer of such Old Debentures into the name of the
person withdrawing the tender and (iv) specify the name in which any such Old
Debentures are to be registered, if different from that of the Depositor. All
questions as to the validity, form and eligibility (including time of receipt)
of such notices will be determined by the Issuers, whose determination shall be
final and binding on all parties. Any Old Debentures so withdrawn will be deemed
not to have been validly tendered for purposes of the Exchange Offer and no
Exchange Debentures will be issued with respect thereto unless the Old
Debentures so withdrawn are validly retendered. Any Old Debentures which have
been tendered but which are not accepted for exchange will be returned to the
holder thereof without cost to such holder as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Old Debentures may be retendered by following one of the procedures
described above under "--Procedures for Tendering" at any time prior to the
Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Issuers shall not
be required to accept for exchange, or exchange Exchange Debentures for, any Old
Debentures, and may terminate or amend the Exchange Offer as provided herein
before the acceptance of such Old Debentures, if:
(a) any action or proceeding is instituted or threatened in any court or by
or before any governmental agency with respect to the Exchange Offer
which, in the sole judgment of the Issuers, might materially impair the
ability of the Issuers to proceed with the Exchange Offer or any material
adverse development has occurred in any existing action or proceeding
with respect to the Issuers or any of their subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the staff of the
Commission is proposed, adopted or enacted, which, in the sole judgment
of the Issuers, might materially impair the ability of the Issuers to
proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Issuers; or
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(c) any governmental approval has not been obtained, which approval the
Issuers shall, in their sole discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Issuers determine in their sole discretion that any of the conditions
are not satisfied, the Issuers may (i) refuse to accept any Old Debentures and
return all tendered Old Debentures to the tendering holders, (ii) extend the
Exchange Offer and retain all Old Debentures tendered prior to the expiration of
the Exchange Offer, subject, however, to the rights of holders to withdraw such
Old Debentures (see "--Withdrawal of Tenders") or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
Old Debentures which have not been withdrawn. The Issuers shall keep the
Exchange Offer open for at least 20 business days (or longer if required by
applicable law, including in connection with any material modification or waiver
of the terms or conditions of the Exchange Offer that requires such extension
under applicable law) after the date notice of the Exchange Offer is mailed to
holders of Old Debentures.
EXCHANGE AGENT
U.S. Trust Company of New York has been appointed as Exchange Agent for the
Exchange Offer. Questions and requests for assistance, requests for additional
copies of this Prospectus or of the Letter of Transmittal and requests for
Notice of Guaranteed Delivery should be directed to the Exchange Agent addressed
as follows:
<TABLE>
<S> <C>
BY REGISTERED OR CERTIFIED MAIL: BY OVERNIGHT COURIER:
U.S. Trust Company of New York U.S. Trust Company of New York
P.O. Box 844 770 Broadway
Cooper Station New York, New York 10003
New York, New York 10276-0844 Attn: Corporate Trust, 13th Floor
BY HAND: BY FACSIMILE:
U.S. Trust Company of New York (212) 780-0592
111 Broadway, Lower Level
Corporation Trust Window Confirm by telephone:
New York, New York 10006 (800) 548-6565
</TABLE>
DELIVERY TO AN ADDRESS OTHER THAN SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Issuers. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Issuers and their affiliates.
The Issuers have not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Issuers, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Issuers. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
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ACCOUNTING TREATMENT
The Exchange Debentures will be recorded at the same carrying value as the
Old Debentures, which is face value, as reflected in the Issuers' accounting
records on the date of exchange. Accordingly, no gain or loss for accounting
purposes will be recognized by the Issuers. The expenses of the Exchange Offer
will be expensed over the term of the Exchange Debentures.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Debentures that are not exchanged for Exchange Debentures pursuant
to the Exchange Offer will remain restricted securities. Accordingly, such Old
Debentures may be resold only (i) to the Issuers (upon redemption thereof or
otherwise), (ii) so long as the Old Debentures are eligible for resale pursuant
to Rule 144A, to a person inside the United States whom the seller reasonably
believes is a qualified institutional buyer within the meaning of Rule 144A
under the Securities Act in a transaction meeting the requirements of Rule 144A,
in accordance with Rule 144 under the Securities Act, or pursuant to another
exemption from the registration requirements of the Securities Act (and based
upon an opinion of counsel reasonably acceptable to the Issuers), (iii) outside
the United States to a foreign person in a transaction meeting the requirements
of Rule 904 under the Securities Act, or (iv) pursuant to an effective
registration statement under the Securities Act, in each case in accordance with
any applicable securities laws of any state of the United States.
RESALE OF THE EXCHANGE DEBENTURES
With respect to resales of Exchange Debentures, based upon interpretations
by the staff of the Commission set forth in certain no-action letters issued to
third parties (including EXXON CAPITAL HOLDINGS CORP., SEC No-Action Letter
(April 13, 1989); MORGAN STANLEY & CO. INC., SEC No-Action Letter (June 5,
1991); and SHEARMAN & STERLING, SEC No-Action Letter (July 2, 1993)), the
Issuers believe that a holder or other person who receives Exchange Debentures,
whether or not such person is the holder (other than a person that is an
"affiliate" of the Issuers within the meaning of Rule 405 under the Securities
Act) who receives Exchange Debentures in exchange for Old Debentures in the
ordinary course of business and who is not participating, does not intend to
participate, and has no arrangement or understanding with any person to
participate, in the distribution of the Exchange Debentures, will be allowed to
resell the Exchange Debentures to the public without further registration under
the Securities Act and without delivering to the purchasers of the Exchange
Debentures a prospectus that satisfies the requirements of Section 10 of the
Securities Act. However, if any holder acquires Exchange Debentures in the
Exchange Offer for the purpose of distributing or participating in a
distribution of the Exchange Debentures, such holder cannot rely on the position
of the staff of the Commission enunciated in the above mentioned no-action
letters or any similar interpretive letters, and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction, unless an exemption from registration is
otherwise available. Further, each Participating Broker-Dealer that receives
Exchange Debentures for its own account in exchange for Old Debentures, where
such Old Debentures were acquired by such Participating Broker-Dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such Exchange
Debentures.
As contemplated by the above mentioned no-action letters and the
Registration Rights Agreement, each holder accepting the Exchange Offer is
required to represent to the Issuers in the Letter of Transmittal that (i) the
Exchange Debentures are to be acquired by the holder or the person receiving
such Exchange Debentures, whether or not such person is the holder, in the
ordinary course of business, (ii) the holder or any such other person is not
engaging in the distribution of the Exchange Debentures, (iii) the holder or any
such other person has no arrangement or understanding with any person to
participate in the distribution of the Exchange Debentures, (iv) neither the
holder nor any such other person is an "affiliate" of the Issuers within the
meaning of Rule 405 under the Securities Act, and (v) the holder or any such
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other person acknowledges that if such holder or other person participates in
the Exchange Offer for the purpose of distributing the Exchange Debentures it
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale of the Exchange Debentures and
cannot rely on the above mentioned no-action letters. As indicated above, each
Participating Broker-Dealer that receives Exchange Debentures for its own
account in exchange for Old Debentures must acknowledge that it (i) acquired the
Old Debentures for its own account as a result of market-making activities or
other trading activities, (ii) has not entered into any arrangement or under-
standing with the Issuers or any "affiliate" of the Issuers (within the meaning
of Rule 405 under the Securities Act) to distribute the Exchange Debentures to
be received in the Exchange Offer and (iii) will deliver a prospectus meeting
the requirements of the Securities Act in connection with any resale of such
Exchange Debentures. For a description of the procedures for resales by
Participating Broker-Dealers, see "Plan of Distribution."
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DESCRIPTION OF THE DEBENTURES
The form and terms of the Exchange Debentures are the same as the form and
terms of the Old Debentures (which they replace) except that (i) the issuance of
the Exchange Debentures have been registered under the Securities Act and,
therefore, the Exchange Debentures will not bear legends restricting the
transfer thereof, and (ii) the holders of Exchange Notes will not be entitled to
certain rights under the Registration Rights Agreement, including the provisions
providing for an increase in the interest rate on the Old Debentures in certain
circumstances relating to the timing of the Exchange Offer, which rights will
terminate when the Exchange Offer is consummated. A copy of the Indenture has
been filed as an exhibit to the Exchange Offer Registration Statement of which
this Prospectus forms a part. The following summary of certain provisions of the
Indenture does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Indenture, including the
definitions of certain terms therein and those terms made a part thereof by the
Trust Indenture Act of 1939, as amended. Whenever particular defined terms of
the Indenture not otherwise defined herein are referred to, the definitions
ascribed to such terms in the Indenture are incorporated herein by reference.
For definitions of certain capitalized terms used in the following summary, see
"--Certain Definitions."
GENERAL
The Debentures are joint and several senior unsecured obligations of the
Issuers and will mature on April 15, 2010. The Senior Debentures are limited to
$375.0 million aggregate principal amount and the Senior Discount Debentures are
limited to $435.25 million aggregate principal amount at maturity. Each Senior
Debenture bears interest at 8.375% per annum from the Issue Date or from the
most recent Interest Payment Date to which interest has been paid or provided
for, payable semiannually (to holders of record at the close of business on the
April 1 or October 1 immediately preceding the Interest Payment Date) on April
15 and October 15 of each year, commencing on October 15, 1998.
The Senior Discount Debentures were sold at a substantial discount from
their principal amount at maturity. See "Federal Income Tax
Considerations--United States Holders--Original Issue Discount." Until April 15,
2003, no interest will accrue on the Senior Discount Debentures, but the
Accreted Value (representing the amortization of original issue discount) will
accrete at an annual rate of 9.285% between the Issue Date and April 15, 2003,
on a semiannual bond equivalent basis using a 360-day year comprised of twelve
30-day months such that the Accreted Value of a Senior Discount Debenture shall
equal the full principal amount of such Senior Discount Debenture on April 15,
2003; PROVIDED, HOWEVER, that at any time prior to April 15, 2003, the Issuers
may elect to commence the accrual of cash interest on a Semiannual Accrual Date
(from and after such Semiannual Accrual Date), in which case the outstanding
principal amount at Stated Maturity of each Senior Discount Debenture will on
such Semiannual Accrual Date be reduced to the Accreted Value of such Senior
Discount Debenture as of such Semiannual Accrual Date and cash interest shall be
payable on such Senior Discount Debenture on each Interest Payment Date
thereafter. The initial Accreted Value per $1,000 principal amount of Senior
Discount Debentures was $633.29 (representing the original price at which Senior
Discount Debentures were sold).
Beginning on April 15, 2003, cash interest on the Senior Discount Debentures
will accrue at the rate of 9.285% per annum and will be payable semiannually in
arrears on April 15 and October 15, commencing October 15, 2003, to Holders of
record at the close of business on the April 1 or October 1 immediately
preceding the Interest Payment Date.
The Indenture provides that, if the TCI Contribution is not consummated on
or before June 30, 1999, (a) effective July 1, 1999, the interest rate on the
Senior Debentures will increase by 0.75% per annum, (b) from July 1, 1999 until
April 15, 2003, the Company will pay cash interest on the Senior Discount
Debentures (in addition to accretion of principal), semiannually in arrears on
each April 15 and October 15, commencing October 15, 1999, equal to 0.75% per
annum of the then outstanding Accreted Value of the Senior Discount Debentures
and (c) from April 15, 2003 until the maturity of the Senior Discount
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Debentures, the interest rate on the Senior Discount Debentures will increase by
0.75% per annum; PROVIDED, that such additional interest will no longer be
payable if the TCI Contribution is consummated on or before December 31, 1999.
In the event that the Issuers have not consummated a registered exchange
offer for the Debentures or have caused a shelf registration statement with
respect to the Debentures to be declared effective on or prior to September 30,
1998, (i) the annual interest rate borne by the Senior Debentures will be
increased by 0.5%, (ii) prior to April 15, 2003, the Senior Discount Debentures
will bear annual cash interest equal to 0.5% of the Accreted Value of the Senior
Discount Debentures and (iii) on and after April 15, 2003, the annual interest
rate borne by the Senior Discount Debentures will be increased by 0.5%. Such
additional interest amounts will be payable in cash, semiannually in arrears on
each April 15 and October 15, until (i) the Exchange Offer is consummated, (ii)
the Issuers cause a shelf registration with respect to resales of the Debentures
to become effective under the Securities Act or (iii) the date that the
Debentures become freely tradeable without registration under the Securities
Act, at which time, in any such case, the interest rate with respect to the
Debentures shall return to the rate set forth on the cover page of this
Prospectus, as adjusted by any other provision of the Indenture.
Principal of, premium, if any, and interest on the Debentures will be
payable, and the Debentures may be exchanged or transferred, at the office or
agency of the Issuers in the Borough of Manhattan, the City of New York (which
initially will be the corporate trust office of the Trustee); PROVIDED that, at
the option of the Issuers, payment of interest may be made by check mailed to
the holders of the Debentures (the "Holders") at their addresses as they appear
in the Security Register.
The Debentures will be issued only in fully registered form, without
coupons, in denominations of $1,000 of principal amount and any integral
multiple thereof. See "--Book Entry; Delivery and Form." No service charge will
be made for any registration of transfer or exchange of Debentures, but the
Issuers may require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection therewith.
The Company is a holding company that conducts substantially all of its
business through subsidiaries. The Debentures will be the obligations of the
Issuers only, and the Issuers' subsidiaries will not have any obligation to pay
any amounts due under the Debentures. Therefore, the Debentures will be
effectively subordinated to all existing and future liabilities of the Issuers'
subsidiaries. As of March 31, 1998, after giving pro forma effect to the
Offering, the refinancing of the Bank Credit Agreement with proceeds from the
New Credit Facility, the repurchase of all of the Notes pursuant to the Notes
Tender and the consummation of the TCI Transaction, (i) the Issuers (excluding
indebtedness of their subsidiaries) would not have had any indebtedness
outstanding other than the Debentures (representing aggregate indebtedness of
approximately $650.6 million as of the date of issuance) and (ii) the Issuers'
subsidiaries would have had approximately $936.5 million of indebtedness
outstanding, all of which would have been effectively senior to the Debentures.
Subject to the covenants described below under "Covenants" and applicable
law, the Issuers may issue additional Debentures under the Indenture. The Senior
Debentures offered hereby and any additional Senior Debentures subsequently
issued would be treated as a single class for all purposes under the Indenture.
The Senior Discount Debentures offered hereby and any additional Senior Discount
Debentures subsequently issued would be treated as a single class for all
purposes under the Indenture.
OPTIONAL REDEMPTION
The Debentures will be redeemable, at the Issuers' option, in whole or in
part, at any time on or after April 15, 2003 and prior to maturity, upon not
less than 30 nor more than 60 days' prior notice mailed by first class mail to
each Holder's last address as it appears in the Security Register. The Senior
Debentures are redeemable at the redemption prices set forth below (expressed in
percentages of principal amount),
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plus accrued and unpaid interest, if any, to the redemption date, if redeemed
during the twelve-month period beginning on April 15 of the years set forth
below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---------------------------------------------------------------------------------- -----------
<S> <C>
2003.............................................................................. 104.188%
2004.............................................................................. 102.792%
2005.............................................................................. 101.396%
2006 and thereafter............................................................... 100.000%
</TABLE>
The Senior Discount Debentures are redeemable at the redemption prices set
forth below (expressed in percentages of Accreted Value), plus accrued and
unpaid interest, if any, to the redemption date, if redeemed during the
twelve-month period beginning on April 15 of the years set forth below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---------------------------------------------------------------------------------- -----------
<S> <C>
2003.............................................................................. 104.643%
2004.............................................................................. 103.095%
2005.............................................................................. 101.548%
2006 and thereafter............................................................... 100.000%
</TABLE>
In addition, prior to April 15, 2001, the Issuers may redeem up to 35% of
the aggregate principal amount or Accreted Value, as applicable, of the
Debentures with the net cash proceeds of one or more sales by the Company of its
Capital Stock (other than Redeemable Capital Stock), at any time or from time to
time in part, at a redemption price, in the case of Senior Debentures, equal to
108.375% of the principal amount thereof and, in the case of Senior Discount
Debentures, equal to 109.285% of the Accreted Value thereof, in each case plus
accrued and unpaid interest, if any, to the date of redemption (subject to the
rights of Holders of record on the relevant record date that is prior to the
redemption date to receive interest due on an Interest Payment Date); PROVIDED,
that at least $195.0 million in aggregate principal amount of Senior Debentures
remains outstanding immediately after each such redemption (excluding any Senior
Debentures owned by the Issuers or any of their Affiliates) and at least 65% in
aggregate principal amount at maturity of the Senior Discount Debentures
originally issued remains outstanding immediately after each such redemption
(excluding any Senior Discount Debentures owned by the Issuers or any of their
Affiliates).
In the case of any partial redemption, selection of the Debentures for
redemption will be made by the Trustee in compliance with the requirements of
the principal national securities exchange, if any, on which the Debentures are
listed, or if the Debentures are not listed on a national securities exchange,
by lot or by such other method as the Trustee in its sole discretion shall deem
fair and appropriate; PROVIDED that no Debenture of $1,000 in principal amount
or less shall be redeemed in part. If any Debenture is to be redeemed in part
only, the notice of redemption relating to such Debenture shall state the
portion of the principal amount thereof to be redeemed. A new Debenture in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original Debenture.
SINKING FUND
There will be no sinking fund payments for the Debentures.
The Issuers have agreed with the Placement Agents, for the benefit of the
Holders, that the Issuers will use their best efforts, at their cost, to file
and cause to become effective a registration statement with respect to a
registered offer to exchange (the "Exchange Offer Registration Statement") the
Old Debentures for the Exchange Debentures. The Exchange Offer will remain open
for not less than 20 business days after the date notice of the Exchange Offer
is mailed to Holders. For each old Debenture
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surrendered to the Issuers under the Exchange Offer, the Holder thereof will
receive a corresponding Exchange Debenture of equal principal amount or
principal amount at maturity, as applicable. In the event that applicable
interpretations of the staff of the Commission do not permit the Issuers to
effect the Exchange Offer, or under certain other circumstances, the Issuers
will, at their cost, use their best efforts to cause to become effective a shelf
registration statement (the "Shelf Registration Statement") with respect to
resales of the Debentures and to keep the Shelf Registration Statement effective
until the expiration of the time period referred to in Rule 144(k) under the
Securities Act after the Issue Date, or such shorter period that will terminate
when all Debentures covered by the Shelf Registration Statement have been sold
pursuant to the Shelf Registration Statement. The Issuers will, in the event of
such a shelf registration, provide to each Holder copies of the prospectus,
notify each Holder when the Shelf Registration Statement for the Debentures has
become effective and take certain other actions as are required to permit
resales of the Debentures. A Holder that sells its Debentures pursuant to the
Shelf Registration Statement generally will be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement that are applicable to such a
Holder (including certain indemnification obligations).
In the event that the Exchange Offer is not consummated on or prior to the
date that is 180 days after the Issue Date, (i) the annual interest rate borne
by the Senior Debentures will be increased by 0.5%, (ii) prior to April 15,
2003, the Senior Discount Debentures will bear annual cash interest equal to
0.5% of the Accreted Value of the Senior Discount Debentures and (iii) on and
after April 15, 2003, the annual interest rate borne by the Senior Discount
Debentures will be increased by 0.5%. Such additional interest amounts be
payable in cash, semiannually in arrears on each April 15 and October 15, until
(i) the Exchange Offer is consummated, (ii) the Issuers cause a shelf
registration with respect to resales of the Debentures to become effective under
the Securities Act or (iii) the date that the Debentures become freely tradeable
without registration under the Securities Act, at which time, in any such case,
the interest rate with respect to the Debentures shall return to the rate set
forth on the cover page of this Prospectus, as adjusted by any other provision
of the Indenture.
This summary of certain provisions of the Registration Rights Agreement does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, all the provisions of the Registration Rights Agreement.
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CERTAIN DEFINITIONS
"Accreted Value" means with respect to any Senior Discount Debenture, as of
any specified date on or prior to April 15, 2003, the amount provided below for
each $1,000 principal amount at maturity of Senior Discount Debentures:
(i) if the specified date occurs on one of the following dates after the
Issue Date (each a "Semiannual Accrual Date"), the Accreted Value will equal
the amount set forth below for such Semiannual Accrual Date:
<TABLE>
<CAPTION>
ACCRETED
SEMIANNUAL ACCRUAL DATE VALUE
- --------------------------------------------------------------------------------- ----------
<S> <C>
Issue Date....................................................................... $ 633.29
October 15, 1998................................................................. $ 664.70
April 15, 1999................................................................... $ 695.56
October 15, 1999................................................................. $ 727.85
April 15, 2000................................................................... $ 761.64
October 15, 2000................................................................. $ 797.00
April 15, 2001................................................................... $ 834.00
October 15, 2001................................................................. $ 872.72
April 15, 2002................................................................... $ 913.23
October 15, 2002................................................................. $ 955.63
April 15, 2003................................................................... $ 1,000.00
</TABLE>
(ii) if the specified date occurs before October 15, 1998, the Accreted
Value will equal the sum of (a) $633.29 and (b) an amount equal to the
product of (1) the Accreted Value on October 15, 1998 less $633.29
MULTIPLIED BY (2) a fraction, the numerator of which is the number of days
from the Issue Date to the specified date, using a 360-day year of twelve
30-day months, and the denominator of which is the number of days from the
Issue Date to the first Semiannual Accrual Date, using a 360-day year of
twelve 30-day months; or
(iii) if the specified date occurs between two Semiannual Accrual Dates,
the Accreted Value will equal the sum of (a) the Accreted Value for the
Semiannual Accrual Date immediately preceding such specified date and (b) an
amount equal to the product of (1) the Accreted Value for the immediately
following Semiannual Accrual Date less the Accreted Value for the
immediately preceding Semiannual Accrual Date MULTIPLIED BY (2) a fraction,
the numerator of which is the number of days from the immediately preceding
Semiannual Accrual Date to the specified date, using a 360-day year of 12
30-day months; PROVIDED, HOWEVER, that, for any date after April 15, 2003,
the Accreted Value with respect to each $1,000 principal amount at maturity
of Senior Discount Debentures will be $1,000; PROVIDED, FURTHER, that,
notwithstanding any other provision of this definition, if the Issuers elect
to commence the accrual of cash interest on a Semiannual Accrual Date, the
Accreted Value of a Senior Discount Debenture will thereafter be the
Accreted Value of such Senior Discount Debenture as specified in clause (i)
above on such Semiannual Accrual Date.
"Acquired Indebtedness" means Indebtedness of a Person (a) existing at the
time such Person is merged with or into the Company or a Subsidiary of the
Company or becomes a Subsidiary of the Company or (b) assumed in connection with
the acquisition of assets from such Person, and not Incurred by such Person in
connection with, or in anticipation of, such Person becoming a Subsidiary or
such acquisition of assets.
"Annualized Operating Cash Flow" means for any Person, for any fiscal
quarter, an amount equal to Operating Cash Flow of such Person for such quarter
multiplied by four.
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"Affiliate" means, as applied to any specified Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Asset Disposition" means the sale or other disposition by the Company or
any of its Restricted Subsidiaries (other than to the Company or another
Restricted Subsidiary) (i) of all or substantially all of the Capital Stock of
any Restricted Subsidiary, or (ii) of all or substantially all of the assets
that constitute a division or line of business of the Company or of any
Restricted Subsidiary, or (iii) of any cable television system.
"Asset Sale" means any sale, transfer or other disposition (including by way
of merger, consolidation or sale-leaseback transaction but excluding any
exchange of assets (including an exchange of assets in which no more than 30% of
the value of the consideration paid or received by the Company or a Restricted
Subsidiary in connection therewith consists of cash or Cash Equivalents);
PROVIDED that the fair market value of the consideration received by the Company
in connection with such exchange of assets is at least equal to the fair market
value of the assets transferred by the Company in connection with such exchange)
in one transaction or a series of related transactions by the Company or any of
its Restricted Subsidiaries to any Person other than the Company or any of its
Restricted Subsidiaries of (i) all or any of the Capital Stock of any Restricted
Subsidiary, (ii) all or substantially all of the property and assets of an
operating unit or business of the Company or any of its Restricted Subsidiaries
or (iii) any other property and assets of the Company or any of its Restricted
Subsidiaries (other than the Capital Stock or other Investment in an
Unrestricted Subsidiary) outside the ordinary course of business of the Company
or such Restricted Subsidiary and, in each case, that is not governed by the
provisions of the Indenture applicable to mergers, consolidations and sales of
assets of the Company; PROVIDED that "Asset Sale" shall not include (a) sales or
other dispositions of inventory, receivables and other current assets, (b)
sales, transfers or other dispositions of assets with a fair market value not in
excess of $1.0 million in any transaction or series of related transactions, (c)
sales, transfers or other dispositions of assets constituting a Restricted
Payment permitted to be made under the "Limitation on Restricted Payments"
covenant, (d) sales or other dispositions of assets for consideration at least
equal to the fair market value of the assets sold or disposed of, to the extent
that the consideration received would satisfy clause (B) of the "Limitation on
Asset Sales" covenant or (e) sales, transfers or other dispositions of property
or equipment that has become worn out, obsolete or damaged or otherwise
unsuitable for use in connection with the business of the Company or its
Restricted Subsidiaries.
"Average Life" means, at any date of determination with respect to any debt
security, the quotient obtained by dividing (i) the sum of the products of (A)
the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (B) the amount
of such principal payment by (ii) the sum of all such principal payments.
"Bank Credit Agreement" means that certain Amended and Restated Credit
Agreement, dated as of July 12, 1996, among Falcon Cable Media, a California
Limited Partnership, Falcon Cable Systems Company II, L.P., Falcon Cablevision,
a California Limited Partnership, Falcon Community Cable, L.P., Falcon Community
Ventures I Limited Partnership, Falcon First, Inc., Falcon Telecable, a
California Limited Partnership, Falcon Telecom, L.P., the First National Bank of
Boston, as Managing Agent, Toronto-Dominion (Texas) Inc., as Administrative
Agent, and NationsBank of Texas, N.A., as Syndication Agent, including any
deferrals, renewals, extensions, restatements, replacements, restructurings,
refinancings or refundings thereof or amendments, modifications or supplements
thereto, and any agreement or agreements providing therefor, whether involving
one or more members of the Restricted Group, whether by or with the same or any
other lender, creditor, group or groups of lenders or group or groups of
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creditors, and including related Debentures, guarantee and security agreements
and other instruments and agreements executed in connection therewith.
"Board of Directors" means (i) subject to clause (iv) below, in the case of
a Person that is a partnership, the board of directors of such Person's
corporate general partner (or if such general partner is itself a partnership,
the board of directors of such general partner's corporate general partner),
(ii) in the case of a Person that is a corporation, the board of directors of
such Person, (iii) in the case of any other Person, the board of directors,
management committee or similar governing body or any authorizing committee
thereof responsible for the management of the business and affairs of such
Person and (iv) in the case of FHGLP, the Board of Representatives of FHGLP
established pursuant to Section 11.4 of the Partnership Agreement (but only for
so long as such Board of Representatives remains in existence).
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's capital stock or other equity interests,
including, without limitation, partnership interests, whether now outstanding or
issued after the Issue Date.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person.
"Capitalized Lease Obligation" means the discounted present value of the
rental obligations under a Capitalized Lease.
"Cash Equivalents" means (i) any security maturing not more than six months
after the date of acquisition issued by the United States of America or an
instrumentality or agency thereof and guaranteed fully as to principal, premium,
if any, and interest by the United States of America, (ii) any certificate of
deposit, time deposit, money market account or bankers' acceptance maturing not
more than six months after the date of acquisition issued by any commercial
banking institution that is a member of the Federal Reserve System and that has
combined capital and surplus and undivided profits of not less than $500.0
million whose debt has a rating, at the time as of which any investment therein
is made, of "P-1" (or higher) according to Moody's Investors Service, Inc. or
any successor rating agency, or "A-1" (or higher) according to Standard & Poor's
Rating Services, or any successor rating agency and (iii) commercial paper
maturing not more than three months after the date of acquisition issued by any
corporation (other than an Affiliate of the Issuers) organized and existing
under the laws of the United States of America with a rating, at the time of
which any investment therein is made, of "P-1" (or higher) according to Moody's
Investors Service, Inc. or any successor rating agency, or "A-1" (or higher)
according to Standard & Poor's Rating Services or any successor rating agency.
"Cash Flow Ratio" means, as at any date, the ratio of (i) the sum of the
aggregate outstanding principal amount of all Indebtedness (or, if the terms of
such Indebtedness provide that an amount less than the principal amount thereof
shall be due upon any declaration of acceleration thereof, the aggregate
outstanding accreted value of such Indebtedness at the date of determination) of
the Company and the Restricted Subsidiaries determined on a consolidated basis,
but excluding all obligations under Interest Rate Agreements entered into by the
Company or any Restricted Subsidiary outstanding on such date, plus (but without
duplication of Indebtedness supported by letters of credit) the aggregate
undrawn face amount of all letters of credit outstanding on such date to (ii)
Annualized Operating Cash Flow of the Company and its Restricted Subsidiaries
determined as at the last day of the most recently completed fiscal quarter. In
calculating the "Cash Flow Ratio" as of any particular date (the "Determination
Date") Annualized Operating Cash Flow shall be determined on the basis of the
most recently completed fiscal quarter (the "Measurement Period"). For purposes
of calculating Annualized Operating Cash Flow for the Measurement Period
associated with a Determination Date, (i) any Person that is a Restricted
Subsidiary on the Determination Date (or would become a Restricted Subsidiary on
such Determination Date in connection with the transaction that requires the
determination of such Annualized Operating Cash Flow)
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will be deemed to have been a Restricted Subsidiary at all times during such
Measurement Period, (ii) any Person that is not a Restricted Subsidiary on such
Determination Date (or would cease to be a Restricted Subsidiary on such
Determination Date in connection with the transaction that requires the
determination of such Annualized Operating Cash Flow) will be deemed not to have
been a Restricted Subsidiary at any time during such Measurement Period and
(iii) if the Company or any Restricted Subsidiary shall have in any manner (x)
acquired (including through the commencement of activities constituting such
operating business) or (y) disposed of (including by way of an Asset Disposition
or the termination or discontinuance of activities constituting such operating
business) any operating business during such Measurement Period or after the end
of such period and on or prior to such Determination Date, such calculation will
be made on a pro forma basis in accordance with GAAP as if, in the case of an
acquisition or the commencement of activities constituting such operating
business, all such transactions had been consummated on the first day of such
Measurement Period and, in the case of an Asset Disposition or termination or
discontinuance of activities constituting such operating business, all such
transactions had been consummated prior to the first day of such Measurement
Period.
"Change of Control" means the occurrence of any of the following events: (a)
any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of
the Exchange Act), other than the Permitted Holders, is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that a person shall be deemed to have "beneficial ownership" of all
securities that such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of 35% or more of the total voting power of the outstanding Voting
Stock of the Company or Falcon, as the case may be, and such ownership
represents a greater percentage of the total voting power of the Voting Stock of
the Company or Falcon, as the case may be, on a fully diluted basis, than is
held by the Permitted Holders in the aggregate on such date and, in the case of
the Company (if the Company is then a partnership), any Person other than a
Permitted Holder is a managing general partner of the Company; (b) the Company
or Falcon, as the case may be, consolidates with, or merges with or into,
another Person or sells, assigns, conveys, transfers, leases or otherwise
disposes of all or substantially all of its assets to any Person, or any Person
consolidates with, or merges with or into, the Company or Falcon, as the case
may be, in any such event pursuant to a transaction in which the outstanding
Voting Stock of the Company or Falcon, as the case may be, is converted into or
exchanged for cash, securities or other property and, immediately after such
transaction, the Permitted Holders in the aggregate or the holders of the Voting
Stock of the Company or Falcon, as the case may be, immediately prior thereto
own, directly or indirectly, less than 35% of the total voting power of the
outstanding Voting Stock of the surviving or transferee Person and, in the case
of the Company (if the Company is then a partnership), any Person other than a
Permitted Holder is a managing general partner of the Company; (c) the sale,
lease or transfer, conveyance or other disposition (other than by way of a
merger, consolidation, liquidation or dissolution), in one or a series of
transactions, of all or substantially all of the assets of the Company and its
Subsidiaries, taken as a whole, to any "person" (as such term is used in Section
13(d)(e) of the Exchange Act) other than to one or more Permitted Holders, (e)
the first day on which the Company or any successor thereto pursuant to the
covenant under "Mergers" fails to own 100% of the issued and outstanding Capital
Stock of FFC, (f) during any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors of the Company or
Falcon, as the case may be (together with any new directors whose election to
such Board of Directors was approved by the Permitted Holders or by a vote of at
least a majority of the directors then still in office who were either directors
at the beginning of such period or whose election or nomination for election was
previously so approved), cease for any reason (other than by action of the
Permitted Holders) to constitute a majority of the Board of Directors of the
Company or Falcon, as the case may be, then in office in any such case in
connection with any actual or threatened solicitation of proxies or consents.
"Company" means FHGLP or any Person that is a successor to FHGLP pursuant
to, and in accordance with, the covenant set forth below under "Mergers."
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"Consolidated Interest Expense" means, with respect to any Person for any
period, the aggregate amount of interest in respect of Indebtedness (including
amortization of original issue discount on any Indebtedness and the interest
portion of any deferred payment obligation, calculated in accordance with the
effective interest method of accounting; all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing; and the net costs associated with Interest Rate Agreements, but
excluding interest and fees on any letter of credit, bond, performance bond,
performance guarantee or similar obligation incurred in connection with the
day-to-day operations of its business to secure the performance of a cable
television franchise, pole attachment agreement, lease or other similar
agreement incurred in the ordinary course of such business) and all but the
principal component of rentals in respect of Capitalized Lease Obligations paid,
accrued or scheduled to be paid or to be accrued by such Person and its
consolidated subsidiaries during such period, all as determined on a
consolidated basis in conformity with GAAP.
"Consolidated Net Tangible Assets" of any Person means, as of any date, (a)
all amounts that would be shown as assets on a consolidated balance sheet of
such Person and its Restricted Subsidiaries prepared in accordance with GAAP,
less (b) the amount thereof constituting goodwill and other intangible assets as
calculated in accordance with GAAP.
"Contribution Agreement" means that certain Contribution and Purchase
Agreement, dated as of December 30, 1997, by and among FHGLP, New Falcon,
Falcon, TCI Falcon Holdings, LLC, Belo Ventures, Inc. and the other parties that
are signatories thereto, as amended and in effect on the Issue Date.
"Cumulative Cash Flow Credit" means cumulative Operating Cash Flow during
the period commencing on the Issue Date and ending on the last day of the most
recent month preceding the date of the proposed Restricted Payment for which
financial information is available or, if cumulative Operating Cash Flow for
such period is negative, minus the amount by which cumulative Operating Cash
Flow is less than zero.
"Cumulative Interest Expense" means, for the period commencing on the Issue
Date and ending on the last day of the most recent month preceding the proposed
Restricted Payment for which financial information is available, the aggregate
of the interest expense of the Company and its Restricted Subsidiaries for such
period, determined on a consolidated basis in accordance with GAAP, including
interest expense attributable to Capitalized Lease Obligations.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the Commission thereunder.
"Fair Market Value" means, with respect to any asset, the price (after
taking into account any liabilities relating to such assets) which could be
negotiated in an arm's length free market transaction, for cash, between a
willing seller and a willing and able buyer, neither of which is under pressure
or compulsion to complete the transaction; PROVIDED, HOWEVER, that the Fair
Market Value of any such asset or assets shall be determined by the Board of
Directors of the Company, acting in good faith.
"Falcon" means Falcon Holding Group, Inc., a California corporation and the
managing general partner of FHGLP, and, as the context may require, its
successors and assigns.
"Falcon Investors Partnership" means the limited partnership, if any,
created by the partners of FHGLP under Section 7.8 of the Partnership Agreement
as in effect on the Issue Date.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including, without limitation,
those set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
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and pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation of such other Person (whether arising by virtue
of partnership arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Indebtedness or other obligation of the
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part); provided that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business or
obligations assuring the performance of an obligor in connection with a letter
of credit, bond, performance bond, performance guarantee or similar obligation
incurred in connection with the day-to-day operations of its business to secure
the performance of a cable television franchise, pole attachment agreement,
lease or other similar agreement incurred in the ordinary course of such
business. The term "Guarantee" used as a verb has a corresponding meaning.
"Incur" means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness;
provided that neither the accrual of interest (whether such interest is payable
in cash or kind) nor the accretion of original issue discount shall be
considered an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person, without duplication, (a)
debt of such Person for borrowed money, debt of such Person that represents the
deferred purchase price of property, and similar monetary obligations of such
Person that are evidenced by bonds, Debentures, debentures, or other instruments
and Capitalized Lease Obligations, but excluding liabilities or obligations with
respect to subscriber deposits, obligations under Interest Rate Agreements,
accrued interest, other accrued expenses, trade accounts payable, and other
similar items, (b) guarantees, endorsements, and other contingent obligations of
such Person, whether direct or indirect, in respect of liabilities of any other
Person of any of the types described in clause (a) above (other than
endorsements for collection or deposit in the ordinary course of business), and
(c) liabilities of any other Person of any of the types described in clause (a)
above to the extent secured by a Lien on any asset of such Person but, if such
liabilities are otherwise non-recourse to such Person, only to the extent of the
lesser of (x) the Fair Market Value of such asset at the time of determination
and (y) the amount of such liabilities; provided, however, that Indebtedness of
any Person shall not include liabilities or obligations arising under any letter
of credit, bond, performance bond, performance guarantee or similar obligation
securing the obligations of such Person under any cable television franchise,
pole attachment agreement, lease, or other similar agreement incurred in the
ordinary course of its business entered into in connection with the day-to-day
operations of such business.
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement or other similar agreement or arrangement designed
to protect the Company or any of its Restricted Subsidiaries against
fluctuations in interest rates.
"Investment" in any Person means any direct or indirect advance, loan or
other extension of credit (including, without limitation, by way of Guarantee or
similar arrangement; but excluding advances to customers, suppliers or
contractors in the ordinary course of business that are, in conformity with
GAAP, recorded as accounts receivable, prepaid expenses or deposits on the
balance sheet of the Company or its Restricted Subsidiaries) or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, bonds, Debentures, debentures or other
similar instruments issued by, such
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Person and shall include (i) the designation of a Restricted Subsidiary as an
Unrestricted Subsidiary and (ii) the Fair Market Value of the Capital Stock (or
any other Investment), held by the Company or any of its Restricted
Subsidiaries, of (or in) any Person that has ceased to be a Restricted
Subsidiary.
"Issue Date" means the date of original issuance of the Debentures under the
Indenture.
"Lien" means any lien, security interest, charge or encumbrance of any kind
(including any conditional sale or other title retention agreement, any lease in
the nature of a security interest and any agreement to give any security
interest). A Person shall be deemed to own subject to a lien any property which
such Person has acquired or holds subject to the interest of a vendor or lessor
under a conditional sale agreement, capital lease or other title retention
agreement.
"Nathanson Family Investors" means Marc B. Nathanson, Greg Nathanson (the
brother of Marc B. Nathanson), Liliane Vladimirschi (the sister-in-law of Marc
B. Nathanson), any of their respective spouses, estates, lineal descendants
(including adoptive children), heirs, executors, personal representatives,
administrators, trusts for any of their benefit, and charitable foundations to
which Voting Stock of the Company or any successor thereto beneficially owned by
any of the foregoing have been transferred and corporations and partnerships in
which one or more of the foregoing own more than 51% of the Voting Stock.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds of
such Asset Sale in the form of cash or Cash Equivalents, including payments in
respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or Cash Equivalents (except to the extent such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary) and proceeds
from the conversion of other property received when converted to cash or Cash
Equivalents, net of (i) brokerage commissions and other fees and expenses
(including fees and expenses of counsel and investment bankers) related to such
Asset Sale, (ii) provisions for all taxes (whether or not such taxes will
actually be paid or are payable), including without limitation, distributions by
the Company or a Restricted Subsidiary pursuant to clause (iv) of the third
paragraph set forth under the covenant "Limitation on Restricted Payments" below
as a result of such Asset Sale, without regard to the consolidated results of
operations of the Company and its Restricted Subsidiaries, taken as a whole,
(iii) payments made to repay Indebtedness or any other obligation outstanding at
the time of such Asset Sale that either (A) is secured by a Lien on the property
or assets sold or (B) is required to be paid as a result of such sale and (iv)
appropriate amounts to be provided by the Company or any Restricted Subsidiary
as a reserve against any liabilities associated with such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale, all as determined
in conformity with GAAP.
"New Credit Facility" means that certain revolving and term loan credit
facility, in an aggregate principal amount of $1.3 billion and the related
acquisition facility, in an aggregate principal amount of $200.0 million,
described in that certain Commitment Letter, dated as of March 12, 1998, among
FHGLP, BankBoston, N.A., NationsBank of Texas, N.A., Toronto Dominion (Texas)
Inc., Bank of America NT&SA, The Chase Manhattan Bank, BancBoston Securities,
Inc., NationsBanc Montgomery Securities, LLC, TD Securities (USA) Inc.,
BancAmerica Robertson Stephens and Chase Securities, Inc., including any
deferrals, renewals, extensions, restatements, replacements, refinancings,
restructurings or refundings thereof or amendments, modifications or supplements
thereto, and any agreement or agreements providing therefor, whether involving
one or members of the Restricted Group, whether by or with the same or any other
lender, creditor, group or groups of lenders or group or groups of creditors,
and including related Debentures, guarantee and security agreements and other
instruments and agreements executed in connection therewith.
"New Falcon" means Falcon Communications, L.P., a California limited
partnership.
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"New Falcon II" means Falcon Communications, LLC, a limited liability
company to which New Falcon will contribute substantially all of its assets
immediately following the consummation of the TCI Transaction.
"Notes" means the 11% Senior Subordinated Notes due 2003 of the Company.
"Notes Indenture" means the Indenture dated as of March 29, 1993, between
the Company and United States Trust Company of New York, as trustee, relating to
the Notes, as amended as of the Issue Date.
"Offer to Purchase" means an offer by the Company to purchase Debentures
from the Holders commenced by mailing a notice to the Trustee and each Holder
stating: (i) the covenant pursuant to which the offer is being made and that all
Debentures validly tendered will be accepted for payment on a pro rata basis;
(ii) the purchase price and the date of purchase (which shall be a Business Day
no earlier than 30 days nor later than 60 days from the date such notice is
mailed) (the "Payment Date"); (iii) that any Debenture not tendered will
continue to accrue interest pursuant to its terms; (iv) that, unless the Company
defaults in the payment of the purchase price, any Debenture accepted for
payment pursuant to the Offer to Purchase shall cease to accrue interest or
accrete Accreted Value, as appropriate, on and after the Payment Date; (v) that
Holders electing to have a Debenture purchased pursuant to the Offer to Purchase
will be required to surrender the Debenture, together with the form entitled
"Option of the Holder to Elect Purchase" on the reverse side of the Debenture
completed, to the Paying Agent at the address specified in the notice prior to
the close of business on the Business Day immediately preceding the Payment
Date; (vi) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the third
Business Day immediately preceding the Payment Date, a telegram, facsimile
transmission or letter setting forth the name of such Holder, the principal
amount of Debentures delivered for purchase and a statement that such Holder is
withdrawing his election to have such Debentures purchased; and (vii) that
Holders whose Debentures are being purchased only in part will be issued new
Debentures equal in principal amount or Accreted Value, as applicable, to the
principal amount or Accreted Value, as applicable, of the unpurchased portion of
the Debentures surrendered; PROVIDED that each Debenture purchased and each new
Debenture issued shall be in a principal amount of $1,000 or integral multiples
thereof. On the Payment Date, the Company shall (i) accept for payment on a pro
rata basis Debentures or portions thereof tendered pursuant to an Offer to
Purchase; (ii) deposit with the Paying Agent money sufficient to pay the
purchase price of all Debentures or portions thereof so accepted; and (iii)
deliver, or cause to be delivered, to the Trustee all Debentures or portions
thereof so accepted together with an Officers' Certificate specifying the
Debentures or portions thereof accepted for payment by the Company. The Paying
Agent shall promptly mail to the Holders of Debentures so accepted payment in an
amount equal to the purchase price, and the Trustee shall promptly authenticate
and mail to such Holders a new Debenture equal in principal amount to any
unpurchased portion of the Debenture surrendered; PROVIDED that each Debenture
purchased and each new Debenture issued shall be in a principal amount of $1,000
or integral multiples thereof. The Trustee shall act as the Paying Agent for an
Offer to Purchase. The Company will comply with Rule 14e-1 under the Exchange
Act and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable, in the event that the Company is required
to repurchase Debentures pursuant to an Offer to Purchase.
"Operating Cash Flow" means, for any Person, for any period, an amount equal
to (i) the net income (or loss) of such Person (exclusive of any extraordinary
gain or loss and of any gain or loss realized in such period upon an Asset
Disposition), plus (ii) the sum of depreciation, amortization, income tax
expense, Consolidated Interest Expense and other non-cash charges, in each case
to the extent deducted in determining such net income, and any one-time payments
under deferred compensation plans or arrangements (PROVIDED that such payments
are not made under such plans or arrangements more than three times), minus
(iii) all non-cash items increasing such net income for such period, all as
determined on a consolidated basis in accordance with GAAP consistently applied,
except that with respect to the Restricted Group, each of the foregoing shall be
determined on a consolidated basis with respect to the
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Company and its Restricted Subsidiaries only; PROVIDED, HOWEVER, that (A) the
portion of net income (or loss) attributable to minority interests in Persons
shall be included in such net income (or loss) only to the extent that cash
dividends or distributions have actually been received by such Person or one of
its Restricted Subsidiaries and (B) the net income (or loss) of the Company
shall include the amount of all cash dividends received by the Company or any of
its Restricted Subsidiaries from an Unrestricted Subsidiary.
"Partnership Agreement" means the Third Amended and Restated Agreement of
Limited Partnership of the Company, dated as of December 28, 1995, as amended
and in effect as of the Issue Date.
"Permitted Holders" means any of (a) Falcon for so long as a majority of the
voting power of the voting Capital Stock of such Person is beneficially owned by
any of the Persons listed in the other clauses of this definition, (b) any
Nathanson Family Investor, (c) TCI and TCI Communications, Inc., a Delaware
corporation, (d) any Person in which TCI is the owner, directly or indirectly,
of at least 25% of the outstanding equity of such Person, and (e) any Person
controlling, controlled by or under common control with any other Person
described in clauses (a)-(d) of this definition; provided, that for purposes of
calculating the amount of Voting Stock in any Person held by Permitted Holders,
Voting Stock held by directors and executive officers of Falcon shall be deemed
to be held by Permitted Holders.
"Permitted Investments" means (a) Cash Equivalents, (b) Investments in
prepaid expenses, negotiable instruments held for collection and lease, utility
and workers' compensation, performance and other similar deposits, (c) loans and
advances to employees made in the ordinary course of business not to exceed
$10.0 million in the aggregate at any one time outstanding, (d) Interest Rate
Agreements, (e) transactions with officers, directors and employees of the
Company, Falcon or any Restricted Subsidiary entered into in the ordinary course
of business (including compensation or employee benefit arrangements with any
such director or employee), (f) Investments existing as of the Issue Date and
any amendment, extension, renewal or modification thereof to the extent that any
such amendment, extension, renewal or modification does not require the Company
or any Restricted Subsidiary to make any additional cash or non-cash payments or
provide additional services in connection therewith, (g) Investments in any
Restricted Subsidiary and (h) the deposit of proceeds from an asset sale or
other disposition with a "qualified intermediary," "qualified trustee" or
similar person for purposes of facilitating a like kind exchange under
applicable provisions of the Internal Revenue Code of 1986, as amended.
"Permitted Liens" means the following types of Liens:
(a) Liens existing on the Issue Date;
(b) Liens on shares of the capital stock of an entity that is not a
Restricted Subsidiary, which Liens solely secure a guarantee by the Company
or a Restricted Subsidiary, or both, of Indebtedness of such entity;
(c) Liens on Receivables and Related Assets (and proceeds thereof)
securing only Indebtedness otherwise permitted to be incurred by a
Restricted Subsidiary;
(d) Liens on shares of the Capital Stock or assets of a Subsidiary of
the Company securing Indebtedness under the Bank Credit Agreement, the New
Credit Facility or any renewal, replacement or restructuring of the Bank
Credit Agreement or New Credit Facility or with respect to any other
Indebtedness that a Subsidiary is permitted to incur pursuant to the
provisions of the Indenture;
(e) Liens granted in favor of the Company or any Restricted Subsidiary;
(f) Liens securing the Debentures;
(g) Liens securing Acquired Indebtedness created prior to (and not in
connection with or in contemplation of) the incurrence of such Indebtedness
by the Company or a Restricted Subsidiary; PROVIDED, that such Lien does not
extend to any property or assets of the Company or any Restricted
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Subsidiary other than the assets acquired in connection with the incurrence
of such Acquired Indebtedness;
(h) Liens securing obligations under Interest Rate Agreements or "margin
stock", as defined in Regulations G and U of the Board of Governors of the
Federal Reserve System;
(i) Statutory Liens of landlords and carriers, warehousemen, mechanics,
suppliers, materialmen, repairmen or other like Liens arising in the
ordinary course of business of the Company or any Restricted Subsidiary and
with respect to amounts not yet delinquent or being contested in good faith
by appropriate proceedings;
(j) Liens of taxes, assessments, government charges or claims not yet
due or that are being contested in good faith by appropriate proceedings;
(k) Zoning restrictions, easements, rights-of-way, restrictions under
cable television franchises or other governmental licenses or
authorizations, restrictions and other similar charges or encumbrances or
minor defects in title not interfering in any material respect with the
business of the Company or any Restricted Subsidiary;
(l) Liens arising by reason of any judgment, decree or order of any
court, arbitral tribunal or similar entity so long as any appropriate legal
proceedings that may have been initiated for the review of such judgment,
decree or order shall not have been finally terminated or the period within
which such proceedings may be initiated shall not have expired;
(m) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security or similar legislation;
(n) Liens securing the performance of bids, tenders, leases, contracts,
franchises, public or statutory obligations, surety, stay or appeal bonds,
or other similar obligations arising in the ordinary course of business;
(o) Leases under which the Company or any Restricted Subsidiary is the
lessee or the lessor in the ordinary course of business;
(p) Purchase money mortgages or other purchase money liens (including
without limitation any Capitalized Lease Obligations) upon any fixed or
capital assets acquired after the Issue Date or purchase money mortgages
(including without limitation Capitalized Lease Obligations) on any such
assets, whether or not assumed, existing at the time of acquisition of such
assets, whether or not assumed, so long as (i) such mortgage or lien does
not extend to or cover any other asset of the Company or any Restricted
Subsidiary and (ii) such mortgage or lien secures the obligation to pay the
purchase price of such asset, interest thereon and other charges incurred in
connection therewith (or the obligation under such Capitalized Lease
Obligation) only;
(q) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to
such letters of credit and products and proceeds thereof;
(r) Liens encumbering deposits made to secure obligations arising under
statutory, regulatory, contractual, or warranty requirements of the Company
or any of its Restricted Subsidiaries, including rights of offset and
set-off;
(s) Liens to secure other Indebtedness; PROVIDED, HOWEVER, that the
principal amount of any Indebtedness secured by such Liens, together with
the principal amount of any Indebtedness incurred under this clause (s) as
permitted by clause (t) below (and successive refinancings thereof), may not
exceed 15% of the Company's Consolidated Net Tangible Assets as of the last
day of the Company's most recently completed fiscal year for which financial
information is available; and
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(t) any extension, renewal or replacement, in whole or in part, of any
Lien described in the foregoing clauses (a) through (s); provided that any
such extension, renewal or replacement shall be no more restrictive in any
material respect than the Lien so extended, renewed or replaced and shall
not extend to any additional property or assets.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, limited liability company, limited liability
partnership, trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Purchase Money Indebtedness" means Indebtedness of the Company or any
Restricted Subsidiary Incurred for the purpose of financing all or any part of
the purchase price or the cost of construction or improvement of any property,
provided that the aggregate principal amount of such Indebtedness does not
exceed the lesser of the Fair Market Value of such property or such purchase
price or cost.
"Receivables and Related Assets" means (i) accounts receivable, instruments,
chattel paper, obligations, general intangibles, equipment and other similar
assets, including interests in merchandise or goods, the sale or lease of which
gives rise to the foregoing, related contractual rights, guarantees, insurance
proceeds, collections and other related assets, (ii) equipment, (iii) inventory
and (iv) proceeds of all of the foregoing.
"Redeemable Capital Stock" means any class or series of Capital Stock of any
Person that, either by its terms, by the terms of any security into which it is
convertible or exchangeable or otherwise, is or upon the happening of an event
or passage of time would be, required to be redeemed (in whole or in part) prior
to the Stated Maturity of the Debentures or is redeemable (in whole or in part)
at the option of the holder thereof at any time prior to the Stated Maturity of
the Debentures.
"Restricted Group" means, collectively, the Company and its Restricted
Subsidiaries.
"Restricted Payment" means (subject to the provisions of the covenant set
forth in "Covenants-- Limitation on Restricted Payments"):
(a) any Stock Payment by the Company or any Restricted Subsidiary;
(b) any direct or indirect payment to redeem, purchase, defease or otherwise
acquire or retire for value, or permit any Restricted Subsidiary to
redeem, purchase, defease or otherwise acquire or retire for value, prior
to any scheduled maturity, scheduled repayment or scheduled sinking fund
payment, any Indebtedness of the Company that is subordinate in right of
payment to the Debentures; or
(c) any direct or indirect payment to redeem, purchase, defease or otherwise
acquire or retire for value any Redeemable Capital Stock at its mandatory
redemption date or other maturity date; PROVIDED, HOWEVER, that the
redemption, purchase, defeasance or other acquisition or retirement of
Redeemable Capital Stock at its mandatory redemption or other maturity
date shall not be a Restricted Payment if and to the extent any
Indebtedness incurred to finance all or a portion of the purchase or
redemption price does not have a final scheduled maturity date, or permit
redemption at the option of the holder thereof, earlier than the final
scheduled maturity of such Debenture.
Notwithstanding the foregoing, Restricted Payments shall not include (x)
payments by any Restricted Subsidiary to the Company or any other Restricted
Subsidiary or (y) any Investment or designation of a Restricted Subsidiary as an
Unrestricted Subsidiary permitted under the covenant set forth in
"Covenants--Limitation on Investments in Unrestricted Subsidiaries and
Affiliates."
"Restricted Subsidiary" means any subsidiary of the Company which is not
designated an Unrestricted Subsidiary.
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"Significant Subsidiary" means, at any date of determination, any Restricted
Subsidiary that, together with its Subsidiaries, (i) for the most recent fiscal
year of the Company, accounted for more than 10% of the consolidated revenues of
the Company and its Restricted Subsidiaries or (ii) as of the end of such fiscal
year, was the owner of more than 10% of the consolidated assets of the Company
and its Restricted Subsidiaries, all as set forth on the most recently available
consolidated financial statements of the Company for such fiscal year.
"Stated Maturity," when used with respect to any Debenture or any
installment of interest thereon, as the context may require, means the date
specified in such Debenture as the fixed date on which the principal of such
Debenture or such installment of interest, as the context may require, is due
and payable.
"Stock Payment" means, with respect to any Person, the payment or
declaration of any dividend, either in cash or in property (except dividends
payable in shares of Capital Stock of such Person (other than Redeemable Capital
Stock)), or the making by such Person of any other distribution, on account of
any shares of any class of its Capital Stock, now or hereafter outstanding, or
the redemption, purchase, retirement or other acquisition for value by such
Person, directly or indirectly, of any shares of any class of its Capital Stock
or any direct or indirect parent of such Person, now or hereafter outstanding.
"Subsidiary" means, with respect to any Person, any corporation more than
50% of the voting stock of which is owned directly or indirectly by such Person,
and any partnership, limited liability company, limited liability partnership,
association, joint venture or other entity in which such Person owns more than
50% of the voting equity interests or has the power to elect a majority of the
Board of Directors or other governing body; PROVIDED that a partnership of which
the Company or any of its Subsidiaries is the managing general partner shall be
deemed to be a Subsidiary of the Company.
"Tax Amount" means, with respect to any period, without duplication, the
increase in the cumulative United States federal, state and local tax liability
of holders of equity interests in the Company or a Restricted Subsidiary, as
applicable (or, if such holder is a pass-through entity for United States income
tax purposes, holders of its equity interests) in respect of their interests in
the Company or such Restricted Subsidiary for such period plus any additional
amounts payable to such holders to cover taxes arising from ownership of such
equity interests, but excluding any increase in tax liability or additional
amounts payable in respect of a gain realized by a partner in the Company or a
Restricted Subsidiary upon the sale or other disposition by such partner of any
of its partnership interests, including, without limitation, any redemption
thereof by the Company, in the Company or a Restricted Subsidiary.
"TCI" means Tele-Communications, Inc., a Delaware corporation.
"TCI Contribution" means the closing of the contribution by TCI Falcon
Holdings, LLC to New Falcon, substantially in accordance with the Contribution
Agreement, of cable television systems serving at least 230,000 basic
subscribers.
"TCI Transaction" means the transactions defined as the "TCI Transaction" in
the Prospectus dated as of March 31, 1998, of the Issuers, with respect to the
Debentures.
"Temporary Cash Investment" means any of the following: (i) direct
obligations of the United States of America or any agency thereof or obligations
fully and unconditionally guaranteed by the United States of America or any
agency thereof, (ii) time deposit accounts, certificates of deposit and money
market deposits maturing within one year of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States of America, and which bank or trust company has capital,
surplus and undivided profits aggregating in excess of $50.0 million (or the
foreign currency equivalent thereof) and has outstanding debt which is rated "A"
(or such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund sponsored by a registered broker dealer
or mutual fund distributor, (iii) repurchase obligations with a term of not more
than 30 days for underlying securities of the types
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described in clause (i) above entered into with a bank meeting the
qualifications described in clause (ii) above, (iv) commercial paper, maturing
not more than one year after the date of acquisition, issued by a corporation
(other than an Affiliate of the Company) organized and in existence under the
laws of the United States of America, any state thereof or any foreign country
recognized by the United States of America with a rating at the time as of which
any investment therein is made of "P-1" (or higher) according to Moody's
Investors Service, Inc. or "A-1" (or higher) according to Standard & Poor's
Rating Services, (v) securities with maturities of one year or less from the
date of acquisition issued or fully and unconditionally guaranteed by any state,
commonwealth or territory of the United States of America, or by any political
subdivision or taxing authority thereof, and rated at least "A" by to Standard &
Poor's Rating Services or Moody's Investors Service, Inc. and (vi) other dollar
denominated securities issued by any Person incorporated in the United States
rated at least "A" or the equivalent by to Standard & Poor's Rating Services or
at least "A2" or the equivalent by Moody's Investors Service, Inc. and in each
case either (A) maturing not more than one year after the date of acquisition or
(B) which are subject to a repricing arrangement (such as a Dutch auction) not
more than one year after the date of acquisition (and reprices at least yearly
thereafter) which the Person making the investment believes in good faith will
permit such Person to sell such security at par in connection with such
repricing mechanism.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly organized Subsidiary of the
Company) to be an Unrestricted Subsidiary unless such Subsidiary owns any
Capital Stock of, or owns or holds any Lien on any property of, the Company or
any Restricted Subsidiary; PROVIDED that such designation would be permitted
under the covenant described under "Covenants--Limitation on Investments in
Unrestricted Subsidiaries and Affiliates." The Board of Directors may designate
any Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED that
immediately after giving effect to such designation (x) the Company could incur
$1.00 of additional Indebtedness under the first paragraph of the covenant
described under "Covenants--Limitation on Indebtedness" below and (y) no Default
or Event of Default shall have occurred and be continuing or shall result as a
consequence thereof. Any such designation by the Company shall be evidenced to
the Trustee by promptly filing with the Trustee a copy of the resolution giving
effect to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing provisions. Notwithstanding the above,
as of the Issue Date, each of the following shall be an "Unrestricted
Subsidiary": (i) Enstar Communications Corporation and its Subsidiaries, (ii)
Enstar Finance Company, LLC and its Subsidiaries, (iii) Falcon Lake Las Vegas
Cablevision, L.P. and its Subsidiaries, (iv) Falcon Video Communications, L.P.
and its Subsidiaries and (v) Falcon/Capital Cable and its Subsidiaries.
"Voting Stock" means, with respect to any Person, Capital Stock of any class
or kind ordinarily having the power to vote for the election of directors,
managers or other members of the governing body of such Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person, the
ownership of all of the outstanding Capital Stock of such Subsidiary (other than
any director's qualifying shares or Investments by foreign nationals mandated by
applicable law) by such Person or one or more Wholly Owned Subsidiaries of such
Person.
COVENANTS
LIMITATION ON INDEBTEDNESS
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to Incur any Indebtedness unless, immediately thereafter and after
giving effect thereto, the Cash Flow Ratio of the Restricted Group will be less
than or equal to 9 to 1.
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Notwithstanding the foregoing limitations, regardless of the amount of
Indebtedness of the Restricted Group, the Company and any Restricted Subsidiary
may Incur each and all of the following (collectively, "Permitted
Indebtedness"):
(i) Indebtedness under the Debentures;
(ii) Indebtedness of the Company and its Restricted Subsidiaries
outstanding on the Issue Date; PROVIDED that the Debentures shall not be
permitted to be outstanding pursuant to this subparagraph (ii) at any time
after October 14, 1998;
(iii) Indebtedness of the Company and its Restricted Subsidiaries under
the Bank Credit Agreement or the New Credit Facility in an aggregate
principal amount at any one time outstanding, including all Indebtedness
incurred to refinance or replace any Indebtedness incurred pursuant to this
subparagraph (iii), not to exceed $1.5 billion, less (x) the aggregate
amount of all permanent principal repayments, optional or mandatory, made
from time to time after the date of the Indenture with respect to such
Indebtedness (other than repayments made in connection with a refinancing
thereof); PROVIDED, HOWEVER, that the maximum principal amount of
Indebtedness that may be outstanding under the Bank Credit Agreement or the
New Credit Facility pursuant to this subparagraph (iii) may be increased
pursuant to the incurrence of Indebtedness thereunder for the purposes and
subject to the maximum amounts and other limitations set forth in
subparagraph (ix) of this paragraph; PROVIDED that for any amount of such
Indebtedness incurred under this subparagraph (iii), the amount of
Indebtedness permitted to be incurred under paragraph (ix) will be
correspondingly decreased;
(iv) Indebtedness owed by the Company to any Restricted Subsidiary (but
only so long as such Indebtedness is held by such Restricted Subsidiary) and
Indebtedness owed by any Restricted Subsidiary to the Company or any other
Restricted Subsidiary (but only so long as such Indebtedness is held by the
Company or such other Restricted Subsidiary);
(v) Any guarantee of Indebtedness of the Company by any Restricted
Subsidiary permitted by the covenant set forth below under "--Limitation on
Issuances of Guarantees by Restricted Subsidiaries;"
(vi) Indebtedness the net proceeds of which are used to refinance
outstanding Indebtedness incurred under subparagraphs (ii), (vii) and (ix)
of this paragraph in an amount (or, if such new Indebtedness provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration thereof, with an original issue price) not to
exceed the amount so refinanced (plus premiums, accrued interest, fees and
expenses); PROVIDED that Indebtedness the proceeds of which are used to
refinance the Debentures or Indebtedness that is PARI PASSU with, or
subordinated in right of payment to, the Debentures will be permitted under
this clause (vii) only if (A) in case the Debentures are refinanced in part
or other Indebtedness that is PARI PASSU with the Debentures is refinanced,
such new Indebtedness, by its terms or by the terms of any agreement or
instrument pursuant to which such Indebtedness is issued, is expressly made
PARI PASSU with, or subordinate in right of payment to, the remaining
Debentures, (B) in case the Indebtedness to be refinanced is subordinated in
right of payment to the Debentures, such Indebtedness, by its terms or by
the terms of any agreement or instrument pursuant to which such Indebtedness
is issued or remains outstanding, is expressly made subordinate in right of
payment to the Debentures at least to the extent that the Indebtedness to be
refinanced is subordinated to the Debentures and (C) such new Indebtedness,
determined as of the date of the Incurrence of such new Indebtedness, does
not mature prior to the Stated Maturity of the Indebtedness to be refinanced
and the Average Life of such new Indebtedness is equal to or greater than
the sum of the remaining Average Life of the Indebtedness to be refinanced;
PROVIDED, FURTHER, that in no event may Indebtedness of the Company that is
PARI PASSU with, or subordinated in right of payment to, the Debentures be
refinanced by means of Indebtedness of any Restricted Subsidiary pursuant to
this clause (vi); PROVIDED, that the foregoing shall not limit the
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ability of the Company to conduct a tender offer or redeem the Debentures
with the proceeds of the Bank Credit Agreement or the New Credit Facility;
(vii) Indebtedness of the Company or any of its Restricted Subsidiaries
under Purchase Money Indebtedness or Capitalized Lease Obligations in an
aggregate amount outstanding at any time of not more than $25.0 million; and
(viii) in addition to the items referred to in clauses (i) through (vii)
above, Indebtedness of the Company or any Restricted Subsidiary in an
aggregate amount not to exceed two times the aggregate net cash proceeds to
the Company from the issuance of any Capital Stock of the Company (other
than Redeemable Capital Stock) after the Issue Date; PROVIDED that the
amount of such net cash proceeds with respect to which Indebtedness is
incurred pursuant to this subparagraph (viii) shall not be deemed net cash
proceeds from the issue and sale of Capital Stock for purposes of
subparagraph (iii) of the first paragraph of the covenant under
"--Limitation on Restricted Payments"; and
(ix) in addition to the items referred to in clauses (i) through (viii)
above, Indebtedness of the Company or any of its Restricted Subsidiaries in
an aggregate principal amount not to exceed $25.0 million at any time
outstanding.
Indebtedness specified in clauses (iv), (v) and (vii) shall not under any
circumstances be included in Indebtedness in the application of the covenant
described in the first paragraph of the covenant under "--Limitation on
Indebtedness."
(b) For purposes of determining compliance with this "Limitation on
Indebtedness" covenant, in the event that an item of Indebtedness meets the
criteria of more than one of the types of Indebtedness described in clause (a)
above, the Issuers, in their sole discretion, shall classify, and from time to
time may reclassify, such item of Indebtedness and only be required to include
the amount and type of such Indebtedness in one of such clauses.
LIMITATION ON RESTRICTED PAYMENTS
The Company will not, and will not permit any of its Restricted Subsidiaries
to, make any Restricted Payment if (a) at the time of such proposed Restricted
Payment, a Default or Event of Default shall have occurred and be continuing or
shall occur as a consequence of such Restricted Payment or (b) immediately after
giving effect to such Restricted Payment, the aggregate of all Restricted
Payments that shall have been made on or after the Issue Date would exceed the
sum of (without duplication):
(i) $25.0 million, plus
(ii) an amount equal to the difference between (A) the Cumulative Cash
Flow Credit and (B) 1.2 multiplied by Cumulative Interest Expense, plus
(iii) 100% of the aggregate net cash proceeds and 70% of the Fair Market
Value of the aggregate non-cash net proceeds received by the Company either
(x) as capital contributions to the Company after the Issue Date or (y) from
the issue and sale (other than to a Restricted Subsidiary) of, or from the
exercise of any options, warrants or other rights to acquire its, Capital
Stock (other than Redeemable Capital Stock and other than net proceeds from
the issue and sale of Capital Stock with respect to which Indebtedness is
incurred pursuant to subparagraph (viii) of the covenant under "--Limitation
on Indebtedness" after the Issue Date), plus
(iv) 100% of the aggregate net cash proceeds and 70% of the Fair Market
Value of the aggregate non-cash net proceeds received by the Company or any
Restricted Subsidiary after the Issue Date from the Incurrence of
Indebtedness that has been converted into or exchanged for Capital Stock of
the Company (other than Redeemable Capital Stock).
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If the Company or any Restricted Subsidiary makes a Restricted Payment
which, at the time of the making of such Restricted Payment, would in the good
faith determination of the Company be permitted under the requirements of this
covenant, such Restricted Payment shall be deemed to have been made in
compliance with this covenant notwithstanding any subsequent adjustments made in
good faith to the Company's financial statements affecting Cumulative Cash Flow
Credit or Cumulative Interest Expense for any period.
The foregoing provisions shall not prohibit:
(i) the repurchase, redemption or other acquisition of Capital Stock of
the Company, or the acquisition of Indebtedness of the Company that is
subordinated in right of payment to the Debentures, in each case, in
exchange for, or out of the net cash proceeds of a substantially concurrent
offering (other than to a Restricted Subsidiary) of, Capital Stock of the
Company (other than Redeemable Capital Stock); PROVIDED that the amount of
any such net cash proceeds that are utilized for any such repurchase,
redemption or other acquisition shall be excluded from clause (iii) of the
first paragraph of this covenant;
(ii) the payment of any dividend or distribution on, or redemption of,
Capital Stock within 60 days after the date of declaration of such dividend
or distribution or the giving of formal notice of such redemption if, at the
date of such declaration or giving of such formal notice, such payment or
redemption would comply with the foregoing provisions;
(iii) the redemption, repurchase, defeasance or other acquisition or
retirement for value of the Debentures with the proceeds of Indebtedness
Incurred in compliance with the covenant described under "--Limitation on
Indebtedness" above;
(iv) for so long as the Company or any Restricted Subsidiary is treated
as a pass-through entity for United States federal income tax purposes,
distributions to equity holders of the Company or any Restricted Subsidiary
in an amount not to exceed the Tax Amount for such period;
(v) the redemption, repurchase, defeasance or other acquisition or
retirement for value of Indebtedness that is subordinated in right of
payment to the Debentures, including premium, if any, and accrued and unpaid
interest, with the proceeds of Indebtedness Incurred under clause (vi) of
the second paragraph of the covenant described under "--Limitation on
Indebtedness" above;
(vi) any payment or distribution made by the Company or any Restricted
Subsidiary in order to purchase, or fund the purchase by the Falcon
Investors Partnership, if any, of the interests in the Capital Stock of the
Company or the Falcon Investors Partnership, if any, held by any of the
Group I Partners, the Group II Partners, the Group III Partners or the Group
IV Partner (as such terms are defined in the Partnership Agreement as in
effect on the Issue Date) pursuant to the provisions of Article 15 of the
Partnership Agreement (or pursuant to such modifications to such provisions
as may be agreed to by the Company, the Falcon Investors Partnership, the
Group I Partners, the Group II Partners, the Group III Partners or the Group
IV Partner; PROVIDED no such modification shall result in such payment or
distribution being made in either a larger amount or at an earlier date than
as provided for in Article 15 of the Partnership Agreement as in effect on
the Issue Date);
(vii) any purchase, redemption, acquisition, cancellation or other
retirement for value of Capital Stock of the Company or any Restricted
Subsidiary or any other transaction that is undertaken in connection with
the consummation of the TCI Transaction and the other transactions
contemplated under the Contribution Agreement;
(viii) the purchase, redemption, acquisition, cancellation or other
retirement for value of Capital Stock of the Company, options on any such
Capital Stock or related equity appreciation rights or similar securities
held by officers or employees or former officers or employees of the
Company, any Restricted Subsidiary (or their estates or beneficiaries under
their estates), upon death, disability,
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retirement or termination of employment; PROVIDED that the aggregate
consideration paid for such purchase, redemption, acquisition, cancellation
or other retirement after the Issue Date does not in any one fiscal year of
the Company exceed an aggregate amount of $7.5 million;
(ix) the payment of any dividend or distribution on Capital Stock of a
Restricted Subsidiary out of such Restricted Subsidiary's net income from
the Issue Date to Persons other than the Company or a Restricted Subsidiary;
PROVIDED that such dividend or distribution is paid pro rata to all holders
of such Capital Stock;
(x) any payment or distribution made by the Company or any Restricted
Subsidiary in order to purchase or fund the purchase by the Company of the
interests in the Capital Stock of FHGLP held by the non-management partners
in FHGLP (including the partnership interest held by Belo Ventures, Inc.)
pursuant to the provisions of Article 9 of the New FHGLP Partnership
Agreement (or pursuant to such modifications to such provisions as may be
agreed to by the Company, New Falcon or such non-management partners;
PROVIDED no such modification shall result in such payment or distribution
being made in either a larger amount or at an earlier date than as provided
in Article 9 of the New FHGLP Partnership Agreement as in effect on the
Issue Date); and
(xi) the distribution under the FHGLP 1993 Incentive Performance Plan,
as amended, of amounts in connection with the TCI Transaction.
PROVIDED, that in the case of each of clauses (i) through (xi), no Default or
Event of Default shall have occurred and be continuing or shall occur as a
consequence thereof. In determining the amount of Restricted Payments
permissible under this covenant, the amounts expended pursuant to subparagraphs
(ii), (v), (viii) and (ix) of the immediately preceding paragraph shall be
included as Restricted Payments. The amount of any non-cash Restricted Payment
shall be deemed to be equal to the Fair Market Value thereof at the date of the
making of such Restricted Payment.
LIMITATION ON INVESTMENTS IN UNRESTRICTED SUBSIDIARIES AND AFFILIATES
The Company shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, (i) make any Investment (other than Permitted
Investments) or (ii) allow any Restricted Subsidiary to become an Unrestricted
Subsidiary (a "redesignation of a Restricted Subsidiary"), in each case unless
(a) no Default or Event of Default shall have occurred and be continuing or
shall occur as a consequence of such Investment or such redesignation of a
Restricted Subsidiary and (b) after giving effect thereto, the Cash Flow Ratio
shall be less than or equal to 9 to 1. The foregoing provisions of this covenant
shall not prohibit (i) any renewal or reclassification of any Investment
existing on the Issue Date or (ii) trade credit extended on usual and customary
terms in the ordinary course of business.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES
The Company will not, and will not permit any Restricted Subsidiary to,
create or otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions permitted by
applicable law on any Capital Stock of such Restricted Subsidiary owned by the
Company or any other Restricted Subsidiary, (ii) pay any Indebtedness owed to
the Company or any other Restricted Subsidiary, (iii) make loans or advances to
the Company or any other Restricted Subsidiary or (iv) transfer any of its
property or assets to the Company or any other Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions: (i) existing on the Issue Date in the Bank Credit Agreement, the
Indenture or any other agreements in effect on the Issue Date, and any
modifications, extensions, refinancings, renewals, restructurings, substitutions
or replacements of such agreements; PROVIDED that the encumbrances and
restrictions in any such modifications, extensions, refinancings, renewals,
restructurings, substitutions or replacements (a) do not prevent the Company or
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any of its Restricted Subsidiaries from paying interest on the Debentures and
(b) will be no more restrictive in any material respect than encumbrances and
restrictions which could be obtained by a Person comparable to the Company or
such Restricted Subsidiary under then prevailing market conditions; or (ii)
existing under or by reason of applicable law; (iii) existing with respect to
any Person or the property or assets of such Person acquired by the Company or
any Restricted Subsidiary, existing at the time of such acquisition and not
incurred in contemplation thereof, which encumbrances or restrictions are not
applicable to any Person or the property or assets of any Person other than such
Person or the property or assets of such Person so acquired; (iv) in the case of
clause (iv) of the first paragraph of this "Limitation on Dividend and Other
Payment Restrictions Affecting Restricted Subsidiaries" covenant, (A) that
restrict in a customary manner the subletting, assignment or transfer of any
property or asset that (1) is a lease, license, conveyance or contract or
similar property or asset or (2) is a cable television franchise or other
governmental license or authorization, (B) existing by virtue of any transfer
of, agreement to transfer, option or right with respect to, or Lien on, any
property or assets of the Company or any Restricted Subsidiary not otherwise
prohibited by the Indenture or (C) arising or agreed to in the ordinary course
of business, not relating to any Indebtedness, and that do not, individually or
in the aggregate, detract from the value of property or assets of the Company or
any Restricted Subsidiary in any manner material to the Company or any
Restricted Subsidiary; (v) with respect to the Company or a Restricted
Subsidiary and imposed pursuant to an agreement that has been entered into for
the sale or disposition of all or substantially all of the Capital Stock of, or
property and assets of, the Company or such Restricted Subsidiary; or (vi)
contained in the terms of any Indebtedness or any agreement pursuant to which
such Indebtedness was issued if (A) the encumbrance or restriction applies only
in the event of a payment default or a default with respect to a financial
covenant contained in such Indebtedness or agreement, (B) the encumbrance or
restriction is not materially more disadvantageous to the Holders than is
customary in comparable financings (as determined by the Company) and (C) the
Company determines that any such encumbrance or restriction will not materially
affect the Company's ability to make principal or interest payments on the
Debentures. Nothing contained in this "Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries" covenant shall prevent the
Company or any Restricted Subsidiary from (1) creating, incurring, assuming or
suffering to exist any Liens otherwise permitted in the "Limitation on Liens"
covenant or (2) restricting the sale or other disposition of property or assets
of the Company or any of its Restricted Subsidiaries that secure Indebtedness of
the Company or any of its Restricted Subsidiaries.
LIMITATION ON ISSUANCES OF GUARANTEES BY RESTRICTED SUBSIDIARIES
The Company will not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee any Indebtedness of the Company which is PARI PASSU
with or subordinate in right of payment to the Debentures ("Guaranteed
Indebtedness"), unless (i) such Restricted Subsidiary simultaneously executes
and delivers a supplemental indenture to the Indenture providing for a Guarantee
(a "Subsidiary Guarantee") of payment of the Debentures by such Restricted
Subsidiary and (ii) such Restricted Subsidiary waives and will not in any manner
whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against the Company
or any other Restricted Subsidiary as a result of any payment by such Restricted
Subsidiary under its Subsidiary Guarantee; PROVIDED that this paragraph shall
not be applicable to any Guarantee of any Restricted Subsidiary that existed at
the time such Person became a Restricted Subsidiary and was not Incurred in
connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary. If the Guaranteed Indebtedness is (A) PARI PASSU with the
Debentures, then the Guarantee of such Guaranteed Indebtedness shall be PARI
PASSU with, or subordinated to, the Subsidiary Guarantee or (B) subordinated to
the Debentures, then the Guarantee of such Guaranteed Indebtedness shall be
subordinated to the Subsidiary Guarantee at least to the extent that the
Guaranteed Indebtedness is subordinated to the Debentures.
Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary may provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale,
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exchange or transfer, to any Person not an Affiliate of the Company, of all of
the Company's and each Restricted Subsidiary's Capital Stock in, or all or
substantially all the assets of, such Restricted Subsidiary (which sale,
exchange or transfer is not prohibited by the Indenture) or (ii) the release or
discharge of the Guarantee which resulted in the creation of such Subsidiary
Guarantee, except a discharge or release by or as a result of payment under such
Guarantee.
TENDER AND REDEMPTION OF THE NOTES
FHGLP will, as promptly as reasonably practicable, but in any event within
45 days after the Issue Date, offer to each holder of Notes to purchase all of
the outstanding Notes held by such holder. In addition, prior to October 15,
1998, the Company will redeem any Notes outstanding on such date in accordance
with the provisions of the Notes Indenture.
TRANSACTIONS WITH AFFILIATES
The Company will not, and will not permit any of its Restricted Subsidiaries
to, sell, lease, transfer or otherwise dispose of any of its properties or
assets to or purchase any property or assets from, or enter into any contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, an Affiliate of the Company that is not a Restricted Subsidiary (each of the
foregoing, an "Affiliate Transaction"), unless (i) such Affiliate Transaction is
on terms that are no less favorable to the Company or the relevant Restricted
Subsidiary than those that would have been obtained in a comparable transaction
by the Company or such Restricted Subsidiary with an unrelated Person and (ii)
the Company delivers to the Trustee (a) with respect to any Affiliate
Transaction or series of related Affiliate Transactions involving aggregate
consideration in excess of $10.0 million, a resolution of the Board of Directors
set forth in an Officers' Certificate certifying that such Affiliate Transaction
complies with clause (i) above and that such Affiliate Transaction has been
approved by a majority of the disinterested members of the Board of Directors
and (b) with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $25.0 million (other
than any transaction related to or arising out of the sale or exchange of cable
television systems between the Company or any of its Restricted Subsidiaries and
(i) TCI or any of its Affiliates, (ii) Enstar Communications Corporation and its
Subsidiaries or (iii) Falcon or any of its Affiliates, an opinion as to the
fairness to the Holders of such Affiliate Transaction from a financial point of
view issued by an accounting, appraisal or investment banking firm of national
standing. This provision shall not apply to Restricted Payments or other
distributions permitted under the covenant described under "--Limitation on
Restricted Payments." In addition, this provision shall not apply to: (i)
customary directors' fees, indemnification and similar arrangements, consulting
fees, employee salaries, bonuses, or employment agreements, compensation or
employee benefit arrangements, and incentive arrangements with any officer,
director or employee of the Company entered into in the ordinary course of
business (including customary benefits thereunder) and payments under any
indemnification arrangements permitted by applicable law, (ii) the Contribution
Agreement, the Partnership Agreement or the partnership agreement of New Falcon,
including any amendments or extensions thereof that do not otherwise violate any
other covenant set forth in the Indenture, and any transactions undertaken or to
be undertaken pursuant to any of such agreements, or pursuant to any other
contractual obligations in existence on the Issue Date (as in effect on the
Issue Date), (iii) the issue and sale by the Company to its partners or
stockholders of Capital Stock (other than Redeemable Capital Stock), (iv) loans
and advances to officers, directors and employees of the Company and the
Restricted Subsidiaries in the ordinary course of business, (v) customary
commercial banking, investment banking, underwriting, placement agent or
financial advisory fees paid in connection with services rendered to the Company
and its Subsidiaries in the ordinary course, (vi) the Incurrence of intercompany
Indebtedness permitted pursuant to clause (iv) under the definition of
"Permitted Indebtedness" set forth under "Covenants--Limitation on
Indebtedness," (vii) the pledge of Capital Stock of Unrestricted Subsidiaries to
support the Indebtedness thereof and (viii) programming agreements, marketing
and promotional agreements and other billing services, equipment agreements and
agreements for
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other goods and services related to the Company's business entered into between
TCI or its Affiliates and the Company or any Subsidiary of the Company.
LIMITATION ON LIENS
The Indenture provides that the Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create, incur, assume or
suffer to exist any Lien of any kind to secure Indebtedness of the Company,
except for Permitted Liens, on or with respect to any of its property or assets,
whether owned at the Issue Date or thereafter acquired, or any income, profits
or proceeds therefrom, or assign or otherwise convey any right to receive income
thereon, unless (x) in the case of any Lien securing Indebtedness of the Company
that is subordinated in right of payment to the Debentures, the Debentures are
secured by a Lien on such property, assets or proceeds that is senior in
priority to such Lien and (y) in the case of any other Lien securing
Indebtedness of the Company that is PARI PASSU in right of payment with the
Debentures, the Debentures are equally and ratably secured.
MERGERS
The Indenture provides that the Company may not consolidate or merge with,
or transfer all or substantially all of its assets to, any Person unless (i) the
successor is organized under the laws of the United States or any state thereof
or the District of Columbia, (ii) the successor assumes all the obligations of
the Company under the Debentures, the Indenture and the Registration Rights
Agreement, (iii) immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing, and (iv) immediately
after giving effect to such transaction, the successor could incur at least
$1.00 of additional Indebtedness under the covenant described under
"--Limitation on Indebtedness" above; PROVIDED that a pledge pursuant to the
Bank Credit Agreement or the New Credit Facility by the Company of its
partnership interests in the Owned Subsidiaries shall not be deemed to
constitute a transfer of all or substantially all of the Company's assets for
purposes of this covenant. Notwithstanding the foregoing limitations, (a) in
connection with the consummation of the TCI Transaction and FHGLP's transfer of
all or substantially all its assets to New Falcon, New Falcon shall be
substituted for FHGLP as an obligor under the Debentures and the Indenture and
thereupon FHGLP shall be released and discharged from any further obligation or
liability with respect to the Debentures and the Indenture, and (b) in
connection with the subsequent transfer by New Falcon of all or substantially
all of its assets to New Falcon II in connection with the TCI Transaction, New
Falcon shall remain as an obligor under the Debentures and the Indentures and
New Falcon II shall have no obligation to assume or otherwise be liable for any
of the obligations of New Falcon under the Debentures and the Indentures.
LIMITATION ON ASSET SALES
FHGLP will not, and will not permit any Restricted Subsidiary to, consummate
any Asset Sale, unless (i) the consideration received by the Company or such
Restricted Subsidiary is at least equal to the fair market value of the assets
sold or disposed of and (ii) at least 75% of the consideration received consists
of cash or Temporary Cash Investments or the assumption of senior Indebtedness
of the Company or Indebtedness of a Restricted Subsidiary, PROVIDED that the
Company or such Restricted Subsidiary is irrevocably released from all liability
under such Indebtedness. In the event and to the extent that the Net Cash
Proceeds received by the Company or any of its Restricted Subsidiaries from one
or more Asset Sales occurring on or after the Issue Date in any period of 12
consecutive months exceed 15% of Operating Cash Flow of the Restricted Group
(determined as of the date closest to the commencement of such 12-month period
for which a consolidated balance sheet of the Company and its Subsidiaries has
been filed with the Commission or provided to the Trustee pursuant to the
"Commission Reports and Reports to Holders" covenant), then the Company shall or
shall cause the relevant Restricted Subsidiary to (i) within twelve months after
the date Net Cash Proceeds so received exceed 15% of such Operating Cash Flow
(the "Application Period") (A) apply an amount equal to such excess Net Cash
Proceeds to permanently repay
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senior Indebtedness of the Company, or any Restricted Subsidiary providing a
Subsidiary Guarantee pursuant to the "Limitation on Issuances of Guarantees by
Restricted Subsidiaries" covenant described above or Indebtedness of any other
Restricted Subsidiary, in each case owing to a Person other than the Company or
any of its Restricted Subsidiaries or (B) invest an equal amount, or the amount
not so applied pursuant to clause (A) (or enter into a definitive agreement
committing to so invest within 12 months after the date of such agreement (the
"Contract Period")), in property or assets (other than current assets) of a
nature or type or that are used in a business (or in a company having property
and assets of a nature or type, or engaged in a business) similar or related to
the nature or type of the property and assets of, or the business of, the
Company and its Restricted Subsidiaries existing on the date of such investment
and (ii) apply (no later than the end of the Application Period or the Contract
Period, as applicable, referred to in clause (i)) such excess Net Cash Proceeds
(to the extent not applied pursuant to clause (i)) as provided in the following
paragraph of this "Limitation on Asset Sales" covenant. The amount of such
excess Net Cash Proceeds required to be applied (or to be committed to be
applied) during such 12-month period as set forth in clause (i) of the preceding
sentence and not applied as so required by the end of such period shall
constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this
"Limitation on Asset Sales" covenant totals at least $10.0 million, the Issuers
must commence, not later than the fifteenth Business Day of such month, and
consummate an Offer to Purchase from the Holders on a pro rata basis an
aggregate principal amount or aggregate Accreted Value, as applicable, of
Debentures equal to the Excess Proceeds on such date, at a purchase price equal
to 100% of the principal amount thereof in the case of Senior Debentures and a
purchase price equal to 100% of the Accreted Value thereof in the case of Senior
Discount Debentures, plus, in each case, accrued interest (if any) to the date
of payment.
LIMITATIONS ON ACTIVITIES OF FFC
FFC will not hold any material assets, become liable for any obligations or
engage in any business activities; PROVIDED that FFC may be a co-obligor of the
Debentures pursuant to the terms of the Indenture and may engage in any
activities directly related thereto or necessary in connection therewith.
COMMISSION REPORTS AND REPORTS TO HOLDERS
Whether or not the Issuers are then required to file reports with the
Commission, the Issuers shall file with the Commission all such reports and
other information as would be required to be filed with the Commission by
Sections 13(a) or 15(d) under the Exchange Act if it were subject thereto,
PROVIDED that, if filing such documents by the Issuers with the Commission is
not permitted under the Exchange Act, the Issuers shall provide such documents
to the Trustee and upon written request supply copies of such documents to any
prospective Holder. The Issuers shall supply the Trustee and each Holder or
shall supply to the Trustee for forwarding to each such Holder, without cost to
such Holder, copies of such reports and other information.
REPURCHASE OF DEBENTURES UPON A CHANGE OF CONTROL
The Issuers must commence, within 30 days of the occurrence of a Change of
Control, and consummate an Offer to Purchase for all Debentures then
outstanding, at a purchase price equal to 101% of the principal amount thereof
in the case of Senior Debentures, and 101% of the Accreted Value thereof in the
case of Senior Discount Debentures, in each case plus accrued interest (if any)
to the Payment Date.
There can be no assurance that the Issuers will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of Debentures) required by the foregoing covenant (as
well as under covenants that may be contained in other securities of the Issuers
which might be outstanding at the time). The above covenant requiring the
Issuers to repurchase the
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Debentures will, unless consents are obtained, require the Issuers to repay all
indebtedness then outstanding which by its terms would prohibit such Debenture
repurchase, including indebtedness outstanding under the Bank Credit Agreement,
the New Credit Facility and the Debentures, either prior to or concurrently with
such Debenture repurchase.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company. Although there is a developing body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of the
holders of Debentures to require the Company to repurchase such Debentures as a
result of a sale, lease, transfer, conveyance or other disposition of less than
all of the assets of the Company and its subsidiaries to another party may be
uncertain.
The Issuers are not required to make an Offer to Purchase pursuant to this
covenant if a third party makes an Offer to Purchase in compliance with this
covenant and repurchases all Debentures validly tendered and not withdrawn under
such Offer to Purchase.
EVENTS OF DEFAULT
The following are defined as "Events of Default" in the Indenture: (i)
default in the payment of principal of or premium, if any, on the Debentures
when the same becomes due and payable at maturity, upon acceleration, redemption
or otherwise; (ii) default in the payment of interest on any Debenture when the
same becomes due and payable, and such default continues for a period of 30
days, (iii) default in the performance or breach of the provisions of the
Indenture applicable to mergers, consolidations and transfers of all or
substantially all of the assets of the Company or limitations on the activities
of FFC or the failure to make or consummate an Offer to Purchase in accordance
with the "Limitation on Asset Sales" or "Repurchase of Debentures upon a Change
of Control" covenant; (iv) the Issuers default in the performance of or breach
any other covenant or agreement in the Indenture or under the Debentures (other
than a default specified in clause (i), (ii) or (iii) above) and such default or
breach continues for a period of 30 days after written notice by the Trustee or
the Holders of 25% or more in aggregate principal amount of the outstanding
Senior Debentures or in Accreted Value of the outstanding Senior Discount
Debentures, as the case may be; (v) default by the Company or any Significant
Subsidiary in the payment when due at maturity of indebtedness for borrowed
money in excess of $25.0 million (individually or in the aggregate), and such
defaulted payment shall not have been made, waived, or extended within 30 days
of such payment default; (vi) the acceleration of the maturity of any
indebtedness for borrowed money issued under an indenture or other instrument of
the Company or any Significant Subsidiary in excess of $25.0 million
(individually or in the aggregate), and such indebtedness shall not have been
discharged in full or such acceleration shall not have been rescinded or
annulled within 30 days of such acceleration; (vii) the entry of a final
judgment or order (not subject to appeal) for the payment of money in excess of
$25.0 million (individually or in the aggregate) (net of any amounts covered by
reputable and creditworthy insurance companies) against the Company or any
Significant Subsidiary which remains undischarged or unstayed for a period of 60
days after the date on which the right to appeal such final judgment or order
has expired; (viii) a court having jurisdiction in the premises enters a decree
or order for (A) relief in respect of the Company or any Significant Subsidiary
in an involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, (B) appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official of
the Company or any Significant Subsidiary or for all or substantially all of the
property and assets of the Company or any Significant Subsidiary or (C) the
winding up or liquidation of the affairs of the Company or any Significant
Subsidiary and, in each case, such decree or order shall remain unstayed and in
effect for a period of 60 consecutive days; or (ix) the Company or any
Significant Subsidiary (A) commences a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
consents to the entry of an order for relief in an involuntary case under any
such law, (B) consents to the appointment of or
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taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company or any Significant Subsidiary or
for all or substantially all of the property and assets of the Company or any
Significant Subsidiary or (C) effects any general assignment for the benefit of
creditors.
If an Event of Default (other than as specified in clause (viii) or (ix))
occurs and is continuing, the Trustee or the holders of not less than 25% in
aggregate principal amount of the outstanding Senior Debentures or Senior
Discount Debentures, as the case may be, may, and the Trustee, upon the request
of the holders of not less than 25% in aggregate principal amount of the Senior
Debentures or Senior Discount Debentures, as the case may be, outstanding,
shall, by notice in writing to the Company (and to the Trustee if declaration is
made by the holders) declare the entire unpaid principal or Accreted Value of,
as applicable, premium, if any, and accrued interest on, all such Debentures to
be due and payable immediately. If an Event of Default specified in clause
(viii) or (ix) above occurs and is continuing, then all unpaid principal or
Accreted Value of, as applicable, premium, if any, and accrued interest on, all
the Debentures then outstanding shall ipso facto become and be immediately due
and payable without any declaration or other act on the part of the Trustee or
any Holder. The Trustee may withhold notice to the Holders of any Default or
Event of Default (except in payment of principal of, or premium, if any, or
interest on, the Debentures) if the Trustee considers it in the interest of the
holders of the Debentures to do so.
The Indenture provides that at any time after a declaration of acceleration,
but before a judgment or decree for payment of the money due has been obtained
by the Trustee, the holders of a majority in principal amount of the outstanding
Senior Debentures or Senior Discount Debentures, as the case may be, by written
notice to the Company and the Trustee, may rescind and annul such declaration
and its consequences if all Events of Default, other than the non-payment of the
principal of, premium, if any, and interest on, all such Debentures that have
become due solely by such declaration of acceleration, have been cured or waived
and the rescission would not conflict with any judgment, order or decree of any
court of competent jurisdiction.
The Indenture provides that no Holder of any Debentures shall have any right
to institute any proceeding, judicial or otherwise, with respect to such
Indenture, or for the appointment for a receiver or trustee, or for any other
remedy hereunder, unless (i) such Holder has previously given written notice to
the Trustee of a continuing Event of Default; (ii) the holders of not less than
25% in principal amount of the outstanding Senior Debentures or in Accreted
Value of the outstanding Senior Discount Debentures, as the case may be, shall
have made written request to the Trustee to institute proceedings in respect of
such Event of Default in its own name as Trustee; (iii) such holder or holders
shall have offered to the Trustee reasonable indemnity against the costs,
expenses and liabilities to be incurred in compliance with such request; (iv)
the Trustee for 60 days after its receipt of such notice, request and offer of
indemnity shall have failed to institute any such proceeding; and (v) no
direction inconsistent with such written request shall have been given to the
Trustee during such 60-day period by the holders of a majority in principal
amount of such outstanding Senior Debentures or Senior Discount Debentures, as
the case may be.
The Indentures provides that the holders of not less than a majority in
aggregate principal amount of the outstanding Senior Debentures or Senior
Discount Debentures, as the case may be, shall have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee, or exercising any trust or power conferred on the Trustee, provided
that (a) such direction shall not be in conflict with any rule of law or with
such respective Indenture or expose the Trustee to personal liability; and (b)
the Trustee may take any other action deemed proper by the Trustee which is not
inconsistent with such direction.
The Indenture provides that the holders of not less than a majority in
aggregate principal amount of the outstanding Senior Debentures or Senior
Discount Debentures, as the case may be, may on behalf of the holders of such
Debentures waive any past default thereunder and its consequences, except a
default in
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the payment of the principal of, premium, if any, or interest on any Debentures,
or in respect of a covenant or provision of such Indenture which cannot be
modified or amended without the consent of the holder of each outstanding
Debenture affected.
The Issuers are required to deliver to the Trustee annually, on or before a
date that is not more than 90 days after the end of each fiscal year, an
Officer's Certificate stating whether or not the officer signing such
certificate knows of any Default or Event of Default that has occurred. If such
officer is aware of a Default or an Event of Default, such certificate will
specify each such Default or Event of Default and the nature and status thereof.
The Issuers also are obligated to notify the Trustee of any Default or Event of
Default in the performance of any covenants or agreements under the Indenture.
DEFEASANCE
DEFEASANCE AND DISCHARGE. The Indenture provides that the Issuers will be
deemed to have paid and will be discharged from any and all obligations in
respect of the Senior Debentures and Senior Discount Debentures on the 123rd day
after the deposit referred to below, and the provisions of the Indenture will no
longer be in effect with respect to the Senior Debentures and Senior Discount
Debentures, as the case may be, (except for, among other matters, certain
obligations to register the transfer or exchange of the Debentures, to replace
stolen, lost or mutilated Debentures, to maintain paying agencies and to hold
monies for payment in trust) if, among other things, (A) the Issuers have
deposited with the Trustee, in trust, money and/or U.S. Government Obligations
that through the payment of interest and principal in respect thereof in
accordance with their terms will provide money in an amount sufficient to pay
the principal of, premium, if any, and accrued interest on the Senior Debentures
and Senior Discount Debentures on the Stated Maturity of such payments in
accordance with the terms of the Indenture and the Debentures, (B) the Issuers
have delivered to the Trustee (i) either (x) an Opinion of Counsel to the effect
that Holders of the Senior Debentures or the Senior Discount Debentures, as the
case may be, will not recognize income, gain or loss for federal income tax
purposes solely as a result of the Issuers' exercise of their option under this
"Defeasance" provision and will be subject to federal income tax on the same
amount and in the same manner and at the same times as would have been the case
if such deposit, defeasance and discharge had not occurred, which Opinion of
Counsel must be based upon (and accompanied by a copy of) a ruling of the
Internal Revenue Service to the same effect unless there has been a change in
applicable federal income tax law after the Issue Date such that a ruling is no
longer required or (y) a ruling directed to the Trustee received from the
Internal Revenue Service to the same effect as the aforementioned Opinion of
Counsel and (ii) an Opinion of Counsel to the effect that the creation of the
defeasance trust does not violate the Investment Company Act of 1940 and after
the passage of 123 days following the deposit, the trust fund will not be
subject to the effect of Section 547 of the United States Bankruptcy Code or
Section 15 of the New York Debtor and Creditor Law, (C) immediately after giving
effect to such deposit on a PRO FORMA basis, no Event of Default, or event that
after the giving of notice or lapse of time or both would become an Event of
Default, shall have occurred and be continuing on the date of such deposit or
during the period ending on the 123rd day after the date of such deposit, and
such deposit shall not result in a breach or violation of, or constitute a
default under, any other agreement or instrument to which the Company or any of
its Subsidiaries is a party or by which the Company or any of its Subsidiaries
is bound and (D) if at such time such Debentures are listed on a national
securities exchange, the Issuers have delivered to the Trustee an Opinion of
Counsel to the effect that the Debentures will not be delisted as a result of
such deposit, defeasance and discharge.
DEFEASANCE OF CERTAIN COVENANTS AND CERTAIN EVENTS OF DEFAULT. The
Indenture further provides that the provisions of the Indenture will no longer
be in effect with respect to clauses (iii) and (iv) under "Mergers" and all the
covenants described herein under "Covenants," clause (iii) under "Events of
Default" with respect to such clauses (iii) and (iv) under "Mergers," clause
(iv) under "Events of Default" with respect to such other covenants and clause
(vi) under "Events of Default" shall be deemed not to be Events of Default upon,
among other things, the deposit with the Trustee, in trust, of money and/or U.S.
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Government Obligations that through the payment of interest and principal in
respect thereof in accordance with their terms will provide money in an amount
sufficient to pay the principal of, premium, if any, and accrued interest on the
Debentures on the Stated Maturity of such payments in accordance with the terms
of the Indenture and the Debentures, the satisfaction of the provisions
described in clauses (B)(ii), (C), (D) and (E) of the preceding paragraph and
the delivery by the Issuers to the Trustee of an Opinion of Counsel to the
effect that, among other things, the Holders will not recognize income, gain or
loss for federal income tax purposes solely as a result of such deposit and
defeasance of certain covenants and Events of Default and will be subject to
federal income tax on the same amount and in the same manner and at the same
times as would have been the case if such deposit and defeasance had not
occurred.
DEFEASANCE AND CERTAIN OTHER EVENTS OF DEFAULT. In the event the Issuers
exercise their option to omit compliance with certain covenants and provisions
of the Indenture with respect to the Debentures as described in the immediately
preceding paragraph and the Debentures are declared due and payable because of
the occurrence of an Event of Default that remains applicable, the amount of
money and/or U.S. Government Obligations on deposit with the Trustee will be
sufficient to pay amounts due on the Debentures at the time of their Stated
Maturity but may not be sufficient to pay amounts due on the Debentures at the
time of the acceleration resulting from such Event of Default. However, the
Issuers will remain liable for such payments.
MODIFICATIONS AND AMENDMENTS
The Indenture provides that the Issuers and the Trustee may, without the
consent of holders of the Senior Debentures or Senior Discount Debentures, as
the case may be, amend the Indenture or the Debentures or supplement the
Indenture for certain specified purposes, including providing or making any
other change that does not materially and adversely affect the rights of any
Holder. Modifications and amendments of the Indenture may be made by the Issuer
and the Trustee with the consent of the holders of not less than a majority in
aggregate principal amount of the outstanding Senior Debentures and Senior
Discount Debentures; PROVIDED, HOWEVER, that no such modification or amendment
may, without the consent of the holder of each outstanding Debenture affected
thereby: (i) change the Stated Maturity of the principal of, or any installment
of interest on, any Debenture or reduce the principal amount thereof or the rate
of interest thereon or any premium payable upon the redemption thereof, or
change the coin or currency in which any Debenture or any premium or the
interest thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Stated Maturity thereof (or, in
the case of redemption, on or after the redemption date); (ii) reduce the
percentage of the outstanding Senior Debentures or Senior Discount Debentures,
as the case may be, the consent of whose holders is required to modify or amend
the Indenture or the consent of whose holders is required for any waiver of
compliance with certain provisions of the Indenture or certain defaults
thereunder and their consequences provided for in the Indenture; (iii) modify
any of the provisions of the Indenture requiring the consent of holders or
relating to the waiver of past defaults or relating to the waiver of certain
covenants, except to increase any such percentage of outstanding Senior
Debentures or Senior Discount Debentures, as the case may be, required for such
actions or to provide that certain other provisions of the Indentures cannot be
modified or waived without the consent of the holder of each Debenture affected
thereby.
NO PERSONAL LIABILITY OF PARTNERS, EQUITYHOLDERS, DIRECTORS, OFFICERS OR
EMPLOYEES
The Indenture provides that no recourse for the payment of the principal of,
premium, if any, or interest on any of the Debentures, or for the performance of
any obligation contained in the Indentures or the Debentures, or for any claim
based on, in respect of, or by reason of, such obligations, shall be had against
any past, present or future partner, equityholder, director, officer, employee
or controlling person, as such, of the Issuers or any successor. Each holder of
the Debentures by accepting a Debenture waives and releases all such liability.
The waiver and release are part of the consideration for the issuance of the
Debentures.
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BOOK-ENTRY; DELIVERY AND FORM
The certificates representing the Debentures will be issued in fully
registered form without interest coupons. Debentures sold in offshore
transactions in reliance on Regulation S under the Securities Act will initially
be represented by one or more permanent global Debentures in definitive, fully
registered form without interest coupons (each a "Regulation S Global
Debenture") and will be deposited with the Trustee as custodian for, and
registered in the name of a nominee of, DTC for the accounts of Euroclear and
Cedel Bank. Prior to the 40th day after the Closing Date, beneficial interests
in a Regulation S Global Debenture may only be held through Euroclear or Cedel
Bank, and any resale or transfer of such interests to U.S. persons shall not be
permitted during such period unless such resale or transfer is made pursuant to
Rule 144A or Regulation S.
Debentures sold in reliance on Rule 144A will be represented by one or more
permanent global Debentures in definitive, fully registered form without
interest coupons (each a "Restricted Global Debenture"; and together with the
Regulation S Global Debenture, the "Global Debentures") and will be deposited
with the Trustee as custodian for, and registered in the name of a nominee of,
DTC.
Each Global Debenture (and any Debentures issued for exchange therefor) will
be subject to certain restrictions on transfer set forth therein as described
under "Transfer Restrictions."
Debentures originally purchased by or transferred to Institutional
Accredited Investors who are not qualified institutional buyers ("Non-Global
Purchasers") will be in registered form without interest coupons ("Certificated
Debentures"). Upon the transfer of Certificated Debentures initially issued to a
Non-Global Purchaser to a qualified institutional buyer or in accordance with
Regulation S, such Certificated Debentures will, unless the applicable
Restricted Global Debenture has previously been exchanged in whole for
Certificated Debentures, be exchanged for an interest in such Restricted Global
Debenture. For a description of the restrictions on the transfer of Certificated
Debentures, see "Transfer Restrictions."
Ownership of beneficial interests in a Global Debenture will be limited to
persons who have accounts with DTC ("participants") or persons who hold
interests through participants. Ownership of beneficial interests in a Global
Debenture will be shown on, and the transfer of that ownership will be effected
only through, records maintained by DTC or its nominee (with respect to
interests of participants) and the records of participants (with respect to
interests of persons other than participants). Qualified institutional buyers
may hold their interests in a Restricted Global Debenture directly through DTC
if they are participants in such system, or indirectly through organizations
which are participants in such system.
Investors may hold their interests in a Regulation S Global Debenture
directly through Cedel Bank or Euroclear, if they are participants in such
systems, or indirectly through organizations that are participants in such
system. On or after the 40th day following the Closing Date, investors may also
hold such interests through organizations other than Cedel Bank or Euroclear
that are participants in the DTC system. Cedel Bank and Euroclear will hold
interests in the Regulation S Global Debentures on behalf of their participants
through DTC.
So long as DTC, or its nominee, is the registered owner or holder of a
Global Debenture, DTC or such nominee, as the case may be, will be considered
the sole owner or holder of the Debentures represented by such Global Debenture
for all purposes under the Indenture and the Debentures. No beneficial owner of
an interest in a Global Debenture will be able to transfer that interest except
in accordance with DTC's applicable procedures, in addition to those provided
for under the Indenture and, if applicable, those of Euroclear and Cedel Bank.
Payments of the principal of, and interest on, a Global Debenture will be
made to DTC or its nominee, as the case may be, as the registered owner thereof.
Neither the Issuers, the Trustee nor any Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments
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made on account of beneficial ownership interests in a Global Debenture or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
The Issuers expect that DTC or its nominee, upon receipt of any payment of
principal or interest in respect of a Global Debenture, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Debenture
as shown on the records of DTC or its nominee. The Issuers also expect that
payments by participants to owners of beneficial interests in such Global
Debenture held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds. Transfers
between participants in Euroclear and Cedel Bank will be effected in the
ordinary way in accordance with their respective rules and operating procedures.
The Issuers expect that DTC will take any action permitted to be taken by a
holder of Debentures (including the presentation of Debentures for exchange as
described below) only at the direction of one or more participants to whose
account the DTC interests in a Global Debenture is credited and only in respect
of such portion of the aggregate principal amount of Debentures as to which such
participant or participants has or have given such direction. However, if there
is an Event of Default under the Debentures, DTC will exchange the applicable
Global Debenture for Certificated Debentures, which it will distribute to its
participants and which may be legended as set forth under the heading "Transfer
Restrictions."
The Issuers understand that: DTC is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the Uniform Commercial
Code and a "Clearing Agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC was created to hold securities for its participants
and facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of certificates
and certain other organizations. Indirect access to the DTC system is available
to others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly ("indirect participants").
Although DTC, Euroclear and Cedel Bank are expected to follow the foregoing
procedures in order to facilitate transfers of interests in a Global Debenture
among participants of DTC, Euroclear and Cedel Bank, they are under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. Neither the Issuers nor the Trustee
will have any responsibility for the performance by DTC, Euroclear or Cedel Bank
or their respective participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
If DTC is at any time unwilling or unable to continue as a depositary for
the Global Debentures and a successor depositary is not appointed by the Issuers
within 90 days, the Issuers will issue Certificated Debentures, which may bear
the legend referred to under "Transfer Restrictions," in exchange for the Global
Debentures. Holders of an interest in a Global Debenture may receive
Certificated Debentures, which may bear the legend referred to under "Transfer
Restrictions," in accordance with the DTC's rules and procedures in addition to
those provided for under the Indenture.
