-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N0MC04/yOLdYGn9tJSp+QlecQRzCTyJ05lwE39utlfniOWc9BuVfjN3fQM3Uxzqp iOkYa6hkh3qorzaYZo13VA== 0000898822-96-000076.txt : 19960314 0000898822-96-000076.hdr.sgml : 19960314 ACCESSION NUMBER: 0000898822-96-000076 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960311 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960312 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: FALCON CABLE SYSTEMS CO CENTRAL INDEX KEY: 0000783008 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 954108170 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09322 FILM NUMBER: 96534017 BUSINESS ADDRESS: STREET 1: 10900 WILSHIRE BLVD 15TH FL CITY: LOS ANGELES STATE: CA ZIP: 90024 BUSINESS PHONE: 3108249990 MAIL ADDRESS: STREET 1: 10900 WILSHIRE BLVD CITY: LOS ANGELES STATE: CA ZIP: 90024 8-K 1 FORM 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): March 11, 1996 Falcon Cable Systems Company, a California limited partnership (Exact name of registrant as specified in its charter) California (State or other jurisdiction of incorporation) 1-9332 95-4108170 (Commission File Number) (IRS Employer Identification No.) 10900 Wilshire Boulevard, 15th Floor, Los Angeles, CA 90024 (Address of principal executive offices) (Zip Code) (310) 824-9990 (Registrant's Telephone Number) ITEM 5. OTHER EVENTS. The Partnership Agreement of Falcon Cable Systems Com- pany, a California limited partnership (the "Partnership") provides that Falcon Holding Group, L.P., the Partnership's general partner (the "General Partner") shall use its best efforts to cause the Partnership to sell all of the Partnership's cable systems between December 31, 1991 and December 31, 1996, the "termination date" of the Partnership. The Partnership has stated in prior public reports and fil- ings that, from time to time, it may enter into discussions regarding the sale of its cable systems to affiliates or other parties. In addition, the Partnership Agreement provides the Gen- eral Partner or its affiliates the right to purchase for cash substantially all of the Partnership's cable systems at any time after December 31, 1991 without soliciting unaffiliated purchasers (the "Purchase Right"). Pursuant to the Part- nership Agreement, in the event the General Partner or its affiliates exercise such right, the purchase price will be determined solely by reference to an "appraised value" deter- mined pursuant to an appraisal process set forth in the Part- nership Agreement (the "Appraisal Process"). The Partnership Agreement provides that the "appraised value" shall be deter- mined by the average of three appraisal evaluations of the Partnership's cable systems and provides that one appraiser is to be selected by the General Partner; one appraiser is to be selected by a majority vote of the independent members of the Partnership's advisory committee; and one appraiser is to be selected by the two appraisers already so chosen. If any such appraisal is expressed as a range, then in calculating the average, the minimum amount of such appraisal shall be used. In the event of a sale of a cable system, including a sale to the General Partner or its affiliates, the General Partner will be entitled to a fee equal to 2 1/2% of gross proceeds from the sale less any amounts paid as brokerage or similar fees to third parties (the "Sale Fee"). As previously disclosed, the General Partner, in its exploration of the possibility of exercising the Purchase Right, initiated the Appraisal Process. Also as previously disclosed, in accordance with the Appraisal Process, the ap- praiser to be selected by a majority vote of the independent members of the Partnership's advisory committee, the ap- praiser to be selected by the General Partner, and the ap- praiser selected by the two appraisers so chosen, were each selected. The three appraisers are, respectively, Malarkey-Taylor Associates, Inc., Kane-Reece Associates, Inc., and Waller Capital Corporation (the "Appraisers"). On March 11, 1996, each of the Appraisers delivered sum- maries of the results of their appraisals (the "Appraisals"), which are attached hereto as Exhibits 1, 2 and 3, respec- tively, and are incorporated herein by reference. Based upon the Appraisals, as of December 31, 1995, the "appraised value" (as defined