(Falcon Classic Letterhead)
June 4, 1997
Dear Limited Partner:
Falcon Classic Cable Income Properties, L.P. (the "Partnership") has become
aware that another unsolicited offer for up to 1,500 units (representing
approximately 2.0% of the outstanding units in the Partnership), at a price of
$350 per unit, was commenced by JJJ Group, LLC ("JJJ") in a letter dated May 15,
1997. This offer was made without the consent or the involvement of the General
Partner. We have considered this offer, and believe that it is inadequate and
not in your best interest to accept.
Accordingly, the General Partner's recommendation is that you reject the
JJJ offer. We urge you not to sign the Limited Power of Attorney that JJJ sent
to you and not to tender your units to JJJ. In evaluating the offer, the General
Partner believes that its limited partners should consider the following
information:
* The Partnership was formed on May 15, 1989 to acquire or construct,
own and operate cable television systems. The offering price for each
limited partnership unit during the offering period was $1,000 per unit.
Cash distributions of $328 to $412 per unit were paid from formation
through April 15, 1994, at which time distributions were terminated to
preserve cash resources. In contrast, JJJ's offer is only $350 per unit. If
JJJ is successful in buying units at the bargain basement price in its
offer, JJJ will own units at much lower prices than virtually all of the
current partners and, as discussed further below, for much less than we
believe they are worth. Limited partners should note that the Partnership's
cash flow (operating income before depreciation and amortization and
certain partnership expenses) for the twelve months ended December 31, 1996
was approximately $155 per Unit. The JJJ offer represents a valuation of
approximately 4 times said cash flow (after adjustment for the
Partnership's "Net Liabilities" as of December 31, 1996, as discussed
below).
* As previously described in a Form 8-K, dated August 27, 1996, filed by
the Partnership with the Securities and Exchange Commission, the
Partnership initiated the "Appraisal Process" provided for in its
Partnership Agreement. Further, on February 13, 1997 the Partnership filed
an additional Form 8-K announcing the results of the appraisals. Based upon
the aggregate of the median appraisals of the Partnership's cable systems
of $82 million (the "Aggregate Appraised Valuation") and assuming a
hypothetical liquidation of the Partnership on December 31, 1996 involving
the sale of those systems on that date for an amount equal to the aggregate
Appraised Valuation, the estimated cash distribution to unitholders would
have been approximately $851 per limited partnership unit (the
"Hypothetical Estimated Per Unit Distribution") (based upon 71,879 units
outstanding). The Hypothetical Estimated Per Unit Distribution was
calculated assuming net liabilities on the balance sheet of the
Partnership, excluding property, plant and equipment and intangible assets
("Net Liabilities"), of approximately $20.2 million (as of December 31,
1996). The Hypothetical Estimated Per Unit Distribution assumes that the
Net Liabilities as of December 31, 1996 represent the only payments, other
than certain reserved expenses, that would have been required to be made by
the Partnership prior to the distribution of cash to the unitholders. This
assumption will likely prove to be invalid. Specifically, this method
assumes all of the cable systems are sold in a single transaction. If the
Partnership sells the assets over time in separate transactions, for
example, it could incur significant transaction costs and there would be a
significant delay in the distribution of funds to limited partners.
Accordingly, the Hypothetical Estimated Per Unit Distribution is presented
for illustrative purposes only and does not necessarily represent amounts
the Partnership could have distributed to unitholders on December 31, 1996
or any date thereafter. In the event any of the Partnership's cable systems
are sold, the timing and amount of any related distribution to partners
cannot be predicted at this time. As of the date of this letter, the
General Partner has not made a decision as to whether or not it will
further pursue the acquisition of any Partnership assets at this time.
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* Based on the information received by the General Partner, the $350 per
unit offer by JJJ is less than the price for which units were recently sold
on the secondary market. Partnership Spectrum, an independent industry
publication, has reported that between March 1, 1997 and April 30, 1997,
351 units were sold on the secondary market between a high of approximately
$521 per unit and a low of $455 per unit. In the General Partner's opinion,
the fact that the JJJ offer is being made at a discount from the most
recent secondary market price available to the General Partner only serves
to underscore the inadequacy of the JJJ offer. In addition, the General
Partner believes that the price for units in the secondary market is not an
accurate reflection of the fair market value of such units due to the low
volume of transactions in that limited market and the legal and tax
restrictions on such transfers. Should unitholders wish to sell their
units, there are a number of independent firms that trade interests of
limited partnership on the secondary market, including:
Napex American Partnership Services
800-356-2739 800-736-9797
Cuyler & Associates Nationwide Partnership Marketplace
800-274-9991 800-969-8996
DCC Securities Chicago Partnership Board
800-945-0440 800-272-6273
For the reasons discussed above, the General Partner believes that the JJJ
offer is not in the best interest of the limited partners. The General Partner
recommends that you NOT transfer, agree to transfer, or tender any units in
response to JJJ's offer.
If you have any questions regarding these matters or your investment,
please call our Investor Services Department at (800) 433-4287. We would be
pleased to provide you with copies of the Forms 8-K referred to in this letter.
We will, of course, keep you informed of significant events as they develop. We
appreciate the continued support and interest of our Unitholders.
Sincerely,
Falcon Classic Cable Income Properties, L.P.
A California Limited Partnership
cc: Account Representative
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