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FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following is a summary of the material United States federal income tax
consequences of the purchase, ownership and disposition of the Debentures, but
is not purported to be a complete analysis of all potential tax effects. This
summary is based upon the Internal Revenue Code of 1986, as amended (the
"Code"), existing and proposed regulations thereunder, published rulings and
court decisions, all as in effect and existing on the date hereof and all of
which are subject to change at any time, which change may be retroactive. Unless
otherwise specifically noted, this summary applies only to those persons who are
the initial Holders of Debentures, who acquired the Debentures for cash at the
issue price as defined below and who hold Debentures as capital assets, and does
not address the tax consequences to taxpayers who are subject to special rules
(such as financial institutions, tax-exempt organizations, insurance companies,
S corporations, regulated investment companies, real estate investment trusts,
broker-dealers, taxpayers subject to the alternative minimum tax and persons
that will hold the Debentures as part of a position in a "straddle" or as part
of a "hedging" or "conversion" transaction) or aspects of federal income
taxation that might be relevant to a prospective investor based upon such
investor's particular tax situation. Accordingly, prospective purchasers of
Debentures should consult their own tax advisors with respect to the particular
consequences to them of the purchase, ownership and disposition of the
Debentures, including the applicability of any state or local laws to which they
may be subject, as well as with respect to the possible effects of changes in
federal and other tax laws.
EFFECT OF EXCHANGE OF OLD SENIOR DISCOUNT DEBENTURES FOR SENIOR DISCOUNT
EXCHANGE DEBENTURES
The Issuers believe that the exchange of Old Senior Discount Debentures for
Senior Discount Exchange Debentures pursuant to the Exchange Offer will not be
treated as an "exchange" for federal income tax purposes because the Senior
Discount Exchange Debentures will not be considered to differ materially in kind
or extent from the Old Senior Discount Debentures. Rather, the Senior Discount
Exchange Debentures received by a holder will be treated as a continuation of
the Old Senior Discount Debentures in the hands of such holder. As a result,
holders will not recognize any taxable gain or loss or any interest income as a
result of exchanging Old Senior Discount Debentures for Senior Discount Exchange
Debentures pursuant to the Exchange Offer, the holding period of the Senior
Discount Exchange Debentures will include the holding period of the Old Senior
Discount Debentures, and the basis of the Senior Discount Exchange Debentures
will equal the basis of the Old Senior Discount Debentures immediately before
the exchange.
UNITED STATES HOLDERS
The following is a general discussion of certain United States federal
income tax consequences of the ownership and sale or other disposition of the
Debentures by a Holder that, for United States federal income tax purposes, is a
"United States person". For purposes of this discussion, a "United States
person" means a citizen or individual resident (as determined for U.S. federal
income tax purposes) of the United States; a corporation, partnership or other
entity created or organized in the United States or under the laws of the United
States or of any political subdivision thereof; an estate the income of which is
includible in gross income for U.S. federal income tax purposes, regardless of
its source; or a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of the
trust. Resident alien individuals will be subject to United States federal
income tax with respect to the Debentures as if they were United States
citizens.
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TAXABLE INTEREST
Holders of the Senior Debentures will be taxed at ordinary income tax rates
on interest received during the taxable year in accordance with such Holders'
regular method of accounting for federal income tax purposes.
ORIGINAL ISSUE DISCOUNT
Because the Senior Discount Debentures are being issued at a discount from
their "stated redemption price at maturity," they will bear original issue
discount ("OID") for federal income tax purposes. For federal income tax
purposes, OID on a Senior Discount Debenture is the excess of the stated
redemption price at maturity of the Senior Discount Debenture over its "issue
price." The issue price of the Senior Discount Debentures will be the price paid
by the first purchaser, including the aggregate payments made by the purchaser
under the purchase agreement (including modifications thereof). For purposes of
this discussion, it is assumed that all initial holders will purchase their
Senior Discount Debentures at the issue price. The stated redemption price at
maturity of a Senior Discount Debenture will be the sum of all payments to be
made on such Senior Discount Debenture, including all stated interest payments,
other than payments of "qualified stated interest." Qualified stated interest is
stated interest that is unconditionally payable at least annually at a single
fixed rate that appropriately takes into account the length of the interval
between payments. Because there will be no required payment of interest on the
Senior Discount Debentures (assuming there has been no election by the Issuers
to start the earlier accrual of cash interest) until October 15, 2003, none of
the interest payments on the Senior Discount Debentures will constitute
qualified stated interest. Because the stated redemption price at maturity of
the Senior Discount Debentures will exceed their issue price by more than a DE
MINIMIS amount, each Senior Discount Debenture will bear OID in an amount equal
to the excess of (i) the sum of its principal amount and all stated interest
payments over (ii) its issue price.
A Holder will be required to include OID in income periodically over the
term of a Senior Discount Debenture before receipt of the cash or other payment
attributable to such income, regardless of the Holder's method of tax
accounting. The amount of OID required to be included in a Holder's gross income
for any taxable year is the sum of the "daily portions" of OID with respect to
the Senior Discount Debenture for each day during the taxable year (or portion
of the taxable year) during which such Holder holds the Senior Discount
Debenture. In general, the includible amount is computed using the "constant
yield method". Under the constant yield method, the daily portion is determined
by allocating to each day of any "accrual period" within a taxable year a pro
rata portion of an amount equal to the excess of (i) the product of the
"adjusted issue price" of the debt instrument at the beginning of the accrual
period and the "yield-to-maturity" of the debt instrument, over (ii) the total
amounts payable as interest on the debt instrument during that accrual period.
For purposes of computing OID, the Company will use six-month accrual
periods that end on the days in the calendar year corresponding to the maturity
date of the Senior Discount Debentures and the date six months prior to such
maturity date, with the exception of an initial short accrual period. A Holder
is permitted to use different accrual periods, provided that each accrual period
is no longer than one year, and each scheduled payment of interest or principal
occurs on either the first or last day of an accrual period. The adjusted issue
price of a debt instrument at the beginning of any accrual period is the issue
price of the debt instrument increased by the amount of OID previously
includible in the gross income of the Holder, and decreased by any payments
previously made to the Holder on the debt instrument. The original
yield-to-maturity is the discount rate that, when used in computing the present
value of all payments of principal and interest to be made on a debt instrument,
produces an amount equal to the issue price of the debt instrument.
The Treasury Regulations explain that (i) if a debt instrument provides for
an alternative payment schedule or schedules where the timing and amount of the
payments that comprise each schedule are
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known as of the issue date, and (ii) if any particular payment schedule for a
debt instrument is significantly more likely than not to occur, the yield and
maturity of the debt instrument are to be computed by assuming that payments
will be made according to that schedule. Accordingly, a prepayment assumption
would apply (that is, the Company would be deemed to exercise its option to
redeem the Senior Discount Debentures prior to their stated maturity date) only
if the Company's exercise of its prepayment option would lower the
yield-to-maturity of the instruments. Because the Company's exercise of its
prepayment option would result in the same or a higher yield-to-maturity,
depending upon the date of exercise, the Company believes that it would not be
presumed under these rules to exercise its right to redeem the Debentures prior
to their stated maturity date. However, if the Company does in fact exercise its
prepayment option, then for purposes of the OID rules, a Senior Discount
Debenture will be treated as retired and then reissued on the date of the
Company's exercise of its prepayment option for an amount equal to the adjusted
issue price on that date. In that event, another OID computation would have to
be made with respect to the constructively issued new debt instrument.
Under these rules and the stated payment schedule, Holders of Senior
Discount Debentures will be required to include in gross income increasingly
greater amounts of OID in each successive accrual period. A Holder's tax basis
in a Senior Discount Debenture will be increased by the amount of any OID
includible in the Holder's income under these rules and decreased by the amount
of any payment to the Holder (including payments of stated interest) with
respect to the Senior Discount Debenture.
On any Interest Payment Date prior to April 15, 2003, the Company may elect
to commence the accrual of cash interest on the Senior Discount Debentures, in
which case cash interest will be payable on each Interest Payment Date
thereafter. Under the OID rules, solely for purposes of determining the amount
of OID that is includible in income by a Holder of a Senior Discount Debenture,
it is presumed that the Company will exercise an option to pay cash interest
early if such exercise would lower the yield-to-maturity of the Senior Discount
Debenture. The Company believes that the exercise of its option to pay interest
early would not lower the yield-to-maturity of the Senior Discount Debentures.
Under the OID rules, therefore, the Company would be presumed not to exercise
its option to pay interest early. However, if, contrary to that presumption, the
Company exercises such option, then solely for purposes of the accrual of OID,
the yield and maturity of the Senior Discount Debentures will be redetermined by
treating the Senior Discount Debentures as reissued on such date for an amount
equal to the adjusted issue price on that date.
The Company is obligated to pay additional interest ("Additional Interest")
to the Holders under certain circumstances described under "Description of the
Debentures--General" and "--Registration Rights." No amount of Additional
Interest is being included in computing the yield-to-maturity of the Senior
Discount Debentures because it is assumed that the Company will take all steps
reasonably necessary to avoid incurring the obligation to pay Additional
Interest. However, if the Company becomes obligated to pay Additional Interest,
then solely for purposes of the accrual of OID, the yield-to-maturity of the
Senior Discount Debentures will be redetermined by treating the Debentures as
reissued on the date the Company becomes obligated to pay Additional Interest
for an amount equal to the adjusted issue price on that date.
SALE, EXCHANGE OR REDEMPTION OF DEBENTURES
Generally, a sale, exchange or redemption of Debentures will result in
taxable gain or loss equal to the difference between the amount of cash or other
property received and the Holder's adjusted tax basis in the Debenture. A
Holder's adjusted tax basis for determining gain or loss on the sale or other
disposition of a Debenture will initially equal the cost of the Debenture to
such Holder, and will be increased by any amounts included in income as OID and
decreased by the amount of any cash payments received by such Holder, except
Additional Interest, regardless of whether such payments are denominated as
principal or interest. Gain or loss upon a sale, exchange, or redemption of a
Debenture will be capital gain or loss if the Debenture is held as a capital
asset.
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Individuals will generally be taxed on net capital gain at a maximum rate of
(i) 28% for property held for 18 months or less but more than one year, (ii) 20%
for property held more than 18 months, and (iii) 18% for property acquired after
December 31, 2000 and held for more than five years. Special rules (and
generally lower maximum rates) apply to individuals in lower tax brackets.
Neither an exchange of the Debentures for Exchange Debentures of the Company
with terms identical to those of the Debentures, nor the filing of a
registration statement with respect to the resale of the Debentures should be a
taxable event to the Holders of the Debentures, and Holders should not recognize
any taxable gain or loss or any interest income as a result of such an exchange
or such a filing.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Under current United States federal income tax law, information reporting
requirements apply to interest (including OID) paid to, and to the proceeds of
sales or other dispositions before maturity by, certain non-corporate persons.
In addition, a 31% backup withholding tax applies if a non-corporate person (i)
fails to furnish such person's Taxpayer Identification Number ("TIN") (which,
for an individual, is his or her Social Security Number) to the payor in the
manner required, (ii) furnishes an incorrect TIN and the payor is so notified by
the Internal Revenue Service (the "Service"), (iii) is notified by the Service
that such person has failed properly to report payments of interest and
dividends, or (iv) in certain circumstances, fails to certify, under penalties
of perjury, that such person has not been notified by the Service that such
person is subject to backup withholding for failure properly to report interest
and dividend payments. Backup withholding does not apply to payments made to
certain exempt recipients, such as corporations and tax-exempt organizations.
Backup withholding tax is not an additional tax. Rather, any amounts
withheld from a payment to a person under the backup withholding rules are
allowed as a refund or a credit against such person's United States federal
income tax, provided that the required information is furnished to the Service.
NON-UNITED STATES HOLDERS
STATED INTEREST
Interest paid (including OID) by the Company to any beneficial owner of a
Debenture that is not a United States person ("Non-United States Holder") will
not be subject to United States federal income or withholding tax if such
interest is not effectively connected with the conduct of a trade or business
within the United States by such Non-United States Holder and (a) such
Non-United States Holder (i) does not actually or constructively own 10% or more
of the total combined voting power of all classes of stock of the Company; (ii)
is not a controlled foreign corporation with respect to which the Company is a
"related person" within the meaning of the Code; and (iii) satisfies certain
certification requirements or (b) such Non-United States Holder is entitled to
the benefits of an income tax treaty under which the interest is exempt from
United States withholding tax, and such Non-United States Holder provides a
properly executed IRS Form 1001 claiming the exemption (or, after December 31,
1998, IRS Form W-8, which may require obtaining a Taxpayer Identification Number
and making certain certifications).
SALE, EXCHANGE OR RETIREMENT OF THE DEBENTURES
A Non-United States Holder will generally not be subject to United States
federal income tax on gain recognized on a sale, redemption, retirement at
maturity or other disposition of a Debenture unless (i) the gain is effectively
connected with the conduct of a trade or business within the United States by
the Non-United States Holder or (ii) in the case of a Non-United States Holder
who is a nonresident alien individual and holds the Debenture as a capital
asset, such holder is present in the United States for 183 or more days in the
taxable year and certain other requirements are met.
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FEDERAL ESTATE TAXES
If interest on the Debentures is exempt from withholding of United States
federal income tax under clause (a) of the rules described under "Stated
Interest," the Debentures will not be included in the estate of a deceased
Non-United States Holder for United States federal estate tax purposes.
BACKUP WITHHOLDING AND INFORMATION REPORTING
The Company will, where required, report to the holders of Debentures and
the Internal Revenue Service the amount of any interest paid on the Debentures
in each calendar year and the amounts of tax withheld, if any, with respect to
such payments.
In the case of payments of interest (including OID) to Non-United States
Holders, Treasury Regulations provide that the 31% backup withholding tax and
certain information reporting will not apply to such payment with respect to
which either the requisite certification has been received or an exemption has
otherwise been established; provided that neither the Company nor its payment
agent has actual knowledge that the holder is a United States person or that the
conditions of any other exemption are not in fact satisfied. Under the Treasury
Regulations, these information reporting and backup withholding requirements
will apply, however, to the gross proceeds paid to a Non-United States Holder on
the disposition of the Debentures by or through a United States office of a
United States or foreign broker, unless certain certification requirements are
met or the holder otherwise establishes an exemption. Information reporting
requirements, but not backup withholding, will also apply to a payment of the
proceeds of a disposition of the Debentures by or through a foreign office of a
United States broker or foreign broker with certain types of relationships to
the United States unless the holder is an exempt recipient (as demonstrated
through appropriate certification) or such broker has documentary evidence in
its file that the holder of the Debentures is not a United States person and has
no actual knowledge to the contrary and certain other conditions are met.
Neither information reporting nor backup withholding generally will apply to a
payment of the proceeds of a disposition of the Debentures by or through a
foreign office of a foreign broker not subject to the preceding sentence. Backup
withholding does not apply to payments made to certain exempt recipients, such
as tax-exempt organizations.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules may be refunded or credited against the Non-United
States Holder's United States federal income tax liability, provided that the
required information is furnished to the Service. Non-United States Holders are
urged to consult their tax advisors with respect to the application of these
final regulations.
Recently, the Treasury Department has promulgated final regulations
regarding the withholding and information reporting rules discussed above. In
general, the proposed regulations do not significantly alter the substantive
withholding and information requirements but unify current certification
procedures and forms and clarify reliance standards. Under the final
regulations, special rules apply which permit the shifting of primary
responsibility for withholding to certain financial intermediaries acting on
behalf of beneficial owners. The final regulations would generally be effective
for payments made after December 31, 1998, subject to certain transition rules.
160
<PAGE>
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Debentures for its
own account pursuant to the Exchange Offer must acknowledge that it will deliver
a prospectus in connection with any resale of such Exchange Debentures. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by any Participating Broker-Dealer subject to the prospectus delivery
requirements of the Securities Act (other than an Excluded Participating
Broker-Dealer). Until , 1998 (90 days after the commencement of the
Exchange Offer), all dealers effecting transactions in the Exchange Debentures
may be required to deliver a prospectus.
The Issuers will not receive any proceeds from any sales of the Exchange
Debentures by Participating Broker-Dealers. Exchange Debentures received by
Participating Broker-Dealers for their own account pursuant to the Exchange
Offer may be sold from time to time in one or more transactions in the over-the-
counter market, in negotiated transactions, through the writing of options on
the Exchange Debentures or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such Participating Broker-Dealer
and/or the purchasers of any such Exchange Debentures. Any Participating
Broker-Dealer that resells the Exchange Debentures that were received by it for
its own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Debentures may be deemed to be
an "underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Debentures and any commissions or concessions received
by any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a Participating Broker-Dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
The Issuers will promptly send additional copies of this Prospectus and any
amendment or supplement to this Prospectus to any Participating Broker-Dealer
that has provided the Issuers, pursuant to the Letter of Transmittal, with
notice of its status as a Participating Broker-Dealer.
The Debentures will not be listed on any stock exchange. The Debentures are
designated for trading in the PORTAL market, and application is being made to
list the Debentures on the Luxembourg Stock Exchange. However, there can be no
assurance that an active trading market will exist for the Debentures or that
such trading market will be liquid. See "Risk Factors--Lack of Public Market for
the Debentures."
Affiliates of BancAmerica Robertson Stephens, BancBoston Securities Inc.,
Chase Securities Inc., CIBC Oppenheimer, NationsBanc Montgomery Securities LLC
and TD Securities (USA) Inc. were lenders under the Bank Credit Agreement and
are lenders under the New Credit Facility. See "Description of Certain
Indebtedness." Lazard Freres & Co. LLC, one of the Placement Agents, has from
time to time provided investment banking services to the Company and received
customary compensation for such services. In connection with the TCI
Transaction, Mr. Steven Rattner, a limited partner of FHGLP and a member of its
Board of Representatives, will receive certain distributions. Mr. Rattner is
Deputy Chief Executive of Lazard Freres & Co. LLC.
161
<PAGE>
LEGAL MATTERS
The validity of the Exchange Debentures will be passed upon by Dow, Lohnes &
Albertson, PLLC, Washington, D.C.
EXPERTS
The consolidated financial statements of Falcon Holding Group, L.P. as of
December 31, 1996 and 1997 and for each of the three years in the period ended
December 31, 1997 and the balance sheet of Falcon Funding Corporation as of
March 27, 1998 included in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein, and are included in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing.
The combined financial statements of TCI Falcon Systems as of December 31,
1996 and 1997 and for each of the years in the three-year period ended December
31, 1997 have been included herein and in this Prospectus in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
AVAILABLE INFORMATION
FHGLP has filed with the Commission a Registration Statement (of which this
Prospectus is a part and which term shall encompass any amendments thereto) on
Form S-4, pursuant to the Securities Act, with respect to the Exchange
Debentures offered hereby. As permitted by the rules and regulations of the
Commission, this Prospectus does not contain all of the information set forth in
the Registration Statement, and the exhibits and schedules thereto. For further
information about the Issuers and the Debentures, reference is hereby made to
the Registration Statement and to such exhibits and schedules.
In addition, FHGLP files reports with the Commission and, as a result of the
Exchange Offer, will be subject to the informational requirements of the
Exchange Act. In addition, under the Indenture governing the Debentures, FHGLP
is required to furnish to the Trustee and to registered holders of the
Debentures audited annual consolidated financial statements, unaudited quarterly
consolidated financial reports and certain other reports. The Registration
Statement, the exhibits and schedules forming a part thereof and the reports and
other information filed by FHGLP with the Commission pursuant to the
informational requirements of the Exchange Act may be inspected without charge
and copied upon payment of certain fees at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following Regional Offices of the
Commission: New York Regional Office, Seven World Trade Center, 13th Floor, New
York, New York 10048, and Chicago Regional Office, Northwestern Atrium, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. The Commission also
maintains a World Wide Web site on the Internet at http://www.sec.gov that
contains reports and other information regarding registrants that file
electronically with the Commission.
162
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
FALCON HOLDING GROUP, L.P.
Report of Ernst & Young LLP, Independent Auditors........................................................ F-2
Consolidated Balance Sheets at December 31, 1996 and 1997................................................ F-3
Consolidated Statements of Operations for each of the three years in the period ended December 31,
1997................................................................................................... F-4
Consolidated Statements of Partners' Deficit for each of the three years in the period ended December 31,
1997................................................................................................... F-5
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31,
1997................................................................................................... F-6
Notes to Consolidated Financial Statements............................................................... F-7
Condensed Consolidated Balance Sheet at March 31, 1998 (unaudited)....................................... F-33
Condensed Consolidated Statements of Operations for the three months ended March 31, 1997 and 1998
(unaudited)............................................................................................ F-34
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 1997 and 1998
(unaudited)............................................................................................ F-35
Notes to Condensed Consolidated Financial Statements (unaudited)......................................... F-36
TCI FALCON SYSTEMS
Independent Auditors' Report............................................................................. F-38
Combined Balance Sheets at December 31, 1996 and 1997.................................................... F-39
Combined Statements of Operations and Parent's Investment for each of the three years in the period ended
December 31, 1997...................................................................................... F-40
Combined Statements of Cash Flows for each of the three years in the period ended December 31, 1997...... F-41
Notes to Combined Financial Statements................................................................... F-42
Combined Balance Sheets at December 31, 1997 and March 31, 1998 (unaudited).............................. F-48
Combined Statements of Operations and Parent's Investment for the three months ended March 31, 1997 and
1998 (unaudited)....................................................................................... F-49
Combined Statements of Cash Flows for the three months ended March 31, 1997 and 1998 (unaudited)......... F-50
Notes to Combined Financial Statements (unaudited)....................................................... F-51
FALCON FUNDING CORPORATION
Report of Ernst & Young LLP, Independent Auditors........................................................ F-55
Balance Sheet at March 27, 1998.......................................................................... F-56
Note to Balance Sheet.................................................................................... F-57
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Partners
Falcon Holding Group, L.P.
We have audited the accompanying consolidated balance sheets of Falcon
Holding Group, L.P. as of December 31, 1996 and 1997, and the related
consolidated statements of operations, partners' deficit and cash flows for each
of the three years in the period ended December 31, 1997. These consolidated
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Falcon Holding Group, L.P. at December 31, 1996 and 1997 and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Los Angeles, California
March 17, 1998
F-2
<PAGE>
FALCON HOLDING GROUP, L.P.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS:
Cash and cash equivalents............................... $ 13,633 $ 13,917
Receivables:
Trade, less allowance of $907,000 and $825,000 for
possible losses..................................... 10,942 13,174
Affiliates............................................ 6,458 11,254
Other assets............................................ 10,555 14,576
Other investments....................................... 3,446 1,776
Property, plant and equipment, less accumulated
depreciation and amortization......................... 309,128 324,559
Franchise cost, less accumulated amortization of
$173,742,000 and $203,700,000......................... 256,461 222,281
Goodwill, less accumulated amortization of $12,454,000
and $18,531,000....................................... 72,956 66,879
Customer lists and other intangible costs, less
accumulated amortization of $8,793,000 and
$25,517,000........................................... 76,448 59,808
Deferred loan costs, less accumulated amortization of
$5,755,000 and $7,144,000............................. 14,296 12,134
------------ ------------
$ 774,323 $ 740,358
------------ ------------
------------ ------------
LIABILITIES AND PARTNERS' DEFICIT
LIABILITIES:
Notes payable........................................... $ 885,786 $ 911,221
Accounts payable........................................ 10,561 9,169
Accrued expenses........................................ 47,228 52,789
Customer deposits and prepayments....................... 1,627 1,452
Deferred income taxes................................... 10,301 7,553
Minority interest....................................... 193 354
Equity in losses of affiliated partnerships in excess of
investment............................................ 3,224 3,202
------------ ------------
TOTAL LIABILITIES......................................... 958,920 985,740
------------ ------------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PARTNERS' EQUITY............................... 271,902 171,373
------------ ------------
PARTNERS' DEFICIT:
General partner......................................... (12,591) (13,200)
Limited partners........................................ (443,908) (403,555)
------------ ------------
TOTAL PARTNERS' DEFICIT................................... (456,499) (416,755)
------------ ------------
$ 774,323 $ 740,358
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
FALCON HOLDING GROUP, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1996 1997
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
REVENUES.................................................. $ 151,208 $ 217,320 $ 255,886
------------ ------------ ------------
EXPENSES:
Service costs........................................... 41,626 60,302 75,643
General and administrative expenses..................... 30,026 36,878 46,437
Depreciation and amortization........................... 54,386 100,415 118,856
------------ ------------ ------------
Total expenses........................................ 126,038 197,595 240,936
------------ ------------ ------------
Operating income...................................... 25,170 19,725 14,950
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense........................................ (58,326) (72,641) (81,326)
Interest income......................................... 549 1,039 2,189
Equity in net income (loss) of investee partnerships.... (5,705) (44) 443
Other income, net....................................... 13,077 814 885
Income tax benefit...................................... -- 1,122 2,021
------------ ------------ ------------
NET LOSS.................................................. $ (25,235) $ (49,985) $ (60,838)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
FALCON HOLDING GROUP, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIT
<TABLE>
<CAPTION>
UNREALIZED
GAIN ON
AVAILABLE-
GENERAL LIMITED FOR-SALE
PARTNER PARTNERS SECURITIES TOTAL
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
PARTNERS' DEFICIT,
January 1, 1995......................................... $ (11,839) $ (257,770) $ 12,851 $ (256,758)
Acquisition of Falcon First, Inc...................... -- 61,268 -- 61,268
Reclassification to redeemable partners' equity....... -- (177,938) -- (177,938)
Net loss for year..................................... (252) (24,983) -- (25,235)
Sale of marketable securities......................... -- -- (12,133 ) (12,133)
Unrealized loss on available-for-sale securities
(included in other investments)..................... -- -- (885 ) (885)
------------ ------------ ------------ ------------
PARTNERS' DEFICIT,
December 31, 1995....................................... (12,091) (399,423) (167 ) (411,681)
Net loss for year..................................... (500) (49,485) -- (49,985)
Sale of marketable securities......................... -- -- 167 167
Capital contribution.................................. -- 5,000 -- 5,000
------------ ------------ ------------ ------------
PARTNERS' DEFICIT,
December 31, 1996....................................... (12,591) (443,908) -- (456,499)
Reclassification from redeemable partners' equity..... -- 100,529 -- 100,529
Net loss for year..................................... (609) (60,229) -- (60,838)
Capital contribution.................................. -- 53 -- 53
------------ ------------ ------------ ------------
PARTNERS' DEFICIT,
December 31, 1997....................................... $ (13,200) $ (403,555) $ -- $ (416,755)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
FALCON HOLDING GROUP, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1995 1996 1997
----------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................................... $ (25,235) $ (49,985) $ (60,838)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Payment-in-kind interest expense......................................... 27,127 26,580 20,444
Depreciation and amortization............................................ 54,386 100,415 118,856
Amortization of deferred loan costs...................................... 5,840 2,473 2,192
Gain on sale of securities............................................... (13,267) (2,264) --
Gain on casualty losses.................................................. -- -- (3,476)
Equity in net losses of investee partnerships............................ 5,705 44 (443)
Provision for losses on receivables, net of recoveries................... 3,076 2,417 5,714
Deferred income taxes.................................................... -- (2,684) (2,748)
Other.................................................................... (17) 764 1,319
Increase (decrease) from changes in:
Receivables................................................................ (348) (2,420) (9,703)
Other assets............................................................... (1,269) (274) (4,021)
Accounts payable........................................................... (214) 4,750 (1,357)
Accrued expenses........................................................... (12,542) 10,246 13,773
Customer deposits and prepayments.......................................... (80) 569 (175)
----------- ----------- ---------
Net cash provided by operating activities.................................. 43,162 90,631 79,537
----------- ----------- ---------
Cash flows from investing activities:
Capital expenditures....................................................... (37,149) (57,668) (76,323)
Proceeds from sale of available-for-sale securities........................ 13,487 9,502 --
Increase in intangible assets.............................................. (2,631) (4,847) (1,770)
Acquisitions of cable television systems................................... -- (247,397) --
Cash acquired in connection with the acquisition of
Falcon First, Inc........................................................ 2,655 -- --
Proceeds from sale of cable system......................................... -- 15,000 --
Other...................................................................... 964 1,163 1,806
----------- ----------- ---------
Net cash used in investing activities.................................... (22,674) (284,247) (76,287)
----------- ----------- ---------
Cash flows from financing activities:
Borrowings from notes payable.............................................. 408,707 700,533 37,500
Repayment of debt.......................................................... (418,573) (509,511) (40,722)
Deferred loan costs........................................................ (6,320) (3,823) (29)
Capital contributions...................................................... -- 5,000 93
Minority interest capital contributions.................................... 280 -- 192
----------- ----------- ---------
Net cash provided by (used in) financing activities...................... (15,906) 192,199 (2,966)
----------- ----------- ---------
Increase (decrease) in cash and cash equivalents............................. 4,582 (1,417) 284
Cash and cash equivalents, at beginning of year.............................. 10,468 15,050 13,633
----------- ----------- ---------
Cash and cash equivalents, at end of year.................................... $ 15,050 $ 13,633 $ 13,917
----------- ----------- ---------
----------- ----------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
FALCON HOLDING GROUP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF ACCOUNTING POLICIES
FORM 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") as of December 31, 1997. 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"). As of December 31, 1997, the Affiliated Systems
operated 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 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 consolidated financial statements 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
Systems", which are Affiliated Systems). The consolidated financial statements
also include the accounts of Enstar Finance Company, LLC ("EFC"), which ECC and
the Partnership formed on June 6, 1997 in order to provide financing to certain
of the Enstar limited partnerships. See Note 7.
All significant inter-company accounts and transactions have been eliminated
in consolidation. The consolidated financial statements do not give effect to
any assets that the partners may have outside their interests in the
Partnership, nor to any obligations, including income taxes, of the partners.
On December 28, 1995, the Partnership completed the acquisition of all of
the direct and indirect ownership interests in Falcon First, Inc. ("Falcon
First") which it did not previously own. Falcon First was previously managed by
the Partnership and, as such, classified as an "Affiliated Partnership" in prior
periods. Due to the proximity of the acquisition date to December 31, 1995, no
operating results were included for Falcon First for 1995, except for the
management fees received by FHGLP pursuant to its management agreement with
Falcon First. On July 12, 1996, the Partnership acquired the assets of Falcon
Cable Systems Company ("FCSC"), an Affiliated Partnership. The results of
operations of these Systems have been included in the consolidated financial
statements of FHGLP from July 12, 1996. Management fees and reimbursed expenses
received by the Partnership from FCSC for the period of January 1, 1996 through
July 11, 1996 are also included in the consolidated financial statements and
have not been eliminated in consolidation. See Note 3.
CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Partnership
considers all highly liquid debt instruments purchased with an initial maturity
of three months or less to be cash equivalents. Cash equivalents at December 31,
1996 and 1997 included $4.1 million and $4.5 million of investments in
commercial paper and short-term investment funds of major financial
institutions.
INVESTMENTS IN AFFILIATED PARTNERSHIPS
The Partnership is the general partner of certain entities, which in turn
act as general partner of related partnerships which own, directly or through
subsidiaries, cable television systems managed by the Partnership (the
"Affiliated Partnerships"). The Partnership's effective ownership interests in
the Affiliated
F-7
<PAGE>
FALCON HOLDING GROUP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Partnerships are less than one percent. The Affiliated Partnerships are
accounted for using the equity method of accounting. Equity in net losses are
recorded to the extent of the investments in and advances to the partnerships
plus obligations for which the Partnership, as general partner, is responsible.
The liabilities of the Affiliated Partnerships, other than amounts due the
Partnership, principally consist of debt for borrowed money and related accrued
interest.
OTHER INVESTMENTS
Certain investments in which the Partnership exercises significant influence
over the operations of the investee are carried on the equity method. Other
investments are carried at cost.
PROPERTY, PLANT, EQUIPMENT AND DEPRECIATION AND AMORTIZATION
Property, plant and equipment are stated at cost. Direct costs associated
with installations in homes not previously served by cable are capitalized as
part of the distribution system, and reconnects are expensed as incurred. For
financial reporting, depreciation and amortization is computed using the
straight-line method over the following estimated useful lives.
<TABLE>
<CAPTION>
<S> <C>
CABLE TELEVISION SYSTEMS:
Headend buildings and equipment............................................... 10-16 years
Trunk and distribution........................................................ 5-15 years
Microwave equipment........................................................... 10-15 years
OTHER:
Furniture and equipment....................................................... 3-7 years
Vehicles...................................................................... 3-10 years
Leasehold improvements........................................................ Life of lease
</TABLE>
FRANCHISE COST AND GOODWILL
The excess of cost over the fair values of tangible assets and customer
lists of cable television systems acquired represents the cost of franchises and
goodwill. In addition, franchise cost includes capitalized costs incurred in
obtaining new franchises and in the renewal of existing franchises. These costs
are amortized using the straight-line method over the lives of the franchises,
ranging up to 25 years (composite 12 year average). Goodwill is amortized over
20 years. Costs relating to unsuccessful franchise applications are charged to
expense when it is determined that the efforts to obtain the franchise will not
be successful.
CUSTOMER LISTS AND OTHER INTANGIBLE COSTS
Customer lists and other intangible costs include customer lists, covenants
not to compete and organization costs which are amortized using the
straight-line method over two to five years.
DEFERRED LOAN COSTS
Costs related to borrowings are capitalized and amortized to interest
expense over the life of the related loan.
F-8
<PAGE>
FALCON HOLDING GROUP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
RECOVERABILITY OF ASSETS
The Partnership assesses on an ongoing basis the recoverability of
intangible assets (including goodwill) and capitalized plant assets based on
estimates of future undiscounted cash flows compared to net book value. If the
future undiscounted cash flow estimates were less than net book value, net book
value would then be reduced to estimated fair value, which generally
approximates discounted cash flows. The Partnership also evaluates the
amortization periods of assets, including goodwill and other intangible assets,
to determine whether events or circumstances warrant revised estimates of useful
lives.
REVENUE RECOGNITION
Revenues from cable services are recognized as the services are provided.
Management fees are recognized on the accrual basis based on a percentage of
gross revenues of the respective cable television systems managed.
DERIVATIVE FINANCIAL INSTRUMENTS
As part of the Partnership's management of financial market risk and as
required by certain covenants in its Amended and Restated Credit Agreement, the
Partnership enters into various transactions that involve contracts and
financial instruments with off-balance-sheet risk, including interest rate swap
and interest rate cap agreements. The Partnership enters into these agreements
in order to manage the interest-rate sensitivity associated with its
variable-rate indebtedness. The differential to be paid or received in
connection with interest rate swap and interest rate cap agreements is
recognized as interest rates change and is charged or credited to interest
expense over the life of the agreements. Gains or losses for early termination
of those contracts are recognized as an adjustment to interest expense over the
remaining portion of the original life of the terminated contract.
INCOME TAXES
The Partnership and its direct and indirect subsidiaries, except for Falcon
First and ECC, are limited partnerships or limited liability companies and pay
no income taxes as entities. All of the income, gains, losses, deductions and
credits of the Partnership are passed through to its partners. Nominal taxes are
assessed by certain state jurisdictions. The basis in the Partnership's assets
and liabilities differs for financial and tax reporting purposes. At December
31, 1997, the book basis of the Partnership's net assets exceeded its tax basis
by $58.8 million.
Falcon First and ECC are corporations and are subject to federal and state
income taxes, which have not been significant. Deferred taxes relate principally
to the difference between book and tax basis of the cable television assets of
Falcon First, partially offset by the tax effect of related net operating loss
carryforwards.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the 1997
presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-9
<PAGE>
FALCON HOLDING GROUP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--PARTNERSHIP MATTERS
In connection with the acquisition of Falcon First, the Third Amended and
Restated Partnership Agreement (the "Existing FHGLP Partnership Agreement")
became effective on December 28, 1995. The Existing FHGLP Partnership Agreement
provides for Class A, Class B and Class C partnership interests. At December 31,
1997, there were 6,237.05 Class A partnership units and 93,762.95 Class B
partnership units. Class C partnership interests are generally not expressed in
units but are carried at liquidation value. Income and losses of the Partnership
are generally allocated to the General Partner and limited partners in
proportion to the partnership interest held by each Partner. The Class C
partnership interests have certain preferences with respect to the allocation of
income and distributions of the Partnership. On August 1, 1996, the Partnership
received $5.0 million from certain existing limited partners who purchased
additional partnership interests, the proceeds of which were used to temporarily
repay outstanding debt under the Amended and Restated Credit Agreement. These
limited partners also entered into an option agreement to acquire additional
partnership interests in the future for a purchase price of $10 million.
Holders of Class A and B partnership units have voting rights in all
partnership matters requiring a vote; the votes of the holder of Class C
partnership interests are required for certain transactions, generally related
to distributions. Class C partnership interests have a stated value of
approximately $51.4 million which will increase at the annual rate of 8% from
December 28, 1997 to December 27, 1999, 10% from December 28, 1999 to December
27, 2001, and 12% from December 28, 2001 until redemption. The Class C
partnership interests must be redeemed by the Partnership in March 2004 at their
then stated value. Class C partnership interests also have priority in
liquidation over other partnership units in the amount of stated value.
The Existing FHGLP Partnership Agreement provides for certain groups of
holders of partnership units to have certain rights and priorities with respect
to other holders of partnership units. Among these rights are stated obligations
of the Partnership to redeem partnership units at fair value for Class A and B
partnership units, or in the case of Class C partnership interests, as described
above, at stated value. As more fully described below, partnership interests
held by specified groups are subject to mandatory redemption and/or have the
option to require redemption ("puts") of such partnership interests. As
discussed in more detail below, these rights and priorities will be
significantly revised and partially satisfied upon the closing of the TCI
Transaction (as described below). Set forth below is a description of the rights
and priorities contained in the Existing FHGLP Partnership Agreement.
The following table sets forth the holdings and the estimated redemption
rights of each of these groups of holders.
<TABLE>
<CAPTION>
CLASS A CLASS B ESTIMATED
PARTNERSHIP PARTNERSHIP REDEMPTION REDEMPTION VALUE AT
UNITS UNITS RIGHTS DECEMBER 31, 1997
----------- ----------- ------------ -------------------
<S> <C> <C> <C> <C>
Group I Partners.................................... -- 8,658.02 Put $ 17,446,000
Group II Partners................................... 1,368.13 36,748.96 Mandatory 76,809,000
Group III Partners.................................. -- 10,732.30 Put 21,627,000
Group IV Partner (Class B).......................... -- 2,043.33 Put 4,118,000
Group IV Partner (Class C).......................... -- -- Mandatory 51,373,000
----------- ----------- -------------------
Redeemable Partners' Equity......................... 1,368.13 58,182.61 $ 171,373,000
----------- ----------- -------------------
----------- ----------- -------------------
</TABLE>
F-10
<PAGE>
FALCON HOLDING GROUP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--PARTNERSHIP MATTERS (CONTINUED)
The estimated redemption values at December 31, 1997 were based on
management's estimate of the relative fair value of such interests under current
market conditions. The actual redemption value of all partnership interests
(other than Class C partnership interests) will generally be determined through
negotiation or a third party appraisal mechanism at the time such units are put,
and the appraisers will not be bound by historical estimates. Accordingly, such
appraised valuations may be greater than or less than management's estimates and
any such variations could be significant. The redemption value of the Class C
partnership interests will generally be determined based on a formula due to the
preferred status of such Class C interests.
Group I holders have the option to require redemption of one-third of their
partnership units at fair value effective September 1996; two-thirds of their
partnership units effective September 1997; and all of their partnership units
effective September 1998. The September 1996 and 1997 put rights were not
exercised. Subject to certain conditions, the Partnership is required to redeem
the Group II partnership units at fair value during the period July 1, 1998
through June 30, 1999. If Group I holders exercise their put rights (election is
required to be made between December and March prior to the above effective
dates), the Group II partnership units cannot be redeemed until the Group I
redemption has been completed. The Group III partnership units must be redeemed
concurrently with the redemption of the Group II partnership units unless the
Group III holders exercise an option to not be so redeemed. If the Group III
holders exercise their option not to be so redeemed, on the earlier of March 31,
2000 or approximately nine months after the Partnership's purchase of the Group
II partnership units and for every two years thereafter, there will be a 90-day
period during which the Partnership may elect to redeem the Group III
partnership units and the Group III holders may elect to put their Group III
partnership units (which redemption or put shall be effective within 180 days
after the election to redeem or put, as applicable).
The Class C partnership interests held by the Group IV holder may be
repurchased by the Partnership at any time, and from time to time, at a price
equal to the stated value thereof, and are subject to mandatory redemption at
stated value in March 2004. The Group IV holder has the option to require
redemption of its Class B partnership units at fair value at any time after June
30, 2004. Under certain circumstances, the Group IV holder may elect to share in
the existing liquidity rights of the Group II holders. Certain of the
Partnership's debt agreements (including the Amended and Restated Credit
Agreement and the Notes) restrict the Partnership's ability to: (i) make
distributions to fund the purchase of partnership units pursuant to the
redemption provisions described above, (ii) incur indebtedness or issue debt
securities in connection with such purchase, and (iii) sell a substantial amount
of its assets. Absent the TCI Transaction discussed below, there can be no
assurance that the Partnership would be able to satisfy the above obligations
without a recapitalization of the Partnership and a renegotiation of its debt
obligations. If the Partnership fails to purchase certain of the limited
partnership interests within a specified period after the Partnership's purchase
obligations arise, absent an alternative arrangement with the partners,
liquidation of the Partnership's assets would be necessary.
In the event of liquidation, the Partnership is required to distribute
assets and/or the proceeds from liquidation first, to pay all debts and
liabilities outstanding; second, to the holder of the Class C partnership
interests; and finally, to holders of the Class A and Class B partnership
interests in proportion to their respective percentage interests.
In 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
F-11
<PAGE>
FALCON HOLDING GROUP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--PARTNERSHIP MATTERS (CONTINUED)
FHGLP is required to redeem certain partnership interests were tolled in
accordance with 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 TCI Transaction has not closed and the
Contribution Agreement is not terminated prior to December 31, 1998, the tolling
period will be approximately sixteen months and the Partnership would not be
required to purchase the partnership interests held by the Group I, Group II and
Group III partners until the period of January 2000 to October 2000, with the
Class C partnership interests held by the Group IV partner not becoming
mandatorily redeemable until July 2005. If the Contribution Agreement is
terminated prior to December 31, 1998, these new dates would be pushed forward
accordingly and 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.
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 new FHGLP Partnership Agreement.
TCI TRANSACTION
On December 30, 1997 FHGLP entered into a Contribution and Purchase
Agreement (as it may be amended, the "Contribution Agreement") with Falcon
Communications, L.P., a California limited partnership ("New Falcon"), TCI
Falcon Holdings, LLC, a Delaware limited liability company ("TCI"), an affiliate
of Tele-Communications, Inc., the existing partners of FHGLP and certain other
persons (the transactions contemplated by the Contribution Agreement being
referred to collectively as the "TCI Transaction"). The parties to the
Contribution Agreement have agreed to consolidate under the ownership and
control of New Falcon substantially all of the Systems and all of the TCI
systems. The Systems to be contributed to New Falcon include the Systems owned
by Falcon Video Communications, L.P. ("Falcon Video"), an Affiliated
Partnership, which had revenues of $32.1 million for the year ended December 31,
1997. The contributed Systems will represent all of the Owned Systems and all of
the Affiliated Systems currently under the control of FHGLP except for the
Enstar Systems. The TCI systems will be contributed to New Falcon subject to
$429.7 million of existing debt, which will be refinanced. The TCI systems,
which had revenues of $119.5 million for the year ended December 31, 1997, are
located in California, Oregon, Washington, Missouri and Alabama. Following
completion of the TCI Transaction (the "Closing"), the TCI systems will be
consolidated into and operated by the Owned Subsidiaries of the Partnership.
F-12
<PAGE>
FALCON HOLDING GROUP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2--PARTNERSHIP MATTERS (CONTINUED)
New Falcon was organized as a California limited partnership in October
1997. Concurrently with the execution of the Contribution Agreement, FHGLP and
TCI entered into an Amended and Restated Agreement of Limited Partnership of New
Falcon (the "New Falcon Partnership Agreement"). FHGLP will own, subject to
possible adjustment pursuant to the Contribution Agreement, approximately 53% of
the equity of New Falcon and will serve as the managing general partner of New
Falcon. TCI will own, subject to possible adjustment pursuant to the
Contribution Agreement, approximately 47% of the equity of New Falcon (which
equity interest includes the purchase of interests in New Falcon by TCI from
certain limited partners of FHGLP, as described below). FHGI will continue to
serve as the sole general partner of FHGLP. As such, subject to certain
governance provisions set forth in the New Falcon Partnership Agreement, FHGI
and its senior management will manage the business and day-to-day operations of
New Falcon.
As a result of the TCI Transaction, it is contemplated that New Falcon will
initially assume (subject to a subsequent assumption by New Falcon II, as
described below) the rights and obligations of FHGLP under the indenture (the
"Indenture") governing FHGLP's 11% Senior Subordinated Notes due 2003 (the
"Notes"). Accordingly, New Falcon will be substituted for FHGLP as an obligor
under the Notes (subject to such subsequent assumption by New Falcon II). As of
December 31, 1997, the aggregate principal amount of the Notes outstanding was
$282.2 million. In addition, New Falcon will assume certain other indebtedness
of FHGLP and TCI. The TCI Transaction is conditioned upon New Falcon's obtaining
new financing in an amount sufficient to refinance its then existing
indebtedness to be assumed by New Falcon as a result of the TCI Transaction.
The Contribution Agreement provides that immediately following the
consummation of the TCI Transaction, New Falcon will contribute substantially
all of its assets to Falcon Communications, LLC, a newly-formed limited
liability company wholly-owned by New Falcon ("New Falcon II"), subject to
certain indebtedness to be assumed by New Falcon II, including the Notes and the
indebtedness resulting from New Falcon's new financing. Thus, New Falcon II will
be substituted for New Falcon as the obligor under the Notes (which the
Partnership expects to repurchase or redeem prior to October 15, 1998--See Note
7) and the new financing. Any of the Notes then outstanding (see Note 7) will be
redeemed in full by FHGLP (or New Falcon II if the TCI Transaction has closed)
prior to October 15, 1998 in accordance with the redemption provisions of the
Indenture. Although there can be no assurances, the Partnership expects that it
will receive the necessary approvals from its senior lenders to effect such
redemption. The Notes are redeemable at the option of the obligor, in whole or
in part, at any time on or after September 15, 1998, at 105.5% of the
outstanding principal amount, plus accrued interest to the redemption date.
As part of the TCI Transaction, FHGLP will redeem a specified portion of the
partnership interests in FHGLP currently held by certain of the non-management
limited partners of FHGLP (the "Redeemed Partners") in exchange for a portion of
FHGLP's limited partnership interest in New Falcon (the "New Falcon Interests").
Following the redemption, TCI will purchase the New Falcon Interests from the
Redeemed Partners for cash in the approximate aggregate amount of $154.7
million.
The consummation of the TCI Transaction is also subject to, among other
things, the satisfaction of customary closing conditions and the receipt of
certain third-party or governmental approvals, including the consent of
franchising authorities. Although there can be no assurance that such closing
conditions will be satisfied, that the Partnership will be able to obtain new
financing on acceptable terms or that the TCI
F-13
<PAGE>
FALCON HOLDING GROUP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--PARTNERSHIP MATTERS (CONTINUED)
Transaction will be consummated, management presently anticipates that the TCI
Transaction will be completed in the third quarter of 1998.
THE AMENDED PARTNERSHIP AGREEMENT OF FHGLP
Concurrently with the closing of the TCI Transaction, the existing partners
of the Partnership will enter into a Fourth Amended and Restated Agreement of
Limited Partnership of Falcon Holding Group, L.P. (the "New FHGLP Partnership
Agreement"), and two additional persons will be admitted to the Partnership as
limited partners (by virtue of their contribution to the Partnership at the
closing of their interests in Falcon Video). FHGI will remain the general
partner of the Partnership.
The New FHGLP Partnership Agreement will substantially alter the rights and
preferences of the partnership interests held by the Group I, Group II, Group
III and Group IV limited partners. Among other changes, the New FHGLP
Partnership Agreement will (1) provide for only one class of limited partnership
interests; (2) eliminate the existing repurchase/put and conversion rights that
currently apply to the partnership interests held by the Group I, Group II,
Group III and Group IV limited partners and substitute a right of certain
partners under certain circumstances to require that the Partnership or New
Falcon purchase their interests and a right of the Partnership or New Falcon to
purchase those interests; and (3) substantially alter the existing partnership
governance provisions, including eliminating the Board of Representatives and
substantially reducing the scope of partnership matters that require limited
partnership approval and the percentage-in-interest required for such approval.
The New FHGLP Partnership Agreement will also alter the allocation and
distribution preferences that currently exist. Profits and losses will be
allocated, and distributions will be made, in proportion to the partners'
percentage interests, except that following a dissolution of the Partnership,
distributions will be made first, to the two holders of certain interests which
are entitled to the Preferred Return (the "Preferred Interests") until such
partners have received the Preferred Return; second, to all other partners
(excluding the holders of the Preferred Interests) until all partners (including
the holders of the Preferred Interests) have received distributions in
proportion to their percentage interests; thereafter, to all partners (including
the holders of the Preferred Interests) in proportion to their percentage
interests. "Preferred Return" will equal $6 million, plus a 10% return from the
date of the closing of the TCI Transaction.
Prior to closing, the Partnership intends to amend its existing Incentive
Plan to provide for payments by the Partnership at closing to Participants (as
defined under the Plan) in an aggregate amount of approximately $6.6 million and
to reduce by such amount the Partnership's obligations to make future payments
to Participants under the Plan. At closing, New Falcon will assume the
obligations of the Partnership under the Incentive Plan, as so amended, other
than the obligation to make payments at closing. Other than additional
contributions by the General Partner in the amount of payments made by New
Falcon under the Incentive Plan, the partners will not be required to make any
additional capital contributions to the Partnership.
The Partnership is the managing general partner and a limited partner of New
Falcon, and TCI will be a general partner of New Falcon. Other than with respect
to certain partnership matters that require the approval of New Falcon's
Advisory Committee and certain additional partnership matters that require the
approval of TCI, the Partnership has the exclusive authority to manage the
business and operations of New Falcon.
F-14
<PAGE>
FALCON HOLDING GROUP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--PARTNERSHIP MATTERS (CONTINUED)
The Amended and Restated Agreement of Limited Partnership of New Falcon
generally provides that profits and losses will be allocated, and distributions
will be made, in proportion to the partners' percentage interests. Other than
the contributions contemplated by the Contribution Agreement and certain
additional contributions that may be required by the Partnership in connection
with payments by New Falcon under the Incentive Plan, neither the Partnership
nor TCI will be required to make any additional capital contributions to New
Falcon.
NOTE 3--ACQUISITIONS AND SALES
FALCON FIRST
Falcon First, through wholly-owned subsidiaries, owns cable television
systems in Georgia, Alabama, Mississippi and New York. Prior to the acquisition
of Falcon First on December 28, 1995, the Partnership had managed the Falcon
First Systems for a fee and held an indirect, minority interest in its former
parent company, Falcon First Communications, L.P. ("FFCLP"). As a result of the
acquisition, the Falcon First Systems became Owned Systems; previously they were
Affiliated Systems.
The holders of the direct and indirect partnership interests in FFCLP,
excluding the Partnership's affiliates, received newly issued partnership
interests (Class B partnership interests) in the Partnership. In addition,
certain holders of subordinated notes of FFCLP, through a newly-established
holding company, received Class C partnership interests in the Partnership. The
Class C partnership interests are entitled to a stated preference on liquidation
and are mandatorily redeemable in 2004, subject to certain liquidity sharing
rights. As of the closing of the Falcon First acquisition, the Class C
partnership interests were entitled to an aggregate liquidation preference of
approximately $51.4 million. See Note 2.
FALCON CABLE SYSTEMS COMPANY
The Systems of FCSC, acquired through a newly-formed subsidiary operating
partnership on July 12, 1996, serve customers in California and Oregon and were
previously managed by the Partnership as Affiliated Systems. As a result of the
acquisition, the FCSC Systems became Owned Systems.
The assets were acquired at a price determined by an appraisal process
defined in the FCSC partnership agreement. Various legal challenges have been
filed and are pending regarding the appraisal valuations. See Note 8.
The acquisitions of Falcon First and FCSC were accounted for by the purchase
method of accounting, whereby the purchase price of Falcon First was allocated
to the assets and liabilities assumed based on the
F-15
<PAGE>
FALCON HOLDING GROUP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--ACQUISITIONS AND SALES (CONTINUED)
estimated fair values at the date of acquisition, and the purchase price of the
FCSC assets was allocated based on an appraisal, as follows:
<TABLE>
<CAPTION>
FALCON
FIRST FCSC
----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
PURCHASE PRICE:
Class B partnership interests issued................................. $ 9,895 $ --
Class C partnership interests issued................................. 51,373 --
Debt assumed......................................................... 120,621 --
Other liabilities assumed............................................ 3,274 --
Transaction costs.................................................... 5,278 5,625
Asset purchase price determined by appraisal......................... -- 247,397
----------- ----------
190,441 253,022
----------- ----------
FAIR MARKET VALUE OF ASSETS AND LIABILITIES ACQUIRED:
Property, plant and equipment........................................ 33,992 81,941
Franchise costs...................................................... 88,003 69,936
Customer lists and other intangible assets........................... 3,411 75,840
Other assets......................................................... 5,705 7,060
Deferred taxes related to step-up of intangible assets............... 9,048 --
----------- ----------
140,159 234,777
----------- ----------
Excess of Purchase Price over Fair Value of Assets and Liabilities
Acquired......................................................... $ 50,282 $ 18,245
----------- ----------
----------- ----------
</TABLE>
The excess of purchase price over the fair value of net assets acquired has
been recorded as goodwill and is being amortized using the straight-line method
over 20 years.
The Class B partnership interests issued in the Falcon First transaction
were valued in proportion to the Partnership's estimated fair value, which was
agreed upon by all holders of Partnership interests in the Third Amended and
Restated Partnership Agreement, which became effective December 28, 1995. See
Note 2.
The Class C partnership interests were valued at current stated liquidation
value which was equivalent to the unpaid amounts due on the subordinated notes
of FCC.
In connection with the Falcon First transaction, the Partnership entered
into a $435 million Senior Secured Reducing Revolver (the "Bank Credit
Agreement") in order to refinance its existing indebtedness and Falcon First's
existing indebtedness, repay other notes, fund capital expenditures and provide
for general liquidity requirements. On July 12, 1996, in connection with the
acquisition of the FCSC assets, the Partnership further amended the terms of the
Bank Credit Agreement and increased the available borrowings to $775 million
(the "Amended and Restated Credit Agreement") in order to acquire the FCSC
assets, repay other notes, pay transaction and financing costs, and provide
future working capital. See Note 7.
F-16
<PAGE>
FALCON HOLDING GROUP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--ACQUISITIONS AND SALES (CONTINUED)
Sources and uses of funds for each of the transactions were as follows:
<TABLE>
<CAPTION>
FALCON
FIRST FCSC
----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
SOURCES OF FUNDS
Cash in Owned Systems................................................ $ 5,325 $ 7,757
Advance under bank credit facilities................................. 379,000 616,500
----------- ----------
Total sources of funds............................................. $ 384,325 $ 624,257
----------- ----------
----------- ----------
USES OF FUNDS
Repay existing bank debt of the Partnership and of First, including
accrued interest................................................... $ 376,611 $ 370,285
Purchase price of FCSC assets........................................ -- 247,397
Transaction fees and expenses........................................ 5,278 5,625
Available funds...................................................... 2,436 950
----------- ----------
Total uses of funds................................................ $ 384,325 $ 624,257
----------- ----------
----------- ----------
</TABLE>
The following unaudited condensed consolidated pro forma statements of
operations present the consolidated results of operations of the Partnership as
if the acquisitions had occurred at the beginning of the periods presented and
are not necessarily indicative of what would have occurred had the acquisitions
been made as of those dates or of results which may occur in the future.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1995 1996
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Revenues.............................................................. $ 231,498 $ 244,905
Expenses.............................................................. 230,913 237,956
---------- ----------
Operating income.................................................... 585 6,949
Other expenses........................................................ 74,554 82,728
---------- ----------
Loss before income tax benefits..................................... (73,969) (75,779)
Income tax benefit.................................................... 5,994 1,122
---------- ----------
Net loss.............................................................. $ (67,975) $ (74,657)
---------- ----------
---------- ----------
</TABLE>
On July 1, 1996, the Partnership sold certain of the Falcon First assets for
$15 million, the proceeds being used to temporarily repay outstanding debt under
the former Bank Credit Agreement. The cable assets sold generated approximately
1.9% of consolidated revenues for the six months ended June 30, 1996. Given the
proximity of the sale date to the December 28, 1995 acquisition date, the
resulting gain on sale of $3.6 million was recorded as a reduction to goodwill.
NOTE 4--DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
F-17
<PAGE>
FALCON HOLDING GROUP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
CASH AND CASH EQUIVALENTS
The carrying amount approximates fair value due to the short maturity of
those instruments.
NOTES PAYABLE
The fair value of the Partnership's subordinated notes payable is based on
quoted market prices for similar issues of debt with similar remaining
maturities. The carrying amount of the Partnership's remaining debt outstanding
approximates fair value due to its variable rate nature.
INTEREST RATE HEDGING AGREEMENTS
The fair value of interest rate hedging agreements is estimated by obtaining
quotes from brokers as to the amount either party would be required to pay or
receive in order to terminate the agreement.
The following table depicts the fair value of each class of financial
instruments for which it is practicable to estimate that value as of December
31:
<TABLE>
<CAPTION>
1996 1997
----------------------- -----------------------
CARRYING CARRYING
VALUE(1) FAIR VALUE VALUE(1) FAIR VALUE
----------- ---------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and cash equivalents........................................ $ 13,633 $ 13,633 $ 13,917 $ 13,917
Notes Payable (Note 7):
11% Senior subordinated notes(2)............................... 253,537 225,648 282,193 299,125
Amended and Restated Bank Credit Agreement(3).................. 616,000 616,000 606,000 606,000
Other subordinated notes(2).................................... 15,000 16,266 15,000 16,202
Capitalized lease obligations.................................. 141 141 10 10
Other.......................................................... 1,108 1,108 8,018 8,018
----------- ---------- ----------- ----------
<CAPTION>
NOTIONAL FAIR NOTIONAL FAIR
AMOUNT(4) VALUE(5) AMOUNT(4) VALUE(5)
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Interest Rate Hedging Agreements (Note 7):
Interest rate swaps............................................ $ 690,000 $ 79 $ 585,000 $ (371)
Interest rate caps............................................. 70,000 (305) 25,000 (148)
</TABLE>
The carrying value of interest rate swaps and caps was $865,000 and $402,000
at December 31, 1996 and 1997, respectively. See Note 7(e).
- ------------------------
(1) Carrying amounts represent cost basis.
(2) Determined based on quoted market prices of individual trades for those or
similar notes. Accordingly, no inference may be drawn that such valuation
would apply to the entire issue.
(3) Due to the variable rate nature of the indebtedness, the fair value is
assumed to approximate the carrying value.
(4) The amount of debt on which current interest expense has been affected is
$495 million and $520 million for swaps and $45 million and $25 million for
caps, respectively, at December 31, 1996
F-18
<PAGE>
FALCON HOLDING GROUP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
and 1997. The balance of the contract totals presented above reflect
contracts entered into as of December 31 which do not become effective until
1998, at which time effective contracts expire.
(5) The amount that the Partnership estimates it would receive (pay) to
terminate the hedging agreements. This amount is not recognized in the
consolidated financial statements.
NOTE 5--INVESTMENTS IN AFFILIATED PARTNERSHIPS
FHGLP is the general partner of the Affiliated Partnerships shown below.
FHGLP's effective ownership interest in the respective Affiliated Partnerships
is less than one percent. FHGLP's investment in net losses in excess of equity
of the Affiliated Partnerships was approximately $3.2 million at December 31,
1996 and 1997. FHGLP has the right, under certain circumstances, to acquire the
assets of certain of the Affiliated Partnerships. See Notes 2 and 12.
Investments in affiliated partnerships include:
Falcon Classic Cable Investors, L.P., general partner of Falcon Classic
Cable Income Properties, L.P. ("Falcon Classic" or "Classic").
Falcon Video Communications Investors, L.P., general partner of Falcon
Video.
Enstar Partnerships, 15 limited partnerships of which ECC is the
corporate general partner.
Falcon Cable Investors Group, L.P., general partner of FCSC (through July
11, 1996 only. See Note 3).
Falcon First Investors, L.P., general partner of Falcon First
Communications, L.P. (through December 28, 1995 only. See Note 3).
Investments in these partnerships are accounted for on the equity method of
accounting. Equity in net losses are recorded to the extent of FHGLP's
obligations as the general partner of the partnerships, except when the
Partnership, as general partner or through subsidiaries, has guaranteed
obligations of the partnerships.
Summarized financial information of these partnerships is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
AT PERIOD END
Total assets............................................. $ 333,422 $ 216,352 $ 203,885
Total liabilities........................................ 367,383 178,448 171,607
Partners' equity (deficit)............................... (33,961) 37,904 32,278
FOR THE PERIOD
Revenues................................................. $ 164,671 $ 116,241 $ 92,613
Depreciation and amortization............................ 70,994 41,363 32,506
Operating income......................................... 4,460 13,117 9,266
Net loss................................................. (36,648) (7,658) (3,678)
</TABLE>
F-19
<PAGE>
FALCON HOLDING GROUP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cable television systems................................................................ $ 500,697 $ 555,253
Furniture and equipment................................................................. 17,915 19,067
Vehicles................................................................................ 10,861 12,067
Land, buildings and improvements........................................................ 10,575 10,723
----------- -----------
540,048 597,110
Less accumulated depreciation and amortization.......................................... (230,920) (272,551)
----------- -----------
$ 309,128 $ 324,559
----------- -----------
----------- -----------
</TABLE>
NOTE 7--NOTES PAYABLE
Notes payable consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
FHGLP Only:
11% Senior Subordinated Notes(a)........................................................ $ 253,537 $ 282,193
Capitalized lease obligations........................................................... 141 10
Owned Subsidiaries:
Amended and Restated Credit Agreement(b)................................................ 616,000 606,000
Other Subordinated Notes(c)............................................................. 15,000 15,000
Other(d)................................................................................ 1,108 8,018
---------- ----------
$ 885,786 $ 911,221
---------- ----------
---------- ----------
</TABLE>
(A) 11% SENIOR SUBORDINATED NOTES
On March 29, 1993, FHGLP issued $175 million aggregate principal amount of
11% Senior Subordinated Notes due 2003. Interest payment dates are semi-annual
on each March 15 and September 15 commencing September 15, 1993. Through
September 15, 2000 FHGLP, at its option, may pay all or any portion of accrued
interest on the Notes by delivering to the holders thereof, in lieu of cash,
additional Notes having an aggregate principal amount equal to the amount of
accrued interest not paid in cash. Through December 31, 1997, the Partnership
has elected to issue $107.2 million additional notes as payment-in kind for
interest. The Partnership has elected to pay the interest payment due March 15,
1998 in cash, and under the terms of the Notes is required to continue to make
cash payments. The Partnership obtained an amendment to the Amended and Restated
Credit Agreement to permit payment of interest on the Notes in cash. The Notes
represent unsecured general obligations of FHGLP, subordinated in right of
payment to all senior indebtedness of FHGLP in the manner and to the extent set
forth in the Indenture governing the Notes. In addition, the Notes are
effectively subordinated to the claims of creditors of FHGLP's subsidiaries,
including the Owned Partnerships. The Indenture contains, among others,
covenants with respect to: (i) the incurrence of additional indebtedness, (ii)
the making of investments, (iii) the making of restricted payments (as defined
therein), (iv) transactions with affiliates, (v) asset sales (as
F-20
<PAGE>
FALCON HOLDING GROUP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--NOTES PAYABLE (CONTINUED)
defined) and (vi) mergers, consolidations and sales of substantially all assets.
The Indenture's limitation on the incurrence of additional indebtedness 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. Management believes that the
Partnership was in compliance with such covenants as of December 31, 1997.
The Notes are redeemable at the option of the Partnership, in whole or in
part, at any time on or after September 15, 1998, initially at 105.5% of the
outstanding principal amount, plus accrued interest, to the redemption date.
The Partnership is presently pursuing a sale of $300 million of Senior
Debentures due 2010 and of $200 million gross proceeds of Senior Discount
Debentures due 2010 (collectively the "Senior Debentures"). If the Partnership
is successful in selling the Senior Debentures, of which there can be no
assurance, the net proceeds would be used to temporarily repay debt outstanding
under the Amended and Restated Credit Agreement, and the Partnership would
commence a tender offer for the Notes shortly thereafter.
(B) AMENDED AND RESTATED CREDIT AGREEMENT
The Partnership has a $775 million senior secured Amended and Restated
Credit Agreement that matures on July 11, 2005 (see Note 3). The Amended and
Restated Credit Agreement requires the Partnership to make annual reductions of
$1.0 million on the Term Loan commencing December 31, 1997 and requires the
Partnership to make quarterly reductions on the Reducing Revolver commencing
March 31, 1999. Maximum available borrowings under the Amended and Restated
Credit Agreement are $774 million at December 31, 1997 reducing to $185 million
at December 31, 2004. The Amended and Restated Credit Agreement also includes a
$75 million Acquisition Facility that the Partnership may, prior to December 31,
1998, request the Lenders to fund for the sole purpose of acquiring other
businesses or assets and paying the applicable costs of such transactions,
subject to certain terms and conditions. If any borrowings are advanced under
this facility, quarterly repayments shall commence March 31, 1999 or later,
(based on the amounts outstanding under the Reducing Revolver and Term Loan) and
will not have a maturity date earlier than July 11, 2005. The Amended and
Restated Credit Agreement requires interest on the amount outstanding under the
Reducing Revolver to be tied to the ratio of consolidated total debt (as
defined) to consolidated annualized cash flow (as defined). Interest rates are
based on LIBOR or prime rates at the option of the Partnership. The LIBOR margin
under the Reducing Revolver ranges from 0.75% to 1.625%, while interest on the
Term Loan will be the LIBOR rate plus 2.375%.
At December 31, 1997, the weighted average interest rate on borrowings
outstanding under the Amended and Restated Credit Agreement (including the
effects of the interest rate hedging agreements) was 7.69%. The Partnership is
also required to pay a commitment fee per annum on the unused portion. The
commitment fee is computed at 0.375% if the ratio of consolidated total debt to
consolidated annualized operating cash flow is greater than or equal to 4.75x;
if the ratio is less than 4.75x, the fee is computed at 0.25%. As of December
31, 1997, subject to covenant limitations, the Partnership had available
borrowings under the Amended and Restated Credit Agreement of $38.3 million.
Borrowings are collateralized by substantially all of the borrowers' assets
(i.e. substantially all of the operating assets of the Partnership). In
addition, FHGLP pledged certain of its assets to secure the borrowings,
including its stock and partnership interests in its subsidiaries. However, the
lending banks do not have recourse against the assets of FHGI or the limited
partners of FHGLP.
F-21
<PAGE>
FALCON HOLDING GROUP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--NOTES PAYABLE (CONTINUED)
The Amended and Restated Credit Agreement contains various restrictions
relating to, among other items, mergers and acquisitions, investments,
indebtedness, contingent liabilities and sale of property and also contains
restrictions regarding distributions and a change of management or a change in
control (as defined). Additionally, the Amended and Restated Credit Agreement
contains financial covenants which may, among other things, limit the amount the
Partnership may borrow. The Amended and Restated Credit Agreement currently
contains, among others, the following covenants, which provide that (i)
consolidated cash flow to consolidated cash interest expense (as defined) shall
exceed 2.00x; (ii) consolidated total debt (as defined, which definition does
not include the Notes) to consolidated annualized cash flow (as defined) shall
not exceed 5.50 prior to June 29, 1999 reducing to 2.50 after June 30, 2002 and
thereafter; and (iii) consolidated annualized cash flow to consolidated pro
forma debt service (as defined) shall be greater than 110%. Management believes
that the Partnership was in compliance with all financial covenants as of
December 31, 1997.
Substantially all of the assets of the Partnership are held by the Owned
Subsidiaries. The Amended and Restated Credit Agreement contains restrictions
that prohibit the Owned Subsidiaries from transferring assets or making
distributions to FHGLP except for payments on account of management services
provided by FHGLP, which were limited by the former Bank Credit Agreement based
on the lesser of FHGLP's cash flow shortfall (as defined) or 3.75% of
consolidated cable revenues (as defined). The 3.75% limit was raised to 4.25%
under the Amended and Restated Credit Agreement, effective July 12, 1996. For
1996 and 1997 the permitted amount of distributions to FHGLP was $8.4 and $10.4
million; the actual amounts distributed were $3.5 and $6.8 million,
respectively. Accordingly, at December 31, 1997, FHGLP faces a liquidity risk if
it were to experience liquidity requirements in excess of the permitted
distributions.
The Partnership is presently negotiating a new Bank Credit Agreement which
would replace the Amended and Restated Credit Agreement and provide funds for
the Partnership's tender offer for the Notes and the closing of the TCI
Transaction. There can be no assurance that the Partnership will be able to
negotiate a new Bank Credit Facility on acceptable terms.
(C) OTHER SUBORDINATED NOTES
Other Subordinated Notes consist of 11.56% Subordinated Notes due March
2001. The subordinated note agreement contains certain covenants which are
substantially the same as the covenants under the Amended and Restated Credit
Agreement described in (b) above. At December 31, 1997, management believes that
the Partnership was in compliance with such covenants.
(D) OTHER
Other notes payable consist of $7.5 million owed by EFC. On September 30,
1997, EFC obtained a secured bank facility with $35 million of availability from
two agent banks in order to obtain funds that would be loaned to certain Enstar
limited partnerships. The lenders advanced $7.5 million to EFC, which in turn
advanced those funds to a number of Enstar limited partnerships at closing. The
notes bear interest at LIBOR or prime rates at the option of EFC, plus margin
add-ons as defined. The EFC bank facility is non-recourse to the Partnership and
matures on August 31, 2001 at which time all funds previously advanced will be
due in full. The Enstar partnerships utilized these funds to refinance existing
debt and pay deferred management fees due ECC.
F-22
<PAGE>
FALCON HOLDING GROUP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--NOTES PAYABLE (CONTINUED)
(E) INTEREST RATE HEDGING AGREEMENTS
The Partnership utilizes interest rate hedging agreements to establish
long-term fixed interest rates on a portion of its variable-rate debt. The
Amended and Restated Credit Agreement requires that the Partnership maintain
hedging arrangements with respect to at least 50% of its total outstanding
indebtedness, excluding the Notes, for a two year period at rates satisfactory
to the Administrative Agent in order to manage the interest rate sensitivity on
its borrowings. At December 31, 1997, the Partnership participated in interest
rate hedging contracts with an aggregate notional amount of $560 million under
which the Partnership pays interest at fixed rates ranging from 5.22% to 6.55%,
(weighted average rate of 5.79%), and receives interest at variable LIBOR rates.
$40 million of these contracts were not yet effective at December 31, 1997, but
are scheduled to go into effect during 1998 as certain of the existing contracts
mature. The Partnership has reduced this position by entering into an interest
rate hedging contract with a notional amount of $25 million under which it
receives a fixed interest payment at 5.49% and pays interest at a variable LIBOR
rate. The hedging contracts expire between January 1998 and July 2001. Certain
of these contracts with an aggregate notional amount of $145 million provide the
counterparties with an option to extend the maturity of the contracts for one
year on substantially similar terms. The Partnership has also entered into one
LIBOR interest rate cap agreement aggregating $25 million as of December 31,
1997.
The hedging agreements resulted in additional interest expense of $729,000,
$1.0 million and $350,000 for the years ended December 31, 1995, 1996 and 1997,
respectively. The Partnership does not believe that it has any significant risk
of exposure to non-performance by any of its counterparties.
In connection with the decision to make interest payments on the Notes in
cash, the Partnership entered into various interest rate swap agreements with
three banks on February 10, 1998 in order to reduce its 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 approximately $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 rates for the period September 16, 1998 through
September 15, 2003 on a notional principal amount of approximately $297.7
million. The interest rate benefit received by the Partnership will be
recognized over the life of the second interest rate swap agreement.
F-23
<PAGE>
FALCON HOLDING GROUP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--NOTES PAYABLE (CONTINUED)
(F) DEBT MATURITIES
The Partnership's notes payable outstanding at December 31, 1997 mature as
follows:
<TABLE>
<CAPTION>
11% SENIOR OTHER
SUBORDINATED NOTES TO SUBORDINATED
YEAR NOTES BANKS NOTES OTHER TOTAL
- ------------ ------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1998 $ -- $ 1,000 $ -- $ 527 $ 1,527
1999 -- 1,000 -- 1 1,001
2000 -- 1,000 -- -- 1,000
2001 -- 67,000 15,000 7,500 89,500
2002 -- 96,000 -- -- 96,000
Thereafter 282,193 440,000 -- -- 722,193
------------ ------------ ------------ ------ ------------
$ 282,193 $ 606,000 $ 15,000 $ 8,028 $ 911,221
------------ ------------ ------------ ------ ------------
------------ ------------ ------------ ------ ------------
</TABLE>
The maturity date of notes payable may be accelerated upon the occurrence of
certain events. See Note 2.
NOTE 8--COMMITMENTS AND CONTINGENCIES
The Partnership leases land, office space and equipment under operating
leases expiring at various dates through the year 2039. See Note 10.
Future minimum rentals for operating leases at December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
YEAR
- ---------------------------------------------------------- TOTAL
------------
(DOLLARS IN
THOUSANDS)
<S> <C>
1998...................................................... $ 1,954
1999...................................................... 1,798
2000...................................................... 1,651
2001...................................................... 1,488
2002...................................................... 1,386
Thereafter................................................ 2,841
------------
$ 11,118
------------
------------
</TABLE>
In most cases, management expects that, in the normal course of business,
these leases will be renewed or replaced by other leases. Rent expense amounted
to $1.8 million in 1995, $2.1 million in 1996 and $2.4 million in 1997.
In addition, the Partnership rents line space on utility poles in some of
the franchise areas it serves. These rentals amounted to $1.9 million for 1995,
$2.8 million for 1996 and $3.1 million for 1997. Generally, such pole rental
agreements are short-term; however, the Partnership anticipates such rentals
will continue in the future.
Beginning in August 1997, the General Partner elected to self-insure the
Partnership's cable distribution plant and subscriber connections against
property damage as well as possible business interruptions caused by such
damage. The decision to self-insure was made due to significant increases in the
cost of
F-24
<PAGE>
FALCON HOLDING GROUP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--COMMITMENTS AND CONTINGENCIES (CONTINUED)
insurance coverage and decreases in the amount of insurance coverage available.
Management believes that the relatively small size of the Partnership's markets
in any one geographic area coupled with their geographic separation will
mitigate the risk that the Partnership could sustain losses due to seasonal
weather conditions or other events that, in the aggregate, could have a material
adverse effect on the Partnership's liquidity and cash flows. There can be no
assurance that future self-insured losses will not exceed prior costs of
maintaining insurance for these risks. The Partnership continues to purchase
insurance coverage in amounts management views as appropriate for all other
property, liability, automobile, workers' compensation and other types of
insurable risks.
FHGLP holds a general partnership interest in each of the limited
partnerships which are the general partners of the Affiliated Partnerships,
excluding the Enstar Partnerships. Although all the indebtedness for borrowed
money owed by these Affiliated Partnerships to third party institutions is
non-recourse, and each of their respective partnership agreements provide for
indemnification of its general partner, FHGLP may have liability, as a result of
its position as a general partner, with respect to all other obligations of the
Affiliated Partnerships. The Partnership believes, however, that based on
current values of the Affiliated Partnerships, the likelihood of any potential
loss from such obligations is remote.
Other commitments include approximately $29 million at December 31, 1997 to
rebuild certain existing cable systems.
The Partnership is regulated by various federal, state and local government
entities. The Cable Television Consumer Protection and Competition Act of 1992
(the "1992 Cable Act"), provides for among other things, federal and local
regulation of rates charged for basic cable service, cable programming service
tiers ("CPSTs") and equipment and installation services. Regulations issued in
1993 and significantly amended in 1994 by the Federal Communications Commission
(the "FCC") have resulted in changes in the rates charged for the Partnership's
cable services. The Partnership believes that compliance with the 1992 Cable Act
has had a negative impact on its operations and cash flow. It also presently
believes that any potential future liabilities for refund claims or other
related actions would not be material. The Telecommunications Act of 1996 (the
"1996 Telecom Act") was signed into law on February 8, 1996. As it pertains to
cable television, the 1996 Telecom Act, among other things, (i) ends the
regulation of certain CPSTs in 1999; (ii) expands the definition of effective
competition, the existence of which displaces rate regulation; (iii) eliminates
the restriction against the ownership and operation of cable systems by
telephone companies within their local exchange service areas; and (iv)
liberalizes certain of the FCC's cross-ownership restrictions. Because cable
service rate increases have continued to outpace inflation under the FCC's
existing regulations, the Partnership expects Congress and the FCC to explore
additional methods of regulating cable service rate increases, including
deferral or repeal of the March 31, 1999 sunset of CPST regulation.
The Partnership has various contracts to obtain basic and premium
programming for its Systems from program suppliers whose compensation is
generally based on a fixed fee per customer or a percentage of the gross
receipts for the particular service. Some program suppliers provide volume
discount pricing structures or offer marketing support to the Partnership. The
Partnership's programming contracts are generally for a fixed period of time and
are subject to negotiated renewal. The Partnership does not have long-term
programming contracts for the supply of a substantial amount of its programming.
Accordingly, no assurances can be given that the Partnership's programming costs
will not continue to increase substantially or that other materially adverse
terms will not be added to the Partnership's programming
F-25
<PAGE>
FALCON HOLDING GROUP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--COMMITMENTS AND CONTINGENCIES (CONTINUED)
contracts. Management believes, however, that the Partnership's relations with
its programming suppliers generally are good.
The Partnership, certain of its affiliates, and certain third parties have
been named as defendants in an action entitled FRANK O'SHEA I.R.A. ET AL. v.
FALCON CABLE SYSTEMS COMPANY, ET AL., Case No. BC 147386, pending in the
Superior Court of the State of California, County of Los Angeles (the "Action").
Plaintiffs in the Action are certain former unitholders of FCSC purporting to
represent a class consisting of former unitholders of FCSC other than those
affiliated with FCSC and/or its controlling persons. The complaint in the Action
alleges, among other things, that defendants breached their fiduciary and
contractual duties to unitholders, and acted negligently, with respect to the
purchase from former unitholders of their interests in FCSC in 1996. In
particular, the complaint in the Action alleges, among other things, (a) that
the appraisals conducted to determine the price at which the purchase of the
former unitholders' interests would occur were "inadequate", "defective" and
"unreasonable" and that the appraisal firms who conducted the appraisals (two
out of three of which are named as defendants) acted negligently or recklessly
in performing the appraisals; (b) that the price paid per unit was unfair and
was intended to unfairly benefit the defendants at the expense of the public
unitholders, in that allegedly the price paid did not fairly reflect the
intrinsic value of the partnership assets, was not based on arms-length
negotiation, and was less than the per unit value that could be derived from an
alleged estimate of asset value submitted by FCSC to its lenders in connection
with its borrowings; and (c) that the sums paid the unitholders should not have
been based on a calculation that reflected payment to the General Partner of a
"sales fee" as defined in the partnership agreement. As relief, the complaint
seeks damages (and prejudgment interest) in an unspecified amount, and/or the
imposition of a constructive trust upon the partnership assets purchased by
certain defendants, and/or rescission of the transaction. The defendants have
filed answers denying the material allegations of the complaint in the Action,
and the Action is currently in the pre-trial discovery stage. The Court has set
a trial date for October 1998 in this matter. The Partnership believes it has
substantial and meritorious defenses to the claims.
The Partnership is periodically a party to various legal proceedings. Such
legal proceedings are ordinary and routine litigation proceedings that are
incidental to the Partnership's business, and management presently believes that
the outcome of all pending legal proceedings (including the Action) will not, in
the aggregate, have a material adverse effect on the financial condition or
results of operations of the Partnership.
NOTE 9--EMPLOYEE BENEFIT PLANS
The subsidiaries of the Partnership have a cash or deferred profit sharing
plan (the "Profit Sharing Plan") covering substantially all of their employees.
FHGLP joined in the adoption of the FHGI cash or deferred profit sharing plan as
of March 31, 1993. The provisions of this plan were amended to be substantially
identical to the provisions of the Profit Sharing Plan.
The Profit Sharing Plan provides that each participant may elect to make a
contribution in an amount up to 20% of the participant's annual compensation
which otherwise would have been payable to the participant as salary. The
Partnership's contribution to the Profit Sharing Plan, as determined by
management, is discretionary but may not exceed 15% of the annual aggregate
compensation (as defined) paid to all participating employees. There were no
contributions for the Profit Sharing Plan in 1995, 1996 or 1997.
F-26
<PAGE>
FALCON HOLDING GROUP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--EMPLOYEE BENEFIT PLANS (CONTINUED)
On December 30 1993, the Partnership assumed the obligations of FHGI for its
1993 Incentive Performance Plan (the "Incentive Plan"). The value of the
interests in the Incentive Plan is tied to the equity value of certain
partnership units in FHGLP held by FHGI. In connection with the assumption by
the Partnership, FHGI agreed to fund any benefits payable under the Incentive
Plan through additional capital contribution to the Partnership, the waiver of
its rights to receive all or part of certain distributions from the Partnership
and/or a contribution of a portion of its partnership units to the Partnership.
The benefits which are payable under the Incentive Plan are equal to the amount
of distributions which FHGI would have otherwise received with respect to
3,780.14 of the Class B units of the Partnership and 237.98 of the Class A units
of the Partnership held by FHGI and a portion of FHGI's interest in certain of
the general partners of the Affiliated Partnerships. Benefits are payable under
the Incentive Plan only when distributions would otherwise be paid to FHGI with
respect to the above-described units and interests. The Incentive Plan is
scheduled to terminate on January 5, 2003, at which time the Partnership is
required to distribute the units described above to the participants in the
Incentive Plan. At such time, FHGI is required to contribute the units to the
Partnership to fund such distributions. The participants in the Incentive Plan
are present and former employees of the Partnership and its operating
affiliates, all of whom are 100% vested. Prior to the closing of the TCI
Transaction, FHGLP expects to amend the Incentive Plan to provide for payments
by FHGLP at the closing of the TCI Transaction to participants in an aggregate
amount of approximately $6.6 million and to reduce by such amount FHGLP's
obligations to make future payments to participants under the Incentive Plan. At
the closing of the TCI Transaction, New Falcon will assume the obligations of
FHGLP under the Incentive Plan, as so amended, other than the obligation to make
the payments at closing of the TCI Transaction.
NOTE 10--RELATED PARTY TRANSACTIONS
The Partnership (I.E., FHGLP) is a separate, stand-alone holding company
which employs all of the management personnel. In addition, prior to October
1995, the Partnership conducted certain international investment and development
activities. In October 1995, the Partnership sold certain of its international
investments and loans to cable ventures in India and the Philippines to Falcon
International Communications, LLC ("FIC"), a newly-formed, separately
capitalized entity (or FIC's affiliates), for approximately $6.3 million in
cash. FHGLP was reimbursed approximately $1.9 and $1.1 million by FIC for 1995
and 1996 operating costs related to these investments. The Partnership expects
to incur no further liquidity obligations in respect of international
investments, although the amount of reimbursement FHGLP receives from FIC with
respect to the salaries of certain of its employees has been significantly
reduced for 1997. Certain members of the Partnership's management also are
officers of, and hold equity interests in, FIC.
F-27
<PAGE>
FALCON HOLDING GROUP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--RELATED PARTY TRANSACTIONS (CONTINUED)
FHGLP is financially dependent on the receipt of permitted payments from the
Owned Systems, management and consulting fees from domestic cable ventures, and
the reimbursement of specified expenses by certain of the Affiliated Systems to
fund its operations. 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. Specifically, the Amended
and Restated Credit Agreement permits the subsidiaries of the Partnership to
remit to FHGLP no more than 4.25% of their net cable revenues, as defined, in
any year, effective July 12, 1996. As a result of the 1998 acquisition by FHGLP
of the Falcon Classic Systems, FHGLP will no longer receive management fees and
reimbursed expenses from Classic.
The management and consulting fees and expense reimbursements earned from
the Affiliated Partnerships amounted to approximately $8.6 million and $5.5
million, $6.3 million and $3.7 million (including the $1.9 and $1.1 million
mentioned above related to international expenses) and $5.2 million and $2.1
million for the years ended December 31, 1995, 1996 and 1997, respectively. The
fees of $8.6 million earned in 1995 include $1.6 million from Falcon First
(based on 5% of its net cable revenues, as defined). The fees and expense
reimbursements of $6.3 million and $3.7 million earned in 1996 included $1.5
million and $1.0 million earned from FCSC from January 1, 1996 through July 11,
1996. Subsequent to these acquisitions, the amounts payable to FHGLP in respect
of its management of the former Falcon First and FCSC Systems became subject to
the 4.25% limitation contained in the Amended and Restated Credit Agreement.
Receivables from the Affiliated Partnerships for services and reimbursements
described above amounted to approximately $6.5 million and $11.3 million (which,
in 1997, includes $7.5 million of notes receivable from the Enstar Systems) at
December 31, 1996 and 1997. The amount due at December 31, 1996 includes
approximately $3.6 million related to fees and reimbursements deferred as a
result of the liquidity constraints experienced by the Affiliated Partnerships,
or decisions made by the Partnership.
Included in Commitments and Contingencies (Note 8) are two facility lease
agreements with the Partnership's Chief Executive Officer and his wife, or
entities owned by them, requiring annual future minimum rental payments
aggregating $2.1 million through 2001, one facility being assumed by an Owned
Subsidiary as part of the assets acquired on July 12, 1996 from FCSC. That Owned
Subsidiary intends to acquire the property for $282,500, a price determined by
two independent appraisals. During the years ended December 31, 1995, 1996 and
1997 rent expense on the first facility amounted to $416,000, $397,000 and
$383,000, respectively. The rent paid for the second facility for the period
July 12, 1996 through December 31, 1996 amounted to approximately $18,000, and
the amount paid in 1997 was approximately $41,000.
In addition, the Partnership provides certain accounting, bookkeeping and
clerical services to the Partnership's Chief Executive Officer. The costs of
services provided were determined based on allocations of time plus overhead
costs (rent, parking, supplies, telephone, etc.). Such services amounted to
$180,000, $118,300 and $163,000 for the years ended December 31, 1995, 1996 and
1997, respectively. These costs were net of amounts reimbursed to the
Partnership by the Chief Executive Officer amounting to $66,000, $75,000 and
$55,000 for the years ended December 31, 1995, 1996 and 1997, respectively.
F-28
<PAGE>
FALCON HOLDING GROUP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--OTHER INCOME (EXPENSE)
Other income (expense) is comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Gain on sale of Available-for-Sale Securities................. $ 13,267 $ 2,264 $ --
Gain on insured casualty losses............................... -- -- 3,476
Write down of investment...................................... -- (1,000) --
Loss on sale of investment.................................... -- -- (1,360)
Lawsuit settlement costs, net of $500,000 insurance
recovery.................................................... -- -- (1,030)
Other, net.................................................... (190) (450) (201)
--------- --------- ---------
$ 13,077 $ 814 $ 885
--------- --------- ---------
--------- --------- ---------
</TABLE>
NOTE 12--SUBSEQUENT EVENTS
In March 1998 the Partnership paid to 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 substantially all of the
assets of Falcon Classic, other than the system serving the City of Somerset,
Kentucky. The Partnership also paid approximately $1.2 million to the settlement
fund, a portion of which will be reimbursed by insurance. 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 13--SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
OPERATING ACTIVITIES
During the years ended December 31, 1995, 1996 and 1997, the Partnership
paid cash interest amounting to approximately $30.8 million, $39.7 million and
$48.1 million, respectively.
INVESTING ACTIVITIES
See Note 3 regarding the non-cash investing activities related to the
acquisitions of Falcon First and the cable systems of FCSC.
FINANCING ACTIVITIES
See Note 3 regarding the non-cash financing activities relating to the
acquisitions of Falcon First and the cable systems of FCSC. See Note 2 regarding
the reclassification to redeemable partners' equity.
NOTE 14--FALCON HOLDING GROUP, L.P. (PARENT COMPANY ONLY)
The following parent-only condensed financial information presents Falcon
Holding Group, L.P.'s balance sheets and related statements of operations and
cash flows by accounting for the investments in
F-29
<PAGE>
FALCON HOLDING GROUP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14--FALCON HOLDING GROUP, L.P. (PARENT COMPANY ONLY) (CONTINUED)
the Owned Subsidiaries on the equity method of accounting. The accompanying
condensed financial information should be read in conjunction with the
consolidated financial statements and notes thereto.
CONDENSED BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1996 1997
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS:
Cash and cash equivalents............................................................. $ 6,706 $ 8,177
Receivables:
Intercompany notes and accrued interest receivable.................................. 203,827 226,437
Due from affiliates and other entities, of which $17,839,000 and $23,374,000 are
contractually restricted or otherwise deferred (see Note 10)...................... 20,944 25,340
Prepaid expenses and other............................................................ 202 711
Investments in affiliated partnerships................................................ 12,830 12,827
Other investments..................................................................... 3,580 1,519
Property, plant and equipment, less accumulated depreciation and amortization......... 1,180 1,323
Deferred loan costs, less accumulated amortization.................................... 5,721 4,846
----------- -----------
$ 254,990 $ 281,180
----------- -----------
----------- -----------
LIABILITIES AND PARTNERS' DEFICIT
LIABILITIES:
Notes payable......................................................................... $ 141 $ 10
11% Senior Subordinated Notes......................................................... 253,537 282,193
Accounts payable...................................................................... 266 179
Accrued expenses...................................................................... 11,702 14,025
Equity in net losses of Owned Subsidiaries in excess of investment.................... 173,941 230,155
----------- -----------
TOTAL LIABILITIES....................................................................... 439,587 526,562
REDEEMABLE PARTNERS' EQUITY............................................................. 271,902 171,373
PARTNERS' DEFICIT....................................................................... (456,499) (416,755)
----------- -----------
$ 254,990 $ 281,180
----------- -----------
----------- -----------
</TABLE>
F-30
<PAGE>
FALCON HOLDING GROUP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14--FALCON HOLDING GROUP, L.P. (PARENT COMPANY ONLY) (CONTINUED)
CONDENSED STATEMENT OF OPERATIONS INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
REVENUES:
Management fees:
Affiliated Partnerships................................................... $ 6,196 $ 3,962 $ 2,873
Owned Subsidiaries........................................................ 8,509 12,020 13,979
International and other................................................... 639 413 281
---------- ---------- ----------
Total revenues.......................................................... 15,344 16,395 17,133
---------- ---------- ----------
EXPENSES:
General and administrative expenses......................................... 10,309 9,096 11,328
Depreciation and amortization............................................... 608 375 274
---------- ---------- ----------
Total expenses.......................................................... 10,917 9,471 11,602
---------- ---------- ----------
Operating income........................................................ 4,427 6,924 5,531
OTHER INCOME (EXPENSE):
Interest income............................................................. 17,623 19,884 22,997
Interest expense............................................................ (24,796) (27,469) (30,485)
Equity in net losses of Owned Subsidiaries.................................. (16,392) (50,351) (56,422)
Equity in net losses of investee partnerships............................... (5,843) (73) (4)
Other, net.................................................................. (254) 1,100 (2,455)
---------- ---------- ----------
NET LOSS...................................................................... $ (25,235) $ (49,985) $ (60,838)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-31
<PAGE>
FALCON HOLDING GROUP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14--FALCON HOLDING GROUP, L.P. (PARENT COMPANY ONLY) (CONTINUED)
CONDENSED STATEMENT OF CASH FLOWS INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net cash provided by (used in) operating activities................................. $ 1,427 $ (8,969) $ 1,478
--------- --------- ---------
Cash flows from investing activities:
Distributions from affiliated partnerships........................................ -- 773 --
Capital expenditures.............................................................. (444) (242) (417)
Investments in affiliated partnerships and other investments...................... (666) (9,000) (254)
Proceeds from sale of investments and other assets................................ 1,856 3 702
Proceeds from sale of available-for-sale securities............................... -- 9,502 --
--------- --------- ---------
Net cash provided by investing activities........................................... 746 1,036 31
--------- --------- ---------
Cash flows from financing activities:
Repayment of debt................................................................. (121) (120) (131)
Capital contributions............................................................. -- 5,000 93
--------- --------- ---------
Net cash provided by (used in) financing activities................................. (121) 4,880 (38)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents................................ 2,052 (3,053) 1,471
Cash and cash equivalents, at beginning of year..................................... 7,707 9,759 6,706
--------- --------- ---------
Cash and cash equivalents, at end of year........................................... $ 9,759 $ 6,706 $ 8,177
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-32
<PAGE>
FALCON HOLDING GROUP, L.P.
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31,
1998
------------
(UNAUDITED)
(DOLLARS IN
THOUSANDS)
<S> <C>
ASSETS:
Cash and cash equivalents......................................................................... $ 11,162
Receivables:
Trade, less allowance of $781,000 for possible losses........................................... 12,291
Affiliates...................................................................................... 11,309
Other assets...................................................................................... 15,647
Other investments................................................................................. 1,555
Property, plant and equipment, less accumulated depreciation and amortization of $275,806,000..... 358,074
Franchise cost, less accumulated amortization of $211,870,000..................................... 218,844
Goodwill, less accumulated amortization of $20,010,000............................................ 71,487
Customer lists and other intangible costs, less accumulated amortization of $28,578,000........... 88,360
Deferred loan costs, less accumulated amortization of $7,681,000.................................. 11,597
------------
$ 800,326
------------
------------
LIABILITIES AND PARTNERS' DEFICIT
LIABILITIES:
Notes payable..................................................................................... $ 1,001,054
Accounts payable.................................................................................. 6,476
Accrued expenses.................................................................................. 44,812
Customer deposits and prepayments................................................................. 1,652
Deferred income taxes............................................................................. 7,026
Minority interest................................................................................. 346
Equity in losses of affiliated partnerships in excess of investment............................... 3,251
------------
TOTAL LIABILITIES................................................................................... 1,064,617
------------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PARTNERS' EQUITY......................................................................... 171,373
------------
PARTNERS' DEFICIT:
General partner................................................................................... (13,389)
Limited partners.................................................................................. (422,275)
------------
TOTAL PARTNERS' DEFICIT............................................................................. (435,664)
------------
$ 800,326
------------
------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-33
<PAGE>
FALCON HOLDING GROUP, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
UNAUDITED
----------------------
THREE MONTHS ENDED
MARCH 31,
----------------------
1997 1998
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
REVENUES.................................................................................. $ 63,984 $ 64,557
---------- ----------
EXPENSES:
Service costs........................................................................... 18,295 19,565
General and administrative expenses..................................................... 11,179 11,678
Depreciation and amortization........................................................... 29,793 31,079
---------- ----------
Total expenses........................................................................ 59,267 62,322
---------- ----------
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
---------- ----------
NET LOSS.................................................................................. $ (15,335) $ (18,909)
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-34
<PAGE>
FALCON HOLDING GROUP, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
UNAUDITED
----------------------
THREE MONTHS ENDED
MARCH 31,
----------------------
1997 1998
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net cash provided by operating activities................................................. $ 15,322 $ 2,729
---------- ----------
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
---------- ----------
Net cash used in investing activities................................................. (10,941) (95,318)
---------- ----------
Cash flows from financing activities:
Borrowings from notes payable........................................................... 8,000 96,472
Repayment of debt....................................................................... (15,179) (6,638)
Other................................................................................... 24 --
---------- ----------
Net cash provided by (used in) financing activities................................... (7,155) 89,834
---------- ----------
Net decrease in cash and cash equivalents................................................. (2,774) (2,755)
Cash and cash equivalents at beginning of period.......................................... 13,633 13,917
---------- ----------
Cash and cash equivalents at end of period................................................ $ 10,858 $ 11,162
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-35
<PAGE>
FALCON HOLDING GROUP, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 Companys"), which are Affiliated Systems.
NOTE 2--INTERIM FINANCIAL STATEMENTS
The interim financial statements for the three months ended March 31, 1997
and 1998 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.
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. On July 16, 1998, the Partnership completed
the acquisition of the City of Somerset assets for approximately $6.5 million.
F-36
<PAGE>
FALCON HOLDING GROUP, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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 $633.29 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") which expired on May 18, 1998. On May 19, 1998, the
Partnership repurchased approximately $247.8 million aggregate principal amount
of the 11% Notes with borrowings under the Partnership's Amended and Restated
Credit Agreement. The remaining aggregate amount of 11% Notes not tendered of
approximately $34.4 million will be redeemed prior to October 15, 1998 in
accordance with the redemption provisions of the indenture governing the 11%
Notes. The Partnership recorded an extraordinary loss of $19.6 million relating
to the tender of the 11% Notes.
On June 30, 1998, the Partnership entered into a new bank credit agreement
(the "New Credit Facility"). The Partnership borrowed approximately $425.8
million under the New Credit Facility on June 30, 1998, approximately $329
million of which was used to repay the remaining indebtedness outstanding under
the Company's existing Amended and Restated Credit Agreement.
F-37
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors:
TCI Communications, Inc.:
We have audited the accompanying combined balance sheets of the TCI Falcon
Systems (as defined in Note 1 to the combined financial statements) as of
December 31, 1996 and 1997, and the related combined statements of operations
and parent's investment and cash flows for each of the years in the three-year
period ended December 31, 1997. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the TCI Falcon
Systems as of December 31, 1996 and 1997, and the results of their operations
and their cash flows for each of the years in the three-year period ended
December 31, 1997, in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Denver, Colorado
March 4, 1998
F-38
<PAGE>
TCI FALCON SYSTEMS
(DEFINED IN NOTE 1)
COMBINED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
---------- ----------
AMOUNTS IN THOUSANDS
<S> <C> <C>
ASSETS
Cash...................................................................................... $ 2,614 --
Trade and other receivables, net.......................................................... 3,021 4,665
Property and equipment, at cost:
Land.................................................................................... 1,017 1,232
Distribution systems.................................................................... 133,312 137,767
Support equipment and buildings......................................................... 16,804 18,354
---------- ----------
151,133 157,353
Less accumulated depreciation........................................................... 58,658 69,857
---------- ----------
92,475 87,496
---------- ----------
Franchise costs........................................................................... 393,292 393,540
Less accumulated amortization........................................................... 52,436 62,849
---------- ----------
340,856 330,691
---------- ----------
Other assets, at cost, net of amortization................................................ 589 714
---------- ----------
$ 439,555 423,566
---------- ----------
---------- ----------
LIABILITIES AND PARENT'S INVESTMENT
Cash overdraft............................................................................ $ -- 5,209
Accounts payable.......................................................................... 135 350
Accrued expenses.......................................................................... 3,284 3,487
Deferred income taxes (note 4)............................................................ 114,002 121,183
---------- ----------
Total liabilities....................................................................... 117,421 130,229
Parent's investment (note 5).............................................................. 322,134 293,337
---------- ----------
Commitments and contingencies (note 7).................................................... $ 439,555 423,566
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to combined financial statements.
F-39
<PAGE>
TCI FALCON SYSTEMS
(DEFINED IN NOTE 1)
COMBINED STATEMENTS OF OPERATIONS AND PARENT'S INVESTMENT
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
---------- --------- ---------
AMOUNTS IN THOUSANDS
<S> <C> <C> <C>
Revenue......................................................................... $ 87,086 102,155 113,897
Operating costs and expenses:
Operating (note 6)............................................................ 28,245 33,521 39,392
Selling, general and administrative........................................... 18,265 21,695 19,687
Administrative fees (note 6).................................................. 4,085 5,768 5,034
Depreciation.................................................................. 11,316 12,077 12,724
Amortization.................................................................. 7,235 8,184 9,785
---------- --------- ---------
69,146 81,245 86,622
---------- --------- ---------
Operating income.............................................................. 17,940 20,910 27,275
Other income (expense):
Intercompany interest expense (note 6)........................................ (5,923) (4,701) (5,832)
Other, net.................................................................... 16 (44) (84)
---------- --------- ---------
(5,907) (4,745) (5,916)
---------- --------- ---------
Earnings before income taxes.................................................. 12,033 16,165 21,359
Income tax expense (note 4)..................................................... (4,758) (6,239) (8,808)
---------- --------- ---------
Net earnings.................................................................. 7,275 9,926 12,551
Parent's investment:
Beginning of year............................................................. 225,354 265,497 322,134
Change in due to TCI Communications, Inc. ("TCIC")............................ 32,868 46,711 (41,348)
---------- --------- ---------
End of year................................................................... $ 265,497 322,134 293,337
---------- --------- ---------
---------- --------- ---------
</TABLE>
See accompanying notes to combined financial statements.
F-40
<PAGE>
TCI FALCON SYSTEMS
(DEFINED IN NOTE 1)
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
---------- --------- ---------
AMOUNTS IN THOUSANDS
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings................................................................... $ 7,275 9,926 12,551
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization................................................ 18,551 20,261 22,509
Deferred income tax expense.................................................. 869 4,533 7,181
Changes in operating assets and liabilities, net of effects of acquisitions:
Change in receivables...................................................... (1,042) (55) (1,644)
Change in other assets..................................................... (139) (248) (125)
Change in accounts payable and accrued expenses............................ 708 (473) 418
---------- --------- ---------
Net cash provided by operating activities................................ 26,222 33,944 40,890
---------- --------- ---------
Cash flows from investing activities:
Capital expended for property and equipment.................................... (15,877) (13,278) (7,586)
Cash paid for acquisitions..................................................... (47,490) (68,240) --
Cash proceeds from sale of assets, at book value, to TCIC...................... 5,088 -- --
Other investing activities..................................................... 850 732 221
---------- --------- ---------
Net cash used in investing activities.................................... (57,429) (80,786) (7,365)
---------- --------- ---------
Cash flows from financing activities:
Change in due to TCIC.......................................................... 32,868 46,711 (41,348)
Change in cash overdraft....................................................... -- -- 5,209
---------- --------- ---------
Net cash provided by (used in) financing activities...................... 32,868 46,711 (36,139)
---------- --------- ---------
Net increase (decrease) in cash.......................................... 1,661 (131) (2,614)
Cash:
Beginning of year...................................................... 1,084 2,745 2,614
---------- --------- ---------
End of year............................................................ $ 2,745 2,614 --
---------- --------- ---------
---------- --------- ---------
Supplemental disclosure of cash flow information:
Cash paid during the year for interest......................................... $ 5,923 4,701 5,832
---------- --------- ---------
---------- --------- ---------
Cash paid during the year for income taxes..................................... $ 78 86 140
---------- --------- ---------
---------- --------- ---------
</TABLE>
See accompanying notes to combined financial statements.
F-41
<PAGE>
TCI FALCON SYSTEMS
(DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
(1) BASIS OF PRESENTATION
The combined financial statements include the accounts of thirteen of TCIC's
cable television systems serving certain subscribers within Oregon, Washington,
Alabama, Missouri and California (collectively, the "TCI Falcon Systems"). The
TCI Falcon Systems are indirectly wholly-owned by various subsidiaries of TCIC.
TCIC is a subsidiary of Tele-Communications, Inc. ("TCI"). All significant
inter-entity accounts and transactions have been eliminated in combination.
The TCI Falcon Systems have been acquired through a series of transactions
where TCIC acquired various larger cable entities (the "Original Systems"). The
TCI Falcon Systems' combined financial statements include an allocation of
certain purchase accounting adjustments, including the related deferred tax
effects, from TCIC's acquisition of the Original Systems. Such allocation and
the related franchise cost amortization is based on the relative fair market
value of systems involved. In addition, certain operating costs of TCI are
charged to the TCI Falcon Systems based on their number of subscribers (see note
6). Although such allocations are not necessarily indicative of the costs that
would have been incurred by the TCI Falcon Systems on a stand alone basis,
management believes that the resulting allocated amounts are reasonable.
PROPOSED PARTNERSHIP FORMATION
Effective December 30, 1997, TCIC and Falcon Holding Group, LP ("Falcon")
entered into a Contribution and Purchase Agreement, pursuant to which TCIC will
contribute the TCI Falcon Systems to a newly formed partnership (the
"Partnership") between TCIC and Falcon in exchange for an approximate 47%
ownership interest in the Partnership. In addition, the Partnership will assume
a portion of the intercompany amounts owed by the TCI Falcon Systems to TCIC and
its affiliates. Consummation of the transaction is subject to, among other
matters, regulatory approvals. There is no assurance that such transaction will
be consummated.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
RECEIVABLES
Receivables are reflected net of an allowance for doubtful accounts. Such
allowance at December 31, 1996 and 1997 was not significant.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, including acquisition costs
allocated to tangible assets acquired. Construction costs, including interest
during construction and applicable overhead, are capitalized. During 1995, 1996
and 1997, interest capitalized was not significant.
Depreciation is computed on a straight-line basis using estimated useful
lives of 3 to 15 years for distribution systems and 3 to 40 years for support
equipment and buildings.
Repairs and maintenance are charged to operations, and renewals and
additions are capitalized. At the time of ordinary retirements, sales or other
dispositions of property, the original cost and cost of removal of such property
are charged to accumulated depreciation, and salvage, if any, is credited
thereto. Gains or losses are only recognized in connection with the sales of
systems in their entirety.
F-42
<PAGE>
TCI FALCON SYSTEMS
(DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FRANCHISE COSTS
Franchise costs include the difference between the cost of acquiring cable
television systems and amounts assigned to their tangible assets. Such amounts
are generally amortized on a straight-line basis over 40 years. Costs incurred
by the TCI Falcon Systems in negotiating and renewing franchise agreements are
amortized on a straight-line basis over the life of the franchise, generally 10
to 20 years.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company periodically reviews the carrying amounts of property, plant and
equipment and its intangible assets to determine whether current events or
circumstances warrant adjustments to such carrying amounts. If an impairment
adjustment is deemed necessary, such loss is measured by the amount that the
carrying value of such assets exceeds their fair value. Considerable management
judgment is necessary to estimate the fair value of assets, accordingly, actual
results could vary significantly from such estimates.
REVENUE RECOGNITION
Cable revenue for customer fees, equipment rental, advertising, pay-per-view
programming and revenue sharing agreements is recognized in the period that
services are delivered. Installation revenue is recognized in the period the
installation services are provided to the extent of direct selling costs. Any
remaining amount is deferred and recognized over the estimated average period
that customers are expected to remain connected to the cable television system.
COMBINED STATEMENTS OF CASH FLOWS
Transactions effected through the intercompany account with TCIC have been
considered constructive cash receipts and payments for purposes of the combined
statements of cash flows.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
(3) ACQUISITIONS
On July 31, 1996, pursuant to certain agreements entered into among TCIC,
TCI, Viacom International, Inc. and Viacom, Inc. ("Viacom"), TCIC acquired all
of the common stock of a subsidiary of Viacom which owned Viacom's cable systems
and related assets (the "Viacom Acquisition"). The purchase price for the Viacom
Acquisition was comprised of $1.7 billion in assumed debt and the issuance of
$0.6 billion in preferred stock. In connection with the Viacom Acquisition, the
Redding, California cable system ("Redding") was transferred to the TCI Falcon
Systems at TCIC's allocated cost of approximately $68 million, which amount has
been reflected as an increase in due to TCIC in the accompanying combined
financial statements.
F-43
<PAGE>
TCI FALCON SYSTEMS
(DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(3) ACQUISITIONS (CONTINUED)
The acquisition of Redding has been accounted for by the purchase method by
the TCI Falcon Systems. Accordingly, the results of operations of Redding have
been combined with those of the TCI Falcon Systems since the date of
acquisition, and the TCI Falcon Systems have recorded Redding's assets and
liabilities at fair value. On a pro forma basis, the TCI Falcon Systems' revenue
and net earnings would have been increased by $8,273,000 and decreased by
$474,000, respectively, for the year ended December 31, 1996 had Redding been
combined with the TCI Falcon Systems on January 1, 1996. The foregoing unaudited
pro forma financial information is based upon historical results of operations
adjusted for acquisition costs and, in the opinion of management, is not
necessarily indicative of the results had the TCI Falcon Systems operated
Redding since January 1, 1996.
As of January 26, 1995, TCI, TCIC and TeleCable Corporation ("TeleCable")
consummated a transaction, whereby TeleCable was merged into TCIC. The TeleCable
acquisition has been accounted for by the purchase method. The aggregate $1.6
billion purchase price was satisfied by TCIC's assumption of approximately $300
million of TeleCable's net liabilities and the issuance to TeleCable
shareholders of TCI Class A common stock and TCI Convertible Preferred Stock,
Series D. In connection with the TeleCable acquisition, the Decatur, Alabama
cable system was transferred to the TCI Falcon Systems at TCIC's allocated cost
of approximately $47 million, which amount has been reflected as an increase in
due to TCIC in the accompanying combined financial statements.
