AMENDED AND RESTATED PARTNERSHIP AGREEMENT
OF
TIME WARNER ENTERTAINMENT-ADVANCE/▇▇▇▇▇▇▇▇ PARTNERSHIP
Dated as of February 1, 2001
AMENDED AND RESTATED PARTNERSHIP AGREEMENT
OF
TIME WARNER ENTERTAINMENT-ADVANCE/▇▇▇▇▇▇▇▇ PARTNERSHIP
TABLE OF CONTENTS
Page
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SECTION 1 DEFINITIONS....................................................................1
1.1 Terms Defined in this Section.....................................................1
1.2 Terms Defined Elsewhere in this Agreement........................................22
SECTION 2 THE PARTNERSHIP AND ITS BUSINESS..............................................24
2.1 Formation........................................................................24
2.2 Partnership Name and Trade Names.................................................24
2.3 Term of the Partnership..........................................................25
2.4 Purposes.........................................................................25
2.5 Principal Office and Other Offices...............................................26
2.6 Foreign Qualification............................................................26
2.7 Fiscal Year......................................................................26
2.8 Addresses of the Partners........................................................26
2.9 Property.........................................................................26
2.10 Certain Operating Policies.......................................................27
SECTION 3 MANAGEMENT OF THE PARTNERSHIP.................................................27
3.1 Generally........................................................................27
3.2 Limitations On Managing Partner..................................................34
3.3 Business Plans...................................................................37
SECTION 4 PARTNERSHIP CAPITAL...........................................................38
4.1 Capital Contributions............................................................38
4.2 Partnership Units................................................................42
4.3 Indebtedness.....................................................................44
SECTION 5 CASH DISTRIBUTIONS; ALLOCATIONS OF PROFITS AND LOSSES.........................45
5.1 Distributions....................................................................45
5.2 Redemption of Preferred Partnership Units........................................50
5.3 Allocations of Preferred Profit; Preferred Loss; Net Profit and Net Loss.........51
5.4 Section 754 Adjustment...........................................................54
5.5 Other Allocation Rules...........................................................54
5.6 Tax Allocations..................................................................56
5.7 Allocation in Event of Transfer..................................................56
5.8 Beneficial Assets and Subsidiary Beneficial Assets...............................56
5.9 Set-off..........................................................................57
SECTION 6 TRANSFERS OF PARTNERSHIP INTERESTS............................................58
6.1 Restrictions on Transfer.........................................................58
SECTION 7 ADVANCE/▇▇▇▇▇▇▇▇ REPRESENTATION ON TWE COMMITTEE..............................59
7.1 TWE Full Service Network Management Committee....................................59
SECTION 8 RESTRUCTURING OF PARTNERSHIP AT ELECTION OF EITHER PARTNER....................59
8.1 Election by Partner..............................................................59
8.2 Restructuring of Partnership.....................................................60
8.3 Provision of Interim Services by TWE.............................................64
8.4 TWE Right of First Refusal.......................................................66
SECTION 9 ADVANCE/▇▇▇▇▇▇▇▇ PUT OPTION...................................................66
SECTION 10 OTHER BUSINESS ACTIVITIES.....................................................72
10.1 Cable Television Systems.........................................................72
10.2 Programming Opportunities........................................................74
10.3 Other Services...................................................................75
10.4 Programming Carriage Commitment..................................................76
10.5 Advance/▇▇▇▇▇▇▇▇ Right of First Offer............................................76
SECTION 11 BOOKS AND RECORDS; ACCOUNTING; FISCAL YEAR....................................77
11.1 Books and Records................................................................77
11.2 Annual Financial Statements......................................................77
11.3 Additional Financial Information.................................................78
11.4 Tax Return Information...........................................................78
11.5 Other Information................................................................78
11.6 Bank Accounts....................................................................79
11.7 Other Audit Procedures...........................................................79
11.8 Tax Allocations..................................................................79
SECTION 12 DISSOLUTION...................................................................80
12.1 Causes of Dissolution............................................................80
12.2 Effect of Dissolution............................................................80
12.3 Winding Up and Liquidation.......................................................81
SECTION 13 INDEMNIFICATION...............................................................81
13.1 Indemnification by Partnership...................................................81
13.2 Indemnification by Partners......................................................82
13.3 Procedures.......................................................................82
13.4 Survival.........................................................................83
SECTION 14 REPRESENTATIONS...............................................................83
14.1 Organization, Standing, and Authority............................................83
14.2 Absence of Conflicting Agreements................................................83
14.3 Claims and Legal Actions.........................................................83
SECTION 15 MISCELLANEOUS.................................................................84
15.1 Acknowledgments..................................................................84
15.2 ▇▇▇▇ for Partition...............................................................84
15.3 Notices..........................................................................84
15.4 Amendments.......................................................................84
15.5 Waivers and Further Assurances; Entire Agreement.................................84
15.6 Severability.....................................................................85
15.7 Specific Enforcement; Attorneys Fees............................................85
15.8 Counterparts.....................................................................85
15.9 Captions; Gender.................................................................85
15.10 Governing Law; Venue; Disputes...................................................85
15.11 Binding Effect...................................................................85
15.12 Third Parties....................................................................86
15.13 Confidentiality..................................................................86
15.14 Liability of Partners............................................................86
AMENDED AND RESTATED PARTNERSHIP AGREEMENT
OF
TIME WARNER ENTERTAINMENT-ADVANCE/▇▇▇▇▇▇▇▇ PARTNERSHIP
This Amended and Restated Partnership Agreement (this "Agreement") was
entered into as of February 1, 2001 by and between Advance/▇▇▇▇▇▇▇▇ Partnership,
a New York general partnership ("Advance/▇▇▇▇▇▇▇▇"), Time Warner Entertainment
Company, L.P., a Delaware limited partnership ("TWE"), and Paragon
Communications, a Colorado general partnership ("Paragon").
PRELIMINARY STATEMENT
The Partnership was formed pursuant to a Partnership Agreement dated as of
September 9, 1994 (the "Original Agreement") between Advance/▇▇▇▇▇▇▇▇ and TWE,
pursuant to which, and in accordance with the Contribution Agreement (as defined
below), Advance/▇▇▇▇▇▇▇▇ and TWE each agreed, subject to certain conditions, to
contribute or to cause to be contributed certain cable television systems and
other assets to the Partnership. The parties hereto amended the Original
Agreement pursuant to the First Amendment, dated as of February 12, 1998, the
Second Amendment, dated as of December 31, 1998, and the Third Amendment, dated
as of March 1, 1999 (collectively the "Prior Amendments"), pursuant to which,
among other things, Paragon became a Partner. The parties desire to enter into
this Agreement to continue the Partnership, and to provide for the allocation of
profit and loss, cash flow, and other proceeds of the Partnership among the
Partners, the respective rights, obligations, and interests of the Partners to
each other and to the Partnership, and certain other matters.
AGREEMENTS
In consideration of the mutual covenants and agreements set forth in this
Agreement, the parties, intending to be bound legally, agree as follows.
SECTION 1 DEFINITIONS
1.1 Terms Defined in this Section. As used in this Agreement, the following
terms have the following meanings:
"Act" means the New York Uniform Partnership Law, as from time to time in
effect.
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"Adjusted Tax Amount" means, for any year, with respect to any Partner, the
product of (i) such Partner's Percentage Interest, and (ii) the amount
determined by dividing (a) the product of (I) the Special Tax Amount of
Advance/▇▇▇▇▇▇▇▇ for such year, and (II) the Rate Differential, by (b) the
Advance/▇▇▇▇▇▇▇▇ Percentage Interest.
"Advance" means Advance Publications, Inc., a New York corporation.
"Advance/▇▇▇▇▇▇▇▇ Accountants" means the independent auditors or other
auditors selected by Advance/▇▇▇▇▇▇▇▇.
"Advance/▇▇▇▇▇▇▇▇ Loss Amount" means, with respect to a Fiscal Year, an
estimate of the maximum amount of Taxable Loss of the Partnership for such
Fiscal Year that is utilizable to offset other income, whether from the
Partnership or any other source, of Advance/▇▇▇▇▇▇▇▇ or the Persons that are the
taxpayers with respect to income of Advance/▇▇▇▇▇▇▇▇ (after taking into account
the Special Income of Advance/▇▇▇▇▇▇▇▇ for such Fiscal Year).
"Advance/▇▇▇▇▇▇▇▇ Owner" means any Person owning a direct or indirect
equity interest in Advance/▇▇▇▇▇▇▇▇ or any Affiliate of such Person.
"Advance/▇▇▇▇▇▇▇▇ Percentage Interest" means a fraction (expressed as a
percentage) the numerator of which is the number of Common Partnership Units
owned by Advance/▇▇▇▇▇▇▇▇ and the denominator of which is the total number of
Common Partnership Units owned by all Partners.
"Advance/▇▇▇▇▇▇▇▇ Redemption Event" means:
(i) the death of any individual that requires Advance or ▇▇▇▇▇▇▇▇ to
redeem stock to pay estate taxes or other expenses described in Section 303 of
the Code;
(ii) any action by the Board of Directors or other body or Person
exercising similar management authority of Advance/▇▇▇▇▇▇▇▇, any
Advance/▇▇▇▇▇▇▇▇ Owner, or any Affiliate of Advance/▇▇▇▇▇▇▇▇ obligating
Advance/▇▇▇▇▇▇▇▇, such Advance/▇▇▇▇▇▇▇▇ Owner, or such Affiliate to make capital
expenditures for aggregate consideration in excess of $10 million in any single
transaction or series of transactions;
(iii) the decision by the Board of Directors or other body or Person
exercising similar management authority of Advance/▇▇▇▇▇▇▇▇, any
Advance/▇▇▇▇▇▇▇▇ Owner, or any Affiliate of Advance/▇▇▇▇▇▇▇▇ to reduce
indebtedness of Advance/▇▇▇▇▇▇▇▇, such Advance/▇▇▇▇▇▇▇▇ Owner, or such Affiliate
by an amount in excess of $10 million;
(iv) receipt by Advance/▇▇▇▇▇▇▇▇ of notice from the Partnership that
it is obligated to contribute cash to the Partnership pursuant to the
Contribution Agreement subsequent to the Initial Closing Date;
(v) the failure of the Partnership to maintain a ratio of Indebtedness
to EBITDA that is less than or equal to 6:1;
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(vi) the failure of the Partnership to maintain a ratio of net worth
to Indebtedness that is greater than 1:1;
(vii) the failure of the Partnership to maintain a ratio of (A) EBITDA
for the preceding four full fiscal quarters minus aggregate capital expenditures
for such period, to (B) interest expense that is greater than 4:1;
(viii) the entry of a judgment or any other determination of liability
in excess of $10 million by a court or other governmental authority against
Advance/▇▇▇▇▇▇▇▇, any Advance/▇▇▇▇▇▇▇▇ Owner, or any Affiliate of
Advance/▇▇▇▇▇▇▇▇; or
(ix) the receipt by Advance/▇▇▇▇▇▇▇▇ of an Indebtedness Notice
pursuant to Section 4.3(c) which indicates that the Indebtedness intended to be
incurred, created or assumed by the Partnership would restrict in any manner
distributions by the Partnership with respect to any Preferred Partnership
Units.
"Affiliate" means, with respect to any Person, any other Person that,
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with such Person, except that:
(i) neither the Partnership nor any Person controlled by the
Partnership shall be deemed to be an Affiliate of a Partner or of any Affiliate
of such Partner solely by virtue of such Partner's Partnership Interest;
(ii) no Partner nor any Affiliate of any Partner shall be deemed to be
an Affiliate of the other Partners or of any Affiliate of the other Partners
solely by virtue of the Partners' Partnership Interests; and
(iii) neither Paragon nor USW shall be deemed an Affiliate of TWE, the
TWE Cable Division or TWX.
"Agreement" means this Partnership Agreement, as it may be amended,
modified, or supplemented from time to time in accordance with its terms.
"Applicable Contribution Period" means, with respect to any asset
contributed to the Partnership, (a) if for Federal income tax purposes such
asset was deemed contributed to the Partnership on or before June 8, 1997, five
years, (b) if for Federal income tax purposes such asset was deemed contributed
to the Partnership after June 8, 1997, seven years, and (c) in the event that
the time period specified in Section 704(c)(1)(B) of the Code (or any successor
provision) is amended, then for any asset deemed for Federal income tax purposes
to be contributed on or after the effective date of such amendment, the time
period specified in such amendment.
"Beneficial Asset" has the meaning ascribed thereto in the Contribution
Agreement.
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"Capital Account" means an account to be maintained for each Partner which,
subject to any contrary requirements of the Code, shall equal the aggregate
value of such Partner's Partnership Interest on the Fourth Effective Date,
(A) increased by (i) the amount of cash contributed by such Partner to
the Partnership after the Fourth Effective Date (not including
interest paid by such Partner pursuant to Section 4.1(b)(ii), Section
4.1(b)(iii), Section 4.1(b)(iv), Section 4.1(b)(v), Section
5.1(a)(iii)(z) or Section 5.1(b)(iii)(z) and not including cash deemed
contributed by any Partner pursuant to Section 4.1(e)); (ii) the fair
market value without regard to Code Section 7701(g) of property
contributed by such Partner to the Partnership after the Fourth
Effective Date (net of liabilities secured by such contributed
property that the Partnership is considered to assume or take subject
to under Code Section 752) (treating any Subsidiary Beneficial Assets
and other Beneficial Assets as if they had been contributed on the
Initial Closing Date, the First Effective Date, the Second Effective
Date, the Third Effective Date or the Fourth Effective Date, as
applicable, and disregarding any subsequent actual contribution of
such Subsidiary Beneficial Assets and other Beneficial Assets and any
cash flow related thereto); (iii) allocations to it after the Fourth
Effective Date of Preferred Profit, Gross Profit and Net Profit
pursuant to Section 5; (iv) the amount of any liabilities of the
Partnership that are assumed by such Partner pursuant to Treasury
Regulations Section 1.704-1(b)(2)(iv)(c); and (v) other additions made
in accordance with the Code and the provisions of Treasury Regulations
Section 1.704-1(b)(2)(iv); and
(B) decreased by (i) the amount of cash distributed to such Partner by
the Partnership after the Fourth Effective Date; (ii) allocations to
the Partner after the Fourth Effective Date of Preferred Loss, Gross
Loss and Net Loss pursuant to Section 5; (iii) the fair market value
without regard to Code Section 7701(g) of property distributed to such
Partner by the Partnership after the Fourth Effective Date (net of
liabilities secured by such distributed property or that such Partner
is considered to assume or take subject to under Code Section 752)
(taking into account any deemed distributions of Subsidiary Beneficial
Assets and other Beneficial Assets); (iv) the amount of such Partner's
individual liabilities that are assumed by the Partnership after the
Fourth Effective Date pursuant to Treasury Regulations Section
1.704-1(b)(2)(iv)(c); and (v) other deductions made in accordance with
the Code and the provisions of Treasury Regulations Section
1.704-1(b)(2)(iv).
Notwithstanding the foregoing, for purposes of determining Capital Accounts, (u)
all of the adjustments, contributions or distributions required pursuant to the
Contribution Agreement to be made subsequent to the Initial Closing Date and the
contribution of TWE pursuant to Section 4.1(c)(ii) hereof shall be treated as if
they had been made on the Initial Closing Date, (v) the Paragon Adjustment
Amount and the TWE Adjustment Amount (as such terms are defined in Section 10 of
the First Transaction Agreement)
5
shall be treated as if they had been made on the First Effective Date, (w) all
of the adjustments, contributions or distributions required pursuant to the
Second Transaction Agreement or the TCI Contribution Agreement shall be treated
as if they had been made on the Second Effective Date, (x) all of the
adjustments, contributions or distributions required pursuant to the Third
Transaction Agreement shall be treated as if they had been made on the Third
Effective Date, (y) all of the adjustments, contributions or distributions
required pursuant to the Fourth Transaction Agreement shall be treated as if
they had been made on the Fourth Effective Date and (z) such adjustments,
contributions, distributions, and Adjustment Amounts shall not give rise to any
adjustments to Capital Account balances or redetermination of amounts
contributed by or distributed to any Partner.
"Capital Contribution" means either a Common Capital Contribution, a
Preferred Capital Contribution, a Series A Preferred Capital Contribution, a
Series B Preferred Capital Contribution or a Series C Preferred Capital
Contribution.
"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.
"Common Capital Contribution" means, (i) with respect to Advance/▇▇▇▇▇▇▇▇,
the amount of cash contributed by such Partner to the Partnership pursuant to
this Agreement (other than cash deemed contributed in exchange for Preferred
Partnership Units pursuant to Section 4.1(e)) plus the fair market value without
regard to Code Section 7701(g) of property contributed by such Partner to the
Partnership pursuant to this Agreement (net of liabilities that are secured by
such contributed property or that either Partner is considered to assume under
Code Section 752); and (ii) with respect to each of Paragon and TWE, the excess
of (A) the amount of cash contributed by such Partner to the Partnership
pursuant to this Agreement (other than cash deemed contributed in exchange for
Preferred Partnership Units pursuant to Section 4.1(e)) plus the fair market
value without regard to Code Section 7701(g) of property contributed by such
Partner to the Partnership pursuant to this Agreement (net of liabilities that
are secured by such contributed property or that either Partner is considered to
assume under Code Section 752), over (B) in the case of Paragon, the sum of the
Series A Preferred Capital Contribution and the Series B Preferred Capital
Contribution and the Series C Preferred Capital Contribution of such Partner
and, in the case of TWE, the Series C Preferred Capital Contribution of such
Partner; and (iii) with respect to all Partners treating any Subsidiary
Beneficial Assets and other Beneficial Assets as if they had been contributed on
the Initial Closing Date, the First Effective Date, the Second Effective Date,
the Third Effective Date or the Fourth Effective Date, as applicable, and
disregarding any subsequent actual contribution of such Subsidiary Beneficial
Assets or other Beneficial Assets and any cash flow related thereto.
"Common Partnership Unit" means the measure of a Partner's right to certain
distributions and allocations, as specified in Section 5.
6
"Common Tax Amount" means, for any year, with respect to any Partner, the
amount obtained by multiplying (a) the Effective Tax Rate for such year by (b)
the excess, if any, of (i) the sum of the Net Profit or Gross Profit allocated
to such Partner for such year (other than pursuant to Sections 5.3(b)(i),
5.3(b)(ii), 5.3(b)(iii), 5.3(d)(i) and 5.3(d)(ii)), over (ii) the Net Loss or
Gross Loss allocated to such Partner for each prior year (other than pursuant to
Section 5.3(d)(ii) and 5.3(c)(ii)) but only to the extent that the amounts set
forth in this clause (ii) were not used in reducing the Common Tax Amount for
such prior year or any intervening year.
"Contribution Agreement" means the Contribution Agreement, dated as of
September 9, 1994, as amended from time to time, among the Partnership, the
Partners, Advance and ▇▇▇▇▇▇▇▇.
"control" (including the terms "controlled by," and "under common control
with") means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of a Person, whether through
the ownership of voting securities, by contract, or otherwise.
"Controlled Affiliate" means, with respect to any Person, any Affiliate of
such Person that is controlled by such Person, directly or indirectly through
one or more intermediaries.
"Debt Shift Tax Amount" means, in the case of Paragon and TWE, with respect
to a restructuring pursuant to Section 8.2, the sum of :
(i) the product of (a) the Special Effective Tax Rate for the year in
which such restructuring occurs, and (b) the excess, if any, of (I) the amount
of the Partnership's liabilities at the time of such restructuring that prior to
such restructuring was allocated to such Partner pursuant to Section 752 of the
Code and that are assumed by Advance/▇▇▇▇▇▇▇▇ pursuant to Section 8.2(b)(iv),
over (II) the sum of (x) the tax basis of such Partner in its Partnership
Interest immediately prior to such restructuring (taking into account
adjustments required by Section 704(c)(1)(B) of the Code, if any), and (y) the
amount of the Partnership's liabilities at the time of such restructuring
guaranteed by such Partner pursuant to Section 8.2(b)(iv), and
(ii) the present value, using the Discount Rate, of an amount for each
of the Remaining Years equal to the product of (a) the Special Effective Tax
Rate for the year in which such restructuring occurs, and (b) the product of
(I)(y) the amount determined under clause (i)(b) above with respect to such
Partner divided by (z) the number of Remaining Years, and (II) the Tax
Adjustment Percentage for such year of restructuring.
"Depreciation" means, for each fiscal period, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable with
respect to an asset for such fiscal period, except that if the Gross Asset Value
of an asset differs from its adjusted basis for federal income tax purposes
Depreciation shall be determined as set forth in Treasury Regulations Section
1.704-3(d).
7
"Determined Percentage" means 35%.
"Discount Rate" means the product of (a) the sum of (i) the rate on
outstanding obligations of the United States with remaining periods to maturity
equal to the weighted average of the remaining useful lives at the time of
determination of the assets contributed to the Partnership and (ii) one and
one-half percentage points, and (b) the excess of one (1) over the effective
combined rate of Federal, state and local income and franchise tax applicable to
corporations at the time of determination, assuming the combined state and local
income and franchise tax is 2.5% (after benefit of Federal taxes).
"Distributable Cash" means, at any time, all cash of the Partnership other
than cash attributable to the Preferred Investment Pool that, in the judgment of
the Managing Partner, can then be distributed to the Partners without violating
any contractual restriction to which the Partnership or any Subsidiary is
subject and that is not otherwise necessary for the operation of the Partnership
(including any reserves of such cash established by the Partnership for any
Partnership purpose).
"DMA" means "Designated Market Area" in the Code of Federal Regulations at
47 C.F.R. 76.55.
"EBITDA" means, for any period, operating income before interest, income
taxes, depreciation and amortization for such period determined in accordance
with the prior practices of the Managing Partner, consistently applied, or as
the Partners shall mutually agree.
"Effective Tax Rate" means, at any time, and from time to time, the
percentage determined by the Managing Partner to be a reasonable estimate of the
highest marginal combined Federal, state, and local income tax rate (giving
effect to the deduction of state and local income taxes, as applicable, for
Federal and state income tax purposes), applicable to corporations doing
business in New York City or individuals residing in New York City (whichever is
higher), with respect to taxable income allocated to the Partners by the
Partnership for Federal income tax purposes.
"Excess Debt Shift Tax Amount" means, in the case of Paragon and TWE with
respect to a restructuring pursuant to Section 8.2 and with respect to the
assets contributed by Paragon and TWE, respectively and specified in calculating
the Restructuring Deferred Tax Amount, the excess, if any, of (a) the Debt Shift
Tax Amount with respect to such Partner over (b) the product of (y) the Special
Effective Tax Rate for the year in which such restructuring occurs, and (z) the
sum of (1) such Partner's Special Income attributable to such assets for each
Fiscal Year (or portion thereof) subsequent to such restructuring (assuming that
such restructuring did not occur), and (2) such Partner's Maximum Income Amount
for each such subsequent Fiscal Year (or portion thereof) based on the Special
Income determined in clause (1).
"Final Determination" means (i) a decision, judgment, decree or other order
by a court of original jurisdiction which has become final (i.e., the time for
filing an appeal
8
shall have expired), (ii) a closing agreement made under Section 7121 of the
Code or any other settlement agreement entered into in connection with an
administrative or judicial proceeding, provided, however, that any refund claim
shall be deemed approved without regard to any required approval by the Joint
Committee on Taxation, (iii) the expiration of the time for instituting a claim
for refund, or if a claim was filed, the expiration of the time for instituting
suit with respect thereto or (iv) in any case where judicial review shall be
unavailable, a decision, judgment, decree or other order of an administrative
official or agency which has become final.
"First Advance/▇▇▇▇▇▇▇▇ Contribution Amount" has the meaning ascribed to
"Advance/▇▇▇▇▇▇▇▇ Contribution Amount" in Section 5 of the First Transaction
Agreement.
"First Effective Date" means February 12, 1998.
"First Transaction Agreement" means the Amended and Restated Transaction
Agreement, dated as of October 27, 1997, among Advance, ▇▇▇▇▇▇▇▇,
Advance/▇▇▇▇▇▇▇▇, TWE, TW Holding Co. and the Partnership.
"Fourth Advance/▇▇▇▇▇▇▇▇ Contribution Amount" has the meaning ascribed to
"Advance/▇▇▇▇▇▇▇▇ Contribution Amount" in Section 4 of the Fourth Transaction
Agreement.
"Fourth Effective Date" means February 1, 2001.
"Fourth Transaction Agreement" means the Amended and Restated Transaction
Agreement, dated as of February 1, 2001, among Advance, ▇▇▇▇▇▇▇▇,
Advance/▇▇▇▇▇▇▇▇, TWE, Paragon and the Partnership.
"GAAP" means generally accepted accounting principles, consistently
applied.
