1
(Falcon Classic Letterhead)
February 13, 1997
Dear Limited Partner:
Falcon Classic Cable Income Properties, L.P. (the "Partnership") has
become aware that an unsolicited offer for up to 3,522 units (representing
approximately 4.9% of the outstanding Units in the Partnership), at a price of
$300 per Unit, was commenced by Everest in a letter dated February 6, 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 Everest offer. We urge you not to sign the Agreement of Transfer Form that
Everest sent to you and not tender your Units to Everest. In evaluating the
offer, the General Partner believes that its limited partners should consider
the following information:
o 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, Everest's offer is only $300 per unit. If
Everest is successful in buying Units at the price in its offer, Everest
will own units at much lower prices than virtually all of the current
partners and, in our view, for much less than they are worth as discussed
below. 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 Everest offer represents a valuation of
less than 4 times said cash flow (after adjustment for the Partnership's
"Net Liabilities" as of December 31, 1996, as discussed below).
o 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 $851.00 per limited partnership unit (the
"Hypothetical Estimated Per Unit Distribution") (based upon 71,879 units
outstanding). The Hypothetical Estimated Per Unit Distribution was
calculated assuming net liabilities on the balance sheet of the
Partnership, excluding property, plant and equipment and intangible assets
("Net Liabilities"), of approximately $20.2 million (as of December 31,
1996). The Hypothetical Estimated Per Unit Distribution assumes that the
Net Liabilities as of December 31, 1996 represent the only payments, other
than certain reserved expenses, that would have been required to be made by
the Partnership prior to the distribution of cash to the unitholders. This
assumption will likely prove to be invalid. Specifically, this method
assumes all of the cable systems are sold in a single transaction. If the
Partnership sells the assets over time in separate transactions, for
example, it could incur significant transaction costs and there would be a
significant delay in the distribution of funds to limited partners.
Accordingly, the Hypothetical Estimated Per Unit Distribution is presented
for illustrative purposes only and does not necessarily represent amounts
the Partnership could have distributed to unitholders on December 31, 1996
or any date thereafter. In the event any of the Partnership's cable
systems are sold, the timing and amount of any related distribution to
partners cannot be predicted at this time.
5
2
o Based on the information received by the General Partner, the $300 per Unit
offer by Everest 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 November 1, 1996 and December 31,
1996, 105 Units were sold on the secondary market between a high of $429.00
per Unit and a low of $378.00 per Unit. In the General Partner's opinion,
the fact that the Everest 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 Everest 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.
For the reasons discussed above, the General Partner believes that Everest
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 Everest'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
6