in the Partnership Agreement) of all of the cable systems owned by the Partnership (the "Total Sys- tems") is $247.57 million (the "Total Systems Appraised Value"). The Total Systems Appraised Value is calculated as the average of $283.23 million, $245.80 million, and $213.67 million, the appraised values as of December 31, 1995 of all of the cable systems owned by the Partnership, as set forth in the Appraisals delivered by each of Malarkey-Taylor As- sociates, Inc., Kane-Reece Associates, Inc., and Waller Capi- tal Corporation, respectively. Based upon the Total Systems Appraised Value of $247.57 million, and assuming a hypothetical liquidation of the Part- nership on December 31, 1995 involving the sale of the Total Systems on that date for an amount equal to the Total Systems Appraised Value, the estimated cash distribution to unithold- ers would have been $9.11 per unit (the "Hypothetical Esti- mated Per Unit Distribution") (based upon 6,398,913 units outstanding). The Hypothetical Estimated Per Unit Distribu- tion was calculated assuming (i) net liabilities on the bal- ance sheet of the Partnership, excluding property, plant and equipment and intangible assets ("Net Liabilities") of ap- proximately $183.09 million (as of December 31, 1995) and (ii) a Sale Fee equal to approximately $6.19 million (2 1/2% of the Total Systems Appraised Value), each of which the Partnership Agreement would require be paid prior to the dis- tribution of any remaining cash to unitholders. The Hypo- thetical Estimated Per Unit Distribution assumes, which as- sumption may or may not be correct, that the Net Liabilities as of December 31, 1995 and the Sale Fee represent the only payments that would have been required to be made by the Partnership prior to the distribution of cash to the unitholders; the Hypothetical Estimated Per Unit Distribution is presented for illustrative purposes only and does not nec- essarily represent amounts the Partnership could have dis- tributed to unitholders on December 31, 1995 or any date thereafter. The Appraisals each set forth certain matters considered by the respective Appraisers. In connection with rendering their Appraisals, the Appraisers performed a variety of fi- nancial analyses which are summarized in the respective Ap- praisals. No limitations were imposed by the Partnership with respect to the investigations made or the procedures followed by the Appraisers in rendering their Appraisals. The General Partner is under no obligation to exercise the Purchase Right, nor can there be any assurance that the Part- nership would otherwise be able to sell all or any portion of its assets at prices consistent with the Total Systems Ap- praised Value. The Total Systems Appraised Value should ac- cordingly not be assumed to be a guarantee as to the value of -2- limited partnership interests in the Partnership, nor as to the proceeds that might be realized by the Partnership in connection with a sale or other disposition of all or any portion of the assets of the Partnership, whether to the Gen- eral Partner or otherwise. As described in the Appraisals, the Appraisals are based upon numerous sources of information including data supplied by Falcon, which included certain projections. The Company does not as a matter of course make public any forecasts as to its future financial performance. THE PROJECTIONS WERE PREPARED SOLELY FOR INTERNAL USE AND NOT WITH A VIEW TO PUB- LIC DISCLOSURE OR COMPLIANCE WITH THE PUBLISHED GUIDELINES OF THE COMMISSION OR THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS REGARDING PROJECTIONS AND WERE NOT PREPARED WITH THE ASSISTANCE OF, OR REVIEWED BY, INDEPENDENT ACCOUNTANTS. SUCH PROJECTIONS WERE PROVIDED TO THE APPRAISERS SOLELY FOR THE PURPOSES OF THEIR APPRAISALS. NONE OF THE PARTNERSHIP OR ANY PARTY TO WHOM THE PROJECTIONS WERE PROVIDED ASSUMES ANY RESPONSIBILITY FOR THE VALIDITY, REASONABLENESS, ACCURACY OR COMPLETENESS OF THE PROJECTIONS. WHILE PRESENTED WITH NU- MERICAL SPECIFICITY, THE PROJECTIONS ARE BASED ON A VARIETY OF ASSUMPTIONS RELATING TO THE BUSINESSES OF THE PARTNERSHIP, INDUSTRY PERFORMANCE, GENERAL BUSINESS AND ECONOMIC CONDI- TIONS AND OTHER MATTERS WHICH ARE SUBJECT TO SIGNIFICANT UN- CERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE BEYOND THE PARTNERSHIP'S