(4) INCOME TAXES
The TCI Falcon Systems are included in the consolidated federal income tax
return of TCI. Income tax expense for the TCI Falcon Systems is based on those
items in the consolidated calculation applicable to the TCI Falcon Systems.
Intercompany tax allocation represents an apportionment of tax expense or
benefit (other than deferred taxes) among subsidiaries of TCI in relation to
their respective amounts of taxable earnings or losses. The payable or
receivable arising from the intercompany tax allocation is recorded as an
increase or decrease in due to TCIC. Deferred income taxes are based on the book
and tax basis differences of the assets and liabilities within the TCI Falcon
Systems.
F-44
<PAGE>
TCI FALCON SYSTEMS
(DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(4) INCOME TAXES (CONTINUED)
Income tax expense for the years ended December 31, 1995, 1996 and 1997
consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
--------- ----------- ---------
AMOUNTS IN THOUSANDS
<S> <C> <C> <C>
Year ended December 31, 1995:
Intercompany allocation.......................................................... $ (3,811) -- (3,811)
Federal.......................................................................... -- (387) (387)
State and local.................................................................. (78) (482) (560)
--------- ----------- ---------
$ (3,889) (869) (4,758)
--------- ----------- ---------
--------- ----------- ---------
Year ended December 31, 1996:
Intercompany allocation.......................................................... $ (1,620) -- (1,620)
Federal.......................................................................... -- (4,032) (4,032)
State and local.................................................................. (86) (501) (587)
--------- ----------- ---------
$ (1,706) (4,533) (6,239)
--------- ----------- ---------
--------- ----------- ---------
Year ended December 31, 1997:
Intercompany allocation.......................................................... $ (1,487) -- (1,487)
Federal.......................................................................... -- (5,862) (5,862)
State and local.................................................................. (140) (1,319) (1,459)
--------- ----------- ---------
$ (1,627) (7,181) (8,808)
--------- ----------- ---------
--------- ----------- ---------
</TABLE>
Income tax expense differs from the amounts computed by applying the federal
income tax rate of 35% as a result of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
AMOUNTS IN THOUSANDS
<S> <C> <C> <C>
Computed "expected" tax expense...................................................... $ (4,212) (5,658) (7,476)
Amortization not deductible for tax purposes......................................... (155) (178) (265)
State and local income taxes, net of federal income tax benefit...................... (364) (382) (948)
Other................................................................................ (27) (21) (119)
--------- --------- ---------
$ (4,758) (6,239) (8,808)
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-45
<PAGE>
TCI FALCON SYSTEMS
(DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(4) INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax asset and deferred tax liabilities at December 31,
1996 and 1997 are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1997
---------- ---------
AMOUNTS IN THOUSANDS
<S> <C> <C>
Deferred tax asset--principally due to non-deductible accruals............................. $ 81 128
---------- ---------
Deferred tax liabilities:
Property and equipment, principally due to differences in depreciation................... 18,195 20,985
Franchise costs, principally due to differences in amortization and initial basis........ 95,888 100,326
---------- ---------
Total gross deferred tax liabilities................................................... 114,083 121,311
---------- ---------
Net deferred tax liability............................................................. $ 114,002 121,183
---------- ---------
---------- ---------
</TABLE>
(5) PARENT'S INVESTMENT
Parent's investment in the TCI Falcon Systems at December 31, 1996 and 1997
is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1997
---------- ---------
AMOUNTS IN THOUSANDS
<S> <C> <C>
Due to TCIC................................................................................ $ 260,807 219,459
Retained earnings.......................................................................... 61,327 73,878
---------- ---------
$ 322,134 293,337
---------- ---------
---------- ---------
</TABLE>
The amount due to TCIC represents advances for operations, acquisitions and
construction costs as well as the allocation of certain costs from TCIC. See
note 6.
(6) TRANSACTIONS WITH RELATED PARTIES
The amounts due to TCIC consist of various intercompany advances and expense
allocations. TCIC charges intercompany interest expense at variable rates to
cable systems within the TCI Falcon Systems based upon amounts due to TCIC from
the cable systems. As a result of TCIC's ownership of 100% of the TCI Falcon
Systems, the amounts due to TCIC have been classified as a component of parent's
investment in the accompanying combined financial statements. Such amounts are
due on demand.
The TCI Falcon Systems purchase, at TCIC's cost, substantially all of their
pay television and other programming from affiliates of TCIC. Charges for such
programming were $15,774,000, $20,248,000 and $25,500,000 for 1995, 1996 and
1997, respectively, and are included in operating expenses in the accompanying
combined financial statements.
Certain subsidiaries of TCIC provide administrative services to the TCI
Falcon Systems and have assumed managerial responsibility of the TCI Falcon
Systems' cable television system operations and construction. As compensation
for these services, the TCI Falcon Systems pay a monthly fee calculated on a
per-subscriber basis.
F-46
<PAGE>
TCI FALCON SYSTEMS
(DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(6) TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
The intercompany advances and expense allocation activity in amounts due to
TCIC consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1995 1996 1997
---------- --------- ---------
AMOUNTS IN THOUSANDS
<S> <C> <C> <C>
Beginning of year............................................................... $ 181,228 214,096 260,807
Transfer of cable system acquisition purchase price........................... 47,490 68,240 --
Programming charges........................................................... 15,774 20,248 25,500
Administrative fees........................................................... 4,085 5,768 5,034
Intercompany interest expense................................................. 5,923 4,701 5,832
Tax allocations............................................................... 3,811 1,620 1,487
Cash transfer................................................................. (44,215) (53,866) (79,201)
---------- --------- ---------
End of year..................................................................... $ 214,096 260,807 219,459
---------- --------- ---------
---------- --------- ---------
</TABLE>
(7) COMMITMENTS AND CONTINGENCIES
On October 5, 1992, Congress enacted the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act"). In 1993 and 1994,
the Federal Communications Commission ("FCC") adopted certain rate regulations
required by the 1992 Cable Act and imposed a moratorium on certain rate
increases. As a result of such actions, the TCI Falcon Systems' basic and tier
service rates and its equipment and installation charges (the "Regulated
Services") are subject to the jurisdiction of local franchising authorities and
the FCC. Basic and tier service rates are evaluated against competitive
benchmark rates as published by the FCC, and equipment and installation charges
are based on actual costs. Any rates for Regulated Services that exceeded the
benchmarks were reduced as required by the 1993 and 1994 rate regulations. The
rate regulations do not apply to the relatively few systems which are subject to
"effective competition" or to services offered on an individual service basis,
such as premium movie and pay-per-view services.
The TCI Falcon Systems believe that they have complied in all material
respects with the provisions of the 1992 Cable Act, including its rate setting
provisions. However, the TCI Falcon Systems' rates for Regulated Services are
subject to review by the FCC, if a complaint has been filed, or the appropriate
franchise authority, if such authority has been certified. If, as a result of
the review process, a system cannot substantiate its rates, it could be required
to retroactively reduce its rates to the appropriate benchmark and refund the
excess portion of rates received. Any refunds of the excess portion of tier
service rates would be retroactive to the date of complaint. Any refunds of the
excess portion of all other Regulated Service rates would be retroactive to one
year prior to the implementation of the rate reductions.
Certain plaintiffs have filed or threatened separate class action complaints
against certain of the TCI Falcon Systems, alleging that the systems' practice
of assessing an administrative fee to subscribers whose payments are delinquent
constitutes an invalid liquidated damage provision, a breach of contract, and
violates local consumer protection statutes. Plaintiffs seek recovery of all
late fees paid to the subject systems as a class purporting to consist of all
subscribers who were assessed such fees during the applicable
F-47
<PAGE>
TCI FALCON SYSTEMS
(DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(7) COMMITMENTS AND CONTINGENCIES (CONTINUED)
limitation period, plus attorney fees and costs. In addition to such matters,
the TCI Falcon Systems have contingent liabilities related to legal proceedings
and other matters arising in the ordinary course of business. Although it is
possible the TCI Falcon Systems may incur losses upon conclusion of the matters
referred to above, an estimate of any loss or range of loss cannot presently be
made. Based upon the facts available, management believes that, although no
assurance can be given as to the outcome of these actions, the ultimate
disposition should not have a material adverse effect upon the combined
financial condition or results of operations of the TCI Falcon Systems.
Management of the TCI Falcon Systems has not yet assessed the cost
associated with its year 2000 readiness efforts to ensure that its computer
systems and related software properly recognize the year 2000 and continue to
process business information, and the related potential impact on the TCI Falcon
Systems' results of operations. Amounts expended to date have not been material,
although there can be no assurance that costs ultimately required to be paid to
ensure the TCI Falcon Systems' year 2000 readiness will not have an adverse
effect on the TCI Falcon Systems' financial position or results of operations.
Additionally, there can be no assurance that the systems of the TCI Falcon
Systems' suppliers will be converted in time or that any such failure to convert
by such third parties will not have an adverse effect on the TCI Falcon Systems'
financial position or results of operations.
The TCI Falcon Systems lease business offices, have entered into pole rental
agreements and use certain equipment under lease arrangements. Rental expense
under such arrangements amounted to $1,152,000, $1,370,000 and $1,868,000 in
1995, 1996 and 1997, respectively.
Future minimum lease payments under noncancellable operating leases for each
of the next five years are summarized as follows (amounts in thousands):
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
- -------------------------------------------------------------------------------------
<S> <C>
1998................................................................................. $ 908
1999................................................................................. 760
2000................................................................................. 665
2001................................................................................. 531
2002................................................................................. 468
Thereafter........................................................................... 3,181
---------
$ 6,513
---------
---------
</TABLE>
F-48
<PAGE>
TCI FALCON SYSTEMS
(DEFINED IN NOTE 1)
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
AMOUNTS IN THOUSANDS
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash.................................................................................... $ -- --
Trade and other receivables, net........................................................ 4,665 2,557
Property and equipment, at cost:
Land.................................................................................. 1,232 1,233
Distribution systems.................................................................. 137,767 141,653
Support equipment and buildings....................................................... 18,354 18,581
------------ -----------
157,353 161,467
Less accumulated depreciation......................................................... 69,857 73,158
------------ -----------
87,496 88,309
------------ -----------
Franchise costs......................................................................... 393,540 398,527
Less accumulated amortization......................................................... 62,849 65,332
------------ -----------
330,691 333,195
------------ -----------
Other assets, at cost, net of amortization.............................................. 714 700
------------ -----------
$ 423,566 424,761
------------ -----------
------------ -----------
LIABILITIES AND PARENT'S INVESTMENT
Cash overdraft.......................................................................... $ 5,209 1,841
Accounts payable........................................................................ 350 600
Accrued expenses........................................................................ 3,487 3,458
Deferred income taxes................................................................... 121,183 121,362
------------ -----------
Total liabilities................................................................. 130,229 127,261
Parent's investment (note 3)............................................................ 293,337 297,500
------------ -----------
Commitments and contingencies (note 5).................................................. $ 423,566 424,761
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to combined financial statements.
F-49
<PAGE>
TCI FALCON SYSTEMS
(DEFINED IN NOTE 1)
COMBINED STATEMENTS OF OPERATIONS AND PARENT'S INVESTMENT
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1997 1998
---------- ----------
AMOUNTS IN THOUSANDS
(UNAUDITED)
<S> <C> <C>
Revenue................................................................................... $ 28,576 28,421
Operating costs and expenses:
Operating (note 4)...................................................................... 9,942 10,418
Selling, general and administrative..................................................... 4,933 5,433
Administrative fees (note 4)............................................................ 1,303 1,126
Depreciation............................................................................ 2,998 3,311
Amortization............................................................................ 2,443 2,480
---------- ----------
21,619 22,768
---------- ----------
Operating income...................................................................... 6,957 5,653
Other income (expense):
Intercompany interest expense (note 4).................................................. (1,120) (1,448)
Other, net.............................................................................. (48) 59
---------- ----------
(1,168) (1,389)
---------- ----------
Earnings before income taxes.......................................................... 5,789 4,264
Income tax expense........................................................................ (2,235) (1,793)
---------- ----------
Net earnings.......................................................................... 3,554 2,471
Parent's investment:
Beginning of year....................................................................... 322,134 293,337
Change in due to TCI Communications, Inc. ("TCIC")...................................... (9,152) 1,692
---------- ----------
End of period........................................................................... $ 316,536 297,500
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to combined financial statements.
F-50
<PAGE>
TCI FALCON SYSTEMS
(DEFINED IN NOTE 1)
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1997 1998
---------- ----------
AMOUNTS IN THOUSANDS
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net earnings............................................................................ $ 3,554 2,471
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization......................................................... 5,441 5,791
Deferred income tax expense........................................................... 1,624 179
Changes in operating assets and liabilities, net of effects of acquisitions:
Change in receivables............................................................... 470 2,108
Change in other assets.............................................................. 114 14
Change in accounts payable and accrued expenses..................................... (844) 221
---------- ----------
Net cash provided by operating activities......................................... 10,359 10,784
---------- ----------
Cash flows from investing activities:
Capital expended for property and equipment............................................. (609) (2,024)
Other investing activities.............................................................. 151 (61)
---------- ----------
Net cash used in investing activities............................................. (458) (2,085)
---------- ----------
Cash flows from financing activities:
Change in due to TCIC................................................................... (9,152) (5,331)
Change in cash overdraft................................................................ -- (3,368)
---------- ----------
Net cash used in financing activities............................................. (9,152) (8,699)
---------- ----------
Net increase in cash.............................................................. 749 --
Cash:
Beginning of year............................................................... 2,614 --
---------- ----------
End of year..................................................................... $ 3,363 --
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to combined financial statements.
F-51
<PAGE>
TCI FALCON SYSTEMS
(DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
(1) BASIS OF PRESENTATION
The combined financial statements include the accounts of thirteen of TCIC's
cable television systems serving certain subscribers within Oregon, Washington,
Alabama, Missouri and California (collectively, the "TCI Falcon Systems"). The
TCI Falcon Systems are indirectly wholly-owned by various subsidiaries of TCIC.
TCIC is a subsidiary of Tele-Communications, Inc. ("TCI"). All significant
inter-entity accounts and transactions have been eliminated in combination.
The accompanying interim combined financial statements are unaudited but, in
the opinion of management, reflect all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation of the results for such
periods. The results of operations for any interim period are not necessarily
indicative of results for the full year. These combined financial statements
should be read in conjunction with the combined financial statements and notes
thereto contained in the TCI Falcon Systems' report for the year ended December
31, 1997.
The TCI Falcon Systems have been acquired through a series of transactions
where TCIC acquired various larger cable entities (the "Original Systems"). The
TCI Falcon Systems' combined financial statements include an allocation of
certain purchase accounting adjustments, including the related deferred tax
effects, from TCIC's acquisition of the Original Systems. Such allocation and
the related franchise cost amortization is based on the relative fair market
value of systems involved. In addition, certain operating costs of TCI are
charged to the TCI Falcon Systems based on their number of subscribers (see note
4). Although such allocations are not necessarily indicative of the costs that
would have been incurred by the TCI Falcon Systems on a stand alone basis,
management believes that the resulting allocated amounts are reasonable.
PROPOSED PARTNERSHIP FORMATION
Effective December 30, 1997, TCIC and Falcon Holding Group, LP ("Falcon")
entered into a Contribution and Purchase Agreement, pursuant to which TCIC will
contribute the TCI Falcon Systems to a newly formed partnership (the
"Partnership") between TCIC and Falcon in exchange for an approximate 47%
ownership interest in the Partnership. In addition, the Partnership will assume
a portion of the intercompany amounts owed by the TCI Falcon Systems to TCIC and
its affiliates. Consummation of the transaction is subject to, among other
matters, regulatory approvals. There is no assurance that such transaction will
be consummated.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
(2) ACQUISITION
On January 1, 1998, a subsidiary of TCIC acquired certain cable television
assets in and around Ellensburg, WA from King Videocable Company. On the same
date, these assets were transferred to the
F-52
<PAGE>
TCI FALCON SYSTEMS
(DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
(UNAUDITED)
(2) ACQUISITION (CONTINUED)
TCI Falcon Systems. As a result of these transactions, the TCI Falcon Systems
recorded non-cash increases in property and equipment of $2,100,000, in
franchise costs of $4,923,000, and in parent's investment of $7,023,000.
Assuming the acquisition had occurred on January 1, 1997, the TCI Falcon
Systems' pro forma results of operations would not have been materially
different from the results of operations for the three months ended March 31,
1997.
(3) PARENT'S INVESTMENT
Parent's investment in the TCI Falcon Systems at December 31, 1997 and March
31, 1998 is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ ----------
AMOUNTS IN THOUSANDS
<S> <C> <C>
Due to TCIC........................................................ $ 219,459 $ 221,151
Retained earnings.................................................. 73,878 76,349
------------ ----------
$ 293,337 $ 297,500
------------ ----------
------------ ----------
</TABLE>
The amount due to TCIC represents advances for operations, acquisitions and
construction costs as well as the allocation of certain costs from TCIC. See
note 4.
(4) TRANSACTIONS WITH RELATED PARTIES
The amounts due to TCIC consist of various intercompany advances and expense
allocations. TCIC charges intercompany interest expense at variable rates to
cable systems within the TCI Falcon Systems based upon amounts due to TCIC from
the cable systems. As a result of TCIC's ownership of 100% of the TCI Falcon
Systems, the amounts due to TCIC have been classified as a component of parent's
investment in the accompanying combined financial statements. Such amounts are
due on demand.
The TCI Falcon Systems purchase, at TCIC's cost, substantially all of their
pay television and other programming from affiliates of TCIC. Charges for such
programming were $6,445,000 and $7,133,000 for the three months ended March 31,
1997 and 1998, respectively, and are included in operating expenses in the
accompanying combined financial statements.
Certain subsidiaries of TCIC provide administrative services to the TCI
Falcon Systems and have assumed managerial responsibility of the TCI Falcon
Systems' cable television system operations and construction. As compensation
for these services, the TCI Falcon Systems pay a monthly fee calculated on a
per-subscriber basis.
F-53
<PAGE>
TCI FALCON SYSTEMS
(DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
(UNAUDITED)
(4) TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
The intercompany advances and expense allocation activity in amounts due to
TCIC consists of the following:
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------------
AMOUNTS IN THOUSANDS
<S> <C>
Beginning of period..................................................... $ 219,459
Transfer of cable system acquisition purchase price................... 7,023
Programming charges................................................... 7,133
Administrative fees................................................... 1,126
Intercompany interest expense......................................... 1,448
Tax allocations....................................................... 1,614
Cash transfer......................................................... (16,652)
--------
End of period........................................................... $ 221,151
--------
--------
</TABLE>
(5) COMMITMENTS AND CONTINGENCIES
On October 5, 1992, Congress enacted the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act"). In 1993 and 1994,
the Federal Communications Commission ("FCC") adopted certain rate regulations
required by the 1992 Cable Act and imposed a moratorium on certain rate
increases. As a result of such actions, the TCI Falcon Systems' basic and tier
service rates and its equipment and installation charges (the "Regulated
Services") are subject to the jurisdiction of local franchising authorities and
the FCC. Basic and tier service rates are evaluated against competitive
benchmark rates as published by the FCC, and equipment and installation charges
are based on actual costs. Any rates for Regulated Services that exceeded the
benchmarks were reduced as required by the 1993 and 1994 rate regulations. The
rate regulations do not apply to the relatively few systems which are subject to
"effective competition" or to services offered on an individual service basis,
such as premium movie and pay-per-view services.
The TCI Falcon Systems believe that they have complied in all material
respects with the provisions of the 1992 Cable Act, including its rate setting
provisions. However, the TCI Falcon Systems' rates for Regulated Services are
subject to review by the FCC, if a complaint has been filed, or the appropriate
franchise authority, if such authority has been certified. If, as a result of
the review process, a system cannot substantiate its rates, it could be required
to retroactively reduce its rates to the appropriate benchmark and refund the
excess portion of rates received. Any refunds of the excess portion of tier
service rates would be retroactive to the date of complaint. Any refunds of the
excess portion of all other Regulated Service rates would be retroactive to one
year prior to the implementation of the rate reductions.
Certain plaintiffs have filed or threatened separate class action complaints
against certain of the TCI Falcon Systems, alleging that the systems' practice
of assessing an administrative fee to subscribers whose payments are delinquent
constitutes an invalid liquidated damage provision, a breach of contract, and
violates local consumer protection statutes. Plaintiffs seek recovery of all
late fees paid to the subject systems as a class purporting to consist of all
subscribers who were assessed such fees during the applicable
F-54
<PAGE>
TCI FALCON SYSTEMS
(DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
(UNAUDITED)
(5) COMMITMENTS AND CONTINGENCIES (CONTINUED)
limitation period, plus attorney fees and costs. In addition to such matters,
the TCI Falcon Systems have contingent liabilities related to legal proceedings
and other matters arising in the ordinary course of business. Although it is
possible the TCI Falcon Systems may incur losses upon conclusion of the matters
referred to above, an estimate of any loss or range of loss cannot presently be
made. Based upon the facts available, management believes that, although no
assurance can be given as to the outcome of these actions, the ultimate
disposition should not have a material adverse effect upon the combined
financial condition or results of operations of the TCI Falcon Systems.
The TCI Falcon Systems lease business offices, have entered into pole rental
agreements and use certain equipment under lease arrangements. Rental expense
under such arrangements amounted to $441,000 and $527,000 for the three months
ended March 31, 1997 and 1998, respectively.
Management of the TCI Falcon Systems has not yet assessed the cost
associated with its year 2000 readiness efforts to ensure that its computer
systems and related software properly recognize the year 2000 and continue to
process business information, and the related potential impact on the TCI Falcon
Systems' results of operations. Amounts expended to date have not been material,
although there can be no assurance that costs ultimately required to be paid to
ensure the TCI Falcon Systems' year 2000 readiness will not have an adverse
effect on the TCI Falcon Systems' financial position or results of operations.
Additionally, there can be no assurance that the systems of the TCI Falcon
Systems' suppliers will be converted in time or that any such failure to convert
by such third parties will not have an adverse effect on the TCI Falcon Systems'
financial position or results of operations.
F-55
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Shareholder
Falcon Funding Corporation
We have audited the accompanying balance sheet of Falcon Funding Corporation
as of March 27, 1998. This balance sheet is the responsibility of the Company's
management. Our responsibility is to express an opinion on this balance sheet
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Falcon Funding Corporation as of
March 27, 1998 in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Los Angeles, California
March 31, 1998
F-56
<PAGE>
FALCON FUNDING CORPORATION
BALANCE SHEET
MARCH 27, 1998
<TABLE>
<S> <C>
Assets--Cash........................................................................ $ 1,000
---------
---------
Shareholder's Equity
Common stock, par value $0.01; 1,000 shares authorized,
100 shares issued and outstanding............................................... $ 1
Additional paid-in capital........................................................ 999
---------
$ 1,000
---------
---------
</TABLE>
F-57
<PAGE>
FALCON FUNDING CORPORATION
NOTE TO BALANCE SHEET
MARCH 27, 1998
NOTE 1--BASIS OF PRESENTATION
Falcon Funding Corporation ("FFC"), a California corporation, is a wholly-owned
subsidiary of Falcon Holding Group, L.P. FFC was organized on March 16, 1998
("inception") solely for the purpose of acting as co-issuer with Falcon Holding
Group, L.P., of $649.6 million (gross proceeds) of senior debentures and senior
discount debentures due 2010. FFC had no operations from inception through March
27, 1998 and is not expected to have material operations or assets in the
future. FFC is not expected to participate in servicing the principal, interest,
premium, if any, or any payment obligations on the debentures.
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate of the fees and expenses payable by the
Registrants in connection with the Exchange Offer. All amounts are estimated
except the filing fees:
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission Registration Fee............................... $ 191,939
Printing and Engraving Fees....................................................... 35,000
Fees of Trustee................................................................... 5,000
Legal Fees and Expenses........................................................... 75,000
Accounting Fees and Expenses...................................................... 70,000
Miscellaneous..................................................................... 23,061
----------
Total........................................................................... $ 400,000
----------
----------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
INDEMNIFICATION UNDER THE EXISTING PARTNERSHIP AGREEMENT. The Existing
Partnership Agreement provides that FHGLP will indemnify and hold harmless
certain Indemnified Persons from any liability, loss, or damage incurred by the
Indemnified Person (and will not hold the Indemnified Person liable to FHGLP for
any liability, loss, or damage incurred by FHGLP) by reason of any act performed
or omitted to be performed by the Indemnified Person in connection with the
business of FHGLP; provided that if the liability, loss, damage or claim arises
out of any action or inaction of the Indemnified Person, indemnification will be
available only if (i) the Indemnified Person determined, in good faith, that its
or his course of conduct was in, or not opposed to, the best interests of FHGLP,
or the Indemnified Person did not intend its or his inaction to be harmful or
opposed to the best interests of FHGLP, and (ii) the action or inaction did not
constitute fraud, gross negligence, breach of fiduciary duty (which shall not be
construed to encompass mistakes in judgment or any breach of any Indemnified
Person's duty of care that did not constitute gross negligence), or willful
misconduct by the Indemnified Person. The class of Indemnified Persons includes
Falcon in its capacity as the general partner (and its officers, directors,
shareholders, employees, and agents), and the employees, officers, and agents of
FHGLP, the members of the Board of Representatives ((and the partners that
appointed such member to the extent such partner suffers any liability, loss, or
damage as a result of the actions of such member of the Board of
Representatives). Indemnification under the Existing Partnership Agreement is
recoverable only from the assets of FHGLP and not from any assets of the
partners. FHGLP may pay for insurance covering liability of the Indemnified
Persons for negligence in operation of FHGLP's affairs. The Company may enter
into agreements with certain of the Indemnified Persons setting forth procedures
for implementing the indemnities provided in the Existing Partnership Agreement,
subject to the approval procedures provided for in the Existing Partnership
Agreement. The indemnification provisions under the Existing Partnership
Agreement do not constitute a waiver by any limited partner of any right that
such limited partner may have against any party, including Falcon, under federal
or state securities laws.
Section 17-108 of the Delaware Revised Uniform Limited Partnership Act
authorizes a limited partnership to indemnify and hold harmless any partner or
other person from and against any and all claims and demands whatsoever, subject
to such standards and restrictions, if any, as are set forth in its partnership
agreement.
INDEMNIFICATION UNDER NEW PARTNERSHIP AGREEMENT. The New Partnership
Agreement provides that the Partnership will indemnify and hold harmless certain
Indemnified Persons from any liability, loss, or damage incurred by the
Indemnified Person (and will not hold the Indemnified Person liable to the
Partnership for any liability, loss, or damage incurred by the Partnership) by
reason of any act performed
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<PAGE>
or omitted to be performed by the Indemnified Person in connection with the
business of the Partnership; provided that if the liability, loss, damage or
claim arises out of any action or inaction of the Indemnified Person,
indemnification will be available only if (i) the Indemnified Person determined,
in good faith, that its or his course of conduct was in, or not opposed to, the
best interests of the Partnership, or the Indemnified Person did not intend its
or his inaction to be harmful or opposed to the best interests of the
Partnership, and (ii) the action or inaction did not constitute fraud, gross
negligence, breach of fiduciary duty (which shall not be construed to encompass
mistakes in judgment or any breach of any Indemnified Person's duty of care that
did not constitute gross negligence), or willful misconduct by the Indemnified
Person. The class of Indemnified Persons includes Falcon in its capacity as the
general partner (and its officers, directors, shareholders, employees, and
agents), and the employees, officers, and agents of The Partnership.
Indemnification under the New Partnership Agreement is recoverable only from the
assets of The Partnership and not from any assets of the partners. The
Partnership may pay for insurance covering liability of the Indemnified Persons
for negligence in operation of The Partnership's affairs. The Company may enter
into agreements with certain of the Indemnified Persons (and will enter into
agreements with the officers of [Falcon/FHGI]) setting forth procedures for
implementing the indemnities provided in the New Partnership Agreement. The
indemnification provisions under the New Partnership Agreement do not constitute
a waiver by any limited partner of any right that such limited partner may have
against any party, including Falcon, under federal or state securities laws.
Section 17-108 of the Delaware Revised Uniform Limited Partnership Act
authorizes a limited partnership to indemnify and hold harmless any partner or
other person from and against any and all claims and demands whatsoever, subject
to such standards and restrictions, if any, as are set forth in its partnership
agreement.
INDEMNIFICATION UNDER FHGI AND FFC ARTICLES OF INCORPORATION. The Articles
of Incorporation of FHGI and FFC authorize the corporation to provide
indemnification of agents (as defined by Section 317 of the California
Corporations Code) through by-law provisions, agreements with such persons,
votes of stockholders or disinterested directors, or otherwise, to the fullest
extent permissible under California law. The by-laws of FHGI provide that the
corporation shall indemnify such agents to the maximum extent permitted by
California law; the by-laws of FFC provide that the corporation shall have the
power to indemnify officers, directors, employees and agents (including, without
limitation, fiduciaries of an employee benefit plan governed by the Employee
Retirement Income Security Act of 1974) of FFC, and such other persons
designated by the Board of Directors, to the full extent permitted under
California law, as amended from time to time.
Section 317 of the California Corporations Code defines "agent" as any
person who is or was a director, officer, employee or other agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise, or was a director,
officer, employee or agent of a foreign or domestic corporation which was the
predecessor corporation of the corporation or of another enterprise at the
request of the predecessor corporation. Section 317 also provides that a
corporation shall have power to indemnify any person who was or is a party or is
threatened to be made a party to any proceeding (other than an action by or in
the right of the corporation to procure a judgment in its favor) by reason of
the fact that the person is or was an agent of the corporation, against
expenses, judgments, fines, settlements, and other amounts actually and
reasonably incurred in connection with the proceeding if that person acted in
good faith and in a manner the person reasonably believed to be in the best
interests of the corporation and, in the case of a criminal proceeding, had no
reasonable cause to believe the conduct of the person was unlawful. In addition,
a corporation shall have power to indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending, or completed action
by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that the person is or was an agent of the corporation,
against expenses actually and reasonably incurred by that person in connection
with the defense or settlement of the action if the person acted in good faith,
in a manner the person believed to be
II-2
<PAGE>
in the best interests of the corporation and its shareholders. No
indemnification shall be made under Section 317 for any of the following: (i) in
respect of any claim, issue or matter as to which the person shall have been
adjudged to be liable to the corporation in the performance of that person's
duty to the corporation and its shareholders, unless and only to the extent that
the court in which the proceeding is or was pending shall determine upon
application that, in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for expenses and then only to the
extent that the court shall determine; (ii) amounts paid in settling or
otherwise disposing of a pending action without court approval; or (iii)
expenses incurred in defending a pending action which is settled or otherwise
disposed of without court approval.
INDEMNIFICATION UNDER NEWFALCON PARTNERSHIP AGREEMENT. The NewFalcon
Partnership Agreement provides that the Company will indemnify and hold harmless
certain Indemnified Persons from any liability, loss, or damage incurred by the
Indemnified Person (and will not hold the Indemnified Person liable to the
Company for any liability, loss, or damage incurred by the Company) by reason of
any act performed or omitted to be performed by the Indemnified Person in
connection with the business of the Company; provided that if the liability,
loss, damage or claim arises out of any action or inaction of the Indemnified
Person, indemnification will be available only if (i) the Indemnified Person
determined, in good faith, that its or his course of conduct was in, or not
opposed to, the best interests of the Company, or the Indemnified Person did not
intend its or his inaction to be harmful or opposed to the best interests of the
Company, and (ii) the action or inaction did not constitute fraud, gross
negligence, breach of fiduciary duty (which shall not be construed to encompass
mistakes in judgment or any breach of any Indemnified Person's duty of care that
did not constitute gross negligence), or willful misconduct by the Indemnified
Person. The class of Indemnified Persons includes FHGLP in its capacity as the
managing general partner (and its officers, directors, shareholders, employees,
and agents), the employees, officers, and agents of the Company, the members of
the Advisory Committee (and the partner that appointed such member to the extent
such partner suffers any liability, loss, or damage as a result of the actions
of such member of the Advisory Committee). Indemnification under the NewFalcon
Partnership Agreement is recoverable only from the assets of the Company and not
from any assets of the partners. The Company may pay for insurance covering
liability of the Indemnified Persons for negligence in operation of the
Company's affairs. The Company may enter into agreements with certain of the
Indemnified Persons (and will enter into agreements with the officers of FGHI)
setting forth procedures for implementing the indemnities provided in the
NewFalcon Partnership Agreement.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On March 17, 1998, in connection with the formation of the FFC, FFC issued
1,000 shares of its voting common stock, one cent ($.01) par value per share, to
FHGLP for cash consideration of $1,000. The issuance of FFC common stock to
FHGLP was deemed to be exempt from the registration requirements of the Act as a
transaction not involving any public offering, pursuant to Section 4(2) of the
Act.
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<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
2.1 1995 Contribution, Purchase and Partnership Amendment Agreement, dated as of December 28, 1995 by and
among Falcon Holding Group, L.P., its current limited partners, Falcon Holding Group, Inc., Falcon
First Communications, L.L.C., Falcon First Communications, L.P., its limited partners and Falcon First
Investors, L.P. (16)
3.1 Certificates of Limited Partnership of FHGLP (1)
3.2 Amended and Restated Agreement of Limited Partnership of FHGLP (1)
3.3 Third Amended and Restated Agreement of Limited Partnership of FHGLP (7)
3.4 Form of Fourth Amended and Restated Agreement of Limited Partnership of FHGLP (1)
3.5 Form of Amended and Restated Agreement of Limited Partnership of New Falcon
3.6 Articles of Incorporation of FFC
3.7 Bylaws of FFC
4.1 Indenture for the Old Notes, dated as of March 29, 1993, between FHGLP and United States Trust Company
of New York, as trustee (1)
4.2 Form of Old Note (included in Exhibit No. 4.1) (1)
4.3 Form of Amended and Restated Indenture for the Notes, between FHGLP and United States Trust Company of
New York, as trustee (1)
4.4 Form of New Note (included in Exhibit No. 4.3) (1)
4.5 Notice to MONY Mutual Life Insurance Company of New York of Prepayment of Falcon Cablevision's, a
California limited partnership's, 12% Subordinated Notes due December 31, 1995 (8)
4.6 Indenture for the Debentures, dated as of April 3, 1998, by and among FHGLP, FFC and United States Trust
Company of New York, as trustee*
5.1 Opinion of Dow, Lohnes & Albertson, PLLC
10.1 Bank Credit Agreement, dated as of March 17, 1993, between the Owned Partnerships, and certain lenders
and agents named therein (1)
10.2 Pledge and Subordination Agreement, dated as of March 29, 1993, between Falcon, FHGLP and certain
lenders and agents named therein (1)
10.3 Guarantors Contribution Agreement, dated as of March 29, 1993, among certain subsidiaries of FHGLP (1)
10.4 Management Compensation Agreement, dated as of March 29, 1993, by and among Falcon and the Limited
Partners signatory thereto (1)
10.5 Management Rights Agreement, dated as of March 29, 1993, by and between FHGLP and Hellman & Friedman
Capital Partners (1)
10.6 Management Rights Agreement, dated as of March 29, 1993, by and between FHGLP and Hellman & Friedman
Capital Partners II, L.P. (1)
10.7 Lease, dated December 1989, between Raymond Business Center and Falcon (1)
10.8 Lease, dated as of June 25, 1992, by and between Sumitomo Life Realty (N.Y.), Inc. and Falcon (1)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.9 Cash or Deferred Profit Sharing Plan of Falcon (1)
10.10 Money Purchase Pension Plan of Falcon (1)
10.11 Combined Incentive Performance Plan of FHGLP (1)
10.12 Falcon Holding Group 401(k) Plan (1)
10.13 Ordinance No. 93-75 of the city of Santa Clara, Utah granting to Falcon Telecable a Franchise to
Construct, Operate and Maintain a Cable Television System (2)
10.14 Ordinance No. 93-01 of the Board of Trustees for the Town of Stratford, Oklahoma granting to Falcon
Cable Media a permit to construct, operate and maintain a cable television system and declaring an
emergency (2)
10.15 Resolution of the City Council of Hardy, Arkansas extending the Cable Television Franchise of Falcon
Telecable (2)
10.16 Ordinance No. 1064 N.S. of the City Council of the City of Colville passing an Ordinance amending
Ordinance No. 768 N.S. Section 5. Extending the length of time for the existing Franchise for one year
(1)
10.17 Ordinance #3 an ordinance to amend the franchise tax for the Town of Leeds, Utah (1)
10.18 Ordinance No. 1077 regulating rates charged by cable television operators within the City of Pleasanton,
Texas (4)
10.19 Permit for the Town of Bethel Acres, Oklahoma authorized Falcon Cable TV to provide cable communication
services to the Town of Bethel Acres (4)
10.20 Ordinance No. 93-01, an ordinance setting forth regulations, terms and conditions under which cable
television systems shall operate in Stratford, Oklahoma; and granting to Falcon Cable Media, its
successors and assigns, a permit to construct, operate and maintain a cable television system and
declaring an emergency (4)
10.21 Confirmation of offer of employment with Jon Lunsford and Promissory Note (3)
10.22 Loan agreement between Falcon Holding Group L.P., Lender, and Neil McCarthy Borrower including Short
Form Deed of Trust and Assignment of Rents (Individual) and Promissory Note (8)
10.23 Amendment No. 1 to Bank Credit Agreement, dated as of March 17, 1993, between the Owned Partnerships,
and certain lenders and agents named therein (6)
10.24 Amendment No. 2 to Bank Credit Agreement, dated as of March 17, 1993, between the Owned Partnerships,
and certain lenders and agents named therein (6)
10.25 Bank Credit Agreement, dated as of December 28, 1995, among certain affiliates of Falcon Holding Group,
L.P., their respective subsidiaries that are from time to time party thereto, The First National Bank
of Boston, as Managing Agent, Toronto-Dominion (Texas) Inc., as Administrative Agent, Chemical Bank,
as Co-Administrative Agent, NationsBank of Texas, N.A., as Syndication Agent, and the several lenders
from time to time party thereto. (7)
10.26 Agreement and Plan of Merger, dated as of December 28, 1995, by and among Falcon First Communications,
L.L.C., Falcon First Communications, L.P., its limited partners and Falcon First Investors, L.P. (7)
10.27 Amendment to Contingent Interest Agreement, dated as of December 28, 1995, between Falcon First
Communications, L.P., Continental Equity Capital Corporation, First Chicago Investment Corporation,
Madison Dearborn Partners VIII and William Blair Venture Partners III Limited Partnership (7)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.28 Tax-Sharing Agreement, dated as of December 28, 1995, by and between WB Cable Investors II, Inc.,
Madison Dearborn Partners VI, Continental Equity Capital Corporation, Avy Stein, John Willis, Burton
McGillevray, Hellman & Friedman Capital Partners II, L.P., Falcon Cable Trust and Falcon Holding
Group, L.P. (7)
10.29 Employment Termination and Settlement Agreement between Neil McCarthy and Falcon Holding Group, L.P.,
dated September 1, 1995 (8)
10.30 First Amendment to and Extension of office Lease between Raymond Business Center and Falcon Holding
Group, L.P. (9)
10.31 Asset purchase agreement by and among subsidiaries of Falcon Holding Group, L.P. and Teleview, Inc. (9)
10.32 Amendment No. 1 to Bank Credit Agreement, dated as of December 28, 1995 , among certain affiliates of
Falcon Holding Group, L.P., their respective subsidiaries that are from time to time party thereto,
The First National Bank of Boston, as Managing Agent, Toronto-Dominion (Texas) Inc., as Administrative
Agent, Chemical Bank, as Co-Administrative Agent, NationsBank of Texas, N.A., as Syndication Agent,
and the several lenders (9)
10.33 Restricted Subordination Agreement dated as of March 26, 1993 as restated as of December 28, 1995
between Falcon Holding Group, L.P., Falcon Holding Group, Inc. and AUSA Life Insurance Company, Inc.
and MONY Life Insurance Company of America (9)
10.34 System Appraisal of Falcon Cable Systems Company, as of December 31, 1995, by Malarkey-Taylor
Associates, Inc., dated April 29, 1996 (filed as Exhibit 1 to the June 13 Falcon Cable Systems Company
Report file no. 19332 and incorporated by reference) (10)
10.35 System Appraisal of Falcon Cable Systems Company, as of December 31, 1995, by Kane-Reece Associates,
Inc., dated April 29, 1996 (filed as Exhibit 2 to the June 13 Falcon Cable Systems Company Report file
no. 19332 and incorporated by reference) (10)
10.36 System Appraisal of Falcon Cable Systems Company, as of December 31, 1995, by Waller Capital Corporation
(filed as Exhibit 3 to the June 13 Falcon Cable Systems Company Report file no. 19332 and incorporated
by reference) (10)
10.37 Asset Purchase Agreement by and between the Partnership and New Falcon, dated as of June 13, 1996 (filed
as Exhibit 4 to the June 13 Falcon Cable Systems Company Report file no. 19332 and incorporated by
reference) (10)
10.38 Amended and Restated Credit Agreement dated July 12, 1996 (10)
10.39 Limited Partnership Interest Purchase Agreement dated July 15, 1996, by and among Falcon Holding Group,
L.P., Marc B. Nathanson, Trustee of the Falcon Cable Trust and Advance TV of California, Inc. (11)
10.40 Partnership Option Agreement dated July 15, 1996, by and among Marc B. Nathanson, Trustee of the Falcon
Cable Trust and Falcon Holding Group, L.P. (11)
10.41 Partnership Option Agreement dated July 15, 1996, between Advance TV of California, Inc. and Falcon
Holding Group, L.P. (11)
10.42 Fourth Amendment to Note Purchase and Exchange Agreement dated July 12, 1996, between Falcon Telecable,
AUSA Life Insurance Company of America and MONY Life Insurance Company of America (11)
10.43 Second Restated Subordination Agreement between Registrant and AUSA Life Insurance Company, Inc. and
MONY Life Insurance Company of America dated July 12, 1996 (11)
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.44 Second Restated Guaranty Agreement, dated July 12, 1996, by Falcon Cablevision, Falcon Cable Media,
Falcon Community Cable, L.P., Falcon Community Ventures I Limited Partnership, Falcon Investors Group,
LTD., Falcon Telecable Investors Group, Falcon Media Investors Group, Falcon Community Investors,
L.P., Falcon Telecom, L.P., Falcon Cable Systems Company II, L.P., and Falcon First, Inc. in favor of
each of AUSA Life Insurance Company, Inc. and MONY Life Insurance Company of America with respect to
the Notes (11)
10.45 Certificate, dated (July 12, 1996), of Falcon Holding Group, Inc. with respect to the common ownership
of certain partnership guarantors (11)
10.46 Insurance Cost Allocation Agreement, dated July 1, 1996, between Falcon Holding Group, L.P. and Falcon
International Communications, L.L.C. (12)
10.47 Fair Market Valuation Report for Falcon Classic Cable Income Properties, L.P., as of December 31, 1996,
dated February 20, 1997, prepared by Arthur Andersen LLP (12)
10.48 Valuation Analysis for Falcon Classic Cable Income Properties, L.P., as of December 31, 1996, dated
March 3, 1997, prepared by Communications Equity Associates (12)
10.49 Fair Market Valuation Report for Falcon Classic Cable Income Properties, L.P., as of December 31, 1996,
dated March 10, 1997, prepared by Kane Reece Associates, Inc. (12)
10.50 Assignment and Acceptance Agreement, dated December 4, 1996, between Banque Paribas and City National
Bank (13)
10.51 Enstar Finance Company, LLC Limited Liability Company Agreement dated June 6, 1997 (14)
10.52 Asset Purchase Agreement, dated as of June 27, 1997, by and among Falcon Community Cable, L.P., Falcon
Cable Media, Falcon Cable Systems Company II, L.P. and Falcon Classic Cable Income Properties, L.P.
(14)
10.53 Second Amendment to the 1993 Incentive Performance Plan of FHGLP (14)
10.54 Third Amendment to the 1993 Incentive Performance Plan of FHGLP (14)
10.55 Fourth Amendment to the 1993 Incentive Performance Plan of FHGLP (14)
10.56 Credit Agreement dated as of September 30, 1997 among Enstar Finance Company, LLC, Banque Paribas, as
Administrative Agent, and Bank of America National Trust and Savings Association, as Documentation
Agent (15)
10.57 Amended and Restated Credit Agreement Consent No. 1 dated as of July 11, 1997 between the affiliates of
Falcon Holding Group, L.P., BankBoston, The First National Bank of Boston, as Managing Agent,
Toronto-Dominion (Texas) Inc., as Administrative Agent and NationsBank of Texas, N.A., as Syndication
Agent (15)
10.58 Amended and Restated Credit Agreement Amendment No. 2 dated as of September 3, 1997, among the
affiliates of Falcon Holding Group, L.P., BankBoston, N.A., as Managing Agent for itself and the other
lenders, Toronto-Dominion (Texas) Inc., as Administrative Agent and NationsBank of Texas, N.A., as
Syndication Agent (15)
10.59 Amended and Restated Credit Agreement Amendment No. 3 dated as of February 6, 1998, among the affiliates
of Falcon Holding Group, L.P., BankBoston, N.A., as Managing Agent for itself and the other Lenders,
Toronto-Dominion (Texas) Inc., as Administrative Agent and Nationsbank of Texas, N.A., as Syndication
Agent (17)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.60 Amended and Restated Credit Agreement Amendment No. 4 dated as of March 17, 1998, among the affiliates
of Falcon Holding Group, L.P., BankBoston, N.A., as Managing Agent for itself and the other Lenders,
Toronto-Dominion (Texas) Inc., as Administrative Agent and NationsBank of Texas, N.A., as Syndication
Agent (17)
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. (18)
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. (18)
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. (18)
10.64 Contribution and Purchase Agreement, dated December 30, 1997, by and among Falcon Holding Group, L.P.,
Falcon Communications, L.P., Falcon Holding Group, Inc., TCI Falcon Holdings, LLC, Belo Ventures,
Inc., and the other parties executing the Agreement. (16)
10.65 Third Amendment to Contribution and Purchase Agreement, dated as of May 12, 1998, by and among Falcon
Holding Group, L.P., Falcon Communications, L.P. and TCI Holdings LLC.*
10.66 Credit Agreement, dated as of June 30, 1998, by and among BankBoston, N.A., The Chase Manhattan Bank,
NationsBank, N.A., Toronto Dominion (Texas) Inc., Bank of America, N.T. & S.A. and other lenders
signatory thereto.
12 Computation of Deficiency of Earnings to Fixed Charges
23.1 Consent of Dow, Lohnes & Albertson, PLLC (contained in Exhibit 5.1)
23.2 Consent of Ernst & Young, LLP
23.3 Consent of KPMG Peat Marwick LLP
25.1 Form T-1 (Statement of Eligibility of Trustee)
27.1 Financial Data Schedule of FHGLP
27.2 Financial Data Schedule of FFC
99.1 Letter of Transmittal
99.2 Notice of Guaranteed Delivery
</TABLE>
- ------------------------
* Previously filed with this Registration Statement.
(1) Incorporated by reference to the exhibits to FHGLP's Registration Statement
on Form S-4, Registration No. 33-60776.
(2) Incorporated by reference to the exhibits to FHGLP's Quarterly Report on
Form 10-Q, File No. 33-60776 for the quarter ended September 30, 1993.
(3) Incorporated by reference to the exhibits to FHGLP's Quarterly Report on
Form 10-Q, File No. 33-60776 for the quarter ended September 30, 1995.
(4) Incorporated by reference to the exhibits to FHGLP's Annual Report on Form
10-K, File No. 33-60776 for the fiscal year ended December 31, 1993.
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<PAGE>
(5) Incorporated by reference to the exhibits to FHGLP's Annual Report on Form
10-K, File No. 33-60776 for the fiscal year ended December 31, 1994.
(6) Incorporated by reference to the exhibits to FHGLP's Quarterly Report on
Form 10-Q, File No. 33-60776 for the quarter ended June 30, 1995.
(7) Incorporated by reference to the exhibits to FHGLP's current Report on Form
8-K, File No. 33-60776 dated December 28, 1995.
(8) Incorporated by reference to the exhibits to FHGLP's Annual Report on Form
10-K, File No. 33-60776 for the fiscal year ended December 31, 1995.
(9) Incorporated by reference to the exhibit to FHGLP's Quarterly Report on
Form 10-Q, File No. 33-60776 for the quarter ended March 31, 1996.
(10) Incorporated by reference to the exhibits to FHGLP's Quarterly Report on
Form 10-Q, File No. 33-60776 for the quarter ended June 30, 1996.
(11) Incorporated by reference to the exhibits to FHGLP's Quarterly Report on
Form 10-Q, File No. 33-60776 for the quarter ended September 30, 1996.
(12) Incorporated by reference to the exhibits to FHGLP's Annual Report on Form
10-K, File No. 33-60776 for the fiscal year ended December 31, 1996.
(13) Incorporated by reference to the exhibits to FHGLP's Quarterly Report on
Form 10-Q, File No. 33-60776 for the quarter ended March 31, 1997.
(14) Incorporated by reference to the exhibits to FHGLP's Quarterly Report on
Form 10-Q, File No. 33-60776 for the quarter ended June 30, 1997.
(15) Incorporated by reference to the exhibits to FHGLP's Quarterly Report on
Form 10-Q, File No. 33-60776 for the quarter ended September 30, 1997.
(16) Incorporated by reference to the exhibits to FHGLP's Current Report on
Form 8-K, File No. 33-60776, dated December 30, 1997.
(17) Incorporated by reference to the exhibits to FHGLP's Annual Report on Form
10-K, File No. 33-60776 for the fiscal year ended December 31, 1997.
(18) Incorporated by reference to the exhibits to FHGLP's quarterly report on
Form 10-Q, File No. 33-60776 for the quarter ended March 31, 1998.
(b)Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts of Falcon Holding Group, L.P.
for each of the three years in the period ended December 31, 1997.
ITEM 17. UNDERTAKINGS.
The undersigned Registrants hereby undertake:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement;
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the
II-9
<PAGE>
changes in volume and price represent no more than a 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement;
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
2. That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial BONA FIDE offering
thereof.
3. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrants hereby undertake that:
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the provisions, or otherwise, the Registrants have been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrants of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrants will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this Registration Statement, by
any person or party who is deemed to be an underwriter within the meaning of
Rule 145(c), the issues undertake that such reoffering prospectus will contain
the information called for by the applicable registration form with respect to
the reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
Every prospectus: (i) that is filed pursuant to the immediately preceding
paragraph or (ii) that purports to meet the requirements of Section 10(a)(3) of
the Act and is used in connection with an offering of securities subject to Rule
415, will be filed as a part of an amendment to the Registration Statement and
will not be used until such amendment is effective, and that, for purposes of
determining any liability under the Act, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned Registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
The undersigned Registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Falcon Communications, L.P. has duly caused this Amendment No. 1 to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Los Angeles, State of California, on July 17,
1998.
<TABLE>
<S> <C> <C>
FALCON HOLDING GROUP L.P.
By: Falcon Holding Group, Inc.,
its General Partner
By: /s/ MICHAEL K. MENEREY
-----------------------------------------
Michael K. Menerey
CHIEF FINANCIAL OFFICER
</TABLE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING
PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES
INDICATED.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
Director of Falcon Holding
* Group, Inc. and Chief
- ------------------------------ Executive Officer of the July 17, 1998
Marc B. Nathanson Registrant (Principal
Executive Officer)
*
- ------------------------------ President and Chief July 17, 1998
Frank J. Intiso Operating Officer
*
- ------------------------------ Director of Falcon Holding July 17, 1998
Stanley S. Itskowitch Group, Inc.
Chief Financial Officer
/s/ MICHAEL K. MENEREY and Secretary of the
- ------------------------------ Registrant (Principal July 17, 1998
Michael K. Menerey Financial and Accounting
Officer)
*POWER OF ATTORNEY
Michael K. Menerey, by signing his name hereto, does sign this document on
behalf of each of the persons indicated above for whom he is attorney-in-fact
pursuant to a power of attorney duly executed by such person and filed with the
Securities and Exchange Commission.
<TABLE>
<S> <C> <C>
/s/ MICHAEL K. MENEREY
-----------------------------------------
Michael K. Menerey
ATTORNEY-IN-FACT
</TABLE>
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Falcon Funding Corporation has duly caused this Amendment No. 1 to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Los Angeles, State of California, on July 17,
1998.
<TABLE>
<S> <C> <C>
FALCON FUNDING CORPORATION
By: /s/ MICHAEL K. MENEREY
-----------------------------------------
Michael K. Menerey
CHIEF FINANCIAL OFFICER
</TABLE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING
PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES
INDICATED.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
Director and Chief
* Executive Officer of the
- ------------------------------ Registrant (Principal July 17, 1998
Marc B. Nathanson Executive Officer)
*
- ------------------------------ Director and President and July 17, 1998
Frank J. Intiso Chief Operating Officer
* Director and Executive
- ------------------------------ Vice President and July 17, 1998
Stanley S. Itskowitch General Counsel
Director and Chief
Financial Officer and
/s/ MICHAEL K. MENEREY Secretary of the
- ------------------------------ Registrant (Principal July 17, 1998
Michael K. Menerey Financial and Accounting
Officer)
*POWER OF ATTORNEY
Michael K. Menerey, by signing his name hereto, does sign this document on
behalf of each of the persons indicated above for whom he is attorney-in-fact
pursuant to a power of attorney duly executed by such person and filed with the
Securities and Exchange Commission.
<TABLE>
<S> <C> <C>
/s/ MICHAEL K. MENEREY
-----------------------------------------
Michael K. Menerey
ATTORNEY-IN-FACT
</TABLE>
II-12
<PAGE>
Exhibit 3.5
AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP OF FALCON
COMMUNICATIONS, L.P., DATED AS OF
DECEMBER 30, 1997
<PAGE>
AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP OF FALCON
COMMUNICATIONS, L.P., DATED AS OF
DECEMBER 30, 1997
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 DEFINITIONS
1.1 Terms Defined in this Section..........................................2
1.2 Terms Defined Elsewhere in this Agreement.............................11
1.3 Terms Generally.......................................................12
ARTICLE 2 FORMATION, CONTINUATION, AND PURPOSE
2.1 Formation and Continuation............................................13
2.2 Withdrawal and Admission of Partners..................................13
2.3 Name..................................................................13
2.4 Principal Office......................................................13
2.5 Term..................................................................14
2.6 Purposes of Partnership...............................................14
2.7 Limitations on Activities of the Partnership..........................15
2.8 Certificate...........................................................17
2.9 Addresses of the Partners.............................................17
2.10 Foreign Qualification.................................................17
ARTICLE 3 PARTNERSHIP CAPITAL
3.1 Contributions Pursuant to the Contribution Agreement..................17
3.2 Additional Capital Contributions......................................20
3.3 Assumption of Liabilities.............................................20
3.4 Return of Contributions...............................................20
3.5 Schedule of Percentage Interests......................................21
3.6 Operating Expenses....................................................21
3.7 Interest Payments.....................................................21
ARTICLE 4 DISTRIBUTIONS; ALLOCATIONS OF PROFIT AND LOSS
4.1 Distributions of Cash.................................................22
</TABLE>
i
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<TABLE>
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4.2 Allocations of Net Profit and Net Loss................................24
4.3 Special Provisions Regarding Allocations of Profit and Loss...........24
4.4 Tax Allocations: Code Section 704(c).................................27
ARTICLE 5 AUTHORITY OF THE MANAGING PARTNER; OTHER MATTERS AFFECTING GENERAL
PARTNERS
5.1 Authority of Managing Partner.........................................27
5.2 Agreements by Falcon Holding Group, Inc...............................33
5.3 No Personal Liability.................................................34
5.4 Limited Liability.....................................................35
5.5 Tax Matters Partner...................................................35
5.6 Compensation to the Managing Partner and Affiliates...................37
5.7 Reimbursement.........................................................37
ARTICLE 6 ADVISORY COMMITTEE
6.1 Membership............................................................38
6.2 Removal and Replacement of Members....................................38
6.3 Frequency and Location of Meetings....................................39
6.4 By-Laws and Other Matters.............................................39
6.5 Reimbursement.........................................................39
6.6 Members...............................................................39
ARTICLE 7 STATUS OF LIMITED PARTNERS; OTHER LIMITATIONS ON PARTNERS
7.1 Limited Liability.....................................................39
7.2 Return of Distributions of Capital....................................40
7.3 No Management and Control.............................................40
7.4 Specific Limitations..................................................40
7.5 Issuance of Partnership Interests.....................................40
7.6 Restrictions on the Powers and Activities of the Limited Partners.....41
ARTICLE 8 WITHDRAWAL OF A GENERAL PARTNER
8.1 Withdrawal............................................................42
8.2 Effect of Withdrawal of Managing Partner..............................42
8.3 No Dissolution........................................................42
ARTICLE 9 ASSIGNMENT OF PARTNERSHIP INTERESTS
9.1 Assignments by Managing Partner.......................................43
9.2 Assignments by Other Partners.........................................43
9.3 Exceptions............................................................43
9.4 Assignee..............................................................44
9.5 Other Consents and Requirements.......................................44
</TABLE>
ii
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<TABLE>
<CAPTION>
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<S> <C>
9.6 Assignment Not In Compliance..........................................45
9.7 Tax Elections.........................................................45
9.8 Division of Partnership Interests.....................................45
9.9 Substitute Partners...................................................45
9.10 Consent...............................................................46
9.11 Covenant and Representation of TCI Communications, Inc................46
9.12 Pledge of Partnership Interests.......................................46
9.13 Effect of Purchase of Partnership Interests in FHGLP..................47
9.14 Impact of Code Section 708............................................48
ARTICLE 10 BUY/SELL RIGHTS
10.1 Commencement of Buy/Sell Process......................................49
10.2 Election by Responding Partner........................................50
10.3 Offering Partner's Option to Liquidate................................50
10.4 Responding Partner's Option to Purchase During Liquidation............51
10.5 Default by Responding Partner.........................................52
10.6 Removal of FHGLP......................................................53
10.7 General Terms Applicable to Purchase and Sale of Partnership
Interests............................................................54
10.8 Termination of Purchase and Sale......................................55
10.9 Restructuring of Transactions.........................................56
10.10 Purchase and Sale of Interests Held by Falcon Holding Group, Inc......56
10.11 Retained TCI Assets...................................................57
ARTICLE 11 CONVERSION TO CORPORATION
11.1 Election by FHGLP.....................................................58
11.2 Public Offering and Registration Rights...............................60
ARTICLE 12 OTHER BUSINESSES AND INVESTMENT OPPORTUNITIES
12.1 Exclusivity...........................................................61
12.2 Exceptions............................................................61
12.3 Clustering Opportunities..............................................63
12.4 Prohibited Cross-Interests............................................63
12.5 No Other Restrictions.................................................66
12.6 Right of First Offer..................................................66
ARTICLE 13 DISSOLUTION AND LIQUIDATION OF PARTNERSHIP
13.1 Events of Dissolution.................................................68
13.2 Liquidation...........................................................69
13.3 Special Provisions Regarding Liquidation by Offering Partner..........71
13.4 Distribution in Kind..................................................72
13.5 No Action for Dissolution.............................................72
</TABLE>
iii
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<TABLE>
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<S> <C>
13.6 No Further Claim......................................................72
ARTICLE 14 INDEMNIFICATION
14.1 General...............................................................73
14.2 Exculpation...........................................................73
14.3 Persons Entitled to Indemnity.........................................74
14.4 Procedure Agreements..................................................74
ARTICLE 15 BOOKS, RECORDS, ACCOUNTING, AND REPORTS
15.1 Books and Records.....................................................74
15.2 Delivery to Partner and Inspection....................................75
15.3 Annual Statements.....................................................75
15.4 Quarterly Financial Statements........................................76
15.5 Monthly Statements....................................................77
15.6 Other Information.....................................................77
15.7 Filings...............................................................77
15.8 Non-Disclosure........................................................78
ARTICLE 16 REPRESENTATIONS BY TCI
16.1 Investment Intent.....................................................79
16.2 Securities Regulation.................................................79
16.3 Knowledge and Experience..............................................79
16.4 Economic Risk.........................................................79
16.5 Binding Agreement.....................................................80
16.6 Tax Position..........................................................80
16.7 Information...........................................................80
ARTICLE 17 AMENDMENTS AND WAIVERS
17.1 Amendments to Partnership Agreement...................................80
17.2 Waivers...............................................................81
17.3 Amendments to Other Partnership Agreements............................81
ARTICLE 18 MISCELLANEOUS
18.1 Additional Documents..................................................82
18.2 Inspection............................................................82
18.3 General...............................................................82
18.4 Notices, Etc..........................................................82
18.5 Execution of Papers...................................................82
18.6 Disputed Matters......................................................83
18.7 No Third-Party Beneficiaries..........................................85
18.8 Covenant of TCI Communications, Inc. Regarding Goods and Services.....85
</TABLE>
iv
<PAGE>
TABLE OF SCHEDULES
<TABLE>
<CAPTION>
Schedule Description
- -------- -----------
<S> <C>
Schedule I Addresses of the Partners
Schedule II Capital Contributions and Percentage Interests
Schedule III Certain Transactions and Compensation
Schedule IV Members of the Advisory Committee
</TABLE>
TABLE OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
Exhibit I By-Laws of Advisory Committee
Exhibit II Form of Registration Rights Agreement
</TABLE>
v
<PAGE>
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
FALCON COMMUNICATIONS, L.P.
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP is made and
entered into as of December 30, 1997, by and between FALCON HOLDING GROUP, L.P.,
a Delaware limited partnership, and TCI FALCON HOLDINGS, LLC, a Delaware limited
liability company.
PRELIMINARY STATEMENT
Falcon Communications, L.P. was organized under the California Revised
Limited Partnership Act on October 23, 1997, pursuant to an Agreement of Limited
Partnership between Falcon Holding Group, L.P. and Stanley S. Itskowitch.
TCI, together with its Affiliates, owns, operates, and has rights to acquire
certain cable television systems.
FHGLP owns and has rights to acquire certain partnership interests and other
equity interests in certain partnerships and other entities that, directly and
indirectly, own, operate, and have rights to acquire certain cable television
systems.
Concurrently with the execution and delivery of this Agreement, the
Partners, and certain other parties, are entering into a Contribution Agreement,
pursuant to which TCI has agreed to contribute or cause to be contributed to the
Partnership substantially all the assets of certain cable television systems,
subject to certain liabilities being assumed by the Partnership, and FHGLP has
agreed to contribute or cause to be contributed to the Partnership substantially
all of its assets, subject to certain liabilities being assumed by the
Partnership.
At the Closing, immediately after the contributions to the Partnership
pursuant to Section 2.2(a) of the Contribution Agreement, and pursuant to the
Contribution Agreement, FHGLP will assign partnership interests in the
Partnership to certain partners of FHGLP and TCI will purchase those partnership
interests in the Partnership.
The parties to this Agreement desire to enter into this Agreement to provide
for the continuation of the Partnership, the withdrawal of Stanley S. Itskowitch
as a partner of the Partnership, the admission of TCI as a partner of the
Partnership, the allocation of profits and losses, cash flow, and other proceeds
of the Partnership between the Partners, the respective rights, obligations, and
interests of the Partners to each other and to the Partnership, and certain
other matters.
NOW, THEREFORE, the parties agree as follows:
<PAGE>
ARTICLE 1
DEFINITIONS
1.1 Terms Defined in this Section.
------------------------------
For purposes of this Agreement, the following terms shall have the following
meanings (all terms used in this Agreement that are not defined in this Section
1.1 shall have the meanings set forth elsewhere in this Agreement as indicated
in Section 1.2, except as otherwise provided in this Agreement):
"Accredited Investor" has the meaning assigned to such term under Regulation
D promulgated pursuant to the Securities Act.
"Act" means the California Revised Limited Partnership Act.
"Adjusted Capital Account Deficit" means with respect to either Partner, the
deficit balance, if any, in such Partner's Capital Account as of the end of the
relevant Fiscal Year, after:
(i) crediting to such Capital Account any amounts that such Partner is
obligated to restore to the Partnership pursuant to Treasury Regulations Section
1.704-1(b)(2)(ii)(c) or is deemed to be obligated to restore pursuant to the
penultimate sentences of Treasury Regulations Sections 1.704-2(g)(1) and
1.704-2(i)(5); and
(ii) debiting from such Capital Account the items described in Treasury
Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and
1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Treasury Regulations Section 1.704-1(b)(2)(ii)(d)
and shall be interpreted consistently therewith.
"Advisory Committee" means the Advisory Committee established by Article 6.
"Affiliate" means, with respect to any Person, any other Person controlling,
controlled by, or under common control with such Person. For purposes of this
definition, the term "control" means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of Voting Stock or other equity interests,
by contract, or otherwise, and the terms "controlled by" and "under common
control with" have meanings corresponding to the meaning of "control."
Notwithstanding the foregoing, neither the Partnership nor any Person controlled
by the Partnership shall be deemed to be an Affiliate of either Partner or of
any Affiliate of either Partner, or VICE VERSA, solely as a result of such
Partner's Partnership Interest.
2
<PAGE>
"Agreement" means this Amended and Restated Agreement of Limited
Partnership, as it may be amended from time to time.
"Assignee" means a Person that has acquired a beneficial interest in a
Partnership Interest in accordance with the provisions of Article 9 but has not
become a substitute Partner in accordance with the provisions of Section 9.9.
"Business Day" means any day (other than a day that is a Saturday or Sunday)
on which banks are permitted to be open for business in the State of California.
"Capital Account" means a separate account to be maintained for each Partner
in accordance with the Code, which, subject to any contrary requirements of the
Code, shall equal such Partner's initial Capital Account balance as provided in
Section 3.1(d), increased by:
(i) the amount of money contributed by such Partner to the Partnership,
including money contributed or deemed to be contributed by such Partner pursuant
to Section 2.2(c)(6) of the Contribution Agreement and including money
contributed or deemed contributed by such Partner pursuant to Section 3.2(a),
but excluding money contributed pursuant to any other provision of the
Contribution Agreement and any payment of interest pursuant to any provision of
the Contribution Agreement;
(ii) the fair market value without regard to Code Section 7701(g) of
property, if any, contributed by such Partner to the Partnership (net of
liabilities that are secured by such contributed property or that the
Partnership or any other Partner is considered to assume or take subject to
under Code Section 752), but excluding contributions of property pursuant to the
Contribution Agreement;
(iii) allocations to the Partner of Net Profit and items of income and
gain pursuant to Article 4; and
(iv) other additions made in accordance with the Code;
and decreased by
(i) the amount of cash distributed to such Partner by the Partnership,
including cash deemed to be distributed to such Partner pursuant to Section
2.2(c)(6) of the Contribution Agreement and Section 4.1(d) of this Agreement and
including cash deemed to be distributed to such Partner pursuant to Section
3.2(a);
(ii) allocations to the Partner of Net Loss and items of loss and
deduction pursuant to Article 4;
3
<PAGE>
(iii) the fair market value without regard to Code Section 7701(g) of
property distributed to such Partner by the Partnership (net of liabilities that
are secured by such distributed property or that such Partner is considered to
assume or take subject to under Code Section 752); and
(iv) other deductions made in accordance with the Code.
The foregoing provisions and the other provisions of this Agreement relating to
the maintenance of Capital Accounts are intended to comply with Treasury
Regulations under Code Section 704(b) and, to the extent not inconsistent with
the provisions of this Agreement, shall be interpreted and applied in a manner
consistent with such Treasury Regulations.
"Capital Contributions" means, with respect to either Partner, the amount of
money and the net fair market value of property contributed by such Partner to
the Partnership pursuant to this Agreement.
"Certificate" means the certificate of limited partnership filed with
respect to the Partnership pursuant to the Act.
"Closing" means the consummation of the contribution of assets and
partnership interests to FHGLP and the Partnership in accordance with Section
2.1(a), Section 2.2(a), and Section 2.2(b) of the Contribution Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any subsequent federal law of similar import, and, to the extent
applicable, the Treasury Regulations.
"Contribution Agreement" means the Contribution and Purchase Agreement,
dated as of December 30, 1997, among the Partnership, the Partners, and certain
other parties identified therein, as it may be amended from time to time in
accordance with its terms.
"Controlled Affiliate" means, with respect to TCI, any Person that, at such
time, is controlled directly or indirectly by TCI or TCI Communications, Inc., a
Delaware corporation, (a) through the ownership of Voting Stock or (b) by other
means if TCI or TCI Communications, Inc. is the beneficial owner of a majority
of the equity of such Person, and, with respect to FHGLP, Marc B. Nathanson or
any Person (other than the Partnership or any Subsidiary) that, at such time, is
controlled directly or indirectly by Marc B. Nathanson either (a) through the
ownership of Voting Stock or (b) by other means if Marc B. Nathanson or one or
more members of his family, alone or in combination, is the beneficial owner of
a majority of the equity of such Person; PROVIDED, HOWEVER, that the term
"Controlled Affiliate," with respect to FHGLP, does not include at any time any
Person that at such time has ceased to be controlled directly or indirectly by
Marc B. Nathanson as a result of the transfer of Voting Stock or other rights to
any other Person, including the estate of Marc B. Nathanson upon his death.
4
<PAGE>
"Depreciation" means, for each Fiscal Year, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable with
respect to an asset for such Fiscal Year, except that if the Gross Asset Value
of an asset differs from its adjusted basis for federal income tax purposes at
the beginning of such Fiscal Year, Depreciation shall be determined in the
manner described in Treasury Regulations Section 1.704-1(b)(2)(iv)(g)(3) or
Treasury Regulations Section 1.704-3(d)(2), as applicable.
"Existing Entities" means Falcon Cable Media, a California Limited
Partnership; Falcon Cablevision, a California Limited Partnership; Falcon
Telecable, a California Limited Partnership; Falcon Community Cable, L.P., a
Delaware limited partnership; Falcon Community Ventures I, L.P., a Delaware
limited partnership; Falcon First, Inc, a Delaware corporation; Falcon Cable
Systems Company II, L.P., a California limited partnership; and Falcon Video
Communications, L.P., a Delaware limited partnership.
"Existing Incentive Plan" means, collectively, the Falcon Holding Group,
Inc. 1993 Incentive Performance Plan, the Adoption and Assumption Agreement of
the 1993 Incentive Performance Plan, dated as of December 30, 1993, between the
General Partner and FHGLP, the First Amendment to 1993 Incentive Performance
Plan, dated as of December 31, 1993, the Second Amendment to 1993 Incentive
Performance Plan, dated as of January 1, 1996, the Third Amendment to 1993
Incentive Performance Plan, dated as of July 1, 1996, the Fourth Amendment to
1993 Incentive Performance Plan, dated as of May 1, 1997, and the amendment
contemplated by Section 2.8(i) of the Contribution Agreement.
"FCC" means the Federal Communications Commission.
"FHGLP" means Falcon Holding Group, L.P., a Delaware limited partnership, or
any other Person that succeeds to its Partnership Interest and is admitted as a
Partner in accordance with the provisions of this Agreement.
"FHGLP Partnership Agreement" means the Fourth Amended and Restated
Agreement of Limited Partnership of FHGLP, to be entered into at the Closing
pursuant to the Contribution Agreement.
"Fiscal Year" means the fiscal year of the Partnership, which shall be the
calendar year.
"General Partners" means FHGLP, in its capacity as a general partner of the
Partnership and not as the limited partner of the Partnership, TCI, and any
other Person admitted as a general partner in accordance with the provisions of
this Agreement.
"Gross Asset Value" means with respect to any asset, the asset's adjusted
basis for federal income tax purposes, except as follows:
5
<PAGE>
(i) The initial Gross Asset Value of any asset contributed by a Partner
to the Partnership shall be the gross fair market value of such asset, as
determined in accordance with Section 3.1(e);
(ii) The Gross Asset Values of all assets of the Partnership shall be
adjusted to equal their respective gross fair market values, as determined by
the Managing Partner, as of the following times: (A) the acquisition of an
additional interest in the Partnership by any new or existing Partner in
exchange for more than a DE MINIMIS Capital Contribution; (B) the distribution
by the Partnership to a Partner of more than a DE MINIMIS amount of property of
the Partnership as consideration for an interest in the Partnership; and (C) the
liquidation of the Partnership within the meaning of Treasury Regulations
Section 1.704-1(b)(2)(ii)(g); PROVIDED, HOWEVER, that the adjustments pursuant
to clauses (A) and (B) above shall be made only if the Managing Partner
determines that such adjustments are necessary or appropriate to reflect the
relative economic interests of the Partners in the Partnership;
(iii) The Gross Asset Value of any asset of the Partnership distributed
to either Partner shall be the gross fair market value of such asset on the date
of distribution; and
(iv) The Gross Asset Value of the assets of the Partnership shall be
increased (or decreased) to reflect any adjustments to the adjusted basis of
such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to
the extent that such adjustments are taken into account in determining Capital
Accounts pursuant to Treasury Regulations Section 1.704- 1(b)(2)(iv)(m) and
Section 4.3(g); PROVIDED, HOWEVER, that Gross Asset Value shall not be adjusted
pursuant to this paragraph (iv) to the extent that the Managing Partner
determines that an adjustment pursuant to paragraph (ii) of this definition is
necessary or appropriate in connection with a transaction that would otherwise
result in an adjustment pursuant to this paragraph (iv).
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to paragraph (i), (ii), or (iv) of this definition, the Gross Asset
Value of such asset shall thereafter be adjusted by the Depreciation taken into
account with respect to such asset for purposes of computing Net Profit and Net
Loss.
"Indebtedness" means, with respect to any Person, (a) debt of such Person
for borrowed money, debt of such Person that represents the deferred purchase
price of property, and similar monetary obligations of such Person that are
evidenced by bonds, notes, debentures, or other instruments, and capitalized
lease obligations, but excluding liabilities or obligations with respect to
subscriber deposits, interest rate hedging obligations, accrued interest, other
accrued expenses, trade accounts payable, and other similar items, (b)
guaranties, endorsements, and other contingent obligations of such Person,
whether direct or indirect, in respect of liabilities of any other Person of any
of the types described in clause (a) above (other than endorsements for
collection or deposit in the ordinary course of business), and (c) liabilities
of any other Person of any of the types described in clause (a) above to the
extent of the fair market value of any property of such Person that secures such
liabilities; PROVIDED, HOWEVER, that (a) Indebtedness of any Person
6
<PAGE>
shall not include liabilities or obligations arising under any letter of credit,
performance bond, or similar instrument securing the obligations of such Person
under any cable television franchise, pole attachment agreement, lease, or other
similar agreement entered into in connection with the day-to-day operations of a
cable television system, and (b) Indebtedness of the Partnership or any
Subsidiary shall not include liabilities or obligations of the Partnership to
any Subsidiary or liabilities or obligations of any Subsidiary to the
Partnership or any other Subsidiary.
"Investors Partnerships" means Falcon Media Investors Group, a California
Limited Partnership; Falcon Investors Group, Ltd., a California Limited
Partnership; Falcon Telecable Investors Group, a California Limited Partnership;
Falcon Community Investors, L.P., a California limited partnership; and Falcon
Video Communications Investors, L.P., a California limited partnership.
"Limited Partners" means FHGLP, in its capacity as a limited partner of the
Partnership and not as the general partner of the Partnership, and any other
Person admitted as a limited partner in accordance with the provisions of this
Agreement.
"Managing Partner" means FHGLP and any General Partner selected as a
successor managing partner pursuant to Section 8.1 of this Agreement.
"Net Profit and Net Loss" means for each Fiscal Year or other period, an
amount equal to the Partnership's taxable income or loss for such Fiscal Year or
other period, determined in accordance with Code Section 703(a) (for this
purpose, all items of income, gain, loss, or deduction required to be stated
separately pursuant to Code Section 703(a)(1) shall be included in taxable
income or loss), with the following adjustments:
(i) Any income of the Partnership that is exempt from federal income
tax and not otherwise taken into account in computing Net Profit or Net Loss
shall be added to such taxable income or loss;
(ii) Code Section 705(a)(2)(B) expenditures of the Partnership that are
not otherwise taken into account in computing Net Profit or Net Loss shall be
subtracted from such taxable income or loss;
(iii) If the Gross Asset Value of any asset of the Partnership is
adjusted pursuant to paragraph (ii) or (iii) of the definition of Gross Asset
Value, the amount of such adjustment shall be taken into account as gain or loss
from the disposition of such asset for purposes of computing Net Profit or Net
Loss;
(iv) Gain or loss resulting from any disposition of property of the
Partnership with respect to which gain or loss is recognized for federal income
tax purposes shall be computed by reference to the Gross Asset Value of the
property disposed of, notwithstanding that the adjusted tax basis of such
property differs from its Gross Asset Value;
7
<PAGE>
(v) In lieu of the depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss, there
shall be taken into account Depreciation for such Fiscal Year or other period;
(vi) Notwithstanding anything to the contrary in the definition of the
terms "Net Profit" and "Net Loss," any items that are specially allocated
pursuant to Section 4.3 of this Agreement shall not be taken into account in
computing Net Profit or Net Loss; and
(vii) For purposes of this Agreement, any deduction for a loss on a
sale or exchange of property of the Partnership that is disallowed to the
Partnership under Code Section 267(a)(1) or Code Section 707(b) shall be treated
as a Code Section 705(a)(2)(B) expenditure.
"NewFalcon Interests" has the meaning assigned to it in the Contribution
Agreement.
"Nonrecourse Deductions" means losses, deductions, or Code Section
705(a)(2)(B) expenditures attributable to Partnership Nonrecourse Liabilities.
The amount of Nonrecourse Deductions shall be determined pursuant to Treasury
Regulations Section 1.704-2(c), which provides generally that the amount of
Nonrecourse Deductions for a Fiscal Year shall equal the net increase, if any,
in Partnership Minimum Gain during that Fiscal Year, reduced (but not below
zero) by the aggregate distributions made during that Fiscal Year of proceeds of
a Nonrecourse Liability that are allocable to an increase in Partnership Minimum
Gain.
"Nonrecourse Liability" has the meaning set forth in Treasury Regulations
Section 1.752- 1(a)(2).
"Offering Partner" means the Partner that elects pursuant to Section 10.1(a)
to commence the process described in Article 10.
"Operating Cash Flow Ratio" means "Operating Cash Flow Ratio" as defined in
the Amended and Restated Indenture, dated as of October 29, 1993, between Falcon
Holding Group, L.P. and United States Trust Company of New York, as trustee, as
it may be amended from time to time, but calculated as if the Partnership were
the "Company" for purposes of such definition and "Indebtedness" for purposes of
such definition meant Indebtedness as defined in this Agreement.
"Ownership Restriction" means any provision of the Communications Act of
1934, as amended, or any other law subsequently enacted, or any rule,
regulation, or policy of the FCC promulgated thereunder restricting the
ownership and control of communications properties (including cable television
systems, television broadcast stations, radio broadcast stations, telephone
companies, and newspapers), including those relating to cross-ownership and
cross-interest, as those terms are commonly understood in the communications
industry.
8
<PAGE>
"Partner Nonrecourse Debt" has the meaning set forth in Treasury Regulations
Section 1.704-2(b)(4), which generally defines "Partner Nonrecourse Debt" as any
Partnership liability to the extent such liability is nonrecourse and a partner
(or related Person) bears the economic risk of loss pursuant to Treasury
Regulations Section 1.752-2.
"Partner Nonrecourse Debt Minimum Gain" has the meaning set forth in
Treasury Regulations Section 1.704-2(i)(2), which generally defines "Partner
Nonrecourse Debt Minimum Gain" as the Partnership Minimum Gain attributable to
Partner Nonrecourse Debt. The amount of Partner Nonrecourse Debt Minimum Gain
shall be determined in accordance with Treasury Regulations Section
1.704-2(i)(3).
"Partner Nonrecourse Deductions" means losses, deductions, or Code Section
705(a)(2)(B) expenditures attributable to Partner Nonrecourse Debt. The amount
of Partner Nonrecourse Deductions shall be determined pursuant to Treasury
Regulations Section 1.704-2(i)(2), which provides generally that the amount of
Partner Nonrecourse Deductions for a Fiscal Year shall equal the net increase,
if any, in Partner Nonrecourse Debt Minimum Gain during that Fiscal Year,
reduced (but not below zero) by the proceeds of Partner Nonrecourse Debt
distributed during the Fiscal Year to the partner bearing the economic risk of
loss for such Partner Nonrecourse Debt that are both attributable to such
Partner Nonrecourse Debt and allocable to an increase in Partner Nonrecourse
Debt Minimum Gain.
"Partners" means each General Partner, each Limited Partner, and any other
Person that acquires an interest in the Partnership and is admitted to the
Partnership.
"Partnership" means the partnership created by the Agreement of Limited
Partnership, dated as of October 23, 1997, between FHGLP and Stanley S.
Itskowitch and continued by the Partners pursuant to this Agreement.
"Partnership Interest" means the entire ownership interest of a Partner in
the Partnership at any particular time, including all of its rights and
obligations hereunder and under the Act.
"Partnership Minimum Gain" means the excess of the Partnership Nonrecourse
Liabilities over the adjusted tax basis of property securing such Partnership
Nonrecourse Liabilities. The amount of Partnership Minimum Gain shall be
determined in accordance with Treasury Regulations Section 1.704-2(d), which
provides generally that the amount of Partnership Minimum Gain shall be
determined by first computing for each Nonrecourse Liability any gain the
Partnership would realize if it disposed of the property subject to that
Nonrecourse Liability for no consideration other than full satisfaction of such
Nonrecourse Liability, and then aggregating the separately computed gains.
"Partnership Unit" means, for purposes of calculating a Partner's Percentage
Interest and the purchase price for a Partner's Partnership Interest in the
event of a purchase and sale of such
9
<PAGE>
Partnership Interest pursuant to Article 10, the value assigned to such
Partner's Partnership Interest in accordance with the following provisions:
(i) effective as of the Closing, there shall be assigned to the
Partnership Interest of each Partner that is a Partner on the date of this
Agreement, a number of Partnership Units equal to the product of 100,000 times a
fraction the numerator of which is the net fair market value of all Capital
Contributions being made by such Partner pursuant to the Contribution Agreement
and the denominator of which is the net fair market value of all Capital
Contributions being made by both Partners pursuant to the Contribution
Agreement, with all such net fair market values being determined in the manner
specified in Section 3.5(a); and
(ii) there shall be assigned to any Partnership Interest issued
pursuant to Section 7.5 the number of Partnership Units (if any) required to be
assigned to such Partnership Interest under the terms of its issuance.
"Percentage Interest" means (a) as of any date prior to the date on which
the Closing occurs, with respect to FHGLP, 57.0%, and with respect to TCI,
43.0%, and (b) as of any date on or after the date on which the Closing occurs,
the number of Partnership Units assigned to the Partnership Interest of such
Partner divided by the aggregate number of Partnership Units assigned to the
Partnership Interests of both Partners.
"Person" means an individual, partnership, joint venture, association,
corporation, trust, estate, limited liability company, limited liability
partnership, or any other legal entity.
"Responding Partner" means TCI, if FHGLP is the Offering Partner, and FHGLP,
if TCI is the Offering Partner.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary" means, at any time, any Person (including any Existing Entity
or any Investors Partnership) that is controlled by the Partnership at such
time, but excluding Falcon/ Capital Cable and Falcon/Capital Cable Partners,
L.P.
"TCI" means TCI Falcon Holdings, LLC, a Delaware limited liability company,
or any other Person that succeeds to its Partnership Interest and is admitted as
a Partner in accordance with the provisions of this Agreement.
"Treasury Regulations" means the Income Tax Regulations, including Temporary
Regulations, promulgated under the Code, as such regulations may be amended from
time to time (including corresponding provisions of succeeding regulations).
"Unit Liquidation Amount" means the amount that would be distributed to the
Offering Partner in liquidation of the Partnership, per Partnership Unit, if (i)
each Business Asset were sold
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for its Liquidation Value (as defined in Section 13.3(b)(2)), without reduction
for filing fees, transfer taxes, recordation taxes, sales taxes, document
stamps, other charges levied by any governmental entity, attorneys' and
accountants' fees and expenses, and other transaction costs of any nature that
would be incurred in connection with any such liquidating sale, (ii) Net Profit
and Net Loss and items specially allocated in accordance with Section 4.3,
including any gain or loss resulting from the liquidating sales described in
clause (i), were allocated in accordance with Article 4, and corresponding
allocations were made under the partnership agreement or other governing
instrument of each Subsidiary, (iii) the Partnership and each Subsidiary paid
its accrued, but unpaid, liabilities (which shall not in any event include any
prepayment premiums or penalties or other similar costs attributable to the
payment of any such liabilities), and (iv) each Subsidiary distributed the
remaining proceeds received by it (net of reserves then shown on the financial
statements of each Subsidiary but without establishing additional reserves for
contingent or unknown liabilities) to its equity owners in liquidation in
accordance with its partnership agreement or other governing instrument and the
Partnership distributed the remaining proceeds received by it (net of reserves
then shown on the financial statements of the Partnership but without
establishing additional reserves for contingent or unknown liabilities) to the
Partners in liquidation.
"Voting Stock" means ownership interests in a Person of any class or kind
ordinarily giving the holder the power to vote for the election of directors,
managers, or other members of the governing body of such Person or (as may be
the case with general partnership interests in a partnership) giving the holder
the power to exercise rights typically exercised by directors of a corporation.
1.2 Terms Defined Elsewhere in this Agreement.
------------------------------------------
For purposes of this Agreement, the following terms have the meanings set
forth in the sections indicated:
<TABLE>
<CAPTION>
Term Section
- ---- -------
<S> <C>
AAA Section 18.6(b)
Acceptance Section 10.2
Appraised Liquidation Amount Section 10.6(e)
Arbitration Notice Section 18.6(e)
Business Asset Section 10.1(a)
Cluster Systems Section 12.3
Corporation Section 11.1(c)(1)
Deferred Assignment Section 9.14(b)
FHGLP Appraiser Section 10.6(b)
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Term Section
- ---- -------
<S> <C>
FHGLP Liquidation Amount Section 9.13(a)(1)
Formal Determination Section 12.4(b)
Gross Revenues Section 5.1(b)(2)(N)
Incorporation Section 11.1(a)
Indemnified Persons Section 14.1
Liquidating Sale Offer Section 13.3(a)
Liquidation Value Section 13.3(b)(2)
Liquidator Section 13.2(b)
Management Incentive Plan Section 5.1(b)(2)(L)
Net Overhead Expenses Section 5.1(b)(2)(N)
Offer Section 10.1(a)
Partners' Cumulative Estimated Tax Liability Section 4.1(a)(1)
Regulatory Allocations Section 4.3(i)
Restricted Business Section 12.1(a)
Restricted Telephony Activity Section 2.7(b)
Sale Limit Section 5.1(b)(2)(B)
Secretary Section 5.5(b)
Section 2.2(b) Units Section 3.5(b)
Target Price Section 10.1(a)
TCI Appraiser Section 10.6(b)
Third Appraiser Section 10.6(b)
Unit Price Section 10.1(a)
Wireless Exclusive Services Section 2.7(a)
Withholding Advance Section 4.1(c)(2)
</TABLE>
1.3 Terms Generally.
----------------
The definitions in Section 1.1 and elsewhere in this Agreement shall apply
equally to both the singular and plural forms of the terms defined. Whenever the
context requires, any pronoun
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<PAGE>
includes the corresponding masculine, feminine, and neuter forms. The words
"include," "includes," and "including" are not limiting. Any reference in this
Agreement to a "day" or number of "days" (without the explicit qualification of
"Business") shall be interpreted as a reference to a calendar day or number of
calendar days. If any action or notice is to be taken or given on or by a
particular calendar day, and such calendar day is not a Business Day, then such
action or notice shall be deferred until, or may be taken or given on, the next
Business Day.
ARTICLE 2
FORMATION, CONTINUATION, AND PURPOSE
2.1 Formation and Continuation.
---------------------------
The Partnership was formed as a limited partnership pursuant to the Act by
the filing of the Certificate with the Secretary of State of California. The
Partners hereby agree to continue the Partnership as a limited partnership
pursuant to the Act. The rights and liabilities of the Partners shall be
determined pursuant to the Act and this Agreement. To the extent that the rights
or obligations of either Partner are different by reason of any provision of
this Agreement than they would be in the absence of such provision, this
Agreement shall, to the extent permitted by the Act, control. Prior to the date
of this Agreement, the Partnership has not engaged in any business activities or
incurred any liabilities.
2.2 Withdrawal and Admission of Partners.
-------------------------------------
Effective upon the date of this Agreement, TCI shall be admitted to the
Partnership as a General Partner and Stanley S. Itskowitch shall withdraw from
the Partnership. Upon his withdrawal from the Partnership, Stanley S. Itskowitch
shall have no further rights under this Agreement by reason of having been a
partner, including any rights to any Net Profit, Net Loss, or distributions of
the Partnership.
2.3 Name.
-----
(a) The name of the Partnership is Falcon Communications, L.P. Except
as provided in Section 2.3(b), the business of the Partnership may be conducted
under that name or, upon compliance with applicable laws, any other name that
the Managing Partner deems appropriate or advisable. The Managing Partner shall
file any assumed name certificates and similar filings, and any amendments
thereto, that the Managing Partner considers appropriate or advisable.
(b) The Partnership shall not conduct business under the name
"TeleCommunications, Inc.," "TCI," or any variation thereof without the approval
of TCI, except that any asset contributed to the Partnership by TCI may continue
to bear any name borne by such asset at the time of its contribution to the
Partnership for a period of ninety days after its
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<PAGE>
contribution. The parties agree that neither "Communications" nor
"Telecommunications" is a variation of "Tele-Communications, Inc." for purposes
of this Section 2.3(b).
2.4 Principal Office.
-----------------
The office required to be maintained by the Partnership in the State of
California pursuant to Section 15614(a) of the Act shall initially be located at
1801 Century Park East, Suite 2222, Los Angeles, California 90067. The resident
agent of the Partnership pursuant to Section 15614(b) of the Act shall initially
be Mark A. Goldman. The Partnership may, upon compliance with the applicable
provisions of the Act, change its principal office or resident agent from time
to time in the discretion of the Managing Partner. The principal office of the
Partnership shall be located at 10900 Wilshire Blvd., 15th Floor, Los Angeles,
California 90024, or at such other place as the Managing Partner shall from time
to time designate by written notice to TCI. The Partnership may conduct business
at such additional places as the Managing Partner shall deem advisable.
2.5 Term.
-----
The term of the Partnership commenced on October 23, 1997, the date of the
filing of the Certificate with the Secretary of State of California, and shall
continue until July 1, 2013 (or until any later date that at any time shall have
been proposed by the Managing Partner and approved by TCI), unless sooner
terminated as provided in this Agreement.
2.6 Purposes of Partnership.
------------------------
The purposes of the Partnership are:
(a) to acquire, own, hold for investment, and dispose of partnership or
corporate interests in the Existing Entities and the Investors Partnerships, and
to exercise all rights incident thereto;
(b) to acquire, own, hold for investment, and dispose of debt and
equity securities in corporations, general or limited partnerships, or other
entities (including the Corporation) that, directly or indirectly, own, as their
principal asset or business, cable television systems or other related or
ancillary businesses (including cable television programming and personal
communications, alternative access, Internet access, and other telephony-related
investments or businesses);
(c) to engage in the business, directly or indirectly through interests
in one or more corporations, partnerships, or other entities, of acquiring,
developing, owning, operating, managing, and selling cable television systems
and other related and ancillary businesses (including cable television
programming and personal communications, alternative access, Internet access,
and other telephony-related investments or businesses);
14
<PAGE>
(d) to engage in the business of managing cable television systems and
other related and ancillary businesses (including cable television programming
and personal communications, alternative access, Internet access, and other
telephony-related investments or businesses);
(e) to possess, transfer, mortgage, pledge, or otherwise deal in, and
to exercise all rights, powers, privileges, and other incidents of ownership or
possession with respect to securities or other assets held or owned by the
Partnership, and to hold securities or assets in the name of a nominee or
nominees;
(f) to borrow or raise money, and from time to time to issue, accept,
endorse, and execute promissory notes, loan agreements, options, stock purchase
agreements, contracts, documents, checks, drafts, bills of exchange, warrants,
bonds, debentures, and other negotiable or non-negotiable instruments and
evidences of indebtedness, and to secure the payment of any thereof and of the
interest thereon by mortgage upon or pledge, conveyance, or assignment in trust
of, the whole or any part of the property of the Partnership whether at the time
owned or thereafter acquired and to guarantee the obligations of others and to
sell, pledge, or otherwise dispose of such bonds or other obligations of the
Partnership for its purposes;
(g) to guarantee the obligations of others in connection with the
purchase or acquisition by the Partnership of securities or assets;
(h) to maintain an office or offices in such place or places as the
Managing Partner shall determine and in connection therewith to rent or acquire
office space, engage personnel, and do such other acts and things as may be
necessary or advisable in connection with the maintenance of such office, and on
behalf of and in the name of the Partnership to pay and incur reasonable
expenses and obligations for legal, accounting, investment advisory,
consultative and custodial services, and other reasonable expenses including
taxes, travel, insurance, rent, supplies, interest, salaries and wages of
employees, and all other reasonable costs and expenses incident to the operation
of the Partnership;
(i) to form and own one or more corporations, trusts, or partnerships
(but no entity so formed or owned, while it is a Subsidiary, may do what the
Partnership is prohibited by this Agreement from doing);
(j) to own, lease, or otherwise acquire any and all assets and services
related to the foregoing purposes and to engage in such other activities related
either directly or indirectly to the foregoing purposes as may be necessary,
advisable, or appropriate, in the opinion of the Managing Partner, for the
promotion or conduct of the business of the Partnership; and
(k) with the approval of the Managing Partner and TCI, to engage in any
other lawful business endeavor.
15
<PAGE>
2.7 Limitations on Activities of the Partnership.
---------------------------------------------
Notwithstanding any provision of Section 2.6 to the contrary, the following
restrictions shall apply to the business activities of the Partnership:
(a) On the Closing Date and immediately thereafter, neither the
Partnership nor any Subsidiary will be (1) engaged in the bidding for or
acquisition of any license for the provision of Wireless Exclusive Services, (2)
engaged in the business of providing Wireless Exclusive Services, or (3)
providing, offering, promoting, or branding services that are Wireless Exclusive
Services. For purposes of this Section 2.7(a), "Wireless Exclusive Services"
means wireless communications services that use radio spectrum for cellular,
PCS, ESMR, paging, mobile telecommunications, or other voice or data wireless
service, whether fixed or mobile, and regardless of form (E.G., analog or
digital), method of origination (E.G., voice, data, or telemetry), or content
transmitted, but does not include the provision of video wireless services, the
provision of satellite or broadband microwave transmission services, or any
other businesses or services that do not constitute "Wireless Exclusive
Services" as defined in the Amended and Restated Agreement of Limited
Partnership of Sprint Spectrum Holding Company, L.P. (formerly known as MajorCo,
L.P.), dated January 31, 1996, among Sprint Enterprises, L.P. (formerly known as
Sprint Spectrum L.P.), TCI Network Services, Comcast Telephony Services and Cox
Telephony Partnership.
(b) Prior to January 31, 1999, neither the Partnership nor any
Subsidiary will engage in any Restricted Telephony Activity; PROVIDED, HOWEVER,
that this restriction shall not apply (1) to the extent that a Controlled
Affiliate (as defined in the Parents Agreement, dated as of January 31, 1996,
between Tele-Communications, Inc. and Sprint Corporation) of TeleCommunications,
Inc. would not be subject to a similar restriction under such Parents Agreement
(as a result of any exceptions in such Parents Agreement to the covenants of
TeleCommunications, Inc. and its Controlled Affiliates thereunder, any
variations between the definition of Restricted Telephony Activity and the
activities restricted under such Parent Agreement, or otherwise), or (2)
following the termination of such Parents Agreement. For purposes of this
Section 2.7(b), a "Restricted Telephony Activity" means:
(1) offering or promoting, or packaging any of its products or
services with, or acting as sales agent for, local or long distance wireline
telephony services under the brand name of any Bell Operating Company or any of
GTE Corporation, AT&T Corp., MCI Communications Corporation, British
Telecommunications plc, WorldCom, Inc., Cable & Wireless plc, LCI International
Inc., or Frontier Corporation;
(2) making the distribution facilities of any of its cable
television systems available for use by a Person other than an Affiliate of the
Partnership in connection with the provision by such Person of local telephone
service to residences without making the same
16
<PAGE>
facilities available to Sprint Corporation on similar terms for the provision by
Sprint Corporation of the same or similar kinds of local telephone service; or
(3) making the distribution facilities of any of its cable
television systems available for use by any of the Persons described in Section
2.7(b)(1) for the provision to residences of data communications services that
are functionally equivalent to asynchronous data transmission services without
making the same facilities available to Sprint Corporation on similar terms for
the provision by Sprint Corporation of the same or similar kinds of data
communications services.
(c) Prior to the Closing, the Partnership will not engage in any
business activities except as may be appropriate to facilitate the consummation
of the transactions to occur at the Closing in accordance with the Contribution
Agreement.
(d) Neither the Partnership nor any Subsidiary will acquire any equity
interest in Enstar Communications Corp. or any subsidiary of Enstar
Communications Corp.
2.8 Certificate.
------------
The Managing Partner has caused the Certificate to be filed with the
Secretary of State of California. The General Partners shall execute and
acknowledge a certificate of amendment amending the Certificate to reflect the
admission of TCI as a General Partner, and the Managing Partner shall cause the
certificate of amendment to be filed with the Secretary of State of California.
The Managing Partner shall cause the Certificate and the certificate of
amendment to be filed or recorded in any other public office where filing or
recording is required or is deemed by the Managing Partner to be advisable.
2.9 Addresses of the Partners.
--------------------------
The respective addresses of the Partners are set forth on Schedule I.
2.10 Foreign Qualification.
----------------------
The Managing Partner shall take all necessary actions to cause the
Partnership to be authorized to conduct business legally in all appropriate
jurisdictions, including registration or qualification of the Partnership as a
foreign limited partnership in those jurisdictions that provide for registration
or qualification and the filing of a certificate of limited partnership in the
appropriate public offices of those jurisdictions that do not provide for
registration or qualification.
17
<PAGE>
ARTICLE 3
PARTNERSHIP CAPITAL
3.1 Contributions Pursuant to the Contribution Agreement.
-----------------------------------------------------
(a) Contributions. At the Closing, or at such later time as provided in
Section 2.2(c), Section 11.10, and Section 11.19 of the Contribution Agreement,
and pursuant to the terms of the Contribution Agreement:
(1) TCI will contribute or cause to be contributed to the
Partnership, free and clear of any claims, liabilities, security interests,
mortgages, liens, pledges, conditions, charges, or encumbrances of any nature
whatsoever (other than liabilities and liens specified in the Contribution
Agreement), the assets specified in Section 2.2(a)(1) of the Contribution
Agreement and, if applicable, cash in the amount specified in Section 2.2(a)(1),
Section 2.2(c)(1), Section 2.2(c)(4), Section 11.10(d), Section 11.10(e),
Section 11.10(f), and Section 11.19(e)(1) of the Contribution Agreement; and
(2) FHGLP will contribute or cause to be contributed to the
Partnership, free and clear of any claims, liabilities, security interests,
mortgages, liens, pledges, conditions, charges, or encumbrances of any nature
whatsoever (other than liabilities and liens specified in the Contribution
Agreement), the assets specified in Section 2.2(a)(2) and Section 2.2(b) of the
Contribution Agreement and, if applicable, cash in the amount specified in
Section 2.2(c)(2) and Section 2.2(c)(3) of the Contribution Agreement.
(b) Allocation of Contributions by FHGLP. The portion of the Capital
Contribution being made by FHGLP pursuant to Section 3.1(a)(2) that is allocable
to its interest as Limited Partner (before giving effect to the assignment of
the NewFalcon Interests by FHGLP to certain of its partners and the sale of the
NewFalcon Interests by such partners to TCI, as provided in the Contribution
Agreement) shall equal the aggregate amount specified next to the names of the
Redeemed Partners (as defined in the Contribution Agreement) in the table in
Section 2.6(a) of the Contribution Agreement (but excluding the amount specified
in such table next to the name of any Partner that elects pursuant to Section
2.6(b) of the Contribution Agreement not to be a Redeemed Partner) plus one
percent of the Capital Contributions made by both Partners (including FHGLP),
and the portion of the Capital Contribution being made by FHGLP pursuant to
Section 3.1(a)(2) that is allocable to its interest as General Partner shall
equal the amount by which the total Capital Contribution being made by FHGLP
pursuant to Section 3.1(a)(2) exceeds the portion of its Capital Contribution
that is allocable to its interest as Limited Partner. The portion of FHGLP's
interest as General Partner that is allocable to FHGLP's contribution of
partnership interests and Mezzanine Securities pursuant to Section 2.2(b) of the
Contribution Agreement shall equal the value of those contributions as
determined under Section 3.3 and Section 3.4 of the Contribution Agreement.
18
<PAGE>
(c) NewFalcon Interests. At the time of their assignment to certain
partners of FHGLP pursuant to the Contribution Agreement, the NewFalcon
Interests shall represent Partnership Interests as a Limited Partner of the
Partnership. Upon the purchase by TCI of the NewFalcon Interests pursuant to the
Contribution Agreement, the NewFalcon Interests shall be converted
automatically, without further action by FHGLP or TCI, into Partnership
Interests as a General Partner of the Partnership. The purchase by TCI of the
NewFalcon Interests shall not affect the respective rights and obligations of
FHGLP and TCI under this Agreement except insofar as the number of Partnership
Units assigned to TCI's Partnership Interest, and TCI's Percentage Interest,
shall be increased thereby.
(d) Fair Market Value of Contributions; Capital Account Balances. The
Partners agree that the fair market value without regard to Code Section 7701(g)
of each asset contributed to the Partnership pursuant to Section 3.1(a) (net of
liabilities that are secured by such assets or that the Partnership is
considered to assume or take subject to under Code Section 752) shall be
determined in accordance with Section 3.1(e). The Capital Accounts of the
Partners immediately after the Closing, and after giving effect to the
assignment of the NewFalcon Interests by FHGLP to certain of its partners and
the sale of the NewFalcon Interests by such partners to TCI, as provided in the
Contribution Agreement, shall be as follows:
(1) In the case of FHGLP, the net fair market value of the
partnership interests and other assets of FHGLP that are contributed to the
Partnership pursuant to Section 2.2(a)(2) and Section 2.2(b) of the Contribution
Agreement, as specified in Section 3.5 of the Contribution Agreement, taking
into account any amendment to the Contribution Agreement pursuant to Section 3.8
of the Contribution Agreement, less the aggregate amount specified next to the
names of the Redeemed Partners (as defined in the Contribution Agreement) in the
table in Section 2.6(a) of the Contribution Agreement (but excluding the amount
specified in such table next to the name of any Partner that elects pursuant to
Section 2.6(b) of the Contribution Agreement not to be a Redeemed Partner).
(2) In the case of TCI, the net fair market value of the TCI
Assets (as defined in the Contribution Agreement), as specified in Section 3.2
of the Contribution Agreement, taking into account any amendment to the
Contribution Agreement pursuant to Section 3.8 of the Contribution Agreement and
any adjustment pursuant to Section 11.19(c) of the Contribution Agreement, but
without reduction for the value of any Retained TCI Assets (as defined in the
Contribution Agreement) that are not contributed to the Partnership at the
Closing, plus the amount of cash contributed to the Partnership by TCI at the
Closing pursuant to Section 11.19(c) of the Contribution Agreement, plus the
aggregate amount specified next to the names of the Redeemed Partners (as
defined in the Contribution Agreement) in the table in Section 2.6(a) of the
Contribution Agreement (but excluding the amount specified in such table next to
the name of any Partner that elects pursuant to Section 2.6(b) of the
Contribution Agreement not to be a Redeemed Partner).
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(e) Determining Fair Market Value of Contributed Assets. Except as
otherwise agreed to between the Partners, the fair market value of any asset
contributed by a Partner to the Partnership shall be determined for purposes of
this Agreement as follows:
(1) The Managing Partner shall determine the fair market value of
such asset and send a written notice to TCI setting forth its determination. In
the case of any asset contributed to the Partnership pursuant to Section 3.1(a),
the Managing Partner's determination shall be consistent with the net fair
market values of contributed assets established by the Contribution Agreement.
(2) Within ten Business Days after its receipt of the Managing
Partner's notice pursuant to Section 3.1(e)(1), TCI may send a written notice to
the Managing Partner accepting or rejecting the Managing Partner's determination
of the fair market value of such asset. If TCI accepts the Managing Partner's
determination or does not send a written notice to the Managing Partner
rejecting the Managing Partner's determination within ten Business Days after
its receipt of the Managing Partner's notice pursuant to Section 3.1(e)(1), the
fair market value of such asset for purposes of this Agreement shall be as
determined by the Managing Partner.
(3) If TCI sends a written notice to the Managing Partner
rejecting the Managing Partner's determination of the fair market value of any
asset within ten Business Days after its receipt of the Managing Partner's
notice pursuant to Section 3.1(e)(1), the fair market value of such asset for
purposes of this Agreement shall be determined by an appraisal to be conducted
by an independent appraisal firm agreed to by the Managing Partner and TCI and
retained by the Partnership, at the Partnership's expense, with experience in
the valuation and appraisal of assets similar to such asset. In the case of
assets contributed to the Partnership pursuant to Section 3.1(a), the appraisal
shall be consistent with the net fair market values of contributed assets
established by the Contribution Agreement.
3.2 Additional Capital Contributions.
---------------------------------
(a) Immediately following any payment by the Partnership under the
Existing Incentive Plan, including any payment made in connection with the
liquidation of the Partnership, FHGLP shall contribute to the Partnership cash
in an amount equal to such payment. If FHGLP is required to contribute cash
pursuant to this Section 3.2(a) following the liquidation of the Partnership,
such cash shall thereafter be distributed to the Partners in accordance with
Section 13.2(d). The Partnership may withhold from any distributions to which
FHGLP would otherwise be entitled pursuant to Section 13.2(d) the amount of
FHGLP's obligations under this Section 3.2(a), and any amounts so withheld shall
be treated as amounts (1) distributed to FHGLP pursuant to Section 13.2(d), and
(2) contributed by FHGLP to the Partnership in accordance with this Section
3.2(a).
(b) There shall be no further assessments for additional Capital
Contributions by the Partners to the Partnership.
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3.3 Assumption of Liabilities.
--------------------------
In accordance with the terms and conditions of the Contribution Agreement,
the Partnership will, at the Closing (or at such later time as provided in
Section 11.10 or Section 11.19 of the Contribution Agreement), assume and
undertake to pay, discharge, and perform those obligations and liabilities of
TCI, FHGLP, and their respective Affiliates that are specified in Article 4 of
the Contribution Agreement.
3.4 Return of Contributions.
------------------------
Neither Partner shall have the right to demand a return of all or any part
of its Capital Contribution during the term of the Partnership, and any return
of the Capital Contribution of either Partner shall be made solely from the
assets of the Partnership and only in accordance with the terms of this
Agreement. No interest shall be paid to either Partner with respect to its
Capital Contribution to the Partnership.
3.5 Schedule of Percentage Interests.
---------------------------------
At the Closing, the Managing Partner will deliver to TCI Schedule II, to be
attached to this Agreement, which will set forth:
(a) the net fair market value of all Capital Contributions being made
by each Partner pursuant to Section 3.1(a), including, in the case of FHGLP, the
net fair market value of the Capital Contributions being made pursuant to
Section 2.2(b) of the Contribution Agreement, as determined in accordance with
Article 3 of the Contribution Agreement, determined as if (1) the TCI
Adjustments and the Falcon Adjustments were as set forth in the preliminary
settlement statements delivered pursuant to Section 3.7(b) of the Contribution
Agreement; (2) as if all Retained TCI Assets and, if no Ellensburg Exclusion
Event shall have occurred prior to Closing, all assets of the Ellensburg System
were contributed to the Partnership at the Closing, and (3) without regard to
any amendment to the Contribution Agreement required by Section 3.8 of the
Contribution Agreement that, as of the Closing Date, has not yet been agreed to
between FHGLP and TCI or determined by arbitration pursuant to Section 15.9 of
the Contribution Agreement (terms used in this Section 3.5(a) that are not
defined in this Agreement but are defined in the Contribution Agreement have the
meanings assigned to them in the Contribution Agreement); and
(b) the number of Partnership Units assigned to the Partnership
Interest of each Partner, including, in the case of FHGLP, the number of
Partnership Units assigned to the Partnership Interest of FHGLP with respect to
the Capital Contributions being made by FHGLP pursuant to Section 2.2(b) of the
Contribution Agreement (the "Section 2.2(b) Units"), based on the net fair
market value of the Partners' Capital Contributions as specified on Schedule II
pursuant to Section 3.5(a), taking into account the assignment by FHGLP of
Partnership Interests to certain partners of FHGLP and the purchase of those
Partnership Interests by TCI pursuant to
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the Contribution Agreement, which will occur immediately following the Partners'
Capital Contributions at Closing; and
(c) the Percentage Interest of each Partner, based on the number of
Partnership Units assigned to the Partnership Interest of each Partner, as
specified on Schedule II pursuant to Section 3.5(b).