"Gross Asset Value" means, with respect to any asset, the asset's adjusted
basis for federal income tax purposes, except as follows:
(i) The initial Gross Asset Value of any asset contributed by a
Partner to the Partnership (including the Beneficial Assets and Subsidiary
Beneficial Assets) shall be the gross fair market value of such asset, as
determined in accordance with Sections 4.1(b), 4.1(c) and 4.1(d);
(ii) The Gross Asset Value of all assets of the Partnership (including
the Beneficial Assets and Subsidiary Beneficial Assets) shall be adjusted to
equal their respective gross fair market values, as agreed to by the Partners,
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 Common Capital Contribution (other than any Common Capital Contribution
made pursuant to the Contribution Agreement or the proviso of Section
4.1(d)(ii)); (b) the distribution by the Partnership to a Partner of more than a
de minimis amount of Partnership property as consideration for an interest in
the Partnership (other than any redemption of Preferred Partnership Units
9
pursuant to Section 5.2); 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 Partners agree 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 distributed by the
Partnership (including the Beneficial Assets and Subsidiary Beneficial Assets)
to any Partner shall be the gross fair market value of such asset on the date of
distribution as determined by such Partner and the Partnership; and
(iv) The Gross Asset Value of the assets of the Partnership (including
the Beneficial Assets and Subsidiary Beneficial Assets) 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 5.4;
provided, however, that Gross Asset Value shall not be adjusted pursuant to this
paragraph (iv) to the extent that an adjustment was made pursuant to paragraph
(ii) of this definition in connection with any transaction that would otherwise
have resulted 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. In the event that, pursuant to the Contribution Agreement, any adjustment,
contribution or distribution is made subsequent to the Initial Closing Date, the
Gross Asset Values of the assets of the Partnership shall be adjusted, as of the
first day of the Fiscal Year in which such adjustment, contribution or
distribution occurs, so as to reflect the gross fair market values of such
assets on a basis consistent with the determinations giving rise to such
adjustment, contribution or distribution, as determined by the Managing Partner
in any manner that reasonably reflects the purpose and intention of this
Agreement.
"Gross Loss" means, with respect to any year, the items of deduction or
loss of the Partnership computed on the same basis that Net Profit and Net Loss
are computed for purposes of this Agreement.
"Gross Profit" means, with respect to any year, the items of income and
gain of the Partnership computed on the same basis that Net Profit and Net Loss
are computed for purposes of this Agreement.
"Indebtedness" means (i) debt for money borrowed and similar monetary
obligations evidenced by bonds, notes, debentures, or other similar instruments,
other than trade accounts payable in the ordinary course of business, (ii)
obligations with respect to letters of credit, and (iii) guaranties,
endorsements, and other contingent obligations whether direct or indirect in
respect of liabilities of others of any of the types
10
described in clauses (i) and (ii) above (other than endorsements for collection
or deposit in the ordinary course of business).
"Initial Closing Date" means April 1, 1995.
"Maximum Income Amount" means, for any year, with respect to any Partner,
an amount equal to the product of (i) the Tax Adjustment Percentage for such
year, and (ii) the Special Income of such Partner for such year.
"Modification of Final Judgment" means the Modification of Final Judgment
entered on August 24, 1982, in U.S. v. American Telephone and Telegraph Company,
552 F. Supp. 131 (D.D.C. 1982), or any of its terms which may have been
statutorily codified, as amended or modified to date and from time to time
hereafter.
"Negative Put Deferred Tax Amount" means, with respect to a sale of
Advance/▇▇▇▇▇▇▇▇ Common Partnership Units pursuant to Section 9, the product of
(x) the Advance/▇▇▇▇▇▇▇▇ Percentage Interest at the time of such sale and (y)
the sum of the amounts determined as follows with respect to each of TWE and
Paragon with respect to the assets of the Partnership at the time of the
Advance/▇▇▇▇▇▇▇▇ Common Put Closing that were contributed by TWE and Paragon,
respectively:
(a) the product of (i) the Special Effective Tax Rate for the year in
which such sale occurs, and (ii) the sum of (A) the Special Income attributable
to such assets for the Fiscal Year (or portion thereof) in which such sale
occurs, (B) the excess of (y) the Maximum Income Amount of such Fiscal Year (or
portion thereof) (based on the Special Income determined in clause (A)) and for
all prior years, over (z) the Net Profit allocated to such Partner pursuant to
Section 5.3(b)(iii) for such Fiscal Year (or portion thereof) and all prior
Fiscal Years, and (C) to the extent any Net Loss or Gross Loss allocated to such
Partner for any prior year was used to reduce such Partner's Special Tax Amount
for any prior year (pursuant to clause (b)(ii)(y) of the definition of Special
Tax Amount) and was not subsequently used to increase such Partner's Special Tax
Amount (pursuant to clause (b)(i)(z) of such definition), an amount (expressed
as a positive number) equal to the sum of such Net Loss and Gross Loss, and
(b) the present value, using the Discount Rate, of an amount for each
Fiscal Year (or portion thereof) subsequent to such sale equal to the product of
(I) the Special Effective Tax Rate of such Partner for the year in which such
sale occurs, and (II) the sum of (A) the Special Income attributable to such
assets for each such subsequent Fiscal Year (or portion thereof), and (B) the
Maximum Income Amount for each such subsequent Fiscal Year (or portion thereof)
based on the Special Income determined in clause (A)).
"Net Cumulative Preferred Taxable Income" means, with respect to a
distribution pursuant to Section 5.1(a)(i), the net cumulative income, gain,
deduction and loss realized by the Partnership for Federal income tax purposes
with respect to the Preferred Investment Pool during the period commencing on
the Initial Closing Date and ending on the last day of the fiscal quarter
immediately preceding the date of such distribution.
11
"Net Profit" and "Net Loss" mean, for each Fiscal Year or other period, an
amount equal to the Partnership's taxable income or loss for such year or
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) Any expenditures of the Partnership described in Code Section
705(a)(2)(B), or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Treasury Regulations Section 1.704-1(b)(2)(iv)(i), 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 Partnership
property 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;
(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) 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 as a result of a distribution
other than in liquidation of a Partner's interest in the Partnership, 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 the basis
of the asset) from the disposition of the asset and shall be taken into account
for purposes of computing Net Profit and Net Loss;
(vii) For purposes of this Agreement, any deduction for a loss on a
sale or exchange of Partnership property 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;
12
(viii) Net Profit and Net Loss shall be calculated after eliminating
any amounts of Preferred Profit or Preferred Loss for any Fiscal Year or other
period; and
(ix) Net Profit and Net Loss shall be calculated as if the Subsidiary
Beneficial Assets had been contributed to the Partnership on the Initial Closing
Date, the First Effective Date, the Second Effective Date, the Third Effective
Date or the Fourth Effective Date, as applicable, and the amount of taxes
subtracted in determining the Free Cash Flow Amount pursuant to Section 6.7 of
the Contribution Agreement shall be subtracted from the Partnership's taxable
income or taxable loss for such year or period.
"Net Tax Amount" means, for any year, with respect to any Partner, the sum
of (i) the Common Tax Amount of such Partner for such year, (ii) the Special Tax
Amount of such Partner for such year, and (iii) the Adjusted Tax Amount of such
Partner for such year.
"▇▇▇▇▇▇▇▇" means ▇▇▇▇▇▇▇▇ Broadcasting Corporation, a New York corporation.
"Paragon" means Paragon Communications, a Colorado general partnership (or
any successor).
"Paragon 704(c)(1)(B) Tax Amount" means, on a restructuring and with
respect to assets described in Section 8.2(b)(vii)(A)(I), the sum of:
(i) the product of (a) the Special Effective Tax Rate for the year in
which such restructuring occurs, and (b) the gain recognized as a result of such
restructuring by Paragon with respect to such assets pursuant to Section
704(c)(1)(B) of the Code (taking into account Section 704(c)(2) and assuming,
for purposes of calculating such gain, that the fair market value of such assets
is equal to their Gross Asset Value at the time of such restructuring), and
(ii) the present value, using the Discount Rate, of an amount for each
of the Remaining Years equal to the product of (a) the Special Effective Tax
Rate for the year in which such restructuring occurs, and (b) the product of (I)
(y) the amount determined under clause (i)(b) above divided by (z) the number of
Remaining Years, and (II) the Tax Adjustment Percentage for such year of
restructuring.
"Paragon Percentage Interest" means a fraction (expressed as a percentage)
the numerator of which is the number of Common Partnership Units owned by
Paragon and the denominator of which is the total number of Common Partnership
Units owned by all Partners.
"Paragon Redemption Event" means the delivery of a written notice by
Paragon to the Partnership indicating that it wishes the Partnership to redeem
its Preferred Partnership Units.
13
"Partners" means Advance/▇▇▇▇▇▇▇▇, TWE and Paragon and their respective
successors-in-interest as Partners under this Agreement, and "Partner" means any
of such Partners.
"Partnership" means the partnership created by the Partners pursuant to
this Agreement.
"Partnership Interest" means, as to any Partner or as to any other Person
subsequently admitted as a partner of the Partnership, all of the interest of
such Person in the Partnership, including such Person's (i) right to a
distributive share of the income, gain, losses, and deductions of the
Partnership in accordance with this Agreement, which shall be measured by the
number and type of Partnership Units held by such Person under this Agreement,
(ii) right to a distributive share of the Partnership's assets, which shall be
measured by the number and type of Partnership Units held by such Person under
this Agreement, (iii) obligations as a partner, and (iv) rights with respect to
the management of the business and affairs of the Partnership, as provided
herein or by law.
"Partnership Systems" means the cable television systems now owned or
hereafter acquired, directly or indirectly, by the Partnership including,
without limitation, the Beneficial Assets and Subsidiary Beneficial Assets
(other than cable television systems owned by Paragon).
"Partnership Unit" means either a "Common Partnership Unit," a "Preferred
Partnership Unit," a "Series A Preferred Partnership Unit," a "Series B
Preferred Partnership Unit" or a "Series C Preferred Partnership Unit," as
defined in this Agreement.
"Percentage Interests" means the Advance/▇▇▇▇▇▇▇▇ Percentage Interest, the
TWE Percentage Interest and the Paragon Percentage Interest.
"Person" means any natural person, corporation, general or limited
partnership, limited liability company, joint venture, trust, association,
unincorporated entity of any kind, or a government or any department or agency
thereof.
"Positive Put Deferred Tax Amount" means, with respect to a sale of
Advance/▇▇▇▇▇▇▇▇ Common Partnership Units pursuant to Section 9, the product of
(x) one (1) minus the Advance/▇▇▇▇▇▇▇▇ Percentage Interest at the time of such
sale and (y) the sum of the amounts determined as follows with respect to the
assets of the Partnership at the time of the Advance/▇▇▇▇▇▇▇▇ Common Put Closing
that were contributed by Advance/▇▇▇▇▇▇▇▇:
(a) the product of (i) the Special Effective Tax Rate for the year in
which such sale occurs, and (ii) the sum of (A) the Special Income attributable
to such assets for the Fiscal Year (or portion thereof) in which such sale
occurs, (B) the excess of (y) the Maximum Income Amount of such Fiscal Year (or
portion thereof) (based on the Special Income determined in clause (A)) and for
all prior years, over (z) the Net Profit allocated to such Partner pursuant to
Section 5.3(b)(iii) for such Fiscal Year (or portion
14
thereof) and all prior Fiscal Years, and (C) to the extent any Net Loss or Gross
Loss allocated to such Partner for any prior year was used to reduce such
Partner's Special Tax Amount for any prior year (pursuant to clause (b)(ii)(y)
of the definition of Special Tax Amount) and was not subsequently used to
increase such Partner's Special Tax Amount (pursuant to clause (b)(i)(z) of such
definition), an amount (expressed as a positive number) equal to the sum of such
Net Loss and Gross Loss, and
(b) the present value, using the Discount Rate, of an amount for each
Fiscal Year (or portion thereof) subsequent to such sale equal to the product of
(I) the Special Effective Tax Rate of such Partner for the year in which such
sale occurs, and (II) the sum of (A) the Special Income attributable to such
assets for each such subsequent Fiscal Year (or portion thereof), and (B) the
Maximum Income Amount for each such subsequent Fiscal Year (or portion thereof)
based on the Special Income determined in clause (A).
"Preferred Capital Contribution" means, with respect to any Partner, the
contribution that a Partner is treated as having made to the Partnership in
exchange for Preferred Partnership Units pursuant to Section 4.1(e).
"Preferred Cluster Area" means the areas described on Schedule 3.2 hereto
and such other areas designated as Preferred Cluster Areas by the Executive
Committee in accordance with Section 3.2.
"Preferred Partnership Unit" means a Partner's right to distributions of
that portion of the Preferred Investment Pool relating to such Preferred
Partnership Unit together with all allocations of Preferred Profit and Preferred
Loss attributable thereto.
"Preferred Profit" and "Preferred Loss" mean, for each Fiscal Year or other
period, an amount equal to the Partnership's taxable income or loss for such
year or period determined by taking into account only items of income, gain,
deduction or loss directly attributable to the Preferred Investment Pool, with
the same type of adjustments set forth in the definition of Net Profit and Net
Loss except for clauses (viii) and (ix) thereof.
"Priority Return" shall mean the sum of the Series A Priority Return, the
Series B Priority Return and the Series C Priority Return.
"Rate Differential" means, for any year, (i) the excess, if any, of (a) the
Effective Tax Rate for such year, over (b) the Special Effective Tax Rate for
such year, divided by (ii) the Special Effective Tax Rate for such year.
"Remaining Years" means the number of years following a restructuring
pursuant to Section 8 equal to the remaining useful lives as of the time of such
restructuring of the assets contributed to the Partnership.
15
"Restructuring Deferred Tax Amount" means, on a restructuring pursuant to
Section 8.2 and with respect to the assets specified in such Section, and (i)
with respect to Paragon and TWE:
(1) if there is an Excess Debt Shift Tax Amount with respect to the
assets contributed by such Partner, the excess of:
(a) the product of (I) the Special Effective Tax Rate for the
year in which such restructuring occurs, and (II) the sum of (A) the
Special Income, attributable to such assets that were contributed by such
Partner for the Fiscal Year (or portion thereof) in which such
restructuring occurs (assuming that such restructuring did not occur), (B)
the excess of (y) the Maximum Income Amount for such Fiscal Year (or
portion thereof) (based on the Special Income determined in clause (A)) and
the Maximum Income Amount of such Partner for all prior years with respect
to all assets contributed by such Partner, over (z) the Net Profit
allocated to such Partner pursuant to Section 5.3(b)(iii) for such Fiscal
Year (or portion thereof) and all prior Fiscal Years, and (C) to the extent
any Net Loss or Gross Loss allocated to such Partner for any prior year was
used to reduce such Partner's Special Tax Amount for any prior year
(pursuant to clause (b)(ii)(y) of the definition of Special Tax Amount) and
was not subsequently used to increase such Partner's Special Tax Amount
(pursuant to clause (b)(i)(z) of such definition), an amount (expressed as
a positive number) equal to the sum of such Net Loss and Gross Loss, over
(b) such Excess Debt Shift Tax Amount; or
(2) if there is not an Excess Debt Shift Tax Amount with respect to
the assets contributed by such Partner, the sum of:
(a) the product of (I) the Special Effective Tax Rate for the
year in which such restructuring occurs, and (II) the sum of (A) the
Special Income, attributable to such assets that were contributed by such
Partner, for the Fiscal Year (or portion thereof) in which such
restructuring occurs (assuming that such restructuring did not occur), (B)
the excess of (y) the Maximum Income Amount for such Fiscal Year (or
portion thereof) (based on the Special Income determined in clause (A)) and
the Maximum Income Amount of such Partner, for all prior years with respect
to all assets contributed by such Partner, over (z) the Net Profit
allocated to such Partner, pursuant to Section 5.3(b)(iii) for such Fiscal
Year (or portion thereof) and all prior Fiscal Years, and (C) to the extent
any Net Loss or Gross Loss allocated to such Partner for any prior year was
used to reduce such Partner's Special Tax Amount for any prior year
(pursuant to clause (b)(ii)(y) of the definition of Special Tax Amount) and
was not subsequently used to increase such Partner's Special Tax Amount
(pursuant to clause (b)(i)(z) of such definition), an amount (expressed as
a positive number) equal to the sum of such Net Loss and Gross Loss, and
16
(b) the present value, using the Discount Rate, of an amount for
each Fiscal Year (or portion thereof) subsequent to such restructuring
equal to the excess of (y) the product of (I) the Special Effective Tax
Rate for the year in which such restructuring occurs, and (II) the sum of
(A) the Special Income, attributable to such assets that were contributed
by such Partner, for each such subsequent Fiscal Year (or portion thereof)
(assuming that such restructuring did not occur), and (B) the Maximum
Income Amount for each such subsequent Fiscal Year (or portion thereof)
based on the Special Income determined in clause (A)), over (z) for each
such subsequent Fiscal Year (or portion thereof), a proportionate share
(based on the ratio of the Special Income for such Fiscal Year (or portion
thereof) to total Special Income for all such subsequent Fiscal Years (or
portion thereof) of the Debt Shift Tax Amount; and
(ii) with respect to Advance/▇▇▇▇▇▇▇▇, the sum of:
(a) the product of (I) the Special Effective Tax Rate for the
year in which such restructuring occurs, and (II) the sum of (A) the
Special Income, attributable to such assets that were contributed by such
Partner, for the Fiscal Year (or portion thereof) in which such
restructuring occurs (assuming that such restructuring did not occur), (B)
the excess of (y) the Maximum Income Amount for such Fiscal Year (or
portion thereof) (based on the Special Income determined in clause (A)) and
the Maximum Income Amount of such Partner for all prior years with respect
to all assets contributed by such Partner, over (z) the Net Profit
allocated to such Partner pursuant to Section 5.3(b)(iii) for such Fiscal
Year (or portion thereof) and all prior Fiscal Years, and (C) to the extent
any Net Loss or Gross Loss allocated to such Partner for any prior year was
used to reduce such Partner's Special Tax Amount for any prior year
(pursuant to clause (b)(ii)(y) of the definition of Special Tax Amount) and
was not subsequently used to increase such Partner's Special Tax Amount
(pursuant to clause (b)(i)(z) of such definition), an amount (expressed as
a positive number) equal to the sum of such Net Loss and Gross Loss, and
(b) the present value, using the Discount Rate, of an amount for
each Fiscal Year (or portion thereof) subsequent to such restructuring
equal to the product of (I) the Special Effective Tax Rate of such Partner
for the year in which such restructuring occurs, and (II) the sum of (A)
the Special Income, attributable to such assets that were contributed by
such Partner, for each such subsequent Fiscal Year (or portion thereof)
(assuming that such restructuring did not occur), and (B) the Maximum
Income Amount for each such subsequent Fiscal Year (or portion thereof)
based on the Special Income determined in clause (A)).
"Second Advance/▇▇▇▇▇▇▇▇ Contribution Amount" has the meaning ascribed to
"Advance/▇▇▇▇▇▇▇▇ Contribution Amount" in Section 4 of the Second Transaction
Agreement.
"Second Effective Date" means December 31, 1998.
17
"Second Transaction Agreement" means the Transaction Agreement No. 2, dated
as of June 23, 1998, among Advance, ▇▇▇▇▇▇▇▇, Advance/▇▇▇▇▇▇▇▇, TWE, Paragon and
the Partnership.
"Series A Preferred Capital Contribution" means, with respect to Paragon, a
Capital Contribution by Paragon pursuant to this Agreement (other than cash
deemed contributed in exchange for Preferred Partnership Units pursuant to
Section 4.1(e)) of assets having a fair market value of $1,000 for each Series A
Preferred Partnership Unit issued to Paragon pursuant to Section 4.2(b)(i).
"Series A Preferred Partnership Unit" means Paragon's right to
distributions in an amount equal to the Series A Priority Return allocable to
the Series A Preferred Capital Contribution of $1,000 and the right to a return
of such Series A Preferred Capital Contribution in redemption thereof, all of
which shall be payable in accordance with Section 5, together with all
allocations of income attributable thereto, as specified in Section 5.
"Series A Priority Return" means, with respect to each outstanding Series A
Preferred Partnership Unit, a sum equal to 10 1/4 percent for the actual number
of days in the period for which the Series A Priority Return is being
calculated, cumulative and compounded annually, on the amount of $1,000 plus any
accrued and unpaid Series A Priority Return with respect to such Series A
Preferred Partnership Unit, commencing on the First Effective Date.
"Series B Preferred Capital Contribution" means with respect to Paragon, a
Capital Contribution by Paragon pursuant to this Agreement (other than cash
deemed contributed in exchange for Preferred Partnership Units pursuant to
Section 4.1(e)) of assets having a fair market value of $1,000 for each Series B
Preferred Partnership Unit issued to Paragon pursuant to Sections 4.2(b)(ii) and
4.2(b)(iii).
"Series B Preferred Partnership Unit" means, with respect to Paragon, such
Partner's right to distributions in an amount equal to the Series B Priority
Return allocable to such Partner's Series B Preferred Capital Contribution of
$1,000 and the right to a return of such Series B Preferred Capital Contribution
in redemption thereof, all of which shall be payable in accordance with Section
5, together with all allocations of income attributable thereto, as specified in
Section 5.
"Series B Priority Return" means, with respect to each outstanding Series B
Preferred Partnership Unit, a sum equal to 2% plus the Partnership's cost of
borrowing under its senior credit facility for the actual number of days in the
period for which the Series B Priority Return is being calculated, cumulative
and compounded annually, on the amount of $1,000 plus any accrued and unpaid
Series B Priority Return with respect to such Series B Preferred Partnership
Unit, commencing on the (i) Second Effective Date, in the case of Series B
Preferred Partnership Units issued pursuant to Section 4.2(b)(ii) or (ii) the
Third Effective Date, in the case of Series B Preferred Partnership Units issued
pursuant to Section 4.2(b)(iii).
18
"Series C Preferred Capital Contribution" means with respect to TWE and
Paragon, a Capital Contribution by such Partner pursuant to this Agreement
(other than cash deemed contributed in exchange for Preferred Partnership Units
pursuant to Section 4.1(e)) of assets having a fair market value of $1,000 for
each Series C Preferred Partnership Unit issued to such Partner pursuant to
Section 4.2(a)(v)(B) or Section 4.2(b)(iv).
"Series C Preferred Partnership Unit" means, with respect to TWE and
Paragon, such Partner's right to distributions in an amount equal to the Series
C Priority Return allocable to such Partner's Series C Preferred Capital
Contribution of $1,000 and the right to a return of such Series C Preferred
Capital Contribution in redemption thereof, all of which shall be payable in
accordance with Section 5, together with all allocations of income attributable
thereto, as specified in Section 5.
"Series C Priority Return" means, with respect to each outstanding Series C
Preferred Partnership Unit, a sum equal to 2% plus the Partnership's cost of
borrowing under its Senior Credit facility for the actual number of days in the
period for which the Series C Priority Return is being calculated, cumulative
and compounded annually, on the amount of $1,000 plus any accrued and unpaid
Series C Priority Return with respect to such Series C Preferred Partnership
Unit, commencing on the Fourth Effective Date.
"Special Effective Tax Rate" means, at any time, and from time to time, the
effective combined rate of Federal, state and local income and franchise tax
that the Partnership would be required to pay, if it were a corporation, on its
taxable income for such year, for Federal income tax purposes.
"Special Income" means, for any year, with respect to any Partner, the sum
of:
(i) the excess, if any, of (a) such Partner's distributive share of
Depreciation and loss determined as provided in clause (iv) of the definition of
Net Profit and Net Loss for such year, over (b) such Partner's distributive
share of depreciation, amortization, and other cost recovery deductions and loss
for such year for Federal income tax purposes, to the extent such excess results
from a difference between the basis for Federal income tax purposes of any
assets contributed to the Partnership by any Partner and the Gross Asset Value
of such assets;
(ii) the excess, if any, of (a) such Partner's distributive share of
gain for Federal income tax purposes for such year, over (b) such Partner's
distributive share of gain determined as provided in clause (iv) of the
definition of Net Profit and Net Loss for such year, to the extent such excess
results from a difference between the basis for Federal income tax purposes of
any assets contributed to the Partnership by any Partner and the Gross Asset
Value of such assets;
(iii) any remedial items allocated to such Partner pursuant to
Treasury Regulations Section 1.704-3(d) for such year; and
19
(iv) any income or loss for Federal income tax purposes recognized by
such Partner with respect to any of such Partner's Subsidiary Beneficial Assets
(or recognized by an Affiliate of such Partner which holds any of such Partner's
Subsidiary Beneficial Assets).