CONTROL, AND, THEREFORE, SUCH PROJECTIONS ARE INHERENTLY IMPRECISE AND THERE CAN BE NO ASSURANCE THAT THEY WILL BE REALIZED. ALSO, ACTUAL FUTURE RESULTS MAY VARY MATE- RIALLY FROM THOSE SHOWN IN THE PROJECTIONS. THE PARTNERSHIP IS NOT UNDER ANY OBLIGATION TO UPDATE THE PROJECTIONS AT ANY FUTURE TIME. Each of the Appraisers is a nationally recognized cable system appraisal firm and is continually engaged in the valu- ation of cable systems. Each of the appraisers has from time to time provided valuation services to the Partnership and its affiliates for which they have received customary compen- sation. As previously disclosed, certain affiliates (the "Af- filiates") of the Partnership and its General Partner, in- cluding Marc B. Nathanson (the Chairman of the Board, Chief Executive Officer, President and a director of Falcon Holding Group, Inc., the General Partner's sole general partner) have made a preliminary proposal (the "Proposal") to the indepen- dent members of the Partnership's advisory committee with respect to an exchange transaction (the "Exchange"). Under the Proposal, the Exchange would take place immediately prior to the exercise by the General Partner or its affiliates of their right to purchase for cash substantially all of the Partnership's cable systems remaining after giving effect to the Exchange (the "Sale Systems"). In the Exchange, substan- tially all of the Falcon Units owned by the Affiliates would -3- be exchanged for a portion (by value) of the Partnership's cable systems (the "Exchange Systems") equal to the propor- tion of total outstanding Units exchanged by the Affiliates (the Affiliates would also relieve Falcon of an equal propor- tion of its total debt). The Proposal was designed such that unaffiliated unit- holders would receive the same per unit distribution upon the sale of the Partnership's assets to the General Partner in accordance with Section 3.14 and the subsequent dissolution and liquidation of the Partnership, whether or not the Ex- change takes place as part of such sale and liquidation. Thus, if the General Partner and the Affiliates proceed with the Proposal, unaffiliated unitholders will receive the same per unit distribution that they would receive if the General Partner were to simply to exercise the Purchase Right with respect to the Total Systems at the Total Systems Appraised Value. In furtherance of this process, on March 11, 1996, the General Partner designated to the Appraisers those cable sys- tems of the Partnership that would constitute the Exchange Systems in the event the Proposal is pursued. The Appraisers will determine the "appraised value" (as defined in the Part- nership Agreement) of (i) the Exchange Systems and (ii) the Sale Systems. Based upon this information, in the event the Proposal is pursued, the actual number of Units to be ex- changed by the Affiliates in the Exchange (and the actual amount of the Partnership's indebtedness that the Affiliates would relieve Partnership of) would be adjusted to result in the unaffiliated unitholders receiving exactly the same per unit distribution whether or not the Exchange occurs in ad- vance of the exercise of the Purchase Right with respect to the Sale Systems. Any decision of the General Partner or the Partnership to pursue the Proposal, the Exchange, or the sale of the cable systems of the Partnership in accordance with the Pur- chase Right (as described above) or otherwise, ultimately will be dependent upon numerous factors including, without limitation, (i) the receipt by the General Partner of an opinion of a qualified appraiser or other financial advisor selected by the independent members of the Partnership's ad- visory committee as to, among other things, the fairness of the Proposal as compared to a sale of all of the Partner- ship's cable systems (without giving effect to the Exchange) to the General Partner or its affiliates in accordance with their rights under the Partnership Agreement (as described above), or the conclusion on another basis that such fairness was otherwise established; (ii) the availability of necessary equity and debt financing on favorable terms; (iii) the rela- tive attractiveness of available alternative business and investment opportunities; (iv) the regulatory environment for cable properties; and (v) future