3.6 Operating Expenses.
-------------------
Subject to Section 5.1(b)(2)(N) and Section 5.6, the Partnership shall pay
(or shall reimburse the Managing Partner for) the operating expenses of the
Partnership.
3.7 Interest Payments.
------------------
FHGLP and TCI shall make interest payments to the Partnership as provided in
Section 2.2(c)(5) of the Contribution Agreement, and TCI shall make interest
payments to the Partnership as provided in Section 11.19 of the Contribution
Agreement. Interest paid or payable to the Partnership pursuant to the
Contribution Agreement shall not, for purposes of this Agreement, be deemed to
be a Capital Contribution.
ARTICLE 4
DISTRIBUTIONS; ALLOCATIONS OF PROFIT AND LOSS
4.1 Distributions of Cash.
----------------------
(a) Amount and Timing of Distributions.
(1) The Managing Partner shall cause the Partnership to distribute
to the Partners prior to March 15 of each Fiscal Year an amount equal to the
lesser of (A) the amount of cash held by the Partnership that the Partnership
can then distribute to its Partners without violating any restrictions imposed
by any contractual covenants of the Partnership, or (B) cash in the amount by
which the Partners' Cumulative Estimated Tax Liability exceeds the aggregate
amount of distributions previously made to the Partners pursuant to this Section
4.1(a) (including Section 4.1(a)(2)). For purposes of this paragraph, the
"Partners' Cumulative Estimated Tax Liability" means the product of (A) the
aggregate amount of taxable income and gain (net of or offset by items of
deduction, loss, and credit) of the Partnership that has been recognized for
income tax purposes and allocated to the Partners for all Fiscal Years of the
Partnership through the end of the preceding Fiscal Year times (B) the highest
marginal combined federal and state income tax rate applicable to either Partner
or, so long as either Partner is treated as a partnership for federal income tax
purposes, to any other Person that recognizes taxable income or gain as a result
of the allocation from the Partnership, such Partner, or any other Person of
taxable income and gain recognized initially by the Partnership (determined
after giving effect to the deduction
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(if allowable) of state income taxes for federal income tax purposes), as
reasonably determined by the Managing Partner.
(2) All cash of the Partnership not required to be distributed
pursuant to Section 4.1(a)(1) shall be distributed at such times and in such
amounts as the Managing Partner may determine in its sole discretion.
(b) Allocation of Distributions. All distributions of cash pursuant to
Section 4.1(a) and Section 13.2(d)(3) shall be allocated between the Partners in
proportion to their Percentage Interests.
(c) Tax Withholding.
(1) The Partnership shall seek to qualify for and obtain
exemptions from any provision of the Code or any provision of state, local, or
foreign tax law that would otherwise require the Partnership to withhold amounts
from payments or distributions to the Partners. If the Partnership does not
obtain any such exemption, the Partnership is authorized to withhold from any
payment or distribution to either Partner any amounts that are required to be
withheld pursuant to the Code or any provision of any state, local, or foreign
tax law that is binding on the Partnership.
(2) Any amount withheld with respect to any payment or
distribution to either Partner shall be credited against the amount of the
payment or distribution to which the Partner would otherwise be entitled. If the
Code or any provision of any state, local, or foreign tax law that is binding on
the Partnership requires that the Partnership remit to any taxing authority any
withholding tax with respect to, or for the account of, either Partner in its
capacity as a Partner, the Managing Partner shall, to the extent that
Partnership funds are available therefor, cause the Partnership to remit the
full required amount of such withholding tax to the taxing authority and shall
notify such Partner in writing of its obligation to pay to the Partnership such
withholding tax to the extent it exceeds the amount of any payment or
distribution to which such Partner would otherwise then be entitled. Each
Partner shall pay to the Partnership, within five Business Days after its
receipt of written notice from the Managing Partner (or, in the case of the
Managing Partner, within five Business Days after becoming aware) that
withholding is required with respect to such Partner, any amounts required to be
remitted by the Partnership to any taxing authority with respect to such Partner
that are in excess of the amount of any payment or distribution to which such
Partner would otherwise be entitled. If the Partnership is required to remit any
withholding tax with respect to, or for the account of, either Partner prior to
the Partnership's receipt of any payment required to be made by such Partner
pursuant to the preceding sentence, the amount of the payment required to be
made by such Partner shall be treated as a loan (the "Withholding Advance") from
the Partnership to the Partner, which shall accrue interest from the date the
Partnership is required to remit such withholding tax until paid by such Partner
or credited against payments or distributions to which such Partner would
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otherwise be entitled as provided in Section 4.1(c)(3) at a rate of fifteen
percent per year, compounded semi-annually.
(3) Any Withholding Advance made to a Partner and any interest
accrued thereon shall be credited against, and shall be offset by, the amount of
any later payment or distribution to which the Partner would otherwise be
entitled (without duplication of the credit provided in the first sentence of
Section 4.1(c)(2)), with any credit for accrued and unpaid interest as of the
date such payment or distribution would otherwise have been made being applied
before any credit for the amount of the Withholding Advance. Any Withholding
Advance made to a Partner and any interest accrued thereon, to the extent it has
not previously been paid by the Partner in cash or fully credited against
payments or distributions to which the Partner would otherwise be entitled,
shall be paid by the Partner to the Partnership upon the earliest of (A) the
dissolution of the Partnership, (B) the date on which the Partner ceases to be a
Partner of the Partnership, or (C) demand for payment by the Managing Partner.
(4) All amounts that are credited against payments or
distributions to which a Partner would otherwise be entitled pursuant to this
Section 4.1(c) shall be treated as amounts distributed to such Partner pursuant
to Section 4.1(a) for all purposes of this Agreement.
(d) Credit Against Required Contributions. The Partnership shall
withhold from any distributions to which a Partner (or any Assignee of a Partner
described in Section 2.2(c)(6) of the Contribution Agreement) would otherwise be
entitled pursuant to this Agreement the amount of such Partner's remaining
obligations under Section 2.2(c) of the Contribution Agreement, and any amounts
so withheld shall be treated as amounts (1) distributed to such Partner (or
Assignee) pursuant to Section 4.1(a) and (2) contributed or paid (as applicable)
by such Partner in accordance with Section 2.2(c) of the Contribution Agreement.
4.2 Allocations of Net Profit and Net Loss.
---------------------------------------
(a) Allocations of Net Profit and Net Loss. Except as provided in
Section 4.2(b), Net Profit and Net Loss for each Fiscal Year (or portion
thereof) shall be allocated between the Partners in proportion to their
Percentage Interests.
(b) Allocations of Net Profit and Net Loss Following Dissolution.
Notwithstanding Section 4.2(a), following the dissolution of the Partnership
pursuant to Section 13.1, beginning in the Fiscal Year in which such dissolution
occurs or beginning in any Fiscal Year prior to the Fiscal Year in which such
dissolution occurs if the Partnership's Federal income tax return for such prior
Fiscal Year has not yet been required to be filed (not including extensions),
items of income and gain, loss, and deduction shall be allocated as follows:
(1) first, FHGLP shall be allocated (A) all deductions with
respect to payments made by the Partnership pursuant to the Existing Incentive
Plan in such Fiscal Year, and (B) deductions in an amount equal to all
deductions for payments made by the Partnership
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pursuant to the Existing Incentive Plan in all prior Fiscal Years (other than
payments with respect to which deductions have previously been allocated to
FHGLP pursuant to clause (A) of this Section 4.2(b)(1)); and
(2) thereafter, items of income and gain, loss, and deduction
shall be allocated between the Partners so as to cause the credit balance in
each Partner's Capital Account to equal the amount of distributions such Partner
would be entitled to receive if an amount equal to the aggregate credit balances
in the Partners' Capital Accounts were distributed pursuant to Section 4.1(b).
4.3 Special Provisions Regarding Allocations of Profit and Loss.
------------------------------------------------------------
(a) Minimum Gain Chargeback. Notwithstanding any other provision of
this Article 4, if there is a net decrease in Partnership Minimum Gain for any
Fiscal Year, each Partner shall be specially allocated items of Partnership
income and gain for such Fiscal Year (and if necessary for succeeding Fiscal
Years) in an amount equal to such Partner's share of the net decrease in
Partnership Minimum Gain, determined in accordance with Treasury Regulations
Section 1.704-2(g); PROVIDED, HOWEVER, that this Section 4.3(a) shall not apply
to the extent the circumstances described in Treasury Regulations Sections
1.704-2(f)(2), 1.704-2(f)(3), 1.704- 2(f)(4), or 1.704-2(f)(5) exist.
Allocations made pursuant to the preceding sentence shall be made in proportion
to the respective amounts required to be allocated to each Partner pursuant
thereto. The items of Partnership income and gain to be allocated pursuant to
this Section 4.3(a) shall be determined in accordance with Treasury Regulations
Section 1.704-2(f)(6). This Section 4.3(a) is intended to comply with the
minimum gain chargeback requirement in Treasury Regulations Section 1.704-2(f)
and shall be interpreted consistently therewith.
(b) Partner Minimum Gain Chargeback. Notwithstanding any other
provision of this Article 4 except Section 4.3(a), if during any Fiscal Year
there is a net decrease in Partner Nonrecourse Debt Minimum Gain, each Partner
with a share of that Partner Nonrecourse Debt Minimum Gain (determined in
accordance with Treasury Regulations Section 1.704-2(i)(5)) as of the beginning
of such Fiscal Year must be allocated items of Partnership income and gain for
the Fiscal Year (and, if necessary, for succeeding Fiscal Years) equal to that
Partner's share of the net decrease in the Partner Nonrecourse Debt Minimum Gain
(determined in accordance with Treasury Regulations Section 1.704-2(i)(4));
PROVIDED, HOWEVER, that this Section 4.3(b) shall not apply to the extent the
circumstances described in the third and fifth sentences of Treasury Regulations
Section 1.704-2(i)(4) exist. Allocations pursuant to the preceding sentence
shall be made in proportion to the respective amounts required to be allocated
to each Partner pursuant thereto. The items of Partnership income and gain to be
allocated pursuant to this Section 4.3(b) shall be determined in accordance with
Treasury Regulations Section 1.704-2(i)(4). This Section 4.3(b) is intended to
comply with the minimum gain chargeback requirement in Treasury Regulations
Section 1.704-2(i)(4) and shall be interpreted consistently therewith.
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<PAGE>
(c) Qualified Income Offset. If a Limited Partner unexpectedly receives
any adjustments, allocations, or distributions described in Treasury Regulations
Sections 1.704- 1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or
1.704-1(b)(2)(ii)(d)(6), items of Partnership income and gain shall be specially
allocated to such Limited Partner in an amount and manner sufficient to
eliminate, to the extent required by the Treasury Regulations, the Adjusted
Capital Account Deficit of such Limited Partner as quickly as possible;
PROVIDED, HOWEVER, that an allocation pursuant to this Section 4.3(c) shall be
made if and only to the extent that such Limited Partner would have an Adjusted
Capital Account Deficit after all other allocations provided for in this Article
4 have been tentatively made as if this Section 4.3(c) were not in this
Agreement. Allocations made pursuant to the preceding sentence shall be made in
proportion to the respective amounts required to be allocated to each Partner
pursuant thereto.
(d) Gross Income Allocation. If a Limited Partner has a deficit Capital
Account at the end of any Fiscal Year that is in excess of the sum of (1) the
amount such Limited Partner is obligated to restore to the Partnership pursuant
to Treasury Regulations Section 1.704- 1(b)(2)(ii)(c), (2) the amount such
Limited Partner is deemed to be obligated to restore pursuant to the penultimate
sentence of Treasury Regulations Section 1.704-2(g)(1), and (3) the amount such
Limited Partner is deemed to be obligated to restore pursuant to the penultimate
sentence of Treasury Regulations Section 1.704-2(i)(5), such Limited Partner
shall be specially allocated items of Partnership income and gain in the amount
of such excess as quickly as possible; PROVIDED, HOWEVER, that an allocation
pursuant to this Section 4.3(d) shall be made if and only to the extent that
such Limited Partner would have a deficit Capital Account in excess of such sum
after all other allocations provided for in this Article 4 have been tentatively
made as if Section 4.3(c) and this Section 4.3(d) were not in this Agreement.
Allocations made pursuant to the preceding sentence shall be made in proportion
to the respective amounts required to be allocated to each Partner pursuant
thereto.
(e) Nonrecourse Deductions. Nonrecourse Deductions for any Fiscal Year
or other period shall be specially allocated between the Partners in proportion
to their Percentage Interests.
(f) Partner Nonrecourse Deductions. Any Partner Nonrecourse Deductions
for any Fiscal Year or other period shall be specially allocated to the Partner
that bears the economic risk of loss with respect to the Partner Nonrecourse
Debt to which such Partner Nonrecourse Deductions are attributable in accordance
with Treasury Regulations Section 1.704-2(i).
(g) Section 754 Adjustment. To the extent any adjustment to the
adjusted tax basis of any asset of the Partnership pursuant to Code Section
734(b) or Code Section 743(b) is required, pursuant to Treasury Regulations
Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital
Accounts, the amount of such adjustment shall be treated as an item of gain (if
the adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis), and such gain or loss shall be specially allocated to the
Partners in a manner consistent with the manner in which their Capital Accounts
are required to be adjusted pursuant to such Section of
26
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the Treasury Regulations. Any election permitted under Code Section 754 shall be
made by the Managing Partner in its sole discretion, subject to Section 9.7.
(h) Excess Nonrecourse Liabilities. For purposes of determining a
Partner's proportionate share of the "excess nonrecourse liabilities" of the
Partnership within the meaning of Treasury Regulations Section 1.752-3(a)(3),
each Partner's interest in Partnership profits shall be deemed to be equal to
such Partner's Percentage Interest.
(i) Curative Allocations. The allocations set forth in this Article 4
(other than Section 4.3(g), Section 4.3(h), and this Section 4.3(i)) (the
"Regulatory Allocations") are intended to comply with certain requirements of
the Treasury Regulations. The Partners intend that, to the extent possible, all
Regulatory Allocations shall be offset either with other Regulatory Allocations
or with special allocations of other items of Partnership income, gain, loss, or
deduction pursuant to this Section 4.3(i). Therefore, notwithstanding any other
provision of this Article 4 (other than the Regulatory Allocations), the
Managing Partner shall make such offsetting special allocations of Partnership
income, gain, loss, or deduction in whatever manner it determines appropriate so
that, after such offsetting allocations are made, each Partner's Capital Account
balance is, to the extent possible, equal to the Capital Account balance such
Partner would have had if the Regulatory Allocations were not part of this
Agreement and all Partnership items were allocated pursuant to Section 4.2. In
exercising its discretion under this Section 4.3(i), the Managing Partner shall
take into account any future Regulatory Allocations under Section 4.3(a) and
Section 4.3(b) that, although not yet made, are likely to offset Regulatory
Allocations made under Section 4.3(e) and Section 4.3(f).
4.4 Tax Allocations: Code Section 704(c).
-------------------------------------
(a) In accordance with Code Section 704(c) and the Treasury Regulations
thereunder, income, gain, loss, and deduction with respect to any property
contributed to the capital of the Partnership shall, solely for tax purposes, be
allocated between the Partners so as to take account of any variation between
the adjusted basis of such property to the Partnership for federal income tax
purposes and its initial Gross Asset Value using the traditional allocation
method described in Treasury Regulations Section 1.704-3(b).
(b) If the Gross Asset Value of any asset of the Partnership is
adjusted pursuant to paragraph (ii) of the definition of Gross Asset Value,
subsequent allocations of income, gain, loss, and deduction with respect to such
asset shall take account of any variation between the adjusted basis of such
asset for federal income tax purposes and its Gross Asset Value in the same
manner as under Code Section 704(c) and the Treasury Regulations thereunder.
(c) Allocations pursuant to this Section 4.4 are solely for purposes of
federal, state, and local taxes and shall not affect, or in any way be taken
into account in computing, either Partner's Capital Account or share of Net
Profit, Net Loss, other items, or distributions pursuant to any provision of
this Agreement.
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ARTICLE 5
AUTHORITY OF THE MANAGING PARTNER; OTHER
MATTERS AFFECTING GENERAL PARTNERS
5.1 Authority of Managing Partner.
------------------------------
(a) Permitted Acts. Except as expressly provided otherwise in this
Agreement, the Managing Partner shall have the exclusive authority to manage the
business, operations, and affairs of the Partnership (including internal
matters) and the exclusive right to exercise all rights incident to the
ownership of all partnership or corporate interests held by the Partnership, and
shall have all authority, rights, and powers conferred by law and those required
or appropriate for the management of the Partnership business. Each General
Partner, including each additional and substituted General Partner, other than
the Managing Partner, agrees not to exercise individually any authority, rights,
or powers conferred by law on general partners (including any authority, rights,
or powers conferred on general partners under the Act) other than as expressly
provided in this Agreement or at the direction of or pursuant to authority
delegated to it by the Managing Partner.
(b) Limitations and Restrictions.
(1) Advisory Committee Approval. Notwithstanding any provision in
this Agreement to the contrary, and in addition to any other consent or approval
that may be required by the express terms of this Agreement, the Partnership
shall not, and the Managing Partner shall have no authority to cause the
Partnership to, do any of the following without the affirmative vote of at least
a majority of the members of the Advisory Committee:
(A) sell or otherwise dispose of, or cause or permit any
Subsidiary to sell or otherwise dispose of, in any one transaction (or series of
mutually contingent transactions), assets of the Partnership or any Subsidiary
having an aggregate value in excess of $15,000,000, except upon the liquidation
and dissolution of the Partnership in accordance with Article 13 (including a
liquidation following an election by the Offering Partner pursuant to Section
10.3(a) or Section 10.5(a)(2)); PROVIDED, HOWEVER, that the limitations of this
paragraph shall not apply to any disposition of assets by the Partnership to a
Subsidiary or by a Subsidiary to the Partnership or another Subsidiary, to any
pledging of assets by any Person to secure any Indebtedness of such Person
permitted by this Agreement, to any disposition of assets upon the exercise of
any rights granted by such a pledge, or to any transaction approved by TCI
pursuant to Section 5.1(b)(2)(B) or Section 5.1(b)(2)(C);
(B) purchase or otherwise acquire, or cause or permit any
Subsidiary to purchase or otherwise acquire, any assets, business, equity
interest in another Person, or other property in any one transaction (or series
of mutually contingent transactions)
28
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having an aggregate value in excess of $15,000,000; PROVIDED, HOWEVER, that the
limitations of this paragraph shall not apply to any transaction approved by TCI
pursuant to Section 5.1(b)(2)(D), any acquisition of assets by a Subsidiary from
the Partnership or from another Subsidiary, the acquisition of the Classic
Systems (as defined in the Contribution Agreement), the contribution of assets
to the Partnership pursuant to the Contribution Agreement, or the purchase of
partnership interests in FHGLP pursuant to Article 9 of the FHGLP Partnership
Agreement; or
(C) engage, or cause or permit any Subsidiary to engage, in
any line of business other than:
(1) acquiring, developing, owning, operating, managing,
and selling cable television systems and any related or ancillary businesses
that involve the distribution of video programming or data to subscribers,
including businesses engaged in the production of cable television programming
and the provision of Internet access, but excluding other related or ancillary
businesses, such as personal communications, alternative access, and other
telephony-related investments or businesses,
(2) preliminary activities undertaken by the Partnership
or any Subsidiary to determine the feasibility of engaging in any line of
business, or
(3) any business activity that does not involve an
aggregate capital commitment by the Partnership and the Subsidiaries in excess
of $1,000,000.
(2) TCI Approval. Notwithstanding any provision in this Agreement
to the contrary, and in addition to any other consent or approval that may be
required by the express terms of this Agreement, the Partnership shall not, and
the Managing Partner shall have no authority to cause the Partnership to, do any
of the following without the approval of TCI:
(A) merge with or consolidate into any Person or become a
party to any recapitalization or other form of reorganization, or cause or
permit any Subsidiary to merge with or consolidate into any Person or become a
party to any recapitalization or other form of reorganization (except that,
without the approval of TCI, (1) the Partnership may merge with or consolidate
into another Person for the purpose of effecting an Incorporation pursuant to
Section 11.1(a); (2) a Subsidiary may merge with another Subsidiary or with the
Partnership and the Partnership may merge with a Subsidiary; and (3) a
Subsidiary may merge with a Person other than a Subsidiary as a means of
effecting any acquisition or disposition of assets that is otherwise permitted
by this Agreement);
(B) sell or otherwise dispose of, or cause or permit any
Subsidiary to sell or otherwise dispose of, in any one transaction (or series of
mutually contingent transactions), assets of the Partnership or any Subsidiary
(1) having an aggregate value in excess of $500,000 if the aggregate value of
all assets sold or otherwise disposed of in transactions
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described in this Section 5.1(b)(2)(B) would exceed the Sale Limit or (2) having
an aggregate value in excess of $30,000,000, except in either case upon the
liquidation and dissolution of the Partnership in accordance with Article 13
(including a liquidation following an election by the Offering Partner pursuant
to Section 10.3(a) or Section 10.5(a)(2)); PROVIDED, HOWEVER, that the
limitations of this paragraph shall not apply to any disposition of assets by
the Partnership to a Subsidiary or by a Subsidiary to the Partnership or another
Subsidiary, to any pledging of assets by any Person to secure any Indebtedness
of such Person permitted by this Agreement, or to any disposition of assets upon
the exercise of any rights granted by such a pledge; for purposes of this
paragraph, the "Sale Limit" means $100,000,000, reduced by the net pre-tax sales
proceeds from the sale of any Retained TCI Assets (as defined in the
Contribution Agreement) pursuant to Section 11.10(e) of the Contribution
Agreement and increased, but not above $100,000,000, by the value of any assets
that are sold or otherwise disposed of by the Partnership or any Subsidiary and
are not TCI Assets (as defined in the Contribution Agreement);
(C) sell or otherwise dispose of, or cause or permit any
Subsidiary to sell or otherwise dispose of, any assets of the Partnership or any
Subsidiary, if such sale or other disposition would result in the allocation of
income or gain to TCI pursuant to Section 4.4 and Code Section 704(c), except
upon the liquidation and dissolution of the Partnership in accordance with
Article 13 (including a liquidation following an election by the Offering
Partner pursuant to Section 10.3(a) or Section 10.5(a)(2)); PROVIDED, HOWEVER,
that the limitations of this paragraph shall not apply to any pledging of assets
by any Person to secure any Indebtedness of such Person permitted by this
Agreement or to any disposition of assets upon the exercise of any rights
granted by such a pledge;
(D) purchase or otherwise acquire, or cause or permit any
Subsidiary to purchase or otherwise acquire, any assets, business, equity
interest in another Person, or other property in any one transaction (or series
of mutually contingent transactions) (1) having an aggregate value in excess of
$500,000 if the aggregate value of all property purchased or otherwise acquired
in transactions described in this Section 5.1(b)(2)(D) would exceed $100,000,000
or (2) having an aggregate value in excess of $30,000,000; PROVIDED, HOWEVER,
that the limitations of this paragraph shall not apply to any acquisition of
assets by a Subsidiary from the Partnership or from another Subsidiary, the
acquisition of the Classic Systems (as defined in the Contribution Agreement),
the contribution of assets to the Partnership pursuant to the Contribution
Agreement, or the purchase of partnership interests in FHGLP pursuant to Article
9 of the FHGLP Partnership Agreement;
(E) make the election provided for in Section 9.1(a)(3) of
the FHGLP Partnership Agreement;
(F) take any other action that is within the discretion of
the Partnership pursuant to Article 9 of the FHGLP Partnership Agreement;
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(G) incur, create, or assume, or cause or permit any
Subsidiary to incur, create, or assume, any Indebtedness if, after giving effect
to such Indebtedness, the Operating Cash Flow Ratio would exceed 7.5:1;
(H) prior to the second anniversary of the Closing, cause or
permit any Subsidiary to incur any Indebtedness the proceeds of which will be
used to repay any Indebtedness of the Partnership, or cause or permit any
Subsidiary to assume or otherwise become obligated with respect to any
Indebtedness of the Partnership (other than pursuant to the guaranties
contemplated by Section 2.8(e) of the Contribution Agreement), if, after such
repayment, assumption, or other action, the amount of Indebtedness for which the
Partnership is the sole primary obligor would be less than the quotient of (1)
the amount of Indebtedness of TCI assumed by the Partnership pursuant to Section
4.1(c) of the Contribution Agreement divided by (2) TCI's Percentage Interest
immediately after the Closing, after giving effect to TCI's purchase of the
NewFalcon Interests;
(I) issue any Partnership Interest or any option, warrant, or
other debt or equity interest convertible into or evidencing the right to
acquire (whether or not for additional consideration) any Partnership Interest,
except in connection with an Incorporation pursuant to Section 11.1(a) or
pursuant to any Management Incentive Plan approved pursuant to Section
5.1(b)(2)(L);
(J) purchase, redeem, retire, or otherwise acquire any
Partnership Interests, except as provided in Section 9.13(a) or Article 10 and
except for the purchase, redemption, retirement, or other acquisition of any
equity interest where the terms of such interest, as approved in accordance with
Section 5.1(b)(2)(I), permit or require such purchase, redemption, retirement,
or other acquisition;
(K) enter into any transaction or agreement, or cause or
permit any Subsidiary to enter into any transaction or agreement, with FHGLP or
any Affiliate of FHGLP unless the transaction or agreement is on terms that are
no less favorable to the Partnership or Subsidiary than could have been obtained
in a comparable arm's-length transaction with a Person that is not an Affiliate
of FHGLP; PROVIDED, HOWEVER, the limitations of this paragraph shall not apply
to the transactions described on Schedule III;
(L) adopt or materially amend any employee benefit plan or
other compensation arrangement providing for (1) the issuance of Partnership
Interests or options evidencing the right to acquire Partnership Interests or
(2) the payment of compensation based on the value, or any appreciation in
value, of Partnership Interests or the business of the Partnership, to employees
of the Partnership and the Subsidiaries (a "Management Incentive Plan");
(M) make reimbursements pursuant to Section 5.7(b) or Section
5.7(c) for costs and expenses incurred by FHGLP or Falcon Holding Group, Inc. in
any calendar year that exceed $35,000 in the aggregate for both FHGLP and Falcon
Holding Group, Inc.;
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(N) incur Net Overhead Expenses in any Fiscal Year beginning
after the Closing that exceed 4.5% of the Gross Revenues of the Partnership and
the Subsidiaries for such Fiscal Year, where "Net Overhead Expenses" means (1)
the sum of (a) expenses allocable to administrative employees of the Partnership
(but not employees who are employed primarily in the operations of any cable
television system or group of cable television systems or regions), including
salary, wages, and benefits of such employees and associated payroll taxes, but
excluding payments or accruals pursuant to any Management Incentive Plan, (b)
legal, audit, and accounting fees, other than expenses that relate primarily to
the operations of cable television systems, expenses of a type that FHGLP has
historically allocated to cable television systems or regions, and non-recurring
costs, such as those relating to financings and acquisitions, (c) expenses
relating to office space occupied by the Partnership for its corporate offices,
which are currently located in Westwood and Pasadena, California, (d)
reimbursements by the Partnership pursuant to Section 5.7(b) or Section 5.7(c)
of costs and expenses incurred by FHGLP or Falcon Holding Group, Inc., (e) the
cost of insurance required in connection with the administrative activities of
the Partnership, but not insurance that relates primarily to the operations of
cable television systems or insurance of a type the cost of which FHGLP has
historically allocated to cable television systems or regions, (f) reasonable
expenses in connection with distributions made by the Partnership and
communications necessary in maintaining relations with Partners and outside
parties (other than communications that relate primarily to the operations of
cable television systems), (g) reasonable expenses in connection with preparing
and mailing reports required to be furnished to Partners for investor, tax
reporting, or other purposes, or other reports to Partners that the Managing
Partner deems to be in the best interest of the Partnership; (h) reasonable
expenses of professionals employed by the Partnership in connection with any of
the foregoing, including attorneys, accountants, and appraisers, and (i) other
expenses incurred by the Partnership of the kinds included in FHGLP's
calculation of corporate overhead as reflected in the worksheet presented by
FHGLP to TCI in connection with the negotiation of this Agreement, less (2) the
sum of all management fees, expense reimbursements, and other payments received
by the Partnership from a Person other than a Subsidiary; and "Gross Revenues"
means the aggregate gross revenues of the Partnership and the Subsidiaries, as
determined on a consolidated basis in accordance with generally accepted
accounting principles applied in a manner consistent with the Partnership's
annual financial statements pursuant to Section 15.3;
(O) liquidate or dissolve except in accordance with Article
13;
(P) do any act in contravention of this Agreement;
(Q) possess any property of the Partnership or assign the
rights of the Partnership in specific property of the Partnership for other than
a Partnership purpose; or
(R) perform any act (other than an act required by this
Agreement or any act taken in good faith reliance upon counsel's opinion that
such act will not subject any
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Limited Partner to liability as a general partner) which would, at the time the
act occurred, subject any Limited Partner to liability as a general partner in
any jurisdiction.
(3) TCI Approval Defined. For purposes of this Agreement,
including Section 5.1(b)(2), TCI shall be deemed to have approved any action or
proposed action by or on behalf of Falcon Holding Group, Inc., FHGLP, the
Partnership, or any Subsidiary if:
(A) TCI has affirmatively approved the taking of such action,
or
(B) TCI has failed to object to the taking of such action
within forty-five days (or, in the case of Section 5.1(b)(2)(F), five days)
after its receipt of a request from Falcon Holding Group, Inc. or FHGLP for its
approval of the taking of such action, or
(C) in the case of an action described in Section
5.1(b)(2)(B), Section 5.1(b)(2)(D), Section 5.1(b)(2)(F), or any provision of
this Agreement (including Section 11.1(a)) that requires that TCI not
unreasonably withhold its approval of any action, TCI has unreasonably withheld
its approval of the taking of such action.
(4) Consideration of Financings. The Managing Partner will consult
with the Advisory Committee before entering into any agreement, or making any
material amendment to any agreement, or causing any Subsidiary to enter into any
agreement or to make any material amendment to any agreement, providing for the
incurring, creation, or assumption by the Partnership or any Subsidiary of
Indebtedness in excess of $1,000,000, but the Managing Partner shall not be
required under this Section 5.1(b)(4) or otherwise to obtain the approval of the
Advisory Committee in connection with any such transaction.
(5) Authority to Make Certain Loans. Subject to restrictions in
any credit agreement or other similar agreement to which the Partnership or any
Subsidiary is a party, if any senior executive employee of the Partnership
(other than Marc B. Nathanson) owns a partnership interest in the Managing
Partner at the time of his death, the Managing Partner may, without the approval
of TCI or the Advisory Committee, cause the Partnership to make loans to the
estate of such employee for the sole purpose of permitting the estate of such
employee to pay federal and state estate and inheritance taxes that are
attributable to such employee's ownership of a partnership interest in the
Managing Partner at the time of his death. Any such loan shall be on
commercially reasonable terms determined by the Managing Partner, except that
(A) such loan shall bear interest at the applicable Federal rate under Code
Section 1274 for a debt instrument having the terms of such loan and (B) any
estate of an employee to which such a loan is made shall be required to prepay
such loan to the extent of any distributions made by the Managing Partner with
respect to the partnership interest held by such employee at the time of his
death.
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5.2 Agreements by Falcon Holding Group, Inc.
----------------------------------------
(a) By executing this Agreement, Falcon Holding Group, Inc. agrees,
subject to Section 5.2(b):
(1) not to take any action in its capacity as general partner of
FHGLP or any Investors Partnership that would be prohibited by the provisions of
Section 5.1(b) if the Managing Partner had caused the Partnership to take such
action directly;
(2) without the approval of TCI or as contemplated by Section
10.10, not to effect a withdrawal (as defined in Section 8.1 or in those
provisions of any applicable partnership act other than the Act that correspond
to the provisions of the Act referred to in Section 8.1) as general partner of
FHGLP or any Investors Partnership, or assign, convey, sell, transfer, encumber,
or in any way alienate all or any part of its interest in any Investors
Partnership,
(3) without the approval of TCI or as contemplated by Section
10.10, not to permit the admission of an additional general partner of any
Investors Partnership,
(4) without the approval of TCI, not to permit the admission of an
additional general partner of FHGLP if Falcon Holding Group, Inc. would not then
have the power to take all material actions that it is entitled to or required
to take under the partnership agreement of FHGLP in its capacity as general
partner of FHGLP,
(5) without the approval of TCI, not to permit any amendment to
the partnership agreement of FHGLP (other than entering into the FHGLP
Partnership Agreement) if (A) Falcon Holding Group, Inc. would not then have the
power to take all material actions that it is entitled to or required to take
under the partnership agreement of FHGLP in its capacity as general partner of
FHGLP, or (B) such amendment would materially and adversely affect TCI in its
capacity as a partner of the Partnership,
(6) without the approval of TCI, not to assign, convey, sell,
transfer, encumber, or in any way alienate all or any part of its interest in
FHGLP, if Falcon Holding Group, Inc. would not then have the power to take all
material actions that it is entitled to or required to take under the
partnership agreement of FHGLP in its capacity as general partner of FHGLP,
(7) not to receive any indemnification or reimbursement from any
of the Investors Partnerships or any of the Existing Entities with respect to
any expense, liability, loss, or damage arising after the date of this Agreement
for which FHGLP would not have been entitled to indemnification or reimbursement
under this Agreement if such expense, liability, loss, or damage had arisen in
connection with the business of the Partnership, and
34
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(8) not to receive any payment from any Investors Partnership
other than indemnification for or reimbursement of expenses, liabilities,
losses, and damages (to the extent provided in the partnership agreement of such
Investors Partnership and permitted by Section 5.2(a)(7)) and payments with
respect to Falcon Holding Group, Inc.'s partnership interest in such Investors
Partnership.
(b) Notwithstanding Section 5.2(a), Falcon Holding Group, Inc. may take
any action necessary or appropriate to effect the conversion of FHGLP to a
corporation or another appropriate transaction, including the formation of a
corporate holding company, that results in the partnership interest of Falcon
Holding Group, Inc. in FHGLP being converted into, or exchanged for, stock in a
corporation, in the manner contemplated by Article 10 of the FHGLP Partnership
Agreement, so long as, after such transaction, Falcon Holding Group, Inc. would
have the power to take all material actions with respect to the corporate
successor to FHGLP that it is entitled to or required to take under the
partnership agreement of FHGLP in its capacity as general partner of FHGLP.
5.3 No Personal Liability.
----------------------
Neither General Partner shall have any personal liability for the repayment
of the Capital Contributions of any Limited Partner; provided that each General
Partner shall promptly return to the Partnership or to the Partner or Partners
entitled thereto any distributions received by such General Partner in excess of
those to which the General Partner is entitled under this Agreement.
5.4 Limited Liability.
------------------
The Managing Partner shall use commercially reasonable efforts, in the
conduct of the Partnership's business, to put all suppliers and other Persons
with which the Partnership does business on notice that the Partnership is a
limited partnership organized under the Act and that no Limited Partner has any
personal liability for any obligation of the Partnership.
5.5 Tax Matters Partner.
--------------------
(a) FHGLP is hereby designated as the Tax Matters Partner of the
Partnership, as provided in Treasury Regulations pursuant to Code Section 6231
and analogous provisions of state law. Each Partner, by the execution of this
Agreement, consents to such designation of the Tax Matters Partner and agrees to
execute, certify, acknowledge, deliver, swear to, file, and record at the
appropriate public offices such documents as may be necessary or appropriate to
evidence such consent.
(b) To the extent and in the manner provided by applicable law and
Treasury Regulations, the Tax Matters Partner shall furnish the name, address,
profits interest, and taxpayer identification number of each Partner and any
Assignee to the Secretary of the Treasury or his delegate (the "Secretary").
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<PAGE>
(c) The Tax Matters Partner shall (1) notify each Partner of any audit
that is brought to the attention of the Tax Matters Partner by notice from the
Internal Revenue Service, and (2) forward to each Partner copies of any written
notices, correspondence, reports, or other documents received by the Tax Matters
Partner in connection with such audit. The Tax Matters Partner shall notify each
Partner pursuant to clause (1) of the preceding sentence within ten Business
Days after its receipt of the notice from the Internal Revenue Service described
therein, and shall forward to each Partner copies of any notice, correspondence,
report, or other document pursuant to clause (2) of the preceding sentence
within ten Business Days after its receipt by the Tax Matters Partner. The Tax
Matters Partner shall provide TCI with reasonable advance notice of
administrative proceedings with the Internal Revenue Service, including any
closing conference with the examining agent and any appeals conference.
(d) The Tax Matters Partner shall give the Partners written notice of
its intent to initiate judicial review, file a request for administrative
adjustment on behalf of the Partnership, extend the period of limitations for
making assessments of any tax against a Partner with respect to any Partnership
item, or enter into any agreement with the Internal Revenue Service that would
result in the settlement of any alleged tax deficiency or other tax matter, or
to any adjustment of taxable income or loss or any item included therein,
affecting the Partnership or any Partner. The Tax Matters Partner shall not take
any such action if TCI elects within thirty days after their receipt of the Tax
Matters Partner's notice to require that the Tax Matters Partner refrain from
taking such action.
(e) Subject to the foregoing provisions of this Section 5.5, the Tax
Matters Partner is hereby authorized, but not required:
(1) to enter into any settlement with the Internal Revenue Service
or the Secretary with respect to any tax audit or judicial review, in which
agreement the Tax Matters Partner may expressly state that such agreement shall
bind the other Partners, except that such settlement agreement shall not bind
either Partner that (within the time prescribed pursuant to the Code and
Treasury Regulations thereunder) files a statement with the Secretary providing
that the Tax Matters Partner shall not have the authority to enter into a
settlement agreement on the behalf of such Partner;
(2) if a notice of a final administrative adjustment at the
Partnership level of any item required to be taken into account by a Partner for
tax purposes (a "final adjustment") is mailed to the Tax Matters Partner, to
seek judicial review of such final adjustment, including the filing of a
petition for readjustment with the Tax Court, the District Court of the United
States for the district in which the Partnership's principal place of business
is located, or elsewhere as allowed by law, or the United States Claims Court;
(3) to intervene in any action brought by any other Partner for
judicial review of a final adjustment;
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<PAGE>
(4) to file a request for an administrative adjustment with the
Secretary at any time and, if any part of such request is not allowed by the
Secretary, to file a petition for judicial review with respect to such request;
(5) to enter into an agreement with the Internal Revenue Service
to extend the period for assessing any tax that is attributable to any item
required to be taken into account by a Partner for tax purposes, or an item
affected by such item; and
(6) to take any other action on behalf of the Partners (with
respect to the Partnership) or the Partnership in connection with any
administrative or judicial tax proceeding to the extent permitted by applicable
law or Treasury Regulations.
(f) The Partnership shall indemnify and reimburse the Tax Matters
Partner for all reasonable expenses (including legal and accounting fees)
incurred pursuant to this Section 5.5 in connection with any administrative or
judicial proceeding with respect to the tax liability of the Partners. The
payment of all such reasonable expenses shall be made before any distributions
are made to the Partners. The taking of any action and the incurring of any
expense by the Tax Matters Partner in connection with any such proceeding,
except to the extent provided herein or required by law, is a matter in the sole
discretion of the Tax Matters Partner and the provisions on limitations of
liability of the Managing Partner and indemnification set forth in Article 14
shall be fully applicable to FHGLP in its capacity as the Tax Matters Partner.
(g) Any Limited Partner that receives a notice of an administrative
proceeding under Code Section 6233 relating to the Partnership shall promptly
notify the Tax Matters Partner of the treatment of any Partnership item on such
Partner's federal income tax return that is or may be inconsistent with the
treatment of that item on the Partnership's return.
(h) Either Partner that enters into a settlement agreement with the
Secretary with respect to any Partnership item shall notify the Tax Matters
Partner of such agreement and its terms within sixty days after its date, and
the Tax Matters Partner shall notify the other Partners of the settlement
agreement within thirty days of such notification.
5.6 Compensation to the Managing Partner and Affiliates.
----------------------------------------------------
Except as described on Schedule III, the Managing Partner and its Affiliates
shall not receive any compensation directly or indirectly in connection with the
formation, operation, and dissolution of the Partnership except as specified or
referred to in this Agreement; PROVIDED, HOWEVER, that partners of FHGLP and
officers, directors, and shareholders of Falcon Holding Group, Inc. who are
employees of the Partnership may receive compensation for their services as
employees of the Partnership, subject to Section 5.1(b)(2)(K).
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5.7 Reimbursement.
--------------
(a) The Partnership shall reimburse each of FHGLP and TCI for all costs
and expenses reasonably incurred by either of them (whether incurred before or
after the formation of the Partnership) in connection with the formation,
organization, and capitalization of the Partnership (including costs and
expenses incurred in arranging any proposed or consummated financing), except
that the Partnership shall not reimburse FHGLP for, and FHGLP shall retain
liability for, the fee described in clause (i) of paragraph 2 of the letter,
dated as of June 2, 1997, from Lazard Freres & Co. LLC to FHGLP.
(b) Subject to Section 5.1(b)(2)(M) and Section 5.1(b)(2)(N), the
Partnership shall also reimburse FHGLP for (1) actual costs and expenses
incurred (including filing fees and reasonable legal fees and expenses) for the
purpose of maintaining the partnership existence of FHGLP and maintaining the
legal status of FHGLP as a partner of the Partnership, (2) costs incurred in the
preparation of FHGLP's tax returns and financial statements, (3) costs incurred
in connection with the audit of FHGLP's annual financial statements, (4)
reasonable expenses in connection with distributions made by FHGLP to its
partners and communications necessary in maintaining relations with its partners
and outside parties, and (5) reasonable expenses in connection with preparing
and mailing reports required to be furnished to its partners for investor, tax
reporting, or other purposes, or other reports to its partners that the general
partner of FHGLP deems to be in the best interest of FHGLP.
(c) Subject to Section 5.1(b)(2)(M) and Section 5.1(b)(2)(N), the
Partnership shall also reimburse Falcon Holding Group, Inc. for (1) actual costs
and expenses incurred (including filing fees and reasonable legal fees and
expenses) for the purpose of maintaining the corporate existence of Falcon
Holding Group, Inc. and maintaining the legal status of Falcon Holding Group,
Inc. as general partner of FHGLP, (2) reasonable costs incurred in the
preparation of Falcon Holding Group, Inc.'s tax returns and financial
statements, and (3) costs incurred in connection with the audit of Falcon
Holding Group, Inc.'s annual financial statements.
(d) The Partnership shall also reimburse FHGLP and TCI for certain
expenses to the extent provided in the Contribution Agreement.
ARTICLE 6
ADVISORY COMMITTEE
6.1 Membership.
-----------
The Partnership shall have an Advisory Committee consisting of six
individual representatives of the Partners, as follows:
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(a) three members of the Advisory Committee shall be designated from
time to time by FHGLP in its sole discretion, and one of such members shall be
designated by FHGLP as the "chairman" of the Advisory Committee; provided that
FHGLP agrees to designate Marc B. Nathanson as a member of the Advisory
Committee and as the chairman of the Advisory Committee pursuant to this
paragraph for so long as he remains the chief executive officer of the
Partnership;
(b) one member of the Advisory Committee, who shall not be an officer,
director, or employee of FHGLP or any Affiliate of FHGLP, shall be designated by
agreement between FHGLP and TCI (except that the initial member of the Advisory
Committee to be designated pursuant to this Section 6.1(b), as listed on
Schedule IV, shall not require such approval); and
(c) two members of the Advisory Committee shall be designated from time
to time by TCI.
6.2 Removal and Replacement of Members.
-----------------------------------
Any member of the Advisory Committee designated pursuant to Section 6.1(a)
or Section 6.1(c) may be removed and replaced at any time, and from time
to time, by the Partner that originally designated such member in accordance
with Section 6.1(a) or Section 6.1(c). The member of the Advisory Committee
designated pursuant to Section 6.1(b) may be removed at any time, and from time
to time, by agreement between FHGLP and TCI or, if such member has served for at
least two consecutive years, by either FHGLP or TCI. The member of the Advisory
Committee designated pursuant to Section 6.1(b), if removed, shall be replaced
by agreement between FHGLP and TCI.
6.3 Frequency and Location of Meetings.
-----------------------------------
The Advisory Committee shall meet at such times as shall be determined by
the chairman of the Advisory Committee, but in any event at least quarterly
unless otherwise agreed to by FHGLP and TCI. Meetings of the Advisory Committee
may be called from time to time, on at least five days notice (which need not be
in writing), by the chairman of the Advisory Committee. Meetings of the Advisory
Committee shall be held at a location selected from time to time by the chairman
of the Advisory Committee.
6.4 By-Laws and Other Matters.
--------------------------
The By-Laws of the Advisory Committee, in the form attached as Exhibit I,
shall govern the organization of the Advisory Committee, procedures for
meetings of the Advisory Committee, and procedures for actions by the members of
the Advisory Committee in lieu of meetings. The Advisory Committee shall have
the authority, by affirmative vote of a majority of its members then in office,
to amend the By-Laws of the Advisory Committee in any manner that is not
39
<PAGE>
inconsistent with the express terms of this Agreement. Members of the Advisory
Committee may participate in any meeting of the Advisory Committee by means of
conference telephone or similar communications equipment through which all
persons participating in the meeting can hear each other. The chairman may
invite individuals who are not members of the Advisory Committee to attend and
participate in meetings of the Advisory Committee.
6.5 Reimbursement.
--------------
The Partnership shall reimburse each member of the Advisory Committee for
expenses, including travel and legal expenses, reasonably incurred in connection
with such member's performance of his duties as a member of the Advisory
Committee.
6.6 Members.
--------
The members of the Advisory Committee, as designated by FHGLP and TCI, as of
the date of this Agreement, are set forth on Schedule IV.
ARTICLE 7
STATUS OF LIMITED PARTNERS; OTHER LIMITATIONS
ON PARTNERS
7.1 Limited Liability.
------------------
No Limited Partner shall be bound by or personally liable for the expenses,
liabilities, or obligations of the Partnership. In no event shall any Limited
Partner be required to make up a deficiency in its Capital Account upon the
dissolution and termination of the Partnership.
7.2 Return of Distributions of Capital.
-----------------------------------
A Limited Partner may, under certain circumstances, be required by law to
return to the Partnership, for the benefit of the Partnership's creditors,
amounts previously distributed. No Limited Partner shall be obligated by this
Agreement to pay those distributions to or for the account of the Partnership or
any creditor of the Partnership. However, if any court of competent jurisdiction
holds that, notwithstanding the provisions of this Agreement, any Limited
Partner must return or pay over any part of those distributions, the obligation
shall be that of such Limited Partner alone and not of any other Partner. Any
payment returned to the Partnership by a Partner or made directly by a Partner
to a creditor of the Partnership shall be deemed a Capital Contribution by such
Partner.
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7.3 No Management and Control.
--------------------------
Except as expressly provided in this Agreement, no Partner shall take part
in or interfere in any manner with the control, conduct, or operation of the
Partnership or have any right or authority to act for or bind the Partnership.
7.4 Specific Limitations.
---------------------
No Partner shall have the right or power to: (a) withdraw or reduce its
Capital Contribution except as a result of the dissolution of the Partnership or
as otherwise provided by law or in this Agreement, (b) bring an action for
partition against the Partnership or any assets of the Partnership, (c) cause
the termination and dissolution of the Partnership, except as set forth in this
Agreement, or (d) demand or receive property other than cash in return for its
Capital Contribution. Except as otherwise set forth in this Agreement or in any
agreement permitted to be entered into under this Agreement with respect to the
purchase, redemption, retirement, or other acquisition of Partnership Interests,
no Partner shall have priority over any other Partner either as to the return of
its Capital Contribution or as to Net Profit, Net Loss, or distributions. Other
than upon the termination and dissolution of the Partnership as provided by this
Agreement, there has been no time agreed upon when the Capital Contribution of
either Partner will be returned.
7.5 Issuance of Partnership Interests.
----------------------------------
Subject to any approval that may be required by Section 5.1(b)(2)(I) and, if
such approval is required, in accordance with the terms thereof, the Managing
Partner may issue additional Partnership Interests to any Person and may admit
to the Partnership as additional Partners the Persons acquiring such Partnership
Interests, if such Persons were not previously admitted as Partners. The Persons
acquiring such Partnership Interests shall have the rights and be subject to the
obligations attributable to such Partnership Interests in the form issued to
them. A Person admitted as a new Partner shall only be entitled to distributions
and allocations of Net Profit and Net Loss attributable to the period beginning
on the effective date of its admission to the Partnership, and the Partnership
shall attribute Net Profit and Net Loss to the period before the effective date
of the admission of a new Partner and to the period beginning on the effective
date of the admission of a new Partner by the closing of the books method.
7.6 Restrictions on the Powers and Activities of the Limited Partners.
------------------------------------------------------------------
(a) Notwithstanding anything in this Agreement to the contrary, but
subject to Section 7.6(b), each Limited Partner, including each additional and
substituted Limited Partner, in its capacity as such, shall be subject to the
following limitations:
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(1) No Limited Partner shall act as an employee of the Partnership
if the functions of such Limited Partner, directly or indirectly, relate to any
cable television system or other media enterprise owned or operated by the
Partnership or any Subsidiary;
(2) No Limited Partner shall serve, in any material capacity, as
an independent contractor or agent with respect to any cable television system
or other media enterprise owned or operated by the Partnership or any
Subsidiary;
(3) No Limited Partner shall communicate with any Person that
holds any license, permit, or authorization issued by the FCC and in which the
Partnership holds an interest, or with the Managing Partner, on matters
pertaining to the day-to-day operations of any cable television system or other
media enterprise owned or operated by the Partnership or such Person, and no
Limited Partner shall be entitled to vote on such matters;
(4) No Limited Partner shall vote on the removal of, or otherwise
have the power to remove, any General Partner;
(5) No Limited Partner shall perform any services for the
Partnership materially related to any cable television system or other media
enterprise owned or operated by the Partnership or any Subsidiary; and
(6) No Limited Partner shall become actively involved in the
management or operation of any cable television system or other media enterprise
owned or operated by the Partnership or any Subsidiary.
(b) Section 7.6(a) shall not apply to:
(1) any Limited Partner that is also a General Partner or to any
Limited Partner that is an Affiliate of the Managing Partner; or
(2) any Limited Partner with respect to any media enterprise owned
or operated by the Partnership or any Subsidiary or to any Person that holds any
license, permit, or authorization issued by the FCC if (A) the Partnership or
Subsidiary acquired its interest in such media enterprise or such Person after
the date of this Agreement and (B) such Limited Partner owned an interest in
such media enterprise or such Person at the time the Partnership or Subsidiary
acquired its interest in such media enterprise or such Person and was permitted
to engage in the activities otherwise prohibited by Section 7.6(a) at the time
of such acquisition.
(c) Section 7.6(a) shall apply to TCI if this Agreement has been
amended pursuant to Section 12.4(b)(4) to convert the Partnership Interest of
TCI to that of a Limited Partner.
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ARTICLE 8
WITHDRAWAL OF A GENERAL PARTNER
8.1 Withdrawal.
-----------
The Managing Partner may retire or withdraw from the Partnership only with
the approval of TCI. For purposes of this Agreement, the term "withdrawal" means
the happening of any event described in Section 15642 of the Act (other than
subsections (c) and (d) thereof). If the Managing Partner withdraws, the
Partnership shall dissolve in accordance with the provisions of Article 13,
unless, within six months after the withdrawal of the Managing Partner,
(a) if there is at least one General Partner remaining, a majority in
interest of the remaining General Partners (as determined in accordance with
Section 15681(c) of the Act) agree in writing to continue the business of the
Partnership and to the appointment, effective as of the date of the withdrawal
of the Managing Partner, of a General Partner to be successor managing partner,
or
(b) if there is not at least one General Partner remaining, a majority
in interest of the Limited Partners (as determined in accordance with Section
15681(c) of the Act) agree in writing to continue the business of the
Partnership pursuant to the terms and provisions of this Agreement, to the
admission of at least one General Partner, and to the appointment, effective as
of the date of the withdrawal of the Managing Partner, of a General Partner to
be successor managing partner.
8.2 Effect of Withdrawal of Managing Partner.
-----------------------------------------
If the Partnership is continued pursuant to Section 8.1 following the
withdrawal of the Managing Partner, then the Partnership Interest of the
Managing Partner shall be converted to that of a Limited Partner. The withdrawal
of the Managing Partner shall not alter the allocations and distributions to be
made to the Partners pursuant to this Agreement.
8.3 No Dissolution.
---------------
The withdrawal of a General Partner other than the Managing Partner shall
not cause the dissolution of the Partnership or alter the allocations and
distributions to be made to the Partners pursuant to this Agreement.
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ARTICLE 9
ASSIGNMENT OF PARTNERSHIP INTERESTS
9.1 Assignments by Managing Partner.
--------------------------------
Except as provided in Section 9.3, the Managing Partner shall not assign,
convey, sell, transfer, encumber, or in any way alienate all or any part of its
interest in the Partnership without the approval of TCI.
9.2 Assignments by Other Partners.
------------------------------
Except as provided in Section 9.3, a Partner may not assign (whether by
sale, exchange, gift, contribution, distribution, or other transfer, including a
pledge or other assignment for security purposes) all or any part of its
Partnership Interest without first obtaining the prior written consent of the
Managing Partner. Notwithstanding the consent of the Managing Partner to any
assignment by a Partner of all or any part of its Partnership Interest, the
rights of any Assignee shall be subject at all times to the limitations set
forth in Section 9.4.
9.3 Exceptions.
-----------
The provisions of Section 9.1 and Section 9.2 shall not apply and no consent
of the Managing Partner or TCI, as applicable, shall be required for:
(a) an assignment of Partnership Interests pursuant to Article 10;
(b) an assignment by a Partner or an Assignee of a Partner to any
Person that, directly or indirectly, through the ownership of Voting Stock,
controls, is controlled by, or is commonly controlled with such Partner;
PROVIDED, HOWEVER, that the Assignee shall immediately execute all documents
reasonably required by the Managing Partner (1) to cause the Partnership
Interests so acquired by the Assignee to become immediately subject to all of
the terms and conditions of this Agreement, and (2) to establish that the
Assignee is an Accredited Investor;
(c) the assignment by FHGLP of Partnership Interests to certain
partners of FHGLP and the purchase of those Partnership Interests by TCI
pursuant to the Contribution Agreement, which will occur immediately following
the Partners' Capital Contributions at Closing;
(d) any pledge of Partnership Interests pursuant to Section 9.12 or the
assignment of Partnership Interests upon the exercise by any secured party of
any rights granted to it under a pledge agreement entered into pursuant to
Section 9.12; or
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(e) an assignment of the Managing Partner's Partnership Interest to a
corporate successor to FHGLP in connection with the conversion of FHGLP to a
corporation or the consummation of another appropriate transaction, including
the formation of a corporate holding company, in the manner contemplated by
Article 10 of the FHGLP Partnership Agreement, so long as, after such
transaction, Falcon Holding Group, Inc. would have the power to take all
material actions with respect to the corporate successor to FHGLP that it is
entitled to or required to take under the partnership agreement of FHGLP in its
capacity as general partner of FHGLP.
9.4 Assignee.
---------
If the provisions of this Article 9 have been complied with, an Assignee
shall be entitled to receive distributions of cash or other property, and
allocations of Net Profit and Net Loss and of items of income, deduction, gain,
loss, or credit, from the Partnership attributable to the assigned Partnership
Interests from and after the effective date of the assignment, and shall have
the right to receive a copy of the quarterly and annual financial statements
required herein to be provided the Partners, but an Assignee shall have no other
rights of a Partner herein, such as rights to any other information, an
accounting, inspection of books or records, or voting as a Partner on matters
required by law, unless and until such Assignee is admitted as a substitute
Partner pursuant to the provisions of Section 9.9. The Partnership and the
Managing Partner shall be entitled to treat the assignor as the absolute owner
of the Partnership Interests in all respects, and shall incur no liability for
distributions, allocations of Net Profit or Net Loss, or transmittal of reports
and notices required to be given to Partners that are made in good faith to the
assignor until the effective date of the assignment, or, in the case of the
transmittal of reports (other than the financial statements referred to above)
or notices, until the Assignee is so admitted as a substitute Partner. The
effective date of an assignment shall be the first day of the calendar month
following the month in which the Managing Partner has received an executed
instrument of assignment in compliance with this Article 9 or the first day of a
later month if specified in the executed instrument of assignment. The Assignee
shall be deemed an Assignee on the effective date, and shall be only entitled to
distributions and allocations of Net Profit and Net Loss attributable to the
period beginning on the effective date of assignment. The Partnership shall
attribute Net Profit and Net Loss to the period before the effective date of
assignment and to the period beginning on the effective date of assignment by
the closing of the books method. Each Assignee will inherit the balance of the
Capital Account, as of the effective date of assignment, of the assignor with
respect to the Partnership Interests assigned.
9.5 Other Consents and Requirements.
--------------------------------
Any assignment of any Partnership Interests in the Partnership must be in
compliance with any requirements imposed by any state securities administrator
having jurisdiction over the assignment and the United States Securities and
Exchange Commission and must not cause the Partnership or any Subsidiary to be
in violation of any Ownership Restriction.
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9.6 Assignment Not In Compliance.
-----------------------------
Any assignment in contravention of any of the provisions of this Article 9
shall be void and of no effect, and shall neither bind nor be recognized by the
Partnership.
9.7 Tax Elections.
--------------
The Managing Partner will make an election under Code Section 754 to adjust
the basis of the Partnership's assets in connection with the assignment by FHGLP
of Partnership Interests to certain partners of FHGLP and the purchase of those
Partnership Interests by TCI pursuant to the Contribution Agreement.
9.8 Division of Partnership Interests.
----------------------------------
The several rights and obligations inherent in the Capital Account,
Percentage Interest, and Partnership Units attributable to a Partner's
Partnership Interest are indivisible except in equal proportions, such that the
assignment of a specified percentage of a Partner's Partnership Interest may
only represent an equal percentage of the total Capital Account, Percentage
Interest, and Partnership Units that were attributable to such Partner's
Partnership Interest prior to the assignment; PROVIDED, HOWEVER, that the
several rights and obligations attributable to all or part of a Partnership
Interest may be further divided between those rights that may be exercised by an
Assignee subject to Section 9.4 and all other rights and obligations, which may
be retained by the assignor. For purposes of applying this Section 9.8, the
Partnership Interest of FHGLP as the General Partner and the Partnership
Interest of FHGLP as a Limited Partner are separate and distinct Partnership
Interests, and all or part of either such Partnership Interest may be assigned
independently of the other Partnership Interest (subject to the other provisions
of this Agreement).
9.9 Substitute Partners.
--------------------
An Assignee may not become a substitute Partner unless all of the following
conditions are first satisfied:
(a) A duly executed and acknowledged written instrument of assignment
shall have been filed with the Partnership, specifying the Partnership Interests
being assigned and setting forth the intention of the assignor that the Assignee
succeed to the assignor's interest as a substitute Partner;
(b) The Assignee shall be an Accredited Investor;
(c) The assignor and Assignee shall have executed and acknowledged any
other instruments that the Managing Partner deems necessary or desirable for
substitution, including the written acceptance and adoption by the Assignee of
the provisions of this Agreement and shall
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have executed, acknowledged, and delivered to the Managing Partner a special
power of attorney as provided in Section 18.5(b);
(d) Except in the case of an assignment permitted by Section 9.3, the
Managing Partner shall have consented in writing to the admission of the
Assignee as a substitute Partner, the granting of which may be withheld by the
Managing Partner in its sole and absolute discretion;
(e) The Assignee shall have paid to the Partnership a transfer fee
sufficient to cover all reasonable expenses connected with the substitution; and
(f) The assignment to the Assignee shall have complied with the other
provisions of this Article 9.
9.10 Consent.
--------
Each Partner consents to the admission of substitute Partners by the
Managing Partner and to any Assignee of its Partnership Interests becoming a
substituted Partner in accordance with the terms and conditions of this
Agreement.
9.11 Covenant and Representation of TCI Communications, Inc.
-------------------------------------------------------
By executing this Agreement, TCI Communications, Inc., a Delaware
corporation,
(a) agrees that, prior to the seventh anniversary of the Closing, it
will not cause or permit to occur any transaction or series of transactions
(other than an assignment of the Partnership Interest of TCI that is permitted
by Article 10) if, after giving effect to such transaction or series of
transactions, it (or any successor to it that owns, directly or indirectly,
substantially all the cable television systems owned, directly or indirectly, by
TCI Communications prior to such transaction or series of transactions) would
not own, directly or indirectly, more than fifty percent of the outstanding
equity interests in TCI or would not directly or indirectly control TCI; and
(b) represents and warrants to FHGLP and the Partnership that it owns,
directly or indirectly, (1) all of the outstanding equity interests in TCI and
(2) substantially all the cable television systems in the United States or
interests in cable television systems in the United States that are owned,
directly or indirectly, by Tele-Communications, Inc. or any of its Affiliates.
9.12 Pledge of Partnership Interests.
--------------------------------
At the request of the Managing Partner, each Partner agrees to pledge its
Partnership Interest to secure any Indebtedness of the Partnership that is
permitted under this Agreement, on terms determined by the Managing Partner, so
long as all Partners are required to pledge their Partnership Interests and the
terms of the pledge do not impose any personal liability on any
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Partner. In negotiating the terms of any such pledge, the Managing Partner will
request that the secured party agree to enforce its rights against the
Partnership Interests of the Partners proportionately (based on the number of
Partnership Units assigned to the Partnership Interest of each Partner). If the
secured party under any such pledge enforces its rights against the Partnership
Interests of the Partners other than proportionately, the Partners will afford
each other such rights of contribution and indemnity as are necessary to cause
all liabilities, losses, and damages suffered by the Partners as a result of the
exercise by the secured party of its rights under such pledge to be borne by the
Partners proportionately.
9.13 Effect of Purchase of Partnership Interests in FHGLP.
-----------------------------------------------------
(a) If the Partnership purchases any partnership interests in FHGLP
pursuant to Article 9 of the FHGLP Partnership Agreement, then, immediately
after such purchase, the Partnership shall distribute all of the partnership
interests in FHGLP purchased by the Partnership to FHGLP in redemption of a
portion of FHGLP's Partnership Interest. The partnership interests in FHGLP
distributed to FHGLP pursuant to this Section 9.13(a) shall be deemed to have a
net fair market value equal to the purchase price paid by the Partnership for
such partnership interests, as determined in accordance with Section 9.2(e) of
the FHGLP Partnership Agreement, and the percentage of FHGLP's Partnership
Interest redeemed pursuant to this Section 9.13(a) shall equal the quotient
obtained by dividing the purchase price paid by the Partnership for such
partnership interests, as determined in accordance with Section 9.2(e) of the
FHGLP Partnership Agreement, by the net fair market value of FHGLP's Partnership
Interest, determined in accordance with the following provisions:
(1) For purposes of determining the net fair market value of
FHGLP's Partnership Interest, the "FHGLP Liquidation Amount" of each of the
three appraisers retained pursuant to Article 9 of the FHGLP Partnership
Agreement shall equal the amount that would be distributed to FHGLP in
liquidation of the Partnership, as determined under Section 9.2(e) of the FHGLP
Partnership Agreement for purposes of calculating such appraiser's Appraised
Liquidation Value (as defined in Section 9.2(e)(1) of the FHGLP Partnership
Agreement).
(2) Except as provided in Section 9.13(a)(3), the net fair market
value of FHGLP's Partnership Interest shall be the average of the two closest of
the FHGLP Liquidation Amounts of the three appraisers retained pursuant to
Article 9 of the FHGLP Partnership Agreement.
(3) If the difference between the highest of the three FHGLP
Liquidation Amounts and the middle of the three FHGLP Liquidation Amounts is
equal to the difference between the lowest of the three FHGLP Liquidation
Amounts and the middle of the three FHGLP Liquidation Amounts, then the net fair
market value of FHGLP's Partnership Interest shall be the middle FHGLP
Liquidation Amount.
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(b) Upon the redemption of a portion of FHGLP's Partnership Interest
pursuant to Section 9.13(a), the number of Partnership Units assigned to its
Partnership Interest shall be reduced by the product of (1) the number of
Partnership Units assigned to its Partnership Interest prior to such redemption
times (2) the percentage of FHGLP's Partnership Interest being redeemed, as
provided in Section 9.13(a).
(c) If the redemption of a portion of FHGLP's Partnership Interest
pursuant to Section 9.13(a) would change the ownership of the Partnership such
that TCI would be required to consolidate its financial statements and those of
the Partnership for financial reporting purposes, then, at TCI's request, the
Partners will use commercially reasonable efforts to create and implement an
alternative structure for the purchase of partnership interests in FHGLP
pursuant to Article 9 of the FHGLP Partnership Agreement and the distribution of
such partnership interests to FHGLP that would prevent such consolidation.
9.14 Impact of Code Section 708.
---------------------------
(a) If the assignment by a Partner of all or part of its Partnership
Interest results in the termination of the Partnership within the meaning of
Code Section 708, the Partner causing such termination (as determined in
accordance with this Section 9.14) will indemnify the other Partner for any
additional income tax paid by such other Partner as a result of such termination
(including income tax attributable to Code Section 704(c) allocations), whether
required to be paid in or for the taxable year in which such termination occurs
or in or for any subsequent taxable year, as offset by any income tax savings to
be realized by the other Partner as a result of such termination (including
income tax savings attributable to Code Section 704(c) allocations), whether
realized in or for the taxable year in which such termination occurs or in or
for any subsequent taxable year. Except as provided in Section 9.14(b), the
Partner whose assignment of all or part of its Partnership Interest resulted in
the termination of the Partnership within the meaning of Code Section 708 shall
be treated as the Partner causing such termination for purposes of Section
9.14(a).
(b) If a Partner desires to assign all or part of its Partnership
Interest in a transaction that, if consummated at one time, would result in the
termination of the Partnership within the meaning of Code Section 708, such
Partner may elect (1) to assign immediately as much of its Partnership Interest
as may then be assigned without resulting in the termination of the Partnership
within the meaning of Code Section 708 and (2) to assign the remaining portion
of its Partnership Interest that it desires to assign as soon thereafter as such
subsequent assignment would not result in the termination of the Partnership
within the meaning of Code Section 708. If a Partner notifies the other Partner
that it has elected to assign all or part of its Partnership Interest in
accordance with this Section 9.14(b), specifying in its notice the portion of
its Partnership Interest to be assigned immediately in accordance with clause
(1) of the preceding sentence and the portion of its Partnership Interest to be
assigned subsequently in accordance with clause (2) of the preceding sentence
(the assignment of such portion, the "Deferred Assignment"), then, if the other
Partner assigns all or any part of its Partnership Interest prior to the
Deferred
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Assignment by the notifying Partner and the Deferred Assignment therefore
results in the termination of the Partnership within the meaning of Code Section
708, the other Partner and not the notifying partner shall be treated as the
Partner causing such termination for purposes of Section 9.14(a).
ARTICLE 10
BUY/SELL RIGHTS
10.1 Commencement of Buy/Sell Process.
---------------------------------
(a) At any time after the seventh anniversary of the Closing (subject
to Section 10.1(b)), either TCI or FHGLP may elect to commence the process
described in this Article 10 by sending written notice (the "Offer") of its
election to the Responding Partner, offering to sell to the Responding Partner
or, at the Responding Partner's election, to the Partnership, all, but not less
than all, of the Offering Partner's Partnership Interest for a price per
Partnership Unit which shall be specified by the Offering Partner in the Offer
(the "Unit Price") and otherwise on the terms and subject to the conditions set
forth in this Article 10. The Offer shall also specify the Offering Partner's
estimate of the price at which the Partnership and each Subsidiary could sell
each regional cluster of cable television systems owned by the Partnership and
each Subsidiary, each other separate business owned by the Partnership and each
Subsidiary, and each other asset (such as equity interests in a Person that is
not a Subsidiary) or group of assets owned by the Partnership and each
Subsidiary (each such regional cluster, other business, or other asset or group
of assets, a "Business Asset," and such estimate, with respect to each Business
Asset, the "Target Price") in liquidating sales pursuant to Article 13, and the
Unit Price specified by the Offering Partner shall equal the Offering Partner's
good faith estimate, based on the most recent financial information of the
Partnership and the Subsidiaries, of the amount that would be distributed to the
Partners in liquidation of the Partnership, per Partnership Unit, if (1) all of
the assets of the Partnership and each Subsidiary were sold for the sum of the
Target Prices specified by the Offering Partner, without reduction for filing
fees, transfer taxes, recordation taxes, sales taxes, document stamps, other
charges levied by any governmental entity, attorneys' and accountants' fees and
expenses, and other transaction costs of any nature that would be incurred in
connection with any such sale, (2) Net Profit and Net Loss and items specially
allocated in accordance with Section 4.3, including any gain or loss resulting
from the liquidating sales described in clause (1), were allocated in accordance
with Article 4, and corresponding allocations were made under the partnership
agreement or other governing instrument of each Subsidiary, (3) the Partnership
and each Subsidiary paid its accrued, but unpaid, liabilities (which shall not
in any event include any prepayment premiums or penalties or other similar costs
attributable to the payment of any such liabilities), and (4) each Subsidiary
distributed the remaining proceeds received by it (without establishing reserves
for contingent or unknown liabilities) to its equity owners in liquidation in
accordance with its partnership agreement or other governing instrument and the
Partnership distributed the remaining proceeds received by it (without
establishing reserves for contingent or unknown liabilities) to the Partners in
liquidation.
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(b) A Partner may not elect to commence the process described in this
Article 10, (1) at any time after an election by FHGLP pursuant to Section
11.1(a) unless TCI reasonably declined pursuant to Section 11.1(a) to approve
the Incorporation following such election or (2) at any time following the
delivery of an Offer pursuant to Section 10.1(a) and prior to such time, if any,
that (A) the Offering Partner and the Responding Partner agree to abandon the
purchase and sale of Partnership Interests pursuant to such Offer or, if
applicable, the liquidation and dissolution of the Partnership as a result of
any election made by the Offering Partner pursuant to Section 10.3(a), or (B)
the Offering Partner or the Responding Partner elects pursuant to Section
10.8(a), Section 10.8(b), or Section 10.8(c) to terminate the purchase and sale
of Partnership Interests pursuant to such Offer or pursuant to a subsequent
election pursuant to Section 10.4(a) or Section 10.5(a)(1).
(c) The purchase and sale of Partnership Interests pursuant to this
Article 10 may be abandoned at any time following the delivery of an Offer
pursuant to Section 10.1(a) and prior to the closing thereof by agreement
between the Offering Partner and the Responding Partner.
10.2 Election by Responding Partner.
-------------------------------
The Responding Partner may accept the Offering Partner's offer to sell the
Offering Partner's Partnership Interest, as set forth in the Offer, by sending
written notice (the "Acceptance") of its acceptance of such offer to the
Offering Partner within thirty Business Days after its receipt of the Offer. The
Acceptance shall specify whether the Responding Partner elects that the
Partnership purchase the Offering Partner's Partnership Interest; PROVIDED,
HOWEVER, that the Responding Partner may not elect pursuant to Section 10.1(a)
to require that the Partnership (rather than the Responding Partner) purchase
the Offering Partner's Partnership Interest if a purchase of the Offering
Partner's Partnership Interest by the Partnership would require any waiver,
consent, or approval of any holder of any Indebtedness of the Partnership or any
Subsidiary or would require any other waiver, consent, or approval of any Person
that could impede or materially delay the closing of the purchase and sale of
the Offering Partner's Partnership Interest. Upon the timely delivery of the
Acceptance, the Offering Partner shall be obligated to sell and the Responding
Partner (or the Partnership, if the Responding Partner properly so elected in
its Acceptance) shall be obligated to purchase, in accordance with this Article
10, all of the Offering Partner's Partnership Interest. If the Responding
Partner fails to send the Acceptance to the Offering Partner within thirty
Business Days after its receipt of the Offer, the Responding Partner shall be
deemed to have rejected the Offering Partner's offer.
10.3 Offering Partner's Option to Liquidate.
---------------------------------------
(a) If the Responding Partner rejects or is deemed to reject the
Offering Partner's offer to sell all of the Offering Partner's Partnership
Interest, the Offering Partner may elect to cause the Partnership to be
liquidated and dissolved in accordance with Article 13,
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including the provisions of Section 13.3. The Offering Partner shall make an
election to cause the Partnership to be liquidated and dissolved pursuant to
this Section 10.3(a) by delivering written notice of its election to the
Responding Partner within ten Business Days after the deadline specified in
Section 10.2 for the Responding Partner's acceptance of the Offering Partner's
offer.
(b) The Offering Partner and the Responding Partner may agree at any
time to abandon the liquidation and dissolution of the Partnership as a result
of any election made by the Offering Partner pursuant to Section 10.3(a).
(c) Upon the commencement of the liquidation and dissolution of the
Partnership pursuant to any election made pursuant to Section 10.3(a) or Section
10.5(a)(2), all rights and obligations of the Partners with respect to the
purchase and sale of their Partnership Interests shall terminate (until such
time, if any, as the Offering Partner and the Responding Partner agree to
abandon the liquidation and dissolution of the Partnership as a result of any
such election), and neither Partner shall have any further obligation to the
other Partner with respect to the purchase and sale of its Partnership Interest
(except in the case of a subsequent election by the Responding Partner pursuant
to Section 10.4(a)). If the Partnership is liquidated, each Partner shall be
entitled to receive with respect to its Partnership Interest only such cash and
property distributions as shall be provided for in Article 13, regardless of
whether such amount is less than the Unit Price or the Unit Liquidation Amount.
10.4 Responding Partner's Option to Purchase During Liquidation.
-----------------------------------------------------------
(a) If the Offering Partner elects pursuant to Section 10.3(a) to cause
the Partnership to be liquidated and dissolved and, following receipt of all
Liquidating Sale Offers solicited by the Offering Partner pursuant to Section
13.3(a) and the completion of any appraisals required by Section 13.3(b)(1), the
aggregate Liquidation Value for all the assets of the Partnership and each
Subsidiary (as determined under Section 13.3(b)(2)) is less than the aggregate
Target Prices for all the assets of the Partnership and each Subsidiary, then
the Responding Partner may elect to purchase or to require that the Partnership
purchase all, but not less than all, of the Partnership Interest of the Offering
Partner for a price per Partnership Unit equal to the Unit Liquidation Amount
and otherwise on the terms and subject to the conditions set forth in this
Article 10. Promptly following the completion of the solicitation of Liquidating
Sale Offers by the Offering Partner pursuant to Section 13.3(a) and any
appraisals required by Section 13.3(b)(1), if the aggregate Liquidation Value
for all the assets of the Partnership and each Subsidiary is less than the
aggregate Target Prices for all the assets of the Partnership and each
Subsidiary, the Offering Partner shall so notify the Responding Partner in
writing.
(b) The Responding Partner may make an election pursuant to Section
10.4(a) by delivering written notice of its election to the Offering Partner
within twenty Business Days after its receipt of the Offering Partner's notice
pursuant to Section 10.4(a). The notice shall specify whether the Responding
Partner elects that the Partnership purchase the Offering Partner's Partnership
Interest; PROVIDED, HOWEVER, that the Responding Partner may not elect pursuant
to
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Section 10.4(a) to require that the Partnership (rather than the Responding
Partner) purchase the Offering Partner's Partnership Interest if the purchase of
the Offering Partner's Partnership Interest by the Partnership could be impeded
or materially delayed as a result of any required waiver, consent, or approval
of any holder of any Indebtedness of the Partnership or any Subsidiary, or any
other required waiver, consent, or approval of any Person, that either would not
be required or would be more expeditiously obtained if the Offering Partner's
Partnership Interest were purchased by the Responding Partner. Upon the timely
delivery of such notice to the Offering Partner, the Offering Partner shall be
obligated to sell and the Responding Partner (or the Partnership, if the
Responding Partner properly so elected in its notice) shall be obligated to
purchase, in accordance with this Article 10, all of the Offering Partner's
Partnership Interest.
(c) If, following receipt of all Liquidating Sale Offers solicited by
the Offering Partner pursuant to Section 13.3(a) and the completion of any
appraisals required by Section 13.3(b)(1), either (1) the aggregate Liquidation
Value for all the assets of the Partnership and each Subsidiary (as determined
under Section 13.3(b)(2)) is not less than the aggregate Target Prices for all
the assets of the Partnership and each Subsidiary or (2) the Responding Partner
did not make an election pursuant to Section 10.4(a) within twenty Business Days
after its receipt of the Offering Partner's notice pursuant to Section 10.4(a),
the Responding Partner shall have no right to purchase the Partnership Interest
of the Offering Partner and the Offering Partner may cause the Partnership to
accept the most favorable Liquidating Sale Offers and shall otherwise cause the
Partnership to be liquidated and dissolved in accordance with Article 13 (except
as the Offering Partner and the Responding Partner may otherwise agree).
10.5 Default by Responding Partner.
------------------------------
(a) If the Responding Partner elects to purchase all of the Offering
Partner's Partnership Interest under either Section 10.2 or Section 10.4(a), and
the Responding Partner defaults in its obligation to purchase the Offering
Partner's Partnership Interest on the date specified in Section 10.7(a) for the
closing of the purchase and sale of the Offering Partner's Partnership Interest,
then the Offering Partner may elect either:
(1) to purchase or to require that the Partnership purchase all,
but not less than all, of the Partnership Interest of the Responding Partner for
a price per Partnership Unit equal to 95% of the Unit Price and otherwise on the
terms and subject to the conditions set forth in this Article 10; or
(2) to cause the Partnership to be liquidated and dissolved in
accordance with Article 13.
(b) The two options that may be elected by the Offering Partner
pursuant to Section 10.5(a) are exclusive of each other but are not exclusive of
any other right or remedy that may be available to the Offering Partner at law
or equity as a result of the Responding Partner's default.
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(c) The Offering Partner may make an election pursuant to Section
10.5(a) by delivering written notice of its election to the Responding Partner
at any time after the date specified in Section 10.7(a) for the closing of the
purchase and sale of the Offering Partner's Partnership Interest and prior to
such time, if any, as the Responding Partner stands ready, willing, and able to
purchase the Offering Partner's Partnership Interest in accordance with this
Article 10. The notice shall specify whether the Offering Partner elects that
the Partnership purchase the Responding Partner's Partnership Interest. If the
Offering Partner makes a timely election pursuant to Section 10.5(a)(1), the
Responding Partner shall be obligated to sell and the Offering Partner (or the
Partnership, if the Offering Partner so elected in its notice) shall be
obligated to purchase, in accordance with this Article 10, all of the Responding
Partner's Partnership Interest.
10.6 Removal of FHGLP.
-----------------
(a) The provisions of this Section 10.6 shall apply if:
(1) a court of competent jurisdiction sitting in Los Angeles
County, California, finds that FHGLP has engaged in conduct while acting as
Managing Partner that constitutes either fraud against the Partnership or TCI or
a felony involving moral turpitude and that such conduct has resulted in
material harm to the Partnership or TCI, and
(2) the finding described in Section 10.6(a) has not been
reversed, stayed, enjoined, set aside, annulled, or suspended, and is not the
subject of any pending request for judicial review, reconsideration, appeal, or
stay, and
(3) the time for filing any further request for judicial review,
reconsideration, appeal, or stay of the finding described in Section 10.6(a) has
expired.
(b) If each of the conditions specified in Section 10.6(a) is
satisfied, then TCI may elect to commence the appraisal procedure described in
this Section 10.6(b) by sending written notice of its election to FHGLP within
ten Business Days after the condition specified in Section 10.6(a)(3) is
satisfied. TCI's notice shall designate one appraiser (the "TCI Appraiser") to
determine the fair market value of each Business Asset. Within ten Business Days
after its receipt of such notice, FHGLP shall send a written notice to TCI
designating a second appraiser (the "FHGLP Appraiser") to determine the fair
market value of each Business Asset. Within ten Business Days after TCI's
receipt of such notice, the TCI Appraiser and the FHGLP Appraiser shall jointly
designate a third appraiser (the "Third Appraiser") to determine the fair market
value of each Business Asset. Each appraiser designated pursuant to this Section
10.6(b) shall determine the fair market value of each Business Asset in
accordance with the provisions of Section 13.3(b)(1). In determining the fair
market value of each Business Asset, each appraiser shall also take into account
the potential public market value of equity interests in a Person owning the
Business Assets. The provisions of Section 13.3(b)(1) regarding the
qualifications of appraisers
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shall apply to each appraiser designated pursuant to this Section 10.6(b). The
fees and expenses of any appraiser designated pursuant to this Section 10.6(b)
shall be borne by the Partnership.
(c) Within ten Business Days after the completion of the last of the
appraisals to be conducted pursuant to Section 10.6(b), the Third Appraiser will
estimate the purchase price per Partnership Unit for FHGLP's Partnership
Interest (determined in accordance with Section 10.6(e)) and shall send TCI and
FHGLP a written notice specifying its estimate of the fair market value of
FHGLP's Partnership Interest.
(d) TCI may elect to purchase all of the Partnership Interest of FHGLP,
and, upon the consummation of such purchase, to remove FHGLP as a Partner, by
delivering written notice of its election to FHGLP within ten Business Days
after its receipt of the notice from the Third Appraiser pursuant to Section
10.6(c). Upon the timely delivery of such notice to FHGLP, FHGLP shall be
obligated to sell and TCI shall be obligated to purchase, in accordance with
this Article 10, all of FHGLP's Partnership Interest.
(e) The purchase price for FHGLP's Partnership Interest shall be the
price per Partnership Unit determined in accordance with this Section 10.6(e).
For purposes of determining the purchase price for FHGLP's Partnership Interest,
the "Appraised Liquidation Amount" of each appraiser shall be the Unit
Liquidation Amount, calculated as if the determination by such appraiser of the
fair market value of each Business Asset were the Liquidation Value of such
Business Asset.
(1) Except as provided in Section 10.6(e)(2), the purchase price
per Partnership Unit for FHGLP's Partnership Interest shall be the average of
the two closest of the Appraised Liquidation Amount of the TCI Appraiser, the
Appraised Liquidation Amount of the FHGLP Appraiser, and the Appraised
Liquidation Amount of the Third Appraiser.
(2) If the difference between the highest of the three Appraised
Liquidation Amounts and the middle of the three Appraised Liquidation Amounts is
equal to the difference between the lowest of the three Appraised Liquidation
Amounts and the middle of the three Appraised Liquidation Amounts, then the
purchase price per Partnership Unit for FHGLP's Partnership Interest shall be
the middle Appraised Liquidation Amount.
(f) The rights of TCI under this Section 10.6 are in addition to any
other rights and remedies available to TCI at law or equity as a result of any
conduct by FHGLP described in Section 10.6(a).
10.7 General Terms Applicable to Purchase and Sale of Partnership Interests.
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(a) The closing of the purchase and sale of a Partner's Partnership
Interest in accordance with this Article 10 shall occur not later than (1) if no
governmental consents or approvals are required in connection with the sale of
the selling Partner's Partnership Interest,
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ninety days after the Offering Partner's receipt of the Responding Partner's
election pursuant to Section 10.2 or Section 10.4(a), the Responding Partner's
receipt of the Offering Partner's election pursuant to Section 10.5(a)(1), or
TCI's election pursuant to Section 10.6(d), whichever is applicable, or (2) in
all other cases, the later of thirty days after the receipt of all governmental
consents and approvals required in connection with the sale of the selling
Partner's Partnership Interest or the date specified in clause (1).
(b) The closing of the purchase and sale of the selling Partner's
Partnership Interest in accordance with this Article 10 shall take place at the
principal office of the Partnership or at any other location agreed to by FHGLP
and TCI.
(c) At the closing of any purchase and sale of the selling Partner's
Partnership Interest pursuant to this Article 10, the purchasing Partner shall
pay or cause to be paid to the selling Partner, by cash or other immediately
available funds or any other form of consideration mutually agreed to by the
selling Partner and the purchasing Partner, the purchase price for the
Partnership Interest being purchased and the selling Partner shall deliver to
the purchasing Partner (or its permitted assignee) good title, free and clear of
any liens (other than those created by this Agreement and those securing
financing obtained by the Partnership or any Subsidiary), to the Partnership
Interest being sold.
(d) The Partnership shall bear all costs relating to any purchase and
sale of a Partner's Partnership Interest pursuant to this Article 10, including
attorneys' fees and filing fees, but excluding taxes measured on the amount of
income, gain, or proceeds realized by the selling Partner or any governmental
charges imposed in lieu of such taxes.
(e) If either Partner elects in accordance with this Article 10 that
the Partnership purchase the other Partner's Partnership Interest, the electing
Partner shall guaranty the performance by the Partnership of its obligation to
purchase the other Partner's Partnership Interest.
(f) The Partners will cooperate in good faith and use their respective
commercially reasonable efforts to obtain as quickly as practicable all
governmental consents and approvals required in connection with the purchase and
sale of a Partner's Partnership Interest pursuant to this Article 10.
10.8 Termination of Purchase and Sale.
---------------------------------
(a) The Offering Partner or the Responding Partner may elect to
terminate the purchase and sale of Partnership Interests pursuant to any Offer
if the closing thereof has not occurred within eighteen months after the
Offering Partner's delivery of such Offer, except that a Partner may not elect
to terminate the purchase and sale of Partnership Interests pursuant to any
Offer if the failure of the closing of such purchase and sale to occur within
eighteen months after
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the delivery of such Offer was a result of the failure of such Partner to act in
good faith or of any breach by such Partner of its covenants or other
obligations in this Agreement.
(b) If the Responding Partner makes a timely election pursuant to
Section 10.4(a) to purchase or to require that the Partnership purchase the
Partnership Interest of the Offering Partner, the Offering Partner or the
Responding Partner may elect to terminate such purchase and sale if the closing
thereof has not occurred within eighteen months after the Responding Partner's
election, except that a Partner may not elect to terminate the purchase and sale
of Partnership Interests pursuant to any such election if the failure of the
closing of such purchase and sale to occur within eighteen months after of such
election was a result of the failure of such Partner to act in good faith or of
any breach by such Partner of its covenants or other obligations in this
Agreement.
(c) If the Offering Partner makes a timely election pursuant to Section
10.5(a)(1) to purchase or to require that the Partnership purchase the
Partnership Interest of the Responding Partner, the Offering Partner may elect
to terminate such purchase and sale if the closing thereof has not occurred
within eighteen months after the Offering Partner's election, except that the
Offering Partner may not elect to terminate such purchase and sale of
Partnership Interests if the failure of the closing of such purchase and sale to
occur within eighteen months after the Offering Partner's election was a result
of the failure of the Offering Partner to act in good faith or of any breach by
the Offering Partner of its covenants or other obligations in this Agreement.
10.9 Restructuring of Transactions.
------------------------------
Commencing with the delivery of an Offer pursuant to Section 10.1(a), the
Partners will use commercially reasonable efforts for a reasonable period (not
to exceed sixty days) to structure any purchase and sale of Partnership
Interests pursuant to this Article 10 in a manner that minimizes negative tax
consequences to the Partners and the Partnership to the extent doing so would
not materially adversely affect either Partner (except to the extent such
Partner is adequately compensated by the other Partner for such adverse effect);
PROVIDED, HOWEVER, that nothing in this Section 10.9 shall affect the respective
rights and obligations of the Partners if, within such reasonable period, the
Partners are unable to agree on such a structure. The delivery of an Acceptance
pursuant to Section 10.2 shall not terminate or otherwise limit the obligations
of the Partners under this Section 10.9 with respect to the structuring of a
purchase and sale of Partnership Interests pursuant to this Article 10, but the
subsequent failure of the Partners to agree on a structure shall not impair the
validity of any such Acceptance.
10.10 Purchase and Sale of Interests Held by Falcon Holding Group, Inc.
-----------------------------------------------------------------
(a) If TCI or the Partnership is required to purchase the Partnership
Interest of FHGLP pursuant to this Article 10 (including Section 10.6), then,
concurrently with the purchase and sale of FHGLP's Partnership Interest, (1) TCI
or the Partnership, as applicable, shall
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purchase, and Falcon Holding Group, Inc. shall sell to TCI or the Partnership,
as applicable, all of Falcon Holding Group, Inc.'s partnership interests in each
of the Investors Partnerships, and (2) TCI or the Partnership, as applicable,
shall purchase, and the Falcon Cable Trust shall sell to TCI or the Partnership,
as applicable, all of the Falcon Cable Trust's partnership interest in Falcon
Video Communications Investors, L.P.
(b) The purchase price for the purchase and sale of Falcon Holding
Group, Inc.'s partnership interests in each of the Investors Partnerships shall
be the price per Partnership Unit paid to FHGLP for its Partnership Interest
multiplied by the product of 100,000 times a fraction the numerator of which is
the aggregate net fair market value of Falcon Holding Group, Inc.'s partnership
interests in each of the Investors Partnerships (determined as provided below)
and the denominator of which is the net fair market value of all Capital
Contributions being made by both Partners pursuant to the Contribution
Agreement, with such net fair market values being determined in the manner
specified in Section 3.5(a). The purchase price for the purchase and sale of the
Falcon Cable Trust's partnership interest in Falcon Video Communications
Investors, L.P. shall be the price per Partnership Unit paid to FHGLP for its
Partnership Interest multiplied by the product of 100,000 times a fraction the
numerator of which is the net fair market value of the Falcon Cable Trust's
partnership interest in Falcon Video Communications Investors, L.P. (determined
as provided below) and the denominator of which is the net fair market value of
all Capital Contributions being made by both Partners pursuant to the
Contribution Agreement, with such net fair market values being determined in the
manner specified in Section 3.5(a). The net fair market value of Falcon Holding
Group, Inc.'s partnership interest in any Investors Partnership shall be the
percentage ownership interest in such Investors Partnership held by Falcon
Holding Group, Inc. as of the Closing times the net fair market value of such
Investors Partnership, as determined in accordance with Section 3.5(b) of the
Contribution Agreement. The net fair market value of the Falcon Cable Trust's
partnership interest in Falcon Video Communications Investors, L.P. shall equal
one percent of the net fair market value of Falcon Video Communications
Investors, L.P., as determined in accordance with Section 3.4(a) of the
Contribution Agreement.
10.11 Retained TCI Assets.
--------------------
If at the time any Offer is made pursuant to this Article 10 or any
appraisal is being performed pursuant to Section 10.6 any Retained TCI Assets
(as defined in the Contribution Agreement) have not been contributed to the
Partnership pursuant to Section 11.10(c) of the Contribution Agreement or sold
pursuant to Section 11.10(e) of the Contribution Agreement, then:
(a) all values used in this Article 10 (including the Target Price,
Liquidation Value, and appraised fair market value of each Business Asset) shall
be determined and calculated as if such Retained TCI Assets were owned by the
Partnership; and
(b) if FHGLP purchases the Partnership Interest of TCI pursuant to this
Article 10, all obligations of TCI under Section 11.10 of the Contribution
Agreement with respect to such Retained TCI Assets (including obligations to
contribute the Retained TCI Assets or the proceeds
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of their sale to the Partnership) shall survive the withdrawal of TCI from the
Partnership upon the sale of its Partnership Interest.
ARTICLE 11
CONVERSION TO CORPORATION
11.1 Election by FHGLP.
------------------
(a) FHGLP may elect at any time, subject to Section 11.1(f), with the
approval of TCI, which shall not be unreasonably withheld, to require that the
Partnership be converted into a corporation or require that the Partnership
effect another appropriate transaction, including the formation of a corporate
holding company, that results in the Partnership Interests being converted into,
or exchanged for, stock in a corporation (any such transaction, an
"Incorporation"), in either case for purposes of effecting an initial public
offering. The Partners agree that adverse, uncompensated tax consequences to TCI
resulting from an Incorporation would be a reasonable basis for TCI to withhold
its approval of the Incorporation, and that the inability of the Corporation (as
defined in Section 11.1(c)(1)) to "pass-through" losses to TCI for tax purposes
shall not be considered an adverse, uncompensated tax consequence to TCI or any
other reasonable basis for TCI to withhold its approval of an Incorporation. TCI
may not assert that adverse, uncompensated tax consequences to TCI were a
reasonable basis for it to withhold its approval of any Incorporation proposed
by FHGLP unless TCI has delivered to FHGLP, within forty-five days after FHGLP's
election pursuant to this Section 11.1(a), a written notice objecting to the
Incorporation and within fifteen days thereafter, if requested by FHGLP, a
description of such tax consequences in reasonable detail. The Partners agree
that the manner of effecting the Incorporation shall be determined by FHGLP,
consistent with this Section 11.1, and may include:
(1) the contribution or other assignment of all or substantially
all of the assets and liabilities of the Partnership and, if appropriate, the
Subsidiaries to one or more Persons formed by FHGLP or any of its Affiliates for
the purpose of effecting the Incorporation;
(2) the merger or consolidation of the Partnership with or into
one or more Persons formed by FHGLP or any of its Affiliates for the purpose of
effecting the Incorporation; or
(3) the contribution, transfer, or other disposition of all of the
Partnership Interests to one or more Persons formed by FHGLP or any of its
Affiliates for the purpose of effecting the Incorporation.
(b) Following an election by FHGLP pursuant to Section 11.1(a) and the
approval of the Incorporation by TCI, FHGLP and TCI shall negotiate in good
faith, and as soon as practicable thereafter shall execute, acknowledge, and
deliver, or cause to be executed,
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acknowledged, and delivered, all instruments and documents that may be
required to best effectuate the Incorporation.
(c) The terms of any Incorporation shall:
(1) cause the relative equity interests of the Partners or their
successors-in-interest in the corporation that succeeds the Partnership as the
Person through which the Partners or their successors-in-interest own equity
interests in the assets of the Partnership (the "Corporation") to be the same as
the relative equity interests of the Partners in the Partnership immediately
prior to the Incorporation,
(2) impose restrictions on the activities of any Limited Partner,
in its capacity as a stockholder of the Corporation, including restrictions that
are analogous to the restrictions specified in Section 7.6(a), if doing so would
prevent the Incorporation from causing the violation of any Ownership
Restriction by the Corporation or any Person in which the Corporation owns any
equity interest,
(3) at the request of a Limited Partner, impose restrictions on
the activities of such Limited Partner, in its capacity as a stockholder of the
Corporation, including restrictions that are analogous to the restrictions
specified in Section 7.6(a), if doing so would prevent the Incorporation from
causing the violation of any Ownership Restriction by such Limited Partner or
any Person in which such Limited Partner owns any equity interest, and
(4) terminate all other rights and obligations of the Partners
under this Agreement.
(d) FHGLP may elect, in its sole discretion, to cause the terms of the
Incorporation to include either or both of the following features:
(1) Falcon Holding Group, Inc. and its Affiliates shall retain
control of the Corporation and shall have exclusive authority to manage the
operations and affairs of the Corporation, subject to applicable law. Such
control may be achieved by (A) dividing the authorized common stock of the
Corporation into two classes, one of which would have one vote per share and the
other of which would have more than one vote per share, and (B) issuing to FHGLP
and any other stockholder of the Corporation that is an Affiliate of Falcon
Holding Group, Inc. shares of the class of common stock having more than one
vote per share and issuing to TCI and any other stockholder of the Corporation
that is not an Affiliate of Falcon Holding Group, Inc. (including purchasers in
the public offering described in Section 11.2(a)) shares of the class of common
stock having one vote per share (but (A) each share of common stock shall have
identical rights to dividends and liquidating distributions and shall be deemed
to be of equal value, regardless of class, (B) each share of the class of common
stock having more than one vote per share may be converted at the option of the
holder into one share of the class of common stock having one vote per share,
and (C) each share of the class of common stock having more than one
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vote per share shall convert automatically into one share of the class of common
stock having one vote per share upon its transfer to any Person that is not an
Affiliate of the transferor).
(2) FHGLP and the Partnership shall be consolidated, such that the
owners of the Corporation immediately after the Incorporation (before giving
effect to the public offering described in Section 11.2(a)) shall be the owners
of FHGLP immediately prior to the Incorporation and either TCI or the owners of
TCI. Such a consolidation may be effected through the contribution to the
Corporation by the owners thereof of all equity interests in FHGLP and in TCI in
exchange for equity interests in the Corporation, such that, after the
Incorporation, the Corporation would own, directly or indirectly, all of FHGLP
and TCI. To facilitate such a structure, TCI covenants that, during the term of
this Agreement, it will not acquire any assets or properties other than its
Partnership Interests, will not engage in any business other than the ownership
of its Partnership Interest, and will not incur any liabilities or obligations,
other than liabilities and obligations arising under this Agreement.
(e) Upon any Incorporation that involves the transfer of the assets of
the Partnership to the Corporation in exchange for interests in the Corporation,
the Partnership shall be liquidated and any interests in the Corporation
received by the Partnership in connection with the Incorporation shall be
distributed to the Partners in accordance with the provisions of Article 13.
(f) FHGLP may not make the election provided for in Section 11.1(a),
(1) within one year after a prior election by FHGLP pursuant to Section 11.1(a)
if TCI reasonably declined pursuant to Section 11.1(a) to approve the
Incorporation following such election, or (2) at any time following the delivery
of an Offer pursuant to Section 10.1(a) and prior to such time, if any, that (A)
the Offering Partner and the Responding Partner agree to abandon the purchase
and sale of Partnership Interests pursuant to such Offer or, if applicable, the
liquidation and dissolution of the Partnership as a result of any election made
by the Offering Partner pursuant to Section 10.3(a) or (B) the Offering Partner
or the Responding Partner elects pursuant to Section 10.8(a), Section 10.8(b),
or Section 10.8(c) to terminate the purchase and sale of Partnership Interests
pursuant to such Offer or pursuant to a subsequent election pursuant to Section
10.4(a) or Section 10.5(a)(1).
11.2 Public Offering and Registration Rights.
----------------------------------------
(a) Consummation of the Incorporation shall be conditioned on the
concurrent public offering and sale of equity securities in the Corporation on
such terms and conditions as FHGLP deems appropriate, with the approval of TCI,
which shall not be unreasonably withheld. If requested by FHGLP, as part of such
public offering, TCI shall execute all reasonably necessary documents in
connection therewith, as determined by FHGLP.
(b) In connection with the Incorporation and the consummation of the
public offering described in Section 11.2(a), the Corporation shall offer to
enter into a Registration
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Rights Agreement, substantially in the form of Exhibit II (as it may be amended
in accordance with this Agreement), with each of the Partners and each of the
partners of FHGLP, in their capacities as stockholders of the Corporation.
ARTICLE 12
OTHER BUSINESSES AND INVESTMENT OPPORTUNITIES
12.1 Exclusivity.
------------
(a) After the Closing and during the term of the Partnership, subject
to Section 12.2(a), TCI Communications, Inc. and TCI agree that, so long as TCI
or any Affiliate of TCI is a Partner, neither TCI nor any Controlled Affiliate
of TCI, and Falcon Holding Group, Inc. and FHGLP agree that, so long as FHGLP or
any Affiliate of FHGLP is a Partner, neither FHGLP nor any Controlled Affiliate
of FHGLP, will directly or indirectly participate in the construction,
ownership, operation, management, or financing of any Person that is engaged
within any of the geographic areas in which the Partnership, any Falcon Entity
(as defined in the Contribution Agreement), or any other Person controlled by
the Partnership or any Falcon Entity (as defined in the Contribution Agreement)
provides or is franchised to provide cable television service in the business
(the "Restricted Business") of offering multichannel video programming to
subscribers, other than programming offered by direct broadcast satellite or
telephony.
(b) During the term of the Partnership, subject to Section 12.2(a) and
Section 12.2(b), Falcon Holding Group, Inc. and FHGLP agree that neither FHGLP
nor any Controlled Affiliate of FHGLP will directly or indirectly acquire any
equity interest in any Person that is principally engaged within the United
States in the Restricted Business.
12.2 Exceptions.
-----------
(a) The provisions of Section 12.1 shall not apply to:
(1) the construction, ownership, operation, management, or
financing by a Partner or any of its Controlled Affiliates of any Restricted
Business disclosed on Schedule V;
(2) any action otherwise prohibited by Section 12.1 that, in the
case of action by TCI or any of its Controlled Affiliates, is consented to by
FHGLP, and, in the case of action by FHGLP or any of its Controlled Affiliates,
is approved by TCI;
(3) the construction, ownership, operation, management, or
financing of any Restricted Business, or the acquisition and ownership of any
equity interest in any Person engaged in the Restricted Business, by the
Partnership, any Subsidiary, or any other Person in which neither the applicable
Partner nor any of its Controlled Affiliates owns, directly or
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indirectly, any equity interest, other than as a result of its interest in the
Partnership or, in the case of Falcon Holding Group, Inc., as a result of its
interest as a general partner in the Investors Partnerships;
(4) the construction, ownership, operation, management, or
financing by any Person of any Restricted Business if the acquisition by FHGLP
or any Controlled Affiliate of FHGLP of an equity interest in the Person engaged
in such Restricted Business was permitted by Section 12.1(b) (after giving
effect to Section 12.2(b));
(5) the acquisition and ownership of a passive investment in units
of a diversified investment partnership or similar entity that represents less
than five percent of the outstanding units of such entity and does not give the
holder rights to participate in the operations of such entity;
(6) the acquisition and ownership of securities of any company
listed on a national securities exchange or quoted on the Nasdaq Stock Market
and which do not represent control of such company;
(7) the acquisition and ownership of an interest in a Person whose
business consists, directly or indirectly, primarily of (A) investments in
businesses conducted primarily outside the United States of America or (B) the
conduct of businesses conducted primarily outside the United States of America;
(8) the acquisition and ownership of an equity interest in any
Person engaged in the Restricted Business if the Restricted Business does not
constitute the principal activity, in terms of revenues or fair market value, of
the businesses conducted by the Person in which such interest is acquired; or
(9) the continued holding by a Partner or any of its Controlled
Affiliates of an equity interest in any Person that begins to engage in the
Restricted Business after the acquisition by such Partner or its Controlled
Affiliate of such equity interest if neither such Partner nor its Controlled
Affiliate has any responsibility or control over the conduct by such Person of
the Restricted Business and uses all commercially reasonable efforts, including
voting its equity interest, to cause such entity to cease engaging in the
Restricted Business.
(b) The provisions of Section 12.1(b) shall also not apply to the
acquisition and ownership by FHGLP or any Controlled Affiliate of FHGLP of any
equity interest in any Person engaged in the Restricted Business, if:
(1) FHGLP first offered to the Partnership the opportunity for the
Partnership or any Subsidiary to acquire such equity interest instead of FHGLP
or any Controlled Affiliate of FHGLP;
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(2) the acquisition of such equity interest by the Partnership or
any Subsidiary was not approved by TCI pursuant to Section 5.1(b)(2)(D);
(3) FHGLP or the Controlled Affiliate of FHGLP that acquires such
equity interest assigns to the Partnership, without further consideration, any
carried interest that is part of such equity interest; and
(4) at the time of the acquisition of such equity interest by
FHGLP or its Controlled Affiliate, the total number of subscribers of all
Restricted Businesses in which FHGLP and its Controlled Affiliates have acquired
and continue to hold equity interests pursuant to this Section 12.2(b) does not
exceed twenty-five percent of the total number of subscribers of the Partnership
and the Subsidiaries.
12.3 Clustering Opportunities.
-------------------------
If FHGLP, TCI, or any of their respective Controlled Affiliates acquires or
proposes to acquire in a single transaction multiple cable television systems
and some of those cable television systems (the "Cluster Systems") would present
greater opportunities for operational efficiencies through clustering if they
were operated by the Partnership and the Subsidiaries instead of by the
acquiring Partner and its Controlled Affiliates, then the acquiring Partner and
its Controlled Affiliates will:
(a) use commercially reasonable efforts (taking into account tax and
regulatory considerations) to permit the Partnership or any Subsidiary to
acquire the Cluster Systems either from the acquiring Partner or Controlled
Affiliate or from the Person from which the acquiring Partner or Controlled
Affiliate intends to acquire the multiple cable television systems that include
the Cluster Systems, in either case on substantially the same terms and
conditions as the proposed acquisition of the Cluster Systems by the acquiring
Partner or Controlled Affiliate; and
(b) if tax or regulatory considerations preclude the acquisition of the
Cluster Systems by the Partnership or any Subsidiary, use commercially
reasonable efforts to permit the Partnership or any Subsidiary to manage the
Cluster Systems on terms and conditions to be agreed upon.
12.4 Prohibited Cross-Interests.
---------------------------
(a) Each Partner agrees that, during the term of this Agreement,
neither such Partner nor any Affiliate of such Partner shall, directly or
indirectly, acquire any interest in any business or in any Person if the
acquisition of such interest would cause the Partnership or any Subsidiary to be
in violation of any Ownership Restriction.
(b) If, during the term of this Agreement, there is a Formal
Determination that either Partner's holding of a Partnership Interest causes the
Partnership or any Subsidiary to be
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in violation of any Ownership Restriction, then the following provisions of this
Section 12.4(b) shall apply. For purposes of this Section 12.4(b), a "Formal
Determination" means (i) an agreement between FHGLP and TCI, (ii) a written
determination by the FCC (including a determination by staff employees of the
FCC acting under delegated authority), regardless of whether such determination
is subject to administrative or judicial review, reconsideration, or appeal
(except to the extent that FHGLP and TCI agree that any such determination will
not constitute a Formal Determination during the pendency of any review,
reconsideration, or appeal), or (iii) a decision of any court of competent
jurisdiction, regardless of whether such decision is subject to administrative
or judicial review, reconsideration, or appeal (except to the extent that FHGLP
and TCI agree that any such decision will not constitute a Formal Determination
during the pendency of any review, reconsideration, or appeal). FHGLP and TCI
will use their respective good faith efforts, after consultation with legal
counsel, to reach an agreement as to whether either Partner's holding of a
Partnership Interest causes the Partnership or any Subsidiary to be in violation
of any Ownership Restriction.
(1) The Partnership will use reasonable efforts to obtain a stay
of any enforcement action by the FCC against the Partnership or any Subsidiary
as a result of any such violation of an Ownership Restriction, and the Partners
will cooperate reasonably with the Partnership in such efforts, to the extent
necessary to prevent such violation from having a material adverse effect on the
Partnership and the Subsidiaries before it is cured. For purposes of this
Section 12.4(b), a material adverse effect on the Partnership and the
Subsidiaries includes the loss of any license or licenses issued by the FCC
that, in the aggregate, are material to the conduct of the business of the
Partnership and the Subsidiaries, the imposition of any fines or forfeitures
that, in the aggregate, are material in amount, and limitations on the ability
of the Partnership or any Subsidiary to conduct its business in the ordinary
course consistent with its past practices.
(2) The Partnership and the Partners will cooperate reasonably
with each other and negotiate in good faith with the FCC to obtain a
determination by the FCC (including a determination by staff employees of the
FCC acting under delegated authority) that certain actions proposed to be taken
by a Partner or its Affiliates would cure any such violation of an Ownership
Restriction. The actions proposed to be taken by a Partner or its Affiliates to
cure such violation may be those that, in such Partner's judgment, are least
detrimental to such Partner and its Affiliates, and may include the divestiture
of any asset or the restructuring of any investment.
(3) If there is a Formal Determination that TCI's holding of a
Partnership Interest causes the Partnership or any Subsidiary to be in violation
of any Ownership Restriction, TCI agrees to take all actions necessary to cure
any such violation of an Ownership Restriction; PROVIDED, HOWEVER, that:
(A) if the Partnership and the Partners receive a
determination by the FCC (including a determination by staff employees of the
FCC acting under delegated
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authority) that certain actions proposed to be taken by TCI or its Affiliates
would cure such violation, then, if TCI and its Affiliates take such actions,
TCI shall not be required to take any other action under this Section 12.4(b) to
cure such violation until such time, if any, that there is a subsequent Formal
Determination that such actions did not cure such violation;
(B) TCI shall not be required to take any action to cure such
violation prior to the time that such violation would have a material adverse
effect on the Partnership and the Subsidiaries; and
(C) TCI shall not be required to take any action to cure any
violation that arose from any acquisition made by the Partnership or any
Subsidiary in violation of Section 12.4(c).