"Special Tax Amount" means, for any year, with respect to any Partner, the
amount obtained by multiplying (a) the Special Effective Tax Rate for such year,
by (b) the excess, if any, of (i) the sum of (x) the sum of the Net Profit and
Gross Profit allocated to such Partner pursuant to Sections 5.3(b)(iii) and
5.3(d)(ii) for such year, (y) the Special Income, if any, allocated to such
Partner for such year, and (z) to the extent that the Common Tax Amount of such
Partner for such year is reduced by any Net Loss or Gross Loss allocated to such
Partner for any prior year which was used to reduce such Partner's Special Tax
Amount for any prior year, an amount (expressed as a positive number) equal to
the sum of such Net Loss and Gross Loss, over (ii) the sum of (x) the Gross Loss
allocated to such Partner pursuant to Section 5.3(d)(ii) for the current year,
and (y) the Net Loss or Gross Loss allocated to such Partner for the current or
prior year (other than pursuant to Section 5.3(c)(ii) and 5.3(d)(ii)) but only
to the extent that the amounts set forth in this clause (y) were not used in
reducing the Common Tax Amount for the current year or the Special Tax Amount
for any prior year.
"Spin-Off Restructuring Notice" means a Restructuring Notice delivered by
Advance/▇▇▇▇▇▇▇▇ no later than ninety (90) days following a change in the Chief
Executive Officer of the Time Warner Cable Division, or the installment as the
Chief Executive Officer of TWE or its corporate successor of someone other than
a member at such time of the senior management of TWX or the Chief Executive
Officer of the Time Warner Cable Division, as contemplated by a "spin off" or
other distribution of TWE or its corporate successor to the shareholders of TWX;
provided as to such a change in management (following such a spin-off or other
distribution) prior to April 1, 2000, the ninety (90) days period shall be
deemed to begin on April 1, 2000.
"Subscriber" means a subscriber to basic cable television service on the
applicable cable television system.
"Subsidiary" means, with respect to any Person, any other Person controlled
by such first Person.
"Subsidiary Beneficial Asset" has the meaning ascribed thereto in the
Contribution Agreement.
"Tax Adjustment Percentage" means, with respect to any year, the amount
obtained by dividing (A) the Special Effective Tax Rate for such year by (B) the
excess of one (1) over such Special Effective Tax Rate.
"Taxable Income" or "Taxable Loss" means net income or loss of the
Partnership as determined for Federal income tax purposes.
20
"TCI Contribution Agreement" has the meaning ascribed thereto in the Second
Transaction Agreement.
"Third Advance/▇▇▇▇▇▇▇▇ Contribution Amount" has the meaning ascribed to
"Advance/▇▇▇▇▇▇▇▇ Contribution Amount" in Section 4 of the Third Transaction
Agreement.
"Third Effective Date" means March 1, 1999.
"Third Transaction Agreement" means the Transaction Agreement No. 3, dated
as of September 15, 1998 among Advance, ▇▇▇▇▇▇▇▇, Advance/▇▇▇▇▇▇▇▇, TWE, Paragon
and the Partnership.
"Transaction Agreements" means, collectively, the First Transaction
Agreement, the Second Transaction Agreement, the Third Transaction Agreement and
the Fourth Transaction 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).
"TWE Accountants" means the independent auditors or other auditors selected
by TWE.
"TWE Cable Division" means the Cable Division of TWE.
"TWE Partnership Agreement" means the Agreement of Limited Partnership,
dated as of October 29, 1991, as amended from time to time, among TWX, Itochu
Corporation, Toshiba Corporation, USW and certain of their respective
subsidiaries.
"TWE Percentage Interest" means a fraction (expressed as a percentage) the
numerator of which is the number of Common Partnership Units owned by TWE and
the denominator of which is the total number of Common Partnership Units owned
by all Partners.
"TWE Redemption Event" means the delivery of a written notice by TWE to the
Partnership indicating that it wishes the Partnership to redeem its Preferred
Partnership Units.
"TWE 704(c)(1)(B) Tax Amount" means, on a restructuring and with respect to
assets described in Section 8.2(b)(vii)(A)(II), the sum of:
(i) the product of (a) the Special Effective Tax Rate for the year in
which such restructuring occurs, and (b) the gain recognized as a result of such
restructuring by TWE with respect to such assets pursuant to Section
704(c)(1)(B) of the Code (taking into account Section 704(c)(2) and assuming,
for purposes of calculating such gain, that the fair market value of such assets
is equal to their Gross Asset Value at the time of such restructuring), and
21
(ii) the present value, using the Discount Rate, of an amount for each
of the Remaining Years equal to the product of (a) the Special Effective Tax
Rate for the year in which such restructuring occurs, and (b) the product of (I)
(y) the amount determined under clause (i)(b) above divided by (z) the number of
Remaining Years, and (II) the Tax Adjustment Percentage for such year of
restructuring.
"TWX" means Time Warner Inc., a Delaware corporation.
"USW" means U S WEST, Inc., a Colorado corporation, and its successors and
assigns in respect of its interests under the TWE Partnership Agreement.
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:
Term Section
---- -------
Acceleration Notice 9(f)(iii)
Advance/▇▇▇▇▇▇▇▇ Asset Pool 8.2(b)(ii)
Advance/▇▇▇▇▇▇▇▇ Cable Affiliates 10.3(a)
Advance/▇▇▇▇▇▇▇▇ Common Put Closing 9(g)(ii)
Advance/▇▇▇▇▇▇▇▇ Common Put Price 9(a)
Advance/▇▇▇▇▇▇▇▇ Preferred Put Price 9(a)
Advance/▇▇▇▇▇▇▇▇ Put Event 9(a)
Ancillary Business Opportunity 10.3(a)
Asset Pool Criteria 8.2(b)
Asset Pool Notice 8.2(b)(i)
Appraiser 9(d)
Asset Pools 8.2(b)
Cash Purchase Notice 9(f)(iii)
Closing Price 3.1(h)(iii)
Consideration Notice 9(e)
Cost Notice 9(f)(iii)
Eligible Option Holder 3.1(h)(iii)
Election Notice 9(c)
Executive Committee 3.1(c)
Exercise Notice 9(b)
Fiscal Year 2.7
Indebtedness/EBITDA Ratio 3.2(e)
Indebtedness Notice 4.3(d)
22
Term Section
---- -------
Liquidator 12.3(a)
Long Term Strategic Plan 3.3(a)(i)
Managed Systems 3.1(h)(i)
Managing Partner 3.1(a)
▇▇▇▇▇▇▇▇ Family Member 6.1(a)
Notifying Partner 10.1(a)
NYSE 3.1(h)(iii)
Opportunity Notice 10.1(a)
Other Programming Investors 10.2(b)
Other TWE Systems 3.1(d)
Partnership Financial Statements 11.2(a)
Partnership Value 9(d)
Preferred Investment Pool 4.1(e)(iii)
Programming Opportunity 10.2(a)
Pro Rata Assets 8.2(b)(i)
Put Note 9(f)(iii)
Qualified Assets 9(e)
Redeemed Preferred Partnership Units 5.2
Redemption Notice 5.2
Refusal Period 8.4
Rejection Notice 9(f)(i)
Restructuring Notice 8.1
Sale Notice 10.5
Sale Taxes 9(f)(iii)
Sale Terms 10.5
Subject System 10.5
System Opportunity 10.1(a)
Taxable Consideration 9(c)
Tax Deferred Consideration 9(c)
Tax Matters Partner 3.1(g)
Third Party Programming 3.1(h)(ii)
Transfer Assets 8.4
23
Term Section
---- -------
Transfer Notice 8.4
Transfer Terms 8.4
TWE Asset Pools 8.2(b)(ii)
TWE Cable Expenses 3.1(h)(i)
TWX Securities 3.1(h)(iii)
Valuation Notice 9(d)
Wholly-Owned Affiliates 3.1(h)(ii)
SECTION 2 THE PARTNERSHIP AND ITS BUSINESS
2.1 Formation. The Partnership was initially formed as a general
partnership as of September 9, 1994 pursuant to the provisions of the Act. The
Partners hereby expressly agree to continue the Partnership. Except as provided
in this Agreement, all rights, liabilities, and obligations of the Partners (in
their capacities as such), both as among themselves and with respect to Persons
not parties to this Agreement, shall be as provided in the Act, and this
Agreement shall be construed in accordance with the provisions of the Act. To
the extent that the rights or obligations of any Partner are different by reason
of any provision of this Agreement from what they would be under the Act in the
absence of such provision, this Agreement shall, to the extent permitted by the
Act, control.
2.2 Partnership Name and Trade Names.
(a) Partnership Name. The name of the Partnership shall be "Time
Warner Entertainment-Advance/▇▇▇▇▇▇▇▇ Partnership" or such other name(s) as may
from time to time be agreed to by each of the Partners. In using its name in any
written material, the Partnership shall, to the extent appropriate and feasible,
identify itself as "a Time Warner Entertainment-Advance/▇▇▇▇▇▇▇▇ partnership" or
such other name(s) as may from time to time be agreed to by each of the
Partners.
(b) Trade Names. The business of each of the cable television systems
contributed to the Partnership by Advance/▇▇▇▇▇▇▇▇ shall be conducted under the
trade names agreed to by the parties. In using its trade name in any written
material, each cable television system owned by the Partnership shall, to the
extent appropriate and feasible, identify itself as a division of the
Partnership. Each other business of the Partnership shall be conducted under the
name of the Partnership or, upon compliance with applicable laws, any other name
that the Managing Partner deems appropriate or advisable.
(c) Change of Names. The name of the Partnership may be changed at any
time by the Executive Committee in accordance with Section 3.2(q) hereof. Any
decision to change the name of the Partnership shall be based on such market
research and other information as the Executive Committee deems appropriate.
24
(d) Assumed Name Filings. The Partnership shall file any assumed name
certificates and similar filings, and any amendments thereto, that the Managing
Partner considers appropriate or advisable.
2.3 Term of the Partnership. The term of the Partnership commenced on
September 9, 1994 and, unless the Partnership is earlier terminated pursuant to
Section 12 of this Agreement or otherwise, shall continue until December 31,
2045.
2.4 Purposes.
(a) Generally. The purposes of the Partnership shall be, to the extent
permitted under applicable law, to engage in the business, directly or
indirectly through interests in one or more Subsidiaries, of:
(i) acquiring, developing, owning, operating, managing, and selling
the cable television systems and other assets from time to time contributed to
the Partnership by the Partners pursuant to the Contribution Agreement and the
Transaction Agreements;
(ii) acquiring, developing, owning, operating, managing and selling
additional cable television systems, with the goal of operating clusters of
cable television systems, and with particular emphasis on developing and
expanding systems in the Preferred Cluster Areas;
(iii) acquiring, developing, owning, operating, managing, and
selling, or investing in, businesses related to the operation of cable
television systems, including without limitation programming and information
services, personal communications and cable advertising businesses;
(iv) developing, owning, operating, managing, and selling
residential and business telephony services associated with such cable
television systems, including alternative access services, personal
communications services and other similar services;
(v) developing, owning, operating, managing, and selling other
businesses that utilize broadband distribution facilities, in addition to
residential and business telephony services;
(vi) managing cable television systems;
(vii) selling at the retail level equipment and other goods used or
useful in connection with the businesses described in clauses (i) through (vi)
above;
(viii) conducting other businesses contemplated by the Long Term
Strategic Plan or otherwise agreed to by the Partners; and
(ix) engaging in all activities and transactions incidental to the
foregoing (including owning or leasing real property and incurring
Indebtedness).
25
(b) Effect on Powers of Partners. The listing of the purposes of the
Partnership in this Section 2.4 shall not be construed to impair the limitations
on the powers of the Managing Partner set forth in Section 3.2 or any of the
other limitations expressly set forth in this Agreement.
2.5 Principal Office and Other Offices. The principal office of the
Partnership shall be located at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇.
The Partnership may maintain other offices at other places as the Managing
Partner deems advisable.
2.6 Foreign Qualification. The Partners 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 in those jurisdictions that provide for registration or
qualification.
2.7 Fiscal Year. The Partnership's fiscal year (each, a "Fiscal Year")
shall be the calendar year. The Partnership shall have the same Fiscal Year for
income tax purposes and for financial and partnership accounting purposes.
2.8 Addresses of the Partners. The respective addresses of the Partners are
set forth on the signature page to this Agreement.
2.9 Property. Except as otherwise contemplated herein or in the
Contribution Agreement, all assets and property, whether real, personal, or
mixed, tangible or intangible, including contractual rights, owned or possessed
by the Partnership shall be held or possessed in the name of the Partnership or
in the name of an appropriate nominee, and such assets, property, and rights
shall be deemed to be owned or possessed by the Partnership as an entity; and no
Partner shall have any separate ownership interest in such assets, property, or
rights. Each Partner's interest in the Partnership is personal property for all
purposes.
2.10 Certain Operating Policies.
(a) Activities Prior to Initial Closing Date. Except as agreed to by
the Partners, the Partnership did not conduct any business activities prior to
the Initial Closing Date except as necessary or appropriate in connection with
the formation and qualification of the Partnership or to consummate the
contribution by Advance/▇▇▇▇▇▇▇▇ and TWE to the Partnership of certain cable
television systems and other assets in accordance with the Contribution
Agreement.
(b) Proprietary Interests. The Partnership shall use all reasonable
efforts to develop and protect a proprietary interest in any discovery,
development, idea, improvement, innovation, invention, process, program, system,
technique, or other intellectual property right, whether or not patentable,
arising in the course of the Partnership's business, and the Partnership shall
use all commercially reasonable efforts to exploit any such proprietary interest
throughout the world.
26
(c) Compliance With Modification of Final Judgment. The Partnership
will conduct its business and operations in such a manner so as to comply with
the Modification of Final Judgment, to the extent applicable. The Partners shall
consult and cooperate with each other in furtherance of the foregoing.
SECTION 3 MANAGEMENT OF THE PARTNERSHIP
3.1 Generally.
(a) Appointment of Managing Partner. TWE is hereby appointed to act as
the Managing Partner of the Partnership ("Managing Partner").
(b) Rights, Powers, and Duties. The Managing Partner shall be
responsible for the management and operations of the Partnership and shall have
all powers necessary to manage and control the Partnership, to conduct its
business, and to implement any decision of the Partners adopted pursuant to this
Agreement, and all powers possessed by general partners under the Act.
Notwithstanding the preceding sentence, the exercise by the Managing Partner of
any of the powers described in the preceding sentence or listed below in this
Section 3.1(b) is subject to Section 3.1(c), Section 3.2 and the other
limitations set forth in this Agreement. Except as expressly provided herein, no
Partner other than the Managing Partner shall have any right to vote on, or
consent to, any action of any nature whatsoever taken or proposed to be taken by
the Partnership and no Partner other than the Managing Partner shall give any
consent on any matter or take any action as a Partner, including, without
limitation, acting on behalf of or binding the Partnership, unless such matter
or action shall first have been approved or consented to by the Managing Partner
or the Executive Committee. Subject to the foregoing, the powers of the Managing
Partner include, without limitation, the power on behalf of the Partnership, for
itself or on behalf of any Subsidiary of the Partnership, to:
(i) construct, operate, maintain, improve, expand, buy, own, sell,
convey, assign, mortgage, finance, refinance, rent, or lease real or personal
property, which may be held in the name of the Partnership or any Subsidiary of
the Partnership;
(ii) enter into, perform, and carry out contracts and agreements of
any kind necessary to, in connection with, or incidental to accomplishing the
purposes of the Partnership;
(iii) negotiate for and conclude agreements for the sale, exchange,
or other disposition of all or any part of the property of the Partnership or of
any Subsidiary of the Partnership, for property, cash, or on terms, or any
combination thereof, or for the purchase or lease of additional property of the
Partnership or any Subsidiary of the Partnership;
(iv) bring and defend actions in law and equity;
(v) execute and modify leases and other agreements (including
leases and agreements for terms extending beyond the term of the Partnership or
the term
27
of any Subsidiary of the Partnership), and execute and modify options,
licenses, or agreements with respect to any of the assets or the business of the
Partnership or any Subsidiary;
(vi) obtain loans, secured and unsecured, for the Partnership or
any Subsidiary of the Partnership and secure the same by mortgaging, assigning
for security purposes, pledging, or otherwise hypothecating, all or any part of
the property and assets of the Partnership or of any Subsidiary of the
Partnership (and in connection therewith to place record title to any such
property or assets in the name or names of a nominee or nominees);
(vii) prepay in whole or in part, refinance, recast, increase,
decrease, modify, amend, restate, or extend any such mortgage, security
assignment, pledge, or other security instrument, and in connection therewith to
execute and deliver, for and on behalf of the Partnership or any Subsidiary of
the Partnership, any extensions, renewals, or modifications thereof, any new
mortgage, security assignment, pledge, or other security instrument in lieu
thereof;
(viii) draw, make, accept, endorse, sign, and deliver any notes,
drafts, or other negotiable instruments or commercial paper;
(ix) establish, maintain, and draw upon checking, savings, and
other accounts in the name or any trade name of the Partnership or any
Subsidiary of the Partnership in such banks or other financial institutions as
the Managing Partner may from time to time select;
(x) employ, fix the compensation of, oversee, and discharge agents
and employees of the Partnership and of any Subsidiary of the Partnership as the
Managing Partner deems advisable in the operation and management of the business
of the Partnership, including accountants (pursuant to Section 11.2 and
otherwise), attorneys, architects, consultants, engineers, and appraisers, on
such terms and for such compensation, as the Managing Partner shall determine;
(xi) enter into management agreements with third parties pursuant
to which the management, supervision, or control of the business or assets of
the Partnership may be delegated to third parties for reasonable compensation;
(xii) enter into joint ventures, general or limited partnerships,
or other agreements relating to the Partnership's purposes;
(xiii) compromise any claim or liability due to the Partnership or
any Subsidiary of the Partnership;
execute, acknowledge, verify, and file any notifications, applications,
statements, and other filings that the Managing Partner considers necessary or
desirable to be filed with any state or federal securities administrator or
commission;
28
(xiv) execute, acknowledge, verify, and file any and all
certificates, documents, and instruments that the Managing Partner considers
necessary or desirable to permit the Partnership or any Subsidiary of the
Partnership to conduct business in any state;
(xv) do any or all of the foregoing, discretionary or otherwise,
through agents selected by the Managing Partner and compensated or uncompensated
by the Partnership; and
(xvi) take any other actions and execute any other contracts,
documents, and instruments that the Managing Partner deems appropriate to carry
out the intents and purposes of this Agreement.
(c) Executive Committee. The Managing Partner also shall act upon the
advice of a committee (the "Executive Committee") which shall be composed of
from three to five individuals. The Executive Committee shall oversee the
management and operations of the Partnership, shall make significant business
decisions of the Partnership (including without limitation those set forth in
Section 3.2 hereof) and shall participate regularly in the overall supervision,
direction and control of the Partnership and its employees. Up to two of the
members of the Executive Committee shall be designated from time to time by TWE,
up to two of the members of the Executive Committee shall be designated from
time to time by Advance/▇▇▇▇▇▇▇▇, and one of the members of the Executive
Committee shall be designated from time to time by Paragon. Any member of the
Executive Committee may be removed and replaced at any time, and from time to
time, by the Partner that originally designated such member. The Executive
Committee shall hold regular meetings quarterly or at more frequent intervals as
determined by the Executive Committee. At each meeting of the Executive
Committee, the Managing Partner shall report on its ongoing efforts to acquire
on behalf of the Partnership, by swap or otherwise, cable television systems
located within the Preferred Cluster Areas. Any Partner, or at least two members
of the Executive Committee, may call a special meeting of the Executive
Committee upon no less than 48 hours' notice to each member. The designees of
each of the Partners on the Executive Committee shall in the aggregate have
voting power proportional to their respective Percentage Interests. Except as
otherwise provided herein (including without limitation Section 3.2 hereof) or
by applicable law, the affirmative vote (or written consent) of a majority of
the voting power of all members of the Executive Committee (whether or not
present) shall constitute action by the Executive Committee. Regular or special
meetings of the Executive Committee may be held in person or telephonically.
Each member of the Executive Committee entitled to vote at any meeting of the
Executive Committee may authorize another person to act for him by proxy
(provided that such proxy must be signed by such member or his attorney-in-fact
and shall be revocable by such member at any time prior to such meeting).
(d) Conduct of Partnership Business. The day-to-day operations of the
Partnership shall be the responsibility of the Managing Partner, who shall
report regularly to the Executive Committee. The Managing Partner shall devote
such time and resources to the management of the Partnership as are reasonably
necessary or desirable to the
29
prudent operation and development of the business of the Partnership, and shall
treat the Partnership Systems using the same general standard of care that it
uses in the operation of the cable television systems owned by TWE or its
Affiliates other than the Partnership Systems (the "Other TWE Systems").
(e) Executive Officers. The Managing Partner may delegate that part of
its day-to-day operational responsibility for the Partnership as the Managing
Partner deems reasonable and prudent to individuals, who will be the Executive
Officers of the Partnership.
(f) Fiduciary Obligations. A Partner shall be liable under this
Agreement for benefits improperly received, willful misconduct, recklessness and
gross negligence with respect to the business of the Partnership, but shall not
be liable to the Partnership or the other Partners for errors in judgment or for
any acts or omissions that do not constitute the improper receipt of benefits,
willful misconduct, recklessness or gross negligence with respect to the
business of the Partnership.
(g) Tax Matters Partner. The tax matters partner of the Partnership
pursuant to Code Section 6231(a)(7) (the "Tax Matters Partner") shall be TWE or
any successor tax matters partner designated by agreement of all Partners. The
Tax Matters Partner shall have all powers necessary to perform fully its
responsibilities under the Code. To the extent and in the same manner as
provided by applicable law, the Tax Matters Partner (i) shall furnish the name,
address, and taxpayer identification number of each Partner to the Secretary of
the Treasury or his delegate and (ii) shall keep each Partner informed of any
administrative and judicial proceedings for the adjustment at the Partnership
level of any items required to be taken into account by a Partner for income tax
purposes. The Tax Matters Partner shall give notice to each Partner of a
Partnership audit. The Tax Matters Partner shall prepare and file, or cause to
be prepared and filed, all tax returns (including amended tax returns) filed by
the Partnership. The Tax Matters Partner shall be reimbursed by the Partnership
for all out-of-pocket costs and expenses incurred by it in connection with any
administrative or judicial proceeding with respect to any tax matter involving
the Partnership or the Partners in their capacity as Partners.
(h) Compensation of Partners and Reimbursement of Expenses.
(i) TWE shall be compensated by the Partnership for its services as
Managing Partner in an amount equal to (A) the Partnership's pro rata share,
based on the ratio of the number of Subscribers served by the Partnership
Systems to the total number of Subscribers served by the Partnership Systems and
the Other TWE Systems, of the following: (1) TWE Cable Expenses (as defined
below), (2) after receipt of evidence reasonably satisfactory to
Advance/▇▇▇▇▇▇▇▇ of services received by the TWE Cable Division therefor, the
management fees payable by TWE to USW pursuant to Section 8(h) of the Admission
Agreement, dated as of May 16, 1993, between TWE and USW, attributable to such
services, and (3) TWE's obligations under Section 17.7(b) of the TWE Partnership
Agreement to reimburse TWX with respect to options exercised by employees of
TWE's Cable Division (other than (x) Eligible Option Holders (who are covered by
paragraph (iii) below) and (y) system-level employees of TWE who perform
30
substantially all of their duties on behalf of one or more Other TWE Systems),
and (B) all specific costs and expenses incurred by TWE and its Affiliates on
behalf of the Partnership. For purposes of the foregoing, "TWE Cable Expenses"
shall mean all expenses incurred in connection with managing and operating the
TWE Cable Division (other than direct and identifiable costs or expenses
relating to the Other TWE Systems, which would not be appropriately allocated to
the Partnership); provided that such expenses shall be calculated net of any
management fees received by TWE with respect to the management of partially
owned cable television systems ("Managed Systems"), it being understood that in
determining the Partnership's pro rata share of any costs or expenses described
in this Section 3.1(h), the Subscribers served by the Managed Systems shall be
excluded from the number of Subscribers served by the Partnership Systems and
the number of Subscribers served by the Other TWE Systems. By way of example,
TWE Cable Expenses include, without limitation, the general costs and expenses
incurred by or allocated to the TWE Cable Division in connection with the
development of the Full Service Network and telephony service and legal expenses
incurred by the TWE Cable Division in connection with legal proceedings (such as
"test cases") which generally affect the TWE Cable Division, but do not include
expenses incurred in connection with the current operations of NY 1.