developments relating to the -4- Partnership and the cable industry, general economic condi- tions and other future developments. As previously dis- closed, if the Proposal is pursued and the Exchange is con- summated, the Affiliates expect that they would defer their potential tax liability as compared to a liquidation of the Partnership without effecting the Exchange. Although the foregoing reflects activities which the General Partner is currently exploring with the Partnership and the Affiliates with respect to the Partnership, the fore- going is subject to change at any time. Accordingly, there can be no assurance that the Proposal, the Exchange, or the sale of the cable systems of the Partnership in accordance with the rights of the General Partner and its affiliates under the terms of the Partnership Agreement (as described above) or otherwise will be pursued or, if pursued, when and if any of them will be successfully consummated. For ad- ditional information on the terms of the Partnership Agree- ment, see "Item 1 -- Business -- Introduction" and Item 13 -- "Certain Relationships and Related Transactions -- Con- flicts of Interest" in the Partnership's Annual Report on Form 10-K for the year ended December 31, 1994. The Partnership previously reported that it has entered into a letter agreement (the "Letter Agreement"), a copy of which was filed as an exhibit to the Current Report on Form 8-K of the Partnership dated January 29, 1996, with a group of holders of limited partnership interests in the Partner- ship (the "Unofficial Unitholder Committee"). Pursuant to the Letter Agreement, the Partnership has supplied the Unof- ficial Unitholder Committee with all materials it has sup- plied to the Appraisers. FORWARD-LOOKING STATEMENTS IN THIS REPORT ARE MADE PUR- SUANT TO THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. INVESTORS ARE CAUTIONED THAT SUCH FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAIN- TIES, INCLUDING, WITHOUT LIMITATION, THE EFFECTS OF LEGISLA- TIVE AND REGULATORY CHANGES; THE POTENTIAL OF INCREASED LEV- ELS OF COMPETITION FOR THE PARTNERSHIP; TECHNOLOGICAL CHANGES; THE PARTNERSHIP'S DEPENDANCE UPON THIRD-PARTY PRO- GRAMMING; THE APPROACHING TERMINATION OF THE PARTNERSHIP (IN- CLUDING, WITHOUT LIMITATION, THE POTENTIAL EXERCISE OF THE PURCHASE RIGHT, AS DESCRIBED ABOVE); THE ABSENCE OF UNITHOLD- ERS PARTICIPATION IN THE GOVERNANCE AND MANAGEMENT OF THE PARTNERSHIP; LIMITATIONS ON BORROWINGS BY THE PARTNERSHIP CONTAINED IN THE PARTNERSHIP AGREEMENT; THE MANAGEMENT AND SALES FEES PAYABLE TO THE GENERAL PARTNER; THE EXONERATION AND INDEMNIFICATION PROVISIONS CONTAINED IN THE PARTNERSHIP AGREEMENT RELATING TO THE GENERAL PARTNER AND OTHERS; POTEN- TIAL CONFLICTS OF INTEREST INVOLVING THE GENERAL PARTNER AND ITS AFFILIATES; THE POTENTIAL LIABILITY OF UNITHOLDERS TO -5- CREDITORS OF THE PARTNERSHIP TO THE EXTENT OF ANY DISTRIBU- TION MADE TO SUCH UNITHOLDER IF, IMMEDIATELY AFTER SUCH DIS- TRIBUTION (WHETHER OR NOT THE PARTNERSHIP CONTINUES TO EX- IST), THE REMAINING ASSETS OF THE PARTNERSHIP ARE NOT SUF- FICIENT TO PAY ITS THEN OUTSTANDING LIABILITIES OF THE PART- NERSHIP; THE RISK THAT THE PARTNERSHIP MIGHT NO LONGER BE TAXED AS A PARTNERSHIP UNDER CERTAIN CIRCUMSTANCES; AND OTHER RISKS DETAILED FROM TIME TO TIME IN THE COMPANY'S PERIODIC REPORTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (c) Exhibits. Exhibit No. Description 1 System Appraisal of Falcon Cable Systems Com- pany, as of December 31, 1995, by Malarkey- Taylor Associates, Inc., dated March 8, 1996. 2 System Appraisal of Falcon Cable Systems Com- pany, as of December 31, 1995, by Kane-Reece Associates, Inc., dated March 11, 1996. 3 System Appraisal of Falcon Cable Systems Com- pany, as of December 31, 1995, by Waller Capi- tal Corporation, dated March 11, 1996. -6- SIGNATURE Pursuant to the requirements of the Securities Ex- change Act of 1934, the registrant has duly caused this re- port to be signed on its behalf by the undersigned hereunto duly authorized. Date: March 12, 1996 FALCON CABLE SYSTEMS COMPANY By: Falcon Cable Investors Group Managing General Partner By: Falcon Holding Group, L.P. General Partner By: Falcon Holding Group, Inc. General Partner By: /s/ Michael K. Menerey Michael K. Menerey, Secretary and Chief Financial Officer EXHIBIT INDEX Exhibit No. Description Page No. 1 System Appraisal of Falcon Cable Systems Company, as of December 31, 1995, by Malarkey-Taylor Associ- ates, Inc., dated March 8, 1996. 