(4) The actions that TCI may be required to take pursuant to
Section 12.4(b)(3), subject to the limitations therein, shall include, to the
extent necessary to cure such violation, executing amendments to this Agreement
to convert the Partnership Interest of TCI to that of a Limited Partner or to
eliminate any right of TCI under this Agreement (other than its right to
allocations of income, its right to distributions, its rights under Section
5.1(b)(2)(C), and its right to approve any other action by the Partnership and
the Subsidiaries if such action (A) in the case of an action that does not
uniquely affect either Partner, such as an acquisition or disposition of assets
or a financing, would have a material adverse economic effect on TCI or (B) in
the case of an action that uniquely affects either Partner, such as a
transaction between the Partnership and an Affiliate of a Partner, would have an
adverse economic effect on TCI).
(5) If there is a Formal Determination that FHGLP's holding of a
Partnership Interest causes the Partnership or any Subsidiary to be in violation
of any Ownership Restriction, FHGLP will use its best efforts to cure any such
violation; PROVIDED, HOWEVER, that:
(A) if the Partnership and the Partners receive a
determination by the FCC (including a determination by staff employees of the
FCC acting under delegated authority) that certain actions proposed to be taken
by FHGLP or its Affiliates would cure such violation, then, if FHGLP and its
Affiliates take such actions, FHGLP shall not be required to take any other
action under this Section 12.4(b) to cure such violation until such time, if
any, that there is a subsequent Formal Determination that such actions did not
cure such violation;
(B) FHGLP shall not be required to take any action to cure
such violation prior to the time that such violation would have a material
adverse effect on the Partnership and the Subsidiaries; and
(C) FHGLP shall not be required by this Section 12.4(b)(5) to
convert the Partnership Interest of FHGLP to that of a Limited Partner or to
eliminate any right of FHGLP under this Agreement.
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(c) The Managing Partner will not permit the Partnership or any
Subsidiary to enter into a binding agreement to effect the acquisition, directly
or indirectly, of any interest in any business or in any Person if the Managing
Partner has actual knowledge that consummating the acquisition described in such
binding agreement would cause either Partner or any Affiliate of either Partner
to be in violation of any Ownership Restriction. If the Managing Partner desires
to cause or permit the Partnership or any Subsidiary to enter into a binding
agreement to effect the acquisition, directly or indirectly, of any interest in
any business or in any Person, the Managing Partner may send a written notice to
each Partner describing the proposed acquisition and specifically requesting
that each Partner notify the Managing Partner promptly if such proposed
acquisition would cause such Partner or any of its Affiliates to be in violation
of any Ownership Restriction. If the Managing Partner sends such a notice at
least thirty days before the Partnership or any Subsidiary enters into a binding
agreement to effect such an acquisition then (1) the Managing Partner shall be
conclusively presumed to have actual knowledge of any violation of an Ownership
Restriction by a Partner or any of its Affiliates that is described in a
response to the Managing Partner's notice that the Managing Partner receives
from such Partner before the Partnership or Subsidiary enters into a binding
agreement to effect such acquisition, and (2) the Managing Partner shall be
conclusively presumed not to have actual knowledge of any violation of an
Ownership Restriction by a Partner or any of its Affiliates that is not
described in a response to the Managing Partner's notice that the Managing
Partner receives from such Partner before the Partnership or Subsidiary enters
into a binding agreement to effect such acquisition. If the Managing Partner
does not send such a notice at least thirty days before the Partnership or any
Subsidiary enters into a binding agreement to effect such an acquisition, and
such acquisition causes either Partner or any Affiliate of either Partner to be
in violation of any Ownership Restriction as a result of circumstances existing
at the time that the Partnership or Subsidiary entered into a binding agreement
to effect such acquisition, the Managing Partner will cause the Partnership and
any Subsidiary to take all actions necessary to cure such violation and will
indemnify and hold harmless such Partner and its Affiliates for all losses,
costs, and expenses resulting from such violation.
12.5 No Other Restrictions.
----------------------
Except as specifically provided above in this Section 12, nothing in this
Agreement shall limit the ability of either Partner, or any partner, Affiliate,
Controlled Affiliate, agent, or representative of either Partner, to engage in
or possess an interest in other business ventures of any nature or description,
independently or with others, whether currently existing or hereafter created
and whether or not competitive with or advanced by the business of the
Partnership. Neither the Partnership nor the other Partner shall have any rights
in or to the income or profits derived therefrom, nor shall either Partner have
any obligation to the other Partner with respect to any such enterprise or
related transaction.
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12.6 Right of First Offer.
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(a) First Offer Generally. Except as provided in Section 12.6(b), the
sale or other disposition by the Partnership or any Subsidiary of any cable
television system shall be subject to this Section 12.6(a).
(1) If the Partnership or any Subsidiary proposes to sell any
cable television system or group of cable television systems, the Partnership
shall send a written notice to TCI identifying the cable television system or
group of cable television systems that the Partnership or such Subsidiary
proposes to sell. The notice shall describe all offers, letters of intent
(whether or not executed), expressions of interest, and other similar
communications prepared, delivered, received, or solicited by or on behalf of
the Partnership or such Subsidiary with respect to such systems.
(2) TCI shall have the right to offer to purchase the cable
television system or group of cable television systems that the Partnership or
such Subsidiary proposes to sell, on terms determined by TCI in its sole
discretion. If TCI submits an offer to purchase the cable television system or
group of cable television systems that the Partnership or such Subsidiary
proposes to sell, the Partnership or such Subsidiary shall have the right to
accept or reject such offer in its sole discretion.
(3) Neither the Partnership nor any Subsidiary shall sell or
otherwise dispose of any cable television system unless the Partnership
delivered a notice pursuant to Section 12.6(a)(1) with respect to such cable
television system or a group of cable television systems that included such
cable television system and:
(A) if TCI declined or otherwise failed to submit an offer
for such cable television system or group of cable television systems within
thirty Business Days after its receipt of the Partnership's notice pursuant to
Section 12.6(a)(1), the Partnership or such Subsidiary entered into a binding
agreement for the sale or other disposition of such cable television system or
group of cable television systems within 150 days after TCI's receipt of the
Partnership's notice pursuant to Section 12.6(a)(1) and consummated such sale or
other disposition under such binding agreement within nine months after such
binding agreement was entered into; or
(B) if TCI submitted an offer for such cable television
system or group of cable television systems within thirty Business Days after
its receipt of the Partnership's notice pursuant to Section 12.6(a)(1), the
Partnership or such Subsidiary entered into a binding agreement for the sale or
other disposition of such cable television system or group of cable television
systems within 150 days after TCI's receipt of the Partnership's notice pursuant
to Section 12.6(a)(1), the Partnership or such Subsidiary consummated such sale
or other disposition under such binding agreement within nine months after such
binding agreement was entered into, and the terms of such sale or other
disposition were more favorable to the Partnership, in the
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reasonable judgment of FHGLP, than the terms of the offer made by TCI pursuant
to Section 12.6(a)(2).
(b) Exceptions. The provisions of Section 12.6(a) shall not apply to:
(1) any sale or other disposition of any cable television system
upon the liquidation and dissolution of the Partnership in accordance with
Article 13 (including a liquidation following an election by the Offering
Partner pursuant to Section 10.3(a) or Section 10.5(a)(2));
(2) any sale or other disposition of any cable television system
by the Partnership to any Subsidiary or by any Subsidiary to the Partnership or
to any other Subsidiary; or
(3) any sale or other disposition of any cable television system
approved by TCI pursuant to Section 5.1(b)(2)(B) or otherwise.
ARTICLE 13
DISSOLUTION AND LIQUIDATION OF PARTNERSHIP
13.1 Events of Dissolution.
----------------------
The Partnership shall be dissolved upon the happening of any of the
following events:
(a) the failure of the Partners to continue the Partnership in
accordance with the provisions of Section 8.1 after the withdrawal of the
Managing Partner;
(b) the expiration of the term of the Partnership as set forth in
Section 2.5;
(c) an election to liquidate and dissolve the Partnership made by the
Offering Partner pursuant to Section 10.3(a) or Section 10.5(a)(2);
(d) the sale, exchange, involuntary conversion, or other disposition or
transfer of all or substantially all of the assets of the Partnership;
(e) subject to any restriction in any agreement to which the
Partnership is a party, an election to liquidate and dissolve the Partnership
made by FHGLP with the approval of TCI;
(f) an election to liquidate and dissolve the Partnership made by TCI
if Marc B. Nathanson (or any successor approved by TCI pursuant to this
paragraph) ceases to be active in the business of the Partnership on a regular
and consistent basis (such as by reason of his death
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or disability) and a successor chief executive officer of the Partnership shall
not have been designated by the Managing Partner and approved by TCI within nine
months after the date on which Marc B. Nathanson (or any successor) ceases to be
active in the business of the Partnership; for purposes of this Section 13.1(f):
(1) Marc B. Nathanson (or any successor) shall not be considered
to have ceased to be active in the business of the Partnership on a regular and
consistent basis solely as a result of (A) normal and customary vacations, (B)
leave not exceeding sixty consecutive days during which he remains in regular
and consistent contact with the Partnership's other senior management, (C) his
failure to spend his time exclusively on the business of the Partnership, or (D)
the exercise by Marc B. Nathanson of reasonable business judgment in choosing
how to perform his duties on behalf of the Partnership); and
(2) Marc B. Nathanson (or any successor) shall not be considered
as being under a disability until such time as either (A) two physicians, one of
whom shall be selected by the Managing Partner and the other of whom shall be
selected by TCI or (B) a third physician selected jointly by the two physicians
described in clause (A) shall have certified that he suffers from a permanent
physical condition that prevents the performance of his duties on behalf of the
Partnership on a regular and consistent basis.
(g) the termination of the Contribution Agreement in accordance with
its terms prior to the Closing; or
(h) subject to any provision of this Agreement that limits or prevents
dissolution, the happening of any event that, under applicable law, causes the
dissolution of a limited partnership.
13.2 Liquidation.
------------
(a) Upon dissolution of the Partnership for any reason, the Partnership
shall immediately commence to wind up its affairs. A reasonable period of time
shall be allowed for the orderly termination of the Partnership business,
discharge of its liabilities, and distribution or liquidation of the remaining
assets so as to enable the Partnership to minimize the normal losses attendant
to the liquidation process.
(b) Liquidation of the assets of the Partnership shall be managed on
behalf of the Partnership by the "Liquidator," which shall be (1) if the
Partnership is being liquidated pursuant to Section 13.1(c), the Offering
Partner and (2) in all other events, either (A) the Managing Partner or (B) if
the Managing Partner has withdrawn (as described in Section 8.1), a liquidating
trustee selected by TCI. The Liquidator shall be responsible for soliciting
offers to purchase the entirety of the Partnership's assets (including equity
interests in other Persons) or portions or clusters of assets of the
Partnership. Notwithstanding any provision of this Agreement to the contrary, if
a Person other than the Managing Partner is the Liquidator, no approval or
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other action by the Managing Partner shall be required in connection with the
consummation of any liquidating sale of all or any part of the assets of the
Partnership that has been approved by the Liquidator consistent with its
obligations under this Agreement and the Act. The Liquidator shall afford each
Partner an opportunity to offer to purchase any assets of the Partnership that
are offered for sale in connection with the liquidation of the Partnership to
the extent doing so would be consistent with the orderly liquidation of the
Partnership.
(c) The Liquidator shall cause a full accounting of the assets and
liabilities of the Partnership to be taken and a statement thereof to be
furnished to each Partner within thirty days after the distribution of all of
the assets of the Partnership.
(d) The property and assets of the Partnership and the proceeds from
the liquidation thereof shall be applied in the following order of priority:
(1) first, to payment of the debts and liabilities of the
Partnership, in the order of priority provided by law (including any loans by
either Partner to the Partnership) and payment of the expenses of liquidation;
(2) second, to setting up of such reserves as the Liquidator may
deem reasonably necessary for any contingent or unforeseen liabilities or
obligations of the Partnership or any obligation or liability not then due and
payable; provided, however, that any such reserve shall be paid over by the
Liquidator to an escrow agent, to be held by such escrow agent for the purpose
of disbursing such reserves in payment of such liabilities, and, at the
expiration of such escrow period as the Liquidator shall deem advisable, to
distribute the balance thereafter remaining in the manner hereinafter provided;
and
(3) finally, to payment to the Partners, in accordance with
Section 4.1(b). The distributions pursuant to this Section 13.2(d)(3) shall, to
the extent possible, be made prior to the later of the end of the Fiscal Year in
which the dissolution occurs or the ninetieth day after the date of dissolution,
or such other time period which may be permitted under Treasury Regulations
Section 1.704-1(b)(2)(ii)(b).
(e) If in the course of the liquidation and dissolution of the
Partnership pursuant to this Article 13, the Liquidator determines that a sale
by all the Partners to any Person of their Partnership Interests, instead of a
sale by the Partnership and the Subsidiaries of their respective assets, would
more efficiently effect the liquidation of the Partners' economic interests in
the Partnership or would reduce negative tax consequences to the Partners and
the Partnership, but would not adversely affect the rights and obligations of
either Partner (including the tax consequences to either Partner), then each
Partner agrees to sell its Partnership Interest to such Person, and the
Liquidator shall have the authority, pursuant to the power of attorney granted
in Section 18.5(b), to execute, acknowledge, deliver, swear to, file, and record
all agreements, instruments, and other documents that may be necessary or
appropriate to effect the sale of such Partner's Partnership Interest.
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(f) Following the dissolution of the Partnership pursuant to Section
13.1, the Partners will use commercially reasonable efforts to structure the
liquidation of the Partnership in a manner that minimizes negative tax
consequences to the Partners and the Partnership to the extent doing so would
not materially adversely affect either Partner (except to the extent such
Partner is adequately compensated by the other Partner for such adverse effect).
Any structure agreed to by the Partners pursuant to this Section 13.2(f) shall
supersede the other provisions of this Article 13 to the extent it is
inconsistent with such other provisions, but nothing in this Section 13.2(f)
shall modify or otherwise affect the other provisions of this Article 13 if the
Partners are unable to agree on such a structure.
13.3 Special Provisions Regarding Liquidation by Offering Partner.
-------------------------------------------------------------
If the Partnership is being liquidated pursuant to Section 13.1(c) as the
result of an election by the Offering Partner pursuant to Section 10.3(a), then:
(a) Solicitation of Offers. The Offering Partner, as Liquidator, shall
solicit offers (each, a "Liquidating Sale Offer") to purchase, singly or in
combination, each Business Asset owned by the Partnership and each Subsidiary or
equity interests in the Persons owning each such Business Asset.
(b) Appraisal.
(1) If the Offering Partner, as Liquidator, does not receive or
does not expect to receive a Liquidating Sale Offer with respect to any Business
Asset or equity interests in the Persons owning any such Business Asset, or if
the Liquidation Value of such Business Asset (as determined under Section
13.3(b)(2) without regard to clause (B) thereof, based on the most favorable
Liquidating Sale Offer that the Offering Partner receives or expects to receive
for such Business Asset) is less than eighty-five percent of the Target Price
for such Business Asset, then the Offering Partner may elect to require that the
fair market value of the assets of such Business Asset be determined by
appraisal in accordance with this Section 13.3(b)(1). An appraisal pursuant to
this Section 13.3(b)(1) shall be conducted by an appraiser agreed to by the
Offering Partner and the Responding Partner, who shall be nationally recognized
as being qualified and experienced in the appraisal of the assets to be
appraised and shall not be an Affiliate of either Partner. Any appraiser
retained pursuant to this Section 13.3(b)(1) shall be instructed to complete its
appraisal within thirty days after it was retained. The fees and expenses of any
appraiser retained pursuant to this Section 13.3(b)(1) shall be borne by the
Partnership. In determining the fair market value of any Business Asset, the
appraiser shall:
(A) assume that the fair market value of such Business Asset
is the price at which such Business Asset (as a going concern, if applicable)
would change hands between a willing buyer and a willing seller, neither being
under any compulsion to buy or sell and each having reasonable knowledge of all
relevant facts;
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(B) assume a sale of such Business Asset for cash; and
(C) use valuation techniques then prevailing in the
applicable industry.
(2) As used in this Agreement, "Liquidation Value" means, with
respect to each Business Asset, the greater of (A) the amount of the most
favorable Liquidating Sale Offer for such Business Asset (provided that, if the
most favorable Liquidating Sale Offer with respect to any Business Asset is an
offer to purchase equity interests in the Persons owning such Business Asset or
an offer to deliver consideration that would allow the Partners to defer or
avoid any tax liability resulting from the disposition of such Business Asset,
the Liquidation Value shall equal the amount of cash consideration for the
assets of such Business Asset that would, upon liquidation of the Partnership
and the Subsidiaries, generate equivalent after-tax proceeds to the Partners as
such Liquidating Sale Offer) or (B) the fair market value of the Business Asset
as determined by an appraisal in accordance with this Section 13.3(b)(1).
(c) Restriction on Sales. If the aggregate Liquidation Value for all
the assets of the Partnership and each Subsidiary is less than the aggregate
Target Prices for all the assets of the Partnership and each Subsidiary, than
neither the Partnership nor any of the Subsidiaries will sell any assets
pursuant to any Liquidating Sale Offer unless the Offering Partner shall have
delivered to the Responding Partner the notice required by Section 10.4(a) and
the Responding Partner shall have failed to make an election pursuant to Section
10.4(a) within ten Business Days after its receipt of the Offering Partner's
notice.
13.4 Distribution in Kind.
---------------------
Except as provided in Section 9.13(a), the Partnership shall not distribute
any non-cash asset to either Partner without the consent of FHGLP and the
approval of TCI. Any asset distributed in kind to one or more Partners shall
first be valued at its fair market value to determine the gain or loss used in
determining Net Profit or Net Loss that would have resulted if such asset were
sold for such value, such gain or loss shall then be allocated pursuant to
Article 4, and the Partners' Capital Accounts shall be adjusted to reflect such
gain or loss. The amount distributed and charged to the Capital Account of each
Partner receiving an interest in such distributed asset shall be the fair market
value of such interest (net of any liability secured by such asset that such
Partner assumes or takes subject to). The fair market value of any asset
distributed in kind in connection with the liquidation of the Partnership shall
be determined by an independent appraiser (any such appraiser must be nationally
recognized as an expert in valuing the type of asset involved) selected by the
Liquidator.
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13.5 No Action for Dissolution.
--------------------------
The Partners acknowledge that irreparable damage would be done to the
goodwill and reputation of the Partnership if either Partner should bring an
action in court to dissolve the Partnership under circumstances where
dissolution is not required by Section 13.1. This Agreement has been drawn
carefully to provide fair treatment of all parties and equitable payment in
liquidation of the Partnership Interests of both Partners. Accordingly, except
where the Managing Partner has failed to liquidate and dissolve the Partnership
to the extent required by Section 13.1, each Partner hereby waives and renounces
its right to initiate legal action to seek dissolution or to seek the
appointment of a receiver or trustee to liquidate the Partnership.
13.6 No Further Claim.
-----------------
Upon dissolution, each Limited Partner shall look solely to the assets of
the Partnership for the return of its investment, and if the property of the
Partnership remaining after payment or discharge of the debts and liabilities of
the Partnership, including debts and liabilities owed to one or more of the
Partners, is insufficient to return the aggregate capital contributions of a
Limited Partner, such Limited Partner shall have no recourse against any other
Partner.
ARTICLE 14
INDEMNIFICATION
14.1 General.
--------
The Partnership shall indemnify, defend, and hold harmless the Managing
Partner, the Managing Partner's officers, directors, shareholders, employees,
and agents, the employees, officers, and agents of the Partnership, the members
of the Advisory Committee, and either Partner that has designated a member of
the Advisory Committee (but only to the extent such Partner suffers any
liability, loss, or damage as a result of the actions of such member of the
Advisory Committee) (all indemnified persons being referred to as "Indemnified
Persons" for purposes of this Article 14), from any liability, loss, or damage
incurred by the Indemnified Person by reason of any act performed or omitted to
be performed by the Indemnified Person in connection with the business of the
Partnership, including costs and attorneys' fees (which attorneys' fees may be
paid as incurred) and any amounts expended in the settlement of any claims of
liability, loss, or damage; PROVIDED, HOWEVER, that, if the liability, loss,
damage, or claim arises out of any action or inaction of an Indemnified Person,
indemnification under this Section 14.1 shall be available only if (a) either
(i) the Indemnified Person, at the time of such action or inaction, determined,
in good faith, that its or his course of conduct was in, or not opposed to, the
best interests of the Partnership, or (ii) in the case of inaction by the
Indemnified Person, the Indemnified Person did not intend its or his inaction to
be harmful or opposed to the best interests of the Partnership, and (b) the
action or inaction did not constitute fraud, gross negligence, breach of
fiduciary duty (which shall not be construed to encompass mistakes in judgment
or any breach
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of any Indemnified Person's duty of care that did not constitute gross
negligence), or willful misconduct by the Indemnified Person; and PROVIDED,
FURTHER, however, that indemnification under this Section 14.1 shall be
recoverable only from the assets of the Partnership and not from any assets of
the Partners. The Partnership may pay for insurance covering liability of the
Indemnified Persons for negligence in operation of the Partnership's affairs.
14.2 Exculpation.
------------
No Indemnified Person shall be liable, in damages or otherwise, to the
Partnership or to either Partner for any loss that arises out of any act
performed or omitted to be performed by it or him pursuant to the authority
granted by this Agreement if (a) either (i) the Indemnified Person, at the time
of such action or inaction, determined, in good faith, that its or his course of
conduct was in, or not opposed to, the best interests of the Partnership, or
(ii) in the case of inaction by the Indemnified Person, the Indemnified Person
did not intend its or his inaction to be harmful or opposed to the best
interests of the Partnership, and (b) the conduct of the Indemnified Person did
not constitute fraud, gross negligence, breach of fiduciary duty (which shall
not be construed to encompass mistakes in judgment or any breach of any
Indemnified Person's duty of care that did not constitute gross negligence), or
willful misconduct by such Indemnified Person.
14.3 Persons Entitled to Indemnity.
------------------------------
Any Person who is within the definition of "Indemnified Person" at the time
of any action or inaction in connection with the business of the Partnership
shall be entitled to the benefits of this Article 14 as an "Indemnified Person"
with respect thereto, regardless of whether such Person continues to be within
the definition of "Indemnified Person" at the time of his or its claim for
indemnification or exculpation hereunder.
14.4 Procedure Agreements.
---------------------
The Partnership shall enter into agreements with the officers of Falcon
Holding Group, Inc. setting forth procedures for implementing the indemnities
provided in this Article 14 that are substantially identical to the agreements
in effect between those officers and FHGLP on the date of this Agreement. The
Partnership may enter into additional agreements with any of its employees,
officers, and agents, any of the officers, directors, shareholders, employees,
and agents of Falcon Holding Group, Inc., and any member of the Advisory
Committee, setting forth procedures for implementing the indemnities provided in
this Article 14.
ARTICLE 15
BOOKS, RECORDS, ACCOUNTING, AND REPORTS
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15.1 Books and Records.
------------------
The Partnership shall maintain at its principal office all of the following:
(a) A current list of the full name and last known business or
residence address of each Partner together with the Capital Contributions and
Partnership Interest of each Partner;
(b) A copy of the Certificate, this Agreement, and any and all
amendments to either thereof, together with executed copies of any powers of
attorney pursuant to which any certificate or amendment has been executed;
(c) Copies of the Partnership's federal, state, and local income tax or
information returns and reports, if any, for the six most recent taxable years;
(d) The audited financial statements of the Partnership for the six
most recent Fiscal Years; and
(e) The Partnership's books and records for at least the current and
past three Fiscal Years.
15.2 Delivery to Partner and Inspection.
-----------------------------------
(a) Upon the request of a Partner, the Managing Partner shall promptly
deliver to the requesting Partner, at the expense of the Partnership, a copy of
the information required to be maintained by Section 15.1 except for Section
15.1(e).
(b) Each Partner, or its duly authorized representative, has the right,
upon reasonable request, to inspect and copy during normal business hours any of
the Partnership records.
15.3 Annual Statements.
------------------
(a) The Managing Partner shall cause to be prepared for each Partner at
least annually, at Partnership expense, audited financial statements of the
Partnership and a consolidated audited financial statement for the Partnership
and the Subsidiaries (other than any Subsidiary the financial statements of
which cannot, under generally accepted accounting principles, be consolidated
with the financial statements of the Partnership), along with supplemental
information for the Partnership and each Subsidiary included in the consolidated
financial statements, all prepared in accordance with generally accepted
accounting principles and accompanied by a report thereon containing the opinion
of Ernst & Young LLP or other nationally recognized accounting firm chosen by
the Managing Partner. The financial statements will include a balance sheet,
statement of income or loss, statement of cash flows, and statement of Partners'
equity. The supplemental information will consist of a consolidating balance
sheet and
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a consolidating statement of operations and Partners' equity for the preceding
Fiscal Year. The Managing Partner shall distribute the financial statements or
portions thereof to each Partner as follows:
(1) the Managing Partner shall distribute to each Partner a
statement setting forth the net income or loss of the Partnership for each
Fiscal Year within forty-five days after the close of such Fiscal Year;
(2) the Managing Partner shall distribute to each Partner the
balance sheet, statement of income or loss, statement of cash flows, and
statement of Partners' equity to be included in the financial statements for
each Fiscal Year within sixty days after the close of such Fiscal Year;
(3) the Managing Partner shall distribute to each Partner a
preliminary draft of the complete financial statements for each Fiscal Year
within seventy-five days after the close of such Fiscal Year; and
(4) the Managing Partner shall distribute to each Partner the
complete financial statements for each Fiscal Year as soon as practicable after
the close of such Fiscal Year and, in any event, within ninety days after the
close of such Fiscal Year.
(b) The Managing Partner shall have prepared at least annually, at
Partnership expense, Partnership information necessary for the preparation of
each Partner's federal and state income tax returns. The Managing Partner shall
send the information described in this paragraph to each Partner within
seventy-five days after the end of each Fiscal Year and shall use commercially
reasonable efforts to send such information to each Partner within sixty-five
days after the end of each Fiscal Year.
(c) The Managing Partner shall also cause to be distributed to each
Partner operating and capital expenditure budgets for the Partnership and for
each Subsidiary for which the Partnership prepares such budgets and consolidated
operating and capital expenditure budgets for the Partnership and all
Subsidiaries for which the Partnership prepares such budgets. The Managing
Partner shall cause such budgets to be distributed to each Partner as soon as
practicable after they are prepared and, in any event, on or before February 15
of the year to which they relate.
(d) The Managing Partner shall also cause to be distributed to each
Partner, within ten days after delivery to the Managing Partner, any audited
financial statements that are prepared with respect to any Subsidiary the
financial statements of which are not consolidated with the financial statements
of the Partnership.
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(e) The Managing Partner shall distribute to each Partner, promptly
after they become available, copies of the Partnership's federal, state, and
local income tax or information returns for each taxable year.
15.4 Quarterly Financial Statements.
-------------------------------
At the close of each of the first three quarters of any Fiscal Year, the
Managing Partner shall cause to be distributed to each Partner a quarterly
report covering each calendar quarter of the operations of the Partnership and
each Subsidiary, consisting of unaudited financial statements (comprising a
balance sheet, a statement of income or loss, and a statement of cash flows),
and a statement of other pertinent information regarding the Partnership and
each such Subsidiary and their activities. The Managing Partner shall cause
copies of the statements and other pertinent information (including a summarized
statement of operations data of the Partnership that complies with the
requirements of APB Opinion No. 18 and Rule 4-08(g) of Regulation S-X under the
Securities Act) to be distributed to each Partner within thirty days after the
close of the calendar quarter to which the statements relate. The Managing
Partner shall distribute to each Partner (a) a preliminary draft of a statement
setting forth the net income or loss of the Partnership for each calendar
quarter within twenty-one days after the close of such calendar quarter, and (b)
a final statement setting forth the net income or loss of the Partnership for
each calendar quarter within thirty days after the close of such calendar
quarter. The Managing Partner shall also cause to be distributed to each
Partner, within ten days after delivery to the Managing Partner, any quarterly
report that is prepared with respect to any Subsidiary the operating results of
which are not included in the quarterly report of the Partnership.
15.5 Monthly Statements.
-------------------
The Managing Partner shall cause to be distributed to each Partner a monthly
report covering each calendar month of the operations of the Partnership and
each Subsidiary, consisting of unaudited statements of income and loss for the
Partnership and each cable television system or other business owned by the
Existing Entities (or regional group thereof), with comparisons to the
applicable budgets prepared by the Partnership. The Managing Partner shall cause
copies of the statements to be distributed to each Partner within thirty days
after the close of the calendar month covered by such report. The Managing
Partner shall also cause to be distributed to each Partner, within ten days
after delivery to the Managing Partner, any monthly report that is prepared with
respect to any Subsidiary the operating results of which are not included in the
monthly report of the Partnership.
15.6 Other Information.
------------------
The Managing Partner shall provide to each Partner any other information and
reports relating to any cable television systems or other businesses owned by,
and the financial condition of, the Partnership, the Existing Entities, any
other Subsidiary, or any other Person in which the Partnership owns, directly or
indirectly, a partnership or other equity interest, the Partner may
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reasonably request. The Managing Partner shall distribute to each Partner,
promptly after the preparation or receipt thereof by the Managing Partner, any
financial or other information with respect to any Person in which the
Partnership owns, directly or indirectly, a partnership or other equity
interest, but which is not a Subsidiary, that is (a) regularly prepared by any
Person controlled by the Managing Partner for distribution to the partners or
other investors in such Person, or (b) received by the Partnership or any
Subsidiary with respect to any equity interest of the Partnership or any
Subsidiary in such Person.
15.7 Filings.
--------
The Managing Partner, at Partnership expense, shall cause the income tax
returns for the Partnership to be prepared and timely filed with the appropriate
authorities. The Managing Partner shall send to each Partner a draft of the
Partnership's annual federal income tax return at least thirty days before the
filing of such return with the Internal Revenue Service. The Managing Partner,
at Partnership expense, shall also cause to be prepared and timely filed, with
appropriate federal and state regulatory and administrative bodies, all reports
required to be filed by the Partnership with those entities under then current
applicable laws, rules, and regulations. The reports shall be prepared on the
accounting or reporting basis required by the regulatory bodies. Upon written
request, each Partner shall be provided with a copy of any of the reports
without expense to the requesting Partner.
15.8 Non-Disclosure.
---------------
Each Partner agrees that, except as otherwise consented to by the Managing
Partner, all non-public information furnished to it or to which it has access
pursuant to this Agreement (including information relating to any dispute or the
resolution thereof pursuant to Section 18.6) will be kept confidential and will
not be disclosed by such Partner, or by any of its agents, representatives, or
employees, in any manner whatsoever, in whole or in part, except that:
(a) each Partner shall be permitted to disclose such information to
those of its agents, representatives, and employees who need to be familiar with
such information in connection with such Partner's investment in the
Partnership,
(b) each Partner shall be permitted to disclose such information to its
Affiliates,
(c) each Partner shall be permitted to disclose information to the
extent required by law, including federal or state securities laws or
regulations, or by the rules and regulations of any stock exchange or
association on which securities of such Partner or any of its Affiliates are
traded, so long as such Partner shall have first afforded the Partnership with a
reasonable opportunity to contest the necessity of disclosing such information,
(d) each Partner shall be permitted to disclose information to the
extent necessary for the enforcement of any right of such Partner arising under
this Agreement,
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(e) each Partner shall be permitted to disclose information to a
permitted Assignee or potential Assignee, so long as (1) such Partner shall
first have provided to the Managing Partner written notice thereof and of the
identity of the Person to whom the disclosure is to be made and (2) such Person
agrees (in a writing which provides the Partnership with an independent right of
enforcement) to be bound by the provisions of this Section 15.8,
(f) each Partner shall be permitted to disclose information that is or
becomes generally available to the public other than as a result of a disclosure
by such Partner, its agents, representatives, or employees, and
(g) each Partner shall be permitted to disclose information that
becomes available to such Partner on a nonconfidential basis from a source
(other than the Partnership, any other Partner, or their respective agents,
representatives, and employees) that, to the best of such Partner's knowledge,
is not prohibited from disclosing such information to such Partner by a legal,
contractual, or fiduciary obligation to the Partnership or any other Partner.
ARTICLE 16
REPRESENTATIONS BY TCI
TCI hereby represents and warrants to, and agrees with, FHGLP and the
Partnership as follows:
16.1 Investment Intent.
------------------
It is acquiring its Partnership Interest with the intent of holding the same
for investment for its own account and without the intent or a view to
participating directly or indirectly in, or for resale in connection with, any
distribution of such Partnership Interest within the meaning of the Securities
Act or any applicable state securities laws, and it does not intend to divide
its participation with others, nor to resell, assign, or otherwise dispose of
all or any part of its Partnership Interest. In making such representation, TCI
acknowledges that a purchase now with an intent to resell by reason of any
foreseeable specific contingency, some predetermined event, or an anticipated
change in market value or in the condition of the Partnership would represent a
purchase with an intent inconsistent with the foregoing representation.
16.2 Securities Regulation.
----------------------
(a) It acknowledges and agrees that the Partnership Interest is being
issued and sold in reliance on the exemption from registration contained in
Section 4(2) of the Securities Act and exemptions contained in applicable state
securities laws, and that it cannot and will not be sold or transferred except
in a transaction that is exempt under the Securities Act and those state acts
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or pursuant to an effective registration statement under those acts or in a
transaction that is otherwise in compliance with the Securities Act and those
state acts.
(b) It understands that it has no contract right for the registration
under the Securities Act of the Partnership Interest for public sale and that,
unless such Partnership Interest is registered or an exemption from registration
is available, such Partnership Interest may be required to be held indefinitely.
16.3 Knowledge and Experience.
-------------------------
It has such knowledge and experience in financial, tax, and business matters
as to enable it to evaluate the merits and risks of its investment in the
Partnership and to make an informed investment decision with respect thereto.
16.4 Economic Risk.
--------------
It is able to bear the economic risk of an investment in its Partnership
Interest.
16.5 Binding Agreement.
------------------
This Agreement is and will remain its valid and binding agreement,
enforceable in accordance with its terms (subject, as to the enforcement of
remedies, to any applicable bankruptcy, insolvency, or other laws affecting the
enforcement of creditor's rights).
16.6 Tax Position.
-------------
Unless it provides prior written notice to the Partnership, it will not take
a position on its federal income tax return, on any claim for refund, or in any
administrative or legal proceedings that is inconsistent with any information
return filed by the Partnership or with the provisions of this Agreement.
16.7 Information.
------------
It has received all documents, books, and records pertaining to an
investment in the Partnership requested by it. It has had a reasonable
opportunity to ask questions of and receive answers from FHGLP concerning the
Partnership, and all such questions have been answered to its satisfaction.
ARTICLE 17
AMENDMENTS AND WAIVERS
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17.1 Amendments to Partnership Agreement.
------------------------------------
(a) This Agreement may only be modified or amended by the Managing
Partner with the approval of TCI, except that this Agreement may be amended from
time to time by the Managing Partner without the consent or approval of TCI:
(1) to reflect the rights and obligations of any Person admitted
as a Partner upon the issuance of Partnership Interests pursuant to Section 7.5
and any change in the rights and obligations of any existing Partner upon the
issuance to any Person (including any existing Partner) of Partnership Interests
pursuant to Section 7.5,
(2) to change the Partnership's principal office or other place of
business,
(3) to change the Partnership's method of allocating income and
loss for tax purposes to the extent required by new or changed Treasury
Regulations, Internal Revenue Service announcements or rulings, or final court
decisions if such change is not adverse to the interests of TCI;
(4) to add to the representations, duties, or obligations of the
Managing Partner or surrender any right or power granted to the Managing Partner
for the benefit of TCI, so long as such change would not require TCI to
consolidate the Partnership for financial reporting purposes; or
(5) to cause to be deleted from this Agreement any provision or
part of any provision that is found by a court of competent jurisdiction to be
invalid or unenforceable in any respect, which provision may be deleted from
this Agreement by the Managing Partner to the extent of such invalidity or
unenforceability without in any way affecting the remaining parts of such
provision or the remaining provisions of this Agreement.
(b) TCI may elect at any time to cause this Agreement to be amended to
convert the Partnership Interest of TCI to that of a Limited Partner and to
eliminate any right of TCI under this Agreement.
(c) The Managing Partner shall cause to be prepared and filed any
amendment to the Certificate that may be required to be filed under the Act as a
consequence of any amendment to this Agreement.
(d) The Managing Partner will give prompt notice to TCI of any
modification or amendment to this Agreement pursuant to this Section 17.1.
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17.2 Waivers.
--------
The observance or performance of any term or provision of this Agreement may
be waived (either generally or in a particular instance, and either
retroactively or prospectively) by the party entitled to the benefits of such
term or provision.
17.3 Amendments to Other Partnership Agreements.
-------------------------------------------
The partnership agreements or charter documents of each of the Investors
Partnerships and each of the Existing Entities may be modified or amended from
time to time by Falcon Holding Group, Inc., acting as or on behalf of a partner
or shareholder of any of such entities, only with the approval of TCI; PROVIDED,
HOWEVER, that such agreements may be amended from time to time without the
consent or approval of TCI, (a) as contemplated by the Contribution Agreement,
(b) to reflect any change in any such partnership's principal office or other
place of business, or (c) to reflect a change to any such partnership's method
of allocating income and loss for tax purposes to the extent required by new or
changed Treasury Regulations, Internal Revenue Service announcements or rulings,
or final court decisions, if such change is not materially adverse to the
interests of TCI.
ARTICLE 18
MISCELLANEOUS
18.1 Additional Documents.
---------------------
At any time and from time to time after the date of this Agreement, upon the
request of the Managing Partner, each Partner shall do and perform, or cause to
be done and performed, all such additional acts and deeds, and shall execute,
acknowledge, and deliver, or cause to be executed, acknowledged, and delivered,
all such additional instruments and documents, as may be required to best
effectuate the purposes and intent of this Agreement.
18.2 Inspection.
-----------
Each Partner shall have the right at reasonable times to inspect the books
and records of the Partnership.
18.3 General.
--------
This Agreement: (a) shall be binding on the executors, administrators,
estates, heirs, and legal successors of the Partners; (b) be governed by and
construed in accordance with the laws of the State of California, without regard
to conflicts of law principles thereunder, and the United States Arbitration
Act, to the extent provided in Section 18.6; (c) may be executed in more than
one counterpart as of the day and year first above written; and (d) contains the
entire contract
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between the Partners as to the subject matter of this Agreement. The waiver of
any of the provisions, terms, or conditions contained in this Agreement shall
not be considered as a waiver of any of the other provisions, terms, or
conditions of this Agreement.
18.4 Notices, Etc.
-------------
All notices and other communications required or permitted hereunder shall
be in writing and shall be deemed effectively given upon personal delivery,
confirmation of telex or telecopy, or receipt (which may be evidenced by a
return receipt if sent by registered mail), addressed (a) if to either Partner,
at the address of such Partner set forth on Schedule I or at such other address
as such Partner shall have furnished to the Partnership in writing, (b) if to
the Partnership, at 10900 Wilshire Blvd., 15th Floor, Los Angeles, California
90024.
18.5 Execution of Papers.
--------------------
(a) The Partners agree to execute such instruments, documents, and
papers as the Managing Partner deems necessary or appropriate to carry out the
intent of this Agreement.
(b) Each Partner, including each additional and substituted Partner, by
the execution of this Agreement, irrevocably constitutes and appoints the
Liquidator its true and lawful attorney-in-fact with full power and authority in
its name, place, and stead to execute, acknowledge, deliver, swear to, file, and
record all agreements, instruments, and other documents that may be necessary or
appropriate to effect the sale of such Partner's Partnership Interest pursuant
to Section 13.2(e).
(c) The power of attorney granted pursuant to Section 18.5(b) shall be
deemed to be a power coupled with an interest, in recognition of the fact that
each of the Partners under this Agreement will be relying upon the power of the
Liquidator to act as contemplated by this Agreement in any filing and other
action by it on behalf of the Partnership, and shall survive the bankruptcy,
death, adjudication of incompetence or insanity, or dissolution of any Person
hereby giving such powers and the transfer or assignment of all or any part of
such Person's Partnership Interest; PROVIDED, HOWEVER, that in the event of an
assignment by a Partner, the powers of attorney given by the assignor shall
survive such assignment only until such time as the Assignee shall have been
admitted to the Partnership as a substituted Partner and all required documents
and instruments shall have been duly executed, filed, and recorded to effect
such substitution.
(d) Each Partner agrees to be bound by any actions taken by the
Liquidator acting in good faith pursuant to the power of attorney granted
pursuant to Section 18.5(b) that are consistent with and subject to the
provisions of this Agreement and hereby waives any and all defenses that may be
available to contest, negate, or disaffirm any action of the Liquidator taken in
good faith under the power of attorney granted pursuant to Section 18.5(b) that
are consistent with and subject to the provisions of this Agreement.
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18.6 Disputed Matters.
-----------------
(a) Generally. If a dispute arises out of or relates to this Agreement
or any alleged breach thereof, the Partners will attempt in good faith to
resolve such dispute through negotiation. Either Partner may initiate
negotiations by providing written notice in letter form to the other Partner
setting forth in general terms the subject of the dispute. Representatives of
each Partner with full settlement authority shall meet at a mutually agreeable
time and place within thirty days of the date of the initial notice in order to
attempt to resolve the dispute. If the dispute is not resolved at this meeting,
the parties can agree to schedule one or more additional meetings to attempt to
resolve the dispute or either party can elect, by written notice to the other
party, to require that the dispute be submitted for mediation as set forth
below.
(b) Mediation. If a dispute arises out of or relates to this Agreement
or any alleged breach thereof and if the dispute is not settled through
negotiation as described in Section 18.6(a), the Partners agree to submit the
dispute for mediation administered by the American Arbitration Association (or
any organization successor thereto) ("AAA") under its Commercial Mediation Rules
before resorting to arbitration. Either Partner may initiate mediation pursuant
to Rule 2 of the AAA's Commercial Mediation Rules. The Partners will cooperate
with the AAA and with one another in the appointment of a mediator and in
scheduling the mediation proceedings. Unless otherwise agreed by the Partners,
the first mediation session shall be held no later than thirty days after the
date of filing the written request for mediation, and the memorandum provided
for under Rule 9 of the Commercial Mediation Rules shall be provided to the
mediator at least five days prior to the first mediation session. All offers,
promises, conduct, and statements, whether oral or written, made in the course
of the mediation by either of the Partners, their agents, employees, experts,
and attorneys, and by the mediator or any AAA employees, shall be confidential
and inadmissible for any purposes, including impeachment, in any arbitration or
other proceeding involving the parties, but evidence that is otherwise
admissible or discoverable shall not be rendered inadmissible or
non-discoverable as a result of its use in the mediation. Either Partner may
initiate arbitration with respect to the matters submitted to mediation by
filing a written demand for arbitration with the AAA no sooner than thirty days
after the first mediation session. The mediation may continue after the
commencement of arbitration if the Partners so agree. Unless otherwise agreed by
the Partners, the mediator shall be disqualified from serving as arbitrator in
the case.
(c) Arbitration. If a dispute arises out of or relates to this
Agreement or any alleged breach thereof, and if the dispute is not resolved
through negotiation and mediation as described in Section 18.6(a) and Section
18.6(b), such dispute shall be settled by arbitration in Phoenix, Arizona, in
accordance with the Commercial Arbitration Rules of the AAA and the
Supplementary Procedures for Large, Complex Disputes of the AAA or other rules
agreed to by the Partners, by a single arbitrator.
(d) United States Arbitration Act. The Partners acknowledge that this
Agreement evidences a transaction involving interstate commerce. Insofar as it
applies, the
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United States Arbitration Act shall govern the interpretation of, enforcement
of, and proceedings pursuant to the arbitration clause in this Agreement. After
arbitration has commenced pursuant to Rule 6 of the Commercial Arbitration
Rules, either Partner may make an application to the arbitrator seeking
injunctive relief to maintain the status quo until such time as the arbitration
award is rendered or the dispute is otherwise resolved.
(e) Request for Arbitration. The Partner requesting arbitration shall
do so by giving notice to that effect (the "Arbitration Notice") to the other
Partner and by filing the notice with the AAA in accordance with Rule 6 of the
Commercial Arbitration Rules. Within thirty days after the Arbitration Notice is
filed, the Partners shall select an arbitrator using the procedures for
arbitrator selection of the AAA from the arbitrators in the Large, Complex case
pool for the Phoenix, Arizona AAA office.
(f) Administrative Conference and Hearing. Upon selection of the
arbitrator, the Partners shall conduct an initial administrative conference
provided for by the Supplementary Procedures for Large, Complex Disputes of the
AAA at which the Partners shall agree to a schedule and procedures for the
exchange of relevant information and the hearing and to any other matters the
arbitrator or the Partners involved in the dispute deem appropriate. The
Partners may submit to the arbitrator prior to the hearing any written
information and may make any oral presentation at the hearing that the Partners
deem appropriate to support their respective positions with respect to the
disputed matter. At any hearing before the arbitrator at which witnesses present
testimony either in person or telephonically the Partners involved in the
dispute shall be entitled to cross examine the witnesses; PROVIDED, HOWEVER,
that this provision shall not be deemed to preclude the ability of any party to
present testimony by affidavit in the arbitration hearing.
(g) Decision and Award. The arbitrator shall render his written
decision and award, including a statement of reasons upon which such award is
based, within thirty days after the arbitration hearing. Except insofar as the
United States Arbitration Act applies to such matters, the agreement to
arbitrate set forth in this Section 18.6 shall be construed, and the legal
relations between the Partners shall be determined in accordance with, the
substantive laws of the State of California as provided for in Section 18.3 of
this Agreement. The decision of the arbitrator shall be in writing and shall be
binding upon the Partners involved in the dispute, final and non-appealable.
Judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof.
(h) Exclusivity of Arbitration. Except as provided under the United
States Arbitration Act, no action at law or in equity based upon any dispute
that is subject to arbitration under this Section 18.6 shall be instituted.
(i) Fees and Expenses. All expenses of any arbitration pursuant to this
Section 18.6, including fees and expenses of the Partners' attorneys, fees and
expenses of the arbitrator, and fees and expenses of any witness or the cost of
any proof produced at the request of the arbitrator, shall be borne as
determined by the arbitrator. If either Partner institutes any action
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<PAGE>
in law or in equity in violation of Section 18.6(h) and the other Partner
successfully compels arbitration under this Section 18.6, the Partner
instituting such action shall pay all reasonable expenses incurred by the other
Partner relating to such action, including reasonable fees and expenses of the
other Partner's attorneys.
18.7 No Third-Party Beneficiaries.
-----------------------------
This Agreement is not intended to, and shall not be construed to, create any
right enforceable by any Person not a party hereto, including any partner of
FHGLP or any creditor of the Partnership or of either of the Partners.
18.8 Covenant of TCI Communications, Inc. Regarding Goods and Services.
------------------------------------------------------------------
By executing this Agreement, TCI Communications, Inc., a Delaware
corporation, agrees to use commercially reasonable efforts to (a) cause to be
offered to the Partnership equipment, billing, @Home, digital, HITS, and other
goods or services that are made available by third-party vendors or otherwise to
other cable television systems that are owned by or otherwise affiliated with
TCI Communications, Inc., at a cost equal to the direct cost incurred by TCI
Communications, Inc. on behalf of such cable television systems for such goods
and services (including direct costs incurred by TCI Communications, Inc. that
are paid to Persons other than the applicable third-party vendor), and (b) make
available to the Partnership on a royalty-free basis any technological
innovations that TCI Communications, Inc. develops or becomes aware of and has
access to, for other cable television systems that are owned by or otherwise
affiliated with TCI Communications, Inc.
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IN WITNESS WHEREOF, the Partners have hereunto set their hands as of the day
first heretofore mentioned.
FALCON HOLDING GROUP, L.P.
By: Falcon Holding Group, Inc., its
general partner
By:
--------------------------------
Name: Marc B. Nathanson
Title: Chief Executive Officer
FOR PURPOSES OF SECTION 5.2,
SECTION 10.10, SECTION 12.1, AND
SECTION 17.3 ONLY:
Falcon Holding Group, Inc.
By:
--------------------------------
Name: Marc B. Nathanson
Title: Chief Executive Officer
FOR PURPOSES OF SECTION 10.10
ONLY:
Falcon Cable Trust
By:
--------------------------------
Name: Marc B. Nathanson
Title: Trustee
THIS IS A SIGNATURE PAGE TO THE AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP OF FALCON COMMUNICATIONS, L.P.
(SIGNATURES CONTINUE)
88
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TCI FALCON HOLDINGS, LLC
By:
--------------------------------
Name:
Title:
FOR PURPOSES OF SECTION 9.11,
SECTION 12.1, AND SECTION 18.8
ONLY:
TCI Communications, Inc.
By:
--------------------------------
Name:
Title:
THIS IS A SIGNATURE PAGE TO THE AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP OF FALCON COMMUNICATIONS, L.P.
(SIGNATURES CONTINUE)
89
<PAGE>
AS WITHDRAWING PARTNER FOR
PURPOSES OF SECTION 2.2 ONLY:
-------------------------------
Stanley S. Itskowitch
THIS IS A SIGNATURE PAGE TO THE AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP OF FALCON COMMUNICATIONS, L.P.
90
<PAGE>
SCHEDULE I
TO
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
ADDRESSES OF THE PARTNERS
Falcon Holding Group, L.P.
10900 Wilshire Blvd., 15th Floor
Los Angeles, California 90024
TCI Falcon Holdings, LLC
c/o Tele-Communications, Inc.
Terrace Tower II
5619 DTC Parkway
Englewood, Colorado 80111-3000
<PAGE>
SCHEDULE IV
TO
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
INITIAL MEMBERS OF THE ADVISORY COMMITTEE
1. Members designated by FHGLP pursuant to Section 6.1(a):
Marc B. Nathanson (chairman)
Frank J. Intiso
Stanley S. Itskowitch
2. Member agreed to by FHGLP and TCI pursuant to Section 6.1(b):
John S. Evans
3. Members designated by TCI pursuant to Section 6.1(c):
Leo J. Hindery, Jr.
William R. Fitzgerald
<PAGE>
Exhibit 3.6
ARTICLES OF INCORPORATION
OF
FALCON FUNDING CORPORATION
FIRST: That the name of the corporation (the "Corporation") is Falcon
Funding Corporation.
SECOND: The purpose of the Corporation is to engage in any lawful act
or activity for which a corporation may be organized under the California
Corporations Code (the "Code") other than the banking business, the trust
business or the practice of a profession permitted to be incorporated by the
California Corporations Code.
THIRD: The name and address of the Corporation's initial agent for
service of process in the State of California is:
CT Corporation System (a Delaware corporation)
818 West 7th Street
Los Angeles, California 90017
FOURTH: The Corporation is authorized to issue only one class of shares
of stock; and the total number of shares which the Corporation is authorized to
issue is one thousand (1,000) shares of voting common stock, with a par value of
one cent ($.01) per share.
FIFTH: The name and mailing address of the sole incorporator is as
follows:
Thomas D. Twedt
Dow, Lohnes & Albertson, PLLC
1200 New Hampshire Ave N.W.
Suite 800
Washington, D.C. 20036
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: The By-Laws of the Corporation may be made, altered, amended,
changed, added to or repealed by the board of directors without the assent or
vote of the stockholders, except as set forth in Section 212 of the Code.
EIGHTH: Elections of directors need not be by written ballot unless the
By-Laws of the Corporation shall so provide.
<PAGE>
NINTH: Meetings of stockholders may be held within or without the State
of California, as the By-Laws may provide. The books and records of the
Corporation may be kept (subject to any provision contained in the Code) outside
the State of California at such time or places as may be designated from time to
time by the board of directors or in the By-Laws of the Corporation.
TENTH: The liability of directors of the Corporation for monetary
damages shall be eliminated to the fullest extent permissible under California
law.
ELEVENTH: The Corporation is authorized to provide indemnification of
agents (as defined in Section 317 of the Code) through By-Law provisions,
agreements with agents, votes of stockholders or disinterested directors, or
otherwise, to the fullest extent permissible under California law.
TWELFTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in these Articles of Incorporation, in the manner
now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
IN WITNESS WHEREOF, the undersigned has executed these Articles of
Incorporation this 13th day of March, 1998.
------------------------------
Thomas D. Twedt, Incorporator
<PAGE>
Exhibit 3.7
BY-LAWS
OF
FALCON FUNDING CORPORATION
ARTICLE I
OFFICES
Section l. The registered office of Falcon Funding Corporation (the
"Corporation") shall be located in the City of Los Angeles, County of Los
Angeles, State of California.
Section 2. The principal office of the Corporation shall be in the City
of Los Angeles, County of Los Angeles, State of California. The Corporation
may also have offices at such other places both within and without the State
of California and the United States as the Board of Directors may from time
to time determine or as the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All annual meetings of the stockholders for the election of
directors shall be held at the principal office of the Corporation, at such
place and time as may be fixed from time to time by the Board of Directors,
or at such other place either within or without the State of California or
the United States, as shall be designated from time to time by the Board of
Directors and stated in the notice of the meeting or in a duly executed
waiver of the notice thereof. Meetings of stockholders for any other purpose
may be held at such time and place, within or without the State of California
or the United States, as shall be stated in the notice of the meeting or in a
duly executed waiver of notice thereof.
Section 2. Annual meetings of the stockholders shall be held on such
date not more than one hundred and eighty days (180) following the end of the
fiscal year, and at a time as shall be designated from time to time by the
Board of Directors and stated in the notice of the meeting. At the annual
meeting, the stockholders shall elect by a plurality vote a Board of
Directors and shall transact such other business as may properly be brought
before the meeting.
Section 3. Written notice of the annual meeting stating the place, date
and hour of the meeting shall be given to each stockholder entitled to vote
at such meeting not less than ten (10) nor more than sixty (60) days before
the date of the meeting.
Section 4. Special meetings of the stockholders for any purpose or
purposes, unless otherwise provided by statute, the Articles of Incorporation
or these By-laws, shall be called by the Chief Executive Officer ("CEO") or
Secretary at the request in writing of a majority of the Board of Directors
or at the request in writing of stockholders owning a majority of the
<PAGE>
capital stock of the Corporation issued and outstanding and entitled to vote.
Such requests shall state the purpose or purposes of the proposed meeting.
Section 5. Written notice of a special meeting shall state the place,
date and hour of the meeting and the purpose or purposes for which the
meeting is called and shall be given not less than ten (10) nor more than
sixty (60) days before the date of the meeting to each stockholder entitled
to vote at such meeting.
Section 6. The holders of a majority of the capital stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business, except as otherwise provided by law or by the
Articles of Incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement
at the meeting, until a quorum shall be present or represented. At such
adjourned meeting at which a quorum shall be present or represented any
business may be transacted which might have been transacted at the meeting as
originally notified.
Section 7. Unless otherwise required by law or the Articles of
Incorporation, any question brought before any meeting of stockholders shall
be decided by the vote of the holders of a majority of the stockholders
represented and entitled to vote thereat. Each stockholder represented at a
meeting of stockholders shall be entitled to cast one vote for each share of
the capital stock entitled to vote thereat held by such stockholder. Such
votes may be cast in person or by proxy, but no proxy shall be voted on or
after three years from this date, unless such proxy provides for a longer
period.
Section 8. Unless otherwise provided by statute, the Articles of
Incorporation or these By-laws, any action required or permitted to be taken
at any annual or special meeting of the stockholders may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, is signed by the holders of outstanding
stock of the Corporation having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted. Such
consent shall be filed with the Secretary of the Corporation. Prompt notice
of the taking of the corporate action without a meeting by less than
unanimous written consent shall be given to those stockholders who have not
consented in writing.
ARTICLE III
DIRECTORS
2
<PAGE>
Section 1. The number of directors that constitutes the Board of
Directors shall be at least one (1) and not more than five (5), the exact
number of which shall initially be fixed by the Incorporator and thereafter
from time to time by the Board of Directors. Except as provided in Section 2
of this Article, directors shall be elected by a plurality of the votes cast
at annual meetings of stockholders, and each director so elected shall hold
office until the next annual meeting and until his successor is duly elected
and qualified, or until his earlier resignation or removal. Any director may
resign at any time upon notice to the Corporation. Directors need not be
shareholders.
Section 2. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, or by a sole
remaining director. The directors so chosen shall hold office until the next
annual election and until their successors are duly elected and qualified.
If at the time of filling any vacancy or any newly created directors the
directors then in office shall constitute less than a majority of the whole
board (as constituted immediately prior to any such increase), stockholders
holding at least a majority of the outstanding shares entitled to vote for
directors shall have the right to order to vote to fill any such vacancies or
newly created directorships, or to replace any directors chosen by the
directors.
Section 3. The business of the Corporation shall be managed by its
Board of Directors, which may exercise all such powers of the Corporation and
do all such lawful acts and things as are not by statute, the Articles of
Incorporation or these By-laws directed or required to be exercised or done
by the stockholders.
ARTICLE IV
MEETINGS OF THE BOARD OF DIRECTORS
Section 1. The Board of Directors of the Corporation may hold meetings,
both regular and special, either within or without the State of California or
the United States. Regular meetings of the Board of Directors may be held
without notice at such place as may from time to time be determined by the
Board. Special meetings of the Board of Directors may be called by the
President or by any two directors. Notice thereafter shall be given by the
Secretary to each director either by mail on four day's notice or by telegram
or telephone on one day's notice.
Section 2. At all meetings of the Board, a majority of the entire Board
of Directors shall constitute a quorum for the transaction of business, and
the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the Board of Directors, unless otherwise
specifically provided by statute or the Articles of Incorporation. If a
quorum is not present at any meeting of the Board of Directors, the directors
present thereat may adjourn the meeting from time to time, without notice
other than an announcement at the meeting, until a quorum shall be present.
3
<PAGE>
Section 3. Unless otherwise provided by statute, the Articles of
Incorporation or these By-laws, any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee thereof may be
taken without a meeting if all members of the Board or the committee, as the
case may be, consent thereto in writing, and the writing or writings are
filed with the minutes of the proceedings of the Board of Directors.
Section 4. Unless otherwise provided by the Articles of Incorporation
or these By-laws, members of the Board of Directors, or of any committee
designated by the Board, may participate in a meeting of the Board or such
committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other.
ARTICLE V
COMMITTEES OF DIRECTORS
The Board of Directors may, by resolution passed by a majority of the
whole Board, designate one or more committees, each consisting of two or more
directors of the Corporation. The Board may designate one or more directors
as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board
of Directors to act at the meeting in the place of any such absent or
disqualified member.
ARTICLE VI
COMPENSATION OF DIRECTORS
Section l. The directors may be paid their expenses, if any, of
attending meetings of the Board of Directors. Such payments may take the
form of a fixed sum for attendance at each meeting or a stated salary as a
director. Members of committees may be allowed like compensation for
attending committee meetings.
Section 2. No payment permitted under this Article VI shall preclude
any director from serving the Corporation in any other capacity and receiving
compensation therefor.
Section 3. No contract or transaction between the Corporation and one
or more of its directors or officers, or between the Corporation and any
other corporation, partnership, association, or other organization in which
one or more of its directors or officers are directors or officers, or have a
financial interest, shall be void or voidable solely for this reason, or
solely because the director or officer is present at or participates in the
meeting of the Board or committee thereof which authorizes the contract or
transaction, or solely because his or their
4
<PAGE>
votes are counted for such purpose if (i) the material facts as to his
relationship or interest and as to the contract or transaction are disclosed
or are known to the Board of Directors or the committee, and the Board or
committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though
the disinterested directors be less than a quorum; or (ii) the material facts
as to his relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to the
Corporation as of the time it is
authorized, approved or ratified by the Board of Directors, a committee
thereof or the stockholders. Common or interested directors may be counted
in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee which authorizes the contract or transaction.
ARTICLE VII
OFFICERS
Section l. The officers of the Corporation shall be designated by the
Board of Directors by election and, unless otherwise required by the
California Corporations Code (the "Code"), may include a CEO, a President, a
Chief Operating Officer ("COO"), a Chief Financial Officer ("CFO"), one or
more Vice Presidents, a Secretary, a General Counsel, one or more Assistant
Secretaries, a Treasurer, and one or more Assistant Treasurers. The Board of
Directors may also elect such other officers and agents as it deems
necessary. Any number of offices may be held by the same person, unless
otherwise provided by statute, the Articles of Incorporation or these
By-laws. In its discretion, the Board of Directors may choose not to fill
any office for any period as it may deem advisable, except that of any
vacancy in the offices of the CEO and Secretary shall be filled as
expeditiously as possible.
Section 2. The officers of the Corporation shall be elected by the
Board of Directors at the Board's first meeting after each annual meeting of
stockholders.
Section 3. The officers of the Corporation shall hold office until
their successors are chosen and qualified. Any officer elected or appointed
by the Board of Directors may be removed at any time by the affirmative vote
of a majority of the Board of Directors whenever in its judgment the best
interests of the Corporation will be served thereby. Any vacancy occurring
in any office of the Corporation shall be filled by the Board of Directors.
Section 4. The salaries of all officers and agents of the Corporation
shall be fixed by the Board of Directors.
5
<PAGE>
Section 5. The CEO shall be the chief executive officer of the
Corporation. The CEO shall preside at all meetings of the stockholders, and
shall see that all orders and resolutions of the Board of Directors are
carried into effect. The CEO shall execute under the seal of the Corporation
bonds, mortgages, contracts and other contracts requiring a seal, except
where required or permitted by law to be otherwise signed and executed and
except where the signing and execution thereof is expressly delegated by the
Board of Directors to some other officer or agent of the Corporation. The
CEO shall also perform such other duties and may exercise such other powers
as from time to time may be assigned to him by these by-laws or by the Board
of Directors.
Section 6. In the absence of the CEO or in the event of his inability
or refusal to act, the President or a Vice-President (or in the event there
are more than one, the Vice-Presidents in the order designated, or in the
absence of any designation, then in the order of their election) shall
perform the duties of the CEO and, when so acting, shall have all the powers
of and be subject to all the restrictions upon the CEO. The President or
Vice-President shall perform such other duties and have such other powers as
the Board of Directors may from time to time prescribe.
Section 7. The Secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all of the
proceedings of the meetings of the Corporation and of the Board of Directors
in a book to be kept for that purpose and shall perform like duties for any
committees when required. The Secretary shall give, or cause to be given,
notice of all meetings of the shareholders and special meetings of the Board
of Directors and shall perform such other duties as may be prescribed by the
Board of Directors or the CEO, under whose supervision he shall be. The
Secretary shall have custody of the seal of the Corporation, and he, or an
Assistant Secretary, shall have the authority to affix the same to any
instrument requiring it, and (when so affixed) it may be attested by his
signature or by the signature of such Assistant Secretary. The Board of
Directors may give general authority to any other officer to affix the seal
of the Corporation and to attest the affixing by his signature.
Section 8. The CFO shall have custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all
moneys and other valuable effects in the name and to the credit of the
Corporation in such depositories as may be designated by the Board of
Directors.
Section 9. The CFO shall disburse the funds of the Corporation as may
be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the CEO, and the Board of Directors at the
Board's regular meetings or when the Board
6
<PAGE>
so requires, an account of all his transactions as CFO and of the financial
condition of the Corporation.
Section 10. If required by the Board of Directors, the CFO shall give
the Corporation a bond in such sum and with such surety or sureties as shall
be satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of
his death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in his possession
or under his control belonging to the Corporation.
7
<PAGE>
ARTICLE VIII
NOTICE
Section 1. Whenever, under the provisions of law or of the Articles of
Incorporation or of these by-laws, notice is required to be given to any
director or stockholder in writing, by mail, addressed to such director or
stockholder, at his address as it appears on the records of the Corporation,
with postage thereon prepaid, and such notice shall be deemed to be given at
the time when the same shall be deposited in the United States mail. Notice
to directors may also be given by telegram or by telephone and shall be
deemed to be given at the time when such telegram is sent or such telephone
notice is actually given and received.
Section 2. Whenever any notice is required to be given under the
provisions of law or of the Articles of Incorporation or by these By-laws, a
waiver thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE IX
CERTIFICATES OF STOCK
Section 1. Every holder of stock in the Corporation shall be entitled
to have a certificate, signed by the CEO, the President or a Vice-President,
and by the Secretary or an Assistant Secretary, or the Treasurer or an
Assistant Treasurer, certifying the number of shares owned by the stockholder
in the Corporation.
Section 2. Any or all of the signatures on the certificate may be a
facsimile if the certificate is manually signed on behalf of a transfer agent
or a registrar (other than the Corporation itself or an employee of the
Corporation). In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, the certificate may be issued by the Corporation with
the same effect as if he were such officer, transfer agent or registrar at
the date of issue.
Section 3. The Board of Directors may direct that a new certificate or
certificates be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate to be lost, stolen or destroyed. When authorizing
such issue of a new certificate or certificates, the Board of Directors may,
in its discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed certificate or
certificates or his legal representative to advertise the same in such manner
as it shall require and/or to give the Corporation a bond in such sum as it
may direct as indemnity against any
8
<PAGE>
claim that may be made against the Corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
Section 4. Upon surrender to the Corporation or the transfer agent of
the Corporation of a certificate for shares duly endorsed or accompanied by
the proper evidence of succession, assignment or authority to transfer, the
Corporation shall issue a new certificate to the person entitled thereto,
cancel the old certificate and record the transaction upon its books.
Section 5. In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of the stockholders or any
adjournment thereof, or entitled to express consent to corporate action in
writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date that shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting, nor more than sixty (60) days
prior to any other action. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to
any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new date for the adjourned meeting.
Section 6. The Corporation shall be entitled to recognize the exclusive
rights of a person registered on its books as the owner of shares to receive
dividends and to vote as such owner. The Corporation shall be entitled to
hold liable for calls and assessments a person registered on its books as the
owner of shares. The Corporation shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part
of any other person, regardless of whether the Corporation shall have express
or other notice thereof, unless otherwise provided by statute, the Articles
of Incorporation or these By-laws.
ARTICLE X
GENERAL PROVISIONS
Section 1. DIVIDENDS. Dividends upon the capital stock of the
Corporation, unless otherwise provided by statute, the Articles of
Incorporation or these By-laws, may be declared by the Board of Directors at
any regular or special meeting, pursuant to law. Dividends may be paid in
cash, property, or in shares of stock, unless otherwise provided by statute,
the Articles of Incorporation or these By-laws. Before payment of any
dividend, there may be set aside out of any funds of the Corporation
available for dividends such sum or sums as the Board of Directors from time
to time, in their absolute discretion, may think proper as a reserve or
reserves for contingencies, equalizing dividends, repairing or maintaining
any property of the Corporation, or for such other purpose or purposes as the
Board of Directors shall think conducive to the interests of the Corporation,
and the Board of Directors may modify or abolish any such reserve in the
manner in which it was created.
9
<PAGE>
Section 2. DISBURSEMENTS. All checks or demands for money and notes of
the Corporation shall be signed by such officer or officers or such other
persons as the Board of Directors may from time to time designate.
Section 3. FISCAL YEAR. The fiscal year of the Corporation shall be
designated by resolution of the Board of Directors.
Section 4. CORPORATE SEAL. The Corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization and the
words "Corporate Seal, California." The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
Section 5. INDEMNIFICATION. The Corporation shall have the power to
indemnify its officers, directors, employees and agents of the Corporation,
and such other persons as designated by the Board of Directors, to the full
extent as permitted under Section 317 of the Code, as amended from time to
time. To assure indemnification under this provision of all such persons who
are or were "fiduciaries" of an employee benefit plan governed by the Act of
Congress entitled "Employee Retirement Income Security Act of 1974," as
amended from time to time, said Section 317 shall, for the purposes hereof,
be interpreted as follows: "other enterprise" shall be deemed to include an
employee benefit plan; the Corporation shall be deemed to have requested a
person to serve an employee benefit plan where the performance by such person
of his duties to the Corporation also imposes duties on, or otherwise
involves services by, such person to the plan or participants or
beneficiaries of the plan; excise taxes assessed on a person with respect to
an employee benefit plan pursuant to said Act of Congress shall be deemed
"fines"; and action taken or omitted by a person with respect to an employee
benefit plan in the performance of such person's duties for a purpose
reasonably believed by such person to be in the interest of the participants
and beneficiaries of the plan shall be deemed to be for a purpose which is
not opposed to the best interests of the Corporation.
Section 6. AMENDMENTS. Unless such power is reserved to the
stockholders by statute, the Articles of Incorporation or these By-laws,
these By-laws may be altered, amended or repealed, in whole or in part, or
new By-laws adopted either by the stockholders or the Board of Directors
(when such power is conferred upon the Board of Directors by the Articles of
Incorporation, and subject to repeal or change by action of the stockholders)
provided, however, that notice of such alteration, repeal, or adoption of new
by-laws be contained in the notice of such meeting of stockholders or Board
of Directors as the case may be. All such amendments must be approved by
either the holders of a majority of the capital stock entitled to vote
thereon or by a majority of the entire Board of Directors then in office.
10
<PAGE>
[LETTERHEAD OF DOW, LOHNES & ALBERTSON, PLLC APPEARS HERE]
Exhibit 5.1
July 17, 1998
Falcon Holding Group, L.P.
Falcon Funding Corporation
10900 Wilshire Boulevard
15th Floor
Los Angeles, California 90024
Re: Falcon Holding Group, L.P.
Falcon Funding Corporation
Registration Statement on Form S-4
(Registration No. 333-55755)
Ladies and Gentlemen:
We refer to the above-referenced Registration Statement (the "Registration
Statement") on Form S-4, filed on June 1, 1998, by Falcon Holding Group, L.P.
("FHGLP") and Falcon Funding Corporation ("FFC" and, together with FHGLP, the
"Issuers"), with the Securities and Exchange Commission (the "Commission"), for
the purpose of registering under the Securities Act of 1933, as amended (the
"Securities Act"), the Issuers' 8.375% Series B Senior Debentures due 2010 (the
"Senior Exchange Debentures") and 9.285% Series B Senior Discount Debentures due
2010 (the "Senior Discount Exchange Debentures" and collectively with the Senior
Exchange Debentures, the "Exchange Debentures"), to be offered in exchange (the
"Exchange Offer") for the Issuers' outstanding 8.375% Series A Senior Debentures
due 2010 (the "Old Senior Debentures") and 9.285% Series A Senior Discount
Debentures due 2010 (the "Old Senior Discount Debentures" and collectively with
the Old Senior Debentures, the "Old Debentures"). The Old Debentures were
issued under, and the Exchange Debentures are to be issued under, an Indenture,
dated as of April 3, 1998, among FHGLP, FFC and United States Trust Company of
New York, as Trustee (the "Indenture").
In connection with the foregoing registration, we have acted as special
counsel for the Issuers, and have examined originals or copies of (i) the Third
Amended and Restated Agreement of Limited Partnership and Certificate of Limited
Partnership of FHGLP in effect as of the date hereof, (ii) the Articles of
Incorporation and Bylaws of FFC in effect as of the date hereof, (iii) the
Indenture, (iv) the Registration Rights Agreement, dated as of April 3, 1998
(the "Registration Rights Agreement"), by and among the Issuers, Morgan Stanley
& Co. Incorporated, Lazard Freres & Co. LLC, Donaldson, Lufkin & Jenrette
Securities Corporation, Merrill Lynch, Pierce, Fenner & Smith Incorporated,
BancAmerica Robertson Stephens, BancBoston Securities Inc., CIBC Oppenheimer,
NationsBanc Montgomery Securities LLC and TD Securities (USA) Inc., as the
Placement Agents for the initial offering of the Old Debentures, and (v) the
Registration Statement. We have also examined all such records of the Issuers
and all such agreements, certificates of public officials, certificates of
officers or representatives of the Issuers and others, and such other documents,
certificates and corporate or other records as we have deemed necessary or
appropriate as a basis for the opinion set forth herein. In our examination we
have assumed the genuineness of all signatures, the legal capacity of natural
persons, the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to use as certified
or photostatic copies and the authenticity of the originals of such latter
documents. As to any facts relevant to the
<PAGE>
2
opinion expressed herein, we have relied upon statements and representations of
officers and other representatives of the Issuers and others (all of which we
assume to be true, complete and accurate in all respects).
We are members of the Bar of the District of Columbia and do not purport to
be experts on, or generally familiar with, or certified to express legal
conclusions based upon, the laws of any other jurisdiction, other than the
Delaware General Corporation Law, the Delaware Revised Uniform Limited
Partnership Act and the laws of the United States to the extent applicable
hereto. Accordingly, as to matters of law set forth below, our opinion is
limited to matters of law under the laws of the District of Columbia, the laws
of the United States to the extent applicable hereto, the Delaware General
Corporation Law and the Delaware Revised Uniform Limited Partnership Act, and we
express no opinion as to conflicts of law rules, or the laws of any states or
jurisdictions other than as specified above.
Based upon the foregoing and subject to the other qualifications stated
herein, we are of the opinion that the Exchange Debentures have been duly
authorized and when executed by the proper officers of the Issuers, duly
authenticated by the Trustee, and issued by the Issuers in accordance with the
provisions of the Indenture, against surrender and cancellation of a like
aggregate principal amount of Old Debentures pursuant to the Exchange Offer as
contemplated in the Registration Rights Agreement, will constitute the legal,
valid and binding obligations of the Issuers enforceable against the Issuers in
accordance with their terms, except to the extent that (a) the enforceability
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium
(whether general or specific), fraudulent conveyance or other similar laws now
or hereafter in effect affecting the enforcement of creditors' rights and
remedies generally, (b) the remedy of specific performance and injunctive and
other forms of equitable relief may be limited by equitable defenses and the
discretion of the court before which any proceeding therefor may be brought
(whether such proceeding is at law or in equity or in a bankruptcy proceeding)
or limited by other equitable principles of general applicability, and (c) the
waiver as to usury, stay or extension laws may be unenforceable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and any abbreviated registration statements relating
thereto that may be filed to register additional securities identical to those
covered by the Registration Statement (including a registration statement filed
pursuant to Rule 462(b) under the Securities Act), and to the reference to this
firm under the caption "Legal Matters" contained in this prospectus filed as a
part thereof. In giving such consent, we do not thereby admit that we are in
the category of persons whose consent is required under Section 7 of the
Securities Act.
Very truly yours,
Dow, Lohnes & Albertson, PLLC
By: /s/ Edward J. O'Connell
---------------------------
Edward J. O'Connell
Member
<PAGE>
Exhibit 10.66
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FALCON CABLE COMMUNICATIONS, LLC
FALCON CABLE MEDIA, A CALIFORNIA LIMITED PARTNERSHIP
FALCON CABLE SYSTEMS COMPANY II, L.P.
FALCON CABLEVISION, A CALIFORNIA LIMITED PARTNERSHIP
FALCON COMMUNITY CABLE, L.P.
FALCON COMMUNITY VENTURES I LIMITED PARTNERSHIP
FALCON FIRST, INC.
FALCON TELECABLE, A CALIFORNIA LIMITED PARTNERSHIP
FALCON TELECOM, L.P.
CREDIT AGREEMENT
Dated as of June 30, 1998
BANKBOSTON, N.A.
as Documentation Agent
THE CHASE MANHATTAN BANK
as Co-Syndication Agent
NATIONSBANK, N.A.
as Syndication Agent
TORONTO DOMINION (TEXAS) INC.
as Administrative Agent
and
BANK OF AMERICA, N.T. & S.A.
as Agent
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<PAGE>
TABLE OF CONTENTS
<TABLE>
Page
<S> <C>
1. DEFINITIONS; CERTAIN RULES OF CONSTRUCTION. . . . . . . . . . . . . . . . . . .1
2. THE CREDITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
2.1. REVOLVING CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
2.1.1. REVOLVING LOAN . . . . . . . . . . . . . . . . . . . . . . . . 32
2.1.2. BORROWING REQUESTS . . . . . . . . . . . . . . . . . . . . . . 34
2.1.3. REVOLVING NOTES. . . . . . . . . . . . . . . . . . . . . . . . 35
2.1.4. FALCON VIDEO REVOLVING LOAN. . . . . . . . . . . . . . . . . . 35
2.2. TERM LOAN B. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
2.2.1. TERM LOAN B. . . . . . . . . . . . . . . . . . . . . . . . . . 36
2.2.2. TERM LOAN B NOTES. . . . . . . . . . . . . . . . . . . . . . . 36
2.2.3. MANDATORY ASSIGNMENT OF TERM LOAN B-1. . . . . . . . . . . . 36
2.3. TERM LOAN C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
2.3.1. TERM LOAN C. . . . . . . . . . . . . . . . . . . . . . . . . . 37
2.3.2. TERM LOAN C NOTES. . . . . . . . . . . . . . . . . . . . . . . 38
2.4. SUPPLEMENTAL CREDIT. . . . . . . . . . . . . . . . . . . . . . . . . . 38
2.4.1. REQUEST FOR SUPPLEMENTAL FACILITIES. . . . . . . . . . . . . 38
2.4.2. SUPPLEMENTAL FACILITIES. . . . . . . . . . . . . . . . . . . . 39
2.4.3. BORROWING REQUESTS . . . . . . . . . . . . . . . . . . . . . . 39
2.4.4. SUPPLEMENTAL NOTES.. . . . . . . . . . . . . . . . . . . . . . 40
2.5. APPLICATION OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . 40
2.5.1. LOAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
2.5.2. SPECIFICALLY PROHIBITED APPLICATIONS . . . . . . . . . . . . . 40
2.6. BORROWERS OBLIGATIONS. . . . . . . . . . . . . . . . . . . . . . . . . 40
2.7. NATURE OF OBLIGATIONS OF LENDERS TO EXTEND CREDIT. . . . . . . . . . . 41
3. INTEREST; EURODOLLAR PRICING OPTIONS; FEES. . . . . . . . . . . . . . . . . . 41
3.1. INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
3.2. EURODOLLAR PRICING OPTIONS . . . . . . . . . . . . . . . . . . . . . . 42
3.2.1. ELECTION OF EURODOLLAR PRICING OPTIONS . . . . . . . . . . . . 42
3.2.2. NOTICE TO LENDERS AND BORROWERS. . . . . . . . . . . . . . . . 43
3.2.3. SELECTION OF INTEREST PERIODS. . . . . . . . . . . . . . . . . 43
3.2.4. ADDITIONAL INTEREST. . . . . . . . . . . . . . . . . . . . . . 43
3.2.5. CHANGE IN APPLICABLE LAWS, REGULATIONS, ETC. . . . . . . . . . 44
3.2.6. FUNDING PROCEDURE. . . . . . . . . . . . . . . . . . . . . . . 44
3.3. COMMITMENT FEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
3.3.1. REVOLVING LOAN . . . . . . . . . . . . . . . . . . . . . . . . 45
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3.3.2. TERM LOAN B-2. . . . . . . . . . . . . . . . . . . . . . . . . 46
3.4. TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
3.5. CAPITAL ADEQUACY . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
3.6. REGULATORY CHANGES . . . . . . . . . . . . . . . . . . . . . . . . . . 47
3.7. COMPUTATIONS OF INTEREST AND FEES. . . . . . . . . . . . . . . . . . . 47
3.8. INTEREST LIMITATION. . . . . . . . . . . . . . . . . . . . . . . . . . 47
4. PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
4.1. PAYMENT AT MATURITY. . . . . . . . . . . . . . . . . . . . . . . . . . 48
4.2. FIXED REQUIRED PREPAYMENTS . . . . . . . . . . . . . . . . . . . . . . 48
4.2.1. TERM LOAN B. . . . . . . . . . . . . . . . . . . . . . . . . 48
4.2.2. TERM LOAN C. . . . . . . . . . . . . . . . . . . . . . . . . . 48
4.2.3. SUPPLEMENTAL LOAN. . . . . . . . . . . . . . . . . . . . . . . 48
4.3. MAXIMUM AMOUNT OF REVOLVING CREDIT, ETC. . . . . . . . . . . . . . . . 48
4.4. ASSET SALES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
4.4.1. OPERATING ASSET SALE NOTICE. . . . . . . . . . . . . . . . . . 49
4.4.2. PREPAYMENT ON SALE . . . . . . . . . . . . . . . . . . . . . . 49
4.4.3. ASSET REINVESTMENT RESERVE AMOUNT. . . . . . . . . . . . . . . 49
4.4.4. ALLOCATIONS OF PREPAYMENT. . . . . . . . . . . . . . . . . . . 50
4.5. DESIGNATED FINANCING DEBT. . . . . . . . . . . . . . . . . . . . . . . 50
4.6. VOLUNTARY PREPAYMENTS. . . . . . . . . . . . . . . . . . . . . . . . . 50
4.7. APPLICATION OF PAYMENTS. . . . . . . . . . . . . . . . . . . . . . . . 51
5. CONDITIONS TO EXTENDING CREDIT. . . . . . . . . . . . . . . . . . . . . . . . 51
5.1. CONDITIONS ON INITIAL CLOSING DATE . . . . . . . . . . . . . . . . . . 51
5.1.1. SATISFACTION OF EXISTING BANK DEBT . . . . . . . . . . . . . . 52
5.1.2. NOTES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
5.1.3. PAYMENT OF FEES. . . . . . . . . . . . . . . . . . . . . . . . 52
5.1.4. LEGAL OPINIONS . . . . . . . . . . . . . . . . . . . . . . . . 52
5.1.5. PLEDGE AND SUBORDINATION AGREEMENT . . . . . . . . . . . . . . 52
5.1.6. MONY SUBORDINATED DEBT . . . . . . . . . . . . . . . . . . . . 52
5.2. CONDITIONS TO EACH EXTENSION OF CREDIT . . . . . . . . . . . . . . . . 53
5.2.1. OFFICER'S CERTIFICATE. . . . . . . . . . . . . . . . . . . . . 53
5.2.2. PROPER PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . 53
5.2.3. LEGALITY, ETC. . . . . . . . . . . . . . . . . . . . . . . . . 53
5.3. EXTENSIONS OF CREDIT FOLLOWING THE TCI CLOSING.. . . . . . . . . . . . 53
5.3.1. REPAYMENT OF FINANCING DEBT. . . . . . . . . . . . . . . . . . 54
5.3.2. ASSIGNMENT OF DEBENTURES AND INDENTURES. . . . . . . . . . . . 54
5.3.3. JOINDERS AND ASSIGNMENTS.. . . . . . . . . . . . . . . . . . . 54
5.4. CONDITIONS ON SUPPLEMENTAL FACILITY CLOSING DATES. . . . . . . . . . . 54
5.4.1. SUPPLEMENTAL NOTES . . . . . . . . . . . . . . . . . . . . . . 54
5.4.2. JOINDER AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . 55
5.4.3. LEGAL OPINIONS . . . . . . . . . . . . . . . . . . . . . . . . 55
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5.4.4. FINANCED ACQUISITIONS. . . . . . . . . . . . . . . . . . . . . 55
5.4.5. GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . 55
6. GUARANTEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
6.1. GUARANTEES OF CREDIT OBLIGATIONS . . . . . . . . . . . . . . . . . . . 55
6.2. CONTINUING OBLIGATION. . . . . . . . . . . . . . . . . . . . . . . . . 56
6.3. WAIVERS WITH RESPECT TO CREDIT OBLIGATIONS . . . . . . . . . . . . . . 56
6.4. LENDERS' POWER TO WAIVE, ETC . . . . . . . . . . . . . . . . . . . . . 58
6.5. INFORMATION REGARDING OBLIGORS, ETC. . . . . . . . . . . . . . . . . . 59
6.6. CERTAIN GUARANTOR REPRESENTATIONS. . . . . . . . . . . . . . . . . . . 59
6.7. NO SUBROGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
6.8. SUBORDINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
6.9. CONTRIBUTION AMONG GUARANTORS. . . . . . . . . . . . . . . . . . . . . 60
6.10. FUTURE SUBSIDIARIES; FURTHER ASSURANCES. . . . . . . . . . . . . . . . 61
6.11. RELEASE OF GUARANTOR . . . . . . . . . . . . . . . . . . . . . . . . . 61
7. GENERAL COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
7.1. TAXES AND OTHER CHARGES; ACCOUNTS PAYABLE. . . . . . . . . . . . . . . 61
7.1.1. TAXES AND OTHER CHARGES. . . . . . . . . . . . . . . . . . . . 61
7.1.2. ACCOUNTS PAYABLE . . . . . . . . . . . . . . . . . . . . . . . 62
7.2. CONDUCT OF BUSINESS, ETC.. . . . . . . . . . . . . . . . . . . . . . . 62
7.2.1. TYPES OF BUSINESS. . . . . . . . . . . . . . . . . . . . . . . 62
7.2.2. MAINTENANCE OF PROPERTIES. . . . . . . . . . . . . . . . . . . 62
7.2.3. COMPLIANCE WITH MATERIAL AGREEMENTS. . . . . . . . . . . . . . 62
7.2.4. STATUTORY COMPLIANCE . . . . . . . . . . . . . . . . . . . . . 63
7.3. INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
7.4. FINANCIAL STATEMENTS AND REPORTS . . . . . . . . . . . . . . . . . . . 63
7.4.1. ANNUAL REPORTS . . . . . . . . . . . . . . . . . . . . . . . . 63
7.4.2. QUARTERLY REPORTS. . . . . . . . . . . . . . . . . . . . . . . 64
7.4.3. TCI CLOSING REPORT . . . . . . . . . . . . . . . . . . . . . . 65
7.4.4. OTHER REPORTS. . . . . . . . . . . . . . . . . . . . . . . . . 65
7.4.5. NOTICE OF LITIGATION; NOTICE OF DEFAULTS . . . . . . . . . . . 66
7.4.6. FRANCHISE MATTERS. . . . . . . . . . . . . . . . . . . . . . . 66
7.4.7. ERISA REPORTS. . . . . . . . . . . . . . . . . . . . . . . . . 66
7.4.8. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . 66
7.5. CERTAIN FINANCIAL TESTS. . . . . . . . . . . . . . . . . . . . . . . . 67
7.5.1. CONSOLIDATED TOTAL DEBT TO CONSOLIDATED ANNUALIZED OPERATING
CASH FLOW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
7.5.2. CONSOLIDATED ANNUALIZED OPERATING CASH FLOW TO CONSOLIDATED
CASH INTEREST EXPENSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
7.5.3. CONSOLIDATED ANNUALIZED OPERATING CASH FLOW TO CONSOLIDATED
PRO FORMA DEBT SERVICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
7.5.4. CAPITAL EXPENDITURES.. . . . . . . . . . . . . . . . . . . . . 68
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7.6. INDEBTEDNESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
7.7. GUARANTEES; LETTERS OF CREDIT. . . . . . . . . . . . . . . . . . . . . 70
7.8. LIENS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
7.9. INVESTMENTS AND ACQUISITIONS . . . . . . . . . . . . . . . . . . . . . 72
7.10. DISTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
7.11. MERGER, CONSOLIDATION AND DISPOSITIONS OF ASSETS . . . . . . . . . . . 77
7.12. ISSUANCE OF STOCK BY SUBSIDIARIES; SUBSIDIARY DISTRIBUTIONS. . . . . . 78
7.12.1. ISSUANCE OF STOCK BY SUBSIDIARIES. . . . . . . . . . . . . . . 78
7.12.2. NO RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS. . . . . . . . . . 78
7.13. ERISA, ETC.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
7.14. TRANSACTIONS WITH AFFILIATES . . . . . . . . . . . . . . . . . . . . . 79
7.15. INTEREST RATE PROTECTION . . . . . . . . . . . . . . . . . . . . . . . 80
7.16. COMPLIANCE WITH ENVIRONMENTAL LAWS . . . . . . . . . . . . . . . . . . 80
7.17. NO OUTSIDE MANAGEMENT FEES . . . . . . . . . . . . . . . . . . . . . . 80
7.18. DERIVATIVE CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . 81
7.19. NEGATIVE PLEDGE CLAUSES. . . . . . . . . . . . . . . . . . . . . . . . 81
7.20. FUTURE SECURITY INTEREST . . . . . . . . . . . . . . . . . . . . . . . 81
8. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . . . . . 81
8.1. ORGANIZATION AND BUSINESS. . . . . . . . . . . . . . . . . . . . . . . 82
8.1.1. THE BORROWERS. . . . . . . . . . . . . . . . . . . . . . . . . 82
8.1.2. OTHER GUARANTORS . . . . . . . . . . . . . . . . . . . . . . . 82
8.1.3. QUALIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . 82
8.1.4. CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . 83
8.2. FINANCIAL STATEMENTS AND OTHER INFORMATION; MATERIAL AGREEMENTS. . . . 83
8.2.1. FINANCIAL STATEMENTS AND OTHER INFORMATION . . . . . . . . . . 83
8.2.2. MATERIAL AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . 84
8.3. CHANGES IN CONDITION . . . . . . . . . . . . . . . . . . . . . . . . . 84
8.4. AGREEMENTS RELATING TO FINANCING DEBT, INVESTMENTS, ETC. . . . . . . . 84
8.5. TITLE TO ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
8.6. LICENSES, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
8.6.1. FRANCHISES; FCC LICENSES . . . . . . . . . . . . . . . . . . . 85
8.6.2. FCC AND OTHER MATTERS. . . . . . . . . . . . . . . . . . . . . 85
8.7. LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
8.8. TAX RETURNS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
8.9. AUTHORIZATION AND ENFORCEABILITY . . . . . . . . . . . . . . . . . . . 86
8.10. NO LEGAL OBSTACLE TO AGREEMENTS. . . . . . . . . . . . . . . . . . . . 86
8.11. DEFAULTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
8.12. CERTAIN BUSINESS REPRESENTATIONS . . . . . . . . . . . . . . . . . . . 87
8.12.1. LABOR RELATIONS. . . . . . . . . . . . . . . . . . . . . . . . 87
8.12.2. ANTITRUST. . . . . . . . . . . . . . . . . . . . . . . . . . . 87
8.12.3. CONSUMER PROTECTION. . . . . . . . . . . . . . . . . . . . . . 87
8.12.4. YEAR 2000 ISSUES . . . . . . . . . . . . . . . . . . . . . . . 87
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8.13. ENVIRONMENTAL REGULATIONS. . . . . . . . . . . . . . . . . . . . . . . 87
8.13.1. ENVIRONMENTAL COMPLIANCE . . . . . . . . . . . . . . . . . . . 87
8.13.2. ENVIRONMENTAL LITIGATION . . . . . . . . . . . . . . . . . . . 88
8.13.3. HAZARDOUS MATERIAL . . . . . . . . . . . . . . . . . . . . . . 88
8.13.4. ENVIRONMENTAL CONDITION OF PROPERTIES. . . . . . . . . . . . . 88
8.14. PENSION PLANS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
8.15. CONTRIBUTION AGREEMENT, ETC. . . . . . . . . . . . . . . . . . . . . . 89
8.16. GOVERNMENT REGULATION; MARGIN STOCK. . . . . . . . . . . . . . . . . . 89
8.16.1. GOVERNMENT REGULATION. . . . . . . . . . . . . . . . . . . . . 89
8.16.2. MARGIN STOCK . . . . . . . . . . . . . . . . . . . . . . . . . 89
8.17. DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
9. DEFAULTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
9.1. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . 90
9.1.1. NON-PAYMENT. . . . . . . . . . . . . . . . . . . . . . . . . 90
9.1.2. BREACH OF DESIGNATED COVENANTS. . . . . . . . . . . . . . . . 90
9.1.3. BREACH OF OTHER COVENANTS. . . . . . . . . . . . . . . . . . . 90
9.1.4. MISREPRESENTATION. . . . . . . . . . . . . . . . . . . . . . . 90
9.1.5. CROSS-DEFAULT, ETC.. . . . . . . . . . . . . . . . . . . . . . 90
9.1.6. CHANGE OF CONTROL, ETC. . . . . . . . . . . . . . . . . . . . 91
9.1.7. ENFORCEABILITY, ETC. . . . . . . . . . . . . . . . . . . . . 92
9.1.8. JUDGMENTS, ETC.. . . . . . . . . . . . . . . . . . . . . . . . 92
9.1.9. FRANCHISE REVOCATION, ETC. . . . . . . . . . . . . . . . . . 93
9.1.10. ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
9.1.11. BANKRUPTCY, ETC. . . . . . . . . . . . . . . . . . . . . . . 93
9.2. CERTAIN ACTIONS FOLLOWING AN EVENT OF DEFAULT. . . . . . . . . . . . . 94
9.2.1. NO OBLIGATION TO EXTEND CREDIT . . . . . . . . . . . . . . . . 94
9.2.2. SPECIFIC PERFORMANCE; EXERCISE OF RIGHTS . . . . . . . . . . . 94
9.2.3. ACCELERATION . . . . . . . . . . . . . . . . . . . . . . . . . 94
9.2.4. ENFORCEMENT OF PAYMENT; CREDIT SECURITY; SETOFF. . . . . . . . 95
9.2.5. CUMULATIVE REMEDIES. . . . . . . . . . . . . . . . . . . . . . 95
9.3. ANNULMENT OF DEFAULTS. . . . . . . . . . . . . . . . . . . . . . . . . 95
9.4. WAIVERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
10. EXPENSES; INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
10.1. EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
10.2. GENERAL INDEMNITY. . . . . . . . . . . . . . . . . . . . . . . . . . . 97
11. OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
11.1. INTERESTS IN CREDITS . . . . . . . . . . . . . . . . . . . . . . . . . 97
11.2. AGENTS' AUTHORITY TO ACT, ETC. . . . . . . . . . . . . . . . . . . . . 97
11.3. BORROWERS TO PAY AGENT, ETC. . . . . . . . . . . . . . . . . . . . . . 98
11.4. LENDER OPERATIONS FOR ADVANCES, ETC. . . . . . . . . . . . . . . . . . 98
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11.4.1. ADVANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
11.4.2. ADMINISTRATIVE AGENT TO ALLOCATE PAYMENTS, ETC.. . . . . . . . 98
11.4.3. DELINQUENT LENDERS; NONPERFORMING LENDERS. . . . . . . . . . . 99
11.5. SHARING OF PAYMENTS, ETC.. . . . . . . . . . . . . . . . . . . . . . . 99
11.6. AGENT'S RESIGNATION OR REMOVAL . . . . . . . . . . . . . . . . . . . .100
11.7. CONCERNING THE AGENTS. . . . . . . . . . . . . . . . . . . . . . . . .100
11.7.1. ACTION IN GOOD FAITH, ETC. . . . . . . . . . . . . . . . . . .101
11.7.2. NO IMPLIED DUTIES, ETC.. . . . . . . . . . . . . . . . . . . .101
11.7.3. VALIDITY, ETC. . . . . . . . . . . . . . . . . . . . . . . . .101
11.7.4. COMPLIANCE . . . . . . . . . . . . . . . . . . . . . . . . . .101
11.7.5. EMPLOYMENT OF AGENTS AND COUNSEL . . . . . . . . . . . . . . .102
11.7.6. RELIANCE ON DOCUMENTS AND COUNSEL. . . . . . . . . . . . . . .102
11.7.7. AGENT'S REIMBURSEMENT. . . . . . . . . . . . . . . . . . . . .102
11.8. RIGHTS AS A LENDER . . . . . . . . . . . . . . . . . . . . . . . . . .102
11.9. INDEPENDENT CREDIT DECISION. . . . . . . . . . . . . . . . . . . . . .103
11.10. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . .103
12. SUCCESSORS AND ASSIGNS; LENDER ASSIGNMENTS AND PARTICIPATIONS . . . . . . . .103
12.1. ASSIGNMENTS BY LENDERS . . . . . . . . . . . . . . . . . . . . . . . .104
12.1.1. ASSIGNEES AND ASSIGNMENT PROCEDURES. . . . . . . . . . . . . .104
12.1.2. TERMS OF ASSIGNMENT AND ACCEPTANCE . . . . . . . . . . . . . .105
12.1.3. REGISTER . . . . . . . . . . . . . . . . . . . . . . . . . . .106
12.1.4. ACCEPTANCE OF ASSIGNMENT AND ASSUMPTION. . . . . . . . . . . .106
12.1.5. FEDERAL RESERVE BANK . . . . . . . . . . . . . . . . . . . . .106
12.1.6. FURTHER ASSURANCES . . . . . . . . . . . . . . . . . . . . . .106
12.2. CREDIT PARTICIPANTS. . . . . . . . . . . . . . . . . . . . . . . . . .106
12.3. REPLACEMENT OF LENDER. . . . . . . . . . . . . . . . . . . . . . . . .107
13. CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .108
14. FOREIGN LENDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .109
15. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .109
16. LIMITED RECOURSE AGAINST PARTNERS . . . . . . . . . . . . . . . . . . . . . .110
17. AMENDMENTS, CONSENTS, WAIVERS, ETC. . . . . . . . . . . . . . . . . . . . . .110
17.1. LENDER CONSENTS FOR AMENDMENTS . . . . . . . . . . . . . . . . . . . .110
17.2. COURSE OF DEALING; NO IMPLIED WAIVERS. . . . . . . . . . . . . . . . .112
18. GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .112
18.1. DEFEASANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .112
18.2. NO STRICT CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . .112
</TABLE>
-vi-
<PAGE>
<TABLE>
<S> <C>
18.3. CERTAIN OBLIGOR ACKNOWLEDGMENTS. . . . . . . . . . . . . . . . . . . .113
18.4. VENUE; SERVICE OF PROCESS; CERTAIN WAIVERS . . . . . . . . . . . . . .113
18.5. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . .114
18.6. INTERPRETATION; GOVERNING LAW; ETC . . . . . . . . . . . . . . . . . .114
</TABLE>
-vii-
<PAGE>
EXHIBITS
<TABLE>
<S> <C> <C>
1-A - Description of TCI Transactions
1-B - Borrowers, Restricted Companies, Investor Group Companies,
Guarantors
1-C - Example of Pro Rata Revolver Prepayment
2.1.3 - Form of Revolving Note
2.1.4 - Falcon Video Joinder
2.2.2 - Form of Term Loan B Note
2.3.2 - Form of Term Loan C Note
2.6 - New Falcon II Assignment and Assumption
5.1.5 - Pledge and Subordination Agreement
5.2.1. - Officer's Certificate
7.14 - Affiliate Contractual Obligations
8.1 - Restricted Companies
8.2.2 - Material Agreements
8.4 - Financing Debt, Certain Investments, etc.
8.7 - Litigation
11.1 - Lender Percentage Interests
12.1.1 - Assignment and Acceptance
</TABLE>
-viii-
<PAGE>
FALCON RESTRICTED COMPANIES
CREDIT AGREEMENT
This Agreement, dated as of June 30, 1998, is among the affiliates of
Falcon Holding Group, L.P., a Delaware limited partnership, set forth in Exhibit
8.1 hereto, their respective subsidiaries that are from time to time party
hereto and the Lenders (as defined below), including BankBoston, N.A. as
Documentation Agent for itself and the other Lenders, Toronto Dominion (Texas)
Inc., as Administrative Agent, NationsBank, N.A., as Syndication Agent, Bank of
America, N.T. & S.A., as Agent, and The Chase Manhattan Bank,, as Co-Syndication
Agent.
RECITALS: Under this Agreement, the Lenders are providing a $650,000,000
reducing revolving credit facility maturing in December 2006, a $200,000,000
amortizing term loan maturing in June 2007 and a $300,000,000 amortizing term
loan maturing in December 2007 and may make available in their discretion as
requested by the Borrowers up to $350,000,000 in additional revolving credit
and/or term loans pursuant to one or more supplemental credit facilities. The
Loan will be advanced initially to eight joint and several Borrowers, all of
whom (except Falcon First, Inc.) are limited partnerships of which Holding, L.P.
is the sole limited partner and Holding, L.P. and an Investor Group Company are
the sole general partners (except for Falcon Community Ventures I Limited
Partnership, whose ownership is set forth in Exhibit 8.1). Immediately prior to
the TCI Closing (as defined below), Falcon Video will become an additional
borrower under the revolving credit facility to the extent provided herein, and
upon the TCI Closing the sole borrower under all three facilities will be New
Falcon II. Except as set forth in Exhibit 8.1, each Investor Group Company is
itself a limited partnership of which Holding, L.P. is the sole limited partner
and Holding, L.P. and Holding, Inc. are the sole general partners. Holding,
Inc. is the sole general partner of Holding, L.P. Holding, L.P. owns all the
capital stock of Falcon First, Inc. All Investor Group Companies, all Borrowers
and all their respective Subsidiaries (other than the Excluded Companies) are
Restricted Companies hereunder and are guaranteeing all the Credit Obligations
(except to the extent otherwise provided herein prior to the TCI Closing and, in
the case of Falcon Video and its Investor Group Company, prior to the discharge
of Financing Debt of Falcon Video as contemplated in Section 5.3.1). In
addition, from and after the TCI Closing (and, in the case of Falcon Video and
its Investor Group Company, from and after the discharge of Financing Debt of
Falcon Video as contemplated in Section 5.3.1), New Falcon II is pledging its
equity interests in the other Restricted Companies, and Falcon Communications,
L.P. is pledging its equity interest in New Falcon II, as collateral for the
Credit Obligations.
The parties agree as follows:
1. DEFINITIONS; CERTAIN RULES OF CONSTRUCTION. Certain capitalized terms are
used in this Agreement and in the other Credit Documents with the specific
meanings defined below in this Section 1. Except as otherwise explicitly
specified to the contrary, (a) the capitalized term
<PAGE>
"Section" refers to sections of this Agreement, (b) the capitalized term
"Exhibit" refers to exhibits to this Agreement, (c) references to a
particular Section include all subsections thereof, (d) the word "including"
shall be construed as "including without limitation", (e) accounting terms
not otherwise defined herein shall have the meaning provided under GAAP, (f)
references to a particular statute or regulation include all rules and
regulations thereunder and any successor statute, regulation or rules, in
each case as from time to time in effect, (g) references to a particular
Person include such Person's successors and assigns to the extent not
prohibited by this Agreement and the other Credit Documents and (h)
references to "DOLLARS" or "$" mean United States Funds. References to "the
date hereof" mean the date first set forth above.
"ACCUMULATED BENEFIT OBLIGATIONS" means the actuarial present value of the
accumulated benefit obligations under any Plan, calculated in a manner
consistent with Statement No. 87 of the Financial Accounting Standards Board.
"ADMINISTRATIVE AGENT" means Toronto Dominion in its capacity as
administrative agent for the Lenders hereunder, as well as its successors and
assigns in such capacity pursuant to Section 11.6.
"AFFECTED LENDER" is defined in Section 12.3.
"AFFILIATE" means, with respect to any Restricted Company or New Falcon II
(or any other specified Person, including a Lender), any other Person directly
or indirectly controlling, controlled by or under direct or indirect common
control with such Restricted Company (or other specified Person) or, in the case
of any Lender which is an investment fund, the investment advisor thereof and
any investment fund having the same investment advisor, and shall include (a)
any officer or director or general partner of such Restricted Company (or other
specified Person) and (b) any Person of which the Restricted Company (or other
specified Person) or any Affiliate (as defined in clause (a) above) of such
Restricted Company (or other specified Person) shall, directly or indirectly,
beneficially own either (i) at least 15% of the outstanding equity securities
having the general power to vote or (ii) at least 15% of all equity interests.
"AGENT" means each of the Documentation Agent, the Administrative Agent,
the Syndication Agent, the Co-Syndication Agent and the Agent.
"AGGREGATE PERCENTAGE INTERESTS" means, at any date, the sum of the dollar
amounts represented by the Percentage Interests in each of the Revolving Loan,
Term Loan B, Term Loan C and the Supplemental Loan.
"AGREEMENT" means this Agreement as from time to time in effect.
"APPLICABLE MARGIN" means, on any date, the percentage in the table below
for the applicable portion of the Revolving Loan, Term Loan B or Term Loan C, as
the case may be, set opposite the applicable Reference Leverage Ratio.
-2-
<PAGE>
REVOLVING LOAN
<TABLE>
<CAPTION>
Eurodollar
Reference Leverage Ratio Base Rate Pricing Option
------------------------ --------- --------------
<S> <C> <C>
Greater than or equal to 5.50 0.375% 1.375%
Greater than or equal to 5.00 0.125% 1.125%
but less than 5.50
Greater than or equal to 4.50 0.000% 0.875%
but less than 5.00
Greater than or equal to 4.00 0.000% 0.625%
but less than 4.50
Less than 4.00 0.000% 0.500%
</TABLE>
; PROVIDED, HOWEVER, that if the TCI Closing does not occur by December 31,
1998, from January 1, 1999 until the TCI Closing, the Applicable Margin
indicated by the then-applicable Reference Leverage Ratio set forth above will
be increased 0.250%; and PROVIDED, FURTHER, that prior to the TCI Closing, the
Applicable Margin will be not less than 1.00% in the case of any Eurodollar
Pricing Option.
TERM LOAN B
<TABLE>
<CAPTION>
Eurodollar
Reference Leverage Ratio Base Rate Pricing Option
------------------------ --------- --------------
<S> <C> <C>
Greater than or equal to 5.50 1.000% 2.000%
Greater than or equal to 4.50 0.750% 1.750%
but less than 5.50
Less than 4.50 0.500% 1.500%
</TABLE>
; PROVIDED, HOWEVER, that if the TCI Closing does not occur by December 31,
1998, from January 1, 1999 until the TCI Closing, the Applicable Margin
indicated by the then-applicable Reference Leverage Ratio set forth above will
be increased 0.250%;
TERM LOAN C
<TABLE>
<CAPTION>
Eurodollar
Reference Leverage Ratio Base Rate Pricing Option
------------------------ --------- --------------
<S> <C> <C>
Greater than or equal to 5.50 1.250% 2.250%
Greater than or equal to 4.50 1.000% 2.000%
but less than 5.50
Less than 4.50 0.750% 1.750%
</TABLE>
-3-
<PAGE>
; PROVIDED, HOWEVER, that if the TCI Closing does not occur by December 31,
1998, from January 1, 1999 until the TCI Closing, the Applicable Margin
indicated by the then-applicable Reference Leverage Ratio set forth above will
be increased 0.250%; and, PROVIDED, FURTHER, that prior to the TCI Closing, the
Applicable Margin will be not less than 2.000% in the case of any Eurodollar
Pricing Option or 1.000% in the case of the Base Rate applicable to any portion
of Term Loan C.
Any adjustment in the Applicable Margin shall take effect on the third
Banking Day following the receipt by the Administrative Agent of the financial
statements required to be furnished by Section 7.4.1 or 7.4.2; PROVIDED,
HOWEVER, that if for any reason the Restricted Companies shall not have
furnished the financial statements required by Section 7.4.1 or 7.4.2 for any
fiscal quarter by the time required by such Sections and the Documentation Agent
reasonably determines that the Applicable Margin indicated by the Reference
Leverage Ratio for such fiscal quarter would be increased from that previously
in effect, commencing on the date which is three Banking Days after such
financial statements were due until the third Banking Day following receipt by
the Administrative Agent of such financial statements, the Applicable Margin
shall be the Applicable Margin as so increased.
In connection with the TCI Closing, an adjustment in the Applicable Margin
shall take effect on the later of (a) the TCI Closing or (b) the fifth Banking
Day following the receipt by the Administrative Agent of the TCI Closing Report;
PROVIDED, HOWEVER, that if for any reason the Restricted Companies shall not
have furnished the TCI Closing Report by the time required by Section 7.4.3 and
the Applicable Margin indicated by the Reference Leverage Ratio for the period
immediately following the TCI Closing would be increased from the Applicable
Margin previously in effect, commencing on the TCI Closing until the fifth
Banking Day following receipt by the Administrative Agent of the TCI Closing
Report, the Applicable Margin shall be the Applicable Margin as so increased.
"APPLICABLE MATURITY DATE" means (a) with respect to the Revolving Loan,
the Final Revolving Maturity Date, (b) with respect to Term Loan B, the Final
Term Loan B Maturity Date, (c) with respect to Term Loan C, the Final Term Loan
C Maturity Date and (d) with respect to the Supplemental Loan, the final
maturity date of the applicable portion of the Supplemental Loan.