Notwithstanding the foregoing, to the extent that any TWE Cable Expenses are
paid more than one year beyond the end of the year in which such expenses arise,
the Partnership shall reimburse TWE for such expenses when such expenses are
paid; and to the extent that any TWE Cable Expenses are paid more than one year
in advance of the year in which they arise, the Partnership shall reimburse TWE
for such expenses when they are paid. The Partnership shall reimburse TWE for
all costs and expenses for each calendar month for which TWE is entitled to
reimbursement hereunder on the fifteenth day of such month based on TWE's
reasonable estimate thereof; provided that any discrepancies between actual
costs (as set forth in a certificate signed by an appropriate officer of TWE)
and estimated costs and expenses shall be settled quarterly in arrears by
payment by the Partnership to TWE of the amount of any underpayment for such
quarter or by allocating to the Partnership a credit against future payments
required by this paragraph in the amount of any overpayment for such quarter.
The Advance/▇▇▇▇▇▇▇▇ Accountants shall have the right to audit annually TWE's
records relevant to reimbursements from the Partnership pursuant to this
subparagraph. The costs and expenses of such audit shall be borne by
Advance/▇▇▇▇▇▇▇▇. TWE and Advance/▇▇▇▇▇▇▇▇ agree that no adjustment shall be
made to any annual reimbursement in the event that the extent of any
disagreement between the parties shall be, as to such year, less than
$1,500,000.
(ii) TWE, as Managing Partner, shall make all programming and any
other service or product decisions with respect to the Partnership Systems, and
shall use reasonable best efforts to cause such systems to be included in all
programming and other relevant agreements to which the TWE Cable Division or any
of its Controlled Affiliates is a party. TWE shall be compensated by the
Partnership for such programming as follows (whether or not the Partnership
Systems are included within such programming or other agreements):
(A) With respect to Third Party Programming (as defined
below), the Partnership shall pay TWE for such programming at a net
31
effective rate (taking into account the appropriate economic benefit and/or
detriment to TWE, if any, including, without limitation, discounts,
credits, marketing support, rate reimbursement, advertising support,
channel position fees, rebates, prepayment loans, deductions for
unallocated accounts and other incentives) equal to the net effective rate
per subscriber paid or accrued for such programming by the TWE Cable
Division or its Controlled Affiliate pursuant to the master programming
agreement or similar agreement between the provider of such programming and
the TWE Cable Division or such Controlled Affiliate.
(B) With respect to any other programming, the Partnership shall
pay TWE for such programming at a rate equal to the pro rata portion of the
costs to TWE or such Affiliate of producing such programming (such pro rata
portion to be determined based on the ratio of the number of Subscribers
served by the Partnership Systems offering such programming to the total
number of Subscribers served by the Partnership Systems and the Other TWE
Systems offering such programming, or, in the case of a la carte
programming, the ratio of the number of Partnership System Subscribers
subscribing to such programming to the number of Subscribers of the
Partnership Systems and the Other TWE Systems subscribing to such
programming).
For the purpose of the foregoing, "Third Party Programming" shall mean
(x) any programming purchased by the TWE Cable Division or any of its Controlled
Affiliates from any person that is not a Wholly-Owned Affiliate (as defined
below) of TWE and (y) any programming (including, without limitation, HBO and
Cinemax) purchased by the TWE Cable Division or its Controlled Affiliates from
TWE or any of its Wholly-Owned Affiliates (as defined below), provided, with
respect to this clause (y), that (1) such programming is offered by TWE or such
Affiliate to unaffiliated third parties for use on cable television systems, and
(2) the amount paid by the TWE Cable Division or its Controlled Affiliates for
such programming is consistent with the amount paid for such programming by
similarly situated third parties and is otherwise consistent with the principles
previously agreed to by the parties. "Wholly-Owned Affiliate" of TWE shall mean
(x) any division or subdivision of TWE or (y) any direct or indirect subsidiary
of TWE all of the capital stock or other equity interests of which are owned,
directly or indirectly, by TWE.
(iii) Upon exercise by any Eligible Option Holder (as defined
below) of options to purchase securities of TWX or any of its Affiliates ("TWX
Securities"), the Partnership shall pay to TWE for each share of stock or each
$1,000 principal amount of debt securities, as the case may be (such share or
$1,000 principal amount being referred to herein as a "unit" of TWX Securities),
issuable upon exercise of such options an amount equal to the excess of (A) the
Closing Price (as defined below) of a unit of such TWX Securities as of the date
of exercise, over (B) either (1) for options issued prior to the Initial Closing
Date, the greater of (x) the exercise price paid by such Eligible Option Holder
for each such unit of TWX Securities and (y) the Closing Price of a unit of such
TWX Securities on the Initial Closing Date, or (2) for options issued after the
Initial Closing Date, the exercise price paid by such Eligible Option Holder for
each such unit of TWX Securities.
32
For the purpose of this Section 3.1(h)(iii), the term "Eligible Option
Holder" shall mean any officer or other employee of the Partnership or of TWE or
any of its Subsidiaries who (x) in such capacity performs substantially all of
his or her duties on behalf of the Partnership and (y) has been, or from time to
time is, issued options to purchase units of TWX Securities; and the term
"Closing Price" shall mean, with respect to any TWX Securities on any day, the
last reported sale price of a unit of such TWX Securities (regular way) on such
day as shown on the New York Stock Exchange ("NYSE") Composite Transaction Tape,
or in case no such sale takes place on such day, the average of the closing bid
and asked prices of a unit of such TWX Securities on such day on the NYSE, or,
if such TWX Securities are not listed or admitted to trading on the NYSE, on the
principal national securities exchange on which such TWX Securities are listed
or admitted to trading, or, if they are not listed or admitted to trading on any
national securities exchange, the average of the closing bid and asked prices of
such TWX Securities on such day as reported by NASDAQ, or if such TWX Securities
are not so reported, the average of the closing bid and asked prices of a unit
of such TWX Securities on such day as furnished by any member of the National
Association of Securities Dealers, Inc. selected from time to time by TWX for
that purpose; provided that in each case, the Closing Price shall be equitably
adjusted to take into account any recapitalizations, reclassifications, mergers,
consolidations, spin-offs, extraordinary dividends or distributions,
subdivisions or combinations or the like affecting the TWX Securities.
(iv) Except as expressly provided herein, including without
limitation Section 3.1(g), Section 3.1(h) and Section 13.1 of this Agreement, or
in the Contribution Agreement, no Partner shall be entitled, without the prior
written consent of the other Partners, to compensation for its services on
behalf of the Partnership or to be reimbursed for any costs or expenses incurred
by such Partner or any of its Affiliates, agents, or representatives.
(v) Each of the Partners shall bear its own expenses, including
fees and expenses of legal counsel, financial advisors, brokers or finders, and
consultants incurred by it or its Affiliates in the negotiation and preparation
of this Agreement.
3.2 Limitations On Managing Partner. 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, neither the Partnership
nor any of its Subsidiaries shall, and neither the Managing Partner nor any
Partner individually shall have the authority to cause the Partnership or any of
its Subsidiaries to, take any of the following actions without (i) the consent
of the Partners or (ii) the unanimous consent (in person or by proxy) of all
members of the Executive Committee:
(a) sell, assign, or otherwise dispose of all or substantially all of
the assets of the Partnership and its Subsidiaries (including without limitation
the Beneficial Assets and Subsidiary Beneficial Assets), taken as a whole,
except upon the liquidation and dissolution of the Partnership in accordance
with Section 8 or Section 12;
33
(b) merge or consolidate with any other Person, other than the merger
or consolidation of a Subsidiary of the Partnership with and into another
Subsidiary of the Partnership or the Partnership;
(c) liquidate or dissolve, except in accordance with Section 8,
Section 12 or as otherwise may be required by the Act, and except for any
liquidation or dissolution of a Subsidiary of the Partnership permitted by
clause (b) above;
(d) admit any new partner to the Partnership (other than pursuant to
Section 6.1), or establish the terms and conditions of the admission of any new
partner to the Partnership;
(e) incur, create, or assume any additional Indebtedness (including
any Indebtedness relating to a Beneficial Asset or Subsidiary Beneficial Asset)
if the ratio of (i) Indebtedness of the Partnership (including such additional
Indebtedness and any Indebtedness relating to a Beneficial Asset or Subsidiary
Beneficial Asset), to (ii) EBITDA of the Partnership for the last four fiscal
quarters for which financial statements are available (the "Indebtedness/EBITDA
Ratio"), would exceed 5:1; provided that for purposes of calculating the
Indebtedness/EBITDA Ratio of the Partnership throughout this Agreement, both the
Indebtedness and the EBITDA of Paragon Communications shall be excluded; and
provided further that if the Partnership shall incur, create or assume any
additional Indebtedness prior to the date on which financial statements for the
first four fiscal quarters of the Partnership shall be available, then the
Indebtedness/EBITDA Ratio shall be calculated on a pro forma basis assuming that
the Partnership had operated the Partnership Systems since the beginning of the
most recent four fiscal quarter period for which financial statements of the
Partners are available, which pro forma calculation shall be subject to the
approval of the Advance/▇▇▇▇▇▇▇▇ Accountants, which approval shall not be
unreasonably withheld.
(f) subject to Section 3.2(e), incur, create or assume any additional
Indebtedness (including any Indebtedness relating to a Beneficial Asset or
Subsidiary Beneficial Asset), the proceeds of which are to be distributed to the
Partners pursuant to Section 5.1, if the Indebtedness/EBITDA Ratio, calculated
without taking into account any Indebtedness incurred by the Partnership for
purposes other than distributions to the Partners, would exceed 2:1; provided
that if the Partnership shall incur, create or assume any additional
Indebtedness prior to the date on which financial statements for the first four
fiscal quarters of the Partnership shall be available, then the
Indebtedness/EBITDA Ratio shall be calculated on a pro forma basis assuming that
the Partnership had operated the Partnership Systems since the beginning of the
most recent four fiscal quarter period for which financial statements of the
Partners are available, which pro forma calculation shall be subject to the
approval of the Advance/▇▇▇▇▇▇▇▇ Accountants, which approval shall not be
unreasonably withheld.
(g) enter into any agreement restricting the ability of the
Partnership to make distributions to the Partners with respect to their
Partnership Interests, except for reasonable restrictions contained in
agreements entered into by the Partnership in connection with the incurrence of
Indebtedness of the Partnership permitted by this
34
Agreement (provided that no such restrictions prohibit distributions in
connection with the redemption of Preferred Partnership Units by the Partnership
unless there exists a default or a circumstance which with notice or lapse of
time or both would constitute a default under the agreement governing such
Indebtedness);
(h) dispose of any Partnership System serving more than 25,000
Subscribers for any consideration other than cash, dispose of any Partnership
System with more than 10,000 Subscribers in a Preferred Cluster Area, or dispose
of one or more Partnership Systems for aggregate cash consideration in excess of
$50,000,000, in each case in any transaction or series of related transactions;
(i) except as provided in Section 10.1, acquire one or more cable
television systems (other than cable television systems acquired pursuant to the
Contribution Agreement) with more than 25,000 Subscribers for any consideration
other than cash, or acquire one or more cable television systems for aggregate
cash consideration in excess of $50,000,000, in either case in any transaction
or series of related transactions;
(j) except as provided in Section 10, acquire any assets (other than
cable television systems in accordance with paragraph (i) above, assets acquired
pursuant to the Contribution Agreement, or assets acquired in the ordinary
course of business or otherwise in accordance with the Long Term Strategic Plan)
for aggregate consideration in excess of $50,000,000, or enter into a new line
of business that is reasonably expected to require an investment in excess of
$50,000,000 (other than as contemplated by the Long Term Strategic Plan), in
either case in any transaction or series of related transactions;
(k) dispose of any assets (including any assets represented by a
Beneficial Asset or Subsidiary Beneficial Asset) (other than in the ordinary
course of business and other than cable television systems in accordance with
paragraph (h) above) for aggregate consideration in excess of $50,000,000 in any
transaction or series of related transactions;
(l) except as specifically set forth in this Agreement, enter into any
contract (or series of related contracts) or engage in any transaction (or
series of related transactions) with a Partner or any Affiliate of a Partner
other than on an arm's length basis;
(m) designate any additional area as a Preferred Cluster Area;
(n) make material amendments or modifications to the Long Term
Strategic Plan (as defined below);
(o) make any material deviations from the Long Term Strategic Plan
taken as a whole;
(p) require additional Capital Contributions by any Partner; or
35
(q) change the name of the Partnership.
3.3 Business Plans.
(a) Long Term Strategic Plan.
(i) On or about ▇▇▇▇▇ ▇, ▇▇▇▇, ▇▇▇ presented to Advance/▇▇▇▇▇▇▇▇ a
statement of the Partnership's strategic objectives for the first five years of
the Partnership's operations (the "Long Term Strategic Plan"), which plan
included the Partnership's strategic objectives with respect to acquisitions and
investments, asset dispositions, capital expenditures and the entry into or
withdrawal from any material line of business as well as overall timing and
numerical parameters with respect thereto. The Long Term Strategic Plan was
prepared in a manner materially consistent with the long term strategic plan of
TWE's Cable Division. On March 9, 1995 Advance/ ▇▇▇▇▇▇▇▇ approved the Long Term
Strategic Plan.
(ii) On August 18, 1998, TWE presented a successor Long Term
Strategic Plan as required by Section 11(a) of the First Transaction Agreement.
On October 21, 1998, Advance/▇▇▇▇▇▇▇▇ approved such successor Long Term
Strategic Plan.
(iii) Prior to September 30, 2001 and within three years following
the adoption and approval of each successor long term strategic plan in
accordance with this paragraph (iii), the Managing Partner shall present to
Advance/▇▇▇▇▇▇▇▇ a new long term strategic plan for the five year period
beginning no later than the first day of the calendar year following the date
which is three years following the adoption of the previous Long Term Strategic
Plan. Such long term strategic plan shall be prepared in a manner materially
consistent with the long term strategic plan of TWE's Cable Division and shall
be subject to the approval of Advance/▇▇▇▇▇▇▇▇. Any long term strategic plan
approved by Advance/▇▇▇▇▇▇▇▇ and adopted by the Partnership shall upon the
effective date stated in such plan be the Long Term Strategic Plan for all
purposes of this Agreement. Until a successor Long Term Strategic Plan is
approved by Advance/▇▇▇▇▇▇▇▇, the Long Term Strategic Plan then in effect shall
continue in effect; provided that upon the expiration of the five year period
covered by such Long Term Strategic Plan, such Long Term Strategic Plan shall
remain in effect as if it applied to such fiscal year, but shall be
appropriately adjusted to provide for any capital expenditures required to be
incurred by the Partnership by the terms of any franchise agreement or other
requirement of law or to enable the Partnership to continue or complete any
project or activity in progress that was contemplated by a previously approved
Long Term Strategic Plan or was approved by the Executive Committee with the
consent of Advance/▇▇▇▇▇▇▇▇'▇ representatives.
(b) Divisional Budget. Within a reasonable period of time prior to the
beginning of each Fiscal Year, the Managing Partner shall provide to
Advance/▇▇▇▇▇▇▇▇ division-by-division annual budgets for each group of
Partnership Systems comprising a management division, which budgets shall not be
materially inconsistent with the Long Term Strategic Plan without the written
consent of Advance/▇▇▇▇▇▇▇▇ or its
36
representatives on the Executive Committee. The Managing Partner shall provide
Advance/▇▇▇▇▇▇▇▇'▇ representatives on the Executive Committee reasonable
opportunity to consult with the Managing Partner with respect to such plans.
(c) Other Business Plans. If TWE prepares other business plans with
respect to the operation of TWE's Cable Division, then TWE shall provide such
plans to Advance/▇▇▇▇▇▇▇▇. The Managing Partner shall provide Advance/▇▇▇▇▇▇▇▇'▇
representatives on the Executive Committee reasonable opportunity to consult
with the Managing Partner with respect to such plans.
SECTION 4 PARTNERSHIP CAPITAL
4.1 Capital Contributions.
(a) Initial Contributions. Upon the execution of the Original
Agreement, Advance/▇▇▇▇▇▇▇▇ contributed to the Partnership cash in the amount of
$30.00 and TWE contributed to the Partnership cash in the amount of $60.00.
(b) Additional Contributions by Advance/▇▇▇▇▇▇▇▇.
(i) On the Initial Closing Date and from time to time thereafter
as provided in the Contribution Agreement, and in accordance with the terms and
conditions of the Contribution Agreement, Advance/▇▇▇▇▇▇▇▇ contributed or caused
to be contributed to the Partnership those assets (including the Beneficial
Assets and the Subsidiary Beneficial Assets) specified to be so contributed in
the Contribution Agreement. As of the Initial Closing Date the fair market value
of the assets contributed by Advance/▇▇▇▇▇▇▇▇ pursuant to this Section 4.1(b)
was determined in accordance with Section 2.4 of the Contribution Agreement and
included in the Partnership's records.
(ii) At any time after the date that is six months following the
First Effective Date and on or before the earlier of the fourth anniversary of
the First Effective Date, a restructuring of the Partnership pursuant to Section
8.2, or the purchase and sale of Common Partnership Units pursuant to Section
9(g)(ii), Advance/▇▇▇▇▇▇▇▇ shall contribute to the Partnership cash in the
amount of the First Advance/▇▇▇▇▇▇▇▇ Contribution Amount. In addition,
Advance/▇▇▇▇▇▇▇▇ shall pay interest on the First Advance/▇▇▇▇▇▇▇▇ Contribution
Amount at the Interest Rate (as defined in Section 5 of the First Transaction
Agreement) compounded (to the extent not paid) on a quarterly basis, from July
1, 1996 until the date on which the First Advance/▇▇▇▇▇▇▇▇ Contribution Amount
is paid. On the First Effective Date, Advance/▇▇▇▇▇▇▇▇ executed the
Advance/▇▇▇▇▇▇▇▇ Note (as defined in Section 5 of the First Transaction
Agreement) which is not an asset of the Partnership but secures
Advance/▇▇▇▇▇▇▇▇'▇ obligation to contribute the First Advance/▇▇▇▇▇▇▇▇
Contribution Amount to the Partnership, plus interest, as provided in this
Section 4.1(b)(ii).
(iii) At any time after the date that is six months following the
Second Effective Date and on or before the earlier of the fourth anniversary of
the Second Effective Date, a restructuring of the Partnership pursuant to
Section 8.2, or the
37
purchase and sale of Common Partnership Units pursuant to Section 9(g)(ii),
Advance/▇▇▇▇▇▇▇▇ shall contribute to the Partnership cash in the amount of the
Second Advance/▇▇▇▇▇▇▇▇ Contribution Amount. In addition, Advance/▇▇▇▇▇▇▇▇ shall
pay interest on the Second Advance/▇▇▇▇▇▇▇▇ Contribution Amount at the Interest
Rate (as defined in Section 4 of the Second Transaction Agreement) compounded
(to the extent not paid) on a quarterly basis, from the Second Effective Date
until the date on which the Second Advance/▇▇▇▇▇▇▇▇ Contribution Amount is paid.
On the Second Effective Date, Advance/▇▇▇▇▇▇▇▇ shall execute the
Advance/▇▇▇▇▇▇▇▇ Note (as defined in Section 4 of the Second Transaction
Agreement) which shall not be an asset of the Partnership but shall secure
Advance/▇▇▇▇▇▇▇▇'▇ obligation to contribute the Second Advance/▇▇▇▇▇▇▇▇
Contribution Amount to the Partnership, plus interest, as provided in this
Section 4.1(b)(iii).
(iv) At any time after the date that is six months following the
Third Effective Date and on or before the earlier of July 1, 2000, a
restructuring of the Partnership pursuant to Section 8.2, or the purchase and
sale of Common Partnership Units pursuant to Section 9(g)(ii), Advance/▇▇▇▇▇▇▇▇
shall contribute to the Partnership cash in the amount of the Third
Advance/▇▇▇▇▇▇▇▇ Contribution Amount. In addition, Advance/▇▇▇▇▇▇▇▇ shall pay
interest on the Third Advance/▇▇▇▇▇▇▇▇ Contribution Amount at the Interest Rate
(as defined in Section 4 of the Third Transaction Agreement) compounded (to the
extent not paid) on a quarterly basis, from July 1, 1998 until the date on which
the Third Advance/▇▇▇▇▇▇▇▇ Contribution Amount is paid in full, subject to a
prepayment penalty if paid prior to July 1, 2000 as described in Section 4 of
the Third Transaction Agreement. On the Third Effective Date, Advance/▇▇▇▇▇▇▇▇
shall execute the Advance/▇▇▇▇▇▇▇▇ Note (as defined in Section 4 of the Third
Transaction Agreement) which shall not be an asset of the Partnership but shall
secure Advance/▇▇▇▇▇▇▇▇'▇ obligation to contribute the Third Advance/▇▇▇▇▇▇▇▇
Contribution Amount to the Partnership, plus interest, as provided in this
Section 4.1(b)(iv).
(v) On or before the fourth anniversary of the Fourth Effective
Date a restructuring of the Partnership pursuant to Section 8.2, or the purchase
and sale of Common Partnership Units pursuant to Section 9(g)(ii),
Advance/▇▇▇▇▇▇▇▇ shall contribute to the Partnership cash in the amount of the
Fourth Advance/▇▇▇▇▇▇▇▇ Contribution Amount. In addition, Advance/▇▇▇▇▇▇▇▇ shall
pay interest on the Fourth Advance/▇▇▇▇▇▇▇▇ Contribution Amount at the Interest
Rate (as defined in Section 4 of the Fourth Transaction Agreement) compounded
(to the extent not paid) on a quarterly basis, from the Fourth Effective Date
until the date on which the Fourth Advance/▇▇▇▇▇▇▇▇ Contribution Amount is paid
in full, as described in Section 4 of the Fourth Transaction Agreement. On the
Fourth Effective Date, Advance/▇▇▇▇▇▇▇▇ shall execute the Advance/▇▇▇▇▇▇▇▇ Note
(as defined in Section 4 of the Fourth Transaction Agreement) which shall not be
an asset of the Partnership but shall secure Advance/▇▇▇▇▇▇▇▇'▇ obligation to
contribute the Fourth Advance/▇▇▇▇▇▇▇▇ Contribution Amount to the Partnership,
plus interest, as provided in this Section 4.1(b)(v).
(c) Additional Contributions by TWE.
38
(i) On the Initial Closing Date and from time to time thereafter as
provided in the Contribution Agreement, and in accordance with the terms and
conditions of the Contribution Agreement, TWE contributed to the Partnership
those assets (including the Beneficial Assets and the Subsidiary Beneficial
Assets) specified to be so contributed in the Contribution Agreement. As of the
Initial Closing Date the fair market value of the assets contributed by TWE
pursuant to this Section 4.1(c) was determined in accordance with Section 2.4 of
the Contribution Agreement and included in the Partnership's records.
(ii) On the First Effective Date and from time to time thereafter
as provided in the First Transaction Agreement and in accordance with the terms
and conditions of the First Transaction Agreement, TWE contributed to the
Partnership those assets specified in Section 2(a) of the First Transaction
Agreement, subject to the liabilities set forth in the First Transaction
Agreement. Such contribution by TWE was in satisfaction of certain of its
obligations, including under the Contribution Agreement, as provided in Section
2(d) of the First Transaction Agreement.
(iii) On the Fourth Effective Date and from time to time thereafter
as provided in the Fourth Transaction Agreement and in accordance with the terms
and conditions of the Fourth Transaction Agreement, TWE shall contribute to the
Partnership those assets specified in Section 1(a)(i) and Section 1(a)(ii) of
the Fourth Transaction Agreement, subject to liabilities as set forth in the
Fourth Transaction Agreement. For purposes of establishing Capital Accounts, the
Partners agree that as of the Fourth Effective Date, the fair market value of
the assets contributed by TWE pursuant to this Section 4.1(c)(iii) shall be
determined in accordance with the Fourth Transaction Agreement.
(d) Contributions by Paragon.
(i) On the First Effective Date and from time to time thereafter
as provided in the First Transaction Agreement and in accordance with the terms
and conditions of the First Transaction Agreement, Paragon contributed to the
Partnership those assets specified on Schedule 1 of the First Transaction
Agreement and in Section 2(b) of the First Transaction Agreement, subject to the
liabilities set forth in the First Transaction Agreement. For purposes of
establishing Capital Accounts, the Partners agree that as of the First Effective
Date, the fair market value of the assets contributed by Paragon pursuant to
this Section 4.1(d)(i) was determined in accordance with the First Transaction
Agreement.
(ii) On the Second Effective Date and from time to time thereafter
as provided in the Second Transaction Agreement and in accordance with the terms
and conditions of the Second Transaction Agreement, Paragon contributed to the
Partnership those assets specified on Schedule 1 of the Second Transaction
Agreement, subject to the liabilities set forth in the Second Transaction
Agreement. For purposes of establishing Capital Accounts, the Partners agree
that as of the Second Effective Date, the fair market value of the assets
contributed by Paragon pursuant to this Section 4.1(d)(ii) shall be determined
in accordance with the Second Transaction Agreement.