2 System Appraisal of Falcon Cable Systems Company, as of December 31, 1995, by Kane-Reece Associates, Inc., dated March 11, 1996. 3 System Appraisal of Falcon Cable Systems Company, as of December 31, 1995, by Waller Capital Corpora- tion, dated March 11, 1996. EX-1 2 EXHIBIT 1 [LETTERHEAD OF MTA-EMCI] March 8, 1996 Mr. Michael K. Menerey Chief Financial Officer Falcon Holding Group, L.P. 474 So. Raymond Avenue Suite 200 Pasadena, CA 91105 Dear Mr. Menerey: PURPOSE OF APPRAISAL Malarkey-Taylor Associates, Inc., ("MTA-EMCI") was retained by the Advisory Committee of Falcon Cable Systems, L.P. ("Falcon") to (1) prepare a separate fair market appraisal of each of the eight regions of cable systems (the "Systems") now owned by Falcon and an overall fair market valuation as of December 31, 1995, (2) prepare appraisals of Proposed Exchange Systems, if and when identified, (3) prepare an overall appraisal of the Systems remaining, absent the Exchange Systems, and (4) render a fairness opinion on certain aspects of the Exchange and Section 3.14 Sale, as described in Falcon's Limited Partnership Agreement. The results of the appraisals in Item 1, above, are presented below and will be used by Falcon as an independent determination of the fair market value of the Systems in each region and an overall value, with the resulting values to be utilized in the selection and valuation of the Proposed Exchange Systems. The deliverables for Items 2, 3 and 4, above, will be provided at later dates. FAIR MARKET VALUE Fair market value is the cash price a willing buyer would give a willing seller in an arm's length transaction in order to complete the sale. It is assumed that both buyer and seller have been informed of all relevant facts and neither is under any compulsion to conclude the transaction. Mr. Michael K. Menerey March 8, 1996 Page 2 FAIR MARKET VALUE METHODOLOGY MTA-EMCI used five generally accepted cable televi- sion valuation methods in establishing the range of total fair market values of the Systems as going concerns. The first method used a multiple of the past year's operating income derived from comparable asset values of privately-held and publicly-traded companies. The second method used a lower mul- tiple of the annualized current month's operating income. The third method applied a slightly lower multiple of next year's projected operating income. The fourth method was a discounted net cash flow analysis to achieve a target after-tax return on equity, given particular operating and financing assumptions unique to the Systems' assets. The fifth method was a dis- counted cash flow method that measured the net present value of the projected pre-tax operating cash flows (less capital expen- ditures, plus the residual value of the Systems) that represent the return on the total investment. CONTINGENCIES AND LIMITING CONDITIONS Our conclusions as to the fair market values of the Systems are based upon the following, which to the best of our knowledge, are reliable and sound: 1. MTA-EMCI's onsite inspection of a representative portion of the Systems and communities served. 2. Unaudited financial statements for the 12-month period ending December 31, 1995, and audited financial statements for the 12-month periods ending December 31, 1994 and December 31, 1993. 4. Homes passed and subscriber data as of December 31, 1995, provided by Falcon. 5. Miscellaneous management data as to the current subscriber rates, construction schedules, etc., as of the appraisal date. Mr. Michael K. Menerey March 8, 1996 Page 3 STATEMENT OF VALUE MTA-EMCI certifies that, to the best of our knowl- edge, the statements contained in this appraisal are correct and that the opinions stated are based on a consideration of the relevant factors. Furthermore, neither MTA-EMCI nor any of its representatives have any current interest or contemplated future interest in the assets appraised. Based on the various analyses, computations, and con- siderations discussed in this letter, it is our professional judgment, subject to the assumptions and limitations stated herein, that the fair market values of the Systems as