"APPLICABLE RATE" means, at any date, the sum of:
(a) (i) with respect to each portion of the Loan subject to a
Eurodollar Pricing Option, the sum of the Applicable Margin PLUS the
Eurodollar Rate with respect to such Eurodollar Pricing Option;
(ii) with respect to each other portion of the Loan, the
sum of the Applicable Margin PLUS the Base Rate; and
-4-
<PAGE>
(iii) with respect to any Supplemental Facility, the rate
per annum agreed in writing by the Borrower and the Lenders
extending such Supplemental Facility in accordance with Section
2.4;
PLUS (b) an additional 2% beginning on the occurrence of an Event of
Default and ending on the date such Event of Default is no longer
continuing.
"ASSET REINVESTMENT RESERVE AMOUNT" is defined in Section 4.4.3.
"ASSIGNEE" is defined in Section 12.1.1.
"ASSIGNMENT AND ACCEPTANCE" is defined in Section 12.1.1.
"BANKBOSTON" means BankBoston, N.A.
"BANKING DAY" means any day other than Saturday, Sunday or a day on which
banks in Boston, Massachusetts or New York, New York are authorized or required
by law or other governmental action to close and, if such term is used with
reference to a Eurodollar Pricing Option, any day on which dealings are effected
in the Eurodollars in question by first-class banks in the inter-bank Eurodollar
markets in New York, New York and at the location of the applicable Eurodollar
Office.
"BANKRUPTCY CODE" means Title 11 of the United States Code (or any
successor statute) and the rules and regulations thereunder, all as from time to
time in effect.
"BANKRUPTCY DEFAULT" means an Event of Default referred to in
Section 9.1.11.
"BASE RATE" means, on any day, the greater of (a) the rate of interest
announced by the Administrative Agent at the Houston Office from time to time as
its corporate base rate (which may not be its lowest commercial lending rate) or
(b) the sum of 1/2% PLUS the Federal Funds Rate.
"BASIC EURODOLLAR RATE" means, as applied to any Interest Period, the
quotient (rounded to the nearest 1/100%) obtained by dividing (a) the sum of the
Basic Reference Eurodollar Rates of the Reference Lenders for such Interest
Period by (b) the number of such Reference Lenders. Each determination by the
Administrative Agent of any Basic Eurodollar Rate pursuant to the foregoing
sentence shall, in the absence of manifest error, be conclusive.
"BASIC REFERENCE EURODOLLAR RATE" means, for any Reference Lender as
applied to any Interest Period, the rate of interest at which Eurodollar
deposits in an amount comparable to the Percentage Interest of such Reference
Lender in the portion of the Loan as to which a Eurodollar Pricing Option has
been elected and which have a term corresponding to the Interest Period in
question are offered to such Reference Lender by first class banks in the
inter-bank Eurodollar
-5-
<PAGE>
market for delivery in immediately available funds at a Eurodollar Office on
the first day of such Interest Period as determined by the Administrative
Agent at approximately 10:00 a.m. (New York time) two Banking Days prior to
the date upon which the Interest Period in question is to commence, which
determination by the Administrative Agent shall, in the absence of manifest
error, be conclusive.
"BORROWER" or "BORROWERS" means (a) prior to the TCI Closing and the
contemporaneous execution and delivery of the New Falcon II Assignment and
Assumption by New Falcon II, (i) the Pre-TCI Borrowers and (ii) solely with
respect to the loan made pursuant to Section 2.1.4, upon the execution and
delivery of the Falcon Video Joinder, Falcon Video and (b) upon the TCI Closing
and the contemporaneous execution and delivery of the New Falcon II Assignment
and Assumption by New Falcon II, New Falcon II.
"BY-LAWS" means all written by-laws, rules, regulations and all other
documents relating to the management, governance or internal regulation of any
Person other than an individual, or interpretive of the Charter of such Person,
all as from time to time in effect.
"CAPITAL EXPENDITURES" means, for any period, amounts added or required to
be added to the property, plant and equipment or other fixed assets account on
the Consolidated balance sheet of the Restricted Companies, prepared in
accordance with GAAP, in respect of (a) the acquisition, construction,
improvement or replacement of land, buildings, machinery, equipment, leaseholds
and any other real or personal property, (b) to the extent not included in
clause (a) above, materials, contract labor and direct labor relating thereto
(excluding amounts properly expensed as repairs and maintenance in accordance
with GAAP) and (c) software development costs to the extent not expensed in
accordance with GAAP; PROVIDED, HOWEVER, that Capital Expenditures shall not
include the purchase price for the acquisition of another Person (or all or a
portion of the assets of another Person) as a going concern permitted by
Section 7.9; and PROVIDED, FURTHER, that Capital Expenditures shall not include
amounts funded with insurance proceeds received in respect of the loss of or
damage to property, plant, equipment or other fixed assets of the Restricted
Companies.
"CAPITALIZED LEASE" means any lease which is required to be capitalized on
the balance sheet of the lessee in accordance with GAAP, including Statement
Nos. 13 and 98 of the Financial Accounting Standards Board.
"CAPITALIZED LEASE OBLIGATIONS" means the amount of the liability
reflecting the aggregate discounted amount of future payments under all
Capitalized Leases calculated in accordance with GAAP, including Statement Nos.
13 and 98 of the Financial Accounting Standards Board.
"CASH EQUIVALENTS" means:
(a) negotiable certificates of deposit, time deposits (including
sweep accounts), demand deposits and bankers' acceptances issued by
any Lender or any United States
-6-
<PAGE>
financial institution having capital and surplus and undivided
profits aggregating at least $100,000,000 and rated at least
Prime-2 by Moody's Investors Service, Inc. or A-2 by Standard &
Poor's Ratings Group;
(b) short-term corporate obligations rated at least Prime-2 by
Moody's Investors Service, Inc. or A-2 by Standard & Poor's Ratings
Group, or issued by any Lender;
(c) any direct obligation of the United States of America or any
agency or instrumentality thereof, or of any state or municipality
thereof, (i) which has a remaining maturity at the time of purchase of
not more than one year or (ii) which is subject to a repurchase
agreement with any Lender (or any other financial institution referred
to in clause (a) above) exercisable within one year from the time of
purchase and (iii) which, in the case of obligations of any state or
municipality, is rated Aa2 or better by Moody's Investors Service,
Inc.;
(d) any mutual fund or other pooled investment vehicle rated Aa2
or better by Moody's Investors Service, Inc. which invests principally
in obligations described above; and
(e) in an amount not to exceed $5,000,000, deposits in overnight
sweep accounts offered by a bank described in clause (a) above.
"CERCLA" means the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980.
"CERCLIS" means the federal Comprehensive Environmental Response
Compensation Liability Information System List (or any successor document)
promulgated under CERCLA.
"CHARTER" means the articles of organization, certificate of incorporation,
statute, constitution, joint venture agreement, partnership agreement, limited
liability company operating agreement, trust indenture or other charter document
of any Person other than an individual, each as from time to time in effect.
"CLOSING DATE" means the Initial Closing Date and each subsequent date on
which any extension of credit is made pursuant to Section 2.1 or 2.4.
"CODE" means, collectively, the federal Internal Revenue Code of 1986 (or
any successor statute) and the rules and regulations thereunder.
"COMMITMENT" means, with respect to any Lender, such Lender's Percentage
Interest in the obligations to extend the credits contemplated by the Credit
Documents. The original Commitments are set forth in Exhibit 11.1.
-7-
<PAGE>
"COMMITMENT NOTICE" is defined in Section 2.4.1.
"COMMUNICATIONS ACT" means the federal Communications Act of 1934, the
federal Cable Television Consumer Protection and Competition Act of 1992 and the
federal Telecommunications Act of 1996.
"COMPUTATION COVENANTS" means Sections 7.5, 7.6.6, 7.6.7, 7.6.18, 7.7.3,
7.9.3, 7.9.7, 7.9.8, 7.9.9, 7.9.10, 7.9.12, 7.10.3, 7.10.4, 7.10.5, 7.10.7,
7.10.8, 7.10.9, 7.10.10, 7.11.3 and 7.11.5.
"CONSOLIDATED" and "CONSOLIDATING", when used with reference to any term,
mean that term as applied to the accounts of the Restricted Companies (or other
specified Person) and all of their respective Subsidiaries (or other specified
group of Persons), or such of their respective Subsidiaries as may be specified,
consolidated or combined or consolidating or combining, as the case may be, in
accordance with GAAP and with appropriate deductions for minority interests in
Subsidiaries, as required by GAAP; PROVIDED, HOWEVER, that in no event shall the
Excluded Companies be included in the Consolidated financial statements of the
Restricted Companies for purposes of compliance with Section 7 (other than
Section 7.4) or for purposes of determining the Applicable Margin and the
related definitions; and, PROVIDED, FURTHER, that upon the TCI Closing, the
Consolidated financial statements of the Restricted Companies and related
defined terms shall give pro forma effect to the TCI Transactions and the
addition of Falcon Video as a Restricted Company for calculation periods that
cover respective dates that are prior to and after the TCI Closing in a manner
consistent with Article 11 of Regulation S-X under the Securities Act.
"CONSOLIDATED ANNUALIZED OPERATING CASH FLOW" means the product of
Consolidated Operating Cash Flow multiplied by four.
"CONSOLIDATED CASH INTEREST EXPENSE" means, for any period, the aggregate
amount of interest, including payments in the nature of interest under
Capitalized Leases and net payments under Interest Rate Protection Agreements,
accrued by the Restricted Companies on Consolidated Total Debt and Interest Rate
Protection Agreements (whether such interest is reflected as an item of expense
or capitalized) in accordance with GAAP on a Consolidated basis; PROVIDED,
HOWEVER, that Consolidated Cash Interest Expense shall include commitment fees
and other Lender fees included in interest expense in accordance with GAAP and
Distributions to New Falcon I, Holding, L.P. and TCI and its Affiliates
described in Sections 7.10.3(a), (b) and (d) on account of interest on
Indebtedness incurred by New Falcon I, Holding, L.P. and TCI and its Affiliates,
but shall not include PIK Interest Payments.
"CONSOLIDATED EXCESS CASH FLOW" means, for any period, Consolidated
Operating Cash Flow MINUS Consolidated Total Fixed Charges.
-8-
<PAGE>
"CONSOLIDATED NET INCOME" means, for any period, the net income (or loss)
of the Restricted Companies determined in accordance with GAAP on a Consolidated
basis (giving pro forma effect to the results of operations for such period of
any Person or other business acquired through purchase or exchange by the
Restricted Companies in accordance with Section 7.9 during such period, but not
giving effect to the results of operations for such period contributed by any
System or other assets sold by the Restricted Companies during such period);
PROVIDED, HOWEVER, that Consolidated Net Income shall not include:
(a) the income (or loss) of any Person (other than a Restricted
Company or a Subsidiary of a Restricted Company) in which any
Restricted Company has an ownership interest; PROVIDED, HOWEVER, that
Consolidated Net Income shall include amounts in respect of the income
of such Person when actually received in cash by the Restricted
Companies in the form of dividends or similar Distributions;
(b) all amounts included in computing such net income (or loss)
in respect of the write-up of any asset or the retirement of any
Indebtedness at less than face value after December 31, 1997;
(c) the effect of extraordinary and nonrecurring items of gain,
income, loss or expense, including in any event the following items
(i) to the extent approved by at least two of the Specified Agents,
whose approval shall not be unreasonably withheld, litigation and tax
judgments and settlements, including the Falcon Cable Systems
Settlement Payments and (ii) payments of up to an aggregate of
$5,000,000 (or such larger amount as may be approved by at least two
of the Specified Agents) during any fiscal quarter of the Restricted
Companies in respect of: franchise taxes relating to prior periods;
sales, use and other tax assessments relating to prior periods;
payments, refunds or credits in respect of customer late fees relating
to prior periods; other similar items relating to prior periods; and
acquisition deposits that are forfeited during such period.
(d) the income of any Subsidiary (other than a Restricted
Company) to the extent the payment of such income in the form of a
Distribution or repayment of Indebtedness to any Restricted Company is
not permitted, whether on account of any Charter or By-law
restriction, any agreement, instrument, deed or lease or any law,
statute, judgment, decree or governmental order, rule or regulation
applicable to such Subsidiary or otherwise; and
(e) any after-tax gains or losses attributable to returned
surplus assets of any Plan.
For purposes of computing Consolidated Net Income for any fiscal quarter,
to the extent such items have not previously been accrued or allocated to a
prior period, (i) payments of insurance deductible amounts and discretionary
employee or management bonuses shall be allocated one fourth to the fiscal
quarter in which payment is made and one fourth to each of the
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<PAGE>
next three fiscal quarters and (ii) Consolidated Net Income shall include
100% of the income of each Restricted Company, notwithstanding that such
Restricted Company may not be a wholly owned Subsidiary of New Falcon I (or
Holding, L.P. prior to the TCI Closing) and that, as a result thereof, GAAP
would otherwise require a portion of such Restricted Company's income from
Consolidated Net Income to be deducted on account of minority interests in
such Restricted Company.
"CONSOLIDATED OPERATING CASH FLOW" means, for any three-month period, the
total of:
(a) Consolidated Net Income PLUS
(b) all amounts deducted in computing such Consolidated Net
Income in respect of:
(i) depreciation, amortization and other charges that are
not expected to be paid in cash;
(ii) interest on Financing Debt (including payments in the
nature of interest under Capitalized Leases) and net payments in
the nature of interest under Interest Rate Protection Agreements;
(iii) federal, state and local taxes based upon or measured
by income;
(iv) an amount equal to the payments made pursuant to
section 2.8(i) of the Contribution Agreement in respect of the
Existing Incentive Plan (as defined in the Contribution
Agreement);
(v) other non-cash charges; and
(vi) any reasonable costs incurred or expensed in
connection with an acquisition or disposition permitted by
Sections 7.9 or 7.11.
MINUS (c) to the extent Consolidated Net Income has not already
been reduced thereby, Distributions by the Restricted Companies to
Holding, L.P. of a type described in Section 7.10.4 (for reimbursement
of management expenses), whether or not permitted thereby.
"CONSOLIDATED PRO FORMA DEBT SERVICE" means, for any period, the sum of the
following items, projected to be accrued by the Restricted Companies:
(a) Consolidated Cash Interest Expense,
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PLUS (b) the aggregate amount of all mandatory scheduled payments
(excluding the final scheduled principal payment on each Term Loan) and
mandatory prepayments of revolving loans as a result of mandatory
reductions in revolving credit availability, all with respect to Financing
Debt of the Restricted Companies in accordance with GAAP on a Consolidated
basis, including payments in the nature of principal under Capitalized
Leases, but in no event including contingent prepayments required by
Sections 4.3, 4.4 or 4.5 or voluntary payments contemplated by Section 4.6.
For purposes of computing Consolidated Pro Forma Debt Service:
(i) the amount of Financing Debt outstanding on the first
day of such period shall be assumed to remain outstanding during
the entire period, except to the extent required to be reduced by
mandatory scheduled payments, mandatory payments on the Revolving
Loan and other items described in paragraph (b) above; and
(ii) where interest varies with a floating rate, the rate
in effect on the first day of such period will be assumed to
remain constant during the entire period (giving effect to any
applicable Interest Rate Protection Agreements).
"CONSOLIDATED REVENUES" means, for any period:
(a) the net operating revenues (after reductions for discounts)
of the Restricted Companies determined in accordance with GAAP on a
Consolidated basis;
MINUS (b) any proceeds included in such net operating revenues
from the sale, refinancing, condemnation or destruction of any
Systems;
MINUS (c) actual bad debt expense to the extent not already
deducted in computing such net operating revenues.
"CONSOLIDATED TOTAL DEBT" means, at any date, the principal amount of all
Financing Debt of the Restricted Companies on a Consolidated basis (other than
Indebtedness of the Restricted Companies owing to Holding, L.P. or to New Falcon
I permitted by Section 7.6.14 or Indebtedness of the Restricted Companies owing
to TCI or its Affiliates permitted by Section 7.6.15) MINUS the lesser of (a)
cash and Cash Equivalents of the Restricted Companies on a Consolidated basis in
accordance with GAAP or (b) $5,000,000.
"CONSOLIDATED TOTAL FIXED CHARGES" means, for any period, the sum of:
(a) Consolidated Cash Interest Expense,
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PLUS (b) the aggregate amount of all mandatory scheduled
payments and mandatory prepayments of revolving loans as a result of
mandatory reductions in revolving credit availability, all with
respect to Financing Debt of the Restricted Companies in accordance
with GAAP on a Consolidated basis, including payments in the nature of
principal under Capitalized Leases, but in no event including
contingent prepayments required by Sections 4.4 or 4.5 or voluntary
prepayments contemplated by Section 4.6.
PLUS (c) Capital Expenditures,
PLUS (d) federal, state and local taxes based upon or measured
by income actually paid by any Restricted Company, other than taxes
with respect to extraordinary and nonrecurring gains,
PLUS (e) Distributions by the Restricted Companies to their
partners or members that are not Restricted Companies of a type
described in Section 7.10.5 (in respect of taxes), whether or not
permitted thereby,
PLUS (f) to the extent not included in the foregoing clauses,
Distributions by the Restricted Companies to Holding, L.P., New Falcon
I or TCI and its Affiliates of a type described in Section 7.10.3 (for
debt service), whether or not permitted thereby.
"CONTRIBUTION AGREEMENT" means the Contribution and Purchase Agreement
dated December 30, 1997, among Holding, L.P., New Falcon I, Holding, Inc., TCI
Falcon Holdings, LLC and certain other parties named therein, including the
First Amendment dated March 23, 1998, the Second Amendment dated April 2, 1998,
and the Third Amendment dated May 12, 1998, as the same may be further amended,
modified or supplemented from time to time in accordance with Section 7.2.3.
"COPYRIGHT ACT" is defined in Section 8.6.2.
"CREDIT DOCUMENTS" means:
(a) this Agreement, the Notes, the Pledge and Subordination
Agreement, the fee agreement contemplated by Section 5.1.3, the Falcon
Video Joinder, the New Falcon II Assignment and Assumption and each
Interest Rate Protection Agreement provided by a Lender (or an
Affiliate of a Lender) to any Restricted Company, each as from time to
time in effect; and
(b) any other present or future agreement or instrument from
time to time entered into among any Restricted Company or (so long as
any Restricted Company is also party thereto) any Affiliate of any of
them, on one hand, and either the Documentation Agent or all the
Lenders, on the other hand, relating to, amending or modifying this
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Agreement or any other Credit Document referred to above or which is
stated to be a Credit Document, each as from time to time in effect.
"CREDIT OBLIGATIONS" means all present and future liabilities, obligations
and Indebtedness of any Restricted Company or any of their Affiliates party to a
Credit Document owing to any Lender (or, in the case of Interest Rate Protection
Agreements, any Affiliate of a Lender) under or in connection with this
Agreement or any other Credit Document, including obligations in respect of
principal, interest, commitment fees, payment and reimbursement obligations
under Interest Rate Protection Agreements, amounts provided for in
Sections 3.2.4, 3.4, 3.5, 3.6 and 10 and other fees, charges, indemnities and
expenses from time to time owing hereunder or under any other Credit Document
(all whether accruing before or after a Bankruptcy Default and whether or not
allowed in a bankruptcy proceeding).
"CREDIT PARTICIPANT" is defined in Section 12.2.
"CREDIT SECURITY" means all assets from time to time hereafter subjected to
a security interest, mortgage or charge (or intended or required so to be
subjected pursuant to the Pledge and Subordination Agreement or any other Credit
Document) to secure the payment or performance of any of the Credit Obligations.
"DEFAULT" means any Event of Default and any event or condition which with
the passage of time or giving of notice, or both, would become an Event of
Default.
"DELINQUENCY PERIOD" is defined in Section 11.4.3.
"DELINQUENT LENDER" is defined in Section 11.4.3.
"DELINQUENT PAYMENT" is defined in Section 11.4.3.
"DESIGNATED FINANCING DEBT" means Financing Debt incurred by a Restricted
Company after the date hereof other than Financing Debt permitted by
Sections 7.6.1 (the Credit Obligations), 7.6.7 (purchase money Indebtedness and
Capitalized Leases), 7.6.9 (intercompany Indebtedness), 7.6.10 (Holding, L.P.
Senior Subordinated Notes), 7.6.11 (existing Indebtedness) 7.6.14 (Indebtedness
owing from a Restricted Company to Holding, L.P. or New Falcon I), 7.6.15
(Indebtedness owing from a Restricted Company to TCI or its Affiliates) and
7.6.18 (other Indebtedness).
"DISTRIBUTION" means, with respect to any Restricted Company (or other
specified Person):
(a) the binding declaration or payment of any dividend or
distribution, including dividends payable in shares of capital stock
or other equity interests of any Restricted
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Company, on or in respect of any shares of any class of capital
stock or other equity interests of any Restricted Company;
(b) the purchase, redemption or other retirement by any
Restricted Company of any shares of any class of capital stock or
other equity interests of any Holding Company (or of options, warrants
or other rights for the purchase of such shares), directly, indirectly
through a Subsidiary or otherwise;
(c) any other distribution on or in respect of any shares of any
class of equity of or beneficial interest in any Restricted Company;
(d) any payment by any Restricted Company of principal or
interest with respect to, or any purchase, redemption or defeasance by
any Restricted Company of, any Indebtedness of any Holding Company
which by its terms or the terms of any agreement is subordinated to
the payment of the Credit Obligations; and
(e) any payment (including amounts accrued and payable for
management fees and reimbursement of expenses), loan or advance by any
Restricted Company to, or any other Investment by any Restricted
Company in, the holder of any shares of any class of capital stock of
or equity interest in any Holding Company or any Affiliate of such
holder;
PROVIDED, HOWEVER, that the term "DISTRIBUTION" shall not include payments in
the ordinary course of business in respect of (i) reasonable compensation paid
to employees, officers and directors, (ii) advances to employees for travel
expenses, drawing accounts and similar expenditures, (iii) rent paid to or
accounts payable for services rendered or goods sold by non-Affiliates or (iv)
intercompany accounts payable and real property leases to non-Affiliates.
"DOCUMENTATION AGENT" means BankBoston in its capacity as Documentation
Agent for the Lenders hereunder, as well as its successors and assigns in such
capacity pursuant to Section 11.6.
"ENSTAR" means Enstar Communications Corporation, a Georgia corporation
owned by Falcon Cablevision, a California Limited Partnership, which will be
transferred to New Falcon II as part of the TCI Transactions.
"ENVIRONMENTAL LAWS" means all applicable federal, state or local
statutes, laws, ordinances, codes, rules, regulations and guidelines having the
force of law (including consent decrees and administrative orders) relating to
public health and safety and protection of the environment.
"ERISA" means the federal Employee Retirement Income Security Act of 1974.
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"ERISA GROUP PERSON" means each Restricted Company, any Subsidiary and any
Person which is a member of the controlled group or under common control with
any Restricted Company within the meaning of section 414 of the Code or section
4001(a)(14) of ERISA.
"EURODOLLAR PRICING OPTIONS" means the options granted pursuant to
Section 3.2.1 to have the interest on any portion of the Loan computed on the
basis of a Eurodollar Rate.
"EURODOLLARS" means, with respect to any Lender, deposits of United States
Funds in a non-United States office or an international banking facility of such
Lender.
"EURODOLLAR OFFICE" means such non-United States office or international
banking facility of any Lender as the Lender may from time to time select.
"EURODOLLAR RATE" for any Interest Period means the rate, rounded to the
nearest 1/100%, obtained by dividing (a) the Basic Eurodollar Rate for such
Eurodollar Interest Period by (b) an amount equal to 1 MINUS the Eurodollar
Reserve Rate; PROVIDED, HOWEVER, that if at any time during such Interest Period
the Eurodollar Reserve Rate applicable to any outstanding Eurodollar Pricing
Option changes, the Eurodollar Rate for such Interest Period shall automatically
be adjusted to reflect such change, effective as of the date of such change.
"EURODOLLAR RESERVE RATE" means the stated maximum rate (expressed as a
decimal) of all reserves (including any basic, supplemental, marginal or
emergency reserve or any reserve asset), if any, as from time to time in effect,
required by any Legal Requirement to be maintained by any Lender against (a)
"Eurocurrency liabilities" as specified in Regulation D of the Board of
Governors of the Federal Reserve System (or any successor regulation), (b) any
other category of liabilities that includes Eurodollar deposits by reference to
which the interest rate on portions of the Loan covered by Eurodollar Pricing
Options is determined, (c) the principal amount of or interest on any portion of
the Loan covered by a Eurodollar Pricing Option or (d) any other category of
extensions of credit, or other assets, that includes loans covered by a
Eurodollar Pricing Option.
"EVENT OF DEFAULT" is defined in Section 9.1.
"EXCHANGE ACT" means the federal Securities Exchange Act of 1934.
"EXCLUDED COMPANIES" means Enstar, Enstar's Subsidiaries, Falcon Lake Las
Vegas Cablevision, L.P., a Delaware limited partnership, Falcon/Capital Cable, a
Delaware general partnership, Falcon/Capital Cable Partners, L.P., a Delaware
limited partnership, Falcon Britannia, L.P., a California limited partnership,
Falcon Classic, Duhamel Falcon Cable Mexico, L.L.C., a Delaware limited
liability company, Pacific Microwave Joint Venture, a California general
partnership, Wilcat Transmission Company, Inc., a Delaware corporation, Falcon
Pacific Microwave, Inc., a Delaware corporation, SFC Transmissions, a California
joint venture, and 212 Seventh Street, Inc., a Missouri corporation, and any
other Subsidiary (including a Subsidiary
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that is a Permitted Joint Venture) of a Restricted Company that at the time
of determination shall be designated as an Excluded Company by written notice
of such Restricted Company to the Documentation Agent. The Borrowers may
designate any Subsidiary of the Restricted Companies (including any newly
acquired or newly organized Subsidiary of the Restricted Companies) to be an
Excluded Company by written notice to the Documentation Agent, provided the
acquisition or organization of such Subsidiary would be permitted under
Section 7.9. The Borrowers may designate any Excluded Company to be a
Restricted Company by written notice to the Documentation Agent, provided
that no Default shall occur and be continuing or shall result as a
consequence thereof.
"FALCON CABLE SYSTEMS SETTLEMENT" is defined in Section 7.10.13.
"FALCON CABLE SYSTEMS SETTLEMENT PAYMENTS" is defined in Section 7.10.13.
"FALCON CLASSIC" means Falcon Classic Cable Income Properties, L.P., a
California limited partnership.
"FALCON FIRST" means Falcon First, Inc., a Delaware corporation.
"FALCON PERMITTED HOLDERS" means any of (a) Holding, Inc. for so long as a
majority of the voting power of the voting capital stock of Holding, Inc. is
beneficially owned by any of the Persons listed in the other clauses of this
definition, (b) any Nathanson Family Investor, (c) Tele-Communications, Inc., a
Delaware corporation, and TCI Communications, Inc., a Delaware corporation, (d)
any Person in which Tele-Communications, Inc. is the owner, directly or
indirectly, of at least 25% of the outstanding voting stock or other equity
interests of such Person, and (e) any Persons controlling, controlled by or
under common control with any other Person described in clauses (a) through (d)
of this definition; PROVIDED, HOWEVER, that for purposes of calculating the
amount of voting stock or other equity interests of any Persons held by Falcon
Permitted Holders, voting stock or other equity interests held by directors and
executive officers of Holdings, Inc. shall be deemed to be held by Falcon
Permitted Holders.
"FALCON VIDEO" means Falcon Video Communications, L.P., a Delaware limited
partnership.
"FALCON VIDEO JOINDER" is defined in Section 2.1.4.
"FALCON VIDEO REVOLVING LOAN" is defined in Section 2.1.4.
"FCC" means the Federal Communications Commission and any successor
governmental agency.
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"FCC LICENSE" means any broadcasting, community antenna television or relay
systems, each station, business radio, microwave and other license issued by the
FCC under the Communications Act.
"FEDERAL FUNDS RATE" means, for any day, (a) the rate equal to the weighted
average of the rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by federal funds brokers, as such weighted
average is published for such day (or, if such day is not a Banking Day, for the
immediately preceding Banking Day) by the Federal Reserve Bank of New York or
(b) if such rate is not so published for such Banking Day, as determined by the
Administrative Agent using any reasonable means of determination. Each
determination by the Administrative Agent of the Federal Funds Rate shall, in
the absence of manifest error, be conclusive.
"FINAL REVOLVING MATURITY DATE" means December 29, 2006.
"FINAL TERM LOAN B MATURITY DATE" means June 29, 2007.
"FINAL TERM LOAN C MATURITY DATE" means December 31, 2007.
"FINANCIAL OFFICER" means (a) the chief financial officer, treasurer or
corporate controller of Holding, Inc. in its capacity as general partner of the
managing general partner of New Falcon I, in its capacity as general partner of
the managing general partner of the sole member of New Falcon II, in its
capacity as managing general partner of each Investor Group Company, in such
Investor Group Company's capacity as the managing general partner of a Borrower
(or other specified Person), or a vice president whose primary responsibility is
for the financial affairs of Holding, Inc. (or other specified Person) in such
capacity, (b) in the case of Falcon First, the chief financial officer,
treasurer or corporate controller of Falcon First or a vice president whose
primary responsibility is for the financial affairs of Falcon First, (c) in the
case of Falcon Video, the chief financial officer, treasurer or corporate
controller of Falcon Video Communications Investors, L.P. or a vice president
whose primary responsibility is for the financial affairs of Falcon Video, (d)
in the case of any other specified Person, the chief financial officer,
treasurer, corporate controller or vice president whose primary responsibility
is for the financial affairs of such Person, and (e) in any event, Michael K.
Menerey and Jon W. Lunsford, all of whose incumbency and signatures will have
been certified to the Administrative Agent by an appropriate attesting officer
of Holding, Inc. (or other specified Person) prior to or contemporaneously with
the delivery of any certificates delivered to the Administrative Agent
hereunder.
"FINANCING DEBT" means:
(a) Indebtedness in respect of borrowed money;
(b) Indebtedness evidenced by notes, debentures or similar
instruments;
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(c) Indebtedness in respect of Capitalized Leases;
(d) Indebtedness in respect of the deferred purchase price of
assets (other than normal trade accounts payable that are not overdue
beyond customary practice); and
(e) Indebtedness in respect of mandatory redemption, repurchase
or dividend rights on capital stock (or other equity).
"FRANCHISE" means any franchise, permit, license or other authorization
granted by any governmental unit or authority that authorizes the construction
and operation of a System.
"GAAP" means generally accepted accounting principles, as defined by the
United States Financial Accounting Standards Board, as from time to time in
effect; PROVIDED, HOWEVER, that (a) for purposes of compliance with Section 7
(other than Section 7.4) and the related definitions, "GAAP" means such
principles as in effect on December 31, 1997 as applied by the Restricted
Companies in the preparation of the December 31, 1997 financial statements
referred to in Section 8.2.1(a), and consistently followed, without giving
effect to any subsequent changes thereto and (b) in the event of a change in
generally accepted accounting principles after such date, either the Borrowers
or the Required Lenders may request a change in the definition of "GAAP", in
which case the parties hereto shall negotiate in good faith with respect to an
amendment of this Agreement implementing such change.
"GUARANTEE" means, with respect to any Restricted Company (or other
specified Person):
(a) any guarantee by the Restricted Company of the payment or
performance of, or any contingent obligation by the Restricted Company
in respect of, any Financing Debt of any other Person;
(b) any other arrangement whereby credit is extended to a Person
on the basis of any promise or undertaking of the Restricted Company
(including any "comfort letter" or "keep well agreement" written by
the Restricted Company to a creditor or prospective creditor of such
Person) to (i) pay the Financing Debt of such Person, (ii) purchase an
obligation owed by such Person, (iii) pay for the purchase or lease of
assets or services regardless of the actual delivery thereof or (iv)
maintain the capital, working capital, solvency or general financial
condition of such Person, in each case whether or not such arrangement
is disclosed in the balance sheet of the Restricted Company or
referred to in a footnote thereto;
(c) any liability of the Restricted Company as a general partner
of a partnership in respect of Financing Debt of such partnership;
(d) any liability of the Restricted Company as a joint venturer
of a joint venture in respect of Financing Debt of such joint venture;
and
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(e) reimbursement obligations with respect to letters of credit,
surety bonds and other financial guarantees;
PROVIDED, HOWEVER, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The amount of any
Guarantee and the amount of Indebtedness resulting from such Guarantee shall be
the amount which should be carried on the balance sheet of the obligor whose
obligations were guaranteed in respect of such obligations, determined in
accordance with GAAP.
"GUARANTOR" means each Restricted Company and each Subsidiary of a
Restricted Company that is party hereto and is not either a Borrower or an
Excluded Company; PROVIDED, HOWEVER, that Falcon Video and Falcon Video
Investors, L.P. shall become Guarantors only upon the TCI Closing and the
discharge of Financing Debt of Falcon Video as contemplated in Section 5.3.1.
Exhibit 1-B lists the Guarantors prior to and immediately after the TCI Closing.
"HAZARDOUS MATERIAL" means, collectively, any pollutant, toxic or hazardous
material or waste, including any "hazardous substance" or "pollutant" or
"contaminant" as defined in section 101(14) of CERCLA or any similar state or
local statute or regulation or regulated as toxic or hazardous under the
Resource Conservation and Recovery Act or any similar state or local statute or
regulation, and the rules and regulations thereunder, as from time to time in
effect.
"HOLDING COMPANIES" means Holding, L.P., Holding, Inc. and their respective
Subsidiaries, including New Falcon I and the Restricted Companies.
"HOLDING, INC." means Falcon Holding Group, Inc., a California corporation
that is the general partner of Holding, L.P., or any successor corporation,
partnership, limited liability company or other entity that would not create an
Event of Default immediately as a result of such succession and that enters into
assumption agreements with respect to the Pledge and Subordination Agreement and
the other Credit Documents to which either Holding, Inc. or Holding, L.P. is a
party reasonably satisfactory to such successor and the Required Lenders in all
respects.
"HOLDING, L.P." means Falcon Holding Group, L.P., a Delaware limited
partnership, or any successor corporation, partnership, limited liability
company or other entity that would not create an Event of Default immediately as
a result of such succession and that enters into assumption agreements with
respect to the Pledge and Subordination Agreement and the other Credit Documents
to which either Holding, Inc. or Holding, L.P. is a party reasonably
satisfactory to such successor and the Required Lenders in all respects.
"HOLDING, L.P. SENIOR SUBORDINATED NOTES" means the 11% Senior Subordinated
Notes due September 15, 2003 issued by Holding, L.P. pursuant to the Senior
Subordinated Notes Indenture.
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"HOUSTON OFFICE" means the principal banking office of the Administrative
Agent in Houston, Texas.
"INDEBTEDNESS" means all obligations, contingent or otherwise, which in
accordance with GAAP are required to be classified upon the balance sheet of any
Restricted Company (or other specified Person) as liabilities, but in any event
including:
(a) indebtedness in respect of borrowed money;
(b) indebtedness evidenced by notes, debentures or similar
instruments;
(c) Capitalized Lease Obligations;
(d) the deferred purchase price of assets (including trade
accounts payable);
(e) mandatory redemption, repurchase or dividend obligations
with respect to capital stock (or other evidence of beneficial
interest);
(f) unfunded pension fund obligations and liabilities;
(g) all Guarantees and endorsements in respect of Indebtedness
of others; and
(h) liabilities secured by any Lien existing on property owned
or acquired by any Restricted Company, whether or not the liability
secured thereby shall have been assumed; PROVIDED, HOWEVER, that, to
the extent that a liability secured by a Lien on such property is
otherwise nonrecourse to the Restricted Company, the amount of
Indebtedness in respect of such liability shall be the lesser of the
fair market value of such property or the amount of such liability.
"INDEMNIFIED PARTY" is defined in Section 10.2.
"INITIAL CLOSING DATE" means June 30, 1998 or such other date prior to
September 30, 1998 as agreed by the Borrowers and the Documentation Agent as the
first Closing Date hereunder.
"INTEREST PERIOD" means any period, selected as provided in Section 3.2.1,
of one, two, three and six months (or any longer period to which all the Lenders
have given their consent to the Administrative Agent), commencing on any Banking
Day and ending on the corresponding date in the subsequent calendar month so
indicated (or, if such subsequent calendar month has no corresponding date, on
the last day of such subsequent calendar month); PROVIDED, HOWEVER, that subject
to Section 3.2.3, if any Interest Period so selected would otherwise begin or
end on a date which is not a Banking Day, such Interest Period shall instead
begin or end, as the case may be, on the immediately preceding or succeeding
Banking Day as determined by the Administrative
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Agent in accordance with the then current banking practice in the inter-bank
Eurodollar market with respect to Eurodollar deposits at the applicable
Eurodollar Office, which determination by the Administrative Agent shall, in
the absence of manifest error, be conclusive.
"INTEREST RATE PROTECTION AGREEMENT" means any interest rate swap, interest
rate cap, interest rate hedge or other contractual arrangement protecting a
Person against increases in variable interest rates or converting fixed interest
rates into variable interest rates on Financing Debt.
"INVESTMENT" means, with respect to any Restricted Company (or other
specified Person):
(a) any share of capital stock, other equity interest, evidence
of Indebtedness or other security issued by any other Person;
(b) any loan, advance or extension of credit to, or contribution
to the capital of, any other Person;
(c) any Guarantee of the Indebtedness of any other Person;
(d) any acquisition of all or any part of the business of any
other Person or the assets comprising such business or part thereof;
(e) any commitment or option to make any Investment if the
consideration for such commitment or option exceeds $1,000; and
(f) any other similar investment.
The investments described in the foregoing clauses (a) through (f) shall
constitute Investments whether they are made or acquired by purchase, exchange,
issuance of stock or other securities, merger, reorganization or any other
method; PROVIDED, HOWEVER, that Investments shall not include (i) current trade
and customer accounts receivable for property leased, goods furnished or
services rendered in the ordinary course of business and payable in accordance
with customary trade terms, (ii) advances, payments and prepayments to suppliers
for property leased, goods furnished and services rendered in the ordinary
course of business, (iii) advances to employees for travel expenses, drawing
accounts and similar expenditures, (iv) stock or other securities acquired in
connection with the satisfaction or enforcement of Indebtedness or claims due to
any Restricted Company or as security for any such Indebtedness or claim or (v)
demand deposits in banks or trust companies.
In determining the amount of outstanding Investments for purposes of
Section 7.9, the amount of any Investment shall be the cost thereof (including
the amount of any Indebtedness assumed in any purchase or secured by any asset
acquired in such purchase (whether or not any Indebtedness is assumed) or for
which any Person that becomes a Subsidiary is liable on the date
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on which the securities of such Person are acquired) MINUS any returns of
capital on such Investment actually received in cash (determined in
accordance with GAAP without regard to amounts realized as income on such
Investment).
"INVESTOR GROUP COMPANY" means any Person that is a managing general
partner of a Pre-TCI Borrower and, upon the TCI Closing and the discharge of the
Financing Debt of Falcon Video as contemplated by Section 5.3.1, Falcon Video
Communications Investors, L.P.; PROVIDED, HOWEVER, that in no event shall New
Falcon I constitute an Investor Group Company. Exhibit 1-B lists the Investor
Group Companies prior to and immediately after the TCI Closing.
"LEGAL REQUIREMENT" means any requirement imposed upon any of the Lenders
by any law of the United States of America or any jurisdiction in which any
Eurodollar Office is located or by any regulation, order, interpretation, ruling
or official directive of the Board of Governors of the Federal Reserve System or
any other board or governmental or administrative agency of the United States of
America, of any jurisdiction in which any Eurodollar Office is located, or of
any political subdivision of any of the foregoing. Any requirement imposed by
any such regulation, order, ruling or official directive not having the force of
law shall be deemed to be a Legal Requirement if any of the Lenders reasonably
believes that compliance therewith is in accordance with customary commercial
practice.
"LENDER" means the Persons owning a Percentage Interest in the Credit
Obligations or having a Commitment and their respective Assignees permitted by
Section 12.1.
"LENDING OFFICER" shall mean such officers or employees of the
Administrative Agent as from time to time designated by it in writing to the
Borrowers.
"LIEN" means, with respect to any Restricted Company (or any other
specified Person):
(a) Any encumbrance, mortgage, pledge, lien, charge or security
interest of any kind upon any property or assets of the Restricted
Company, whether now owned or hereafter acquired, or upon the income
or profits therefrom;
(b) The acquisition of, or the agreement to acquire, any
property or asset upon conditional sale or subject to any other title
retention agreement, device or arrangement (including a Capitalized
Lease); and
(c) The sale, assignment, pledge or transfer for security of any
accounts, general intangibles or chattel paper of the Restricted
Company, with or without recourse.
"LOAN" means, collectively, the Revolving Loan, the Term Loans and the
Supplemental Loan.
"MANDATORY ASSIGNMENT" is defined in Section 2.2.3.
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"MARGIN STOCK" means "margin stock" within the meaning of Regulations T, U
or X (or any successor provisions) of the Board of Governors of the Federal
Reserve System, or any regulations, interpretations or rulings thereunder, all
as from time to time in effect.
"MATERIAL ADVERSE CHANGE" means a material adverse change since December
31, 1997 in the business, assets, financial condition or income of the
Restricted Companies (on a Consolidated basis) (or any other specified Persons)
as a result of any event or development.
"MATERIAL AGREEMENTS" means each of the agreements listed in Exhibit 8.2.2
as in effect on the Initial Closing Date and furnished to the Lenders and as
subsequently amended, modified and supplemented in accordance with
Section 7.2.3.
"MATERIAL FINANCING DEBT" means any Financing Debt (other than the Credit
Obligations) outstanding in an aggregate amount of principal (whether or not
due) and accrued interest exceeding $10,000,000.
"MAXIMUM AMOUNT OF SUPPLEMENTAL CREDIT" is defined in Section 2.4.1.
"MAXIMUM AMOUNT OF SUPPLEMENTAL REVOLVING FACILITY CREDIT" is defined in
Section 2.4.1.
"MAXIMUM AMOUNT OF REVOLVING CREDIT" is defined in Section 2.1.1.
"MONY SUBORDINATED DEBT" means the 11.56% Series B Subordinated Notes due
March 31, 2001, originally issued by Falcon Telecable, a California Limited
Partnership, pursuant to a Note Purchase Agreement dated as of October 21, 1991,
as in effect from time to time in accordance with Section 7.2.3, with Affiliates
of the Mutual Life Insurance Company of New York, including notes evidencing
deferred fees due on account of risk-based capital requirements issued by such
Restricted Companies on the same terms as the other MONY Subordinated Debt
issued by Falcon Telecable, a California Limited Partnership.
"MULTIEMPLOYER PLAN" means any Plan that is a "multiemployer plan" as
defined in section 4001(a)(3) of ERISA.
"NATHANSON FAMILY INVESTORS" means Marc B. Nathanson, Greg Nathanson (the
brother of Marc B. Nathanson), Liliane Vladimirschi (the sister-in-law of Marc
B. Nathanson), any of their respective spouses, estates, lineal descendants
(including adoptive children), heirs, executors, personal representatives,
administrators, trusts for any of their benefit and charitable foundations to
which voting stock of Holding, Inc., Holding, L.P. or any successor thereto
beneficially owned by any of the foregoing have been transferred and
corporations and partnerships in which one or more of the foregoing own more
than 51% of the voting stock or other equity interests.
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<PAGE>
"NET CASH PROCEEDS" means the cash proceeds of an Operating Asset Sale by
any Restricted Company net of (a) any Indebtedness permitted by Section 7.6.7
(Capitalized Leases and purchase money indebtedness) secured by assets being
sold in such transaction required to be paid from such proceeds, (b) with
respect to any such Restricted Company that is not a tax flow-through entity,
income taxes that will be required to be paid as a result of such asset sale as
estimated by such Restricted Company in good faith, and with respect to any such
Restricted Company that is a tax flow-through entity, distributions to all the
direct or indirect holders of the equity of such Restricted Company, in
proportion to their ownership interests, sufficient to permit each such direct
or indirect holder of the equity of such Restricted Company to pay income taxes
that may be required to be paid by it as a result of such asset sale as
estimated by such Restricted Company in good faith, (c) all reasonable expenses
of such Restricted Company incurred in connection with the transaction and (d)
amounts subject to a reserve or escrow to fund indemnification obligations
incurred in connection with such asset sale; PROVIDED, HOWEVER, that the
principal (but not interest) component of amounts described in this clause (d)
will become Net Cash Proceeds upon release from such reserve or escrow.
"NET DEBT PROCEEDS" means the cash proceeds of the incurrence of Designated
Financing Debt by any Restricted Company (net of reasonable out-of-pocket
transaction fees and expenses).
"NEW FALCON I" means Falcon Communications, L.P., a California limited
partnership, and any successor corporation, partnership, limited liability
company or other entity that would not create an Event of Default immediately as
a result of such succession and that enters into assumption agreements with
respect to the Pledge and Subordination Agreement and the other Credit Documents
to which New Falcon I is a party reasonably satisfactory to such successor and
the Required Lenders in all respects.
"NEW FALCON I DEBENTURES" means, collectively, the $375,000,000 8.375%
Senior Debentures due 2010 and the $435,250,000 9.285% Senior Discount
Debentures due 2010, each issued jointly and severally by Holding, L.P. and its
Wholly Owned Subsidiary, Falcon Funding Corporation, pursuant to the New Falcon
I Debentures Indenture and assumed to the extent of Holding, L.P.'s obligations
by New Falcon I upon the TCI Closing.
"NEW FALCON I DEBENTURES INDENTURE" means the Indenture dated as of April
3, 1998, as in effect from time to time in accordance with Section 7.2.3, among
Holding, L.P., Falcon Funding Corporation and United States Trust Company of New
York, as trustee, with respect to the New Falcon I Debentures (and any
subsequent indentures on identical terms, except with respect to transfer
restrictions, entered into for a registered exchange offer of the New Falcon I
Debentures) and assumed to the extent of Holding, L.P.'s obligations by New
Falcon I upon the TCI Closing.
"NEW FALCON II" means Falcon Cable Communications, LLC, a Delaware limited
liability company.
"NEW FALCON II ASSIGNMENT AND ASSUMPTION" is defined in Section 2.6.
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<PAGE>
"NONPERFORMING LENDER" is defined in Section 11.4.3.
"NOTES" means each of the Revolving Notes, the Term B Notes, the Term C
Notes and the Supplemental Notes.
"OBLIGOR" means each Borrower and each other Restricted Company
guaranteeing or granting collateral to secure any Credit Obligations.
"OPERATING ASSETS" means (a) a group of tangible and intangible assets used
by a Person to provide cable television services or to conduct any related
activities, or (b) all of the outstanding capital stock of, or other equity
interests in, a Person engaged in the provision of cable television services or
conducting any related activities.
"OPERATING ASSET SALE" is defined in Section 4.4.1.
"PAYMENT DATE" means the last Banking Day of each March, June, September
and December occurring after the Initial Closing Date.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
entity.
"PERCENTAGE INTEREST" is defined in Section 11.1.
"PERFORMING LENDER" is defined in Section 11.4.3.
"PERMITTED ASSET SWAP" means the exchange by any Restricted Company of
Operating Assets (including Systems) (a) for fair value in a single transaction
(or a substantially contemporaneous series of related transactions) pursuant to
which, within five Banking Days of the transfer of such Operating Assets, the
Restricted Companies receive Operating Assets related to businesses permitted by
Section 7.2.1 or (b) in a transaction which qualifies as a like-kind exchange
under section 1031 of the Code or any successor provision (with any cash
received by the Restricted Company in connection with such exchange constituting
Net Cash Proceeds therefrom and any cash paid by the Restricted Company in
connection with such exchange being subject to the limitations of Section 7.9);
PROVIDED, HOWEVER, that (i) no single Permitted Asset Swap may involve Operating
Assets to which 15% or more of Consolidated Operating Cash Flow for the period
of four fiscal quarters of the Restricted Companies ending on the last day of
the fiscal quarter ending immediately prior to the date of such exchange is
properly allocable and (ii) the sum of the aggregate annual percentages
described in the foregoing clause (i) between the Initial Closing Date and the
Final Term Loan C Maturity Date shall not exceed 30%.
"PERMITTED JOINT VENTURE" means a joint venture, limited partnership,
corporation, general partnership or limited liability company or other entity
between or involving a Restricted Company pursuant to which the new entity would
operate a business not prohibited by section 7.2.1; PROVIDED, HOWEVER, that if
the Permitted Joint Venture is not a Restricted Company, the
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<PAGE>
Restricted Companies shall in no event incur any Financing Debt, by way of
guarantee, general partner or joint venturer liability or otherwise, as a
result of the incurrence of Financing Debt by any such joint venture, limited
partnership, corporation, general partnership or limited liability company.
"PERMITTED JOINT VENTURE INVESTMENT MULTIPLE AMOUNT" means the portion of
Consolidated Annualized Operating Cash Flow properly allocable to the Systems or
other assets contributed to (or otherwise invested in) a Permitted Joint Venture
that is not a Restricted Company at the time of and immediately after giving
effect to such Investment by the Restricted Companies for the period of three
consecutive months most recently ended prior to such contribution (or other
Investment) for which financial statements have been (or are required to have
been) furnished in accordance with Section 7.4.2 multiplied by the ratio of
Consolidated Total Debt to Consolidated Annualized Operating Cash Flow as shown
in the most recently submitted compliance computations pursuant to
Section 7.4.2(b).
"PERSON" means any present or future natural person or any corporation,
association, partnership, joint venture, company, limited liability company,
business trust, trust, organization, business or government or any governmental
agency or political subdivision thereof.
"PIK INTEREST PAYMENTS" means any accrued interest payments on Financing
Debt that are postponed, evidenced by book-entry accrual or made through the
issuance of "payment-in-kind" notes or other securities, all in accordance with
the terms of such Financing Debt; PROVIDED, HOWEVER, that in no event shall PIK
Interest Payments include payments made with cash or Cash Equivalents.
"PLAN" means, at any time, any pension benefit plan subject to Title IV of
ERISA maintained, or to which contributions have been made or are required to be
made, by any ERISA Group Person within six years prior to such time.
"PLEDGE AND SUBORDINATION AGREEMENT" means the Pledge and Subordination
Agreement dated as of the Initial Closing Date in substantially the form of
Exhibit 5.1.5, as from time to time in effect, among Holding, L.P., Holding,
Inc., the Restricted Companies, the Documentation Agent and, after the TCI
Closing, New Falcon I and New Falcon II.
"PRE-TCI BORROWERS" means, collectively, Falcon Cable Media, a California
Limited Partnership; Falcon Cable Systems Company II, L.P.; Falcon Cablevision,
a California Limited Partnership; Falcon Community Cable, L.P., a Delaware
limited partnership; Falcon Community Ventures I Limited Partnership, a
California limited partnership; Falcon First, Inc., a Delaware corporation;
Falcon Telecable, a California limited partnership; and Falcon Telecom, L.P., a
California Limited Partnership.
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<PAGE>
"PRO RATA REVOLVER PREPAYMENT PORTION" means, at any date, with respect to
specified Net Cash Proceeds from any Operating Asset Sale that will be allocated
to repay the Revolving Loan, the portion of such Net Cash Proceeds calculated as
follows:
(a) add all percentage reductions of the Revolving Loan
occurring on or after the date of such Operating Asset Sale through
the Final Revolving Maturity Date;
(b) divide the percentage reduction of each remaining Payment
Date by the sum in clause (a) above; and
(c) multiply the Net Cash Proceeds by the percentage determined
under clause (b) above for each such Payment Date.
An example of the computation of the Pro Rata Revolver Prepayment Portion is set
forth in Exhibit 1-C.
"PRO RATA TERM LOAN B PREPAYMENT PORTION" means, at any date, with respect
to specified Net Cash Proceeds from any Operating Asset Sale that will be
allocated to repay Term Loan B, the portion of such Net Cash Proceeds calculated
as follows:
(a) add all percentage reductions of Term Loan B occurring on or
after the date of such Operating Asset Sale up to but excluding the
Final Term Loan B Maturity Date;
(b) divide the percentage reduction of each remaining Payment
Date by the sum in clause (a) above; and
(c) multiply the Net Cash Proceeds by the percentage determined
under clause (b) above for each such Payment Date.
"PRO RATA TERM LOAN C PREPAYMENT PORTION" means, at any date, with respect
to specified Net Cash Proceeds from any Operating Asset Sale that will be
allocated to repay Term Loan C, the portion of such Net Cash Proceeds calculated
as follows:
(a) add all percentage reductions of Term Loan C occurring on or
after the date of such Operating Asset Sale up to but excluding the
Final Term Loan C Maturity Date;
(b) divide the percentage reduction of each remaining Payment
Date by the sum in clause (a) above; and
(c) multiply the Net Cash Proceeds by the percentage determined
under clause (b) above for each such Payment Date.
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<PAGE>
"PRO RATA TERM PREPAYMENT PORTIONS" means, collectively, the Pro Rata Term
Loan B Prepayment Portion and the Pro Rata Term Loan C Prepayment Portion.
"QUALIFIED INSTITUTIONAL BUYER" means:
(a) a duly authorized domestic bank, savings and loan
association, insurance company, registered investment company,
registered investment adviser or registered dealer, acting for its own
account or the accounts of other Qualified Institutional Buyers, which
in the aggregate owns and invests on a discretionary basis at least
$100 million in securities and (if a bank or savings and loan
association) which has a net worth of at least $25 million; or
(b) a foreign bank or savings and loan association or equivalent
institution, acting for its own account or the account of other
Qualified Institutional Buyers, which in the aggregate owns and
invests on a discretionary basis at least $100 million in securities
and has a net worth of at least $25 million; or
(c) any other entity which also constitutes a "qualified
institutional buyer" as defined in Rule 144A under the Securities Act;
or
(d) any other entity acceptable to the Restricted Companies.
"REDEEMABLE CAPITAL STOCK" means any class or series of capital stock or
other equity interests of any Person that, either by its terms, by the terms of
any security into which it is convertible or exchangeable or otherwise, is or
upon the happening of an event or passage of time would be, required to be
redeemed (in whole or in part) prior to the final maturity of any portion of the
Loan or is redeemable (in whole or in part) at the option of the holder thereof
at any time prior to the final maturity of any portion of the Loan.
"REFERENCE LENDER" means each of BankBoston and Toronto Dominion.
"REFERENCE LEVERAGE RATIO" means, at any date, the ratio of (a)
Consolidated Total Debt as of the end of the most recent fiscal quarter for
which financial statements have been furnished to the Lenders in accordance with
Section 7.4.2 prior to such date to (b) Consolidated Annualized Operating Cash
Flow for such period.
"REGISTER" is defined in Section 12.1.3.
"RELATED FUND" means, with respect to any Lender that is a fund that
invests in senior bank loans, any other fund or entity that invests in bank
loans and is advised or managed by the same investment advisor as such Lender or
by an Affiliate of such investment advisor.
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<PAGE>
"REMAINING DOLLAR-YEARS" of any Indebtedness means, at any date, the sum of
the products obtained by multiplying (a) the amount of each remaining scheduled
payment of principal (or in the case of a revolving credit facility, each
scheduled reduction in the revolving credit commitment) by (b) the number of
years (calculated to the nearest twelfth) which will elapse between such date
and the making of the payment (or in the case of a revolving credit facility,
such scheduled reduction in the revolving credit commitment).
"REPLACEMENT LENDER" is defined in Section 12.3.
"REQUIRED LENDERS" means, with respect to any consent or other action to be
taken by either the Lenders or any Agent under the Credit Documents, such
Lenders as own at least a majority of the Aggregate Percentage Interests;
PROVIDED, HOWEVER, that with respect to the matters referred to in the proviso
to Section 17.1, Required Lenders means such Lenders as own at least the
respective portions of the Percentage Interests indicated therein.
"RESOURCE CONSERVATION AND RECOVERY ACT" means the federal Resource
Conservation and Recovery Act, 42 U.S.C. section 690, ET SEQ.
"RESTRICTED COMPANY" means each of the Borrowers, the Guarantors, the
Investor Group Companies and their respective Subsidiaries that are Guarantors
and that are not Excluded Companies; PROVIDED, HOWEVER, that Falcon Video and
Falcon Video Communications Investors, L.P. shall become Restricted Companies
only upon the TCI Closing and the discharge of Financing Debt of Falcon Video as
contemplated by Section 5.3.1. Exhibit 1-B lists the Restricted Companies prior
to and immediately after the TCI Closing.
"REVOLVING LENDER" means each Lender owning a Percentage Interest in the
Revolving Loan or having a Commitment to extend a portion of the Revolving Loan
and its Assignees permitted by Section 12.1.
"REVOLVING LOAN" is defined in Section 2.1.1.
"REVOLVING NOTE" is defined in Section 2.1.3.
"SECURITIES ACT" means the federal Securities Act of 1933.
"SENIOR SUBORDINATED NOTES INDENTURE" means the Indenture dated as of
October 29, 1993, as in effect from time to time in accordance with Section
7.2.3, between Holding, L.P. and United States Trust Company of New York, as
trustee, with respect to the Holding, L.P. Senior Subordinated Notes (and any
subsequent indenture on identical terms, except with respect to transfer
restrictions, entered into for a registered exchange offer of the Holding, L.P.
Senior Subordinated Notes).
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<PAGE>
"SPECIFIED AGENTS" means, collectively, the Documentation Agent, the
Syndication Agent and the Administrative Agent.
"SUBSCRIBER" means each home with one or more television sets connected to
a System and each subscriber equivalent represented by a bulk account
(determined by dividing the total monthly bill for the account by the basic
monthly charge for a single outlet in the area).
"SUBSIDIARY" means any Person of which any Investor Group Company or
Borrower (or other specified Person) shall at the time, directly or indirectly
through one or more of its Subsidiaries, (a) own at least 50% of the outstanding
capital stock (or other shares of beneficial interest) entitled to vote
generally, (b) hold at least 50% of the partnership, joint venture or similar
interests or (c) be a general partner or joint venture.
"SUPPLEMENTAL AGENT" is defined in Section 2.4.1.
"SUPPLEMENTAL FACILITY" is defined in Section 2.4.1.
"SUPPLEMENTAL LENDERS" is defined in Section 2.4.1.
"SUPPLEMENTAL LOAN" is defined in Section 2.4.4.
"SUPPLEMENTAL NOTE" is defined in Section 2.4.4.
"SYNDICATION AGENT" means NationsBank, N.A. in its capacity as syndication
agent hereunder, as well as its successors and assigns in such capacity pursuant
to Section 11.6.
"SYSTEM" means the assets constituting a cable television system most of
which is within a geographical area covered by one or more Franchises held by
any Restricted Company serving subscribers who are connected by drop lines to
trunk or distribution lines carrying signals from one or more head-end
facilities.
"TAX" means any tax, levy, duty, deduction, withholding or other charges of
whatever nature at any time required by any Legal Requirement (a) to be paid by
any Lender or (b) to be withheld or deducted from any payment otherwise required
hereby to be made to any Lender, in each case on or with respect to (i) the
principal amount of or interest on any portion of the Loan, (ii) any fees,
expenses, indemnities or other amounts payable to any Lender under any Credit
Document or (iii) funds transferred from a non-United States office or an
international banking facility of any Lender to a United States office of such
Lender in order to fund (or deemed by Section 3.2.6 to have funded) a portion of
the Loan subject to a Eurodollar Pricing Option; PROVIDED, HOWEVER, that the
term "Tax" shall not include (A) taxes imposed upon or measured by the net
income of such Lender or (B) franchise or similar business licensing taxes for
qualification of offices of such Lender in any jurisdiction.
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<PAGE>
"TCI" means TCI Falcon Holdings, LLC, a Delaware limited liability company,
and any successor entity or transferee of TCI's interest in New Falcon I that
would not create an Event of Default immediately as a result of such succession
or transfer.
"TCI CLOSING" means the "Closing" as defined in the Contribution Agreement.
"TCI CLOSING REPORT" is defined in Section 7.4.3.
"TCI DEBT" means the Financing Debt, not to exceed $440,000,000 in
aggregate principal amount, assumed by New Falcon II in the TCI Transactions
pursuant to section 4.1 of the Contribution Agreement.
"TCI TRANSACTIONS" means the transactions described in the memorandum
attached as Exhibit 1-A and the related transactions described in the
Contribution Agreement.
"TERM LENDER" means each Lender owning a Percentage Interest in the Term
Loans or having a Commitment to extend a portion of the Term Loans and its
Assignees permitted by Section 12.1.
"TERM LOAN" means Term Loan B and Term Loan C, collectively.
"TERM LOAN B" is defined in Section 2.2.1.
"TERM LOAN B NOTE" is defined in Section 2.2.2.
"TERM LOAN B-1" is defined in Section 2.2.1.
"TERM LOAN B-1 LENDERS" is defined in Section 2.2.1.
"TERM LOAN B-2" is defined in Section 2.2.1.
"TERM LOAN B-2 CLOSING DATE" is defined in Section 2.2.1.
"TERM LOAN B-2 LENDERS" is defined in Section 2.2.1.
"TERM LOAN C" is defined in Section 2.3.1.
"TERM LOAN C LENDERS" is defined in Section 2.3.1.
"TERM LOAN C NOTE" is defined in Section 2.3.2.
"TERM NOTES" means the Term Loan B Notes and the Term Loan C Notes,
collectively.
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<PAGE>
"TORONTO DOMINION" means Toronto Dominion (Texas) Inc.
"TRANCHE" means each of the Revolving Loan, Term Loan B, Term Loan C and
the Supplemental Loan, each considered as a separate credit facility.
"UNITED STATES FUNDS" means such coin or currency of the United States of
America as at the time shall be legal tender therein for the payment of public
and private debts.
"WEIGHTED AVERAGE LIFE TO MATURITY" of any Indebtedness means, at any date,
the number of years obtained by dividing the Remaining Dollar-Years of such
Indebtedness by the outstanding principal amount of the Indebtedness (or, in the
case of a revolving credit facility, the maximum amount of revolving credit
commitment, regardless of the amount of revolving loans then outstanding).
"WHOLLY OWNED SUBSIDIARY" means any Subsidiary of which all of the
outstanding capital stock (or other shares of beneficial interest) entitled to
vote generally (other than directors' qualifying shares) is owned by any
Investor Group Company or any Borrower (or other specified Person) directly, or
indirectly through one or more Wholly Owned Subsidiaries.
2. THE CREDITS.
2.1. REVOLVING CREDIT.
2.1.1. REVOLVING LOAN. Subject to all of the terms and conditions
of this Agreement and so long as no Default exists and is continuing, each
Revolving Lender severally agrees to make revolving loans to the Borrowers,
who, except as provided in Section 2.1.4, shall be jointly and severally
liable therefor, in an aggregate principal amount for all Revolving Lenders
equal to the amount requested in accordance with Section 2.1.2 from time to
time prior to the Final Revolving Maturity Date, but not to exceed at any
time outstanding the Maximum Amount of Revolving Credit. In no event will
the principal amount of the loans at any one time outstanding made by any
Revolving Lender under this Section 2.1 exceed an amount equal to such
Revolving Lender's Percentage Interest in the Maximum Amount of Revolving
Credit.
"MAXIMUM AMOUNT OF REVOLVING CREDIT" means, on any date, the amount
set forth for such date in the table below, reduced as provided further
below:
<TABLE>
<CAPTION>
Percentage
Date Stated Amount Reduction
---- ------------- ---------
<S> <C> <C>
Prior to September 30, 2001 $650,000,000 0.000%
September 30, 2001 through
December 30, 2001 $633,750,000 2.500%
</TABLE>
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<TABLE>
<S> <C> <C>
December 31, 2001 through
March 30, 2002 $617,500,000 2.500%
March 31, 2002 through
June 29, 2002 $601,250,000 2.500%
June 30, 2002 through
September 29, 2002 $585,000,000 2.500%
September 30, 2002 through
December 30, 2002 $568,750,000 2.500%
December 31, 2002 through
March 30, 2003 $552,500,000 2.500%
March 31, 2003 through
June 29, 2003 $536,250,000 2.500%
June 30, 2003 through
September 29, 2003 $520,000,000 2.500%
September 30, 2003 through
December 30, 2003 $503,750,000 2.500%
December 31, 2003 through
March 30, 2004 $487,500,000 2.500%
March 31, 2004 through
June 29, 2004 $455,000,000 5.000%
June 30, 2004 through
September 29, 2004 $422,500,000 5.000%
September 30, 2004 through
December 30, 2004 $390,000,000 5.000%
December 31, 2004 through
March 30, 2005 $357,500,000 5.000%
March 31, 2005 through
June 29, 2005 $316,875,000 6.250%
June 30, 2005 through
September 29, 2005 $276,250,000 6.250%
September 30, 2005 through
December 30, 2005 $235,625,000 6.250%
December 31, 2005 through
March 30, 2006 $195,000,000 6.250%
March 31, 2006 through
June 29, 2006 $146,250,000 7.500%
June 30, 2006 through
September 29, 2006 $ 97,500,000 7.500%
September 30, 2006 up to the Final
Revolving Maturity Date $ 48,750,000 7.500%
Final Revolving Maturity Date $ 0 7.500%
</TABLE>
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<PAGE>
Each amount in the foregoing table shall be further permanently reduced by
the following amounts:
(a) The sum of the Pro Rata Revolver Prepayment Portions
applicable to the reduction date for such amount set forth in such
table of the respective amounts of Net Cash Proceeds from Operating
Asset Sales to the extent that such Net Cash Proceeds are not applied
to repay the Term Loans or the Supplemental Loan pursuant to
Section 4.4 or allocated to an effective Asset Reinvestment Reserve
Amount.
(b) The amount of Net Debt Proceeds to the extent that such
amount is allocated to the permanent reduction of the Maximum Amount
of Revolving Credit by Section 4.5.
(c) Upon any Investment pursuant to Section 7.9.9 in a Permitted
Joint Venture that is not a Restricted Company at the time of and
immediately after giving effect to such Investment, the Permitted
Joint Venture Investment Multiple Amount with respect to such
Investment.
(d) Such amount (in an integral multiple of $1,000,000 and in a
minimum amount of $1,000,000) specified by three Banking Days' notice
from the Borrowers to the Administrative Agent.
The aggregate principal amount of the loans made pursuant to this
Section 2.1.1 at any time outstanding is referred to as the "REVOLVING
LOAN".
2.1.2. BORROWING REQUESTS. Revolving Loans will be made to the
Borrowers by the Revolving Lenders under Section 2.1.1 on any Banking Day
on or after the Initial Closing Date and prior to the Final Revolving
Maturity Date. Not later than noon (New York time) on the first Banking
Day (third Banking Day if any portion of such loan will be subject to a
Eurodollar Pricing Option on the requested Closing Date) prior to the
requested Closing Date for any such loan, a Financial Officer for the
Borrowers will give the Administrative Agent notice of its request (which
may be given by a telephone call received by a Lending Officer and promptly
confirmed in writing), specifying (a) the amount of the requested loan (not
less than $1,000,000 and an integral multiple of $100,000) (except to the
extent a greater amount may be required in the case of a Eurodollar Pricing
Option) and (b) the requested Closing Date therefor. Upon receipt of such
notice by the Administrative Agent, the Administrative Agent shall give
prompt telephonic or written notice to each Lender. Each such loan will be
made at the Houston Office by wire deposit to the Administrative Agent as
specified in writing from time to time. In connection with each such loan,
the Borrowers shall furnish to the Administrative Agent a certificate in
substantially the form of Exhibit 5.2.1.
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<PAGE>
2.1.3. REVOLVING NOTES. The Administrative Agent shall keep a
record of the Revolving Loan and the respective interests of the Lenders
therein as part of the Register, which shall evidence the Revolving Loan.
The Revolving Loan shall be deemed owed to each Lender having a Commitment
therein severally in accordance with such Lender's Percentage Interest
therein, and all payments thereon shall be for the account of each Lender
in accordance with its Percentage Interest therein. Upon written request
of any Lender, the Borrowers' obligations to pay such Lender's Percentage
Interest in the Revolving Loan shall be evidenced by a separate note of the
Borrowers in substantially the form of Exhibit 2.1.3 (the "REVOLVING
NOTES"), payable to such Lender in accordance with such Lender's Percentage
Interest in the Revolving Loan.
2.1.4. FALCON VIDEO REVOLVING LOAN. Upon or after execution and
delivery by Falcon Video of a joinder agreement in substantially the form
of Exhibit 2.1.4 (the "FALCON VIDEO JOINDER"), Falcon Video may request,
and each Revolving Lender severally agrees to make in accordance with this
Section 2.1, a revolving loan to Falcon Video in an amount sufficient to
permit Falcon Video to discharge its obligations pursuant to section 2.8(b)
of the Contribution Agreement (the "FALCON VIDEO REVOLVING LOAN");
PROVIDED, HOWEVER, that in no event will the Falcon Video Revolving Loan
exceed $125,000,000 or cause the Revolving Loan to exceed the Maximum
Amount of Revolving Credit.
Not later than noon (New York time) on the third Banking Day prior to
the requested initial Closing Date for the Falcon Video Revolving Loan,
which initial Closing Date shall be on or immediately prior to the TCI
Closing, a Financial Officer for Falcon Video will give the Administrative
Agent written notice of its request, specifying (a) the amount of the
requested loan (not less than $1,000,000 and an integral multiple of
$100,000) (except to the extent a greater amount may be required in the
case of a Eurodollar Pricing Option) and (b) the requested Closing Date
therefor. Upon receipt of such notice by the Administrative Agent, the
Administrative Agent shall give prompt telephonic or written notice to each
Revolving Lender. Such loan will be made at the Houston Office by wire
deposit to the Administrative Agent as specified in writing from time to
time. In connection with such loan, Falcon Video shall furnish to the
Administrative Agent a certificate in substantially the form of Exhibit
5.2.1.
Prior to the TCI Closing and the discharge of Financing Debt of Falcon
Video as contemplated in Section 5.3.1, Falcon Video shall be solely liable
for the Falcon Video Revolving Loan, which shall in all other respects be
treated for purposes of this Agreement as a portion of the Revolving Loan.
Prior to the TCI Closing and the discharge of Financing Debt of Falcon
Video as contemplated in Section 5.3.1, no other Borrowers or Guarantors
shall be liable in respect of the Falcon Video Revolving Loan, and, prior
to the TCI Closing and the discharge of Financing Debt of Falcon Video as
contemplated in Section 5.3.1, Falcon Video shall not be liable for, or
incur any obligation hereunder in respect of, any portion of the Loan other
than the Falcon Video
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Revolving Loan. Prior to the TCI Closing and the discharge of Financing
Debt of Falcon Video as contemplated in Section 5.3.1, the Falcon Video
Revolving Loan shall be unsecured by any collateral granted in favor of
the Lenders, and the Lenders acknowledge the existence of first priority
Liens on the assets of Falcon Video (and Falcon Video Communications
Investors, L.P.'s partnership interest in Falcon Video) securing Falcon
Video's obligations to its present senior lenders, which existing Liens
are permitted hereunder to the extent provided in Section 7.8.14.
Immediately after the TCI Closing, pursuant to Section 2.6, New Falcon
II will assume Falcon Video's liabilities and obligations as the
Borrower in respect of the Falcon Video Revolving Loan and the Falcon
Video Revolving Loan will thereafter be treated for all purposes of this
Agreement as a portion of the Revolving Loan.
2.2. TERM LOAN B.
2.2.1. TERM LOAN B. Subject to all the terms and conditions of this
Agreement and so long as no Default exists and is continuing, on the
Initial Closing Date, the Lenders other than the Lenders that are also
acting as Agents (the "TERM LOAN B-1 LENDERS") will, in accordance with
their respective Percentage Interests in Term Loan B-1, severally lend to
the Borrowers (who shall be jointly and severally liable therefor) as a
term loan ("TERM LOAN B-1") an aggregate amount of $125,794,117.75. On a
date after the Initial Closing Date, but in no event later than September
30, 1998 (the "TERM LOAN B-2 CLOSING DATE"), the Lenders that are also
acting as Agents (the "TERM LOAN B-2 LENDERS") will, upon at least five
Banking Days' written notice from the Borrowers to the Administrative
Agent, in accordance with their respective Percentage Interests in Term
Loan B-2, severally lend to the Borrowers (who shall be jointly and
severally liable therefor) as a term loan ("TERM LOAN B-2") an aggregate
amount of $74,205,882.25. The aggregate principal amount of the loans made
pursuant to this Section 2.2.1 at any one time outstanding is collectively
referred to as "TERM LOAN B". In connection with both Term Loan B-1 and
Term Loan B-2, the Borrowers shall furnish to the Administrative Agent
certificates in substantially the form of Exhibit 5.2.1.
2.2.2. TERM LOAN B NOTES. Term Loan B-1 and Term Loan B-2 shall be
made at the Houston Office by crediting the amount of each such loan to the
general account of the Borrowers with the Administrative Agent against, in
each case, delivery to the Administrative Agent of the separate joint and
several term notes of the Borrowers (the "TERM LOAN B NOTES") payable to
the respective Lenders. The Term Loan B Note issued to each Lender shall
be in substantially the form of Exhibit 2.2.2.
2.2.3. MANDATORY ASSIGNMENT OF TERM LOAN B-1. On any Banking Day
prior to the earlier of the Term Loan B-2 Closing Date and October 15,
1998, after the occurrence and during the continuance of an Event of
Default, the Term Loan B-1 Lenders holding at least a majority of Term Loan
B-1 may, in their sole discretion, give notice to the Term Loan B-2 Lenders
and the Borrowers that all Term Loan B-1 Lenders are making a
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mandatory assignment at par of a portion of Term Loan B-1 to the Term
Loan B-2 Lenders (the "MANDATORY ASSIGNMENT") within the next five
Banking Days. The portion of Term Loan B-1 subject to the Mandatory
Assignment shall be in the amount necessary so that, after giving effect
to the Mandatory Assignment, the Term Loan B-1 Lenders and the Term Loan
B-2 Lenders will own the respective Percentage Interests in Term Loan
B-1 that they would have owned in Term Loan B in the event Term Loan B-2
had been outstanding. Such a notice of the Mandatory Assignment shall be
deemed to have been automatically given upon a Bankruptcy Default or
upon the exercise of any of the remedies provided in Section 9.2. Each
Lender irrevocably agrees to consummate the Mandatory Assignment in the
manner specified above in this Section 2.2.3, notwithstanding (a)
whether any conditions specified in Section 5 have been satisfied and
(b) that a Default has occurred and is continuing. In the event that
any Mandatory Assignment cannot for any reason be made on the date
required above (including as a result of the commencement of a
proceeding under the Bankruptcy Code), each Term Loan B-2 Lender shall
promptly purchase from the Term Loan B-1 Lenders as of the date the
Mandatory Assignment otherwise would have occurred such participation in
Term Loan B-1 as shall be necessary to cause the Lenders to share in
Term Loan B-1 ratably based upon their respective Percentage Interests
in Term Loan B as if Term Loan B-2 had been outstanding. In the event
of such participations, all interest payable on Term Loan B-1 shall be
for the account of the Term Loan B-1 Lenders until the date on which the
participations are required to be purchased and, to the extent
attributable to the purchased participations, shall be payable to the
participants from and after such date. At the time any such purchase of
participations is actually made, the purchasing Lender shall pay the
Term Loan B-1 Lenders interest on the principal amount of the
participation purchased at the overnight Federal Funds Rate for each
day, commencing with the date the Mandatory Assignment otherwise would
have occurred to the date of payment for such participation. In the
event a Mandatory Assignment is consummated and the Borrowers
subsequently become entitled to borrow Term Loan B-2 in accordance with
this Agreement, the Commitments of the Lenders in Term Loan B-2 shall
equal the Percentage Interests in Term Loan B as if Term Loan B-2 had
already been outstanding.
2.3. TERM LOAN C.
2.3.1. TERM LOAN C. Subject to all the terms and conditions of
this Agreement and so long as no Default exists and is continuing, on the
Initial Closing Date those Lenders having Commitments in Term Loan C (the
"TERM LOAN C LENDERS") will, in accordance with their respective Percentage
Interests in Term Loan C, severally lend to the Borrowers (who shall be
jointly and severally liable therefor) as a term loan an aggregate amount
of $300,000,000. The aggregate principal amount of the loans made pursuant
to this Section 2.3.1 at any one time outstanding is referred to as "TERM
LOAN C". In connection with Term Loan C, the Borrowers shall furnish to
the Administrative Agent a certificate in substantially the form of Exhibit
5.2.1.
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2.3.2. TERM LOAN C NOTES. Term Loan C shall be made at the Houston
Office by crediting the amount of such loan to the general account of the
Borrowers with the Administrative Agent against delivery to the
Administrative Agent of the separate joint and several term notes of the
Borrowers (the "TERM LOAN C NOTES") payable to the respective Term Loan C
Lenders. The Term Loan C Note issued to each Term Loan C Lender shall be
in substantially the form of Exhibit 2.3.2.
2.4. SUPPLEMENTAL CREDIT.
2.4.1. REQUEST FOR SUPPLEMENTAL FACILITIES. Subject to all the
terms of this Agreement and so long as no Default exists and is continuing,
from time to time on and after the Initial Closing Date, the Borrowers may
request, by written notice to the Documentation Agent, a revolving credit
and/or term loan facility (a "SUPPLEMENTAL FACILITY") in a specified
aggregate amount (in the case of a revolving credit facility requested
under this Section 2.4.1, the "MAXIMUM AMOUNT OF SUPPLEMENTAL REVOLVING
FACILITY CREDIT") that, when added to the sum of then effective
Supplemental Facilities, does not exceed $350,000,000 (the "MAXIMUM AMOUNT
OF SUPPLEMENTAL CREDIT"). The interest rate, commitment fee rate,
amortization schedule, maturity date and other terms and conditions for
each Supplemental Facility shall be proposed by the Borrowers at the time
the Borrowers request such Supplemental Facility; PROVIDED, HOWEVER, that
(a) the maturity of all or any portion of such Supplemental Facility shall
in no event occur prior to the Final Term Loan C Maturity Date, (b) the
Weighted Average Life to Maturity of such Supplemental Facility shall in no
event be shorter than, if the Supplemental Facility is a revolving credit
loan, the Weighted Average Life to Maturity of the Revolving Loan and, if
the Supplemental Facility is a term loan, the Weighted Average Life to
Maturity of Term Loan C and (c) the terms and conditions of such
Supplemental Facility shall be materially no more restrictive on the
Restricted Companies than the provisions of this Agreement applicable to
the Loan. Such request shall also include a diligence package with respect
to any proposed acquisition to which the requested Supplemental Facility
relates.
Upon receipt of such request and proposed terms, the Documentation
Agent will promptly notify, and deliver a copy of such request and related
materials to, each other Lender (by telephone or otherwise). Within 10
Banking Days after receipt by the Lenders of such request, each Lender
interested in participating in the requested Supplemental Facility shall
notify the Documentation Agent and the Borrowers of its desire to
participate and the maximum amount of its proposed Commitment with respect
to such Supplemental Facility (a "COMMITMENT NOTICE"); PROVIDED, HOWEVER,
that each Lender may participate in such Supplemental Facility in its sole
discretion, and no Lender shall be deemed to have committed to participate
in any Supplemental Facility as of the date hereof, nor shall any Lender
have any obligation to participate in any Supplemental Facility unless and
until it commits to do so as provided in this Section 2.4.1. Following
receipt of such Commitment Notices, the Borrowers (i) shall allocate the
Commitments
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with respect to such Supplemental Facility, which allocations may be
made, at the Borrowers' option, in whole or in part to one or more of
the Lenders or other lenders selected by the Borrowers (such Lenders or
other lenders, the "SUPPLEMENTAL LENDERS"), (ii) shall select one or
more financial institutions (which financial institutions may, but need
not, include one or more of the Agents or Lenders) to serve as the agent
or agents for the Supplemental Facility (such agent or agents, the
"SUPPLEMENTAL AGENT") and (iii) shall advise each Lender of the amount
of such Lender's Commitment with respect to the Supplemental Facility;
PROVIDED; HOWEVER, that the existing Lenders providing a Commitment
Notice with respect to such Supplemental Facility shall be entitled to
participate in such Supplemental Facility on terms and conditions
generally applicable to all Supplemental Lenders with respect to such
Supplemental Facility, subject, however, to the allocations made by the
Borrowers pursuant to clause (i) above. Supplemental Lenders and
Supplemental Agents not otherwise Lenders hereunder shall become Lenders
hereunder pursuant to a joinder agreement reasonably satisfactory to the
Specified Agents and the Borrowers. The Specified Agents and the
Borrowers will agree on amendments to this Agreement, if any, necessary
to implement any Supplemental Facility and a form of Supplemental Note
to be issued by the Borrowers in connection with such Supplemental
Facility.
2.4.2. SUPPLEMENTAL FACILITIES. Subject to all the terms and
conditions of this Agreement and so long as no Default exists and is
continuing, from time to time on and after the Initial Closing Date and
prior to the final maturity of the Supplemental Facility determined in
accordance with Section 2.4.1, the Supplemental Lenders will, severally in
accordance with their respective Commitments therein, make loans to the
Borrowers with respect to such Supplemental Facility as may be requested by
the Borrowers in accordance with Section 2.4.3. The aggregate principal
amount of outstanding revolving loans under any Supplemental Facility shall
in no event exceed the Maximum Amount of Revolving Facility Credit for such
Supplemental Facility. The sum of the aggregate principal amount of
outstanding loans under all Supplemental Facilities shall in no event
exceed the Maximum Amount of Supplemental Credit.
2.4.3. BORROWING REQUESTS. After a Supplemental Facility has been
established as provided in this Section 2.4, the Borrowers may from time to
time request a loan under this Section 2.4 by providing to the Supplemental
Agent and the Documentation Agent a written notice in accordance with
Section 2.4.1. Such notice must be not later than noon (Boston time) on
the first Banking Day (third Banking Day if any portion of such loan will
be subject to a Eurodollar Pricing Option on the requested Closing Date)
prior to the requested Closing Date for such loan. The notice must specify
(a) the amount of the requested loan (which shall be not less than $500,000
and an integral multiple of $100,000) and (b) the requested Closing Date
therefor (which shall be a Banking Day). Upon receipt of such notice, the
Supplemental Agent will promptly inform each Supplemental Lender
participating in such Supplemental Facility (by telephone or otherwise).
Each such loan will be made at the office of the Supplemental Agent
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specified by such Supplemental Agent by depositing the amount thereof to
the general account of the Borrowers with the Supplemental Agent or by wire
transfer as the Borrowers may direct in writing to the Supplemental Agent.
In connection with each such loan, the Borrowers shall furnish to the
Supplemental Agent and the Documentation Agent a certificate in
substantially the form of Exhibit 5.2.1 and any additional information the
Supplemental Agent, Documentation Agent or any Lender shall reasonably
request.
2.4.4. SUPPLEMENTAL NOTES. The aggregate principal amount of the
loans outstanding from time to time under this Section 2.4 is referred to
as the "SUPPLEMENTAL LOAN". The Documentation Agent shall keep a record of
the Supplemental Loan and the interests of the respective Lenders therein
as part of the Register, which shall evidence the Supplemental Loan. The
Supplemental Loan shall be deemed owed to each Lender having a Commitment
therein severally in accordance with such Lender's Percentage Interest
therein, and all payments thereon shall be for the account of each Lender
in accordance with its Percentage Interest therein. Upon request of any
Lender, the Borrowers' obligations to pay such Lender's Percentage Interest
in the Supplemental Loan shall be evidenced by a separate note of the
Borrowers (the "SUPPLEMENTAL NOTE"), payable to such Lender in accordance
with such Lender's Percentage Interest in the Supplemental Loan.
2.5. APPLICATION OF PROCEEDS.
2.5.1. LOAN. Subject to Section 2.5.2, each Borrower will apply
the proceeds of the Loan for (a) the repayment of existing Financing Debt
of the Borrowers, (b) the repayment by redemption or tender of the Holding,
L.P. Senior Subordinated Notes pursuant to the Holding, L.P. Senior
Subordinated Note Indenture, (c) the repayment of the TCI Debt, (d) the
acquisition of the assets of Falcon Classic pursuant to Section 7.9.12, (e)
Capital Expenditures permitted by this Agreement, Investments and
acquisitions permitted by Section 7.9 and for Distributions permitted by
Section 7.10, (f) general corporate, partnership and limited liability
company purposes and (g) the satisfaction of Falcon Video's obligations
pursuant to section 2.8(b) of the Contribution Agreement and the repayment
of all outstanding Indebtedness of Falcon Video under its bank credit
facilities as contemplated by Section 5.3.1.
2.5.2. SPECIFICALLY PROHIBITED APPLICATIONS. No Borrower will,
directly or indirectly, apply any part of the proceeds of any extension of
credit made pursuant to the Credit Documents to purchase or to carry Margin
Stock or to any transaction prohibited by the Credit Documents or by Legal
Requirements applicable to the Lenders.
2.6. BORROWERS OBLIGATIONS. Except as provided in Section 2.1.4, prior to
the TCI Closing and the execution and delivery by New Falcon II of the
Assignment and Assumption Agreement in substantially the form of Exhibit 2.6
(the "NEW FALCON II ASSIGNMENT AND
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ASSUMPTION"), the Borrowers shall be the Pre-TCI Borrowers, the obligations
of which under this Agreement shall be joint and several, and, solely with
respect to the loan made pursuant to Section 2.1.4 upon the execution and
delivery of the Falcon Video Joinder, Falcon Video. Immediately after the TCI
Closing, pursuant to the New Falcon II Assignment and Assumption, (a) the
Pre-TCI Borrowers will assign to New Falcon II, and New Falcon II will
assume, all of the Pre-TCI Borrowers' rights, obligations and liabilities as
Borrowers under this Agreement and (b) pursuant to the New Falcon II
Assignment and Assumption, Falcon Video will assign to New Falcon II, and New
Falcon II will assume, all of Falcon Video's obligations and liabilities as a
Borrower in respect of the Falcon Video Revolving Loan. Upon such
assignments and assumptions, New Falcon II will be the sole Borrower
hereunder and the Pre-TCI Borrowers' and Falcon Video's rights, liabilities
and obligations as Borrowers hereunder (but not as Guarantors) shall cease.
2.7. NATURE OF OBLIGATIONS OF LENDERS TO EXTEND CREDIT. The Lenders'
obligations under this Agreement to make the Loan are several and are not joint
or joint and several. If any Lender shall fail to perform its obligations to
extend any such credit, the amount of the commitment of the Lender so failing to
perform may be assumed by the other Lenders, in their sole discretion, in such
proportions as such Lenders may agree among themselves and the Percentage
Interests of each other Lender shall be appropriately adjusted, but such
assumption and adjustment shall not relieve the Lenders from any of their
obligations to make any such extension of credit or to repay any Delinquent
Payment required by Section 11.4.
3. INTEREST; EURODOLLAR PRICING OPTIONS; FEES.
3.1. INTEREST. The Loan shall accrue and bear interest at a rate per annum
which shall at all times equal the Applicable Rate. Prior to any stated or
accelerated maturity of the Revolving Loan, either Term Loan or the Supplemental
Loan, as the case may be, the Borrowers jointly and severally will, on each
Payment Date, pay the accrued and unpaid interest on the portion of the Loan
which was not subject to a Eurodollar Pricing Option. On the last day of each
Interest Period or on any earlier termination of any Eurodollar Pricing Option,
the Borrowers will jointly and severally pay the accrued and unpaid interest on
the portion of the Loan which was subject to the Eurodollar Pricing Option which
expired or terminated on such date; PROVIDED, HOWEVER, that in the case of any
Interest Period longer than three months, the Borrowers will also pay the
accrued and unpaid interest on the Loan subject to the Eurodollar Pricing Option
having such Interest Period every 90 days, beginning on the 90th day after the
commencement of such Interest Period (or if any such day is not a Banking Day,
the Banking Day immediately preceding such 90th day). On any stated or
accelerated maturity of the Revolving Loan, either Term Loan or the Supplemental
Loan, as the case may be, the Borrowers jointly and severally will pay all
accrued and unpaid interest on the Revolving Loan, the Term Loans or the
Supplemental Loan, as the case may be, including any accrued and unpaid interest
on the portion of the Loan which is subject to a Eurodollar Pricing Option. All
payments of interest hereunder shall be made to the Administrative Agent for the
account of each Lender in accordance with the Lenders' respective Percentage
Interests.
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3.2. EURODOLLAR PRICING OPTIONS.
3.2.1. ELECTION OF EURODOLLAR PRICING OPTIONS. Subject to all of
the terms and conditions hereof and so long as no Default under
Sections 9.1.1, 9.1.5 (except clause (b) thereof) or 9.1.11 exists and is
continuing, the Borrowers may from time to time, by irrevocable notice from
a Financial Officer to the Administrative Agent received no later than noon
(New York time) three Banking Days prior to the commencement of the
Interest Period selected in such notice, elect to have such portion of the
Loan as the Borrowers may specify in such notice accrue and bear daily
interest during the Interest Period so selected at the Applicable Rate
computed on the basis of the Eurodollar Rate. In the event the Borrowers,
at any time, fail to elect a Eurodollar Pricing Option under this
Section 3.2.1 for any portion of the Loan, then such portion of the Loan
will accrue and bear interest at the Applicable Rate based on the Base
Rate. Simultaneous elections by a group of Borrowers for the same Interest
Period of a portion of the Revolving Loan, either Term Loan, the
Supplemental Loan or all of such Tranches on a combined basis shall be
deemed to be the election of a single Eurodollar Pricing Option.
No election under this Section 3.2.1 shall become effective if, prior
to the commencement of any such Interest Period, the Administrative Agent
determines, in the manner provided below, that (a) the electing or granting
of the Eurodollar Pricing Option in question would violate a Legal
Requirement or (b) Eurodollar deposits in an amount comparable to the
principal amount of the Loan as to which such Eurodollar Pricing Option has
been elected and which have a term corresponding to the proposed Interest
Period are not readily available in the inter-bank Eurodollar market for
delivery at any Eurodollar Office or, by reason of circumstances affecting
such market, adequate and reasonable methods do not exist for ascertaining
the interest rate applicable to such deposits for the proposed Interest
Period.
For purposes of determining ready availability of Eurodollar deposits
with respect to a proposed Interest Period, such Eurodollar deposits shall
be deemed not readily available if the Required Lenders shall have advised
the Administrative Agent by telephone, confirmed in writing or by
facsimile, at or prior to noon (New York time) on the second Banking Day
prior to the commencement of such proposed Interest Period that, based upon
the knowledge of such Lenders of the Eurodollar market and after reasonable
efforts to determine the availability of such Eurodollar deposits, such
Lenders reasonably determine that Eurodollar deposits in an amount equal to
the respective Percentage Interest of such Lenders in the portion of the
Loan as to which such Eurodollar Pricing Option has been elected and which
have a term corresponding to the Interest Period in question will not be
offered in the Eurodollar market to such Lender at a rate of interest that
does not exceed the Basic Eurodollar Rate, and the Administrative Agent and
the Borrowers reasonably concur in such determination (unless the foregoing
results from the creditworthiness of such Lenders or a change in the
availability of
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Eurodollar markets to such Lenders resulting from the failure of such
Lenders to comply with legal or regulatory requirements).
3.2.2. NOTICE TO LENDERS AND BORROWERS. The Administrative Agent
will promptly inform each Lender (by telephone or otherwise and promptly
confirmed in writing) of each notice received by it from the Borrowers
pursuant to Section 3.2.1 and of the Interest Period specified in such
notice. Upon determination by the Administrative Agent of the Eurodollar
Rate for such Interest Period or in the event no such election shall become
effective, the Administrative Agent will promptly notify the Borrowers and
each Lender (by telephone or otherwise and promptly confirmed in writing)
of the Eurodollar Rate so determined or why such election did not become
effective.
3.2.3. SELECTION OF INTEREST PERIODS. Interest Periods shall be
selected so that:
(a) the minimum portion of the Loan subject to any Eurodollar
Pricing Option shall be $5,000,000 and an integral multiple of
$1,000,000;
(b) no more than 20 Eurodollar Pricing Options shall be
outstanding at any one time;
(c) a portion of Term Loan B equal to the amount of the next
mandatory prepayment required by Section 4.2.1 shall not be subject to
a Eurodollar Pricing Option on the date such mandatory prepayment is
required to be made;
(d) a portion of Term Loan C equal to the amount of the next
mandatory prepayment required by Section 4.2.2 shall not be subject to
a Eurodollar Pricing Option on the date such mandatory prepayment is
required to be made;
(e) an aggregate principal amount of the Revolving Loan equal to
the amount of the next mandatory prepayment required by Section 4.3
shall not be subject to a Eurodollar Pricing Option on the date such
mandatory prepayment is required to be made; and
(f) no Interest Period with respect to any part of the Loan
subject to a Eurodollar Pricing Option shall expire later than the
Applicable Maturity Date.
3.2.4. ADDITIONAL INTEREST. If any portion of the Loan which is
subject to a Eurodollar Pricing Option is repaid, or any Eurodollar Pricing
Option is terminated for any reason (other than (a) a Legal Requirement not
having the force of law or (b) the payment in full of the Credit
Obligations as a result of the failure of any Lender to perform its
obligations hereunder), on a date which is prior to the last Banking Day of
the Interest Period applicable to such Eurodollar Pricing Option, the
Borrowers jointly and severally will pay to the Administrative Agent for
the account of each Lender in
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accordance with the Lenders' respective Percentage Interests, in
addition to any amounts of interest otherwise payable hereunder, an
amount equal to daily interest for the unexpired portion of such
Interest Period on the portion of the Loan so repaid, or as to which a
Eurodollar Pricing Option was so terminated, at a per annum rate equal
to the excess, if any, of (i) the Eurodollar Rate calculated on the
basis of the rate applicable to such Eurodollar Pricing Option MINUS
(ii) the lowest rate of interest obtainable by the Lenders with respect
to Eurodollar deposits which have a maturity date approximating the last
Banking Day of such Interest Period. For purposes of this Section
3.2.4, if any portion of the Loan which was to have been subject to a
Eurodollar Pricing Option is not outstanding on the first day of the
Interest Period applicable to such Eurodollar Pricing Option other than
for reasons described in Section 3.2.1, the Borrowers shall be deemed to
have terminated such Eurodollar Pricing Option. A certificate of an
officer of the Administrative Agent setting forth in reasonable detail
the basis of calculation of such amount of interest shall, in the
absence of manifest error, be conclusive. Except to the extent set
forth in Section 12.3, the assignment by any Lender of all or a portion
of such Lender's interests, rights and obligations under this Agreement
and the other Credit Documents shall not constitute a termination of a
Eurodollar Pricing Option.
3.2.5. CHANGE IN APPLICABLE LAWS, REGULATIONS, ETC. If any Legal
Requirement having the force of law shall prevent any Lender from funding
through the purchase of deposits, or maintaining, any portion of the Loan
subject to a Eurodollar Pricing Option or otherwise from giving effect to
such Lender's obligations as contemplated hereby (unless the foregoing
results from the creditworthiness of such Lender or a change in the
availability of Eurodollar markets to such Lender resulting from the
failure of such Lender to comply with legal or regulatory requirements),
(a) the Administrative Agent may by notice to the Borrowers terminate all
of the affected Eurodollar Pricing Options, (b) the portion of the Loan
subject to such terminated Eurodollar Pricing Options shall immediately
bear interest thereafter at the Applicable Rate computed on the basis of
the Base Rate and (c) the Borrowers shall make any payment required by
Section 3.2.4 to the extent the Applicable Rate based on the Eurodollar
Rates for the affected Eurodollar Pricing Options exceeds the Applicable
Rate based on the Base Rate. A certificate of an officer of the
Administrative Agent describing in reasonable detail such mandatory Legal
Requirement and setting forth in reasonable detail a calculation of the
payment required by Section 3.2.4 shall, in the absence of manifest error,
be conclusive.
3.2.6. FUNDING PROCEDURE. The Lenders may fund any portion of the
Loan subject to a Eurodollar Pricing Option out of any funds available to
the Lenders. Regardless of the source of the funds actually used by any of
the Lenders to fund any portion of the Loan subject to a Eurodollar Pricing
Option, however, all amounts payable hereunder, including the interest rate
applicable to any such portion of the Loan and the amounts payable under
Sections 3.2.4 and 3.4, shall be computed as if each Lender had actually
funded such Lender's Percentage Interest in such portion of the Loan
through the purchase of deposits in such amount with a maturity the same as
the applicable Interest
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Period relating thereto and through the transfer of such deposits from
an office of the Lender having the same location as the applicable
Eurodollar Office to one of such Lender's offices in the United States
of America.
3.3. COMMITMENT FEES.
3.3.1. REVOLVING LOAN. In consideration of the Revolving Lenders'
commitments to make the extensions of credit provided for in Section 2.1,
while such commitments are outstanding, the Borrowers jointly and severally
will pay to the Administrative Agent for the account of the Revolving
Lenders, on each Payment Date and on the Final Revolving Maturity Date,
commitment fees in an amount equal to the product of:
(a) annual interest at a rate equal to the commitment fee percentage
in the table below set opposite the Reference Leverage Ratio as of such
date;
MULTIPLIED BY (b) the amount by which (i) the average daily Maximum
Amount of Revolving Credit during the three-month period or portion thereof
ending on such date exceeded (ii) the average daily Revolving Loan during
such period or portion thereof:
<TABLE>
<CAPTION>
Commitment Fee
Reference Leverage Ratio Percentage
------------------------ ----------
<S> <C>
Greater than or equal to 5.00 0.375%
Less than 5.00 0.250%
</TABLE>
The commitment fee under this Section 3.3.1 shall begin to accrue on the
date hereof. Any adjustment in the commitment fee percentage shall take
effect on the third Banking Day following the receipt by the Administrative
Agent of the financial statements required to be furnished by
Sections 7.4.1 or 7.4.2; PROVIDED, HOWEVER, that if for any reason the
Restricted Companies shall not have furnished the financial statements
required by Sections 7.4.1 or 7.4.2 for any fiscal quarter by the time
required by such Sections, the commitment fee percentage during the period
from the date which is three Banking Days after such financial statements
were due until the third Banking Day following receipt by the
Administrative Agent of such financial statements shall be 0.375%.
In connection with the TCI Closing, an adjustment in the commitment
fee percentage shall take effect on the later of (a) the TCI Closing or (b)
the fifth Banking Day following the receipt by the Administrative Agent of
the TCI Closing Report; provided, however, that if for any reason the
Restricted Companies shall not have furnished the TCI Closing Report by the
time required by Section 7.4.3, commencing on the TCI Closing until the
fifth Banking Day following receipt by the Administrative Agent of the TCI
Closing Report, the commitment fee percentage shall be 0.375%.
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3.3.2. TERM LOAN B-2. In consideration of the commitments of the
Term Loan B-2 Lenders to make Term Loan B-2, the Borrowers jointly and
severally will pay to the Administrative Agent for the account of the Term
Loan B-2 Lenders, on the later of the Term Loan B-2 Closing Date and
September 30, 1998, commitment fees in an aggregate amount equal to the
product of (a) the average daily unborrowed amount of the Term Loan B-2
Commitments MULTIPLIED BY (b) annual interest at a rate equal to 0.375%.
The commitment fee under this Section 3.3.2 shall begin to accrue on the
date hereof.
3.4. TAXES. If (a) any Lender shall be subject to any Tax or (b) any
Borrower shall be required to withhold or deduct any Tax, the Borrowers will on
demand by the Administrative Agent or such Lender, accompanied by the
certificate referred to below, pay to the Administrative Agent for such Lender's
account such additional amount as is necessary to enable such Lender to receive
net of any Tax the full amount of all payments of principal, interest, fees,
expenses, indemnities and other amounts payable by the Borrowers to such Lender
under any Credit Document. Each Lender agrees that if, after the payment by the
Borrowers of any such additional amount, any amount identifiable as a part of
any Tax related thereto is subsequently recovered or used as a credit by such
Lender, such Lender shall reimburse the Borrowers to the extent of the amount so
recovered or used. A certificate of an officer of such Lender setting forth the
amount of such Tax or recovery or use and the basis therefor shall, in the
absence of manifest error, be conclusive. In determining such amount, such
Lender may use any reasonable averaging and attribution methods.
3.5. CAPITAL ADEQUACY. Except as provided in Section 3.6, if any Lender
shall have determined that compliance by such Lender with any change after the
date hereof in any applicable law, governmental rule, regulation or order
regarding capital adequacy of banks or bank holding companies, or any
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by such Lender with any request or directive regarding
capital adequacy if such Lender reasonably believes that compliance therewith is
in accordance with customary commercial practice (whether or not having the
force of law and whether or not failure to comply therewith would be unlawful)
of any such authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on such Lender's capital as a consequence
of such Lender's obligations hereunder to a level below that which such Lender
could have achieved but for such compliance (taking into consideration such
Lender's policies with respect to capital adequacy immediately before such
compliance and assuming that such Lender's capital was fully utilized prior to
such compliance) by an amount deemed by such Lender to be material, then the
Borrowers jointly and severally will on demand by the Administrative Agent,
accompanied by the certificate referred to below, pay to the Administrative
Agent from time to time as specified by such Lenders as are so affected such
additional amounts as shall be sufficient to compensate such Lenders for such
reduced return, together with interest on each such amount from 15 Banking Days
after the date demanded until payment in full thereof at the rate of interest on
overdue installments of principal provided in Section 3.1. A certificate of an
officer of any such Lender setting forth the amount to be paid to it and the
basis for computation thereof hereunder
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shall, in the absence of manifest error, be conclusive. In determining such
amount, such Lender may use any reasonable averaging and attribution methods.
3.6. REGULATORY CHANGES. If any Lender shall have determined that (a) any
change in any Legal Requirement after the date hereof shall directly or
indirectly (i) reduce the amount of any sum received or receivable by such
Lender with respect to the Loan or the return to be earned by such Lender on the
Loan, (ii) impose a cost on such Lender or any Affiliate of such Lender that is
attributable to the making or maintaining of, or such Lender's commitment to
make, its portion of the Loan, (iii) require such Lender or any Affiliate of
such Lender to make any payment on or calculated by reference to the gross
amount of any amount received by such Lender under any Credit Document, or (iv)
reduce, or have the effect of reducing, the rate of return on any capital of
such Lender or any Affiliate of such Lender that such Lender or such Affiliate
is required to maintain on account of the Loan or such Lender's Commitment and
(b) such reduction, increased cost or payment shall not be fully compensated for
by an adjustment in the Applicable Rate, then the Borrowers jointly and
severally shall pay to such Lender (without duplication of payments to other
Lenders) such additional amounts as such Lender determines will, together with
any adjustment in the Applicable Rate, fully compensate for such reduction,
increased cost or payment, together with interest on each such amount from 15
Banking Days after the date demanded until payment in full thereof at the then
highest Applicable Rate. A certificate of an officer of such Lender setting
forth in reasonable detail the amount to be paid to it and the basis for
computation thereof hereunder shall, in the absence of manifest error, be
conclusive. In determining such amount, such Lender may use any reasonable
averaging and attribution methods.
3.7. COMPUTATIONS OF INTEREST AND FEES. For purposes of this Agreement,
interest and commitment fees (and any amount expressed as interest) shall be
computed on a daily basis and (a) with respect to any portion of the Loan
subject to a Eurodollar Pricing Option, on the basis of a 360-day year and (b)
with respect to commitment fees and any other portion of the Loan, on the basis
of a 365 or 366-day year, as the case may be.
3.8. INTEREST LIMITATION. Notwithstanding any other provision of this
Agreement or any other Credit Document, the maximum amount of interest that may
be charged to or collected from any Borrower by any Lender under this Agreement
or any other Credit Document shall in no event exceed the maximum amount of
interest that could lawfully be charged or collected under applicable law. Any
provision of this Agreement or any other Credit Document that could be construed
as providing for interest in excess of such lawful maximum shall be expressly
subject to this Section 3.8. Any part of the Credit Obligations consisting of
amounts to be paid to any Lender for the use, forbearance or retention of the
Credit Obligations shall, to the extent permitted by applicable law, be
allocated throughout the full term of the Credit Obligations until payment in
full of the Credit Obligations (including any renewal or extension thereof) so
that interest on account of the Credit Obligations shall not exceed the maximum
amount permitted by applicable law.
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4. PAYMENT.
4.1. PAYMENT AT MATURITY. On the Applicable Maturity Date or any
accelerated maturity of any portion of the Loan, the Borrowers jointly and
severally will pay to the Administrative Agent for the account of each Lender
for credit to the Revolving Loan, Term Loan B, Term Loan C or the Supplemental
Loan, as the case may be, an amount equal to the Revolving Loan, Term Loan B,
Term Loan C or the Supplemental Loan, as the case may be, then due, together
with all accrued and unpaid interest and any fees thereon, and on the latest
Applicable Maturity Date or any earlier accelerated maturity of the Loan, all
other Credit Obligations then outstanding.
4.2. FIXED REQUIRED PREPAYMENTS.
4.2.1. TERM LOAN B. On the last Banking Day of March, June,
September and December, beginning March 31, 1999, the Borrowers will
jointly and severally pay to the Administrative Agent, for the account of
the Lenders as a prepayment of Term Loan B, the lesser of (a) $500,000, as
adjusted after the date hereof in accordance with this Section 4, or (b)
the amount of Term Loan B then outstanding, in each case, together with
accrued interest on such amount prepaid, and a final payment of the balance
of Term Loan B on the Final Term Loan B Maturity Date.
4.2.2. TERM LOAN C. On the last Banking Day of each March, June,
September and December, beginning March 31, 1999, the Borrowers will
jointly and severally pay to the Administrative Agent, for the account of
the Lenders as a prepayment of Term Loan C, the lesser of (a) $750,000, as
adjusted after the date hereof in accordance with this Section 4, or (b)
the amount of Term Loan C then outstanding, in each case together with
accrued interest on such prepaid amount, and a final payment of the balance
of Term Loan C on the Final Term Loan C Maturity Date.
4.2.3. SUPPLEMENTAL LOAN. The schedule for prepayments of each
Supplemental Facility shall be determined in accordance with Section 2.4.
4.3. MAXIMUM AMOUNT OF REVOLVING CREDIT, ETC. If at any time the Revolving
Loan exceeds the Maximum Amount of Revolving Credit, the Borrowers jointly and
severally will immediately pay the amount of such excess to the Administrative
Agent for the account of the Revolving Lenders as a mandatory prepayment of the
Revolving Loan. If at any time a revolving portion of the Supplemental Loan
exceeds the applicable Maximum Amount of Supplemental Revolving Facility Credit,
the Borrowers jointly and severally will immediately pay the amount of such
excess to the Administrative Agent for the account of the Lenders participating
therein as a mandatory prepayment of such Supplemental Facility. If for any
reason the TCI Closing does not occur within 30 days after the Falcon Video
Revolving Loan is advanced, Falcon Video shall repay the Falcon Video Revolving
Loan in full and shall cease to be a Borrower.
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4.4. ASSET SALES.
4.4.1. OPERATING ASSET SALE NOTICE. In the event that the
Restricted Companies sell, exchange or dispose of Operating Assets in a
transaction (other than a transaction permitted by Section 7.11.1 or
Section 7.11.2) (including a Permitted Asset Swap to the extent of the
amount of cash received by the Restricted Companies), the Borrower making
(or whose Subsidiaries are making) such sale, exchange or disposition
(each, an "OPERATING ASSET SALE") shall, within five days of such Operating
Asset Sale, provide written notice to the Lenders of (a) the closing date
for such Operating Asset Sale, (b) the amount of Net Cash Proceeds (if any,
in the case of an exchange) therefrom, (c) whether any portion of the Net
Cash Proceeds will be reserved as an Asset Reinvestment Reserve Amount in
accordance with Section 4.4.3, (d) how much of the Revolving Loan, the Term
Loan and the Supplemental Loan will be prepaid with the Net Cash Proceeds
in accordance with Section 4.4.2, (e) a revised schedule of reductions in
the Maximum Amount of Revolving Credit and any Maximum Amount of
Supplemental Revolving Facility Credit giving effect to such prepayment,
(f) a revised schedule of mandatory prepayments of each of Term Loan B and
Term Loan C giving effect to such prepayment and (g) a revised schedule of
mandatory prepayments of the Supplemental Loan giving effect to such
prepayment.
4.4.2. PREPAYMENT ON SALE. The Loan shall be repaid in accordance
with this Section 4.4 to the extent that (a) the Net Cash Proceeds of the
Operating Asset Sale described in such written notice exceeds 15% of
Consolidated Operating Cash Flow for the period of four fiscal quarters of
the Restricted Companies ending on the last day of the fiscal quarter
ending immediately prior to the date of the Operating Asset Sale and (b)
such excess Net Cash Proceeds are not subject to an effective Asset
Reinvestment Reserve Amount in accordance with Section 4.4.3.
4.4.3. ASSET REINVESTMENT RESERVE AMOUNT. The Borrowers may elect
to reserve Net Cash Proceeds described in Section 4.4.2(a) for reinvestment
(directly or by stock purchase, merger or otherwise, provided any entity so
acquired becomes a Restricted Company) in replacement Operating Assets.