39
(iii) On the Third Effective Date and from time to time thereafter
as provided in the Third Transaction Agreement and in accordance with the terms
and conditions of the Third Transaction Agreement, Paragon shall contribute to
the Partnership those assets specified on Schedule 1 of the Third Transaction
Agreement, subject to the liabilities set forth in the Third Transaction
Agreement. For purposes of establishing Capital Accounts, the Partners agree
that as of the Third Effective Date, the fair market value of the assets
contributed by Paragon pursuant to this Section 4.1(d)(iii) was determined in
accordance with the Third Transaction Agreement.
(iv) On the Fourth Effective Date and from time to time thereafter
as provided in the Fourth Transaction Agreement and in accordance with the terms
and conditions of the Fourth Transaction Agreement, Paragon shall contribute to
the Partnership those assets specified in Section 1(a)(iii) of the Fourth
Transaction Agreement, subject to liabilities as described in the Fourth
Transaction. For purposes of establishing Capital Accounts, the Partners agree
that as of the Fourth Effective Date, the fair market value of the assets
contributed by Paragon pursuant to this Section 4.1(d)(iv) was determined in
accordance with the Fourth Transaction Agreement.
(e) Preferred Capital Contributions.
(i) Prior to the Fourth Effective Date, no Preferred Partnership
Units were issued to Advance/▇▇▇▇▇▇▇▇ in exchange for Preferred Capital
Contributions pursuant to Section 4.2(c).
(ii) At any time that TWE, Advance/▇▇▇▇▇▇▇▇ or Paragon elects not
to receive a proposed distribution from the Partnership pursuant to Section
5.1(c), the amount of such proposed distribution shall be treated as a
contribution to the Partnership, in increments of $1,000, in exchange for
Preferred Partnership Units as provided in Section 4.2(c); provided, however,
that, notwithstanding the foregoing, if at such time TWE, Advance/▇▇▇▇▇▇▇▇ and
Paragon are all treated as having made a concurrent contribution to the
Partnership in accordance with this Section 4.1(e)(ii), then the amount of the
proposed distribution to TWE, Advance/▇▇▇▇▇▇▇▇ and Paragon shall be treated as
Common Capital Contributions and no Preferred Partnership Units shall be issued
therefor.
(iii) Any Distributable Cash retained by the Partnership and
treated as a Preferred Capital Contribution in accordance with Section 4.1(e)(i)
or 4.1(e)(ii) shall be invested by the Partnership in debt securities in the
manner directed by the holder of the applicable Preferred Partnership Units and
any amounts received on such debt securities (as interest or otherwise), to the
extent not distributed pursuant to Sections 5.1(a)(i), 5.1(b)(i) or 5.2, shall
be reinvested in debt securities in the manner directed by the holder of the
applicable Preferred Partnership Units. All such debt securities, together with
any uninvested amounts received thereon, shall be referred to herein as the
"Preferred Investment Pool" with respect to the Preferred Partnership Units held
by such Partner.
40
(f) Other Additional Capital Contributions. Except as agreed to by the
Partners in accordance with Section 3.2 hereof, there shall be no further
assessments for additional Common Capital Contributions, Series A Preferred
Capital Contributions, Series B Preferred Capital Contributions or Series C
Preferred Capital Contributions by the Partners to the Partnership.
4.2 Partnership Units.
(a) Advance/▇▇▇▇▇▇▇▇ and TWE.
(i) On September 9, 1994, the Partnership issued:
(A) to Advance/▇▇▇▇▇▇▇▇, 300 Common Partnership Units in
exchange for Advance/▇▇▇▇▇▇▇▇'▇ agreement to make the Common Capital
Contributions described in Section 4.1(a) and Section 4.1(b)(i); and
(B) to TWE, 600 Common Partnership Units in exchange for TWE's
agreement to make the Common Capital Contributions described in Section
4.1(a) and Section 4.1(c).
(ii) As of the First Effective Date, the Partnership issued to
Advance/▇▇▇▇▇▇▇▇ the number of Common Partnership Units equal to fifty percent
(50%) of the number of Common Partnership Units issued to Paragon pursuant to
Section 4.2(b)(i) hereof. Such Common Partnership Units were issued to
Advance/▇▇▇▇▇▇▇▇ in exchange for Advance/▇▇▇▇▇▇▇▇'▇ agreement to make the
Capital Contribution described in Section 4.1(b)(ii).
(iii) As of the Second Effective Date, the Partnership issued to
Advance/▇▇▇▇▇▇▇▇ the number of Common Partnership Units equal to fifty percent
(50%) of the number of Common Partnership Units issued to Paragon pursuant to
Section 4.2(b)(ii) hereof. Such Common Partnership Units were issued to
Advance/▇▇▇▇▇▇▇▇ in exchange for Advance/▇▇▇▇▇▇▇▇'▇ agreement to make the
Capital Contribution described in Section 4.1(b)(iii).
(iv) As of the Third Effective Date, the Partnership issued to
Advance/▇▇▇▇▇▇▇▇ the number of Common Partnership Units equal to fifty percent
(50%) of the number of Common Partnership Units issued to Paragon pursuant to
Section 4.2(b)(iii) hereof. Such Common Partnership Units were issued to
Advance/▇▇▇▇▇▇▇▇ in exchange for Advance/▇▇▇▇▇▇▇▇'▇ agreement to make the
Capital Contribution described in Section 4.1(b)(iv).
(v) On the Fourth Effective Date, the Partnership shall issue:
(A) to Advance/▇▇▇▇▇▇▇▇, the number of Common Partnership
Units equal to fifty percent (50%) of the aggregate number of Common
Partnership Units issued to TWE pursuant to Section 4.2(a)(v)(B) hereof and
issued to Paragon pursuant to Section 4.2(b)(iv) hereof. Such Common
Partnership Units shall be issued to Advance/▇▇▇▇▇▇▇▇ in exchange for
41
Advance/▇▇▇▇▇▇▇▇'▇ agreement to make the Capital Contribution described in
Section 4.1(b)(v); and
(B) to TWE, the number of Series C Preferred Partnership Units
and Common Partnership Units provided in Section 1(c) of the Fourth
Transaction Agreement. Such Series C Preferred Partnership Units and Common
Partnership Units shall be issued to TWE in exchange for its agreement to
make the Capital Contribution described in Section 4.1(c)(iii).
(b) Paragon.
(i) As of the First Effective Date, the Partnership issued to
Paragon the number of Series A Preferred Partnership Units and the number of
Common Partnership Units provided in Sections 1(c) and 2(d) of the First
Transaction Agreement. Such Series A Preferred Partnership Units and Common
Partnership Units were issued to Paragon in exchange for Paragon's agreement to
make the Capital Contribution described in Section 4.1(d)(i).
(ii) As of the Second Effective Date, the Partnership issued to
Paragon the number of Series B Preferred Partnership Units and the number of
Common Partnership Units provided in Section 1(c) of the Second Transaction
Agreement. Such Series B Preferred Partnership Units and Common Partnership
Units were issued to Paragon in exchange for Paragon's agreement to make the
Capital Contribution described in Section 4.1(d)(ii).
(iii) As of the Third Effective Date, the Partnership issued to
Paragon the number of Series B Preferred Partnership Units and the number of
Common Partnership Units provided in Section 1(c) of the Third Transaction
Agreement. Such Series B Preferred Partnership Units and Common Partnership
Units were issued to Paragon in exchange for Paragon's agreement to make the
Capital Contribution described in Section 4.1(d)(iii).
(iv) On the Fourth Effective Date, the Partnership shall issue to
Paragon the number of Series C Preferred Partnership Units and Common
Partnership Units provided in Section 1(d) of the Fourth Transaction Agreement.
Such Series C Preferred Partnership Units and Common Partnership Units shall be
issued to Paragon in exchange for its agreement to make the Capital Contribution
described in Section 4.1(d)(iv).
(c) Preferred Partnership Units. At any time that a Partner is treated
as having made a contribution to the Partnership pursuant to Section 4.1(e)
(unless all Partners are treated as having made such a contribution as provided
in the proviso to Section 4.1(e)(ii)), the Partnership shall issue to such
Partner, on the date on which such contribution is deemed made, one Preferred
Partnership Unit for each $1,000 deemed contributed by such Partner on such
date.
4.3 Indebtedness.
42
(a) (i) In accordance with the First Transaction Agreement, the
Partnership assumed and otherwise took subject to, the Assumed CVI Liabilities
and the Assumed Paragon Liabilities (as such terms are defined in Sections 1(a)
and 2(b) of the First Transaction Agreement).
(ii) In accordance with the Second Transaction Agreement, the
Partnership assumed or otherwise took subject to, the Assumed Second Liabilities
(as such terms are defined in Section 1(a) of the Second Transaction Agreement).
(iii) In accordance with the Third Transaction Agreement, the
Partnership assumed or otherwise took subject to, the Assumed Third Liabilities
(as such terms are defined in Section 1(a) of the Third Transaction Agreement).
(iv) In accordance with the Fourth Transaction Agreement, the
Partnership shall assume or otherwise take subject to, the Assumed Fourth
Transaction Liabilities (as such terms are defined in Section 1(a) of the Fourth
Transaction Agreement).
(b) Subject to Sections 3.2(e) and 3.2(f), from time to time upon the
written request of any Partner, the Partnership shall incur Indebtedness which,
in the good faith judgment of the Managing Partner is available on commercially
reasonable terms, provided such Indebtedness expressly is non-recourse to any
Partner.
(c) Subject to the limitation in Section 5.1(a)(iv), in the event the
Partnership incurs Indebtedness pursuant to this Section 4.3, the proceeds of
such Indebtedness shall be distributed to the Partners in accordance with
Section 5.1 below.
(d) As promptly as practicable after the Managing Partner determines
to cause the Partnership to incur, create or assume any Indebtedness, but not
less than 10 days before the incurrence, creation or assumption by the
Partnership of such Indebtedness, the Managing Partner shall give
Advance/▇▇▇▇▇▇▇▇ notice and a reasonably detailed description thereof, including
a description of any restrictions on distributions of the type referred to in
the next sentence contained in the agreement governing such Indebtedness (the
"Indebtedness Notice"). The Managing Partner shall use reasonable best efforts
in negotiating such agreement to exclude from the credit (or other) agreement(s)
entered into by the Partnership in connection with such Indebtedness any
restrictions on distributions by the Partnership with respect to any Preferred
Partnership Units (it being understood that, subject to Section 3.2(g), the
Partnership shall not be required to exclude any restrictions on distributions
with respect to any Preferred Partnership Units from any such agreement if as a
result of such exclusion the Indebtedness governed by such agreement would bear
a higher rate of interest or such agreement would contain more restrictive
covenants than if such agreement did not exclude such restrictions, assuming for
such purpose that the Partnership did not own the assets held in the Preferred
Investment Pool).
SECTION 5 CASH DISTRIBUTIONS; ALLOCATIONS OF PROFITS AND LOSSES
43
5.1 Distributions.
(a) Distributions Prior to Sixth Anniversary. Except as
provided in Sections 5.1(d), 5.1(e), 5.2 and 8.2, prior to the sixth anniversary
of the First Effective Date, all distributions by the Partnership shall be made
as follows:
(i) The Partnership shall, at least quarterly,
distribute (to the extent not prohibited by any applicable contractual
restrictions) to the holders of the Preferred Partnership Units all cash
received with respect to the Preferred Investment Pool associated with such
Preferred Partnership Units, until each holder of Preferred Partnership Units
shall have received aggregate distributions pursuant to this Section 5.1(a)(i)
in an amount equal to the product of the Effective Tax Rate times the Net
Cumulative Preferred Taxable Income allocated to such holder of Preferred
Partnership Units during the period commencing on the Initial Closing Date and
ending on the last day of the fiscal quarter immediately preceding the date of
distribution.
(ii) With respect to any Fiscal Year in which Paragon
and TWE are expected (based on the Managing Partner's good faith estimate) to be
allocated Net Profit pursuant to Section 5.3(b)(ii), the Partnership shall, at
least quarterly, distribute (to the extent not prohibited by any applicable
contractual restrictions) all Distributable Cash to Paragon and TWE (on a pari
passu basis in proportion to the excess amounts calculated for each of them in
clauses (A) and (B) below, respectively):
(A) until Paragon shall have received
distributions, with respect to the Series A Preferred Partnership
Units, the Series B Preferred Partnership Units and the Series C
Preferred Partnership Units held by it in an amount equal to the excess
of (I) the sum of (x) such estimated Net Profit expected to be
allocated to such Partner pursuant to Section 5.3(b)(ii)(A) and (y) the
Net Profit allocated to such Partner pursuant to Section 5.3(b)(ii)(A)
for all prior Fiscal Years, over (II) the distributions to Paragon
pursuant to this Section 5.1(a)(ii)(A) for all prior Fiscal Years,
which distributions shall be allocated among the Series A Preferred
Partnership Units, the Series B Preferred Partnership Units and the
Series C Preferred Partnership Units held by Paragon, pari passu, in
proportion to such excess amount calculated for each of them; and
(B) until TWE shall have received
distributions with respect to the Series C Preferred Partnership Units
held by it in an amount equal to the excess of (I) the sum of (x) such
estimated Net Profit expected to be allocated to such Partner pursuant
to Section 5.3(b)(ii)(B) and (y) the Net Profit allocated to such
Partner pursuant to Section 5.3(b)(ii)(B) for all prior Fiscal Years,
over (II) the distributions to TWE pursuant to this Section
5.1(a)(ii)(B) for all prior Fiscal Years.
(iii) After the Partnership has made distributions
with respect to the Preferred Partnership Units, the Series A Preferred
Partnership Units, Series B Preferred Partnership Units and Series C Preferred
Partnership Units in accordance with clauses (i) and (ii), the Partnership
shall, at least quarterly, distribute (to the extent not
44
prohibited by any applicable contractual restrictions) to the Partners
Distributable Cash, in proportion to the respective amounts required to be
distributed to each such Partner pursuant to this Section 5.1(a)(iii), in an
amount equal to 25 percent of such Partner's Net Tax Amount for the taxable year
that includes such calendar quarter (as estimated in good faith by the Managing
Partner). The Managing Partner's estimate of such Partner's Net Tax Amount for
such year shall be revised prior to each distribution for such year and upon the
filing of the Partnership's Federal income tax return for such year, and
following such revision, (y) the Partnership shall distribute to such Partner
the excess (if any) of the amount that should have been distributed to such
Partner pursuant to this Section 5.1(a)(iii) based on such revised estimate,
over the amount actually distributed to such Partner pursuant to this Section
5.1(a)(iii), plus interest thereon at the rate paid by the Partnership on its
senior Indebtedness, or (z) such Partner shall contribute to the Partnership the
excess (if any) of the amount actually distributed to such Partner pursuant to
this Section 5.1(a)(iii) over the amount that should have been distributed to
such Partner pursuant to this Section 5.1(a)(iii) based on such revised
estimate, plus interest thereon at the rate paid by the Partnership on its
senior Indebtedness. To the extent there is insufficient available cash to make
distributions pursuant to this Section 5.1(a)(iii) at the time required, the
Partnership shall pay interest on such shortfall at the rate paid by the
Partnership on its senior Indebtedness, and such interest shall be paid out of
the Partnership's first available Distributable Cash.
(iv) After the Partnership has made the distributions
required by clauses (i), (ii) and (iii), any remaining Distributable Cash shall,
at least quarterly, be distributed to the Partners in accordance with their
Percentage Interests, unless they make the election provided in Section 5.1(c);
provided, however, that during the period ending on the third anniversary of the
Fourth Effective Date, distributions to any Partner pursuant to this Section
5.1(a)(iv) shall not, without the consent of TWE, exceed an amount which, when
added to the distributions to such Partner pursuant to Section 5.1(a)(iii),
exceed the sum of (x) such Partner's permitted "operating cash flow
distribution," as determined pursuant to Treasury Regulation Section 1.707-4(b),
and (y) the amount of Partnership indebtedness incurred by the Partnership
during the taxable year that includes such calendar quarter and the proceeds of
which are distributed to the Partners, to the extent such indebtedness is
included in such Partner's basis in its interest in the Partnership pursuant to
Code Section 752 and Treasury Regulation Section 1.707-5(a)(2).
(b) Distributions After Sixth Anniversary. Except as provided
in Sections 5.1(d), 5.1(e), 5.2 and 8.2, on and after the sixth anniversary of
the First Effective Date, all distributions by the Partnership shall be made as
follows:
(i) The Partnership shall, at least quarterly,
distribute (to the extent not prohibited by any applicable contractual
restrictions) to the holders of the Preferred Partnership Units all cash
received with respect to the Preferred Investment Pool associated with such
Preferred Partnership Units, until each holder of Preferred Partnership Units
shall have received aggregate distributions pursuant to Section 5.1(a)(i) and
this Section 5.1(b)(i) in an amount equal to the product of the Effective Tax
Rate times the Net Cumulative Preferred Taxable Income allocated to such holder
of Preferred
45
Partnership Units during the period commencing on the Initial Closing Date and
ending on the last day of the fiscal quarter immediately preceding the date of
distribution.
(ii) With respect to any Fiscal Year in which Paragon
and TWE are expected (based on the Managing Partner's good faith estimate) to be
allocated Net Profit pursuant to Section 5.3(b)(ii), the Partnership shall, at
least quarterly, distribute (to the extent not prohibited by any applicable
contractual restrictions) all Distributable Cash to Paragon and TWE (on a pari
passu basis in proportion to the excess amounts calculated for each of them in
clauses (A) and (B) below, respectively):
(A) until Paragon shall have received
distributions, with respect to the Series A Preferred Partnership
Units, the Series B Preferred Partnership Units and the Series C
Preferred Partnership Units held by it in an amount equal to the excess
of (I) the sum of (x) such estimated Net Profit expected to be
allocated to such Partner pursuant to Section 5.3(b)(ii)(A) and (y) the
Net Profit allocated to such Partner pursuant to Section 5.3(b)(ii)(A)
for all prior Fiscal Years, over (II) the distributions to Paragon
pursuant to this Section 5.1(b)(ii)(A) and Section 5.1(a)(ii)(A) for
all prior Fiscal Years, which distributions shall be allocated among
the Series A Preferred Partnership Units, the Series B Preferred
Partnership Units and the Series C Preferred Partnership Units held by
Paragon, pari passu, in proportion to such excess amount calculated for
each of them; and
(B) until TWE shall have received
distributions with respect to the Series C Preferred Partnership Units
held by it in an amount equal to the excess of (I) the sum of (x) such
estimated Net Profit expected to be allocated to such Partner pursuant
to Section 5.3(b)(ii)(B) and (y) the Net Profit allocated to such
Partner pursuant to Section 5.3(b)(ii)(B) for all prior Fiscal Years,
over (II) the distributions to TWE pursuant to this Section
5.1(b)(ii)(B) and Section 5.1(a)(ii)(B) for all prior Fiscal Years.
(iii) After the Partnership has made distributions
with respect to the Preferred Partnership Units, the Series A Preferred
Partnership Units, the Series B Preferred Partnership Units and the Series C
Preferred Partnership Units in accordance with clauses (i) and (ii), the
Partnership shall, at least quarterly, distribute (to the extent not prohibited
by any applicable contractual restrictions) to the Partners Distributable Cash,
in proportion to the respective amounts required to be distributed to each such
Partner pursuant to this Section 5.1(b)(iii), in an amount equal to 25 percent
of such Partner's Net Tax Amount for the taxable year that includes such
calendar quarter (as estimated in good faith by the Managing Partner). The
Managing Partner's estimate of such Partner's Net Tax Amount for such year shall
be revised prior to each distribution for such year and upon the filing of the
Partnership's Federal income tax return for such year, and following such
revision, (y) the Partnership shall distribute to such Partner the excess (if
any) of the amount that should have been distributed to such Partner pursuant to
this Section 5.1(b)(iii) based on such revised estimate, over the amount
actually distributed to such Partner pursuant to this Section 5.1(b)(iii), plus
interest thereon at the rate paid by the Partnership on its senior Indebtedness,
or (z) such Partner shall contribute
46
to the Partnership the excess (if any) of the amount actually distributed to
such Partner pursuant to this Section 5.1(b)(iii) over the amount that should
have been distributed to such Partner pursuant to this Section 5.1(b)(iii) based
on such revised estimate, plus interest thereon at the rate paid by the
Partnership on its senior Indebtedness. To the extent there is insufficient
available cash to make distributions pursuant to this Section 5.1(b)(iii) at the
time required, the Partnership shall pay interest on such shortfall at the rate
paid by the Partnership on its senior Indebtedness, and such interest shall be
paid out of the Partnership's first available Distributable Cash.
(iv) After the Partnership has made the distributions
required by clauses (i), (ii) and (iii), the Partnership shall distribute (to
the extent not prohibited by any applicable contractual restrictions) any
remaining Distributable Cash to Paragon and TWE on a pari passu basis in
redemption of outstanding Series A Preferred Partnership Units, Series B
Preferred Partnership Units and Series C Preferred Partnership Units, at a
redemption price of $1,000 per Series A Preferred Partnership Unit, Series B
Preferred Partnership Unit or Series C Preferred Partnership Unit, as the case
may be, so that the Partnership shall have redeemed such Series A Preferred
Partnership Units, Series B Preferred Partnership Units and Series C Preferred
Partnership Units in accordance with the following:
(A) Prior to the seventh anniversary of the
First Effective Date, the Partnership shall have redeemed one-third of
the number of Series A Preferred Partnership Units and Series B
Preferred Partnership Units originally issued pursuant to Section
4.2(a)(v)(B) or Section 4.2(b);
(B) Prior to the eighth anniversary of the
First Effective Date, the Partnership shall have redeemed, in the
aggregate, two-thirds of the number of Series A Preferred Partnership
Units and Series B Preferred Partnership Units, plus one-third of the
number of Series C Preferred Partnership Units, in each case that were
originally issued pursuant to Sections 4.2(a)(v)(B) and 4.2(b); and
(C) Prior to the ninth anniversary of the
First Effective Date, the Partnership shall have redeemed, in the
aggregate, all of the outstanding number of Series A Preferred
Partnership Units and Series B Preferred Partnership Units, plus
two-thirds of the number of Series C Preferred Partnership Units, in
each case that were originally issued pursuant to Sections 4.2(a)(v)(B)
and 4.2(b); and
(D) On and after the tenth anniversary of
the First Effective Date, the Partnership shall have redeemed all
outstanding Series A Preferred Partnership Units, Series B Preferred
Partnership Units and Series C Preferred Partnership Units.
Each distribution pursuant to this Section 5.1(b)(iv) shall be made with respect
to the Series A Preferred Partnership Units, the Series B Preferred Partnership
Units and
47
Series C Preferred Partnership Units, as applicable, held by Paragon and TWE,
pari passu, in proportion to the number of each outstanding.
(v) After the Partnership shall have made all
distributions required by clauses (i), (ii), (iii) and (iv), any remaining
Distributable Cash shall, at least quarterly, be distributed to the Partners in
accordance with their Percentage Interests, unless they make the election
provided in Section 5.1(c).
(c) Election Not to Receive Distribution. Notwithstanding
Section 5.1(a)(iv) or Section 5.1(b)(v), at any time that the Partnership
proposes to make distributions to the Partners pursuant to Section 5.1(a)(iv) or
Section 5.1(b)(v), any of such Partners may elect not to receive the
distribution proposed to be distributed to it, and the amount of such proposed
distribution shall be treated as a contribution to the Partnership by such
Partner pursuant to Section 4.1(d), and shall no longer be considered to be part
of Distributable Cash for purposes of Section 5.1.
(d) Net Proceeds of Sale. Following the sale, exchange, or
other disposition of all or substantially all of the assets of the Partnership,
or upon the liquidation of the Partnership within the meaning of Treasury
Regulations Section 1.704-1(b)(2)(ii)(g), and after payment of, or adequate
provision for, the debts and obligations of the Partnership, the remaining
assets of the Partnership shall be distributed to the Partners (after giving
effect to all contributions, distributions, allocations, and other Capital
Account adjustments for all taxable years, including the year during which such
liquidation occurs) as follows:
(i) First, the applicable Preferred Investment Pool
shall be distributed to the holder of Preferred Partnership Units in redemption
of all such Preferred Partnership Units;
(ii) Second, the Priority Return accrued and unpaid
as of the date of liquidation shall be distributed to Paragon and TWE in respect
of the Series A Preferred Partnership Units, the Series B Preferred Partnership
Units and the Series C Preferred Partnership Units held by each of them, as
applicable, on a pari passu basis in proportion to the amounts of such returns;
(iii) Third, all outstanding Series A Preferred
Partnership Units, Series B Preferred Partnership Units and Series C Partnership
Units shall be redeemed at a redemption price of $1,000 per Series A Preferred
Partnership Unit, Series B Partnership Unit or Series C Partnership Unit, as the
case may be; and
(iv) Finally, the remaining assets of the Partnership
shall be distributed to the Partners so as to effectuate the agreement among the
Partners that the distributions remaining after paying taxes on the Partners'
Special Income and Gross Profit and Gross Loss allocated under Section
5.3(d)(ii) with respect to the year of such distribution are in proportion to
their respective Percentage Interests, assuming all Partners are taxed at the
Special Effective Tax Rate and taking into account any
48
additional tax paid by Advance/▇▇▇▇▇▇▇▇ due to the inability of it (or the
Persons that are the taxpayers with respect to income of it) to use all Taxable
Loss allocable to it.