of Decem- ber 31, 1995, free and clear of any encumbrances, are as fol- lows: Region Value Tulare $ 31,972,000 San Luis Obispo 29,585,000 Hesperia 38,846,000 Gilroy 76,000,000 Florence 10,696,000 Dallas 35,334,000 Coos Bay 34,501,000 Central (Oregon) 26,294,000 Combined Systems $283,228,000 Sincerely, /s/ Robert M. Jones Robert M. Jones President RMJ/byn EX-2 3 EXHIBIT 2 [LETTERHEAD OF KANE REECE ASSOCIATES, INC.] March 11, 1996 VIA FEDEX Mr. Michael K. Menerey Chief Financial Officer Falcon Holding Group, L.P. 474 South Raymond Avenue, Suite 200 Pasadena, CA 91105 Dear Mr. Menerey: In accordance with your authorization, Kane Reece Associates, Inc. ("Kane Reece" or the "appraisers") has made an investigation and valuation of the cable television assets of Falcon Cable Systems Company ("FCSC") and each of its seven regions (the "Regions"). The purpose of this letter is to pro- vide a summary of our findings. This valuation study was conducted to determine the fair market value of 100% of FCSC's and each of the Region's assets as of December 31, 1995. The appraisal was conducted pursuant to Section 3.14 of the FCSC Partnership Agreement as Amended and Restated. This is the sole purpose of this appraisal. Fair market value, as used herein, is defined as the price, in cash or equivalent, that a buyer could reasonably be expected to pay and a seller could reasonably be expected to accept, if the property were exposed for sale on the open market for a reasonable period of time, both buyer and seller being in possession of the pertinent facts, and neither being under compulsion to act, as of a certain date. Our methodology for determining the fair market value of any CATV property incorporates an assessment of the potential revenues and cash flows the property will generate over an appropriate investment term and the likely appreciation in value of the property over that term. We corroborate this cal- culated economic valuation with an analysis of recent sales of comparable properties to the extent available and relevant. As part of the research required for our study, the appraisers were furnished materials on historical and prospective operations. We have also consulted recognized sources of financial and industry information, visited each Region area to physically inspect facilities and the service area and inter- viewed management. Kane Reece and the report to follow comply with the appraisal standards set forth in the Uniform Standards of Professional Appraisal Practice and those promulgated by the American Society of Appraisers. Mr. Michael K. Menerey March 11, 1996 Page 2 Based upon our investigation and valuation to be described in the report to follow and subject to the Limiting and General Service Conditions attached, it is Kane Reece's opinion that the fair market value of 100% of FCSC's and each Region's assets as of December 31, 1995 were: FCSC $245,800,000 ============ Regions: Gilroy, CA $68,000,000 =========== Hesperia, CA $35,740,000 =========== San Luis Obispo, CA $22,960,000 =========== Tulare, CA $25,690,000 =========== Central, OR $25,120,000 =========== Dallas, OR $26,390,000 =========== Coos Bay/Florence, OR $41,900,000 =========== Attached for your information is a schedule showing various operating statistics and selected factors considered in the formation of the appraiser's opinions of value. Kane Reece reserves the right to modify these conclusions, due to new information, prior to the release of its final report, that in its sole discretion deems material. Respectfully submitted, KANE REECE ASSOCIATES, INC. /s/ Kane Reece Associates, Inc. LIMITING AND GENERAL SERVICE CONDITIONS 1) We were provided certain financial and operating data by management and we have relied on this information without independent analysis or verification by Kane Reece Associ- ates, Inc. 2) Kane Reece Associates, Inc. is not responsible for the impact of economic events occurring after the date of this report and we have no obligation to update this report unless subsequently engaged to do so. 3) We have made no investigation of, and assume no responsi- bility for, the title to the assets appraised nor for any undisclosed liabilities of the subject company. 