The amount so reserved (the "ASSET REINVESTMENT RESERVE AMOUNT") must be so
applied within 540 days after the Operating Asset Sale creating the Asset
Reinvestment Reserve Amount. In the event the Asset Reinvestment Reserve
Amount is not reinvested within such 540-day period (or if the Borrowers
abandon their plans for the reinvestment of the Asset Reinvestment Reserve
Amount), the Borrowers shall notify the Lenders within three Banking Days
and specify (a) how much of the Revolving Loan, the Term Loan and the
Supplemental Loan will be prepaid with the Asset Reinvestment Reserve
Amount in accordance with Section 4.4.4, (b) a revised schedule of
reductions in the Maximum Amount of Revolving Credit and any Maximum Amount
of Supplemental Revolving Facility Credit giving effect to such prepayment,
(c) a revised schedule of mandatory prepayments of each of Term Loan B
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and Term Loan C giving effect to such prepayment and (d) a revised
schedule of mandatory prepayments of the Supplemental Loan giving effect
to such prepayment.
4.4.4. ALLOCATIONS OF PREPAYMENT. Prepayments of the Loan (and
reductions in the Maximum Amount of Revolving Credit and any Maximum Amount
of Supplemental Revolving Facility Credit) made pursuant to this
Section 4.4 will be allocated to the Revolving Loan, Term Loan B, Term Loan
C and the Supplemental Loan, pro rata in proportion to the relative size of
the Maximum Amount of Revolving Credit, any Maximum Amount of Supplemental
Revolving Facility Credit, Term Loan B, Term Loan C and the term portions
of the Supplemental Loan, and prepayments of Term Loan B, Term Loan C and
the term portions of the Supplemental Loan under this Section 4.4 shall be
applied to the prepayments required under Section 4.2 pro rata over the
remaining payments in accordance with the Pro Rata Term Prepayment
Portions. All such prepayments (and reductions in the Maximum Amount of
Revolving Credit, and any Maximum Amount of Supplemental Revolving Facility
Credit) must be made within five Banking Days after the Operating Asset
Sale or the termination of effectiveness of an Asset Reinvestment Reserve
Amount, as the case may be.
4.5. DESIGNATED FINANCING DEBT. Upon, or within five days prior to, the
incurrence by any of the Restricted Companies of Designated Financing Debt, the
Borrower incurring (or whose Subsidiaries are incurring) such Designated
Financing Debt shall provide written notice to the Lenders of the closing date
for such incurrence and the amount of Net Debt Proceeds. Such Net Debt Proceeds
shall be applied to the prepayment of the Revolving Loan, Term Loan B, Term Loan
C and the Supplemental Loan, pro rata in proportion to the relative size of the
Maximum Amount of Revolving Credit, any Maximum Amount of Supplemental Revolving
Facility Credit, Term Loan B, Term Loan C and the term portions of the
Supplemental Loan, and prepayments of Term Loan B, Term Loan C and term portions
of the Supplemental Loan under this Section 4.5 shall be applied to the
prepayments required under Section 4.2 pro rata over the remaining payments in
accordance with the Pro Rata Term Prepayment Portions. All such payments (and
reductions in the Maximum Amount of Revolving Credit and any Maximum Amount of
Supplemental Revolving Facility Credit) must be made within five Banking Days
after the incurrence of the Designated Financing Debt.
4.6. VOLUNTARY PREPAYMENTS. In addition to the prepayments required by
Sections 4.2, 4.3, 4.4 and 4.5, the Borrowers jointly and severally may from
time to time prepay all or any portion of the Loan (in a minimum amount of
$1,000,000 and an integral multiple of $100,000), without premium (except as
provided in Section 3.2.4 with respect to early termination of Eurodollar
Pricing Options). The Borrowers shall give the Administrative Agent at least
one Banking Day prior notice in the case of a Revolving Loan or revolving
portion of the Supplemental Loan prepayment (three Banking Days' prior notice if
any portion of the Revolving Loan or revolving portion of the Supplemental Loan
to be repaid is subject to a Eurodollar Pricing Option) and at least five
Banking Day's prior notice in the case of a Term Loan or term portion of the
Supplemental Loan prepayment, specifying the date of payment, the total
principal
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amount of the Revolving Loan, Term Loan or Supplemental Loan to be paid on
such date and the amount of interest to be paid with such prepayment (and any
amounts due with respect to early termination of Eurodollar Pricing Options
under Section 3.2.4). Any prepayment of the Revolving Loan or revolving
portion of the Supplemental Loan made pursuant to this Section 4.6 may, at
the Borrowers' option as indicated in the notice delivered pursuant to the
preceding sentence, permanently reduce the Maximum Amount of Revolving Credit
or Maximum Amount of Supplemental Revolving Facility Credit, as the case may
be. The effectiveness of such notice may, at the Borrowers' option, be
conditioned on the closing of a credit facility the proceeds of which will be
used to prepay the Loan, or the effectiveness of Investments or acquisitions
permitted by Section 7.9 or mergers, consolidations or dispositions of assets
permitted by Section 7.11, in which case such notice may be revoked by the
Borrowers (by notice delivered in accordance with this Section 4.6) if such
condition is not satisfied without any liability to the Lenders. If such
condition is satisfied, such notice shall be deemed to have been effective as
of the date of the giving of such notice. All prepayments of Term Loan B,
Term Loan C or the term portions of the Supplemental Loan under this Section
4.6 shall be applied to the prepayments required under Section 4.2 pro rata
over the remaining payments. With respect to the amount of such prepayment
allocated to the Term Loan in accordance with the previous sentence, the
Borrowers may allocate the first $80,000,000 of such prepayment either pro
rata in proportion to the relative size of Term Loan B and Term Loan C or
disproportionately to Term Loan C, as the Borrowers may elect. To the extent
of aggregate prepayments over $80,000,000, such excess amounts shall be
allocated pro rata in proportion to the relative size of Term Loan B and Term
Loan C.
4.7. APPLICATION OF PAYMENTS. Any prepayment of the Revolving Loan, Term
Loan or the Supplemental Loan, as the case may be, shall be applied first to the
portion of the Revolving Loan, Term Loan or the Supplemental Loan, as the case
may be, not then subject to Eurodollar Pricing Options, then the balance of any
such prepayment shall be applied to the portion of the Revolving Loan, Term Loan
or Supplemental Loan, as the case may be, then subject to Eurodollar Pricing
Options, in the chronological order of the respective maturities thereof (or as
the Restricted Companies may otherwise specify), together with any payments
required by Section 3.2.4 with respect to early termination of Eurodollar
Pricing Options. All payments of principal hereunder shall be made to the
Administrative Agent for the account of each Lender in accordance with the
Lenders' respective Percentage Interests. The amounts of the Term Loan or term
portion of the Supplemental Loan prepaid pursuant to Sections 4.2, 4.4, 4.5 or
4.6 may not be reborrowed.
5. CONDITIONS TO EXTENDING CREDIT.
5.1. CONDITIONS ON INITIAL CLOSING DATE. The obligations of the Lenders to
make any extension of credit pursuant to Section 2 shall be subject to the
satisfaction, on or before the Initial Closing Date, of the following conditions
(in addition to the further conditions in Section 5.2):
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5.1.1. SATISFACTION OF EXISTING BANK DEBT. Contemporaneously with
the extension of credit on the Initial Closing Date, all outstanding
Indebtedness of the Restricted Companies under any bank credit facilities
(other than this Agreement, Indebtedness of Falcon Video and the Mezzanine
Notes, as defined in the Contribution Agreement) as in effect immediately
prior to the Initial Closing Date shall have been paid in full, and any
collateral pledged or granted thereunder shall have been released, and the
Borrower shall have furnished to the Administrative Agent on such Closing
Date a certificate to these effects).
5.1.2. NOTES. The Borrowers shall have executed the Notes and
delivered them to the Documentation Agent for each Lender. The Revolving
Loan and each of Term Loan B-1 and Term Loan C will close and fund
simultaneously.
5.1.3. PAYMENT OF FEES. The Borrowers shall have paid to the
Agents the respective fees due on the Initial Closing Date in the amounts
agreed separately by the Borrowers and the Agents as set forth in a
separate fee letter among such parties.
5.1.4. LEGAL OPINIONS. On the Initial Closing Date, the Lenders
shall have received from the following counsel their respective opinions
with respect to the transactions contemplated by the Credit Documents,
which opinions shall be in form and substance reasonably satisfactory to
the Lenders.
(a) Dow, Lohnes & Albertson, PLLC, special counsel for the
Restricted Companies.
(b) Ropes & Gray, special counsel for the Documentation Agent.
The Restricted Companies authorize and direct their counsel to furnish
the opinion described in clause (a).
5.1.5. PLEDGE AND SUBORDINATION AGREEMENT. Each of Holding, L.P.,
Holding, Inc. and the Restricted Companies (prior to the TCI Closing) shall
have duly authorized, executed and delivered to the Documentation Agent a
Pledge and Subordination Agreement substantially in the form of Exhibit
5.1.5 and shall have executed, delivered, filed and registered such
notices, Uniform Commercial Code financing statements and other documents
as the Documentation Agent may have reasonably requested in order to
perfect the security interests required to be created pursuant to the
Pledge and Subordination Agreement.
5.1.6. MONY SUBORDINATED DEBT. The note purchase agreements and
other documents relating to the MONY Subordinated Debt shall not prohibit
the Restricted Companies from entering into, or performing the transactions
contemplated by, the Credit Documents.
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5.2. CONDITIONS TO EACH EXTENSION OF CREDIT. The obligations of the
Lenders to make any extension of credit pursuant to Section 2 shall be subject
to the satisfaction, on or before the Closing Date for such extension of credit,
of the following conditions:
5.2.1. OFFICER'S CERTIFICATE. (a) The representations and
warranties contained in Sections 6.6 and 8 and in sections 2.2 and 4 of the
Pledge and Subordination Agreement shall be true and correct on and as of
the Closing Date with the same force and effect as though originally made
on and as of such date (except for those representations and warranties
made as of a specified earlier date, which shall have been true and correct
as of such date); (b) no Default shall exist and be continuing on such
Closing Date prior to or immediately after giving effect to the requested
extension of credit; (c) as of the Closing Date, the Borrowers shall be
permitted to incur the requested loan under section 4.03 of the Senior
Subordinated Notes Indenture and section 4.07 of the New Falcon I
Debentures Indentures; (d) as of the Closing Date, no Material Adverse
Change shall have occurred; and (e) the Borrowers shall have furnished to
the Administrative Agent on such Closing Date a certificate to such effect
in substantially the form of Exhibit 5.2.1, signed by a Financial Officer.
5.2.2. PROPER PROCEEDINGS. This Agreement, each other Credit
Document and the extensions of credit and the granting of the security
interests contemplated hereby and thereby shall have been authorized by all
necessary proceedings of each Obligor and any of their respective
Affiliates party thereto. All necessary consents, approvals and
authorizations of any governmental or administrative agency or any other
Person with respect to the foregoing shall have been obtained and shall be
in full force and effect. The Administrative Agent shall have received
copies of all documents, including certificates, records of corporate,
partnership and limited liability company proceedings and opinions of
counsel, which the Administrative Agent may have reasonably requested in
connection therewith, such documents where appropriate to be certified by
proper corporate or governmental authorities.
5.2.3. LEGALITY, ETC. The making of the requested extension of
credit shall not (a) subject any Lender to any penalty or special tax
(other than a Tax for which the Borrowers have reimbursed the Lenders under
Section 3.4), (b) be prohibited by any law or governmental order or
regulation applicable to any Lender or any Obligor or (c) violate any
mandatory credit restraint program of the executive branch of the
government of the United States of America, the Board of Governors of the
Federal Reserve System or any other governmental or administrative agency.
5.3. EXTENSIONS OF CREDIT FOLLOWING THE TCI CLOSING. With respect to any
extension of credit pursuant to Section 2 which is requested by the Borrowers
upon or after the TCI Closing:
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5.3.1. REPAYMENT OF FINANCING DEBT. Contemporaneously with or
immediately following the TCI Closing, Falcon Video shall have paid in full
all Financing Debt owed by it, all revolving credit or other committed
credit facilities relating to such Financing Debt shall have been
terminated (except for indemnification and other customary provisions that
survive termination) and all collateral and guarantees granted by Falcon
Video with respect to such Financing Debt shall have been released. The
conditions set forth in this Section 5.3.1 shall be deemed satisfied upon
receipt of payoff letters, executed UCC-3 termination statements and other
appropriate releases the effectiveness of which are explicitly conditioned
on the extensions of credit pursuant to this Agreement, the proceeds of
which will be used to pay in full such Financing Debt.
5.3.2. ASSIGNMENT OF DEBENTURES AND INDENTURES. (a) Holding, L.P.
shall have assigned to New Falcon I, and New Falcon I shall have assumed,
all rights and obligations of Holding, L.P. pursuant to the New Falcon I
Debentures and New Falcon I Debentures Indenture and, to the extent then
outstanding, the Holding, L.P. Senior Subordinated Notes and the Holding,
L.P. Senior Subordinated Notes Indenture and (b) New Falcon I shall have
assigned to New Falcon II, and New Falcon II shall have assumed, all rights
and obligations of New Falcon I pursuant to such Holding, L.P. Senior
Subordinated Notes and the Holding, L.P. Senior Subordinated Notes
Indenture to the extent then outstanding.
5.3.3. JOINDERS AND ASSIGNMENTS. Contemporaneously with or
immediately following the TCI Closing upon the discharge of the Falcon
Video Financing Debt as contemplated by Section 5.3.1, (a) Falcon Video
shall have duly authorized, executed and delivered to the Documentation
Agent the Falcon Video Joinder and a joinder to the Pledge and
Subordination Agreement as a Pledgor (as defined therein), (b) New Falcon
II and the other Restricted Companies shall have duly authorized, executed
and delivered to the Agent the New Falcon II Assignment and Assumption and
(c) New Falcon I and New Falcon II shall have duly authorized, executed and
delivered to the Documentation Agent a joinder to the Pledge and
Subordination Agreement as a Pledgor (as defined therein).
5.4. CONDITIONS ON SUPPLEMENTAL FACILITY CLOSING DATES. The obligations of
the Supplemental Lenders to make any extension of credit pursuant to a
Supplemental Facility pursuant to Section 2.4 (to the extent the Supplemental
Lenders agreed to become so obligated) shall be subject to the satisfaction, on
or before the initial Closing Date for such Supplemental Facility, of the
conditions set forth in this Section 5.4, as well as the further conditions of
Section 5.2.
5.4.1. SUPPLEMENTAL NOTES. The Borrowers shall have duly executed
and delivered to the Documentation Agent the appropriate Supplemental Notes
for each Supplemental Lender having a Commitment therein.
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5.4.2. JOINDER AGREEMENT. Any new Lenders participating in such
Supplemental Facility shall have executed and delivered a joinder agreement
reasonably satisfactory to the Documentation Agent and the Borrowers
pursuant to which each such new Lender agrees to become a party to and be
bound by this Agreement.
5.4.3. LEGAL OPINIONS. On such Closing Date, the Lenders shall
have received legal opinions satisfactory to the Supplemental Lenders and
the Documentation Agent from the respective counsels of the Borrowers and
the Supplemental Agent in substantially the form delivered pursuant to
Section 5.1.4.
5.4.4. FINANCED ACQUISITIONS. Contemporaneously with the making by
the Lenders of an extension of credit under a Supplemental Facility
requested for the purpose of making an acquisition permitted under Section
7.9, the Borrowers shall have furnished to the Lenders a certificate of the
Borrowers signed on their behalf by a Financial Officer to the effect that
the closing is occurring under the acquisition agreement relating to the
proposed acquisition contemporaneously with such extension of credit.
5.4.5. GENERAL. All legal, corporate, limited liability company
and partnership proceedings in connection with the transactions
contemplated by this Agreement shall be reasonably satisfactory in form and
substance to the Documentation Agent and the Documentation Agent shall have
received copies of all documents which the Documentation Agent may have
reasonably requested in connection with such Supplemental Facility. All
other conditions as may be reasonably determined by the Documentation Agent
and set forth in the written commitments with respect to such Supplemental
Facility, including the payment of any syndication or closing fees which
are so set forth, shall be reasonably satisfactory in form and substance to
the Documentation Agent.
6. GUARANTEES.
6.1. GUARANTEES OF CREDIT OBLIGATIONS. Each Guarantor unconditionally
jointly and severally guarantees that the Credit Obligations (other than the
Falcon Video Revolving Loan) incurred by any Borrower or any other Obligor will
be performed and will be paid in full in cash when due and payable, whether at
the stated or accelerated maturity thereof or otherwise, this guarantee being a
guarantee of payment and not of collectability and being absolute and in no way
conditional or contingent. In the event any part of such Credit Obligations
shall not have been so paid in full when due and payable, such Guarantor will,
immediately upon written notice by the Documentation Agent or the Administrative
Agent or, without notice, immediately upon the occurrence of a Bankruptcy
Default, pay or cause to be paid to the Administrative Agent for the Lenders'
account the amount of such Credit Obligations which are then due and payable and
unpaid. The obligations of each Guarantor hereunder shall not be affected by
the invalidity, unenforceability or irrecoverability of any of the Credit
Obligations as against any Obligor, any other guarantor thereof or any other
Person. For purposes hereof, the Credit Obligations shall be
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due and payable when and as the same shall be due and payable under the terms
of this Agreement or any other Credit Document notwithstanding the fact that
the collection or enforcement thereof may be stayed or enjoined under the
Bankruptcy Code, as from time to time in effect, or other applicable law.
6.2. CONTINUING OBLIGATION. Each Guarantor acknowledges that the Lenders
have entered into this Agreement (and, to the extent that the Lenders may enter
into any future Credit Document, will have entered into such agreement) in
reliance on this Section 6 being a continuing irrevocable agreement, and such
Guarantor agrees that its guarantee may not be revoked in whole or in part. The
obligations of the Guarantors hereunder shall terminate when the commitment of
the Lenders to extend credit under this Agreement shall have terminated and all
of the Credit Obligations have been indefeasibly paid in full in cash and
discharged; PROVIDED, HOWEVER, that:
(a) if a claim is made upon the Lenders at any time for repayment
or recovery of any amounts or any property received by the Lenders
from any source on account of any of the Credit Obligations and the
Lenders repay or return any amounts or property so received (including
interest thereon to the extent required to be paid by the Lenders) or
(b) if the Lenders become liable for any part of such claim by
reason of (i) any judgment or order of any court or administrative
authority having competent jurisdiction, or (ii) any settlement or
compromise of any such claim,
then the Guarantors shall remain liable under this Agreement for the amounts so
repaid or returned or the amounts for which the Lenders become liable (such
amounts being deemed part of the Credit Obligations) to the same extent as if
such amounts had never been received by the Lenders, notwithstanding any
termination hereof or the cancellation of any instrument or agreement evidencing
any of the Credit Obligations. The Guarantors shall, not later than five days
after receipt of notice from the Administrative Agent, jointly and severally pay
to the Administrative Agent an amount equal to the amount of such repayment or
return for which the Lenders have so become liable. Payments hereunder by a
Guarantor may be required by the Administrative Agent on any number of
occasions.
6.3. WAIVERS WITH RESPECT TO CREDIT OBLIGATIONS. Except to the extent
expressly required by this Agreement or any other Credit Document, each
Guarantor (in its capacity as a Guarantor, but not as a Borrower for its own
account) waives, except to the extent prohibited by the provisions of applicable
law that may not be waived, all of the following (including all defenses,
counterclaims and other rights of any nature based upon any of the following):
(a) presentment, demand for payment and protest of nonpayment of
any of the Credit Obligations, and notice of protest, dishonor or
nonperformance;
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(b) notice of acceptance of this guarantee and notice that credit
has been extended in reliance on the Guarantor's guarantee of the
Credit Obligations;
(c) notice of any Default or of any inability to enforce
performance of the obligations of any Obligor or any other Person
thereunder;
(d) demand for performance or observance of, and any enforcement
of any provision of, the Credit Obligations, this Agreement or any
other Credit Document or any pursuit or exhaustion of rights or
remedies with respect to any Credit Security or against any Obligor or
any other Person in respect of the Credit Obligations or any
requirement of diligence or promptness on the part of the Lenders in
connection with any of the foregoing;
(e) any act or omission on the part of the Lenders which may
impair or prejudice the rights of the Guarantor, including subrogation
rights or rights to obtain exoneration, contribution, indemnification
or any other reimbursement from any Obligor or any other Person;
(f) failure or delay to perfect or continue the perfection of any
security interest in any Credit Security;
(g) any action which harms or impairs the value of, or any
failure to preserve or protect the value of, any Credit Security;
(h) any act or omission which might vary the risk of the
Guarantor or otherwise operate as a deemed release or discharge;
(i) any statute or rule of law which provides that the
obligation of a surety must be neither larger in amount nor in other
respects more burdensome than the obligation of the principal;
(j) the provisions of any "one action" or "anti-deficiency" law
which would otherwise prevent the Lenders from bringing any action,
including any claim for a deficiency, against the Guarantor before or
after the Lenders' commencement or completion of any foreclosure
action, whether judicially, by exercise of power of sale or otherwise,
or any other law which would otherwise require any election of
remedies by the Lenders;
(k) all demands and notices of every kind with respect to the
foregoing; and
(l) to the extent not referred to above, all defenses (other
than disputed facts) which any Obligor may now or hereafter have to
the payment of the Credit
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Obligations, together with all suretyship defenses, which could
otherwise be asserted by such Guarantor.
No delay or omission on the part of the Lenders in exercising any right
under this Agreement or any other Credit Document or under any guarantee of the
Credit Obligations or with respect to any Credit Security shall operate as a
waiver or relinquishment of such right. No action which the Lenders or any
Obligor may take or refrain from taking with respect to the Credit Obligations,
including any amendments thereto or modifications thereof or waivers with
respect thereto, shall affect the provisions of this Agreement or the
obligations of the Guarantor hereunder. None of the Lenders' rights shall at
any time in any way be prejudiced or impaired by any act or failure to act on
the part of any Obligor, or by any noncompliance by any Obligor with the terms,
provisions and covenants of this Agreement, regardless of any knowledge thereof
which the Lenders may have or otherwise be charged with.
6.4. LENDERS' POWER TO WAIVE, ETC. Each Guarantor (solely in its capacity
as a Guarantor and without affecting any of its rights as a Borrower) grants to
the Lenders full power in their discretion, without notice to or consent of such
Guarantor, such notice and consent being hereby expressly waived to the fullest
extent permitted by applicable law, and without in any way affecting the
liability of the Guarantor under its guarantee hereunder:
(a) To waive compliance with, and any Default under, and to
consent to any amendment to or modification or termination of any
terms or provisions of, or to give any waiver in respect of, this
Agreement, any other Credit Document, any Credit Security, the Credit
Obligations or any guarantee thereof (each as from time to time in
effect);
(b) To grant any extensions of the Credit Obligations (for any
duration), and any other indulgence with respect thereto, and to
effect any total or partial release (by operation of law or
otherwise), discharge, compromise or settlement with respect to the
obligations of the Obligors or any other Person in respect of the
Credit Obligations, whether or not rights against the Guarantor under
this Agreement are reserved in connection therewith;
(c) To take security from the Restricted Companies or other
Obligors in any form for the Credit Obligations, and to consent to the
addition to or the substitution, exchange, release or other
disposition of, or to deal in any other manner with, any part of any
property contained in any Credit Security whether or not the property,
if any, received upon the exercise of such power shall be of a
character or value the same as or different from the character or
value of any property disposed of, and to obtain, modify or release
any present or future guarantees of the Credit Obligations and to
proceed against any of the Credit Security or such guarantees in any
order;
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(d) To collect or liquidate or realize upon any of the Credit
Obligations or any Credit Security in any manner or to refrain from
collecting or liquidating or realizing upon any of the Credit
Obligations or the Credit Security; and
(e) To extend credit under this Agreement, any other Credit
Document or otherwise in such amount as the Lenders may determine,
even though the condition of the Obligors (financial or otherwise on
an individual or Consolidated basis) may have deteriorated since the
date hereof.
6.5. INFORMATION REGARDING OBLIGORS, ETC. Each Guarantor acknowledges and
agrees that it has made such investigation as it deems desirable of the risks
undertaken by it in entering into this Agreement and is fully satisfied that it
understands all such risks. Each Guarantor waives any obligation which may now
or hereafter exist on the part of the Lenders to inform it of the risks being
undertaken by entering into this Agreement or of any changes in such risks and,
from and after the date hereof, each Guarantor undertakes to keep itself
informed of such risks and any changes therein. Each Guarantor expressly waives
any duty which may now or hereafter exist on the part of the Lenders to disclose
to the Guarantor any matter related to the business, operations, character,
collateral, credit, condition (financial or otherwise), income or prospects of
the Obligors or their Affiliates or their properties or management, whether now
or hereafter known by the Lenders. Each Guarantor represents, warrants and
agrees that it assumes sole responsibility for obtaining from the Obligors all
information concerning this Agreement and all other Credit Documents and all
other information as to the Obligors and their Affiliates or their properties or
management as such Guarantor deems necessary or desirable.
6.6. CERTAIN GUARANTOR REPRESENTATIONS. Each Guarantor represents that:
(a) it is in its best interest and in pursuit of its partnership,
limited liability company or corporate purposes as an integral part of
the business conducted and proposed to be conducted by the Restricted
Companies (including such Guarantor), and reasonably necessary and
convenient in connection with the conduct of the business conducted
and proposed to be conducted by it, to induce the Lenders to enter
into this Agreement and to extend credit to each Borrower by making
the Guarantees contemplated by this Section 6;
(b) the credit available hereunder will directly or indirectly
inure to its benefit; and
(c) by virtue of the foregoing it is receiving at least
reasonably equivalent consideration from the Lenders for its
Guarantee.
Each Guarantor acknowledges that it has been advised by the Documentation Agent
that the Lenders are unwilling to enter into this Agreement unless the
Guarantees contemplated by this Section 6 are given by it. Each Guarantor
represents that:
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(i) it will not be rendered insolvent as a result of entering
into this Agreement,
(ii) after giving effect to the transactions contemplated by this
Agreement, it will have assets having a fair saleable value in excess
of the amount required to pay its probable liability on its existing
debts as they have become absolute and matured,
(iii) it has, and will have, access to adequate capital for the
conduct of its business and
(iv) it has the ability to pay its debts from time to time
incurred in connection therewith as such debts mature.
6.7. NO SUBROGATION. Until the Credit Obligations have been indefeasibly
paid in full and all commitments to extend further credit under the Credit
Documents have been irrevocably terminated, each Guarantor waives all rights of
reimbursement, subrogation, contribution, offset and other claims against the
Borrowers (in their capacity as borrowers hereunder) arising by contract or
operation of law in connection with any payment made or required to be made by
such Guarantor under this Agreement, except for contribution rights provided in
Section 6.9.
6.8. SUBORDINATION. Each Guarantor covenants and agrees that all
Indebtedness, claims and liabilities now or hereafter owing by any Borrower to
such Guarantor are hereby subordinated to the prior payment in full of the
Credit Obligations and are so subordinated as a claim against such Borrower or
any of its assets, whether such claim be in the ordinary course of business or
in the event of voluntary or involuntary liquidation, dissolution, insolvency or
bankruptcy, so that no payment with respect to any such Indebtedness, claim or
liability will be made or received while any of the Credit Obligations are
outstanding; PROVIDED, HOWEVER, that the Borrowers may make payments permitted
by Section 7.10.
6.9. CONTRIBUTION AMONG GUARANTORS. The Guarantors agree that, as among
themselves in their capacity as guarantors of the Credit Obligations, the
ultimate responsibility for repayment of the Credit Obligations, in the event
that the Borrowers fail to pay when due their Credit Obligations, shall be
equitably apportioned, to the extent consistent with the Credit Documents, among
the respective Guarantors (a) in the proportion that each, in its capacity as a
guarantor, has benefited from the extensions of credit to the Borrowers by the
Lenders under the Credit Agreement, or (b) if such equitable apportionment
cannot reasonably be determined or agreed upon among the affected Guarantors, in
proportion to their respective net worths determined on or about the date hereof
(or such later date as such Guarantor becomes party hereto). In the event that
any Guarantor, in its capacity as a guarantor, pays an amount with respect to
the Credit Obligations in excess of its proportionate share as set forth in this
Section 6.9, each other Guarantor shall, to the extent consistent with the
Credit Documents, make a contribution payment to such Guarantor in an amount
such that the aggregate amount paid by
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each Guarantor reflects its proportionate share of the Credit Obligations.
In the event of any default by any Guarantor under this Section 6.9, each
other Guarantor will bear, to the extent consistent with the Credit
Documents, its proportionate share of the defaulting Guarantor's obligation
under this Section 6.9. This Section 6.9 is intended to set forth only the
rights and obligations of the Guarantors among themselves and shall not in
any way affect the obligations of any Guarantor to the Lenders under the
Credit Documents (which obligations shall at all times constitute the joint
and several obligations of all the Guarantors).
6.10. FUTURE SUBSIDIARIES; FURTHER ASSURANCES. The Borrowers and each
Guarantor shall from time to time cause any present or future Subsidiary not
designated as an Excluded Company to join this Agreement as a Restricted Company
and a Guarantor pursuant to a joinder agreement in form and substance reasonably
satisfactory to the Documentation Agent. Each Guarantor will, promptly upon the
request of the Documentation Agent from time to time, execute, acknowledge and
deliver, and file and record, all such instruments, and take all such action, as
the Documentation Agent reasonably deems necessary or advisable to carry out the
intent and purposes of this Section 6.
6.11. RELEASE OF GUARANTOR. If any Guarantor is the subject of a
merger or a sale or disposition of its stock or of substantially all of its
assets in a transaction permitted under Section 7.11, the Guarantee of such
Person under this Section 6 shall be automatically terminated as of the closing
of such merger, sale or disposition and the application of any proceeds thereof
as required by this Agreement. The Guarantee under this Section 6 of any Person
that is subsequently designated as an Excluded Company in accordance with this
Agreement shall be automatically terminated as of the effectiveness of such
designation.
7. GENERAL COVENANTS. Each of the Restricted Companies covenants that, until
all of the Credit Obligations shall have been paid in full and until the
Lenders' commitments to extend credit under this Agreement and any other Credit
Document shall have been irrevocably terminated (except for indemnification and
other customary provisions that survive termination), it will comply with such
of the following provisions as are applicable to it:
7.1. TAXES AND OTHER CHARGES; ACCOUNTS PAYABLE.
7.1.1. TAXES AND OTHER CHARGES. Each of the Restricted Companies
will duly pay and discharge, or cause to be paid and discharged, before the
same shall become in arrears, all taxes, assessments and other governmental
charges imposed upon such Person and its properties, sales or activities,
or upon the income or profits therefrom, as well as all claims for labor,
materials or supplies which if unpaid might by law become a Lien upon any
of its property; PROVIDED, HOWEVER, that any such tax, assessment, charge
or claim need not be paid if the validity or amount thereof shall at the
time be contested in good faith by appropriate proceedings (or if all such
unpaid taxes, assessments, charges or claims do not exceed $500,000 in the
aggregate) and if such Person shall, in accordance with GAAP, have set
aside on its books adequate reserves with respect
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thereto; and PROVIDED, FURTHER, that each of the Restricted Companies
will pay or bond, or cause to be paid or bonded, all such taxes,
assessments, charges or other governmental claims immediately upon the
commencement of proceedings to foreclose any Lien which may have
attached as security therefor (except to the extent such proceedings
have been dismissed or stayed).
7.1.2. ACCOUNTS PAYABLE. Each of the Restricted Companies will
promptly pay when due, or in conformity with customary trade terms, all
other Indebtedness incident to the operations of such Person; PROVIDED,
HOWEVER, that any such Indebtedness need not be paid if the validity or
amount thereof shall at the time be contested in good faith and if such
Person shall, in accordance with GAAP, have set aside on its books adequate
reserves with respect thereto.
7.2. CONDUCT OF BUSINESS, ETC.
7.2.1. TYPES OF BUSINESS. The Restricted Companies will engage
only in the business of (a) developing, acquiring, constructing, improving,
owning and operating cable television systems, and (b) other businesses
incidental, related or complementary thereto, including the provision of
programming services, telephone services and the transmission of voice and
data and other information; PROVIDED, HOWEVER, that Investments permitted
by Section 7.9.9 will not be prohibited by this Section 7.2.1.
7.2.2. MAINTENANCE OF PROPERTIES. Each Restricted Company:
(a) will keep its properties in such repair, working order and
condition, and will from time to time make such repairs, replacements,
additions and improvements thereto for the efficient operation of its
businesses in management's reasonable business judgment and will
comply at all times in all material respects with all Franchises, FCC
Licenses and leases to which it is party so as to prevent any loss or
forfeiture thereof or thereunder, unless (i) compliance is at the time
being contested in good faith by appropriate proceedings or (ii) the
management of the Restricted Company reasonably determines that
compliance is not in the best interests of the Restricted Company and
that such loss or forfeiture will not result in a Material Adverse
Change; and
(b) except to the extent permitted under Section 7.11, will do
all things necessary to preserve, renew and keep in full force and
effect and in good standing its legal existence and authority
necessary to continue its business (other than in the case of an
inactive subsidiary that does not own material assets).
7.2.3. COMPLIANCE WITH MATERIAL AGREEMENTS. Each of the Restricted
Companies will comply in all material respects with the provisions of the
Material Agreements to which they are a party or bound (to the extent not
inconsistent with this Agreement or any
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other Credit Document). Without the prior written consent of the
Required Lenders, which may not be unreasonably withheld, no Material
Agreement shall be amended, modified, waived or terminated in any manner
that would have in any material respect an adverse effect on the
interests of the Lenders; PROVIDED, HOWEVER, that notwithstanding the
foregoing, in the case of the New Falcon I Debentures and New Falcon I
Debentures Indenture, the consent of the Required Lenders shall be
required only with respect to an increase in the interest rate
applicable to the Debentures currently outstanding under such Indenture.
7.2.4. STATUTORY COMPLIANCE. Each of the Restricted Companies will
comply in all material respects with the Communications Act, including the
rules and regulations of the FCC relating to the carriage of television
signals, and all other valid and applicable statutes, laws, ordinances,
zoning and building codes and other rules and regulations of the United
States of America, of the states and territories thereof and their
counties, municipalities and other subdivisions and of any foreign country
or other jurisdictions applicable to such Person, except where compliance
therewith shall at the time be contested in good faith by appropriate
proceedings or the failure so to comply is not reasonably likely to result
in a Material Adverse Change.
7.3. INSURANCE.
Each of the Restricted Companies will maintain with financially sound and
reputable insurers insurance in such amounts and against such risks as are
customarily maintained by companies engaged in the same or similar businesses
operating in the same general locations as the Restricted Companies. The
Restricted Companies will from time to time provide such information regarding
such insurance arrangements as the Documentation Agent may reasonably request.
The Agents and the Lenders acknowledge that the existing self-insurance programs
of the Restricted Companies, as they may be modified from time to time in a
manner that does not materially change the nature and relative scale of such
programs, comply with the requirements of this Section 7.3.
7.4. FINANCIAL STATEMENTS AND REPORTS. Each of the Restricted Companies
will maintain a system of accounting in which entries will be made in their
books and records of all transactions in relation to their business and affairs
in accordance with GAAP. The fiscal year of the Restricted Companies will end
on December 31 in each year.
7.4.1. ANNUAL REPORTS. The Restricted Companies will furnish to
the Lenders as soon as available, and in any event within 105 days after
the end of each fiscal year, the Consolidated and Consolidating balance
sheet of New Falcon I (prior to the TCI Closing, Holding, L.P.) and its
Subsidiaries as at the end of such fiscal year, the Consolidated and
Consolidating statements of earnings, changes in partners' equity and cash
flows of New Falcon I (prior to the TCI Closing, Holding, L.P.) and its
Subsidiaries for such fiscal year (all in reasonable detail and, in such
Consolidating financial statements, showing the
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financial condition and performance of the Restricted Companies as a
group), and together with comparative figures for the preceding fiscal
year, all accompanied by:
(a) Unqualified reports of Ernst & Young LLP (or, if they cease
to be auditors of the Restricted Companies, independent certified
public accountants of recognized national standing reasonably
satisfactory to the Documentation Agent), to the effect that they have
audited such Consolidated financial statements in accordance with
generally accepted auditing standards and that such Consolidated
financial statements present fairly, in all material respects, the
financial position of the Restricted Companies at the dates thereof
and the results of their operations for the periods covered thereby in
conformity with GAAP.
(b) The statement of such accountants that they have caused this
Agreement to be reviewed and that in the course of their audit of the
Restricted Companies no facts have come to their attention that cause
them to believe that any Default exists or, if such is not the case,
specifying such Default and the nature thereof. This statement is
furnished by such accountants with the understanding that the
examination of such accountants cannot be relied upon to give such
accountants knowledge of any such Default except as it relates to
accounting or auditing matters within the scope of their audit.
(c) A certificate of a Financial Officer to the effect that such
officer has caused this Agreement to be reviewed and has no knowledge
of any Default, or if such officer has such knowledge, specifying such
Default and the nature thereof, and what action the Restricted
Companies have taken, are taking or propose to take with respect
thereto.
(d) In the event of a material change in GAAP after the date
hereof, computations, certified by a Financial Officer, reconciling
the financial statements referred to above with financial statements
prepared in accordance with GAAP as applied to the other covenants in
Section 7 and related definitions.
(e) Computations demonstrating, as of the end of such fiscal
year, compliance with the Computation Covenants.
(f) Supplements to Exhibits 8.1 and 8.4 showing any changes in
the information set forth in such Exhibits during the last quarter of
such fiscal year, as well as any changes in the Charter, Bylaws or
incumbency of officers of the Restricted Companies from those
previously certified to the Documentation Agent.
7.4.2. QUARTERLY REPORTS. The Restricted Companies will furnish to
the Lenders as soon as available and, in any event, within 60 days after
the end of each calendar
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quarter, the internally prepared Consolidated balance sheet as of the
end of such quarter and the Consolidated statements of income, changes
in partners' equity and cash flows of New Falcon I (prior to the TCI
Closing, Holding, L.P.) and its Subsidiaries for such quarter and for
the portion of the fiscal year then ending (all in reasonable detail
and, in such Consolidating financial statements, showing the financial
condition and performance of the Restricted Companies as a group),
together with comparative figures for the same period in the preceding
fiscal year, all accompanied by:
(a) A certificate signed by a Financial Officer to the effect
that such financial statements have been prepared in accordance with
GAAP and present fairly, in all material respects, the financial
position of the Restricted Companies covered thereby at the dates
thereof and the results of their operations for the periods covered
thereby, subject only to normal year-end audit adjustments and the
addition of footnotes.
(b) Computations demonstrating, as of the end of such quarter,
compliance with the Computation Covenants.
(c) a report of a Financial Officer setting forth the number of
Subscribers, homes passed and Subscribers receiving premium services
with respect to the operating regions of the Borrowers as of the end
of such quarter.
(d) For each quarter, supplements to Exhibits 8.1 and 8.4 showing
any changes in the information set forth in such Exhibits during such
fiscal quarter, as well as any changes in the Charter, Bylaws or
incumbency of officers of the Restricted Companies from those
previously certified to the Documentation Agent.
(e) A certificate signed by a Financial Officer to the effect
that such officer has caused this Agreement to be reviewed and has no
knowledge of any Default, or if such officer has such knowledge,
specifying such Default and the nature thereof and what action the
Restricted Companies have taken, are taking or propose to take with
respect thereto.
7.4.3. TCI CLOSING REPORT. At least five Banking Days prior to the
TCI Closing, the Restricted Companies will deliver to the Administrative
Agent the reports, statements, certificates and computations described in
Section 7.4.2, giving pro-forma effect to the TCI Transactions and in
sufficient detail to enable the Lenders to calculate the Reference Leverage
Ratio as of the TCI Closing (the "TCI CLOSING REPORT").
7.4.4. OTHER REPORTS. The Restricted Companies will promptly
furnish to the Lenders such registration statements, proxy statements and
reports, including Forms S-1,
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S-2, S-3, S-4, 10-K, 10-Q and 8-K, as may be filed for New Falcon I or
any Restricted Company with the Securities and Exchange Commission.
7.4.5. NOTICE OF LITIGATION; NOTICE OF DEFAULTS. The Restricted
Companies will promptly furnish to the Lenders notice of any litigation or
any administrative or arbitration proceeding to which any Restricted
Company may hereafter become a party which involves the risk of any
judgment which resulted, or poses a material risk of resulting, after
giving effect to any applicable insurance, of the payment by the Restricted
Companies of at least $10,000,000. Promptly upon acquiring knowledge
thereof, the Restricted Companies will notify the Lenders of the existence
of any Default, specifying the nature thereof and what action the
Restricted Companies have taken, are taking or propose to take with respect
thereto.
7.4.6. FRANCHISE MATTERS. The Restricted Companies will promptly
furnish to the Documentation Agent notice of any action by any federal,
state or local governmental authority of the institution of proceedings to
revoke, terminate or suspend any Franchise now or hereafter held by any
Restricted Company, and any abandonment or expiration (without renewal) of
a Franchise now or hereafter held by any Restricted Company, in either
case, which would result, or be reasonably likely to result, in a Material
Adverse Change.
7.4.7. ERISA REPORTS. The Restricted Companies will furnish to the
Lenders as soon as available the following items with respect to any Plan:
(a) any request for a waiver of the funding standards or an
extension of the amortization period,
(b) any reportable event (as defined in section 4043 of ERISA),
unless the notice requirement with respect thereto has been waived by
regulation,
(c) any notice received by any ERISA Group Person that the PBGC
has instituted or intends to institute proceedings to terminate any
Plan, or that any Multiemployer Plan is insolvent or in
reorganization,
(d) notice of the possibility of the termination of any Plan by
its administrator pursuant to section 4041 of ERISA, and
(e) notice of the intention of any ERISA Group Person to
withdraw, in whole or in part, from any Multiemployer Plan.
7.4.8. OTHER INFORMATION. From time to time upon request of any
authorized officer of any Agent, each of the Restricted Companies will
furnish to the Lenders such other information regarding the business,
assets, financial condition, income or prospects
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of the Restricted Companies as such officer may reasonably request,
including copies of all tax returns, licenses, agreements, contracts,
leases and instruments to which any of the Restricted Companies is
party. The authorized officers and representatives of any Agent or,
after the occurrence and during the continuation of an Event of Default,
of any Lender shall have the right during normal business hours upon
reasonable notice and at reasonable intervals to examine the books and
records of the Restricted Companies, to make copies, notes and abstracts
therefrom and to make an independent examination of its books and
records, for the purpose of verifying the accuracy of the reports
delivered by any of the Restricted Companies pursuant to this Section
7.4 or otherwise and ascertaining compliance with or obtaining
enforcement of this Agreement or any other Credit Document.
7.5. CERTAIN FINANCIAL TESTS.
7.5.1. CONSOLIDATED TOTAL DEBT TO CONSOLIDATED ANNUALIZED OPERATING
CASH FLOW. Consolidated Total Debt shall not as of the end of any fiscal
quarter exceed the percentage indicated in the table below of Consolidated
Annualized Operating Cash Flow for such fiscal quarter:
<TABLE>
<CAPTION>
Percentage in Effect Percentage in Effect
Date Prior to TCI Closing After TCI Closing
- ---- -------------------- -----------------
<S> <C> <C>
Initial Closing Date through
March 30, 2001 550% 600%
March 31, 2001 through
December 30, 2001 525% 575%
December 31, 2001 through
June 29, 2002 500% 550%
June 30, 2002 through
June 29, 2003 450% 500%
June 30, 2003 through
June 29, 2004 350% 400%
June 30, 2004 through
June 29, 2005 300% 350%
June 30, 2005 through
June 29, 2006 225% 275%
June 30, 2006 and
thereafter 150% 200%
</TABLE>
7.5.2. CONSOLIDATED ANNUALIZED OPERATING CASH FLOW TO CONSOLIDATED
CASH INTEREST EXPENSE. On the last day of each fiscal quarter of the
Restricted Companies, Consolidated Annualized Operating Cash Flow for the
three-month period then ending shall exceed the percentage indicated below
of Consolidated Cash Interest Expense for
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such three-month period: (a) from the Initial Closing Date through
December 31, 2000, 140%, (b) from January 1, 2001 through December 31,
2002, 150% and (c) thereafter, 200%.
7.5.3. CONSOLIDATED ANNUALIZED OPERATING CASH FLOW TO CONSOLIDATED
PRO FORMA DEBT SERVICE. On the last day of each fiscal quarter of the
Restricted Companies, Consolidated Annualized Operating Cash Flow for the
three-month period then ending shall exceed 110% of Consolidated Pro Forma
Debt Service for the 12-month period beginning immediately after such date.
7.5.4. CAPITAL EXPENDITURES. During each year indicated below,
Capital Expenditures of the Restricted Companies shall not exceed the total
of:
(a) the applicable amount set forth opposite such year in the table below
PLUS
(b) for each year after 1998, the amount by which actual Capital
Expenditures in the preceding year are less than the applicable amount
set forth for such preceding year in such table.
<TABLE>
<CAPTION>
Amount if the TCI Amount if TCI
Closing Occurs Closing Does Not
During Occur During
Calendar Year Such Calendar Year Such Calendar Year
------------- ------------------ ------------------
<S> <C> <C>
1998 $150,000,000 $120,000,000
1999 $170,000,000 $120,000,000
2000 $185,000,000 $130,000,000
2001 $130,000,000 $ 85,000,000
2002 and each
year thereafter $ 80,000,000 $ 65,000,000
</TABLE>
7.6. INDEBTEDNESS. The Restricted Companies shall not create, incur,
assume or otherwise become or remain liable with respect to any Indebtedness
other than the following:
7.6.1. The Credit Obligations.
7.6.2. Guarantees permitted by Section 7.7.
7.6.3. Current liabilities existing from time to time, other than
for Financing Debt, incurred in the ordinary course of business.
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7.6.4. To the extent that payment thereof shall not at the time be
required by Section 7.1, Indebtedness in respect of taxes, assessments,
governmental charges and claims for labor, materials and supplies.
7.6.5. Indebtedness secured by Liens of carriers, warehousemen,
mechanics and landlords permitted by Sections 7.8.5 and 7.8.6.
7.6.6. Indebtedness in respect of judgments or awards not in excess
of $10,000,000 in the aggregate at any time outstanding (a) which have been
in force for less than the applicable appeal period, so long as execution
is not levied, or (b) in respect of which any Restricted Company shall at
the time in good faith be prosecuting an appeal or proceedings for review,
so long as execution thereof shall have been stayed pending such appeal or
review and the Restricted Companies shall have taken appropriate reserves
therefor consistent with GAAP.
7.6.7. Indebtedness in respect of Capitalized Lease Obligations or
secured by purchase money security interests to the extent Liens securing
such Indebtedness are permitted by Section 7.8.10; PROVIDED, HOWEVER, that
the aggregate principal amount of all Indebtedness permitted by this
Section 7.6.7 at any one time outstanding shall not exceed $25,000,000.
7.6.8. Indebtedness in respect of deferred taxes arising in the
ordinary course of business.
7.6.9. Indebtedness in respect of inter-company loans and advances
among the Restricted Companies which are not prohibited by Section 7.9.
7.6.10. Indebtedness evidenced by the Holding, L.P. Senior
Subordinated Notes to the extent assumed by New Falcon II upon the TCI
Closing.
7.6.11. Subject to Section 5.3.1, Indebtedness of Falcon Video and
the other Indebtedness outstanding on the date hereof and described in
Exhibit 8.4, except that only the Indebtedness of Falcon Video and the
Indebtedness under the heading "Post-Closing Financing Debt" on Exhibit 8.4
is permitted by this Section 7.6.11 to remain outstanding after the Initial
Closing Date.
7.6.12. Indebtedness on account of security deposits of Subscribers
held by the Restricted Companies to secure the return of equipment placed
by the Restricted Companies with Subscribers in the ordinary course of its
business.
7.6.13. Binding obligations of the Restricted Companies to make
acquisitions and Investments permitted by Section 7.9.
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7.6.14. Indebtedness of the Restricted Companies to Holding, L.P. or
to New Falcon I pledged by Holding, L.P. or New Falcon I to the
Documentation Agent in accordance with the Pledge and Subordination
Agreement.
7.6.15. The TCI Debt and other Indebtedness of the Restricted
Companies to TCI or its Affiliates, where such other Indebtedness is
pledged by TCI or such Affiliates to the Documentation Agent in accordance
with the Pledge and Subordination Agreement or a substantially similar
agreement.
7.6.16. The MONY Subordinated Debt.
7.6.17. Minority interests in Subsidiaries and equity in losses of
affiliated partnerships in excess of investment.
7.6.18. Other Indebtedness of the Restricted Companies not in excess
of $50,000,000 in the aggregate at any one time outstanding.
7.7. GUARANTEES; LETTERS OF CREDIT. The Restricted Companies shall not
become or remain liable with respect to any Guarantee, including reimbursement
obligations under letters of credit and other financial guarantees by third
parties, except the following:
7.7.1. Guarantees of the Credit Obligations.
7.7.2. Guarantees by the Restricted Companies of Indebtedness
incurred by any other Restricted Company and permitted by Section 7.6.
7.7.3. Guarantees to governmental authorities in respect of
performance under Franchises and to obligors upon indemnity, performance or
similar bonds or letters of credit made in the ordinary course of business,
not involving Guarantees of Financing Debt, and not exceeding $50,000,000
in aggregate principal amount at any one time outstanding.
7.7.4. Guarantees by the Restricted Companies of the MONY
Subordinated Debt, which Guarantees shall be subordinated on the same terms
as the MONY Subordinated Debt.
7.8. LIENS. The Restricted Companies shall not create, incur or enter
into, or suffer to be created or incurred or to exist, any Lien, except the
following:
7.8.1. Liens on any Credit Security which secure the Credit
Obligations and restrictions on transfer contained in the Credit Documents.
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7.8.2. Liens to secure taxes, assessments and other governmental
charges, to the extent that payment thereof shall not at the time be
required by Section 7.1.
7.8.3. Deposits or pledges made (a) in connection with, or to
secure payment of, workers' compensation, unemployment insurance, old age
pensions or other social security, (b) in connection with casualty
insurance maintained in accordance with Section 7.3, (c) to secure the
performance of bids, tenders, contracts (other than contracts relating to
Financing Debt) or leases, (d) to secure statutory obligations or surety or
appeal bonds, (e) to secure indemnity, performance or other similar bonds
in the ordinary course of business, (f) in connection with claims contested
to the extent that payment thereof shall not at that time be required by
Section 7.1 or (g) as acquisition or sale contract escrows in connection
with transactions permitted under Sections 7.9 or 7.11.
7.8.4. Liens in respect of judgments or awards, to the extent that
such judgments or awards are permitted by Section 7.6.6.
7.8.5. Liens of carriers, warehousemen, mechanics and similar
Liens, in each case (a) in existence less than 90 days from the date of
creation thereof or (b) being contested in good faith by any Restricted
Company in appropriate proceedings (so long as the Restricted Company
shall, in accordance with GAAP, have set aside on its books adequate
reserves with respect thereto).
7.8.6. Encumbrances in the nature of (a) zoning restrictions, (b)
easements, (c) restrictions of record on the use of real property, (d)
landlords' and lessors' Liens on rented premises and (e) restrictions on
transfers or assignment of leases, which in each case do not materially
detract from the value of the encumbered property or impair the use thereof
in the business of any Restricted Company.
7.8.7. Restrictions under federal and state securities laws on the
transfer of securities.
7.8.8. Restrictions under the Communications Act, specific
Franchises, pole agreements, leases and other documents entered into in the
ordinary course of business on the transfer or licensing of certain assets
of the Restricted Companies.
7.8.9. Set-off rights of depository institutions with which any
Restricted Company maintains deposit accounts.
7.8.10. Liens constituting (a) purchase money security interests
(including mortgages, conditional sales, Capitalized Leases and any other
title retention or deferred purchase devices) in real property, interests
in leases or tangible personal property existing or created on the date on
which such property is acquired, and (b) the renewal, extension or
refunding of any security interest referred to in the foregoing clause (a)
in an
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amount not to exceed the amount thereof remaining unpaid immediately
prior to such renewal, extension or refunding; PROVIDED, HOWEVER, that each
such security interest shall attach solely to the particular item of
property so acquired, and the principal amount of Indebtedness (including
Indebtedness in respect of Capitalized Lease Obligations) secured thereby
shall not exceed the cost (including all such Indebtedness secured thereby,
whether or not assumed) of such item of property; and PROVIDED, FURTHER,
that the aggregate principal amount of all Indebtedness secured by Liens
permitted by this Section 7.8.10 shall not exceed the amount permitted by
Section 7.6.7.
7.8.11. Liens as of the date hereof described in Exhibit 8.4.
7.8.12. Arrangements constituting a qualified escrow account,
qualified trust or qualified intermediary for funds included in an Asset
Reinvestment Reserve Amount to facilitate a deferred like-kind exchange
exempt from taxation under the Code.
7.8.13. Liens on the stock or other equity interests of any Person
that is not a Restricted Company to secure loans from banks and other
institutional lenders to such Person or Affiliates of such Person that are
not Restricted Companies.
7.8.14. Subject to Section 5.3.1, Liens in respect of collateral
granted by Falcon Video and Falcon Video Communications Investors, L.P. in
respect of Indebtedness of Falcon Video.
7.9. INVESTMENTS AND ACQUISITIONS. The Restricted Companies shall not have
outstanding, acquire, commit to acquire under a binding contract or a contract
not conditioned on the receipt of customary Lenders' consents or hold any
Investment (including any Investment consisting of the acquisition of any
business) except for the following:
7.9.1. Investments of the Restricted Companies in other Restricted
Companies.
7.9.2. Investments in Cash Equivalents.
7.9.3. Loans and other advances to employees, officers and
directors in an aggregate principal amount at any one time outstanding not
to exceed $10,000,000.
7.9.4. Prepaid royalties and fees paid in the ordinary course of
business.
7.9.5. Guarantees permitted by Section 7.7.
7.9.6. Investments as of the date hereof described in Exhibit 8.4.
7.9.7. So long as immediately before and after giving effect
thereto no Event of Default exists and is continuing, acquisitions by the
Restricted Companies of businesses
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engaged in activities permitted by Section 7.2.1, whether by acquisition
of equity interests or assets or by merger, consolidation or as
otherwise permitted by Section 7.11; PROVIDED, HOWEVER, that (a) the
business is acquired by a Borrower or a Guarantor or, if the business is
acquired by a new Subsidiary, the new Subsidiary becomes a Borrower or
Guarantor hereunder; and (b) the aggregate consideration paid by the
Restricted Companies in all such acquisitions (excluding any
consideration paid through the issuance of equity interests in Holding,
L.P. or New Falcon I) will not exceed (A) $25,000,000 in any fiscal year
or (B) $50,000,000 cumulatively since the date hereof.
7.9.8. Loans from the Restricted Companies to Holding, L.P., New
Falcon I or TCI not exceeding $1,000,000 in the aggregate at any one time
outstanding, provided that this Section 7.9.8 shall not apply to the loan
described in item C.2 of Exhibit 8.4 and such loan shall not be applied
against the $1,000,000 cap in this Section 7.9.8.
7.9.9. So long as immediately before and after giving effect
thereto no Event of Default exists and is continuing, Investments
consisting of the contribution of Systems and other assets to Permitted
Joint Ventures; PROVIDED, HOWEVER, that in no event shall (a) Consolidated
Annualized Operating Cash Flow properly allocable to the Systems or other
assets contributed to (or otherwise invested in) a single Permitted Joint
Venture after the Initial Closing Date by the Restricted Companies,
computed for the period of three consecutive months most recently ended
prior to such contribution for which financial statements have been (or are
required to have been) furnished in accordance with Section 7.4.2,
constitute more than 15% of Consolidated Annualized Operating Cash Flow for
the same period; or (b) the sum of the aggregate percentages in the
foregoing clause (a) between the Initial Closing Date and the Final Term
Loan C Maturity Date exceed 30%.
7.9.10. Investments (other than Investments of the type described in
Sections 7.9.7, 7.9.8 and 7.9.9) at any one time outstanding not exceeding
$20,000,000, except with the prior written consent of the Required Lenders;
PROVIDED, HOWEVER, that in no event will the book value of Margin Stock
owned by the Restricted Companies exceed 20% of the Consolidated assets of
the Restricted Companies determined in accordance with GAAP.
7.9.11. Investments consisting of the acquisition of Systems or
assets in exchange transactions permitted by Section 7.11.5.
7.9.12. So long as immediately before and after giving effect
thereto no Default exists and is continuing, Falcon Community Cable, L.P.,
Falcon Cable Media, a California Limited Partnership and Falcon Cable
Systems Company II, L.P. may acquire the remaining assets of Falcon Classic
Cable Income Properties, L.P., a California limited partnership, pursuant
to an Asset Purchase Agreement substantially in the form
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previously furnished to the Agents for an aggregate purchase price not
exceeding $7,500,000.
7.9.13. The Restricted Companies may consummate the TCI
Transactions.
7.9.14. So long as immediately before and after giving effect
thereto no Default exists and is continuing, acquisitions or Investments
(other than acquisitions and Investments of the type described in Sections
7.9.7 and 7.9.9) by the Restricted Companies with the proceeds of cash
equity contributions (other than those made in connection with the TCI
Transactions) or subordinated debt investments that are subject to the
Pledge and Subordination Agreement specified by written notice to the
Documentation Agent at the time of receipt of such proceeds for the purpose
of effecting such acquisition or Investment.
7.9.15. Acquisition deposits and deposits with a qualified
intermediary in connection with transactions permitted by this Section 7.9.
7.10. DISTRIBUTIONS. The Restricted Companies shall not make any
Distribution except for the following:
7.10.1. The Restricted Companies may make Distributions to other
Restricted Companies.
7.10.2. Any Restricted Company may declare and pay dividends payable
in common stock (or similar common equity) of such Restricted Company.
7.10.3. So long as immediately before and after giving effect
thereto no Event of Default exists and is continuing, the Restricted
Companies may make:
(a) Distributions on or about each of September 15, 1998 and
March 15, 1999 in an aggregate amount on each such date not exceeding
$15,525,000, which Distributions are used exclusively for the obligor
thereunder to pay accrued interest on the Holding, L.P. Senior
Subordinated Notes.
(b) Distributions on or about April 15 and October 15 in each
year in an amount on each such date not exceeding mandatory scheduled
cash payments then due of accrued interest on the New Falcon I
Debentures, which Distributions are used exclusively for the obligor
thereunder to pay such interest.
(c) Distributions in an amount necessary for the obligor
thereunder to pay in full the outstanding principal of, and interest
and any premium on, the Holding, L.P. Senior Subordinated Notes,
whether pursuant to a voluntary redemption on
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or after September 15, 1998 or pursuant to an earlier tender offer
(including any consent payments or other expenses incurred in
connection therewith).
(d) Distributions to New Falcon I, Holding, L.P. or TCI and its
Affiliates in an amount necessary for them to make mandatory,
scheduled payments of principal and interest on Indebtedness
(including Indebtedness owed to the Restricted Companies) of New
Falcon I, Holding, L.P. or TCI and its Affiliates not elsewhere
described in this Section 7.10; PROVIDED, HOWEVER, that (i) at least
three Banking Days prior to such Distribution the Documentation Agent
shall receive a certificate signed by a Financial Officer
demonstrating pro forma compliance as of the end of the most recent
fiscal quarter of the Restricted Companies with Sections 7.5.2 and
7.5.3 after giving effect to such Distribution, and (ii) the proceeds
of such Indebtedness are or were used to (A) prepay the Loan pursuant
to Section 4.6 or (B) make equity or subordinated debt Investments in
any Restricted Company for its own business purposes (other than
Investments in Excluded Companies).
7.10.4. The Restricted Companies may make Distributions on account
of management services provided to the Restricted Companies (in addition to
any Distributions permitted by Section 7.10.3) in an aggregate amount not
exceeding, in any fiscal year of the Restricted Companies, (i) in the case
of such Distributions made in the first fiscal quarter of the Restricted
Companies, the excess of 4.25% of Consolidated Revenues earned in such
fiscal quarter over Distributions previously made during such fiscal
quarter under this Section 7.10.4, (ii) in the case of such Distributions
made in the second fiscal quarter of the Restricted Companies, the excess
of 4.25% of Consolidated Revenues earned in the first two fiscal quarters
of the Restricted Companies over Distributions previously made during such
fiscal year under this Section 7.10.4, (iii) in the case of such
Distributions made in the third fiscal quarter of the Restricted Companies,
the excess of 4.25% of Consolidated Revenues earned in the first three
fiscal quarters of the Restricted Companies over Distributions previously
made in such fiscal year under this Section 7.10.4 and (iv) in the case of
such Distributions made in the fourth fiscal quarter of the Restricted
Companies, the excess of 4.25% of Consolidated Revenues earned in such
fiscal year over Distributions previously made during such fiscal year
under this Section 7.10.4.
7.10.5. So long as immediately before and after giving effect
thereto no Event of Default exists and is continuing, the Restricted
Companies that are partnerships or limited liability companies may, in any
calendar year, pay Distributions to all the Holders of the equity of such
Restricted Companies, in proportion to their ownership interests,
sufficient to permit each such holder to pay income taxes that may be
required to be paid by it with respect to its equity in the Restricted
Companies for the prior calendar year, as estimated by such Restricted
Company in good faith.
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7.10.6. Investments permitted by Sections 7.9.8 and 7.9.10 and
Affiliate transactions permitted by Section 7.14 or described in the second
sentence of Section 7.14.
7.10.7. So long as immediately before and after giving effect
thereto no Event of Default exists, if New Falcon II does not assume the
TCI Debt from New Falcon I pursuant to section 4.1 of the Contribution
Agreement, New Falcon II may pay Distributions in an aggregate amount not
to exceed $440,000,000 for the purpose of discharging the TCI Debt and all
interest and premiums thereon pursuant to section 2.8(e) of the
Contribution Agreement; PROVIDED, HOWEVER that any increase in the amount
of the TCI Debt assumed pursuant to section 4.1 of the Contribution
Agreement shall require the approval of the Required Lenders.
7.10.8. So long as immediately before and after giving effect
thereto no Event of Default exists and is continuing, the Borrowers may
make Distributions for any purpose; PROVIDED, HOWEVER, that, after giving
effect to any such Distribution on a pro forma basis, the Reference
Leverage Ratio shall not exceed 500%.
7.10.9. So long as immediately before and after giving effect
thereto no Event of Default exists and is continuing, the Borrowers may
make Distributions for any purpose; PROVIDED, HOWEVER, that if, after
giving effect to any such Distribution on a pro forma basis, the Reference
Leverage Ratio exceeds 500%, the cumulative, aggregate amount of all
Distributions under this Section 7.10.9 shall not exceed the sum of (a)
$25,000,000, PLUS (b) the net proceeds of cash equity contributions or
subordinated debt investments that are subject to the Pledge and
Subordination Agreement (and, with the written consent of at least two
Specified Agents, which consent shall not be unreasonably withheld, the net
equity value of non-cash equity contributions or proceeds of subordinated
debt investments that are subject to the Pledge and Subordination
Agreement) made to the Borrowers other than in connection with the TCI
Transactions (to the extent not specified for acquisitions pursuant to
Section 7.9.14), plus accrued interest thereon at a rate not exceeding the
Base Rate PLUS (c) 25% of Consolidated Excess Cash Flow for the most
recently completed fiscal year for which financial statements have been
furnished to the Lenders in accordance with Section 7.4.1.
7.10.10. So long as immediately before and after giving effect
thereto no Event of Default exists and is continuing, the Restricted
Companies may make Distributions constituting the purchase, redemption,
acquisition, cancellation or other retirement for value of equity interests
in any Holding Company, options on any such interests or related equity
appreciation rights or similar securities held by officers or employees or
former officers or employees of such Holding Company (or their estates or
beneficiaries under their estates), upon death, disability, retirement or
termination of employment; PROVIDED, HOWEVER, that the aggregate
consideration paid for such purchase, redemption,
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acquisition, cancellation or other retirement does not in any one fiscal
year of the Restricted Companies exceed $7,500,000 in the aggregate.
7.10.11. So long as immediately before and after giving effect
thereto no Event of Default exists and is continuing, the Restricted
Companies may make Distributions in respect of loans and other advances to
employees, officers and directors permitted by Section 7.9.3.
7.10.12. The Restricted Companies may make required scheduled
payments of principal and accrued interest with respect to the MONY
Subordinated Debt in accordance with the terms thereof as in effect on
the Initial Closing Date and as subsequently amended in accordance with
Section 7.2.3, including the subordination terms, and, so long as
immediately before and after giving effect thereto no Default exists and
is continuing, the Restricted Companies may make voluntary prepayments
of principal (together with accrued interest thereon and any premium
with respect thereto) on the MONY Subordinated Debt, and special
principal prepayments (together with accrued interest thereon) on such
debt on account of risk-based capital requirements.
7.10.13. The Restricted Companies may make payments (the "FALCON
CABLE SYSTEMS SETTLEMENT PAYMENTS") pursuant to any settlement, judgment or
other resolution (the "FALCON CABLE SYSTEMS SETTLEMENT") relating to the
Frank O'Shea IRA, et al, Plaintiffs, versus Falcon Cable Systems Company,
et al, Defendants, litigation in amounts and on terms reasonably
satisfactory to at least two Specified Agents.
7.10.14. The Restricted Companies may make any Distributions
specified in the memorandum attached as Exhibit 1-A in connection with the
TCI Transactions and may make any Distributions to Holding, L.P. and New
Falcon I sufficient to permit Holding, L.P. and New Falcon I to make any
Distributions specified in such memorandum.
7.10.15. Distributions in respect of Affiliate transactions permitted
by Section 7.14 or described in the second sentence of Section 7.14.
7.11. MERGER, CONSOLIDATION AND DISPOSITIONS OF ASSETS. The Restricted
Companies shall not merge or enter into a consolidation or sell, lease, sell and
lease back, sublease or otherwise dispose of any of its assets, except the
following:
7.11.1. Any Restricted Company may sell or otherwise dispose of (a)
inventory in the ordinary course of business, (b) tangible assets to be
replaced in the ordinary course of business by other tangible assets of
equal or greater value, (c) tangible assets that are no longer used or
useful in the business of the Restricted Companies, the fair market value
(or book value if greater) of which shall not be material in any fiscal
year and (d) cash and Cash Equivalents.
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7.11.2. Any Restricted Company may merge or be liquidated into, or
transfer or make dispositions of assets to, any other Restricted Company.
7.11.3. Subject to Section 4.4, so long as no Event of Default
exists and is continuing on the date a binding contract with respect to
such sale is entered into and the Restricted Companies have furnished prior
written notice of such sale to the Documentation Agent, the Restricted
Companies may sell Systems or other assets for fair market value in
transactions not constituting Permitted Asset Swaps; PROVIDED, HOWEVER,
that the sum of the aggregate percentages of Consolidated Annualized
Operating Cash Flow for the period of three consecutive months most
recently ended prior to each such sale for which financial statements have
been (or are required to have been) furnished in accordance with
Section 7.4.2 properly allocable to all such Systems or other assets so
sold between the Initial Closing Date and the Final Term Loan C Maturity
Date shall not exceed 30%.
7.11.4. So long as immediately before and after giving effect
thereto no Event of Default exists and is continuing, the Restricted
Subsidiaries may contribute Systems and other assets to Permitted Joint
Ventures as Investments permitted by Section 7.9.9.
7.11.5. So long as no Event of Default exists and is continuing on
the date a binding contract with respect to any Permitted Asset Swap is
entered into, the Restricted Companies may engage in such Permitted Asset
Swap.
7.11.6. The Restricted Companies may consummate mergers or
consolidations necessary to effect acquisitions and Investments permitted
by Section 7.9.
7.12. ISSUANCE OF STOCK BY SUBSIDIARIES; SUBSIDIARY DISTRIBUTIONS.
7.12.1. ISSUANCE OF STOCK BY SUBSIDIARIES. No Subsidiary (other
than an Excluded Company) of a Restricted Company shall issue or sell any
shares of its capital stock or other evidence of beneficial ownership to
any Person other than a Restricted Company unless (a) in the case of a
stock dividend or other distribution of equity interests, such dividend or
distribution is pro rata among existing equity owners or (b) in the case of
purchased equity, the sale of such equity is on an arm's length basis.
7.12.2. NO RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS. Except for
restrictions contained in the Credit Documents, the Restricted Companies
shall not enter into or be bound by any agreement (including covenants
requiring the maintenance of specified amounts of net worth or working
capital) restricting the right of any Subsidiary to make Distributions or
extensions of credit to a Borrower (directly or indirectly through another
Subsidiary).
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7.13. ERISA, ETC. Each of the Restricted Companies will comply, and
will cause all ERISA Group Persons to comply, in all material respects, with the
provisions of ERISA and the Code applicable to each Plan. Each of the
Restricted Companies will meet, and will cause all ERISA Group Persons to meet,
all minimum funding requirements applicable to them with respect to any Plan
pursuant to section 302 of ERISA or section 412 of the Code, without giving
effect to any waivers of such requirements or extensions of the related
amortization periods which may be granted. At no time shall the Accumulated
Benefit Obligations under any Plan that is not a Multiemployer Plan exceed the
fair market value of the assets of such Plan allocable to such benefits by more
than $10,000,000. The Restricted Companies will not withdraw, and will cause
all other ERISA Group Persons not to withdraw, in whole or in part, from any
Multiemployer Plan so as to give rise to withdrawal liability exceeding
$10,000,000 in the aggregate. At no time shall the actuarial present value of
unfunded liabilities for post-employment health care benefits, whether or not
provided under a Plan, calculated in a manner consistent with Statement No. 106
of the Financial Accounting Standards Board, exceed $10,000,000.
7.14. TRANSACTIONS WITH AFFILIATES. Other than the Material
Agreements, none of the Restricted Companies shall effect any transaction with
any of their respective Affiliates on a basis less favorable to the Restricted
Companies than would be the case if such transaction had been effected with a
non-Affiliate. This Section 7.14 shall not apply to: (a) customary directors'
fees, indemnification and similar arrangements and payments in respect thereof,
consulting fees, employee salaries, bonuses or employment agreements,
compensation or employee benefit arrangements and incentive arrangements with
any officer, director or employee of a Restricted Company entered into in the
ordinary course of business (including customary benefits thereunder), (b) the
Contribution Agreement, the partnership agreements of New Falcon I and Holding,
L.P., including any amendments or extensions thereof that do not otherwise
violate any other covenant set forth in this Agreement, and any transactions
undertaken or to be undertaken pursuant to any of such agreements or pursuant to
any other contractual obligations in the ordinary course of business in
existence on the Initial Closing Date (as in effect on the Initial Closing Date)
or as set forth on Exhibit 7.14, (c) the issuance and sale by any Restricted
Company to its partners, members or stockholders of capital stock or other
equity interests (other than Redeemable Capital Stock), (d) loans and advances
to officers, directors and employees of the Restricted Companies in the ordinary
course of business, (e) customary commercial banking, investment banking,
underwriting, placement agent or financial advisory fees paid in connection with
services rendered to the Restricted Companies in the ordinary course of
business, (f) the incurrence of intercompany indebtedness that does not
otherwise violate any other provision of this Agreement, (g) the pledge of
capital stock or other equity interests of Excluded Companies to support the
Indebtedness thereof and (h) programming agreements, marketing and promotional
agreements and other billing services, equipment agreements and agreements for
other goods and services related to the business of the Restricted Companies
entered into between TCI or its Affiliates and the Restricted Companies.
Holding, L.P. shall deliver to the Documentation Agent as soon as reasonably
practicable copies of all documents delivered pursuant to clause (ii) of the
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first sentence of section 4.13 of the New Falcon I Debentures Indenture in
connection with Affiliate transactions.
7.15. INTEREST RATE PROTECTION. Within 30 days after the Initial
Closing Date, the Borrowers will obtain and thereafter keep in effect one or
more Interest Rate Protection Agreements conforming to International Securities
Dealers Association standards with any Lender or Affiliate of a Lender or other
financial institution reasonably satisfactory to the Administrative Agent
protecting against increases in interest rates, each in form and substance
reasonably satisfactory to the Administrative Agent, covering a notional amount
of at least 50% of the Financing Debt of New Falcon I, Holding, L.P. and the
Restricted Companies for a two year period at rates reasonably satisfactory to
the Administrative Agent; PROVIDED, HOWEVER, that Financing Debt with a fixed
interest rate for a period of at least two years shall be deemed to be covered
by an Interest Rate Protection Agreement for purposes of this Section 7.15.
7.16. COMPLIANCE WITH ENVIRONMENTAL LAWS. Each of the Restricted
Companies will:
7.16.1. Use and operate all of its facilities and properties in
compliance with all Environmental Laws, keep all necessary permits,
approvals, certificates, licenses and other authorizations relating to
environmental matters in effect and remain in compliance therewith, and
handle all Hazardous Materials in compliance with all applicable
Environmental Laws, except where the failure to comply with, or keep in
effect, as applicable, such laws, permits, approvals, certificates,
licenses and authorizations would not reasonably be expected to result in
a Material Adverse Change.
7.16.2. Immediately notify the Documentation Agent, and provide
copies upon receipt, of all written claims or complaints from governmental
authorities relating to the condition of its facilities and properties or
compliance with Environmental Laws, and in the case of potential liability
in excess of $10,000,000 shall promptly cure and have dismissed with
prejudice to the satisfaction of the Documentation Agent any actions and
proceedings relating to compliance with Environmental Laws, except where
contested in good faith by appropriate proceedings and sufficient reserves
with respect thereto as required by GAAP have been established.
7.16.3. Provide such information and certifications which the
Documentation Agent may reasonably request from time to time to evidence
compliance with this Section 7.16.
7.17. NO OUTSIDE MANAGEMENT FEES. The Restricted Companies shall not
pay in cash any management fees or other amounts in respect of management
services to any Person other than another Restricted Company, except for
Distributions to New Falcon I (or Holding, L.P.) permitted by Section 7.10.4 and
payments permitted as an Affiliate transaction under Section 7.14 or described
in the second sentence of Section 7.14; PROVIDED, HOWEVER, that this Section
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7.17 shall not prohibit the payment of fees for services rendered to the
Restricted Companies on an arm's length basis in the ordinary course of
business.
7.18. DERIVATIVE CONTRACTS. None of the Restricted Companies nor any
of their Subsidiaries shall enter into any Interest Rate Protection Agreement,
foreign currency exchange contract or other financial or commodity derivative
contracts except to provide hedge protection for an underlying economic
transaction in the ordinary course of business.
7.19. NEGATIVE PLEDGE CLAUSES. None of the Restricted Companies nor
any of their Subsidiaries shall enter into any agreement, instrument, deed or
lease which prohibits or limits the ability of the Restricted Companies or any
of their Subsidiaries to create, incur, assume or suffer to exist any Lien upon
any of their respective properties, assets or revenues, whether now owned or
hereafter acquired, or which requires the grant of any collateral for such
obligation if collateral is granted for another obligation, except the
following:
7.19.1. This Agreement and the other Credit Documents.
7.19.2. Covenants in documents creating Liens permitted by Section
7.8 prohibiting further Liens on the assets encumbered thereby.
7.19.3. Covenants in the note purchase agreement relating to the
MONY Subordinated Debt prohibiting certain of the Restricted Companies from
granting Liens, but in any event permitting the Liens provided by the
Credit Documents.
7.19.4. Restrictions on transfer and pledges imposed in the ordinary
course of business pursuant to Franchises, pole agreements, leases and
other operating agreements.
7.20. FUTURE SECURITY INTEREST. If the TCI Closing has not occurred by
December 31, 1998 (or such later date prior to June 30, 1999 as may be mutually
agreed by TCI and Holding, L.P.), the Restricted Companies shall, within 20
Banking Days after December 31, 1998 (or such later mutually agreed date), duly
authorize, execute and deliver to the Documentation Agent a Security Agreement
in customary form reasonably satisfactory to the Documentation Agent and the
Borrowers sufficient to grant as Credit Security to the Lenders a senior
security interest in all assets (subject to customary exceptions) of the
Restricted Companies. By the time of delivery of such Security Agreement, each
Restricted Company shall have duly authorized, executed, delivered, filed,
registered, and recorded such security agreements, notices, Uniform Commercial
Code financing statements and other instruments as the Documentation Agent may
have requested in order to perfect the security interests and encumbrances
purported or required pursuant to the Security Agreement or the Credit Documents
to be created in the Credit Security.
8. REPRESENTATIONS AND WARRANTIES. In order to induce the Lenders to extend
credit to the Borrowers hereunder, each of the Restricted Companies jointly and
severally represents and warrants to each Lender that:
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8.1. ORGANIZATION AND BUSINESS.
8.1.1. THE BORROWERS. Each Borrower is a duly organized and
validly existing limited partnership (or, in the case of New Falcon II, a
limited liability company, or, in the case of Falcon First, a corporation),
in good standing under the laws of the jurisdiction in which it is
organized, with all partnership (or limited liability company, or
corporate) power and authority necessary to (a) enter into and perform this
Agreement and each other Credit Document to which it is party, (b) borrow
and guarantee the Credit Obligations, (c) grant the Lenders security
interests in any Credit Security owned by it to secure the Credit
Obligations and (d) own its properties and carry on the business now
conducted or proposed to be conducted by it. Certified copies of the
Charter and By-laws of each Borrower have been previously delivered to the
Documentation Agent and are correct and complete. Exhibit 8.1, as from
time to time hereafter supplemented in accordance with Sections 7.4.1 and
7.4.2, sets forth (i) the jurisdiction of organization of each Borrower,
(ii) the address of each Borrower's principal executive office and chief
place of business and (iii) the number of authorized and issued shares and
ownership of each Borrower.
8.1.2. OTHER GUARANTORS. Each Restricted Company (other than the
Borrowers) is duly organized, validly existing and in good standing under
the laws of the jurisdiction in which it is organized, with all partnership
or corporate power and authority necessary to (a) enter into and perform
this Agreement and each other Credit Document to which it is party, (b)
guarantee the Credit Obligations, (c) grant the Lenders a security interest
in Credit Security owned by such Restricted Company to secure the Credit
Obligations and (d) own its properties and carry on the business now
conducted or proposed to be conducted by it. Certified copies of the
Charter and By-laws of each such Restricted Company have been previously
delivered to the Documentation Agent and are correct and complete. Exhibit
8.1, as from time to time hereafter supplemented in accordance with
Sections 7.4.1 and 7.4.2, sets forth (i) the name and jurisdiction of
organization of each Restricted Company, (ii) the address of the chief
executive office and principal place of business of each Restricted
Company, and (iii) the number of authorized and issued shares and ownership
of each Restricted Company.
8.1.3. QUALIFICATION. Except as set forth on Exhibit 8.1 as from
time to time supplemented in accordance with Sections 7.4.1 and 7.4.2, each
Restricted Company is duly and legally qualified to do business as a
foreign limited partnership or other entity and is in good standing in each
state or jurisdiction in which such qualification is required and is duly
authorized, qualified and licensed under all laws, regulations, ordinances
or orders of public authorities, or otherwise, to carry on its business in
the places and in the manner in which it is conducted, except for failures
to be so qualified, authorized or licensed which would not in the aggregate
result, or pose a material risk of resulting, in any Material Adverse
Change.
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8.1.4. CAPITALIZATION. Except as set forth in Exhibit 8.1, as from
time to time supplemented in accordance with Sections 7.4.1 and 7.4.2, no
options, warrants, conversion rights, preemptive rights or other statutory
or contractual rights to purchase shares of capital stock or other
securities of any Restricted Company now exist, nor has any Restricted
Company authorized any such right, nor is any Restricted Company obligated
in any other manner to issue shares of its capital stock or other
securities.
8.2. FINANCIAL STATEMENTS AND OTHER INFORMATION; MATERIAL AGREEMENTS.
8.2.1. FINANCIAL STATEMENTS AND OTHER INFORMATION. The Restricted
Companies have previously furnished to the Lenders copies of the following:
(a) The unaudited Consolidated balance sheet of the Pre-TCI
Borrowers and their Subsidiaries, and the audited Consolidated balance
sheet of Holding, L.P. as at December 31 in each of 1996 and 1997 and
the unaudited Consolidated statements of income and changes in
partners' (or shareholders') equity and cash flows of the Pre-TCI
Borrowers and their Subsidiaries, and the audited Consolidated
statements of income and changes in partners' equity and cash flows of
Holding, L.P., for the fiscal years then ended.
(b) The ten-year financial and operational projections for the
Restricted Companies dated April 1998.
(c) Calculations demonstrating pro forma compliance with the
Computation Covenants as of the Initial Closing Date.
(d) The Offering Memorandum dated March 31, 1998 with respect to
the New Falcon I Debentures.
The audited Consolidated financial statements (including the notes
thereto) referred to in clause (a) above were prepared in accordance with
GAAP and fairly present the financial position of the Restricted Companies
covered thereby on a Consolidated basis at the respective dates thereof and
the results of their operations for the periods covered thereby. No
Restricted Company has any known contingent liability material to the
Restricted Companies on a Consolidated basis that is required to be
reflected by GAAP which is not reflected in the most recent balance sheet
referred to in clause (a) above (or delivered pursuant to Sections 7.4.1 or
7.4.2) or the notes thereto.
In the judgment of the Restricted Companies, the financial and
operational projections referred to in clause (b) above constitute a
reasonable basis as of the Initial Closing Date for the assessment of the
future performance of the Restricted Companies during the periods indicated
therein, it being understood that any projected financial
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information represents an estimate, based on various assumptions, of
future results of operations which may or may not in fact occur.
8.2.2. MATERIAL AGREEMENTS. The Restricted Companies have
previously furnished to the Documentation Agent correct and complete
copies, including all exhibits, schedules and amendments thereto, of the
agreements set forth in Exhibit 8.2.2, each as in effect on the date hereof
(or, if such agreement is not in effect on the date hereof, in the form of
the most recent draft as indicated in such Exhibit):
8.3. CHANGES IN CONDITION. No Material Adverse Change has occurred, and
since December 31, 1997, no Restricted Company has entered into any material
transaction outside the ordinary course of business except for the transactions
contemplated by this Agreement or the other Material Agreements or as
specifically described to the Lenders in writing.
8.4. AGREEMENTS RELATING TO FINANCING DEBT, INVESTMENTS, ETC. Exhibit 8.4,
as from time to time hereafter supplemented in accordance with Sections 7.4.1
and 7.4.2, sets forth (a) the amounts (as of the dates indicated in Exhibit 8.4,
as so supplemented) of all Financing Debt of the Restricted Companies and all
agreements which relate to such Financing Debt, (b) all Liens and Guarantees
with respect to such Financing Debt and (c) all agreements which directly or
indirectly require any Restricted Company to make any Investment. The
Restricted Companies have furnished the Documentation Agent with correct and
complete copies of any agreements described in clauses (a), (b) and (c) above
requested by the Required Lenders.
8.5. TITLE TO ASSETS. The Restricted Companies have good and valid title
to all material assets necessary for the operations of their business as now
conducted by them and reflected in the most recent balance sheet referred to in
Section 8.2.1(a) (or the balance sheet most recently furnished to the Lenders
pursuant to Sections 7.4.1 or 7.4.2), and to all material assets necessary for
the operations of such business acquired subsequent to the date of such balance
sheet, subject to no Liens except for those permitted by Section 7.8 and except
for assets disposed of as permitted by Section 7.11.
8.6. LICENSES, ETC. The Restricted Companies have all patents, patent
applications, patent licenses, patent rights, trademarks, trademark rights,
trade names, trade name rights, copyrights, licenses, FCC Licenses, Franchises,
permits, authorizations and other rights including agreements with public
utilities and microwave transmission companies, pole use, access or rental
agreements and utility easements the lack, loss or termination of which would
result, or is reasonably likely to result, in a Material Adverse Change. All of
the foregoing are in full force and effect except as would not result in, or be
reasonably likely to result in, a Material Adverse Change, and each of the
Restricted Companies is in substantial compliance with the foregoing without any
known conflict with the valid rights of others which has resulted, or poses a
material risk of resulting, in any Material Adverse Change. No event has
occurred which permits, or after notice or lapse of time or both would permit,
the revocation or termination of any such license, Franchise or other right or
affect the rights of any of the Restricted Companies thereunder so as
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to result in any Material Adverse Change. Except as would not result, or
create a material risk of resulting, in a Material Adverse Change:
8.6.1. FRANCHISES; FCC LICENSES. Each Franchise and FCC License
held by any Restricted Company is validly issued, and no Restricted Company
is in violation of the terms of any of its Franchises or FCC Licenses.
8.6.2. FCC AND OTHER MATTERS. Each Restricted Company has filed
all cable television registration statements and other filings which are
required to be filed by it under the Communications Act. Each Restricted
Company is in all material respects in compliance with the Communications
Act, including the rules and regulations of the FCC relating to the
carriage of television signals. The execution, delivery and performance by
the Restricted Companies of this Agreement does not require the approval of
the FCC and will not result in any violation of the Communications Act.
Each Restricted Company has recorded or deposited with and paid to the
federal Copyright Office and the Register of Copyright all notices,
statements of account, royalty fees and other documents and instruments
required under Title 17 of the United States Code and all rules and
regulations thereunder (collectively and as from time to time in effect,
the "COPYRIGHT ACT"), including such of the foregoing required by section
111(d) of the Copyright Act by virtue of such Restricted Company having
made any secondary transmission subject to compulsory licensing pursuant to
section 111(c) of the Copyright Act.
8.7. LITIGATION. No litigation, at law or in equity, or any proceeding
before any court, board or other governmental or administrative agency or any
arbitrator, including the litigation described in Exhibit 8.7, is pending or, to
the knowledge of the Restricted Companies, threatened which, in either case,
involves any material risk of any final judgment, order or liability which,
after giving effect to any applicable insurance, has resulted, or poses a
material risk of resulting, in any Material Adverse Change or which seeks to
enjoin (and poses a material risk of enjoining) the consummation, or which
(except for litigation which does not pose a material risk of impairing the
validity or effectiveness of the transactions contemplated by this Agreement or
any other Credit Document) questions the validity, of any of the transactions
contemplated by this Agreement or any other Credit Document. No judgment,
decree or order of any court, board or other governmental or administrative
agency or any arbitrator has been issued against or binds any Restricted Company
which has resulted, or poses a material risk of resulting, in any Material
Adverse Change.
8.8. TAX RETURNS. Except as would not result, or create a material risk of
resulting, in a Material Adverse Change, each of the Restricted Companies has
filed all material tax and information returns which are required to be filed by
it and has paid, or made adequate provision for the payment of, all taxes which
have or may become due pursuant to such returns or to any assessment received by
it (except for taxes being disputed in good faith and for which sufficient
reserves have been established) and no Restricted Company knows of any material
additional assessments or any basis therefor and the Restricted Companies
reasonably believe that the
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charges, accruals and reserves on the books of the Restricted Companies in
respect of taxes or other governmental charges are adequate.
8.9. AUTHORIZATION AND ENFORCEABILITY. Each Borrower and each other
Guarantor has taken all partnership or corporate action required to execute,
deliver and perform this Agreement and each other Credit Document to which it is
party. Each of this Agreement and each other Credit Document constitutes the
legal, valid and binding obligation of the Borrower or the Guarantor party
thereto and is enforceable against such Person in accordance with its terms.
8.10. NO LEGAL OBSTACLE TO AGREEMENTS. Neither the execution and
delivery of this Agreement or any other Credit Document, nor the making of any
borrowings hereunder, nor the guaranteeing of the Credit Obligations, nor the
securing of the Credit Obligations with any Credit Security, has constituted or
resulted in or will constitute or result in:
(a) any breach or termination of the provisions of any agreement,
instrument, deed or lease to which any Holding Company is a party or
by which it is bound, or of the Charter or By-laws of any Holding
Company;
(b) the violation of any law, statute, judgment, decree or
governmental order, rule or regulation applicable to any Holding
Company;
(c) the creation under any agreement, instrument, deed or lease
of any Lien (other than Liens on Credit Security which secure the
Credit Obligations) upon any of the assets of any Holding Company; or
(d) except as contemplated by section 2.6 of the Contribution
Agreement, any redemption, retirement or other repurchase obligation
of any Holding Company under any Charter, By-law, agreement,
instrument, deed or lease.
No approval, authorization or other action by, or declaration to or filing with,
any governmental or administrative authority or any other Person that has not
been obtained or made is required to be obtained or made by any Holding Company
in connection with the execution, delivery and performance of this Agreement,
the Notes or any other Credit Document, the making of any borrowing hereunder,
the guaranteeing of the Credit Obligations or the securing of the Credit
Obligations with the Credit Security.
8.11. DEFAULTS. No Restricted Company is in default under any
provision of its Charter or By-laws or of this Agreement or any other Credit
Document. No Restricted Company is in default under any provision of any
agreement, instrument, deed or lease to which it is party or by which it or its
property is bound, or has violated any law, judgment, decree or governmental
order, rule or regulation, in each case so as to result, or creates a material
risk of resulting, in any Material Adverse Change.
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8.12. CERTAIN BUSINESS REPRESENTATIONS.
8.12.1. LABOR RELATIONS. No dispute or controversy between any
Restricted Company and any of its employees has resulted, or is reasonably
likely to result, in any Material Adverse Change, and no Restricted Company
anticipates that its relationships with its unions or employees will
result, or are reasonably likely to result, in any Material Adverse Change.
Each Restricted Company is in compliance in all material respects with all
federal and state laws with respect to (a) non-discrimination in employment
with which the failure to comply, in the aggregate, has resulted in, or
poses a material risk of resulting in, a Material Adverse Change and (b)
the payment of wages, the failure of which to pay, in the aggregate, has
resulted in, or creates a material risk of resulting in, a Material Adverse
Change.
8.12.2. ANTITRUST. Each of the Restricted Companies is in
compliance in all material respects with all federal and state antitrust
laws relating to its business and the geographic concentration of its
business.
8.12.3. CONSUMER PROTECTION. No Restricted Company is in violation
of any rule, regulation, order, or interpretation of any rule, regulation
or order of the Federal Trade Commission (including truth-in-lending), with
which the failure to comply, in the aggregate, has resulted in, or poses a
material risk of resulting in, a Material Adverse Change.
8.12.4. YEAR 2000 ISSUES. Based on a review of the operations of
the Restricted Companies as they relate to the processing, storage and
retrieval of data, the Restricted Companies do not believe that a Material
Adverse Change is reasonably likely to occur as a result of computer
software and hardware that will not function with respect to periods
commencing January 1, 2000 at least as effectively as with respect to
periods ending on or prior to December 31, 1999.
8.13. ENVIRONMENTAL REGULATIONS.
8.13.1. ENVIRONMENTAL COMPLIANCE. Each of the Restricted Companies
is in compliance in all material respects with the Clean Air Act, the
Federal Water Pollution Control Act, the Marine Protection Research and
Sanctuaries Act, the Resource Conservation and Recovery Act, CERCLA and any
similar state or local statute or regulation in effect in any jurisdiction
in which any properties of any Restricted Company are located or where any
of them conducts its business, and with all applicable published rules and
regulations (and applicable standards and requirements) of the federal
Environmental Protection Agency and of any similar agencies in states or
foreign countries in which any Restricted Company conducts its business,
other than any noncompliance which in the aggregate has not resulted in,
and could not reasonably be expected to result in, a Material Adverse
Change.
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8.13.2. ENVIRONMENTAL LITIGATION. Except as would not result in, or
could not reasonably be expected to result in, a Material Adverse Change,
no suit, claim, action or proceeding of which any Restricted Company has
been given notice or otherwise to its knowledge is now pending before any
court, governmental agency or board or other forum, or to any Restricted
Company's knowledge, threatened by any Person (nor to any Restricted
Company's knowledge, does any factual basis exist therefor) for, and the
Restricted Companies have received no written correspondence from any
federal, state or local governmental authority with respect to any of the
following that has resulted in, or creates a material risk of resulting in,
a Material Adverse Change:
(a) noncompliance in any material respect by any Restricted
Company with any such environmental law, rule or regulation;
(b) material liabilities for personal injury, wrongful death or
other tortious conduct relating to materials, commodities or products
used, generated, sold, transferred or manufactured by any Restricted
Company (including products made of, containing or incorporating
asbestos, lead or other hazardous materials, commodities or toxic
substances); or
(c) the release into the environment by any Restricted Company of
any material amount of Hazardous Material generated by any Restricted
Company whether or not occurring at or on a site owned, leased or
operated by any Restricted Company.
8.13.3. HAZARDOUS MATERIAL. The Restricted Companies have provided
to the Lenders a written list as of the Initial Closing Date of all waste
disposal or dump sites at which a material amount of Hazardous Material
generated by any Restricted Company has been disposed of directly by the
Restricted Companies and all independent contractors to whom the Restricted
Companies have delivered Hazardous Material, or to any Restricted Company's
knowledge, finally came to be located, and indicates all such sites which
are or have been included (including as a potential or suspect site) in any
published federal, state or local "superfund" or other list of hazardous or
toxic waste sites. Any waste disposal or dump sites at which Hazardous
Material generated by any Restricted Company has been disposed of directly
by the Restricted Companies and all independent contractors to whom the
Restricted Companies have delivered Hazardous Material, or to any
Restricted Company's knowledge, finally came to be located, has not
resulted in, and could not reasonably be expected to result in, a Material
Adverse Change.
8.13.4. ENVIRONMENTAL CONDITION OF PROPERTIES. Except as would not
result in, or could not reasonably be expected to result in, a Material
Adverse Change, none of the properties owned or, to its knowledge, leased
by any Restricted Company has been used as a treatment, storage or disposal
site. No Hazardous Material is present in any real
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property currently or formerly owned or operated by any Restricted
Company except that which would not reasonably be expected to result in a
Material Adverse Change.
8.14. PENSION PLANS. Each Plan is in material compliance with the
applicable provisions of ERISA and the Code. No Plan is a Multiemployer Plan or
a "defined benefit plan" (as defined in ERISA). Each ERISA Group Person has met
all of the funding standards applicable to all Plans, and no condition exists
which would permit the institution of proceedings to terminate any Plan under
section 4042 of ERISA.
8.15. CONTRIBUTION AGREEMENT, ETC. The Contribution Agreement is a
valid and binding contract as to each of the Restricted Companies that are
parties thereto and, to the best of each Restricted Company's knowledge, as to
the other parties thereto. As of the date of this Agreement, no Restricted
Company that is a party to the Contribution Agreement is in default in any
material respect of its obligations under the Contribution Agreement and, to the
best of each Restricted Company's knowledge, as of the date of this Agreement
the other parties thereto are not in default in any material respect of any of
their obligations thereunder. The representations and warranties of the Holding
Companies that are parties to the Contribution Agreement set forth therein are
true and correct in all material respects as of the date hereof with the same
force and effect as if made on and as of the date hereof. To the best of each
Restricted Company's knowledge, as of the date hereof, all of the
representations and warranties of the other parties thereto set forth in the
Contribution Agreement are true and correct in all material respects with the
same force and effect as though made on and as of the date hereof.
8.16. GOVERNMENT REGULATION; MARGIN STOCK.
8.16.1. GOVERNMENT REGULATION. No Restricted Company, nor any
Person controlling any Restricted Company or under common control with any
Restricted Company is subject to regulation under the Public Utility
Holding Company Act of 1935, the Federal Power Act, the Investment Company
Act, the Interstate Commerce Act or any similar federal or state statutes.
Each Lender is aware that various aspects of the business conducted by
Restricted Companies, including the nature of the services required to be
furnished and the rates which may be charged therefor, are subject to
regulation by federal, state and local governmental authorities.
8.16.2. MARGIN STOCK. The Restricted Companies do not own Margin
Stock having a book value exceeding 20% of the Consolidated assets of the
Restricted Companies determined in accordance with GAAP.
8.17. DISCLOSURE. Neither this Agreement nor any other Credit Document
to be furnished to the Lenders by or on behalf of any Restricted Company in
connection with the transactions contemplated hereby or by such Credit Document
contains any untrue statement of material fact or omits to state a material fact
necessary in order to make the statements contained herein or therein not
misleading in light of the circumstances under which they were made.
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9. DEFAULTS.
9.1. EVENTS OF DEFAULT. The following events are referred to as "EVENTS OF
DEFAULT":
9.1.1. NON-PAYMENT. Any Borrower shall fail to make any payment in
respect of: (a) interest or any fee on or in respect of any of the Credit
Obligations owed by it as the same shall become due and payable, and such
failure shall continue for a period of five days, or (b) principal of any
of the Credit Obligations owed by it as the same shall become due, whether
at maturity or by acceleration or otherwise.
9.1.2. BREACH OF DESIGNATED COVENANTS. Any Restricted Company
shall fail to perform or observe any of the provisions of Sections 7.5
through 7.12, 7.14, 7.15, 7.17, 7.18 or 7.19.
9.1.3. BREACH OF OTHER COVENANTS. Any Restricted Company or any of
its Affiliates party to any Credit Document shall fail to perform or
observe any other covenant, agreement or provision to be performed or
observed by it under this Agreement or any other Credit Document, and such
failure shall not be rectified or cured to the reasonable satisfaction of
the Required Lenders within 30 days after notice thereof by the
Documentation Agent or Administrative Agent to the Company.
9.1.4. MISREPRESENTATION. Any representation or warranty of or
with respect to any Restricted Company or any of its Affiliates party to
any Credit Document made to the Lenders in, pursuant to or in connection
with this Agreement or any other Credit Document or in any financial
statement, report, notice, mortgage, assignment or certificate delivered to
the Agent or any of the Lenders by any Restricted Company or any other
Obligor in connection herewith or therewith, shall be materially false or
misleading on the date as of which it was made.
9.1.5. CROSS-DEFAULT, ETC.
(a) Holding, L.P., New Falcon I or any Restricted Company
shall fail to make any payment when due (after giving effect to any
applicable grace periods) in respect of any Material Financing Debt
(including, in any event, the Holding, L.P. Senior Subordinated
Notes, the New Falcon I Debentures, the MONY Subordinated Debt and
the TCI Debt);
(b) Holding, L.P., New Falcon I or any Restricted Company
shall fail to perform or observe the terms of any agreement
relating to any Material Financing Debt, and such failure shall
continue, without having been duly cured, waived or consented to,
beyond the period of grace, if any, specified in such agreement,
and such failure shall permit the acceleration of such Material
Financing Debt;
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(c) all or any part of any Material Financing Debt of
Holding, L.P., New Falcon I or any Restricted Company shall be
accelerated or become due or payable prior to its stated maturity
for any reason whatsoever (other than voluntary prepayments or any
mandatory prepayment not resulting from a Default thereof);
(d) any Lien on any property of Holding, L.P., New Falcon
I or any Restricted Company securing any Material Financing Debt
shall be enforced by foreclosure or similar action; or
(e) any holder of any Material Financing Debt shall
exercise any right of rescission with respect to the issuance
thereof, or put or repurchase rights against any Obligor with
respect to such Material Financing Debt (other than any such rights
that may be satisfied with "payment in kind" notes or other similar
securities).
9.1.6. CHANGE OF CONTROL, ETC. Except as permitted by Section
7.11, any of the following events shall occur:
(a) any "person" or "group" (as such terms are used in
sections 13(d) and 14(d) of the Exchange Act), other than the
Falcon Permitted Holders, is or becomes the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except
that a person shall be deemed to have "beneficial ownership" of all
securities that such person has the right to acquire, whether such
right is exercisable immediately or only after the passage of
time), directly or indirectly, of 35% or more of the total voting
power of the outstanding voting capital stock or other equity
interests of Holding, L.P. or Holding, Inc., as the case may be,
and such ownership represents a greater percentage of the total
voting power of the voting capital stock or other equity interests
of Holding, L.P. or Holding, Inc., as the case may be, on a fully
diluted basis, than is held by the Falcon Permitted Holders in the
aggregate on such date and, in the case of Holding, L.P. (if
Holding, L.P. is then a partnership), any Person other than a
Falcon Permitted Holder is a managing general partner of Holding,
L.P.;
(b) Holding, L.P. or Holding, Inc., as the case may be,
consolidates with, or merges with or into, another Person or sells,
assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person, or any Person
consolidates with, or merges with or into, Holding, L.P. or
Holding, Inc., as the case may be, in any such event pursuant to a
transaction in which the outstanding voting capital stock or other
equity interests of Holding, L.P. or Holding, Inc., as the case may
be, is converted into or exchanged for cash, securities or other
property and, immediately after such transaction, the Falcon
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Permitted Holders in the aggregate or the holders of the voting
capital stock or other equity interests of Holding, L.P. or
Holding, Inc., immediately prior thereto own, directly or
indirectly, less than 35% of the total voting power of the
outstanding voting capital stock or other equity interests of the
surviving or transferee Person and, in the case of Holding, L.P.
(if Holding, L.P. is then a partnership), any Person other than a
Falcon Permitted Holder is a managing general partner of Holding,
L.P.;
(c) the sale, lease, transfer, conveyance or other
disposition (other than by way of a merger, consolidation,
liquidation or dissolution), in one or a series of transactions, of
all or substantially all of the assets of Holding, L.P. and its
Subsidiaries, taken as a whole, to any "person" (as such term is
used in section 13(d)(3) of the Exchange Act) other than to one or
more Falcon Permitted Holders;
(d) during any consecutive two-year period, individuals
who at the beginning of such period constituted the Board of
Directors of Holding, L.P. or Holding, Inc., as the case may be
(together with any new directors whose election to such Board of
Directors was approved by the Falcon Permitted Holders or by a vote
of at least a majority of the directors then still in office who
were either directors at the beginning of such period or whose
election or nomination for election was previously so approved),
cease for any reason (other than by action of the Falcon Permitted
Holders) to constitute a majority of the Board of Directors of
Holding, L.P. or Holding, Inc., as the case may be, then in office,
in any such case in connection with any actual or threatened
solicitation of proxies or consents;
(e) Any Person other than a Falcon Permitted Holder
"controls" (as defined in Rule 12b-2 under the Exchange Act) the
Borrowers; or
(f) Less than 100% of the outstanding capital stock or
other equity interests of the Borrowers shall cease to be pledged
to the Documentation Agent pursuant to the Pledge and Subordination
Agreement or otherwise as security for the Credit Obligations.
9.1.7. ENFORCEABILITY, ETC. Any Credit Document shall cease, for
any reason (other than the scheduled or other agreed termination thereof in
accordance with its terms), to be in full force and effect; or any
Restricted Company or any of its Affiliates party thereto shall so assert
in a judicial or similar proceeding; or the security interests created by
this Agreement and the other Credit Documents shall cease to be enforceable
and of the same effect and priority purported to be created hereby, except
to the extent expressly agreed by the Required Lenders.
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9.1.8. JUDGMENTS, ETC. A final judgment (other than in connection
with the Falcon Cable Systems Settlement) (a) which, with other outstanding
final judgments against the Restricted Companies, exceeds an aggregate of
$10,000,000 (in excess of applicable insurance coverage) shall be rendered
against any Restricted Company or its Affiliates party to any Credit
Document, or (b) which grants injunctive relief that results in, or poses a
material risk of resulting in, a Material Adverse Change, and if, within 30
days after entry thereof, such judgment shall not have been discharged or
execution thereof stayed pending appeal, or if, within 30 days after the
expiration of any such stay, such judgment shall not have been discharged.
9.1.9. FRANCHISE REVOCATION, ETC. Except as would not result in,
or be reasonably likely to result in, a Material Adverse Change, Franchises
covering a number of Subscribers greater than 25% of, prior to the TCI
Closing, the number of Subscribers of the Restricted Companies at December
31, 1997 and, after the TCI Closing, the number of Subscribers of the
Restricted Companies on the TCI Closing after giving effect to the TCI
Transactions, shall have been revoked, or terminated with a notice from the
applicable franchising authority that such Franchises will not be renewed.
9.1.10. ERISA. ERISA Group Persons shall fail to pay when due
amounts (other than amounts being contested in good faith through
appropriate proceedings) aggregating in excess of $10,000,000 for all ERISA
Group Persons for which they shall have become liable under Title IV of
ERISA to pay to the PBGC or to a Plan; or the PBGC shall institute
proceedings under Title IV of ERISA to terminate or to cause a trustee to
be appointed to administer any Plan or a proceeding shall be instituted by
a fiduciary of any Plan against any ERISA Group Person to enforce sections
515 or 4219(c)(5) of ERISA and such proceeding shall not have been
dismissed within 30 days thereafter; or a condition shall exist which would
require the PBGC to obtain a decree adjudicating that any Plan must be
terminated.
9.1.11. BANKRUPTCY, ETC. Any Restricted Company, New Falcon I,
Holding, L.P., Holding, Inc. or any other Obligor shall:
(a) commence a voluntary case under the Bankruptcy Code or
authorize, by appropriate proceedings of its board of directors or
other governing body, the commencement of such a voluntary case;
(b) have filed against it a petition commencing an involuntary
case under the Bankruptcy Code which shall not have been dismissed
within 60 days after the date on which such petition is filed; or file
an answer or other pleading within such 60-day period admitting or
failing to deny the material allegations of such a petition or
seeking, consenting to or acquiescing in the relief therein provided;
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(c) have entered against it an order for relief in any
involuntary case commenced under the Bankruptcy Code;
(d) seek relief as a debtor under any applicable law, other than
the Bankruptcy Code, of any jurisdiction relating to the liquidation
or reorganization of debtors or to the modification or alteration of
the rights of creditors, or consent to or acquiesce in such relief;
(e) have entered against it an order by a court of competent
jurisdiction (i) finding it to be bankrupt or insolvent, (ii) ordering
or approving its liquidation, reorganization or any modification or
alteration of the rights of its creditors or (iii) assuming custody
of, or appointing a receiver or other custodian for, all or a
substantial portion of its property; or
(f) make an assignment for the benefit of, or enter into a
composition with, its creditors, or appoint, or consent to the
appointment of, or suffer to exist a receiver or other custodian for,
all or a substantial portion of its property.
9.2. CERTAIN ACTIONS FOLLOWING AN EVENT OF DEFAULT. If any one or more
Events of Default shall occur and be continuing, then in each and every such
case:
9.2.1. NO OBLIGATION TO EXTEND CREDIT. The Documentation Agent may
(and upon written request of such Lenders as own a majority of the
Percentage Interests in the Revolving Loan shall) suspend or terminate the
obligations of the Lenders to make any further extensions of credit under
the Credit Documents by furnishing notice thereof to the Borrowers.
9.2.2. SPECIFIC PERFORMANCE; EXERCISE OF RIGHTS. The Documentation
Agent may (and upon written request of the Required Lenders shall) proceed
to protect and enforce the Lenders' rights by suit in equity, action at law
and/or other appropriate proceeding, either for specific performance of any
covenant or condition contained in this Agreement or any other Credit
Document or in any instrument or assignment delivered to the Lenders
pursuant to this Agreement or any other Credit Document, or in aid of the
exercise of any power granted in this Agreement or any other Credit
Document or any such instrument or assignment.
9.2.3. ACCELERATION. The Documentation Agent on behalf of the
Lenders may (and upon written request of the Required Lenders shall) by
notice in writing to the Borrowers declare all or any part of the unpaid
balance of the Credit Obligations then outstanding to be immediately due
and payable, and thereupon such unpaid balance or part thereof shall become
so due and payable without presentation, protest or further demand or
notice of any kind, all of which are hereby expressly waived; PROVIDED,
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HOWEVER, that if a Bankruptcy Default shall have occurred, the unpaid
balance of the Credit Obligations shall automatically become immediately
due and payable.
9.2.4. ENFORCEMENT OF PAYMENT; CREDIT SECURITY; SETOFF. The
Documentation Agent may (and upon written request of the Required Lenders
shall) proceed to enforce payment of the Credit Obligations in such manner
as it may elect (or have been instructed by the Required Lenders) and to
realize upon any and all rights in any Credit Security. The Lenders may
offset and apply toward the payment of the Credit Obligations (and/or
toward the curing of any Event of Default) any Indebtedness from the
Lenders to the respective Obligors, including any Indebtedness represented
by deposits in any account maintained with the Lenders, regardless of the
adequacy of any security for the Credit Obligations. The Lenders shall
have no duty to determine the adequacy of any such security in connection
with any such offset.
9.2.5. CUMULATIVE REMEDIES. To the extent not prohibited by
applicable law which cannot be waived, all of the Lenders' rights hereunder
and under each other Credit Document shall be cumulative.