(e) Withholding. All amounts withheld pursuant to the Code or
any provision of any state or local tax law with respect to any payment or
distribution to a Partner shall be treated as amounts distributed to such
Partner pursuant to Section 5.1 for all purposes of this Agreement.
5.2 Redemption of Preferred Partnership Units. Upon an Advance/▇▇▇▇▇▇▇▇
Redemption Event, TWE Redemption Event, or Paragon Redemption Event,
Advance/▇▇▇▇▇▇▇▇, TWE or Paragon, respectively, shall have the option to require
the Partnership to redeem all or some of the Preferred Partnership Units held by
such Partner. Such redemption option shall be exercisable by delivery of a
written notice (the "Redemption Notice") to the Partnership indicating that an
Advance/▇▇▇▇▇▇▇▇ Redemption Event, TWE Redemption Event, or Paragon Redemption
Event, as applicable, has occurred, and setting forth the number of Preferred
Partnership Units to be redeemed by the Partnership (the "Redeemed Preferred
Partnership Units"). As soon as reasonably practicable, but no later than five
business days following the delivery of the Redemption Notice, the Partnership
shall distribute to Advance/▇▇▇▇▇▇▇▇, TWE or Paragon, as applicable, the
applicable Preferred Investment Pool (or pro rata portion thereof based on the
ratio of the number of Redeemed Preferred Partnership Units to the total number
of Preferred Partnership Units held by Advance/▇▇▇▇▇▇▇▇, TWE or Paragon, as
applicable).
5.3 Allocations of Preferred Profit; Preferred Loss; Net Profit and Net
Loss.
(a) Priority Allocations. All Preferred Profit and Preferred
Loss with respect to a Preferred Investment Pool for any Fiscal Year (or portion
thereof) shall be allocated to the holder of Preferred Partnership Units to
which such Preferred Investment Pool relates.
(b) Allocations of Net Profit. Except as otherwise provided in
Sections 5.3(d) and 5.3(e), after giving effect to the allocations provided in
Sections 5.3(a), 5.5 and 5.8, the Net Profit for each Fiscal Year (or portion
thereof) shall be allocated to the Partners as follows:
(i) First, Net Profit shall be allocated to Paragon
and TWE (on a pari passu basis in proportion to the excess amounts calculated in
clauses (A) and (B) below, respectively):
(A) until Paragon shall have been allocated,
with respect to the Series A Preferred Partnership Units, the Series B
Preferred Partnership Units and the Series C Preferred Partnership
Units held by it, Net Profit in an amount equal to the excess, if any,
of (I) the aggregate Net Loss allocated to Paragon pursuant to Section
5.3(c)(ii)(A) for all prior Fiscal Years over (II) the aggregate Net
Profit allocated to such Partnership Units pursuant to this Section
5.3(b)(i)(A) for all prior Fiscal Years, which allocation shall be
divided
among the Series A Preferred Partnership Units, the Series B Preferred
Partnership Units and the Series C Preferred Partnership Units held by
Paragon, pari passu, in proportion to such excess amount calculated for
each of them; and
(B) until TWE shall have been allocated,
with respect to the Series C Preferred Partnership Units held by it,
Net Profit in an amount equal to the excess, if any, of (I) the
aggregate Net Loss allocated to TWE pursuant to Section 5.3(c)(ii)(B)
for all prior Fiscal Years over (II) the aggregate Net Profit allocated
to such Partnership Units pursuant to this Section 5.3(b)(i)(B) for all
prior Fiscal Years.
(ii) Second, Net Profit shall be allocated to Paragon
and TWE (on a pari passu basis in proportion to the excess amounts calculated in
clauses (A) and (B) below, respectively):
(A) until Paragon shall have been allocated,
with respect to the Series A Preferred Partnership Units, the Series B
Preferred Partnership Units and the Series C Preferred Partnership
Units held by it, Net Profit in an amount equal to the excess, if any,
of (I) the cumulative Series A Priority Return, the cumulative Series B
Priority Return and the cumulative Series C Priority Return, in each
case accrued through the end of such Fiscal Year (or portion thereof)
over (II) the aggregate Net Profit allocated to such Partner pursuant
to this Section 5.3(b)(ii)(A) for all prior Fiscal Years, which amount
of Net Profit shall be allocated among the Series A Preferred
Partnership Units, the Series B Preferred Partnership Units and the
Series C Preferred Partnership Units held by Paragon, pari passu, in
proportion to such excess amount calculated for each of them; and
(B) until TWE shall have been allocated with
respect to the Series C Partnership Units held by it, Net Profit in an
amount equal to the excess, if any, of (I) the cumulative Series C
Priority Return accrued through the end of such Fiscal Year (or portion
thereof) over (II) the aggregate Net Profit allocated to such Partner
pursuant to this Section 5.3(b)(ii)(B) for all prior Fiscal Years.
(iii) Third, Net Profit shall be allocated to the
Partners, in proportion to and to the extent of the amount required to be
allocated pursuant to this Section 5.3(b)(iii), until each such Partner has been
allocated Net Profit pursuant to this Section 5.3(b)(iii) in an amount equal to
the excess of (y) such Partner's aggregate Maximum Income Amount for such Fiscal
Year and all prior Fiscal Years, over (z) the aggregate Net Profit allocated to
such Partner pursuant to this Section 5.3(b)(iii) for all prior Fiscal Years;
and
(iv) Thereafter, Net Profit shall be allocated to the
Partners in accordance with their Percentage Interests.
50
(c) Allocations of Net Loss. Except as otherwise provided in
Sections 5.3(d) and 5.3(e), after giving effect to the allocations provided in
Sections 5.3(a), 5.5 and 5.8, Net Loss for each Fiscal Year (or portion thereof)
shall be allocated as follows:
(i) First, Net Loss for such Fiscal Year (or portion
thereof) shall be allocated to the Partners in accordance with their Percentage
Interests until Advance/▇▇▇▇▇▇▇▇'▇ Capital Account is reduced to the excess, if
any, of the aggregate Net Profit allocated to such Partner pursuant to Section
5.3(b)(iii) for all prior Fiscal Years, over the aggregate Special Tax Amounts
distributed to such Partner pursuant to Sections 5.1(a)(iii) and 5.1(b)(iii) for
all prior Fiscal Years.
(ii) Second, Net Loss for such Fiscal Year (or
portion thereof) shall be allocated to Paragon and TWE (on a pari passu basis in
proportion to the excess amounts calculated in clauses (A) and (B) below,
respectively):
(A) with respect to the Series A Preferred
Partnership Units and the Series B Preferred Partnership Units and the
Series C Preferred Partnership Units held by Paragon, until Paragon's
Capital Account has been reduced to the excess, if any, of the
aggregate Net Profit allocated to Paragon pursuant to Section
5.3(b)(iii) for all prior Fiscal Years, over the aggregate Special Tax
Amounts distributed to pursuant to Sections 5.1(a)(iii) and 5.1(b)(iii)
for all prior Fiscal Years, which allocation shall be divided among the
Series A Preferred Partnership Units, the Series B Preferred
Partnership Units and the Series C Preferred Partnership Units held by
Paragon, pari passu, in proportion the amount calculated with respect
to each of them; and
(B) with respect to the Series C Preferred
Partnership Units held by TWE, until TWE's Capital Account has been
reduced to the excess, if any, of the aggregate Net Profit allocated to
TWE pursuant to Section 5.3(b)(iii) for all prior Fiscal Years, over
the aggregate Special Tax Amounts distributed to pursuant to Sections
5.1(a)(iii) and 5.1(b)(iii) for all prior Fiscal Years.
(iii) Thereafter, Net Loss for such Fiscal Year (or
portion thereof) shall be allocated to the Partners in accordance with their
Percentage Interests.
(d) Allocation of Gain or Loss Upon Sale. Notwithstanding
Section 5.3(b) and Section 5.3(c), and after giving effect to the allocations
provided in Section 5.3(a), in the event of a sale, exchange, or other
disposition of all or substantially all of the assets of the Partnership, or
upon the liquidation of the Partnership within the meaning of Treasury
Regulations Section 1.704-1(b)(2)(ii)(g), beginning in the year in which the
contract or agreement for such sale is entered into or, if such contract or
agreement is entered into on or prior to the date on which the Partnership's
Federal income tax return with respect to the prior year is required to be filed
(not including any extensions), beginning in such prior year:
51
(i) First, Gross Profit shall be allocated to Paragon
and TWE (on a pari passu basis in proportion to the excess amounts calculated in
clauses (A) and (B) below, respectively):
(A) until Paragon shall have been allocated
Gross Profit in an amount equal to the excess, if any, of (I) the sum
of (x) the aggregate Net Loss allocated to Paragon pursuant to Section
5.3(c)(ii)(A) for all prior Fiscal Years, and (y) the cumulative Series
A Priority Return, Series B Priority Return and Series C Priority
Return accrued through the end of such Fiscal Year (or portion
thereof), over (II) the aggregate Net Profit allocated to Paragon
pursuant to Sections 5.3(b)(i)(A) and Section 5.3(b)(ii)(A) for all
prior Fiscal Years, which allocation shall be divided among the Series
A Preferred Partnership Units, the Series B Preferred Partnership Units
and the Series C Preferred Partnership Units held by Paragon, pari
passu, in proportion to such excess amount calculated for each of them;
and
(B) Until TWE shall have been allocated
Gross Profit in an amount equal to the excess, if any, of (I) the sum
of (x) the aggregate Net Loss allocated to TWE pursuant to Section
5.3(c)(ii)(B) for all prior Fiscal Years, and (y) the cumulative Series
C Priority Return accrued through the end of such Fiscal Year (or
portion thereof), over (II) the aggregate Net Profit allocated to TWE
pursuant to Sections 5.3(b)(i)(B) and Section 5.3(b)(ii)(B) for all
prior Fiscal Years.
(ii) Finally, Gross Profit and Gross Loss shall be
allocated to the Partners so as to cause the credit balance in each Partner's
Capital Account to equal, as nearly as possible, the amount each Partner would
receive in a distribution on dissolution, if the distribution were made in
accordance with Section 5.1(d).
In the event that such sale or liquidation does not take place within the year
following the year of the signing of the contract or agreement, or upon the
termination of such contract or agreement, if earlier, allocations of Gross
Profit or Gross Loss shall be made to reverse, as rapidly as possible, the
effect of any such allocations made pursuant to this Section 5.3(d).
5.4 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 the Treasury
Regulations. Any Partner may cause the Partnership to make any election
permitted under Code Section 754.
5.5 Other Allocation Rules.
52
(a) In the event that the Partnership is entitled to an income
tax deduction for the excess of the Closing Price of a unit of TWX Securities on
the Initial Closing Date over the exercise price paid by the Eligible Option
Holder for such unit of TWX Securities, such deduction and an equal amount of
Gross Loss shall be specifically allocated to TWE or Paragon, as appropriate,
and TWE or Paragon, as appropriate, shall be deemed to have made a capital
contribution to the Partnership in the same amount.
(b) In the event that, pursuant to any Final Determination of
the Partnership's Taxable Income or Taxable Loss or the Partner's distributive
shares thereof, (i) the Partnership's Taxable Income or Taxable Loss is adjusted
or (ii) the Partners' distributive shares of the Partnership's Taxable Income or
Taxable Loss are adjusted, Gross Profit or Gross Loss shall be allocated to the
Partners to reflect the adjustments to the Partnership's Taxable Income or
Taxable Loss or the Partners' distributive shares thereof so as to place the
Partners as rapidly as possible, in conjunction with any distribution or
contribution pursuant to Section 5.1(a)(iii) and Section 5.1(b)(iii), in the
same relative positions they would have been in had the Taxable Income or
Taxable Loss or distributive shares thereof as adjusted been taken into account
originally (including any interest with respect to any deficiency or any
refund).
(c) In the event that interest is paid by the Partnership to a
Partner pursuant to Section 5.1(a)(iii) or Section 5.1(b)(iii), a special
allocation of Gross Profit shall be made to such Partner in an amount equal to
the amount of such interest.
(d) If any fees or other payments deducted for federal income
tax purposes by the Partnership are recharacterized by a final determination of
the Internal Revenue Service as nondeductible distributions to any Partner,
then, notwithstanding all other allocation provisions, Gross Profit shall be
allocated to such Partner (for each Fiscal Year in which such recharacterization
occurs) in an amount equal to the fees or payments recharacterized.
(e) All items of Partnership income, gain, loss, deduction,
and any other allocations not otherwise provided for shall be allocated among
the Partners in the same proportion as they share the Preferred Profits,
Preferred Losses, Net Profits, Net Losses, Gross Profits or Gross Loss to which
such items relate for the Fiscal Year. Any credits against income tax shall be
allocated among the Partners in accordance with their Percentage Interests.
(f) For any year with respect to which the Partnership is
required to pay New York City Unincorporated Business Tax, such tax shall be
allocated among the Partners in a manner so that the benefit of any deduction,
credit, exemption or exclusion that is available to the Partnership as a result
of the activities, income or status of or payments by a particular Partner (a
"Credit Partner") shall be allocated entirely to such Credit Partner. The
foregoing shall be accomplished by charging the amount of such tax to the
Capital Account of any Partner that is not a Credit Partner and by distributing
to any Credit Partner an amount that bears the same proportion to such tax as
such Credit Partner's Percentage Interest bears to the Percentage Interests of
the Partners that are not Credit Partners.
53
(g) Notwithstanding Section 5.3(b), in the event that the Net
Profit allocated to the Partners pursuant to Section 5.3(b)(iii) results in an
allocation of Taxable Loss to Advance/▇▇▇▇▇▇▇▇, then Net Profit shall be
reallocated among the Partners so as to effectuate the agreement of the Partners
that on an annual basis the distributions pursuant to Sections 5.1(a)(iii),
5.1(a)(iv), 5.1(b)(iii) and 5.1(b)(v) remaining after paying taxes on Special
Income and Net Profit allocated pursuant to Sections 5.3(b)(iii) and 5.3(b)(iv)
shall be in proportion to their respective Percentage Interests, assuming all
Partners are taxed at the Special Effective Tax Rate and taking into account any
additional tax paid by Advance/▇▇▇▇▇▇▇▇ due to the inability of it (or the
Persons that are the taxpayers with respect to income of it) to use all Taxable
Loss allocable to it.
5.6 Tax Allocations.
(a) Income, gain, loss, and deduction with respect to any
property contributed to the capital of the Partnership, including property
purchased with cash contributed to the capital of the Partnership by a Partner
shall, solely for tax purposes, be allocated among 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 in
accordance with the remedial allocation method set forth in Treasury Regulations
Section 1.704-3(d).
(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 accordance
with Section 704(c) and the Treasury Regulations promulgated thereunder,
including Treasury Regulations Sections 1.704-1(b)(4)(i) and 1.704-3(d).
(c) Subject to Section 11.8, any election or other decision
relating to any allocations pursuant to this Section 5.6 shall be made by the
Partnership, upon the approval of such election or other decision by the
Managing Partner, in any manner that reasonably reflects the purpose and
intention of this Agreement. Allocations pursuant to this Section 5.6 are solely
for purposes of Federal, state, and local taxes and shall not affect, or in any
way be taken into account in computing, any Partner's Capital Account or share
of Net Profit, Net Loss, other items, or distributions pursuant to any provision
of this Agreement.
(d) For purposes of Sections 5.1(d) and 5.5, within 45 days
after the end of each Fiscal Year, Advance/▇▇▇▇▇▇▇▇ shall provide the Managing
Partner with the Advance/▇▇▇▇▇▇▇▇ Loss Amount for such Fiscal Year.
5.7 Allocation in Event of Transfer. If any Partnership Units are
transferred in accordance with Section 6.1, the Preferred Profit, Preferred
Loss, Net Profit and Net Loss of the Partnership shall be allocated between the
periods before and after the transfer by the closing of the books method. As of
the date of such transfer, the transferee shall succeed to the Capital Account,
Common Capital Contribution, Preferred Capital
54
Contribution, Series A Preferred Capital Contribution, Series B Preferred
Capital Contribution and Series C Preferred Capital Contribution of the
transferor Partner, to the extent that the transferor's Capital Account, Common
Capital Contribution, Preferred Capital Contribution, Series A Preferred Capital
Contribution, Series B Preferred Capital Contribution and Series C Preferred
Capital Contribution relate to the transferred interest. This Section shall
apply for purposes of computing a Partner's Capital Account and for federal
income tax purposes.
5.8 Beneficial Assets and Subsidiary Beneficial Assets. The Partnership
shall (and the Partners shall not, except as Partners of the Partnership)
report, for Federal income tax purposes, the income, gain, deduction and loss
with respect to the Beneficial Assets that are not Subsidiary Beneficial Assets,
and the Partners shall (and the Partnership shall not) report, for Federal
income tax purposes, the income, gain, deduction and loss with respect to the
Subsidiary Beneficial Assets. In the event that, pursuant to any Final
Determination (as defined below), the Partnership either (x) is treated as the
beneficial owner of any of the Subsidiary Beneficial Assets prior to the actual
contribution of such Subsidiary Beneficial Assets to the Partnership or (y) is
treated as not the beneficial owner of any of the Beneficial Assets that are not
Subsidiary Beneficial Assets prior to the actual contribution of such Beneficial
Assets to the Partnership, to the extent necessary, appropriate adjustments
shall be made to the distributions provided for in Section 5.1 so as to place
the Partners and the Partnership in the same positions they would have been in
had the Partnership's beneficial ownership of the Subsidiary Beneficial Assets
or lack of beneficial ownership of such other Beneficial Assets been taken into
account originally.
5.9 Set-off. If (a) by the earlier of the fourth anniversary of the
First Effective Date, a restructuring of the Partnership pursuant to Section
8.2, or the purchase and sale of Common Partnership Units pursuant to Section
9(g)(ii), Advance/▇▇▇▇▇▇▇▇ shall not have contributed to the Partnership cash in
an amount equal to the First Advance/▇▇▇▇▇▇▇▇ Contribution Amount plus interest
thereon in accordance with Section 4.1(b)(ii), (b) by the earlier of the fourth
anniversary of the Second Effective Date, a restructuring of the Partnership
pursuant to Section 8.2, or the purchase and sale of Common Partnership Units
pursuant to Section 9(g)(ii), Advance/▇▇▇▇▇▇▇▇ shall not have contributed to the
Partnership cash in an amount equal to the Second Advance/▇▇▇▇▇▇▇▇ Contribution
Amount plus interest thereon in accordance with Section 4.1(b)(iii), or (c) by
the earlier of July 1, 2000, a restructuring of the Partnership pursuant to
Section 8.2 or the purchase and sale of Common Partnership Units pursuant to
Section 9(g)(ii), Advance/▇▇▇▇▇▇▇▇ shall not have contributed to the Partnership
cash in the amount equal to the Third Advance/▇▇▇▇▇▇▇▇ Contribution Amount plus
interest thereon in accordance with Section 4.1(b)(iv), or (d) by the earlier of
the fourth anniversary of the Fourth Effective Date, a restructuring of the
Partnership pursuant to Section 8.2 or the purchase and sale of Common
Partnership Units pursuant to Section 9(g)(ii), Advance/▇▇▇▇▇▇▇▇ shall not have
contributed to the Partnership cash in the amount equal to the Fourth
Advance/▇▇▇▇▇▇▇▇ Contribution Amount plus interest thereon in accordance with
Section 4.1(b)(v), then, in addition to any other rights and remedies which the
Partnership may have, the Partnership is hereby authorized at any time and from
time to time, to the fullest extent permitted by law and without prior notice
55
to Advance/▇▇▇▇▇▇▇▇ (or any successor to or transferee of its Partnership
Interests), to recoup, set-off and apply any and all amounts at any time owing
or otherwise payable by the Partnership to Advance/▇▇▇▇▇▇▇▇ (or any successor to
or transferee of its Partnership Interests), including, without limitation, any
distributions payable in accordance with Section 5 and any distributions to, or
Partnership liabilities assumed by, Advance/▇▇▇▇▇▇▇▇ in accordance with Section
8.2, and any amounts payable to Advance/▇▇▇▇▇▇▇▇ pursuant to Section 9, to
satisfy Advance/▇▇▇▇▇▇▇▇'▇ obligations to make such contribution. To the extent
that any amounts distributable in accordance with Section 5 or Section 8.2 are
applied in accordance with the preceding sentence rather than distributed to
Advance/▇▇▇▇▇▇▇▇ (or any successor to or transferee of its Partnership
Interests), then such amounts shall be deemed distributed by the Partnership to
Advance/▇▇▇▇▇▇▇▇ (or such successor or transferee) and recontributed by
Advance/▇▇▇▇▇▇▇▇ (or such successor or transferee) to the Partnership and the
Capital Account of Advance/▇▇▇▇▇▇▇▇ (or such successor or transferee) shall be
adjusted to reflect such deemed distribution and recontribution.
SECTION 6 TRANSFERS OF PARTNERSHIP INTERESTS
6.1 Restrictions on Transfer.
(a) Transfers Generally Prohibited. No Partner shall, directly
or indirectly, sell, transfer, assign, grant a participation in, or otherwise
dispose of all or any part of its Partnership Interest (including through the
issuance of equity interests in such Partner) unless:
(i) the transaction complies with all agreements
entered into by the Partnership with third parties to which transfers of
Partnership Interests are subject; and
(ii) the transferee of the Partner's Partnership
Interest is admitted to the Partnership as a Partner and agrees to be bound by
all the provisions of this Agreement; and
(iii) the transaction is (A) a transfer of all of a
Partner's Partnership Interest (1) to a ▇▇▇▇▇▇▇▇ Family Member, or to an
Affiliate of Advance/▇▇▇▇▇▇▇▇ so long as at least 80% of the equity of such
Affiliate is owned directly or indirectly by one or more ▇▇▇▇▇▇▇▇ Family
Members, in the case of Advance/▇▇▇▇▇▇▇▇, (2) to a Wholly-Owned Affiliate of
TWE, in the case of TWE, or (3) to TWE, TWX or a Wholly-Owned Affiliate of TWE
or TWX, in the case of Paragon, (B) a transfer to the partners of TWE pursuant
to a liquidation of TWE in which TWX or one or more of its Affiliates receives a
majority of the Common Partnership Units owned by TWE, and TWX or such
Affiliates agree to assume all the obligations of Managing Partner of the
Partnership hereunder, (C) a transfer in connection with the incorporation of
TWE (including any public offering of the stock of the corporate successor of
TWE) pursuant to Article XIII of the TWE Partnership Agreement or otherwise,
provided that TWX (or its Affiliates) exercises control over the corporate
successor to TWE, and such corporate successor agrees to assume all the
obligations of Managing Partner of the
56
Partnership hereunder, (D) a transfer in connection with the incorporation of
Advance/▇▇▇▇▇▇▇▇ or pursuant to a public offering of partnership units in
Advance/▇▇▇▇▇▇▇▇ (or of stock in the corporate successor of Advance/▇▇▇▇▇▇▇▇) so
long as, after giving effect to such public offering, ▇▇▇▇▇▇▇▇ Family Members
would own directly or indirectly at least 20% of the equity interests, and a
majority of the voting interests, in Advance/▇▇▇▇▇▇▇▇ (or its corporate
successor); (E) an issuance by TWE of any partnership interest in TWE so long
as, after giving effect to such issuance, TWX would directly or indirectly own
an interest at least equal to the TWI Minimum Interest (as defined in the TWE
Partnership Agreement as in effect on September 9, 1994); (F) a "spinoff" or
other distribution of TWE or its corporate successor to the shareholders of TWX;
or (G) a pledge by any Partner of all or any portion of its Partnership
Interests to a bank or other financial institution in connection with securing a
bona fide loan made to such Partner; and
(iv) the transferee of such Partner's Partnership
Interests is a domestically incorporated corporation or a partnership, all of
the partners of which are domestically incorporated corporations.
For the purposes of the foregoing, "▇▇▇▇▇▇▇▇ Family Member" shall mean any
Person who is a lineal descendant (including adoptees) of ▇▇▇▇▇ and ▇▇▇▇
▇▇▇▇▇▇▇▇, or any entity which is wholly-owned directly or indirectly by one or
more of such lineal descendants, or any trust established for the sole benefit
of one or more of such lineal descendants or their spouses.