4) All statements in this appraisal are based on the best knowledge and belief of Kane Reece Associates, Inc. 5) Neither Kane Reece Associates, Inc. nor any of its employees has any present or contemplated financial inter- est in the appraised entity, and we certify the compensa- tion received for this study is in no way contingent upon the valuation conclusions. 6) Kane Reece Associates, Inc. is not required to give testi- mony in court, or be in attendance during any hearings or depositions, with reference to the company being appraised, unless previous arrangements have been made. 7) This appraisal is valid only for the purpose(s) stated herein, and no one may rely on the report for any other purpose(s) and is valid only for the appraisal date or dates specified herein. You may show our report in its entirety to those third parties who need to review the information contained therein. You agree to hold Kane Reece Associates, Inc., harmless from any liability, including attorneys' fees, damages or cost which may result from any improper use or reliance by you or third parties. No reference to our name or our report, in whole or in part, in any document you prepare and/or distribute to third parties may be made without our prior written consent. We will maintain the confidentiality of all con- versations, documents provided to us, and the contents of our reports, subject to legal or administrative process or proceedings. These conditions can be modified only by written documents executed by both parties. KANE REECE ASSOCIATES, INC. 399 Thornall Street Metro Park, NJ 08837-2236 (908) 494-3700
FALCON CABLE SYSTEMS COMPANY KANE REECE ASSOCIATES, INC. VALUATION SUMMARY VALUATION DATE: DECEMBER 31, 1995 ($000 except where indicated) REGION: GILROY HESPERIA SLO TULARE CENTRAL Homes Passed 56,219 28,280 26,138 41,053 26,355 EBU's 33,491 19,310 15,973 15,563 14,609 % 59.6% 68.3% 61.1% 37.9% 55.4% Pay Units 13,070 8,366 3,773 7,110 5,505 Pay/EBU 39.0% 43.3% 23.6% 45.7% 37.7% Plant Miles 664.7 678.0 408.9 675.9 660.3 Density 84.6 41.7 63.9 60.7 39.9 1996 Cash Flow $7,700 $4,267 $2,768 $3,082 $2,594 Franchise Exp. 97-98 2006-8 99-2006 95-98 2005-2007 CapEx Total (10 yr) $20,083 $18,187 $8,995 $15,882 $6,233 Per Home ($) $357 $643 $344 $387 $236 Income Approach: $67,670.0 $35,330.0 $22,480.0 $25,280.0 $25,080.0 Per EBU ($) $2,021 $1,830 $1,407 $1,624 $1,717 CF Multiple 8.8 8.3 8.1 8.2 9.7 Market Approach: Sub Multiple ($): $1,850 $61,958 $34,740 $29,550 $28,792 $27,027 CF Multiple: 9.6 73,916 40,964 26,575 29,586 24,902 Conclusions: Market Approach $70,927 $39,408 $27,319 $29,388 $25,433 Income Approach $67,670 $35,330 $22,480 $25,280 $25,080 CONCLUSION $67,996 $35,738 $22,964 $25,691 $25,115 Rounded $68,000 $35,740 $22,960 $25,690 $25,120 ------- ------- ------- ------- ------- Per EBU ($) $2,030 $1,851 $1,437 $1,651 $1,719 CF Multiple 8.8 8.4 8.3 8.3 9.7 COOS BAY/ DALLAS FLORENCE TOTAL 23,770 31,489 233,304 17,736 22,898 139,580 74.6% 72.7% 59.8% 7,139 7,771 52,734 40.3% 33.9% 37.8% 466.6 576.2 4,130.5 50.9 54.7 56.5 $3,332 $4,791 $28,533.9 99-2002 96-2004 n/a $11,102 $9,272 $89,753 $467 $294 $385 $25,740.0 $41,550.0 $243,130.0 $1,451 $1,815 $1,742 7.7 8.7 8.5 $32,812 $42,361 $258,223 31,987 45,996 273,926 $32,193 $45,087 $270,000 $25,740 $41,550 $243,130 $26,385 $41,904 $245,792 $26,390 $41,900 $245,800 ------- ------- -------- $1,488 $1,830 $1,761 7.9 8.7 8.6
EX-3 4 EXHIBIT 3 [LETTERHEAD OF WALLER CAPITAL CORPORATION] March 11, 1996 Mr. Michael K. Menerey Chief Financial Officer Falcon Holding Group, L.P. 474 So. Raymond Avenue Suite 200 Pasadena, CA 91105 Dear Mike: Reference is made to the Fee Agreement between Falcon Holding Group, L.P. ("FHGLP") and Waller Capital Corporation ("Waller Capital") whereby FHGLP wishes to determine the appraised value of the cable systems ("Cable Systems") owned by Falcon Cable Systems, a California Limited Partnership ("Falcon"), of which FHGLP is the general partner. The following discusses the method of appraisal, limiting factors and the results of the appraisal performed by Waller Capital pursuant to Section II(i) of the Waller Fee Agreement. The Falcon cable systems are comprised of seven regions in two states referred to by Falcon as Gilroy, Tulare, Hesperia, and San Louis Obispo in California and Coos Bay, Dallas and Central Oregon all located in Oregon (the "Regions"). The general methodology of the appraisal