9.3. ANNULMENT OF DEFAULTS. Any Default or Event of Default shall be
deemed to exist and to be continuing for any purpose of this Agreement until the
Required Lenders or the Documentation Agent (with the consent of the Required
Lenders) shall have waived such Default or Event of Default in writing, stated
in writing that the same has been cured to such Lenders' reasonable satisfaction
or entered into an amendment to this Agreement which by its express terms cures
such Default or Event of Default or until such Default or Event of Default is
actually cured. No such action by the Lenders or the Documentation Agent shall
extend to or affect any subsequent Default or Event of Default or impair any
rights of the Lenders upon the occurrence thereof. The making of any extension
of credit during the existence of any Default or Event of Default shall not
constitute a waiver thereof.
9.4. WAIVERS. Each of the Restricted Companies waives to the extent not
prohibited by the provisions of applicable law that cannot be waived:
(a) all presentments, demands for performance, notices of
nonperformance (except to the extent required by the provisions of
this Agreement or any other Credit Document), protests, notices of
protest and notices of dishonor;
(b) any requirement of diligence or promptness on the part of any
Lender in the enforcement of its rights under this Agreement, the
Notes or any other Credit Document;
(c) any and all notices (other than notices required by any other
provision of this Agreement) of every kind and description which may
be required to be given by any statute or rule of law; and
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(d) any defense (other than indefeasible payment in full or
dispute of facts) which it may now or hereafter have with respect to
its liability under this Agreement, the Notes or any other Credit
Document or with respect to the Credit Obligations.
10. EXPENSES; INDEMNITY.
10.1. EXPENSES. Whether or not the transactions contemplated hereby
shall be consummated, the Obligors jointly and severally will pay:
(a) all reasonable out-of-pocket expenses of the Documentation
Agent, the Administrative Agent and the Syndication Agent (including
the out-of-pocket expenses related to forming the group of Lenders and
reasonable fees and disbursements of the special counsel to the
Documentation Agent) in connection with the preparation and
duplication of this Agreement, each other Credit Document,
examinations by, and reports of, commercial financial examiners
selected by the Documentation Agent, the transactions contemplated
hereby and thereby and operations and amendments hereunder and
thereunder, subject to the acceptance of the Obligors, which
acceptance shall not be unreasonably withheld;
(b) all recording and filing fees and transfer and documentary
stamp and similar taxes at any time payable in respect of this
Agreement, any other Credit Document, any Credit Security or the
incurrence of the Credit Obligations; and
(c) to the extent not prohibited by applicable law that cannot be
waived, all other reasonable out-of-pocket costs and expenses
(including a reasonable allowance for the hourly cost of attorneys
employed by any of the Lenders on a salaried basis and any special
counsel to the Lenders) incurred by the Lenders or the holder of any
Credit Obligation in connection with the enforcement of any rights
hereunder or under any other Credit Document, including such
reasonable costs and expenses incurred after the occurrence of an
Event of Default (i) in enforcing any Credit Obligation or in
foreclosing against the Credit Security, or exercising or enforcing
any other right or remedy available by reason of such Event of
Default; (ii) in connection with any refinancing or restructuring of
the credit arrangements provided under this Agreement or any other
Credit Document in the nature of a workout or in any insolvency or
bankruptcy proceeding; (iii) in commencing, defending or intervening
in any litigation or in filing a petition, complaint, answer, motion
or other pleadings in any legal proceeding; (iv) in taking any other
action in or with respect to any suit or proceeding (bankruptcy or
otherwise); and (v) in protecting, preserving, collecting, leasing,
selling, taking possession of or liquidating any of the Credit
Security; PROVIDED, HOWEVER, that the foregoing indemnity in this
paragraph (c) shall not apply (A) to litigation
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commenced by the Borrowers against the Lenders which seeks
enforcement of any of the rights of the Borrowers hereunder or
under any other Credit Document and is determined adversely to the
Lenders in a final nonappealable judgment and (B) to the extent
such claims, damages, liabilities and expenses result from a
Lender's gross negligence or willful misconduct.
(d) all reasonable costs and expenses of the Syndication Agent in
connection with the preparation and distribution of the Confidential
Information Memorandum dated April 1998 and related items.
10.2. GENERAL INDEMNITY. The Obligors will, jointly and severally,
indemnify the Lenders and hold them harmless from any claims, damages,
liabilities, losses and reasonable expenses (including reasonable fees and
disbursements of counsel with whom any Indemnified Party may consult in
connection therewith and all reasonable expenses of litigation or preparation
therefor) resulting from the violation by the Borrowers of Section 2.5. The
Obligors will also, jointly and severally, indemnify each Lender, each of the
Lenders' directors, officers and employees, and each Person, if any, who
controls any Lender (each Lender and each of such directors, officers, employees
and control Persons is referred to as an "INDEMNIFIED PARTY") and hold each of
them harmless from and against any and all claims, damages, liabilities, losses
and reasonable expenses (including reasonable fees and disbursements of counsel
with whom any Indemnified Party may consult in connection therewith and all
reasonable expenses of litigation or preparation therefor) which any Indemnified
Party may incur or which may be asserted against any Indemnified Party in
connection with (a) the Indemnified Party's compliance with or contest of any
subpoena or other process issued against it in any proceeding involving any
Restricted Company or Affiliates, (b) any litigation or investigation involving
the Restricted Companies or their Affiliates, or any officer, director or
employee thereof, (c) the existence or exercise of any security rights with
respect to the Credit Security in accordance with the Credit Documents or (d)
this Agreement, any other Credit Document or any transactions contemplated
hereby or thereby, other than (i) litigation commenced by the Borrowers against
the Lenders which seeks enforcement of any of the rights of the Borrowers
hereunder or under any other Credit Document and is determined adversely to the
Lenders in a final nonappealable judgment and (ii) to the extent such claims,
damages, liabilities, losses and expenses result from a Lender's gross
negligence or willful misconduct.
11. OPERATIONS.
11.1. INTERESTS IN CREDITS. The Percentage Interest of each Lender in
the Loan and each Lender's related Commitments shall be computed based on the
maximum principal amount for each Lender as set forth in the Register, as from
time to time in effect. The Percentage Interests as of the Initial Closing Date
and as of the Term Loan B-2 Closing Date are set forth in Exhibit 11.1, which
may be updated by the Agent from time to time to conform to the Register.
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11.2. AGENTS' AUTHORITY TO ACT, ETC. Each of the Lenders appoints
and authorizes the Agents (other than the Co-Agents) to act for the Lenders
as the Lenders' Agents in connection with the transactions contemplated by
this Agreement and the other Credit Documents on the terms set forth herein.
In acting hereunder, each Agent (other than the Co-Agents) is acting for its
own account to the extent of its Percentage Interest and for the account of
each other Lender to the extent of the Lenders' respective Percentage
Interests, and all action in connection with the enforcement of, or the
exercise of any remedies (other than the Lenders' rights of set-off as
provided in Section 9.2.4 or in any Credit Document) in respect of the Credit
Obligations and Credit Documents shall be taken by the Documentation Agent or
the Administrative Agent. The Co-Agents shall have no duties or
responsibilities under this Agreement or the other Credit Documents except to
the extent subsequently expressly agreed in writing by the Co-Agents and the
Borrowers.
11.3. BORROWERS TO PAY AGENT, ETC. Each Borrower and each Guarantor
shall be fully protected in making all payments in respect of the Credit
Obligations to the Administrative Agent, in relying upon consents, modifications
and amendments executed by the Documentation Agent purportedly on the Lenders'
behalf, and in dealing with the Agents as herein provided. The Administrative
Agent shall charge the accounts of each Borrower, on the dates when the amounts
thereof become due and payable, with the amounts of the principal of and
interest on the Loan, commitment fees and all other fees and amounts owing under
any Credit Document. All payments of any Credit Obligation shall be made in
United States Funds.
11.4. LENDER OPERATIONS FOR ADVANCES, ETC.
11.4.1. ADVANCES. On each Closing Date, each Lender shall advance
to the Administrative Agent in immediately available funds such Lender's
Percentage Interest in the portion of the Loan advanced on such Closing
Date prior to noon (New York time). If such funds are not received at such
time, but all the conditions set forth in Section 5 have been satisfied,
each Lender authorizes and requests the Administrative Agent to advance for
the Lender's account, pursuant to the terms hereof, the Lender's respective
Percentage Interest in such portion of the Loan and agrees to reimburse the
Administrative Agent in immediately available funds for the amount thereof
prior to 2:00 p.m. (New York time) on the day any portion of the Loan is
advanced hereunder; PROVIDED, HOWEVER, that the Administrative Agent is not
authorized to make any such advance for the account of any Lender who has
previously notified the Administrative Agent in writing that such Lender
will not be performing its obligations to make further advances hereunder.
11.4.2. ADMINISTRATIVE AGENT TO ALLOCATE PAYMENTS, ETC. All
payments of principal and interest in respect of the extensions of credit
made pursuant to this Agreement, commitment fees and other fees under this
Agreement shall, as a matter of convenience, be made by the Borrowers and
the Guarantors to the Administrative Agent in immediately available funds.
The share of each Lender shall be credited to such
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Lender by the Administrative Agent in immediately available funds in such
manner that the principal amount of the Credit Obligations to be paid shall
be paid proportionately in accordance with the Lenders' respective
Percentage Interests in such Credit Obligations. Under no circumstances
shall any Lender be required to produce or present its Notes as evidence of
its interests in the Credit Obligations in any action or proceeding
relating to the Credit Obligations.
11.4.3. DELINQUENT LENDERS; NONPERFORMING LENDERS. In the event
that any Lender fails to reimburse the Administrative Agent pursuant to
Section 11.4.1 for the Percentage Interest of such Lender (a "DELINQUENT
LENDER") in any credit advanced by the Administrative Agent pursuant
hereto, overdue amounts (the "DELINQUENT PAYMENT") due from the Delinquent
Lender to the Administrative Agent shall bear interest, payable by the
Delinquent Lender on demand, at a per annum rate equal to (a) the Federal
Funds Rate for the first three days overdue and (b) the sum of 2% PLUS the
Federal Funds Rate for any longer period. Such interest shall be payable
to the Administrative Agent for its own account for the period commencing
on the date the Delinquent Payment was due and ending on the date the
Delinquent Lender reimburses the Administrative Agent on account of the
Delinquent Payment (to the extent not paid by a Restricted Company as
provided below) and the accrued interest thereon (the "DELINQUENCY
PERIOD"), whether pursuant to the assignments referred to below or
otherwise. Within five Banking Days after the request by the
Administrative Agent, the Borrowers will pay to the Administrative Agent
the principal (but not the interest) portion of the Delinquent Payment.
During the Delinquency Period, in order to make reimbursements for the
Delinquent Payment and accrued interest thereon, the Delinquent Lender
shall be deemed to have assigned to the Administrative Agent all payments
made by the Borrowers under Section 4 which would have thereafter otherwise
been payable under the Credit Documents to the Delinquent Lender. During
any other period in which any Lender is not performing its obligations to
extend credit under Section 2 (a "NONPERFORMING LENDER"), the Nonperforming
Lender shall be deemed to have assigned to each Lender that is not a
Nonperforming Lender (a "PERFORMING LENDER") all payment made by the
Borrowers under Section 4 which would have thereafter otherwise been
payable under the Credit Documents to the Nonperforming Lender, and the
Administrative Agent shall credit a portion of such payments to each
Performing Lender in an amount equal to the Percentage Interest of such
Performing Lender divided by one MINUS the Percentage Interest of the
Nonperforming Lender until the respective portions of the Loan owed to all
the Lenders are the same as the Percentage Interests of the Lenders
immediately prior to the failure of the Nonperforming Lender to perform its
obligations under Section 2. The foregoing provisions shall be in addition
to any other remedies the Administrative Agent, the Performing Lenders or
the Borrowers may have under law or equity against the Delinquent Lender as
a result of the Delinquent Payment or against the Nonperforming Lender as a
result of its failure to perform its obligations under Section 2.
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11.5. SHARING OF PAYMENTS, ETC. Each Lender agrees that (a) if by
exercising any right of set-off or counterclaim or otherwise, it shall receive
payment of a proportion of the aggregate amount of principal and interest due
with respect to its Percentage Interest in the Loan which is greater than the
proportion received by any other Lender in respect of the aggregate amount of
principal and interest due with respect to the Percentage Interest in the Loan
of such other Lender and (b) if such inequality shall continue for more than 10
days, the Lender receiving such proportionately greater payment shall purchase
participations in the Percentage Interests in the Loan held by the other
Lenders, and such other adjustments shall be made from time to time (including
rescission of such purchases of participations in the event the unequal payment
originally received is recovered from such Lender through bankruptcy proceedings
or otherwise), as may be required so that all such payments of principal and
interest with respect to the Loan held by the Lenders shall be shared by the
Lenders pro rata in accordance with their respective Percentage Interests;
PROVIDED, HOWEVER, that this Section 11.5 shall not impair the right of any
Lender to exercise any right of set-off or counterclaim it may have and to apply
the amount subject to such exercise to the payment of Indebtedness of any
Obligor other than such Obligor's Indebtedness with respect to the Loan. Each
Obligor agrees, to the fullest extent permitted by applicable law, that any
Credit Participant and any Lender purchasing a participation from another Lender
pursuant to this Section 11.5 may exercise all rights of payment (including the
right of set-off), and shall be obligated to share payments under this
Section 11.5, with respect to its participation as fully as if such Credit
Participant or such Lender were the direct creditor of the Obligors and a Lender
hereunder in the amount of such participation.
11.6. AGENT'S RESIGNATION OR REMOVAL. Any Agent may resign at any time
by giving at least 60 days' prior written notice of its intention to do so to
each of the other Lenders and the Borrower pending the appointment by the
Borrowers of a successor Agent reasonably satisfactory to the Required Lenders.
If in the event of the resignation of any Agent, no successor Agent shall have
been so appointed and shall have accepted such appointment within 45 days after
the retiring Agent's giving of such notice of resignation, then the retiring
Agent may with the consent of the Borrowers, which shall not be unreasonably
withheld, appoint a successor Agent which shall be a bank or a trust company
organized, or having a branch that is licensed, under the laws of the United
States of America or any state thereof and having a combined capital, surplus
and undivided profit of at least $100,000,000; PROVIDED, HOWEVER, that any
successor Agent appointed under this sentence may be removed upon the written
request of the Required Lenders, which request shall also appoint a successor
Agent reasonably satisfactory to the Borrowers. Any Agent may be removed upon
the written request of such Lenders as own at least two thirds of the Percentage
Interests, which request shall also appoint a successor Agent reasonably
satisfactory to the Borrowers. Upon the appointment of a new Agent hereunder,
the term "AGENT" shall for all purposes of this Agreement thereafter include
such applicable successor Agent. Upon the resignation or removal of the
Documentation Agent, the Administrative Agent shall take over the duties of the
Documentation Agent. In the event of the resignation or removal of any Agent
that is not a Specified Agent, no successor need be appointed. After any
retiring Agent's resignation hereunder as Agent, or the removal hereunder of
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any Agent, the provisions of this Agreement shall continue to inure to the
benefit of such Agent as to any actions taken or omitted to be taken by it
while it was an Agent under this Agreement.
11.7. CONCERNING THE AGENTS.
11.7.1. ACTION IN GOOD FAITH, ETC. Each Agent and its officers,
directors, employees and agents shall be under no liability to any of the
Lenders or to any future holder of any interest in the Credit Obligations
for any action or failure to act taken or suffered in good faith, and any
action or failure to act in accordance with an opinion of its counsel shall
conclusively be deemed to be in good faith; PROVIDED, HOWEVER, that the
foregoing shall not extend to actions or omissions which are taken by an
Agent with gross negligence or willful misconduct. Each Agent shall in all
cases be entitled to rely, and shall be fully protected in relying, on
instructions given to the Agent by the required holders of Credit
Obligations as provided in this Agreement.
11.7.2. NO IMPLIED DUTIES, ETC. Each Agent shall have and may
exercise such powers as are specifically delegated to the Agent under this
Agreement or any other Credit Document together with all other powers
incidental thereto. Each Agent shall have no implied duties to any Person
or any obligation to take any action under this Agreement or any other
Credit Document except for action specifically provided for in this
Agreement or any other Credit Document to be taken by such Agent. Before
taking any action under this Agreement or any other Credit Document, each
Agent may request an appropriate specific indemnity satisfactory to it from
each Lender in addition to the general indemnity provided for in
Section 11.10. Until the Agent has received such specific indemnity, the
Agent shall not be obligated to take (although it may in its sole
discretion take) any such action under this Agreement or any other Credit
Document. Each Lender confirms that the Agents do not have a fiduciary
relationship to it under the Credit Documents. Each of the Restricted
Companies confirms that neither of the Agents nor any other Lender has a
fiduciary relationship to it under the Credit Documents.
11.7.3. VALIDITY, ETC. Subject to Section 11.7.1, the Agents shall
not be responsible to any Lender or any future holder of any interest in
the Credit Obligations (a) for the legality, validity, enforceability or
effectiveness of this Agreement or any other Credit Document, (b) for any
recitals, reports, representations, warranties or statements contained in
or made in connection with this Agreement or any other Credit Document, (c)
for the existence or value of any assets included in any security for the
Credit Obligations, (d) for the perfection or effectiveness of any Lien
purported to be included in such security or (e) for the specification or
failure to specify any particular assets to be included in such security.
11.7.4. COMPLIANCE. The Agents shall not be obligated to ascertain
or inquire as to the performance or observance of any of the terms of this
Agreement or any other Credit Document; and in connection with any
extension of credit under this Agreement or
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any other Credit Document, the Agents shall be fully protected in
relying on a certificate of any Borrower or any Guarantor as to the
fulfillment by that Borrower of any conditions to such extension of
credit.
11.7.5. EMPLOYMENT OF AGENTS AND COUNSEL. The Agents may execute
any of their duties as Agent under this Agreement or any other Credit
Document by or through employees, agents and attorneys-in-fact and shall
not be responsible to any of the Lenders, any Restricted Company or any
other Obligor (except as to money or securities received by the Agent or
the Agent's authorized agents) for the default or misconduct of any such
agents or attorneys-in-fact selected by the Agent with reasonable care.
The Agents shall be entitled to advice of counsel concerning all matters
pertaining to the agency hereby created and its duties hereunder or under
any other Credit Document.
11.7.6. RELIANCE ON DOCUMENTS AND COUNSEL. Each Agent shall be
entitled to rely, and shall be fully protected in relying, upon any
affidavit, certificate, cablegram, consent, instrument, letter, notice,
order, document, statement, telecopy, telegram, telex or teletype message
or writing reasonably believed in good faith by the Agent to be genuine and
correct and to have been signed, sent or made by the Person in question,
including any telephonic or oral statement made by such Person, and, with
respect to legal matters, upon the opinion of counsel selected by the
Agent.
11.7.7. AGENT'S REIMBURSEMENT. Each of the Lenders severally agrees
to reimburse the Agents in the amount of such Lender's Percentage Interest,
for any reasonable expenses not reimbursed by the Borrowers or the other
Guarantors (without limiting the obligation of the Borrowers or the other
Guarantors to make such reimbursement): (a) for which the Agents are
entitled to reimbursement by the Borrowers or the other Guarantors under
this Agreement or any other Credit Document, and (b) after the occurrence
of a Default, for any other reasonable expenses incurred by the Agents on
the Lenders' behalf in connection with the enforcement of the Lenders'
rights under this Agreement or any other Credit Document; provided that the
Agents shall not be reimbursed for any such expenses arising as a result of
their gross negligence or willful misconduct.
11.8. RIGHTS AS A LENDER. With respect to any credit extended by it
hereunder, each of BankBoston, Toronto Dominion and the other financial
institutions serving as Agents hereunder shall have the same rights, obligations
and powers hereunder as any other Lender and may exercise such rights and powers
as though it were not an Agent, and unless the context otherwise specifies, each
of BankBoston, Toronto Dominion and such other financial institutions shall be
treated in its individual capacity as though it were not an Agent hereunder.
Without limiting the generality of the foregoing, the Percentage Interest of
BankBoston, Toronto Dominion and such other financial institutions shall be
included in any computations of Percentage Interests. BankBoston, Toronto
Dominion, such other financial institutions and their Affiliates may accept
deposits from, lend money to, act as trustee for and generally engage in any
kind of banking or
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trust business with the Restricted Companies or any Affiliate of any of
them and any Person who may do business with or own an equity interest in the
Restricted Companies or any Affiliate of any of them, all as if BankBoston,
Toronto Dominion or such other financial institutions were not an Agent and
without any duty to account therefor to the other Lenders.
11.9. INDEPENDENT CREDIT DECISION. Each of the Lenders acknowledges
that it has independently and without reliance upon the Agents, based on the
financial statements and other documents referred to in Section 8.2, on the
other representations and warranties contained herein and on such other
information with respect to the Restricted Companies as such Lender deemed
appropriate, made such Lender's own credit analysis and decision to enter into
this Agreement and to make the extensions of credit provided for hereunder.
Each Lender represents to the Agents that such Lender will continue to make its
own independent credit and other decisions in taking or not taking action under
this Agreement or any other Credit Document. Each Lender expressly acknowledges
that neither the Agents nor any of their officers, directors, employees, agents,
attorneys-in-fact or Affiliates has made any representations or warranties to
such Lender, and no act by the Agents taken under this Agreement or any other
Credit Document, including any review of the affairs of the Restricted
Companies, shall be deemed to constitute any representation or warranty by the
Agents. Except for notices, reports and other documents expressly required to
be furnished to each Lender by the Agents under this Agreement or any other
Credit Document, the Agents shall not have any duty or responsibility to provide
any Lender with any credit or other information concerning the business,
operations, property, condition, financial or otherwise, or credit worthiness of
any Restricted Company which may come into the possession of the Agents or any
of their officers, directors, employees, agents, attorneys-in-fact or
Affiliates.
11.10. INDEMNIFICATION. The holders of the Credit Obligations agree to
indemnify the Agents (to the extent not reimbursed by the Obligors and without
limiting the obligation of any of the Obligors to do so), pro rata according to
their respective aggregate Percentage Interests, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits
and reasonable costs, expenses or disbursements of any kind whatsoever which may
at any time be imposed on, incurred by or asserted against the Agents in their
capacity as Agents hereunder relating to or arising out of this Agreement, any
other Credit Document, the transactions contemplated hereby or thereby, or any
action taken or omitted by the Agents in connection with any of the foregoing;
PROVIDED, HOWEVER, that the foregoing shall not extend to (a) litigation
commenced by the holders of the Credit Obligations against the Agents which
seeks enforcement of any of the rights of such holders hereunder or under any
other Credit Document and is determined adversely to the Agents in a final
nonappealable judgment or (b) actions or omissions which are taken by the Agents
with gross negligence or willful misconduct.
12. SUCCESSORS AND ASSIGNS; LENDER ASSIGNMENTS AND PARTICIPATIONS. Any
reference in this Agreement to any of the parties hereto shall be deemed to
include the successors and assigns of such party, and all covenants and
agreements by or on behalf of the Borrowers, the other Guarantors, the Agents or
the Lenders that are contained in this Agreement or any other Credit
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Document shall bind and inure to the benefit of their respective successors
and assigns; PROVIDED, HOWEVER, that (a) the Restricted Companies may not
assign their rights or obligations under this Agreement except for mergers or
liquidations permitted by Section 7.11.2, and (b) the Lenders shall be not
entitled to assign their respective Percentage Interests in the Loan
hereunder except as set forth below in this Section 12.
12.1. ASSIGNMENTS BY LENDERS.
12.1.1. ASSIGNEES AND ASSIGNMENT PROCEDURES. Each Lender may (a)
without the consent of the Administrative Agent or the Borrowers if the
proposed assignee is already a Lender hereunder, a Related Fund, Affiliate
or a Subsidiary of the same corporate parent of which the assigning Lender
or any other Lender is a Subsidiary, or (b) otherwise with the consents of
the Administrative Agent and (so long as no Event of Default has occurred
and is continuing) the Borrowers (which consents will not be unreasonably
withheld) in compliance with applicable laws in connection with such
assignment, assign to one or more commercial banks or other financial
institutions or other entity reasonably acceptable to the Borrowers (each,
an "ASSIGNEE") all or a portion of its interests, rights and obligations
under this Agreement and the other Credit Documents, including all or a
portion of its Commitment, the portion of the Loan at the time owing to it
and the Notes held by it; PROVIDED, HOWEVER, that:
(i) the aggregate amount of the Commitment of the assigning
Lender subject to each assignment described in clause (b) above
(determined as of the date the Assignment and Acceptance with respect
to such assignment is delivered to the Administrative Agent) shall be
not less than $5,000,000 and in increments of $1,000,000 (or, if
smaller, the entire Commitment of such assigning Lender); and
(ii) the parties to each such assignment shall execute and
deliver to the Administrative Agent (with a copy to the Documentation
Agent) an Assignment and Acceptance (the "ASSIGNMENT AND ACCEPTANCE")
substantially in the form of Exhibit 12.1.1, together with the Note or
Notes subject to such assignment and, in the case of an assignment
described in clause (b) above, a processing and recordation fee of
$3,000.
Upon acceptance and recording pursuant to Section 12.1.4, from and after
the effective date specified in each Assignment and Acceptance (which
effective date shall be at least five Banking Days after the execution
thereof unless waived by the Administrative Agent):
(1) the Assignee shall be a party hereto and, to the extent provided
in such Assignment and Acceptance, have the rights and
obligations of a Lender under this Agreement and
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(2) the assigning Lender shall, to the extent provided in such
assignment, be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering all or
the remaining portion of an assigning Lender's rights and
obligations under this Agreement, such Lender shall cease to be a
party hereto but shall continue to be entitled to the benefits of
Sections 3.2.4, 3.4, 3.5, 3.6 and 10, as well as to any fees
accrued for its account hereunder and not yet paid).
12.1.2. TERMS OF ASSIGNMENT AND ACCEPTANCE. By executing and
delivering an Assignment and Acceptance, the assigning Lender and Assignee
shall be deemed to confirm to and agree with each other and the other
parties hereto as follows:
(a) other than the representation and warranty that it is the
legal and beneficial owner of the interest being assigned thereby free
and clear of any adverse claim, such assigning Lender makes no
representation or warranty and assumes no responsibility with respect
to any statements, warranties or representations made in or in
connection with this Agreement or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement,
any other Credit Document or any other instrument or document
furnished pursuant hereto;
(b) such assigning Lender makes no representation or warranty and
assumes no responsibility with respect to the financial condition of
the Restricted Companies or the performance or observance by the
Borrowers or any other Guarantor of any of its obligations under this
Agreement, any other Credit Document or any other instrument or
document furnished pursuant hereto;
(c) such Assignee confirms that it has received a copy of this
Agreement, together with copies of the most recent financial
statements delivered pursuant to Section 8.2 and such other documents
and information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Acceptance;
(d) such Assignee will independently and without reliance upon
the Agents, such assigning Lender or any other Lender, and based on
such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not
taking action under this Agreement;
(e) such Assignee appoints and authorizes the Agents to take such
action as agent on its behalf and to exercise such powers under this
Agreement as are delegated to the Agents by the terms hereof, together
with such powers as are reasonably incidental thereto; and
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(f) such Assignee agrees that it will perform in accordance with
the terms of this Agreement all the obligations which are required to
be performed by it as a Lender.
12.1.3. REGISTER. The Administrative Agent shall maintain at the
Houston Office a register (the "REGISTER") for the recordation of (a) the
names and addresses of the Lenders and the Assignees which assume rights
and obligations pursuant to an assignment under Section 12.1.1, (b) the
Percentage Interest of each such Lender as set forth in Section 11.1 and
(c) the amount of the Loan owing to each Lender from time to time. The
entries in the Register shall be conclusive, in the absence of manifest
error, and the Borrowers, the Agents and the Lenders may treat each Person
whose name is registered therein for all purposes as a party to this
Agreement. The Register shall be available for inspection by the Borrowers
or any Lender at any reasonable time and from time to time upon reasonable
prior notice.
12.1.4. ACCEPTANCE OF ASSIGNMENT AND ASSUMPTION. Upon its receipt
of a completed Assignment and Acceptance executed by an assigning Lender
and an Assignee together with the Note or Notes subject to such assignment,
and the processing and recordation fee referred to in Section 12.1.1, the
Administrative Agent shall (a) accept such Assignment and Acceptance, (b)
record the information contained therein in the Register and (c) give
prompt notice thereof to the Borrowers. Within five Banking Days after
receipt of notice, the Borrowers, at their own expense, shall execute and
deliver to the Administrative Agent, in exchange for the surrendered Note
or Notes, a new Note or Notes to the order of such Assignee in a principal
amount equal to the applicable Commitment and Loan assumed by it pursuant
to such Assignment and Acceptance and, if the assigning Lender has retained
a Commitment and Loan, a new Note to the order of such assigning Lender in
a principal amount equal to the applicable Commitment and Loan retained by
it. Such new Note or Notes shall be in an aggregate principal amount equal
to the aggregate principal amount of such surrendered Note or Notes, and
shall be dated the date of the surrendered Notes which they replace.
12.1.5. FEDERAL RESERVE BANK. Notwithstanding the foregoing
provisions of this Section 12, any Lender may at any time pledge or assign
all or any portion of such Lender's rights under this Agreement and the
other Credit Documents to a Federal Reserve Bank; PROVIDED, HOWEVER, that
no such pledge or assignment shall release such Lender from such Lender's
obligations hereunder or under any other Credit Document.
12.1.6. FURTHER ASSURANCES. The Restricted Companies shall sign
such documents and take such other actions from time to time reasonably
requested by an Assignee to enable it to share in the benefits of the
rights created by the Credit Documents.
12.2. CREDIT PARTICIPANTS. Each Lender may, without the consent of any
Borrower or any Agent, in compliance with applicable laws in connection with
such participation, sell to one
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or more Qualified Institutional Buyers (each a "CREDIT PARTICIPANT")
participations in all or a portion of its interests, rights and obligations
under this Agreement and the other Credit Documents (including all or a
portion of its Commitment and the Loan owing to it and the Notes held by it);
PROVIDED, HOWEVER, that:
(a) such Lender's obligations under this Agreement shall remain
unchanged;
(b) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations;
(c) the Credit Participant shall be entitled to the benefit of
the cost protection provisions contained in Sections 3.2.4, 3.4, 3.5,
3.6 and 10, but shall not be entitled to receive any greater payment
thereunder than the selling Lender would have been entitled to receive
with respect to the interest so sold if such interest had not been
sold; and
(d) the Borrowers, the Agents and the other Lenders shall
continue to deal solely and directly with such Lender in connection
with such Lender's rights and obligations under this Agreement, and
such Lender shall retain the sole right to enforce the obligations of
the Borrowers relating to the Loan and to approve any amendment,
modification or waiver of any provision of this Agreement (other than
amendments, modifications or waivers with respect to any fees payable
hereunder or the amount of principal of or the rate at which interest
is payable on the Loan, or the final maturity date of any portion of
the Loan).
12.3. REPLACEMENT OF LENDER. In the event that any Lender or, to the
extent applicable, any Credit Participant (the "AFFECTED LENDER"):
(a) fails to perform its obligations to fund any portion of the
Loan on any Closing Date when required to do so by the terms of the
Credit Documents, or fails to provide its portion of any Eurodollar
Pricing Option on account of a Legal Requirement as contemplated by
Section 3.2.5 or the unavailability of Eurodollar deposits as
contemplated by the last sentence of Section 3.2.1;
(b) demands payment under the Tax provisions of Section 3.4, the
capital adequacy provisions of Section 3.5 or the regulatory change
provisions in Section 3.6 in an amount the Restricted Companies deem
materially in excess of the amounts with respect thereto demanded by
the other Lenders; or
(c) refuses to consent to a proposed amendment, modification,
waiver or other action that is consented to by Lenders holding at
least 80% of the Percentage
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Interests the consent of which is requested in connection with the
proposed amendment, modification, waiver or other action;
then, so long as no Event of Default exists, the Restricted Companies shall have
the right to seek a replacement lender or lenders reasonably satisfactory to the
Documentation Agent (the "REPLACEMENT LENDER"). The Replacement Lender shall
purchase the interests of the Affected Lender in the Loan and its Commitment and
shall assume the obligations of the Affected Lender hereunder and under the
other Credit Documents upon execution by the Replacement Lender of an Assignment
and Acceptance and the tender by it to the Affected Lender of a purchase price
agreed between it and the Affected Lender (or, if they are unable to agree, a
purchase price in the amount of the Affected Lender's Percentage Interest in the
Loan and all other outstanding Credit Obligations then owed to the Affected
Lender). Such assignment by the Affected Lender shall be deemed an early
termination of any Eurodollar Pricing Option to the extent of the Affected
Lender's portion thereof, and the Restricted Companies will pay to the Affected
Lender any resulting amounts due under Section 3.2.4. Upon consummation of such
assignment, the Replacement Lender shall become party to this Agreement as a
signatory hereto and shall have all the rights and obligations of the Affected
Lender under this Agreement and the other Credit Documents with a Percentage
Interest equal to the Percentage Interest of the Affected Lender, the Affected
Lender shall be released from its obligations hereunder and under the other
Credit Documents, and no further consent or action by any party shall be
required. Upon the consummation of such assignment, the Restricted Companies,
the Agent and the Affected Lender shall make appropriate arrangements so that
new Notes are issued to the Replacement Lender. The Restricted Companies shall
sign such documents and take such other actions reasonably requested by the
Replacement Lender to enable it to share in the benefits of the rights created
by the Credit Documents. Until the consummation of an assignment in accordance
with the foregoing provisions of this Section 12.3, the Restricted Companies
shall continue to pay to the Affected Lender (or to the Administrative Agent for
the account of the Affected Lender, as applicable) any Credit Obligations as
they become due and payable.
13. CONFIDENTIALITY. Each Lender agrees that it will make no disclosure of
confidential information furnished to it by any Restricted Company unless such
information shall have become public, except:
(a) in connection with operations under or the enforcement of
this Agreement or any other Credit Document;
(b) pursuant to any statutory or regulatory requirement or any
mandatory court order, subpoena or other legal process;
(c) to any parent or corporate Affiliate of such Lender or to any
Credit Participant, proposed Credit Participant or proposed Assignee;
PROVIDED, HOWEVER, that any such Person shall agree to comply with the
restrictions set forth in this Section 13 with respect to such
information;
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(d) to its independent counsel, auditors and other professional
advisors with an instruction to such Person to keep such information
confidential; and
(e) to any direct or indirect contractual counterparty in swap
agreements with the same professional advisor as the Lender or such
contractual counterparty's professional advisor (so long as such
contractual counterparty or professional advisor agrees to be bound by
the provisions of this Section 13); and
(f) with the prior written consent of the Borrowers, to any other
Person.
14. FOREIGN LENDERS. If any Lender is not created or organized in, or under
the laws of, the United States of America or any state thereof, such Lender, to
the extent it may legally do so, shall deliver to the Borrower and the
Administrative Agent the forms described in one of the following two clauses:
(a) Two fully completed and duly executed United States Internal
Revenue Service Forms 1001 or 4224 or any successor forms, as the case may
be, certifying that such Lender is entitled to receive payments of the
Credit Obligations payable to it without deduction or withholding of any
United States federal income taxes; or
(b) A statement, executed by such Lender under penalty of perjury,
certifying that such Lender is not a "bank" within the meaning of section
881(c)(3)(A) of the Code and two fully completed and duly executed United
States Internal Revenue Service Forms W-8 or any successor forms certifying
that such Lender is not a "United States person" within the meaning of
section 7701(a)(30) of the Code.
Each Lender that delivers any form or statement pursuant to this Section 14
further undertakes to renew such forms and statements by delivering to the
Borrower and the Administrative Agent any updated forms, successor forms or
other certification, as the case may be, on or before the date that any form or
statement previously delivered pursuant to this Section 13 expires or becomes
obsolete or after the occurrence of any event requiring a change in such most
recent form or statement. If at any time the Borrower and the Administrative
Agent have not received all forms and statements (including any renewals
thereof) required to be provided by any Lender pursuant to this Section 14,
Section 3.4 shall not apply with respect to any amount of United States federal
income taxes required to be withheld from payments of the Credit Obligations to
such Lender.
15. NOTICES. Except as otherwise specified in this Agreement, any notice
required to be given pursuant to this Agreement shall be given in writing. Any
notice, demand or other communication in connection with this Agreement shall be
deemed to be given if given in writing (including telecopy or similar
teletransmission) addressed as provided below (or to the addressee at such other
address as the addressee shall have specified by notice actually received
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by the addressor), and if either (a) actually delivered in fully legible form
to such address or (b) in the case of a letter, five days shall have elapsed
after the same shall have been deposited in the United States mails, with
first-class postage prepaid and registered or certified.
If to any Restricted Company, to it at its address set forth in Exhibit 8.1
(as supplemented pursuant to Sections 7.4.1 and 7.4.2), to the attention of the
chief financial officer.
If to any Lender, to it at its address set forth on the signature page of
this Agreement, to the attention of the account officer specified on the
signature page, with copies to the Documentation Agent and the Administrative
Agent.
16. LIMITED RECOURSE AGAINST PARTNERS. The remedies of the holders of the
Credit Obligations, including any remedy which could be exercised upon the
occurrence of an Event of Default, shall be limited to the extent that none of
the partners, members or shareholders of any Restricted Company shall have any
personal liability as a general partner or limited partner of any Restricted
Company with respect to the Credit Obligations, and in no event shall any such
partner be personally liable as a general partner or limited partner for any
deficiency judgment for any Credit Obligation; PROVIDED, HOWEVER, that the
provisions of this Section 16 shall not impair the ability of any holder of any
Credit Obligation (a) to realize on the assets of any Obligor or any of its
Subsidiaries or on any other security, including any personal property or
partnership interests pledged to secure the Credit Obligations or (b) to pursue
any remedy against any guarantor of the Credit Obligations or (c) to recover any
Distribution made in violation of Section 7.10.
17. AMENDMENTS, CONSENTS, WAIVERS, ETC.
17.1. LENDER CONSENTS FOR AMENDMENTS. Except as otherwise set forth
herein, the Documentation Agent may (and upon the written request of the
Required Lenders the Documentation Agent shall) take or refrain from taking any
action under this Agreement or any other Credit Document, including giving its
written consent to any modification of or amendment to and waiving in writing
compliance with any covenant or condition in this Agreement or any other Credit
Document (other than an Interest Rate Protection Agreement) or any Default or
Event of Default, all of which actions shall be binding upon all of the Lenders;
PROVIDED, HOWEVER, that:
(a) Except as provided below, without the written consent of the
Lenders owning at least a majority of the Aggregate Percentage
Interests (disregarding the Percentage Interest of any Delinquent
Lender during the existence of a Delinquency Period or of any
Nonperforming Lender so long as such Lender is treated equally with
the other Lenders with respect to any actions enumerated below), no
written modification of, amendment to, consent with respect to, waiver
of compliance with or waiver of a Default under, any of the Credit
Documents (other than an Interest Rate Protection Agreement) shall be
made.
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(b) Without the written consent of such Lenders as own 100% of
the Percentage Interests (disregarding the Percentage Interest of any
Delinquent Lender during the existence of a Delinquency Period or of
any Nonperforming Lender so long as such Lender is treated equally
with the other Lenders with respect to any actions enumerated below):
(i) No release of all or substantially all of the Credit Security
or release of any Borrower or any material Guarantor shall be made (in
any event, without the written consent of the Lenders, the
Documentation Agent may release particular items of Credit Security or
particular Borrowers or Guarantors whose equity has been sold in
dispositions permitted by Section 7.11, as modified by amendments
thereto approved by the Required Lenders, and may release all Credit
Security pursuant to Section 18.1 upon payment in full of the Credit
Obligations and termination of the Commitments).
(ii) No alteration shall be made of the Lenders' rights of
set-off contained in Section 9.2.4.
(iii) No amendment to or modification of this Section 17.1 or the
definition of "Required Lenders" shall be made.
(c) Without the written consent of each Lender that is directly
affected thereby and of such Lenders as own at least a majority of the
Percentage Interests (disregarding the Percentage Interest of any
Delinquent Lender during the existence of a Delinquency Period of or
any Nonperforming Lender so long as such Lender is treated equally
with the other Lenders with respect to any actions enumerated below):
(i) No reduction shall be made in (A) the amount of principal of
the Loan owing to such Lender or (B) the interest rate on or fees with
respect to the portion of the Loan owing to such Lender (other than
amendments and waivers approved by the Required Lenders that modify
defined terms used in calculating the Applicable Margin or
Consolidated Excess Cash Flow or that waive an increase in the
Applicable Rate as a result of an Event of Default).
(ii) No change shall be made in the stated, scheduled time of
payment of any portion of the Loan owing to such Lender under Sections
4.1 or 4.2 or interest thereon or fees relating to any of the
foregoing payable to such Lender, and no waiver shall be made of any
Default under Section 9.1.1 with respect to such Lender (other than
amendments and waivers approved by the Required Lenders that modify
defined terms used in calculating the Applicable Margin or
Consolidated Excess Cash Flow).
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(iii) No increase shall be made in the amount, or extension of
the term, of the stated Commitments of such Lender beyond that
provided for under Section 2.
(d) Without the written consent of such Lenders owning at least a
majority of the Percentage Interests in a particular Tranche
(disregarding the Percentage Interest of any Delinquent Lender during
the existence of a Delinquency Period or of any Nonperforming Lender
so long as such Lender is treated equally with the other Lenders with
respect to any actions enumerated below) voting as a separate class,
no change may be made in the time of payment of any portion of such
Tranche under Sections 4.3, 4.4 or 4.5 or in the allocation of
mandatory prepayments under Sections 4.3, 4.4 or 4.5 between the
respective Tranches.
(e) Without the written consent of the Administrative Agent or
the Documentation Agent, as the case may be, no amendment or
modification of any Credit Document shall affect the rights or duties
of the Administrative Agent or the Documentation agent, as the case
may be, under the Credit Documents.
17.2. COURSE OF DEALING; NO IMPLIED WAIVERS. No course of dealing
between any Lender, on the one hand, and any Restricted Company or its
Affiliates, on the other hand, shall operate as a waiver of any of the Lenders'
rights under this Agreement or any other Credit Document or with respect to the
Credit Obligations. In particular, no delay or omission on the part of any
Lender or any Agent in exercising any right under this Agreement or any other
Credit Document or with respect to the Credit Obligations shall operate as a
waiver of such right or any other right hereunder or thereunder. A waiver on
any one occasion shall not be construed as a bar to or waiver of any right or
remedy on any future occasion. No waiver, consent or amendment with respect to
this Agreement or any other Credit Document shall be binding unless it is in
writing and signed by the Documentation Agent or the Required Lenders, as
appropriate.
18. GENERAL PROVISIONS.
18.1. DEFEASANCE. When all Credit Obligations have been paid,
performed and reasonably determined by the Agent to have been indefeasibly
discharged in full, and if at the time no Lender continues to be committed to
extend any credit to the Company hereunder or under any other Credit Document,
this Agreement and the other Credit Documents shall terminate and, at the
Company's written request, accompanied by such certificates and other items as
the Agent shall reasonably deem necessary, any Credit Security shall revert to
the Obligors and the right, title and interest of the Documentation Agent and
the Lenders therein shall terminate. Thereupon, on the Obligors' demand and at
their cost and expense, the Agent shall execute proper instruments,
acknowledging satisfaction of and discharging this Agreement and the other
Credit Documents, and shall redeliver to the Obligors any Credit Security then
in its possession; PROVIDED, HOWEVER, that Sections 3.2.4, 3.5, 10, 11.7.7,
11.10, 12 and 18 shall survive the termination of this Agreement.
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18.2. NO STRICT CONSTRUCTION. The parties have participated jointly in
the negotiation and drafting of this Agreement and the other Credit Documents
with counsel sophisticated in financing transactions. In the event an ambiguity
or question of intent or interpretation arises, this Agreement and the other
Credit Documents shall be construed as if drafted jointly by the parties and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provisions of this Agreement and the other
Credit Documents.
18.3. CERTAIN OBLIGOR ACKNOWLEDGMENTS. Each of the Restricted
Companies and the other Obligors acknowledges that:
(a) it has been advised by counsel in the negotiation, execution
and delivery of this Agreement and the other Credit Documents;
(b) neither the Agents nor any Lender has any fiduciary
relationship with or duty to the Obligors arising out of or in
connection with this Agreement or any other Credit Document, and the
relationship between the Agents and Lenders, on one hand, and the
Restricted Companies and the Obligors, on the other hand, in
connection herewith or therewith is solely that of debtor and
creditor; and
(c) no joint venture is created hereby or by the other Credit
Documents or otherwise exists by virtue of the transactions
contemplated hereby or thereby among the Obligors, the Restricted
Companies and the Lenders.
18.4. VENUE; SERVICE OF PROCESS; CERTAIN WAIVERS. Each of the
Restricted Companies, the other Obligors, the Agents and the Lenders:
(a) Irrevocably submits to the nonexclusive jurisdiction of the
state courts of The Commonwealth of Massachusetts and to the
nonexclusive jurisdiction of the United States District Court for the
District of Massachusetts for the purpose of any suit, action or other
proceeding arising out of or based upon this Agreement or any other
Credit Document or the subject matter hereof or thereof;
(b) Waives to the extent not prohibited by applicable law that
cannot be waived, and agrees not to assert, by way of motion, as a
defense or otherwise, in any such proceeding brought in any of the
above-named courts, any claim that it is not subject personally to the
jurisdiction of such court, that its property is exempt or immune from
attachment or execution, that such proceeding is brought in an
inconvenient forum, that the venue of such proceeding is improper, or
that this Agreement or any other Credit Document, or the subject
matter hereof or thereof, may not be enforced in or by such court;
-113-
<PAGE>
(c) Consents to service of process in any such proceeding in any
manner at the time permitted by Chapter 223A of the General Laws of
The Commonwealth of Massachusetts and agrees that service of process
by registered or certified mail, return receipt requested, at its
address specified in or pursuant to Section 15 is reasonably
calculated to give actual notice; and
(d) Waives to the extent not prohibited by applicable law that
cannot be waived any right it may have to claim or recover in any such
proceeding any special, exemplary, punitive or consequential damages.
18.5. WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE
LAW THAT CANNOT BE WAIVED, EACH OF THE RESTRICTED COMPANIES, THE OTHER OBLIGORS,
THE AGENTS AND THE LENDERS WAIVES, AND COVENANTS THAT IT WILL NOT ASSERT
(WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN
ANY FORUM IN RESPECT OF ANY ISSUE, CLAIM OR PROCEEDING ARISING OUT OF THIS
AGREEMENT OR ANY OTHER CREDIT DOCUMENT OR THE SUBJECT MATTER HEREOF OR THEREOF
OR ANY CREDIT OBLIGATION OR IN ANY WAY CONNECTED WITH THE DEALINGS OF THE
LENDERS, THE AGENTS, THE RESTRICTED COMPANIES OR ANY OTHER OBLIGOR IN CONNECTION
WITH ANY OF THE ABOVE, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING
AND WHETHER IN CONTRACT, TORT OR OTHERWISE. Each of the Restricted Companies
and the other Obligors acknowledges that it has been informed by the
Documentation Agent that the foregoing sentence constitutes a material
inducement upon which each of the Lenders has relied and will rely in entering
into this Agreement and any other Credit Document. Any Lender, the Agents, the
Borrower or any other Obligor may file an original counterpart or a copy of this
Agreement with any court as written evidence of the consent of the Restricted
Companies, the other Obligors, the Agents and the Lenders to the waiver of their
rights to trial by jury.
18.6. INTERPRETATION; GOVERNING LAW; ETC. Time is (and shall be) of
the essence in this Agreement and the other Credit Documents. All covenants,
agreements, representations and warranties made in this Agreement or any other
Credit Document or in certificates delivered pursuant hereto or thereto shall be
deemed to have been relied on by each Lender, notwithstanding any investigation
made by any Lender on its behalf, and shall survive the execution and delivery
to the Lenders hereof and thereof. The invalidity or unenforceability of any
provision hereof shall not affect the validity or enforceability of any other
provision hereof, and any invalid or unenforceable provision shall be modified
so as to be enforced to the maximum extent of its validity or enforceability.
The headings in this Agreement are for convenience of reference only and shall
not limit or otherwise affect the meaning hereof. This Agreement and the other
Credit Documents constitute the entire understanding of the parties with respect
to the subject matter hereof and thereof and supersede all prior and
contemporaneous understandings and agreements, whether written or oral. This
Agreement may be executed in any number of counterparts which together shall
constitute one instrument. This Agreement
-114-
<PAGE>
shall be governed by and construed in accordance with the laws (other than
the conflict of laws rules) of The Commonwealth of Massachusetts.
[THE REST OF THIS PAGE IS INTENTIONALLY BLANK.]
-115-
<PAGE>
Each of the undersigned has caused this Agreement to be executed and
delivered by its duly authorized officer as an agreement under seal as of the
date first above written.
FALCON CABLE MEDIA, A CALIFORNIA
LIMITED PARTNERSHIP
FALCON CABLE SYSTEMS COMPANY II, L.P.
FALCON CABLEVISION, A CALIFORNIA
LIMITED PARTNERSHIP
FALCON COMMUNITY CABLE, L.P.
FALCON COMMUNITY VENTURES I
LIMITED PARTNERSHIP
FALCON TELECABLE, A CALIFORNIA
LIMITED PARTNERSHIP
FALCON COMMUNITY INVESTORS, L.P.
FALCON INVESTORS GROUP, LTD., A
CALIFORNIA LIMITED PARTNERSHIP
FALCON MEDIA INVESTORS GROUP, A
CALIFORNIA LIMITED PARTNERSHIP
FALCON TELECABLE INVESTORS GROUP,
A CALIFORNIA LIMITED PARTNERSHIP
FALCON TELECOM, L.P.
By FALCON HOLDING GROUP, INC., as
general partner, or general partner of the
general partner, of each of the foregoing
Restricted Companies
By /s/ Michael K. Menerey
--------------------------------------
Title: SVP & Chief Financial Officer
FALCON FIRST, INC.
By /s/ Michael K. Menerey
--------------------------------------
Title: SVP & Chief Financial Officer
<PAGE>
FALCON CABLE COMMUNICATIONS, LLC
By FALCON HOLDING GROUP, INC., as general
partner of the managing general partner
of its sole member
By /s/ Michael K. Menerey
-----------------------------
Title: SVP & Chief Financial Officer
ATHENS CABLEVISION, INC.
AUSABLE CABLE TV, INC.
CEDAR BLUFF CABLEVISION, INC.
DALTON CABLEVISION, INC.
EASTERN MISSISSIPPI CABLEVISION, INC.
FALCON FIRST CABLE OF NEW YORK, INC.
FALCON FIRST CABLE OF THE SOUTHEAST,
INC.
FALCON FIRST HOLDINGS, INC.
FF CABLE HOLDINGS, INC.
LAUDERDALE CABLEVISION, INC.
MULTIVISION NORTHEAST, INC.
MULTIVISION OF COMMERCE, INC.
PLATTSBURG CABLEVISION, INC.
SCOTTSBORO CABLEVISION, INC.
SCOTTSBORO TV CABLE, INC.
By /s/ Michael K. Menerey
-----------------------------
Title: SVP & Chief Financial Officer
As an authorized officer of each of the
foregoing corporations
BANKBOSTON, N.A.
By /s/ David B. Herter
-----------------------------
Title: Managing Director
BankBoston, N.A.
Media and Communications Department
<PAGE>
100 Federal Street
Boston, MA 02110
Telecopy: (617) 434-3401
Telex: 940581
TORONTO DOMINION (TEXAS) INC.
By /s/ Neva Nesbitt
-----------------------------
Title: Vice President
Toronto Dominion (Texas) Inc.
909 Fannin Street, 17th Floor
Houston, TX 77010
Telecopy: (713) 951-9921
NATIONSBANK, N.A.
By /s/ Whitney L. Busse
-----------------------------
Title: Vice President
NationsBank, N.A.
901 Main Street, 64th Floor
Dallas, TX 75202
Telecopy: (214) 508-9390
THE CHASE MANHATTAN BANK
By /s/ Mitch Gervis
-----------------------------
Title: Vice President
The Chase Manhattan Bank
270 Park Avenue, 37th Floor
New York, NY 10017
Telecopy: (212) 270-4584
<PAGE>
BANK OF AMERICA NATIONAL TRUST &
SAVINGS ASSOCIATION
By /s/ Shannon T. Ward
-----------------------------
Title: Vice President
Bank of America National Trust &
Savings Association
Entertainment & Media Industry Group
Dept. 3283
555 South Flower Street, 10th Floor
Los Angeles, CA 90071
Telecopy: (213) 228-2641
<PAGE>
ABN AMRO BANK N.V.
By /s/ Frances O'R. Logan
-----------------------------
Title: Vice President
By /s/ William S, Bennett
-----------------------------
Title: Vice President
ABN AMRO Bank N.V.
500 Park Avenue, 2nd Floor
New York, NY 10022
Telecopy: (212) 446-4203
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY
By /s/ Charles D. Miles
-----------------------------
Title: authorized signatory
By /s/ Jerry D. Zinkula
-----------------------------
Title: authorized signatory
Its Authorized Signatories
Allstate Life Insurance Company
3075 Sanders Road, Suite G5A
Northbrook, IL 60062
Telecopy: (847) 402-9882
<PAGE>
BANQUE NATIONALE DE PARIS
By /s/ Clive Vettles
-----------------------------
Title: SVP & Manager
By /s/ Janice Ho
-----------------------------
Title: Vice President
Banque Nationale de Paris
725 South Figueroa, Suite 2090
Los Angeles, CA 90017
Telecopy: (213) 488-9602
<PAGE>
BARCLAYS BANK PLC
By /s/ James K. Downey
-----------------------------
Title: Director
Barclays Bank PLC
388 Mark Street, Suite 1700
San Francisco, CA 94111
Telecopy: (415) 765-4760
<PAGE>
CIBC INC.
By /s/ Cynthia M. Cahill
-----------------------------
Title: Executive Director
CIBC Oppenheimer Corp, as Agent
CIBC Inc.
425 Lexington Avenue
New York, NY 10017
Telecopy: (212) 856-3558
<PAGE>
CITY NATIONAL BANK
By /s/ David Burdge
-----------------------------
Title: SVP
City National Bank
400 N. Roxbury Drive, 3rd Floor
Beverly Hills, CA 90210
Telecopy: (310) 888-6152
<PAGE>
COOPERATIVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK NEDERLAND",
NEW YORK BRANCH
By /s/ Alan E. McLintock
-----------------------------
Title: Vice President
By /s/ W. Pieter C. Kodde
-----------------------------
Title: Vice President
Rabobank Nederland
Media & Telecommunications
300 South Wacker Drive, Suite 3500
Chicago, IL 60606
Telecopy: (312) 786-0052
<PAGE>
CREDIT LOCAL DE FRANCE
By /s/ Philippe Ducos
-----------------------------
Title: Deputy General Manager
By /s/ John W. Flaherty
-----------------------------
Title: Vice President:
Credit Local de France
450 Park Avenue, 3rd Floor
New York, NY 10022
Telecopy: (212) 753-5522
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH
By /s/ Mark D. Thorsheim
-----------------------------
Title: Vice President
Credit Lyonnais New York Branch
1301 Avenue of the Americas
New York, NY 10019
Telecopy: (212) 261-3288
<PAGE>
CYPRESSTREE INVESTMENT FUND LLC
By CYPRESSTREE INVESTMENT
MANAGEMENT COMANY its Managing
Member
By /s/ Peter Merrill
-----------------------------
Title: Managing Director
Cypresstree Investment Fund LLC
125 High Street
Boston, MA 02110
Telecopy: (617) 946-5880
<PAGE>
DEEP ROCK AND COMPANY
By: Eaton Vance Management, as
Investment Advisor
By /s/ Payson F. Swaffield
-----------------------------
Title: Vice President
Eaton Vance Management
Attn: Prime Rate Reserves
24 Federal Street, 6th Floor
Boston, MA 02110
Telecopy: (617) 695-9594
<PAGE>
DRESDNER BANK AG, NEW YORK AND
GRAND CAYMAN BRANCHES
By /s/ William E. Lambert
-----------------------------
Title: Assistant Vice President
By /s/ Brian Haughney
-----------------------------
Title: Assistant Treasurer
Dresdner Bank AG, New York and
Grand Cayman Branches
75 Wall Street
New York, NY 10005
Telecopy: (212) 429-2374
<PAGE>
FLEET NATIONAL BANK
By /s/ Garrett Komjathy
-----------------------------
Title: Vice President
Fleet National Bank
Media & Communications Group
1185 Avenue of the Americas, 16th Floor
New York, NY 10036
Telecopy: (212) 819-6202
<PAGE>
THE FUJI BANK, LIMITED,
LOS ANGELES AGENCY
By /s/ Masahito Fukuda
-----------------------------
Title: Joint General Manager
The Fuji Bank, Limited,
Los Angeles Agency
333 South Hope Street, 39th Floor
Los Angeles, CA 90071
Telecopy: (213) 253-4178
<PAGE>
THE INDUSTRIAL BANK OF JAPAN,
LIMITED LOS ANGELES AGENCY
By /s/ Vicente L. Timiraos
-----------------------------
Title: SVP & SDGM
The Industrial Bank of Japan,
Limited Los Angeles Agency
350 Grand South Avenue, Suite 1500
Los Angeles, CA 90071
Telecopy: (213) 488-9840
<PAGE>
KZH HOLDING CORPORATION III
By /s/ Virginia Conway
-----------------------------
Title: Authorized Agent
KZH Holding Corporation III
c/o The Chase Manhattan Bank
450 West 33rd Street, 15th Floor
New York, NY 10001
Telecopy: (212) 946-7776
<PAGE>
KZH-SOLEIL-2 CORPORATION
By /s/ Virginia Conway
-----------------------------
Title: Authorized Agent
KZH-Soleil-2 Corporation
c/o Virginia Conway
450 West 33rd Street
New York, NY 10001
Telecopy: (212) 946-7776
<PAGE>
OAK HILL SECURITIES FUND, L.P.
By: Oak Hill Securities GenPar, L.P.,
its General Partner
By: Oak Hill Securities MPG, Inc.,
its General Partner
By /s/ Scott D. Krase
-----------------------------
Title: Vice President
Oak Hill Securities Fund, L.P.
Park Avenue Tower
65 East 55th Street, 32nd Floor
New York, NY 10022
Telecopy: (212) 593-3596
<PAGE>
OSPREY INVESTMENTS PORTFOLIO
By: Citibank, N.A., as Manager
By /s/ Hans L. Christensen
-----------------------------
Title: Vice President
Osprey Investments Portfolio
599 Lexington Avenue
26th Floor, Zone 10
New York, NY 10043
Telecopy: (212) 793-1871
<PAGE>
PARIBAS
By /s/ Darlynn Ernst
-----------------------------
Title: Assistant Vice President
By /s/ Tom Brandt
-----------------------------
Title: Director
Paribas
2029 Century Park East, Suite 3900
Los Angeles, CA 90067
Telecopy: (310) 556-3762
<PAGE>
MORGAN STANLEY DEAN WITTER
PRIME INCOME TRUST
By /s/ Sheila Finnerty
-----------------------------
Title: Vice President
Prime Income Trust
c/o Dean Witter InterCapital, Inc.
Two World Trade Center, 72nd Floor
New York, NY 10048
Telecopy: (212) 392-5345
<PAGE>
SUMMIT BANK
By /s/ Christopher J. Annas
-----------------------------
Title: Vice President
Summit Bank
512 Township Line Road, Suite 280
Blue Bell, PA 19422
Telecopy: (215) 619-4820
<PAGE>
SUNTRUST BANK, CENTRAL FLORIDA, N.A.
By /s/ Janet P. Sanmons
-----------------------------
Title: Vice President
Suntrust Bank, Central Florida, N.A.
200 South Orange Ave.
MC 1109
Orlando, FL 32801
Telecopy: (407) 237-5126
<PAGE>
TRANSAMERICA
By /s/ John Casparian
-----------------------------
Title: Investment Officer
Transamerica
1100 South Olive Street, Suite 2700
Los Angeles, CA 90015
Telecopy: (213) 742-4160
<PAGE>
THE TRAVELERS INSURANCE COMPANY
By /s/ Allen R. Cantrell
-----------------------------
Title: Investment Officer
The Travelers Insurance Company
One Tower Square
Hartford, CT 06183-2030
Telecopy: (860) 954-3730
<PAGE>
UNION BANK OF CALIFORNIA
By /s/ Bill D. Gooch
-----------------------------
Title: Senior Vice President
Union Bank of California
445 South Figueroa Street
Los Angeles, CA 90071
Telecopy: (213) 236-5747
<PAGE>
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST
By /s/ Jeffrey W. Maillet
-----------------------------
Title: Senior Vice President & Director
Van Kampen American Capital
Prime Rate Income Trust
One Parkview Plaza, 6th Floor
Oakbrook Terrace, IL 60181
Telecopy: (630) 684-6740
<PAGE>
VAN KAMPEN AMERICAN CAPITAL
SENIOR INCOME TRUST
By /s/ Jeffrey W. Maillet
-----------------------------
Title: Senior Vice President & Director
Van Kampen American Capital
Senior Income Trust
One Parkview Plaza, 6th Floor
Oakbrook Terrace, IL 60181
Telecopy: (630) 684-6740
<PAGE>
EXHIBIT 12
FALCON HOLDING GROUP, L.P.
COMPUTATION OF DEFICIENCY OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------------------
New Falcon
Pro Forma Pro Forma
1997 1997
1993 1994 1995 1996 1997 (Unaudited) (Unaudited)
---- ---- ---- ---- ---- ----------- -----------
(in thousands of dollars)
<S> <C> <C> <C> <C> <C> <C> <C>
Loss from
continuing operations
before extraordinary item $ (31,448) $ (33,513) $ (25,235) $ (49,985) $ (60,838) $ (75,106) $ (130,849)
Equity in net income of
investee partnerships - - (19) (145) (443) (447) (447)
Income tax benefit - - - (1,122) (2,021) (2,021) (2,021)
---------- ---------- ---------- ---------- ---------- ---------- -----------
(31,448) (33,513) (25,254) (51,252) (63,302) (77,574) (133,317)
Add:
Interest on indebtedness 49,122 49,859 58,326 72,641 81,326 88,083 122,114
---------- ---------- ---------- ---------- ---------- ---------- -----------
Income before fixed charges 17,674 16,346 33,072 21,389 18,024 10,509 (11,203)
Fixed charges:
Interest on indebtedness 49,122 49,859 58,326 72,641 81,326 88,083 122,114
---------- ---------- ---------- ---------- ---------- ---------- -----------
Deficiency of
earnings available
to cover fixed charges $ (31,448) $ (33,513) $ (25,254) $ (51,252) $ (63,302) $ (77,574) $ (133,317)
---------- ---------- ---------- ---------- ---------- ---------- -----------
---------- ---------- ---------- ---------- ---------- ---------- -----------
Three Months Ended March 31,
--------------------------------------------------------
New Falcon
Pro Forma Pro Forma
1997 1998 1998 1998
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ----------- -----------
(in thousands of dollars)
<S> <C> <C> <C> <C>
Loss from
continuing operations
before extraordinary item $ (15,335) $ (18,909) $ (21,262) $ (37,501)
Equity in net income of
investee partnerships (39) (45) (45) (45)
Income tax benefit (566) (365) (365) (365)
---------- ---------- ---------- ----------
(15,940) (19,319) (21,672) (37,911)
Add:
Interest on indebtedness 20,384 20,487 21,408 30,433
---------- ---------- ---------- ----------
Income before fixed charges 4,444 1,168 (264) (7,478)
Fixed charges:
Interest on indebtedness 20,384 20,487 21,408 30,433
---------- ---------- ---------- ----------
Deficiency of
earnings available
to cover fixed charges $ (15,940) $ (19,319) $ (21,672) $ (37,911)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
<PAGE>
Exhibit 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports on the consolidated financial statements of Falcon
Holding Group, L.P. dated March 17, 1998 and the balance sheet of Falcon
Funding Corporation dated March 31, 1998 in Amendment No. 1 to the
Registration Statement (Form S-4 No. 333-55755) and related Prospectus of
Falcon Holding Group, L.P. and Falcon Funding Corporation for the
registration of 8.375% Senior Debentures and 9.285% Senior Discount
Debentures.
Our audits also included the financial statement schedule of Falcon Holding
Group, L.P. listed in Item 16(b). This schedule is the responsibility of
the Partnership's management. Our responsibility is to express an opinion
based on our audits. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ Ernst & Young LLP
-----------------------
Los Angeles, California
July 16, 1998
<PAGE>
Exhibit 23.3
Consent of Independent Auditors
-------------------------------
The Board of Directors
TCI Communications, Inc.:
We consent to the inclusion in the registration statement (No. 333-55755) on
Form S-4, as amended, of Falcon Holding Group, L.P. and Falcon Holding
Corporation of our report, dated March 4, 1998, relating to the combined
balance sheets of the TCI Falcon Systems (as defined in Note 1 to the
combined financial statements) as of December 31, 1996 and 1997, and the
related combined statements of operations and parent's investment and cash
flows for each of the years in the three-year period ended December 31, 1997,
and to the reference to our firm under the heading "Experts" in the
registration statement.
KPMG Peat Marwick LLP
Denver, Colorado
July 16, 1998
<PAGE>
Exhibit 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-----------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
-----------------------
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) _______
-----------------------
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-3818954
(Jurisdiction of incorporation (I.R.S. Employer
if not a U.S. national bank) Identification No.)
114 West 47th Street 10036-1532
New York, New York (Zip Code)
(Address of principal
executive offices)
-----------------------
FALCON HOLDING GROUP, L.P.
FALCON FUNDING CORPORATION
(Exact name of obligor as specified in its charter)
Delaware 95-4408577
California 95-4681480
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10900 Wilshire Boulevard - 15th Floor 90024
Los Angeles, CA (Zip Code)
(Address of principal executive offices)
--------------------------------
8.375% Senior Debentures Due 2010
9.285% Senior Discount Debentures Due 2010
(Title of the indenture securities)
<PAGE>
2
GENERAL
1. GENERAL INFORMATION
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which it
is subject.
Federal Reserve Bank of New York (2nd District), New York, New York
(Board of Governors of the Federal Reserve System)
Federal Deposit Insurance Corporation, Washington, D.C.
New York State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH THE OBLIGOR
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15:
Falcon Holding Group, L.P. and Falcon Funding Corporation are not in
default under any of their outstanding securities for which United States
Trust Company of New York is Trustee. Accordingly, responses to Items 3, 4,
5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15 of Form T-1 are not required under
General Instruction B.
16. LIST OF EXHIBITS
T-1.1 -- Organization Certificate, as amended, issued by the State of
New York Banking Department to transact business as a Trust
Company, is incorporated by reference to Exhibit T-1.1 to Form T-1
filed on September 15, 1995 with the Commission pursuant to the
Trust Indenture Act of 1939, as amended by the Trust Indenture
Reform Act of 1990 (Registration No. 33-97056).
T-1.2 -- Included in Exhibit T-1.1.
T-1.3 -- Included in Exhibit T-1.1.
<PAGE>
3
16. LIST OF EXHIBITS
(CONT'D)
T-1.4 -- The By-Laws of United States Trust Company of New York, as
amended, is incorporated by reference to Exhibit T-1.4 to Form T-1
filed on September 15, 1995 with the Commission pursuant to the
Trust Indenture Act of 1939, as amended by the Trust Indenture
Reform Act of 1990 (Registration No. 33-97056).
T-1.6 -- The consent of the trustee required by Section 321(b) of the
Trust Indenture Act of 1939, as amended by the Trust Indenture
Reform Act of 1990.
T-1.7 -- A copy of the latest report of condition of the trustee
pursuant to law or the requirements of its supervising or
examining authority.
NOTE
As of June 24, 1998, the trustee had 2,999,020 shares of Common Stock
outstanding, all of which are owned by its parent company, U.S. Trust
Corporation. The term "trustee" in Item 2, refers to each of United States Trust
Company of New York and its parent company, U.S. Trust Corporation.
In answering Item 2 in this statement of eligibility as to matters peculiarly
within the knowledge of the obligor or its directors, the trustee has relied
upon information furnished to it by the obligor and will rely on information to
be furnished by the obligor and the trustee disclaims responsibility for the
accuracy or completeness of such information.
-------------------
Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee,
United States Trust Company of New York, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, and State of New York, on the 24th day
of June, 1998.
UNITED STATES TRUST COMPANY
OF NEW YORK, Trustee
By: /s/Margaret Ciesmelewski
-----------------------------
Margaret Ciesmelewski
Assistant Vice President
<PAGE>
EXHIBIT T-1.6
The consent of the trustee required by Section 321(b) of the Act.
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
September 1, 1995
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939,
as amended by the Trust Indenture Reform Act of 1990, and subject to the
limitations set forth therein, United States Trust Company of New York ("U.S.
Trust") hereby consents that reports of examinations of U.S. Trust by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
/s/Gerard F. Ganey
------------------------
By: Gerard F. Ganey
Senior Vice President
<PAGE>
EXHIBIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
MARCH 31, 1998
($ IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Cash and Due from Banks $ 303,692
Short-Term Investments 325,044
Securities, Available for Sale 650,954
Loans 1,717,101
Less: Allowance for Credit Losses 16,546
----------
Net Loans 1,700,555
Premises and Equipment 58,868
Other Assets 120,865
----------
Total Assets $3,159,978
----------
----------
LIABILITIES
Deposits:
Non-Interest Bearing $ 602,769
----------
Interest Bearing 1,955,571
Total Deposits 2,558,340
Short-Term Credit Facilities 293,185
Accounts Payable and Accrued Liabilities 136,396
----------
Total Liabilities $2,987,921
----------
----------
STOCKHOLDER'S EQUITY
Common Stock 14,995
Capital Surplus 49,541
Retained Earnings 105,214
Unrealized Gains on Securities
Available for Sale (Net of Taxes) 2,307
----------
TOTAL STOCKHOLDER'S EQUITY 172,057
TOTAL LIABILITIES AND ----------
STOCKHOLDER'S EQUITY $3,159,978
----------
----------
</TABLE>
I, Richard E. Brinkmann, Senior Vice President & Comptroller of the named bank
do hereby declare that this Statement of Condition has been prepared in
conformance with the instructions issued by the appropriate regulatory authority
and is true to the best of my knowledge and belief.
Richard E. Brinkmann, SVP & Controller
May 6, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMAITON EXTRACTED FROM BALANCE
SHEET AT MARCH 31, 1998 AND STATEMENT OF OPERATIONS FOR THE QUARTER ENDED
MARCH 31, 1998
</LEGEND>
<CIK> 0000900346
<NAME> FALCON HOLDING GROUP LP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<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>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM BALANCE SHEET AT
MARCH 27, 1998
</LEGEND>
<CIK> 0001060530
<NAME> FALCON FUNDING CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> MAR-16-1998
<PERIOD-END> MAR-27-1998
<CASH> 1,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 999
<TOTAL-LIABILITY-AND-EQUITY> 1,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
PURSUANT TO THE PROSPECTUS DATED , 1998: THE EXCHANGE OFFER WILL
EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1998, UNLESS EXTENDED
(THE "EXPIRATION DATE").
- --------------------------------------------------------------------------------
FALCON HOLDING GROUP, L.P.
FALCON FUNDING CORPORATION
LETTER OF TRANSMITTAL
8.375% SERIES A SENIOR DEBENTURES DUE 2010
9.285% SERIES A SENIOR DISCOUNT DEBENTURES DUE 2010
To: U.S. Trust Company of New York, the Exchange Agent
<TABLE>
<S> <C>
BY REGISTERED OR CERTIFIED BY OVERNIGHT COURIER:
MAIL: U.S. Trust Company of New York
U.S. Trust Company of New York 770 Broadway
P.O. Box 844 New York, New York 10003
Cooper Station Attn: Corporate Trust, 13th
New York, New York 10276-0844 Floor
BY HAND: BY FACSIMILE:
U.S. Trust Company of New York (212) 780-0592
111 Broadway, Lower Level
Corporation Trust Window Confirm by telephone:
New York, New York 10006 (800) 548-6565
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF THIS INSTRUMENT VIA A FACSIMILE NUMBER OTHER THAN THE ONE
LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS
ACCOMPANYING
THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE
THIS LETTER OF TRANSMITTAL IS COMPLETED.
The undersigned acknowledges receipt of the Prospectus, dated June , 1998
(the "Prospectus") of Falcon Holding Group, L.P. and Falcon Funding Corporation
(collectively, the "Issuers") and this related Letter of Transmittal (the
"Letter of Transmittal"), which together describe the Issuers' offer (the
"Exchange Offer") to exchange (i) $1,000 original principal amount of 8.375%
Series B Senior Debentures due 2010 of the Issuers (the "Senior Exchange
Debentures") for each $1,000 original principal amount of the Issuers' issued
and outstanding 8.375% Series A Senior Debentures due 2010 (the "Old Senior
Debentures"), and (ii) $1,000 original principal amount at maturity of 9.285%
Series B Senior Discount Debentures due 2010 of the Issuers (the "Senior
Discount Exchange Debentures," and collectively with the Senior Exchange
Debentures, the "Exchange Debentures") for each $1,000 original principal amount
at maturity of the Issuers' issued and outstanding 9.285% Series A Senior
Discount Debentures due 2010 (the "Old Senior Discount Debentures," and
collectively with the Old Senior Debentures, the "Old Debentures"). As of the
date of the Prospectus, $375,000,000 aggregate original principal amount of the
Old Senior Debentures are outstanding, and $435,250,000 aggregate original
principal amount at maturity of the Old Senior Discount Debentures are
outstanding. The term "Expiration Date" shall mean 5:00 p.m., New York City
time, on , 1998, unless the Issuers, in their sole discretion, extend
the Exchange Offer, in which case the term shall mean the latest date and time
to which the Exchange Offer is extended. The term "Holder" with respect to the
Exchange Offer means any person: (i) in whose name Old Debentures are registered
on the books of the Issuers or any other person who has obtained a properly
completed bond power from the registered Holder or (ii) whose Old Debentures are
held of record by The Depository Trust Company ("DTC") and who desires to
deliver such Old Debentures by book entry transfer at DTC. Capitalized terms
used but not defined herein have the respective meanings set forth in the
Prospectus.
This Letter of Transmittal is to be used by Holders if: (i) certificates
representing Old Debentures are to be physically delivered to the Exchange Agent
herewith by Holders; (ii) tender of Old Debentures is to be made by book-entry
transfer to the Exchange Agent's account at DTC pursuant to the procedures set
forth in the Prospectus under "The Exchange Offer--Procedures for Tendering" by
any financial institution that is a participant in DTC and whose name appears on
a security position listing as the owner of Old Debentures (such participants,
acting on behalf of Holders, are referred to herein as "Acting Holders"); or
(iii) tender of Old Debentures is to be made according to the guaranteed
delivery procedures described in the Prospectus under the caption "The Exchange
Offer--Guaranteed
<PAGE>
Delivery Procedures." See Instruction 2 below. Delivery of documents to DTC does
not constitute delivery to the Exchange Agent.
The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer. Holders who wish to tender their Old Debentures must
complete this Letter of Transmittal in its entirety.
/ / CHECK HERE IF TENDERED OLD DEBENTURES ARE BEING DELIVERED BY DTC TO THE
EXCHANGE AGENT'S ACCOUNT AT DTC AND COMPLETE THE FOLLOWING:
Name of Tendering Institution: _____________________________________________
DTC Book-Entry Account No.: ________________________________________________
Transaction Code No.: ______________________________________________________
/ / CHECK HERE IF TENDERED OLD DEBENTURES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY DELIVERED TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING (SEE INSTRUCTION 2):
Name of Registered or Acting Holder(s): ____________________________________
Window Ticket No. (if any): ________________________________________________
Date of Execution of Notice of Guaranteed Delivery: ________________________
Name of Eligible Institution that Guaranteed Delivery: _____________________
If Delivered by Book-Entry Transfer, DTC Book-Entry Account No.: ___________
Transaction Code Number: ___________________________________________________
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
PLEASE NOTE: THE ISSUERS HAVE AGREED THAT, FOR A PERIOD OF 180 DAYS AFTER
THE EXPIRATION DATE, THEY WILL MAKE COPIES OF THE PROSPECTUS AVAILABLE TO
ANY PARTICIPATING BROKER-DEALER FOR USE IN CONNECTION WITH RESALES OF THE
EXCHANGE DEBENTURES (PROVIDED THAT THE ISSUERS RECEIVE NOTICE FROM ANY
PARTICIPATING BROKER-DEALER OF ITS STATUS AS A BROKER-DEALER).
Name: _____________________________________________________________________
Address: __________________________________________________________________
___________________________________________________________________________
Attention: ________________________________________________________________
<PAGE>
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY
BEFORE COMPLETING ANY BOX BELOW
List below the Old Debentures to which this Letter of Transmittal relates.
If the space provided below is inadequate, the certificate numbers and, with
respect to the Old Senior Debentures, the principal amount and, with respect to
the Old Senior Discount Debentures, the principal amount at maturity should be
listed on a separate signed schedule affixed hereto.
Box 1
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
DESCRIPTION OF 8.375% SERIES A SENIOR DEBENTURES DUE 2010
- ----------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
NAME(S) AND AGGREGATE TENDERED (MUST BE
ADDRESS(ES) OF PRINCIPAL AMOUNT IN INTEGRAL
REGISTERED HOLDER(S) CERTIFICATE REPRESENTED BY MULTIPLE OF
(PLEASE FILL IN, IF BLANK) NUMBER(S)** CERTIFICATE(S) $1,000)*
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
-------------------------------------------------------
-------------------------------------------------------
-------------------------------------------------------
-------------------------------------------------------
TOTAL
</TABLE>
Box 2
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
DESCRIPTION OF 9.285% SERIES A SENIOR DISCOUNT DEBENTURES DUE 2010
- ----------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
AGGREGATE AT
PRINCIPAL MATURITY TENDERED
NAME(S) AND AMOUNT AT (MUST BE IN
ADDRESS(ES)OF MATURITY INTEGRAL
REGISTERED HOLDER(S) CERTIFICATE REPRESENTED BY MULTIPLE OF
(PLEASE FILL IN, IF BLANK) NUMBER(S)** CERTIFICATE(S) $1,000)*
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
-------------------------------------------------------
-------------------------------------------------------
-------------------------------------------------------
-------------------------------------------------------
TOTAL
</TABLE>
- --------------------------------------------------------------------------------
* Need not be completed by Holders who wish to tender with respect to all Old
Debentures listed. See Instruction 4.
** Need not be completed by Holders tendering by book-entry transfer.
<PAGE>
Box 3
- ------------------------------------------------
SPECIAL REGISTRATION INSTRUCTIONS
(SEE INSTRUCTIONS 4, 5 AND 6)
To be completed ONLY if certificates for Old Debentures not tendered, or
Exchange Debentures issued in exchange for Old Debentures accepted for
exchange, are to be issued in a name other than the name appearing in Box 1
or 2 above.
Issue certificate(s) to:
Name _______________________________________________________________________
(PLEASE PRINT)
Address ____________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
(INCLUDE ZIP CODE)
__________________________________________________________________________
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER)
------------------------------------------------------------------
Box 4
----------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 4, 5 AND 6)
To be completed ONLY if certificates for Old Debentures not tendered,
or Exchange Debentures issued in exchange for Old Debentures accepted for
exchange, are to be sent to an address other than the address appearing in
Box 1 or 2 above, or if Box 3 is filled in, to an address other than the
address appearing in Box 3.
Deliver certificate(s) to:
Name ______________________________________________________________________
(PLEASE PRINT)
Address ___________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
(INCLUDE ZIP CODE)
_________________________________________________________________________
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER)
------------------------------------------------------------
Box 5
---------------------------------------------------------------------------
BROKER-DEALER STATUS
/ / Check this box if the beneficial owner of the Old Debentures is a
Participating Broker-Dealer and such Participating Broker-Dealer
acquired the Old Debentures for its own account as a result of
market-making activities or other trading activities.
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Subject to the terms and conditions of the Exchange Offer, the undersigned
hereby tenders to Falcon Holding Group, L.P. and Falcon Funding Corporation
(collectively, the "Issuers") the principal amount of the Old Senior Debentures
and principal amount at maturity of the Old Senior Exchange Debentures indicated
above.
Subject to and effective upon the acceptance for exchange of the Old
Debentures tendered in accordance with this Letter of Transmittal, the
undersigned sells, assigns and transfers to, or upon the order of, the Issuers
all right, title and interest in and to the Old Debentures tendered hereby. The
undersigned hereby irrevocably constitutes and appoints the Exchange Agent its
agent and attorney-in-fact (with full knowledge that the Exchange Agent also
acts as the agent of the Issuers) with respect to the tendered Old Debentures
with the full power of substitution to (i) present such Old Debentures and all
evidences of transfer and authenticity to, or transfer ownership of, such Old
Debentures on the account books maintained by DTC to, or upon, the order of, the
Issuers, (ii) deliver certificates for such Old Debentures to the Issuers and
deliver all accompanying evidences of transfer and authenticity to, or upon the
order of, the Issuers and (iii) present such Old Debentures for transfer on the
books of the Issuers and receive all benefits and otherwise exercise all rights
of beneficial ownership of such Old Debentures, all in accordance with the terms
of the Exchange Offer.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Old Debentures
tendered hereby and that the Issuers will acquire good, valid and unencumbered
title thereto, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claims, when the same are acquired
by the Issuers. The undersigned hereby further represents that (i) the Exchange
Debentures are to be acquired by the Holder or the person receiving such
Exchange Debentures, whether or not such person is the Holder, in the ordinary
course of business, (ii) the Holder or any such other person is not engaging and
does not intend to engage in the distribution of the Exchange Debentures, (iii)
the Holder or any such other person has no arrangement or understanding with any
person to participate in the distribution of the Exchange Debentures, and (iv)
neither the Holder nor any such other person is an "affiliate" of the Issuers
within the meaning of Rule 405 under the Securities Act. As indicated above,
each Participating Broker-Dealer that receives an Exchange Debenture for its own
account in exchange for Old Debentures must acknowledge that it (i) acquired the
Old Debentures for its own account as a result of market-making activities or
other trading activities, (ii) has not entered into any arrangement or
understanding with the Issuers or any "affiliate" of the Issuers (within the
meaning of Rule 405 under the Securities Act) to distribute the Exchange
Debentures to be received in the Exchange Offer and (iii) will deliver a
Prospectus in connection with any resale of such Exchange Debentures; however,
by so acknowledging and by delivering a Prospectus, the undersigned will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act. If applicable, the undersigned shall use its reasonable best efforts to
notify the Issuers when it is no longer subject to such Prospectus delivery
requirements. Unless otherwise notified in accordance with the instructions set
forth herein in Box 5 under "Broker-Dealer Status," the Issuers will assume that
the undersigned is not a Participating Broker-Dealer. If the undersigned is not
a broker-dealer, the undersigned represents that it is not engaged in and does
not intend to engage in, a distribution of Exchange Debentures.
For purposes of the Exchange Offer, the Issuers shall be deemed to have
accepted validly tendered Old Debentures when, as and if the Issuers have given
oral or written notice thereof to the Exchange Agent.
If any Old Debentures tendered herewith are not accepted for exchange
pursuant to the Exchange Offer for any reason, certificates for any such
unaccepted Old Debentures will be returned (except as noted below with respect
to tenders through DTC), without expense, to the undersigned at the address
shown below or to a different address as may be indicated herein in Box 4 under
"Special Delivery Instructions" as promptly as practicable after the Expiration
Date.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned, and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns.
The undersigned understands that tenders of Old Debentures pursuant to the
procedures described under the caption "The Exchange Offer--Procedures for
Tendering" in the Prospectus and in the instructions hereto will constitute a
binding agreement between the undersigned and the Issuers upon the terms and
subject to the conditions of the Exchange Offer, subject only to withdrawal of
such tenders on the terms set forth in the Prospectus under the caption "The
Exchange Offer--Withdrawal of Tenders."
Unless otherwise indicated in Box 3 under "Special Registration
Instructions," please issue the certificates representing the Exchange
Debentures issued in exchange for the Old Debentures accepted for exchange and
any
<PAGE>
certificates for Old Debentures not tendered or not exchanged, in the name(s) of
the registered Holder of the Old Debentures appearing in Box 1 or 2 above (or in
such event in the case of Old Debentures tendered by DTC, by credit to the
account of DTC). Similarly, unless otherwise indicated in Box 4 under "Special
Delivery Instructions," please send the certificates, if any, representing the
Exchange Debentures issued in exchange for the Old Debentures accepted for
exchange and any certificates for Old Debentures not tendered or not exchanged
(and accompanying documents, as appropriate) to the undersigned at the address
shown below in the undersigned's signature(s), unless tender is being made
through DTC. In the event that the box entitled "Special Registration
Instructions" and the box entitled "Special Delivery Instructions" both are
completed, please issue the certificates representing the Exchange Debentures
issued in exchange for the Old Debentures accepted for exchange in the name(s)
of, and return any certificates for Old Debentures not tendered or not exchanged
to, the person(s) so indicated. The undersigned understands that the Issuers
have no obligation pursuant to the "Special Registration Instructions" and
"Special Delivery Instructions" to transfer any Old Debentures from the name of
the registered Holder(s) thereof if the Issuers do not accept for exchange any
of the Old Debentures so tendered.
Holders who wish to tender their Old Debentures and (i) whose Old Debentures
are not immediately available, (ii) who cannot deliver the Old Debentures, this
Letter of Transmittal or any other documents required hereby to the Exchange
Agent prior to the Expiration Date, or (iii) who cannot complete the procedures
for book-entry transfer prior to the Exchange Date, may tender their Old
Debentures according to the guaranteed delivery procedures set forth in the
Prospectus under the caption "The Exchange Offer--Guaranteed Delivery
Procedures." See Instruction 2.
<PAGE>
The lines below must be signed by the registered Holder(s) exactly as their
name(s) appear(s) on the Old Debentures or, if tendered by a participant in DTC,
exactly as such participant's name appears on a security position listing as the
owner of Old Debentures, or by person(s) authorized to become registered
Holder(s) by a properly completed bond power from the registered Holder(s), a
copy of which must be transmitted with this Letter of Transmittal. If Old
Debentures to which this Letter of Transmittal relate are held of record by two
or more joint Holders, then all such Holders must sign this Letter of
Transmittal.
PLEASE SIGN HERE WHETHER OR NOT
OLD DEBENTURES ARE BEING PHYSICALLY TENDERED HEREBY
- --------------------------------------------------------------------------------
x
- --------------------------------------------------------------------------------
- --------------
DATE
x
- --------------------------------------------------------------------------------
- --------------
SIGNATURE(S) OF REGISTERED HOLDER(S) DATE
OR AUTHORIZED SIGNATORY
Area Code and Telephone Number:
-------------------------
If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a
fiduciary or representative capacity, then such person must (i) set forth
his or her full title below and (ii) submit evidence satisfactory to the
Issuers of such person's authority so to act. See Instruction 5.
Name(s):
----------------------------------------------------------------------------
(PLEASE PRINT)
Capacity:
----------------------------------------------------------------------------
Address:
----------------------------------------------------------------------------
(INCLUDE ZIP CODE)
MEDALLION SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 5)
CERTAIN SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION
SIGNATURE(S) GUARANTEED BY AN ELIGIBLE INSTITUTION:
----------------------------------------------------------------------------
(AUTHORIZED SIGNATURE)
--------------------------------------------------------------------------
(TITLE)
--------------------------------------------------------------------------
(Name of Firm)
--------------------------------------------------------------------------
(ADDRESS, INCLUDE ZIP CODE)
--------------------------------------------------------------------------
(AREA CODE AND TELEPHONE NUMBER)
Dated:
-----------------------, 1998
----------------------------------------------------------------------------
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES FOR OLD
DEBENTURES OR BOOK-ENTRY CONFIRMATIONS. Certificates representing the tendered
Old Debentures (or a confirmation of book-entry transfer of such Old Debentures
into the Exchange Agent's account with DTC), as well as a properly completed and
duly executed copy of this Letter of Transmittal (or facsimile thereof) (or, in
the case of a book-entry transfer, an Agent's Message), a Substitute Form W-9
(or facsimile thereof) and any other documents required by this Letter of
Transmittal must be received by the Exchange Agent at its address set forth
herein prior to the Expiration Date. The method of delivery of certificates for
Old Debentures and all other required documents is at the election and sole risk
of the tendering Holder and delivery will be deemed made only when actually
received by the Exchange Agent. If delivery is by mail, registered mail with
return receipt requested, properly insured, is recommended. As an alternative to
delivery by mail, the Holder may wish to use an overnight or hand delivery
service. In all cases, sufficient time should be allowed to assure timely
delivery. Neither the Issuers nor the Exchange Agent is under an obligation to
notify any tendering Holder of the Issuers' acceptance of tendered Old
Debentures prior to the completion of the Exchange Offer.
2. GUARANTEED DELIVERY PROCEDURES. Holders who wish to tender their Old
Debentures but whose Old Debentures are not immediately available and who cannot
deliver their certificates for Old Debentures (or comply with the procedures for
book-entry transfer prior to the Expiration Date), the Letter of Transmittal and
any other documents required by the Letter of Transmittal to the Exchange Agent
prior to the Expiration Date must tender their Old Debentures according to the
guaranteed delivery procedures set forth below. Pursuant to such procedures:
(i) such tender must be made by or through a firm which is a member of a
registered national securities exchange or of the National Association
of Securities Dealers, Inc., or a commercial bank or trust company
having an office or correspondent in the United States (an "Eligible
Institution");
(ii) prior to the Expiration Date, the Exchange Agent must have received
from the Holder and the Eligible Institution a properly completed and
duly executed Notice of Guaranteed Delivery (by facsimile transmission,
mail or hand delivery) setting forth the name and address of the Holder,
the certificate number or numbers of the tendered Old Debentures, the
principal amount of tendered Old Senior Debentures and the principal
amount at maturity of Old Senior Discount Debentures and stating that
the tender is being made thereby and guaranteeing that, within five New
York Stock Exchange trading days after the Expiration Date, the Letter
of Transmittal (or facsimile thereof) (or, in the case of a book-entry
transfer, an Agent's Message), together with the tendered Old Debentures
(or a confirmation of book-entry transfer of such Old Debentures into
the Exchange Agent's account with DTC) and any other required documents
will be deposited by the Eligible Institution with the Exchange Agent;
and
(iii) the certificates representing the tendered Old Debentures in
proper form for transfer (or a confirmation of book-entry transfer of
such Old Debentures into the Exchange Agent's account with DTC),
together with the Letter of Transmittal (or facsimile thereof), properly
completed and duly executed, with any required signature guarantees (or,
in the case of a book-entry transfer, an Agent's Message) and all other
documents required by the Letter of Transmittal must be received by the
Exchange Agent within five New York Stock Exchange trading days after
the Expiration Date.
Failure to complete the guaranteed delivery procedures outlined above will
not, of itself, affect the validity or effect a revocation of any Letter of
Transmittal form properly completed and executed by a Holder who attempted to
use the guaranteed delivery procedure.
3. TENDER BY HOLDER. Only a Holder or Acting Holder of Old Debentures may
tender such Old Debentures in the Exchange Offer. Any beneficial owner of Old
Debentures who is not the registered Holder and who wishes to tender should
arrange with such Holder to execute and deliver this Letter of Transmittal on
such owner's behalf or must, prior to completing and executing this Letter of
Transmittal and delivering such Old Debentures, either make appropriate
arrangements to register ownership of the Old Debentures in such owner's name or
obtain a properly completed bond power from the registered Holder.
4. PARTIAL TENDERS. Tenders of Old Senior Debentures will be accepted only
in integral multiples of $1,000 principal amount, and tenders of Old Senior
Discount Debentures will be accepted only in integral multiples of $1,000
principal amount at maturity. If less than the entire principal amount or
principal amount at maturity, as the case may be, of Old Debentures is tendered,
the tendering Holder should fill in the principal amount tendered in the column
labeled "Principal Amount Tendered" of the box entitled "Description of 8.375%
Senior Debentures due
<PAGE>
2010" (Box 1) above, and principal amount at maturity tendered in the column
labeled "Principal Amount at Maturity Tendered" of the box entitled "Description
of 9.285% Series A Senior Discount Debentures due 2010" (Box 2) above. The
entire principal amount or principal amount at maturity, as the case may be, of
Old Debentures delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise indicated. If the entire principal amount of Old
Senior Debentures is not tendered, Old Senior Debentures for the principal
amount not tendered and Senior Exchange Debentures exchanged for any Old Senior
Debentures tendered will be sent to the Holder at his or her registered address,
unless a different address is provided in the appropriate box on this Letter of
Transmittal or unless tender is made through DTC, as soon as practicable
following the Expiration Date. If the entire principal amount or at maturity of
Old Senior Discount Debentures is not tendered, Old Senior Discount Debentures
for the principal amount at maturity not tendered and Senior Discount Exchange
Debentures exchanged for any Old Senior Discount Debentures tendered will be
sent to the Holder at his or her registered address, unless a different address
is provided in the appropriate box on this Letter of Transmittal or unless
tender is made through DTC, as soon as practicable following the Expiration
Date.
5. SIGNATURES ON THE LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS;
MEDALLION GUARANTEE OF SIGNATURE. If this Letter of Transmittal is signed by the
registered Holder(s) of the Old Debentures tendered herewith, the signatures
must correspond with the name(s) as written on the face of the tendered Old
Debentures without alteration, enlargement, or any change whatsoever.
If any of the tendered Old Debentures are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal. If any
tendered Old Debentures are held in different names on several Old Debentures,
it will be necessary to complete, sign, and submit as many separate copies of
the Letter of Transmittal documents as there are names in which tendered Old
Debentures are held.
If this Letter of Transmittal is signed by the registered Holder, and
Exchange Debentures are to be issued and any untendered or unaccepted Old
Debentures are to be reissued or returned to the registered Holder, then the
registered Holder need not and should not endorse any tendered Old Debentures
nor provide a separate bond power. In any other case, the registered Holder must
either properly endorse the Old Debentures tendered or transmit a properly
completed separate bond power with this Letter of Transmittal (executed exactly
as the name(s) of the registered Holder(s) appear(s) on such Old Debentures),
with the signature(s) on the endorsement or bond power guaranteed by an Eligible
Institution unless such certificates or bond powers are signed by an Eligible
Institution.
If this Letter of Transmittal or any Old Debentures or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations, or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing and evidence satisfactory
to the Issuers of their authority to so act must be submitted with this Letter
of Transmittal.
No medallion signature guarantee is required if (i) this Letter of
Transmittal is signed by the registered Holder(s) of the Old Debentures tendered
herewith and the issuance of Exchange Debentures (and any Old Debentures not
tendered or not accepted) are to be issued directly to such registered Holder(s)
and neither the "Special Registration Instructions" (Box 3) nor the "Special
Delivery Instructions" (Box 4) has been completed. In all other cases, all
signatures on this Letter of Transmittal must be guaranteed by an Eligible
Institution.
6. SPECIAL REGISTRATION AND DELIVERY INSTRUCTIONS. Tendering Holders should
indicate, in the applicable box, the name and address in which the Exchange
Debentures and/or substitute Old Debentures for Old Debentures not tendered or
not accepted for exchange are to be sent, if different from the name and address
or account of the person signing this Letter of Transmittal. In the case of
issuance in a different name, the employer identification number or social
security number of the person named must also be indicated and the indicated and
the tendering Holders should complete the applicable box.
If no such instructions are given, the Exchange Debentures (and any Old
Debentures not tendered or not accepted) will be issued in the name of and sent
to the registered Holder of the Old Debentures.
7. TRANSFER TAXES. The Issuers will pay all transfer taxes, if any,
applicable to the sale and transfer of Old Debentures to the Issuers or their
order pursuant to the Exchange Offer. If, however, a transfer tax is imposed for
any reason other than the transfer and sale of Old Debentures to the Issuers or
their order pursuant to the Exchange Offer, then the amount of any such transfer
taxes (whether imposed on the registered Holder or on any other person) will be
payable by the tendering Holder. If satisfactory evidence of payment of such
taxes or exemption from such taxes is not submitted with this Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering Holder.
Except as provided in this Instruction 7, it will not be necessary for
transfer tax stamps to be affixed to the Old Debentures listed in this Letter of
Transmittal.
<PAGE>
8. TAX IDENTIFICATION NUMBER. Under the federal income tax laws, payments
that may be made by the Issuers on account of Exchange Debentures issued
pursuant to the Exchange Offer may be subject to backup withholding at the rate
of 31%. In order to avoid such backup withholding, each tendering Holder should
complete and sign the Substitute Form W-9 included in this Letter of Transmittal
and either (a) provide the correct taxpayer identification number ("TIN") and
certify, under penalties of perjury, that the TIN provided is correct and that
(i) the Holder has not been notified by the Internal Revenue Service (the "IRS")
that the Holder is subject to backup withholding as a result of failure to
report all interest or dividends or (ii) the IRS has notified the Holder that
the Holder is no longer subject to backup withholding; or (b) provide an
adequate basis for exemption. If the tendering Holder has not been issued a TIN
and has applied for one, or intends to apply for one in the near future, such
holder should write "Applied For" in the space provided for the TIN in Part I of
the Substitute Form W-9, sign and date the Substitute Form W-9 and sign the
Certificate of Payee Awaiting Taxpayer Identification Number. If "Applied For"
is written in Part I, the Issuers (or the Exchange Agent with respect to the
Exchange Debentures or a broker or custodian) may still withhold 31% of the
amount of any payments made on account of the Exchange Debentures until the
Holder furnishes the Issuers or the Exchange Agent with respect to the Exchange
Debentures, broker or custodian with its TIN. In general, if a Holder is an
individual, the taxpayer identification number is the Social Security number of
such individual. If the Exchange Agent or the Issuers are not provided with the
correct TIN, the Holder may be subject to a $50 penalty imposed by the IRS.
Certain Holders (including, among others, all corporations and certain foreign
individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, such Holder must submit a statement (generally, IRS Form W-8), signed
under penalties of perjury, attesting to that individual's exempt status. Such
statements can be obtained from the Exchange Agent.
Failure to complete the Substitute Form W-9 will not, by itself, cause Old
Debentures to be deemed invalidly tendered, but may require the Issuers or the
Exchange Agent with respect to the Exchange Debentures, broker or custodian to
withhold 31% of the amount of any payments made on account of the Exchange
Debentures. Backup withholding is not an additional federal income tax. Rather,
the federal income tax liability of a person subject to backup withholding will
be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained from the IRS.
9. VALIDITY OF TENDERS. All questions as to the validity, form, eligibility
(including time of receipt), and acceptance of tendered Old Debentures will be
determined by the Issuers, in their sole discretion, which determination will be
final and binding. The Issuers reserve the right to reject any and all Old
Debentures not validly tendered or any Old Debentures, the Issuers' acceptance
of which would, in the opinion of the Issuers or their counsel, be unlawful. The
Issuers also reserve the right to waive any conditions of the Exchange Offer or
defects or irregularities in tenders of Debentures as to any ineligibility of
any Holder who seeks to tender Old Debentures in the Exchange Offer. The
interpretation of the terms and conditions of the Exchange Offer (including this
Letter of Transmittal and the instructions hereto) by the Issuers shall be final
and binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Debentures must be cured within such time as the
Issuers shall determine. The Issuers will use reasonable efforts to give
notification of defects or irregularities with respect to tenders of Old
Debentures, but shall not incur any liability for failure to give such
notification.
10. WAIVER OF CONDITIONS. The Issuers reserve the absolute right to amend,
waive, or modify specified conditions in the Exchange Offer in the case of any
tendered Old Debentures.
11. NO CONDITIONAL TENDER. No alternative, conditional, irregular, or
contingent tender of Old Debentures will be accepted.
12. MUTILATED, LOST, STOLEN, OR DESTROYED OLD DEBENTURES. Any tendering
Holder whose Old Debentures have been mutilated, lost, stolen, or destroyed
should contact the Exchange Agent at the address indicated above for further
instructions.
13. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for
assistance and requests for additional copies of the Prospectus may be directed
to the Exchange Agent at the address set forth on the first page of this Letter
of Transmittal. Holders may also contact their broker, dealer, commercial bank,
trust company, or other nominee for assistance concerning the Exchange Offer.
14. ACCEPTANCE OF TENDERED OLD DEBENTURES AND ISSUANCE OF EXCHANGE
DEBENTURES; RETURN OF OLD DEBENTURES. Subject to the terms and conditions of the
Exchange Offer, the Issuers will accept for exchange all validly tendered Old
Debentures as soon as practicable after the Expiration Date and will issue
Exchange Debentures therefor as soon as practicable thereafter. For purposes of
the Exchange Offer, the Issuers shall be deemed to have accepted tendered Old
Debentures when, as and if the Issuers have given written and oral notice
thereof to the Exchange Agent. If any tendered Old Debentures are not exchanged
pursuant to the Exchange Offer for any reason, such unexchanged Old Debentures
will be returned, without expense, to the
<PAGE>
undersigned at the address shown above or at a different address as may be
indicated under "Special Delivery Instructions" (Box 4).
15. WITHDRAWAL. Tenders may be withdrawn only pursuant to the limited
withdrawal rights set forth in the Prospectus under the caption "The Exchange
Offer--Withdrawal of Tenders."
(DO NOT WRITE IN SPACE BELOW)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
CERTIFICATE OLD DEBENTURES OLD DEBENTURES
SURRENDERED TENDERED ACCEPTED
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
Delivery Prepared By:
- --------------------- Checked By:
- --------------------- Date:
- --------------
<PAGE>
PAYERS' NAMES:
FALCON HOLDING GROUP, L.P.
FALCON FUNDING CORPORATION
<TABLE>
<C> <S> <C>
- --------------------------------------------------------------------------------------------------
SUBSTITUTE Name (if joint names, list first and circle the name of the person or
FORM W-9 entity whose number you enter in Part 1 below. See instructions if your
name has changed.)
------------------------------------------------------------------------
Department of Address
the Treasury
------------------------------------------------------------------------
Internal Revenue Service City, State and ZIP Code
------------------------------------------------------------------------
PART 1 - PLEASE PROVIDE YOUR TAXPAYER Social Security
IDENTIFICATION NUMBER ("TIN") IN THE BOX AT RIGHT Number or TIN
AND CERTIFY BY SIGNING AND DATING BELOW
------------------------------------------------------------------------
PART 2 - Check the box if you are NOT subject to backup withholding
under the provisions of section 3408(a)(1)(C) of the Internal Revenue
Code because (1) you have not been notified that you are subject to
backup withholding as a result of failure to report all interest or
dividends or (2) the Internal Revenue Service has notified you that you
are no longer subject to backup withholding.
/ /
</TABLE>
<TABLE>
<C> <S> <C>
- -------------------------------------------------------------------------------------------------
CERTIFICATION--UNDER THE PENALTIES OF PERJURY, I PART 3 -
CERTIFY THAT THE INFORMATION PROVIDED ON THIS FORM IS AWAITING
TRUE, CORRECT AND COMPLETE. TIN
Signature: ---------------------- Date: --------- / /
- -------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF
SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a Taxpayer Identification Number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a Taxpayer Identification Number to the appropriate Internal Revenue
Service Center or Social Security Administrative Office or (b) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a Taxpayer Identification Number by the time of the exchange, 31 percent
of all reportable payments made to me thereafter will be withheld until I
provide a Taxpayer Identification Number.
<TABLE>
<S> <C>
- -------------------------------------------------------------------------- ------------------------
Signature Date
</TABLE>
<PAGE>
NOTICE OF GUARANTEED DELIVERY
FOR
8.375% SERIES A SENIOR DEBENTURES DUE 2010
9.285% SERIES A SENIOR DISCOUNT DEBENTURES DUE 2010
OF
FALCON HOLDING GROUP, L.P.
FALCON FUNDING CORPORATION
This form or one substantially equivalent hereto must be used to accept the
Exchange Offer of Falcon Holding Group, L.P. and Falcon Funding Corporation
(collectively, the "Issuers") made pursuant to the Prospectus dated July ____,
1998 (the "Prospectus") if Holders of certificates for the 8.375% Series A
Senior Debentures due 2010 (the "Old Senior Debentures") and 9.285% Series A
Senior Discount Debentures due 2010 (the "Old Senior Discount Debentures" and,
collectively with the Old Senior Debentures, the "Old Debentures") who wish to
tender their Old Debentures but whose Old Debentures are not immediately
available and who cannot deliver their certificates for Old Debentures (or
comply with the procedures for book-entry transfer prior to the Expiration
Date), the Letter of Transmittal and any other documents required by the Letter
of Transmittal to the Exchange Agent prior to 5:00 P.M., New York City time, on
the Expiration Date (as defined in the Prospectus). Such form may be delivered
by hand or transmitted by facsimile transmission, overnight courier or mail to
the Exchange Agent. Capitalized terms used but not defined herein have the
meaning given to them in the Prospectus.
To: U.S. Trust Company of New York, the Exchange Agent
<TABLE>
<CAPTION>
BY REGISTERED OR CERTIFIED MAIL: BY OVERNIGHT COURIER:
- --------------------------------------------- ---------------------------------------------
<S> <C>
U.S. Trust Company of New York U.S. Trust Company of New York
P.O. Box 844 770 Broadway
Cooper Station New York, New York 10003
New York, New York 10276-0844 Attn: Corporate Trust, 13th Floor
</TABLE>
<TABLE>
<CAPTION>
BY HAND: BY FACSIMILE:
- --------------------------------------------- ---------------------------------------------
<S> <C>
U.S. Trust Company of New York (212) 780-0592
111 Broadway, Lower Level
Corporation Trust Window Confirm by telephone:
New York, New York 10006 (800) 548-6565
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS
VIA A FACSIMILE OTHER THAN AS SET FORTH ABOVE, DOES NOT CONSTITUTE A VALID
DELIVERY.
This form is not to be used to guarantee signatures. If a signature on the
Letter of Transmittal to be used to tender Old Debentures is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the Letter
of Transmittal.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Falcon Holding Group, L.P. and Falcon
Funding Corporation (collectively, the "Issuers"), upon the terms and subject to
the conditions set forth in the Prospectus and the Letter of Transmittal (which
together constitute the "Exchange Offer"), receipt of which is hereby
acknowledged, $____________ principal amount of Old Senior Debentures and
$_______________ principal amount at maturity of Old Senior Discount Debentures
pursuant to the guaranteed delivery procedures set forth in Instruction 2 of the
Letter of Transmittal.
NOTE: SIGNATURES MUST BE PROVIDED WHERE INDICATED BELOW.
OLD SENIOR DEBENTURES
<TABLE>
<S> <C>
Certificate No(s). for Old Senior Name(s) of Record Holder(s)
Debentures (if available)
- -------------------------------------------- --------------------------------------------
- -------------------------------------------- --------------------------------------------
Please Print or Type
Address
--------------------------------------------
Telephone. No. ()
Signature(s)
--------------------------------------------
Dated:
</TABLE>
OLD SENIOR DISCOUNT DEBENTURES
<TABLE>
<S> <C>
Certificate No(s). for Old Senior Name(s) of Record Holder(s)
Debentures (if available)
- -------------------------------------------- --------------------------------------------
- -------------------------------------------- --------------------------------------------
Please Print or Type
Address
--------------------------------------------
Telephone. No. ()
Signature(s)
--------------------------------------------
Dated:
</TABLE>
<PAGE>
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc., or a commercial bank
or trust company having an office or correspondent in the United States or an
"eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), hereby (a)
represents that the above named person(s) "own(s)" the Old Debentures tendered
hereby within the meaning of Rule 10b-4 under the Exchange Act, (b) represents
that such tender of Old Debentures complies with Rule 10b-4 under the Exchange
Act and (c) guarantees that delivery to the Exchange Agent of certificates for
the Old Debentures tendered hereby, in proper form for transfer, with delivery
of a properly completed and duly executed Letter of Transmittal (or manually
signed facsimile thereof) with any required signature and any other required
documents, will be received by the Exchange Agent at one of its addresses set
forth above within five business days after the Exchange Date.
<TABLE>
<S> <C>
Name of Firm
Authorized Signature
Address Name
Please Print or Type
Title
Zip Code
Telephone. No. () Date:
</TABLE>
Dated: , 1998
NOTE: DO NOT SEND OLD DEBENTURES WITH THIS FORM; OLD DEBENTURES SHOULD BE SENT
WITH YOUR LETTER OF TRANSMITTAL SO THAT THEY ARE RECEIVED BY THE EXCHANGE AGENT
WITHIN FIVE BUSINESS DAYS AFTER THE EXPIRATION DATE.