(b) Ownership. Except as expressly permitted by this
Agreement, each Partner shall (i) be the owner of the Partnership Interest
indicated in the Partnership's records as being owned by such Partner, and (ii)
have sole voting power with respect to its Partnership Interest and will not
grant any proxy with respect to such Partnership Interest, enter into any voting
trust or other voting agreement or arrangement with respect to such Partnership
Interest, or grant any other rights to vote such Partnership Interest; provided,
however, that the foregoing shall not limit the ability of a Partner to enter
into agreements not inconsistent with this Agreement that restrict such
Partner's ability to transfer its Partnership Interest.
(c) Transferees Bound. After any sale, assignment, transfer,
or other conveyance of a Partnership Interest in accordance with the provisions
of this Agreement, the transferred Partnership Interest shall continue to be
subject to all of the provisions of this Agreement, including the provisions of
this Section 6.
SECTION 7 ADVANCE/▇▇▇▇▇▇▇▇ REPRESENTATION ON TWE COMMITTEE
7.1 TWE Full Service Network Management Committee. TWE shall cause one
individual designated from time to time by Advance/▇▇▇▇▇▇▇▇ to be appointed a
member of the Full Service Network Management Committee of TWE. Such
Advance/▇▇▇▇▇▇▇▇ designee shall have the same rights and privileges as the
members of the Full Service Network Management Committee of TWE that the Class A
Partners (as
57
defined in the TWE Partnership Agreement) other than USW are entitled to
designate (it being understood that such designee shall not be entitled to vote
on matters before such committee).
SECTION 8 RESTRUCTURING OF PARTNERSHIP AT ELECTION OF EITHER PARTNER
8.1 Election by Partner. Advance/▇▇▇▇▇▇▇▇ or TWE, on and after the
third anniversary of the Initial Closing Date, and Advance/▇▇▇▇▇▇▇▇, on and
after the occurrence of a "spin off" or other distribution of TWE or its
corporate successor to the shareholders of TWX, may upon written notice (the
"Restructuring Notice") to the other Partner, state its intention to cause a
restructuring of the Partnership.
8.2 Restructuring of Partnership.
(a) Upon delivery of a Restructuring Notice in accordance with
Section 8.1 above, Advance/▇▇▇▇▇▇▇▇ and TWE shall negotiate in good faith the
restructuring of the Partnership in a manner intended to minimize federal, state
and local taxes. Within 60 days after delivery of a Restructuring Notice, upon
the request of any Partner, the Managing Partner shall provide all Partners with
a report listing all assets of the Partnership, including all projects in
development and/or for which the Partnership has been charged.
(b) If, after a period of three months from the date of
delivery of the Restructuring Notice, Advance/▇▇▇▇▇▇▇▇ and TWE have failed to
agree on the terms of the restructuring of the Partnership, the Partnership
shall be restructured by the withdrawal of Advance/▇▇▇▇▇▇▇▇ from the Partnership
as follows:
(i) Within 15 days following the expiration of such
three-month period, (A) if at such time Advance/▇▇▇▇▇▇▇▇ holds Preferred
Partnership Units the Partnership shall distribute the Preferred Investment Pool
attributable to such Preferred Partnership Units in redemption of all Preferred
Partnership Units then held by Advance/▇▇▇▇▇▇▇▇, (B) the Partnership shall
calculate the "Restructuring Indebtedness Amount" (as defined in Section
8.2(b)(v) and the "Excess Tax Amount" (as defined in Section 8.2(b)(vi)) of
Advance/▇▇▇▇▇▇▇▇, if any, (C) subject to obtaining any required governmental or
other third-party consents or approvals, the Partnership shall distribute
33 1/3% of the Pro Rata Assets (as defined below) to Advance/▇▇▇▇▇▇▇▇, and (D)
TWE shall (1) divide the remaining assets (and related liabilities) of the
Partnership into three pools (the "Asset Pools") which shall meet the Asset Pool
Criteria (as defined below) but which shall in any event be of equal value (in
TWE's judgment), and (2) deliver a written notice to Advance/▇▇▇▇▇▇▇▇ setting
forth the cable television systems and other assets contained in each such Asset
Pool (the "Asset Pool Notice"). To the extent physically possible without
impairing their inherent operability, assets of the Partnership which relate to
more than one cable television system or to the Partnership as a whole shall be
allocated either equally to every pool or on a 2/3:1/3 basis to the Partnership
and Advance/▇▇▇▇▇▇▇▇, respectively. Prior to making any distribution under this
Section 8.2(b) or delivering the Asset Pool Notice, the Partnership or TWE, as
applicable,
58
shall contribute the assets comprising all developmental projects in which the
Partnership has an interest and/or for which the Partnership has been charged
(subject to the associated liabilities) to a separate legal entity or otherwise
reconstitute such assets (subject to the associated liabilities) in a form (on
terms agreed upon by each of the Partners) that allows an allocation of such
assets (subject to the associated liabilities) to Advance/▇▇▇▇▇▇▇▇ and the
Partnership as described in the previous sentence. For the purposes of the
foregoing, "Pro Rata Assets" shall mean those assets of the Partnership,
including without limitation those Beneficial Assets and Subsidiary Beneficial
Assets, that are readily divisible into three identical pools without any
material diminution in the aggregate value of such assets resulting from such
division (such as stock, partnership interests and similar investments). For
purposes of the foregoing, "Asset Pool Criteria" shall mean (I) no Preferred
Cluster Area may be allocated to more than one Asset Pool, except in accordance
with the following: (A) if the number of Subscribers in the Preferred Cluster
Area having the largest number of Subscribers exceeds the product of the
Determined Percentage and the number of all Subscribers in all Preferred Cluster
Areas, then such excess may be allocated to more than one Asset Pool; and (B) if
the Preferred Cluster Area having the largest number of Subscribers has been
allocated to more than one Asset Pool, and if the number of Subscribers in the
Preferred Cluster Area having the second largest number of Subscribers exceeds
33% of all Subscribers of all the Partnership Systems, then such excess may be
allocated to more than one Asset Pool, and (II) (A) Subscribers in the same DMA
in a Preferred Cluster Area may not be allocated to more than one pool, except
to the extent that any one DMA in a Preferred Cluster Area is permitted to be
split under clause (I) above, and (B) to the extent any DMA's are split they
shall be split only along the lines of operable units.
(ii) Within 30 days following the delivery by TWE of
the Asset Pool Notice, Advance/▇▇▇▇▇▇▇▇ shall select and retain ownership of one
of the Asset Pools and the Partnership shall retain ownership of the remaining
Asset Pools; provided that if Advance/▇▇▇▇▇▇▇▇ fails to make such selection
within such 30-day period, then the Partnership shall be entitled to select and
retain ownership of two of the Asset Pools and Advance/▇▇▇▇▇▇▇▇ shall retain
ownership of the remaining Asset Pool. The Asset Pools allocated to
Advance/▇▇▇▇▇▇▇▇ and the Partnership in accordance with this paragraph (ii) are
referred to herein as the "Advance/▇▇▇▇▇▇▇▇ Asset Pool" and the "TWE Asset
Pools," respectively.
(iii) As promptly as practical following the
determination of the Advance/▇▇▇▇▇▇▇▇ Asset Pool and the TWE Asset Pools in
accordance with paragraph (ii), subject to obtaining any required governmental
or other third-party consents or approvals, the Partnership shall distribute the
cable television systems and other assets comprising the Advance/▇▇▇▇▇▇▇▇ Asset
Pool to Advance/▇▇▇▇▇▇▇▇ in complete liquidation of its Common Partnership
Units; provided that with respect to any assets in the Advance/▇▇▇▇▇▇▇▇ Pool
that for Federal income tax purposes were deemed contributed to the Partnership
within the immediately preceding Applicable Contribution Period by TWE, or
Paragon, and with respect to any assets in the TWE Asset Pools that for Federal
income tax purposes were deemed contributed to the Partnership within the
immediately preceding Applicable Contribution Period by Advance/▇▇▇▇▇▇▇▇, the
Partners shall cooperate to cause such liquidation of the Advance/▇▇▇▇▇▇▇▇
Common
59
Partnership Units to be effectuated in a manner, and agree to defer the
distribution of assets to such time, as will minimize the taxes payable in
connection with such liquidation.
(iv) As the cable television systems and other assets
comprising the Advance/▇▇▇▇▇▇▇▇ Asset Pool are distributed or deemed distributed
for Federal income tax purposes, (A) if there is an Excess Tax Amount with
respect to Advance/▇▇▇▇▇▇▇▇, the Partnership shall be allocated liabilities
otherwise allocable to the Advance/▇▇▇▇▇▇▇▇ Pool (the "Excess Tax Amount
Indebtedness") equal to the product of (y) one (1) minus the Advance/▇▇▇▇▇▇▇▇
Percentage Interest, and (z) such Excess Tax Amount of Advance/▇▇▇▇▇▇▇▇, (B)
Advance/▇▇▇▇▇▇▇▇ shall execute an assumption agreement pursuant to which it will
assume (or to the extent necessary, in the case of clause (II) below, will
refinance or repay) (I) all liabilities relating to, arising out of or otherwise
attributable to the Advance/▇▇▇▇▇▇▇▇ Asset Pool (as reduced by the Excess Tax
Amount Indebtedness, if any), and (II) liabilities otherwise allocable to the
TWE Asset Pools (the "Restructuring Indebtedness") in an amount equal to the
Restructuring Indebtedness Amount and will further agree to indemnify the
Partnership for any losses the Partnership might suffer with respect to any of
such liabilities, and (C) the Partnership shall agree to indemnify
Advance/▇▇▇▇▇▇▇▇ for any losses Advance/▇▇▇▇▇▇▇▇ might suffer with respect to
any liabilities relating to, arising out of or otherwise attributable to the TWE
Asset Pools or the Excess Tax Amount Indebtedness. The assumption agreement to
be executed by Advance/▇▇▇▇▇▇▇▇ shall contain the terms contained in the
Assumption Agreement executed by the Partnership in accordance with Section
3.4(a) of the Contribution Agreement and the indemnity of Advance/▇▇▇▇▇▇▇▇ and
the Partnership shall be in the form of Sections 8.2 and 8.3 of the Contribution
Agreement. As Advance/▇▇▇▇▇▇▇▇ assumes liabilities relating to, arising out of
or otherwise attributable to the Advance/▇▇▇▇▇▇▇▇ Asset Pool, Paragon and/or TWE
shall guarantee remaining liabilities of the Partnership and take other steps
reasonably necessary so as to reduce, to the greatest extent possible, each such
Partner's Debt Shift Tax Amount arising from the restructuring; provided
however, that such Partners shall not be required to guarantee remaining
liabilities of the Partnership to the extent such guarantee would cause the
other of such Partners to recognize income pursuant to Code Sections 731 and
752. To the extent possible, liabilities assumed by Advance/▇▇▇▇▇▇▇▇ shall be
qualified liabilities (as defined in Treasury Regulation Section 1.707-6(b)(2))
of the Partnership.
(v) The "Restructuring Indebtedness Amount" shall
equal the product of (A) the Advance/▇▇▇▇▇▇▇▇ Percentage Interest, and (B) the
sum of (i) the Priority Return accrued and unpaid as of the date of distribution
with respect to the Series A Preferred Partnership Units, the Series B Preferred
Partnership Units and the Series C Preferred Partnership Units, respectively,
held by Paragon and TWE, (ii) the redemption price for all outstanding Series A
Preferred Partnership Units, Series B Preferred Partnership Units and Series C
Preferred Partnership Units held by Paragon and TWE, and (iii) the sum of the
Excess Tax Amount for the Partners other than Advance/▇▇▇▇▇▇▇▇ and other than
the Satisfied Partner.
60
(vi) The "Excess Tax Amount" means, for each of two
Partners, the Tax Amount that would be remaining for such Partners if the
Partnership were to distribute the aggregate Tax Amounts of all Partners to the
Partners in accordance with their Percentage Interests until one Partner (the
"Satisfied Partner") shall have received its entire Tax Amount.
(vii) The "Tax Amount" means, for any Partner, the
sum of the following amounts determined for such Partner, as applicable:
(A) If the restructuring has occurred as a
result of the delivery by Advance/▇▇▇▇▇▇▇▇ of a Restructuring Notice
that is not a Spin-Off Restructuring Notice:
(I) with respect to Paragon, the
Paragon 704(c)(1)(B) Tax Amount with respect to assets deemed
for Federal income tax purposes contributed to the Partnership
within the immediately preceding Applicable Contribution
Period by Paragon that are allocated to the Advance/▇▇▇▇▇▇▇▇
Asset Pool,
(II) with respect to TWE, the TWE
704(c)(1)(B) Tax Amount with respect to assets deemed for
Federal income tax purposes contributed to the Partnership by
TWE pursuant to the First Transaction Agreement or the Fourth
Transaction Agreement within the immediately preceding
Applicable Contribution Period that are allocated to the
Advance/▇▇▇▇▇▇▇▇ Asset Pool,
(III) with respect to each Partner,
the Restructuring Deferred Tax Amount with respect to assets
contributed by such Partner (other than, in the case of TWE
and Paragon, the assets referred to in clauses (I) and (II),
and
(IV) with respect to Paragon and
TWE, such Partner's Debt Shift Tax Amount.
(B) If the restructuring has occurred as a
result of the delivery by TWE of the Restructuring Notice or the
delivery by Advance/▇▇▇▇▇▇▇▇ of a Restructuring Notice that is a
Spin-Off Restructuring Notice:
(I) with respect to Paragon, the
Paragon 704(c)(1)(B) Tax Amount with respect to assets deemed
for Federal income tax purposes contributed to the Partnership
within the immediately preceding Applicable Contribution
Period by Paragon that are allocated to the Advance/▇▇▇▇▇▇▇▇
Asset Pool,
(II) with respect to TWE, the TWE
704(c)(1)(B) Tax Amount with respect to assets deemed for
Federal income tax purposes contributed to the Partnership by
such Partner pursuant to the
61
Fourth Transaction Agreement within the immediately preceding
Applicable Contribution Period that are allocated to the
Advance/▇▇▇▇▇▇▇▇ Asset Pool,
(III) with respect to each Partner,
the Restructuring Deferred Tax Amount with respect to assets
contributed by such Partner (other than, in the case of
Paragon and TWE the assets referred to in clauses (I) and (II)
above), and
(IV) with respect to Paragon and
TWE, such Partner's Debt Shift Tax Amount.
(c) During the period from the date of delivery of a
Restructuring Notice in accordance with Section 8.1 to the date of determination
of the Advance/▇▇▇▇▇▇▇▇ Asset Pool and TWE Asset Pools in accordance with
Section 8.2(b)(ii), the Partnership shall conduct its business in the ordinary
course, consistent with past practice, and shall not engage in any extraordinary
transactions that were not contemplated by a previously approved Long Term
Strategic Plan or approved by the Executive Committee with the consent of
Advance/▇▇▇▇▇▇▇▇'▇ representatives. Following the determination of the
Advance/▇▇▇▇▇▇▇▇ Asset Pool and the TWE Asset Pools in accordance with Section
8.2(b)(ii), to the extent permitted by law, (i) the assets comprising such Asset
Pools shall for all purposes be deemed to be owned by Advance/▇▇▇▇▇▇▇▇ and the
Partnership, respectively, (ii) the Restructuring Indebtedness shall for all
purposes be deemed to be an obligation of Advance/▇▇▇▇▇▇▇▇ and Advance/▇▇▇▇▇▇▇▇
shall have no obligation with respect to the Excess Tax Amount Indebtedness
which shall for all purposes be deemed to be an obligation of TWE and Paragon as
Partners of the Partnership following the restructuring of the Partnership
hereunder, and (iii) until the Advance/▇▇▇▇▇▇▇▇ Asset Pool is actually
distributed to Advance/▇▇▇▇▇▇▇▇, (1) Advance/▇▇▇▇▇▇▇▇'▇ Partnership Interest
shall entitle it only to (A) a distributive share of the income, gain, losses
and deductions related to the Advance/▇▇▇▇▇▇▇▇ Asset Pool, (B) a distributive
share of the assets comprising the Advance/▇▇▇▇▇▇▇▇ Asset Pool (subject to the
related liabilities and the Restructuring Indebtedness) and (C) management
rights relating to the business and affairs of the Advance/▇▇▇▇▇▇▇▇ Asset Pool,
and (2) TWE's and Paragon's Partnership Interests shall entitle them only to (A)
a distributive share of the income, gain, losses and deductions related to the
TWE Asset Pools, (B) a distributive share of the assets comprising the TWE Asset
Pools (subject to the related liabilities and the Excess Tax Amount
Indebtedness) and (C) management rights relating to the business and affairs of
the TWE Asset Pools.
8.3 Provision of Interim Services by TWE.
(a) In connection with a restructuring of the Partnership
pursuant to Section 8.2(b), from and after the determination of the
Advance/▇▇▇▇▇▇▇▇ Asset Pool and the TWE Asset Pools in accordance with Section
8.2(b)(ii), TWE shall use reasonable best efforts to ensure that the
Advance/▇▇▇▇▇▇▇▇ Asset Pool continues to receive all of the services and
benefits previously provided while part of the Partnership,
62
including but not limited to receiving from TWE and/or its Affiliates (i)
management, operational and marketing services, and in particular, TWE shall
encourage all Partnership employees whose duties primarily concern the operation
of the cable television systems and other businesses included in the
Advance/▇▇▇▇▇▇▇▇ Asset Pool to continue working for such systems and businesses
and neither TWE nor any of its Affiliates shall employ any of such employees
without the consent of Advance/▇▇▇▇▇▇▇▇ if Advance/ ▇▇▇▇▇▇▇▇ intends in good
faith to employ the applicable employees at such time, (ii) purchasing services,
including to the extent possible and to the extent it would not require TWE or
its Affiliates to engage in conduct for which monetary compensation to be paid
hereunder would be inadequate, the maintenance of the cable television systems
and businesses of the Advance/▇▇▇▇▇▇▇▇ Asset Pool under the programming,
equipment and other purchasing agreements and arrangements of the TWE Cable
Division and its Controlled Affiliates, so that such systems and businesses
receive the benefits of the purchasing power of the TWE Cable Division and its
Controlled Affiliates, and any equipment and other products procured by the TWE
Cable Division shall be provided to the Advance/▇▇▇▇▇▇▇▇ Asset Pool on a
pro-rata basis as from time to time provided to TWE's systems and businesses,
(iii) access to the expertise, knowledge and other services as may be rendered
by the TWE Cable Division or its Controlled Affiliates as respects the Full
Service Network, telephony (including personal communications services) and
other businesses or services which the cable television systems and businesses
of the Advance/▇▇▇▇▇▇▇▇ Asset Pool may be providing to their customers and (iv)
such other services as Advance/▇▇▇▇▇▇▇▇ may reasonably request with respect to
the Advance/▇▇▇▇▇▇▇▇ Asset Pool, all so that the businesses comprising such
Advance/▇▇▇▇▇▇▇▇ Asset Pool may be operated in the ordinary course and until
such time as Advance/▇▇▇▇▇▇▇▇ gives TWE written notice that it is in a position
to assume full operational responsibility for the Advance/▇▇▇▇▇▇▇▇ Asset Pool;
provided that TWE shall not be obligated to provide such services after the
earlier of (1) the date on which Advance/▇▇▇▇▇▇▇▇ or its Affiliates shall no
longer own the relevant assets comprising the Advance/▇▇▇▇▇▇▇▇ Asset Pool and
(2) the third anniversary of the transfer to Advance/▇▇▇▇▇▇▇▇ of franchises
representing 70% of the Subscribers to the cable television systems represented
by the Advance/▇▇▇▇▇▇▇▇ Asset Pool, unless TWE and Advance/▇▇▇▇▇▇▇▇ determine
that the continuation of such arrangements would be beneficial to both parties.
TWE and Advance/▇▇▇▇▇▇▇▇ shall in all instances cooperate with one another to
obtain any and all consents necessary to transfer all assets in the
Advance/▇▇▇▇▇▇▇▇ Asset Pool and the TWE Asset Pools to Advance/▇▇▇▇▇▇▇▇ and TWE,
respectively. During the period referred to above, TWE shall use its reasonable
best efforts in performing its obligations under this Section 8.3(a) to maintain
the business, relationships and value of the Advance/▇▇▇▇▇▇▇▇ Asset Pool.
(b) TWE shall be compensated for its provision of such interim
services in accordance with Section 3.1(h). TWE shall not be required to incur
additional costs in connection with the provision of such interim services if
such costs are not reimbursed by Advance/▇▇▇▇▇▇▇▇ pursuant hereto.
(c) In the event that TWE has acted in bad faith to frustrate
the transfer to Advance/▇▇▇▇▇▇▇▇ of the franchises related to the
Advance/▇▇▇▇▇▇▇▇ Asset
63
Pool, and does not cease such conduct immediately following receipt of notice
thereof from Advance/▇▇▇▇▇▇▇▇ and correct the results of such conduct within a
reasonable period of time but in no event more than 90 days following delivery
of notice thereof by Advance/▇▇▇▇▇▇▇▇, Advance/▇▇▇▇▇▇▇▇, at its option, may
either (i) recover from TWE any and all damages, costs or expenses suffered by
Advance/▇▇▇▇▇▇▇▇ as a result of such breach, including, without limitation, loss
in value of the Advance/▇▇▇▇▇▇▇▇ Asset Pool, direct or indirect damages, or (ii)
have the put option set forth in Section 9 hereof. Further, each of the TWE
Cable Division (on behalf of itself and its Controlled Affiliates) and
Advance/▇▇▇▇▇▇▇▇ (on behalf of itself and its Controlled Affiliates) agrees not
to own or operate a cable television system, MMDS, video dial tone or other
multichannel video programming service in the franchise areas of the cable
television systems of Advance/▇▇▇▇▇▇▇▇ and TWE, respectively, for so long as TWE
continues to provide services under this Section 8.3 and for a period of five
years following the expiration of the period referred to in Section 8.3(a) above
(provided that the foregoing shall not prohibit any party from providing
services of the type that are logically provided on a national or regional basis
(such as direct broadcast satellite services)).
(d) Advance/▇▇▇▇▇▇▇▇ shall use its best efforts to assume full
operational responsibility for the Advance/▇▇▇▇▇▇▇▇ Asset Pool as promptly as
practicable.
8.4 TWE Right of First Refusal. If during the four-year period
following the transfer to Advance/▇▇▇▇▇▇▇▇ of franchises representing 70% of the
Subscribers to the cable television systems represented by the Advance/▇▇▇▇▇▇▇▇
Asset Pool (the "Refusal Period"), Advance/▇▇▇▇▇▇▇▇ or any of its Affiliates
that succeed to its interest in the Advance/▇▇▇▇▇▇▇▇ Asset Pool desires to sell
or otherwise dispose of all or any portion of the assets of the Advance/▇▇▇▇▇▇▇▇
Asset Pool or any equity interest therein (the "Transfer Assets"),
Advance/▇▇▇▇▇▇▇▇ shall give TWE written notice thereof (the "Transfer Notice")
and the price (which shall be payable in cash or debt issued by the purchaser of
the Transfer Assets) and other material terms, which terms are reasonably
capable of being satisfied by TWE (the "Transfer Terms"), on which it is willing
to sell the Transfer Assets. For a period of 180 days from delivery of the
Transfer Notice, TWE may elect to purchase the Transfer Assets from
Advance/▇▇▇▇▇▇▇▇ on the Transfer Terms. In the event TWE fails to elect to
purchase the Transfer Assets within such period, or if TWE elects to purchase
the Transfer Assets but such purchase fails to be consummated within one year
from delivery of the Transfer Notice, subject to extension if reasonably
necessary to obtain regulatory consents (provided that if such necessary
regulatory consents shall not have been obtained by the date which is nine
months following the expiration of such one-year period, the parties shall
negotiate in good faith alternative arrangements intended to achieve the
economic effects of the foregoing transaction), Advance/▇▇▇▇▇▇▇▇ may sell the
Transfer Assets to a third party at a price and on other terms no more favorable
to such third party than the Transfer Terms at any time within 180 days
following the expiration of the applicable period specified above. If
Advance/▇▇▇▇▇▇▇▇ does not complete such sale on such terms within such 180-day
period, then the provisions of this Section 8.4 shall again be applicable. The
restrictions contained in this Section 8.4 shall expire at the end of the
Refusal Period, and
64
Advance/▇▇▇▇▇▇▇▇ thereafter shall be free to sell any or all of the assets of
the Advance/▇▇▇▇▇▇▇▇ Asset Pool to any third party free from TWE's right of
first refusal set forth herein.