is to evaluate the Discounted Cash Flow ("DCF") stream generated by each Region over a ten-year period (fiscal 1996 to 2005) by applying relevant market and economic factors. Ten-year projections have been prepared by Waller Capital as part of the DCF analysis. Developing projections required a general understanding of each Region's current business and future plans. This understanding was obtained through a review of: i) each Regions' December 31, 1995 fiscal year-end unaudited financial statements; ii) Falcon's 1993 and 1994 unaudited regional and audited consolidated financial state- ments; iii) other operating and subscriber data including pro- jections; iv) demographic data as it relates to the service areas of the Regions; and (v) the Cable Systems as a result of on site due diligence. Projections for the years 1996 to 2005 were made by Waller Capital based upon each Regions' 1995 unaudited financial statements which we believe to be generally reasonable. The general expense structure of the Systems was projected according to market and inflationary factors as it was judged to be efficient. In addition, specific adjustment was made for partnership expenses, as determined by Waller Capital, which are not allowed back to each Region by FHGLP. A sale is assumed to occur in the tenth year (2005) of the DCF model. The cash flow sales multiples selected reflect the long-term prospects for cash flow growth and the cash flow quality. The multiples Mr. Michael K. Menerey March 11, 1996 Page Two selected also account for the presumed technical condition of each Region at the time of sale. The multiples selected are applied against the full tenth-year of each Regions' cash flow. Waller Capital's analysis was further supported by comparable system sales. Waller Capital examined specific transactions to determine if an appropriate multiple of cash flow could be derived from current market information. Waller Capital examined multiples from announced and completed cable television transactions for the twelve months preceding Decem- ber 31, 1995 relying upon data from transactions executed by Waller Capital, from Paul Kagan Associates, Inc., and general industry information. However, comparable sales data is dif- ficult to generalize from because of the variability of factors such as system size, growth prospects, penetration, location, demographics, technical system condition and franchise terms, which are often not publicly available. Given these limita- tions, Waller Capital is of the opinion that comparable sales data offers only an approximation of fair market value. The value assigned by Waller Capital for each Region is as follows: ADJ. CASH APPRAISED CASH FLOW VALUE PER REGION FLOW(000s)1 SUBSCRIBERS1 VALUE MULTIPLE SUBSCRIBER ------ ----------- ------------ ---------- --------- ---------- Gilroy, CA $6,898 33,073 $57,640,720 8.4x $1,743 Hesperia, CA 3,767 18,513 28,865,947 7.7x 1,559 San Louis 2,221 15,635 21,988,550 9.9x 1,406 Obispo, CA Tulare, CA 2,796 15,249 22,269,159 8.0x 1,460 Coos Bay, 4,252 21,847 35,486,280 8.3x 1,624 OR Dallas, OR 3,304 16,928 27,257,132 8.2x 1,610 Central 2,429 14,225 20,164,654 8.3x 1,418 Oregon, OR TOTAL $25,667 135,470 213,672,442 8.33x $1,577 ----------------------- 1 FYE 1995 (Cash Flows adjusted for unallocated partnership expenses as determined by Waller Capital) Mr. Michael K. Menerey March 11, 1996 Page Three The cash flow multiple is the appraised value divided by the adjusted operating cash flow (adjusted to reflect unallocated partnership expenses as determined by Waller Capital) and the value per subscriber is the appraised value divided by December 31, 1995 basic subscribers. The total values reflect the simple addition of the values and results of each Region. Given the geographic diversity of the Cable Systems and the diverse group of logical potential purchasers, no incremental value was attributed to the possible sale of the consolidated entity. Waller Capital is preparing a presentation of the detailed analysis which supports the appraised values and includes the Discounted Cash Flow analysis from which these results were derived. If there are any questions or comments please feel free to contact me. Best regards, /s/ Joseph P. Duggan Joseph P. Duggan Vice President -----END PRIVACY-ENHANCED MESSAGE-----