SECTION 9 ADVANCE/▇▇▇▇▇▇▇▇ PUT OPTION
(a) On and after the occurrence of the death of both ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇, ▇▇. and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ (the "Advance/▇▇▇▇▇▇▇▇ Put Event"),
Advance/▇▇▇▇▇▇▇▇ shall have the option, at each of the times set forth below, to
require (i) the Partnership to purchase all of Advance/▇▇▇▇▇▇▇▇'▇ Preferred
Partnership Units, if any, at a price payable as specified in paragraph (g)
below (the "Advance/▇▇▇▇▇▇▇▇ Preferred Put Price"), and (ii) TWE to purchase all
of Advance/▇▇▇▇▇▇▇▇'▇ Common Partnership Units at a price, payable as specified
below, equal to the product of (A) the Partnership Value, determined in
accordance with paragraph (d) below, and (B) the Advance/▇▇▇▇▇▇▇▇ Percentage
Interest (the "Advance/▇▇▇▇▇▇▇▇ Common Put Price").
(b) Advance/▇▇▇▇▇▇▇▇ shall be entitled to exercise the put
option described in this Section 9 during the 30-day period immediately
following each of the first, seventh, thirteenth and nineteenth anniversaries of
the Advance/▇▇▇▇▇▇▇▇ Put Event, and TWE shall consummate the purchase of the
Partnership Units owned by Advance/▇▇▇▇▇▇▇▇ within one year from notice of the
exercise by Advance/▇▇▇▇▇▇▇▇ of the put rights set forth in this Section 9,
subject to extension if reasonably necessary to obtain regulatory consents
(provided that if any such necessary regulatory consents shall not have been
obtained by the date which is nine months following the expiration of such
one-year period, the parties shall negotiate in good faith alternative
arrangements intended to achieve the economic effects of the foregoing
transaction), all as more fully described below. The Advance/▇▇▇▇▇▇▇▇ Put Option
shall be exercisable by Advance/▇▇▇▇▇▇▇▇ by delivery of a written notice (an
"Exercise Notice") to TWE on any of the exercise dates referred to above.
(c) Within 20 business days following the delivery by
Advance/▇▇▇▇▇▇▇▇ of the Exercise Notice to TWE, TWE shall deliver to
Advance/▇▇▇▇▇▇▇▇ a generic description of the types of consideration available
to TWE under then applicable law which it may use in satisfaction of the
Advance/▇▇▇▇▇▇▇▇ Common Put Price (i) if Advance/▇▇▇▇▇▇▇▇ elects to receive
consideration that is reasonably designed to result in tax deferred treatment
upon receipt thereof ("Tax Deferred Consideration") and (ii) if Advance/▇▇▇▇▇▇▇▇
elects to receive consideration that is not so designed ("Taxable
Consideration"). Within 20 business days following receipt of such description,
Advance/▇▇▇▇▇▇▇▇ shall deliver a written notice (the "Election Notice") to TWE
specifying whether it elects to receive Tax Deferred Consideration or Taxable
Consideration in satisfaction of the Advance/▇▇▇▇▇▇▇▇ Common Put Price.
(d) Within 60 days following the delivery by Advance/▇▇▇▇▇▇▇▇
of the Election Notice to TWE, an appraiser selected in accordance with
paragraph (h) below (an "Appraiser") shall determine the Partnership Value (as
defined below) for purposes of determining the Advance/▇▇▇▇▇▇▇▇ Common Put Price
and shall deliver a
65
written notice (the "Valuation Notice") to each of Advance/▇▇▇▇▇▇▇▇ and TWE
setting forth such determination, which shall be final and binding on the
parties. "Partnership Value" shall mean the fair market value, as of the date of
valuation, of the business of the Partnership (including the Beneficial Assets
and the Subsidiary Beneficial Assets) as a going concern taking into account
whether Advance/▇▇▇▇▇▇▇▇ has elected to receive Tax Deferred Consideration or
Taxable Consideration in satisfaction of the Advance/▇▇▇▇▇▇▇▇ Common Put Price,
reduced by the sum of the Priority Return accrued and unpaid as of the
anticipated Advance/▇▇▇▇▇▇▇▇ Common Put Closing (as defined below) and the
redemption price for all Series A Preferred Partnership Units, Series B
Preferred Partnership Units and Series C Preferred Partnership Units outstanding
as of the anticipated Advance/▇▇▇▇▇▇▇▇ Common Put Closing, and assuming that the
Preferred Investment Pool shall have been distributed by the Partnership to the
holder of any outstanding Preferred Partnership Units immediately prior to such
valuation.
(e) Within 30 business days following the delivery of the
Valuation Notice to each of Advance/▇▇▇▇▇▇▇▇ and TWE, TWE shall deliver to
Advance/ ▇▇▇▇▇▇▇▇ a written notice (the "Consideration Notice") setting forth
the nature of the consideration to be paid in satisfaction of the
Advance/▇▇▇▇▇▇▇▇ Common Put Price, which consideration shall be Taxable
Consideration or Tax Deferred Consideration, as specified in the Election
Notice. If such consideration is Taxable Consideration, it shall consist of cash
or Qualified Assets (as defined below) or any combination thereof, as determined
by TWE. If such consideration is Tax Deferred Consideration, it shall consist of
Qualified Assets, as determined by TWE. The Consideration Notice shall specify
(i) the terms of each type of non-cash consideration to be paid in satisfaction
of the Advance/▇▇▇▇▇▇▇▇ Common Put Price and (ii) the percentage of the total
Advance/ ▇▇▇▇▇▇▇▇ Common Put Price to be comprised of each type of
consideration. For purposes of this Section 9, "Qualified Assets" shall mean (i)
any debt or equity securities that are (or with respect to which depositary
receipts are) listed on a national securities exchange or quoted on the National
Association of Securities Dealers Automated Quotation System (NASDAQ) or (ii)
other assets (including securities). In the event Advance/▇▇▇▇▇▇▇▇, in the
Election Notice, elects to receive Tax Deferred Consideration and accepts the
Tax Deferred Consideration set forth in the Consideration Notice, TWE and its
Affiliates shall indemnify Advance/▇▇▇▇▇▇▇▇ for taxes (and interest)
attributable to any action by TWE and/or its Affiliates that causes the put
transaction described in this Section 9 to be taxable.
(f) (i) Within 60 days following delivery of the Consideration
Notice, an Appraiser shall determine the quantity (e.g., number of shares of
stock or aggregate principal amount of debt securities) of each type of noncash
consideration, if any, specified in the Consideration Notice, in the relative
percentages set forth in the Consideration Notice, such that the value of such
noncash consideration on a fully distributed basis, when added to any cash to be
paid as part of the Advance/▇▇▇▇▇▇▇▇ Common Put Price, shall equal the
Advance/▇▇▇▇▇▇▇▇ Common Put Price, and shall deliver a written notice of such
determination to each of Advance/▇▇▇▇▇▇▇▇ and TWE.
66
(ii) Within 20 business days following delivery of
the Appraiser's notice described in Section 9(f)(i), Advance/▇▇▇▇▇▇▇▇ shall have
the right (exercisable by delivery of a written notice to TWE (a "Rejection
Notice")) to elect not to accept the consideration set forth in the
Consideration Notice and, in lieu of receiving such consideration, to elect to
restructure the Partnership in accordance with Section 8.2; provided, however,
that following such a restructuring TWE shall not be entitled to the right of
first offer set forth in Section 8.4 with respect to sales of the
Advance/▇▇▇▇▇▇▇▇ Asset Pool. If Advance/▇▇▇▇▇▇▇▇ fails to deliver a Rejection
Notice within such 20 business day period, Advance/▇▇▇▇▇▇▇▇ shall be deemed to
have accepted the consideration set forth in the Consideration Notice and the
package of noncash consideration determined by such Appraiser plus any cash
specified in the Consideration Notice shall be paid by TWE to Advance/▇▇▇▇▇▇▇▇
in satisfaction of the Advance/▇▇▇▇▇▇▇▇ Common Put Price in accordance with
paragraph (g) below.
(iii) If Advance/▇▇▇▇▇▇▇▇ delivers a Rejection
Notice, then TWE shall have the right, exercisable by delivery of a written
notice to Advance/ ▇▇▇▇▇▇▇▇ (a "Cash Purchase Notice") within 20 business days
following delivery by Advance/▇▇▇▇▇▇▇▇ of such Rejection Notice, to purchase
Advance/▇▇▇▇▇▇▇▇'▇ Common Partnership Units at a price equal to the
Advance/▇▇▇▇▇▇▇▇ Common Put Price, payable in cash, as evidenced by a promissory
note to be delivered by TWE to Advance/▇▇▇▇▇▇▇▇ (the "Put Note"). The Put Note
shall be payable in three equal installments on the first, second and third
anniversaries of the closing as provided in paragraph (g) below, with interest
accrued on the unpaid principal amount of the Put Note and interest not paid
when due, if any, (at the rate determined below) payable on such anniversaries.
Notwithstanding the foregoing, payments under the Put Note may be accelerated,
at the option of Advance/▇▇▇▇▇▇▇▇ on not less than 90 days prior notice to TWE
(or, if fewer, the number of days in the period beginning 10 days after the
closing and ending on the date on which any payment of Sale Taxes (as defined
below) are due) (the "Acceleration Notice"), so that such payments shall provide
Advance/▇▇▇▇▇▇▇▇ sufficient funds to pay when due all applicable federal, state
and local income taxes (including estimated taxes and any interest on deferred
tax liability required to be paid under Section 453A of the Code) as a result of
the sale of Advance/▇▇▇▇▇▇▇▇'▇ Common Partnership Units (the "Sale Taxes");
provided, that in determining the amount necessary to provide Advance/▇▇▇▇▇▇▇▇
with sufficient funds to pay taxes, any amounts paid with respect to the Put
Note in advance of the due date for such taxes shall be deemed available in full
for such tax payments. In connection with any such acceleration of payments
under the Put Note, Advance/▇▇▇▇▇▇▇▇ shall make any election to defer the
payment of Sale Taxes reasonably requested by TWE; provided that no such
election shall defer the payment of taxes to a period after the third
anniversary of the closing. No later than the earlier of (i) the date of the
Acceleration Notice and (ii) 20 business days prior to the date on which an
election to defer the payment of Sale Taxes must be made, Advance/▇▇▇▇▇▇▇▇ shall
provide TWE with information regarding the amount of Sale Taxes; the taxable
year of the Persons incurring the Sale Taxes; the tax rate applicable to such
Persons; the dates on which Sale Taxes (including estimated taxes) are due and
the amount of taxes due on each such date; the estimated amounts of any costs
imposed by the Code as a result of an election to defer the Sale Taxes, the
nature of such estimated costs and the dates when such estimated costs are
expected to be incurred; the date(s) by
67
which any such deferral election(s) must be made; and other information
reasonably requested by TWE to enable TWE to determine whether to request that
Advance/▇▇▇▇▇▇▇▇ make an election to defer the payment of Sale Taxes. If TWE
requests that Advance/▇▇▇▇▇▇▇▇ make such an election, then not less than 10
business days prior to each of the anniversary dates of the closing,
Advance/▇▇▇▇▇▇▇▇ shall provide TWE with a notice (each, a "Cost Notice") setting
forth (x) the value discounted from the date of payment to the immediately prior
anniversary date (or, in the case of a Cost Notice provided prior to the first
anniversary date, the closing) of actual costs paid (or to be paid) during the
one year period ending on the anniversary date with respect to which the Cost
Notice is provided for any direct costs arising solely as a result of such
election to defer the payment of Sale Taxes for a period ending on or before the
third anniversary of the closing made at TWE's request, and (y) the value
discounted from the date of payment to the immediately prior anniversary date
(or, in the case of a Cost Notice provided prior to the first anniversary date,
the closing) of interest to be paid on the anniversary date with respect to
which the Cost Notice is provided with respect to the portion of the principal
amount of the Put Note equal to the amount of tax deferred pursuant to such
election. On the anniversary date with respect to which the Cost Notice is
provided, TWE shall pay to Advance/▇▇▇▇▇▇▇▇ an amount equal to 50% of the
excess, if any, of the amount determined in clause (x) of the preceding sentence
over the amount determined in clause (y) of the preceding sentence; provided
that to the extent the amount calculated in clause (y) for any prior year
exceeds the amount calculated in clause (x) for such year, then such excess
(increased by an amount equal to interest thereon from the prior anniversary
date through the anniversary date which respect to which the Cost Notice is
given calculated at a rate equal to the interest rate on the Put Note) shall be
added to the amount calculated in clause (y) for the subsequent year. For
purposes of determining discounted value, a rate equal to the interest rate paid
with respect to the Put Note shall be applied. Advance/▇▇▇▇▇▇▇▇ agrees that it
will take reasonable efforts to minimize the costs arising as a result of the
election to defer the payment of Sale Taxes. In the event of such acceleration,
payments otherwise due under the Put Note shall be reduced in direct order of
maturity. The Put Note shall bear interest at a market rate (as agreed to by TWE
and Advance/▇▇▇▇▇▇▇▇ or, if they are unable to agree, then at the election of
either party, by an Appraiser selected in a manner consistent with that
described in paragraph (h) below). If TWE delivers a Cash Purchase Notice within
the 20 business day period referred to above, then the Partnership shall not be
restructured and TWE shall purchase Advance/▇▇▇▇▇▇▇▇'▇ Common Partnership Units
on the terms described above. If TWE fails to deliver a Cash Purchase Notice
within such 20 business day period, then the provisions of this Section 9 shall
terminate and the Partnership shall be restructured in accordance with Section
8.2; provided, however, that following such restructuring TWE shall not be
entitled to the right of first offer set forth in Section 8.4 with respect to
sales of the Advance/▇▇▇▇▇▇▇▇ Asset Pool.
(g) (i) Any purchase and sale of Preferred Partnership
Units effected pursuant to this Section 9 shall be consummated at a closing at
the offices of TWE on a business day specified by TWE (upon at least five days'
notice by TWE to Advance/▇▇▇▇▇▇▇▇) which shall be no later than 10 days
following the delivery by Advance/▇▇▇▇▇▇▇▇ of the Exercise Notice or on such
later date as may be agreed to by the parties. At such closing, the Partnership
shall distribute to Advance/▇▇▇▇▇▇▇▇ the
68
Preferred Investment Pool relating to its Preferred Partnership Units, and
Advance/▇▇▇▇▇▇▇▇ shall, pursuant to such instruments as may be reasonably
requested by the Partnership, deliver to the Partnership all of its Preferred
Partnership Units in appropriate form for transfer, free and clear of any lien
or other encumbrances.
(ii) Any purchase and sale of Common Partnership
Units effected pursuant to this Section 9 shall be consummated at a closing (the
"Advance/▇▇▇▇▇▇▇▇ Common Put Closing") at the offices of TWE on a business day
specified by TWE (upon at least five days' notice by TWE to Advance/▇▇▇▇▇▇▇▇)
which shall be no later than one year following the delivery by Advance/▇▇▇▇▇▇▇▇
of the Exercise Notice subject to extension if reasonably necessary to obtain
regulatory consents (provided that if any such necessary regulatory consents
shall not have been obtained by the date which is nine months following the
expiration of such one-year period, the parties shall negotiate in good faith
alternative arrangements intended to achieve the economic effects of the
foregoing). At the Advance/▇▇▇▇▇▇▇▇ Common Put Closing, TWE shall pay to
Advance/▇▇▇▇▇▇▇▇ the Advance/▇▇▇▇▇▇▇▇ Common Put Price, reduced by the Negative
Put Deferred Tax Amount and increased by the Positive Put Deferred Tax Amount,
and Advance/▇▇▇▇▇▇▇▇ shall, pursuant to such instruments as may be reasonably
requested by TWE, deliver to TWE all of its Common Partnership Units in
appropriate form for transfer, free and clear of any lien or other encumbrance.
TWE may, with the consent of such assignee, assign to TWX or any of its
Affiliates its rights and obligations under this Section 9; provided that such
assignment shall not relieve TWE of its obligations to Advance/▇▇▇▇▇▇▇▇.
(h) For purposes of this Section 9, an Appraiser shall be a
nationally recognized investment banking firm selected by two other nationally
recognized investment banking firms, one selected by Advance/▇▇▇▇▇▇▇▇ and one
selected by TWE; provided that if one party fails to notify the other party of
its selection within the time period specified below, the Appraiser shall be the
investment banking firm selected by the party that has so notified the other
party of its selection. Each of Advance/▇▇▇▇▇▇▇▇ and TWE shall notify the other
of its selection of an investment banking firm (which notice shall identify such
firm) within ten business days following the delivery by Advance/▇▇▇▇▇▇▇▇ of the
Election Notice if the Appraiser is being selected for purposes of paragraph
(d), or within five business days following the delivery by TWE of the
Consideration Notice if the Appraiser is being selected for purposes of
paragraph (f), and each of TWE and Advance/▇▇▇▇▇▇▇▇ shall instruct the
investment banking firms so selected to select the third investment banking firm
within twenty business days following delivery of the Election Notice or the
Consideration Notice, as applicable. The fees, costs and expenses of the
investment banking firm so selected shall be borne equally by the parties and
each party shall bear the fees, costs and expenses of the investment banking
firm selected by such party.
(i) Notwithstanding anything to the contrary contained in this
Agreement, upon exercise of the put option in accordance with this Section 9,
Advance/▇▇▇▇▇▇▇▇'▇ representatives on the Executive Committee and on the TWE FSN
Management Committee shall resign effective immediately, and Advance/▇▇▇▇▇▇▇▇
shall cease to have any rights with respect to the management of the Partnership
or with
69
respect to its Partnership Units, other than the right to receive the
Advance/▇▇▇▇▇▇▇▇ Preferred Put Price and the Advance/▇▇▇▇▇▇▇▇ Common Put Price
in accordance with paragraph (g).
(j) Notwithstanding the foregoing, the put option set forth in
this Section 9 shall expire upon the occurrence of a public offering of the
partnership units of Advance/▇▇▇▇▇▇▇▇ (or stock of any corporate successor to
Advance/▇▇▇▇▇▇▇▇) in an amount of no less than 33% of the common equity and the
listing of such partnership units (or stock) on a national securities exchange
or the NASDAQ National Market System (it being understood that upon a public
offering of such partnership units (or stock), Advance/▇▇▇▇▇▇▇▇ (or such
corporate successor) shall use its reasonable best efforts to cause such
partnership units (or stock) to be so listed or quoted.
SECTION 10 OTHER BUSINESS ACTIVITIES
10.1 Cable Television Systems.
(a) Subject to paragraphs (f) and (g), in the event
Advance/▇▇▇▇▇▇▇▇ or TWE or their respective Affiliates desire to pursue any
opportunity to acquire or make an investment in any business, (i) the majority
of the revenues of which are derived from the operation of cable television
systems or (ii) consisting of cable television systems serving more than 25,000
Subscribers (a "System Opportunity"), then such Partner (the "Notifying
Partner") shall notify the other Partner and the Partnership in writing of such
System Opportunity and describe such System Opportunity in reasonable detail (an
"Opportunity Notice").
(b) Subject to paragraphs (f) and (g), in the event the System
Opportunity is within the DMA of the Partnership Systems and not in the DMA of
the Other TWE Systems (including, for this purpose only, any cable television
systems owned by TWX, Paragon and USW), then the Partnership shall have the
first right, exercisable by delivery of written notice to the Notifying Partner
within ten business days following delivery of the Opportunity Notice, to pursue
such System Opportunity. If either (x) the Partnership does not elect to pursue
such System Opportunity within such period on account of Advance/▇▇▇▇▇▇▇▇'▇
Executive Committee representatives not approving such acquisition, or (y) if
the Partnership elects to pursue such System Opportunity but fails to consummate
the acquisition of, or investment in, such System Opportunity within one year of
such election, then TWE or its Affiliates shall have the right to pursue such
System Opportunity. If either (x) the Partnership does not elect to pursue such
System Opportunity within such period on account of TWE's Executive Committee
representatives not approving such acquisition, or (y) the Partnership elects to
pursue such System Opportunity but fails to consummate the acquisition of, or
investment in, such System Opportunity within one year of such election, then
Advance/▇▇▇▇▇▇▇▇ shall have the right to pursue such System Opportunity. In the
event the System Opportunity (i) is within a Preferred Cluster Area, or (ii) is
within the DMA of the Partnership Systems and is owned by a multiple system
cable operator acquired by TWE or Advance/▇▇▇▇▇▇▇▇ (or an Affiliate of either),
then the Partnership must acquire
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or invest in such System Opportunity unless such acquisition cannot be effected
on financially reasonable terms.
(c) In the event the System Opportunity is within the DMA of
the Other TWE Systems (including for this purpose any cable television systems
owned by TWX, Paragon Communications or USW), then TWE or a TWE Affiliate shall
have the first right, exercisable by delivery of written notice to the Notifying
Partner within 10 business days following delivery of the Opportunity Notice, to
pursue such System Opportunity. If TWE or such Affiliate does not elect to
pursue such System Opportunity within such period, or if TWE or such Affiliate
elects to pursue such System Opportunity but fails to consummate the acquisition
of, or investment in, such System Opportunity within one year of such election,
then the Partnership shall have the right to pursue such System Opportunity. If
the Partnership does not elect to pursue such System Opportunity on account of
TWE's Executive Committee representatives not approving such acquisition, then
Advance/▇▇▇▇▇▇▇▇ shall have the right to pursue such System Opportunity not
pursued by TWE or the Partnership, as the case may be.
(d) Subject to paragraphs (f) and (g), in the event the System
Opportunity is in a geographic area other than those described in paragraphs (b)
and (c) above, then each of TWE or a TWE Affiliate and the Partnership shall
have the right, exercisable by delivery of written notice to the Notifying
Partner within ten business days following delivery of the Opportunity Notice,
to pursue such System Opportunity pro rata based on the number of Subscribers to
the Other TWE Systems and the Partnership Systems, respectively. If either TWE
or such Affiliate or the Partnership (on account of TWE's representatives on the
Executive Committee not approving such acquisition) does not elect to pursue
such System Opportunity within such period, and Advance/▇▇▇▇▇▇▇▇ elects to so
pursue such opportunity, or if TWE or such Affiliate or the Partnership elects
to pursue such System Opportunity but fails to consummate the acquisition of, or
investment in, such System Opportunity within one year of such election, then
Advance/▇▇▇▇▇▇▇▇ shall have the right to pursue the System Opportunity not
pursued by TWE or the Partnership, as the case may be.
(e) Subject to paragraphs (f) and (g), in the event a System
Opportunity includes cable television systems in more than one of the geographic
areas described in paragraphs (b), (c) and (d) above, then such cable television
systems shall be grouped in the appropriate category, and such groups of cable
television systems shall be treated in the manner described in paragraph (b),
(c) or (d), as applicable.
(f) Notwithstanding the foregoing, TWE and its Affiliates
shall be permitted to pursue and acquire or invest in any System Opportunity
without the consent of the Partnership; provided that if, in accordance with
this Section 10.1, (i) the Partnership shall be required to pursue such System
Opportunity (or a portion thereof) and/or (ii) the Partnership shall have the
right to pursue such System Opportunity (or a portion thereof) and shall elect
so to pursue such System Opportunity (or such portion thereof), then TWE or its
Affiliates shall use reasonable best efforts to transfer or assign as promptly
as practicable, and shall assign after receipt of any necessary regulatory
71
consents, the economic benefits of the System Opportunity (or such portion
thereof) to the Partnership (in a manner and at a time intended to preserve any
deferral of tax on such acquisition and otherwise minimize the taxes payable in
connection with such transaction) at a price, payable in tax efficient
consideration equal to the fair market value of the System Opportunity (or such
portion thereof) transferred or assigned to the Partnership; provided that if
the Partnership shall have the right to pursue such System Opportunity (or
portion thereof), but shall elect not to pursue such System Opportunity (or
portion thereof) on account of TWE's Executive Committee representatives not
approving the pursuit of such opportunity, and Advance/▇▇▇▇▇▇▇▇ shall elect to
pursue such System Opportunity (or portion thereof), then TWE or its Affiliates
shall use reasonable best efforts to transfer or assign to Advance/▇▇▇▇▇▇▇▇ its
pro rata share of such System Opportunity (or portion thereof) on the terms
described above.
(g) Notwithstanding the foregoing, Advance/▇▇▇▇▇▇▇▇ and its
Affiliates shall be permitted to pursue and acquire or invest in any System
Opportunity without the consent of the Partnership; provided that if, in
accordance with Section 10.1, (i) the Partnership shall be required to pursue
such System Opportunity (or a portion thereof) and/or (ii) the Partnership
and/or TWE shall have the right to pursue such System Opportunity (or a portion
thereof) and shall elect to pursue such System Opportunity (or such portion
thereof), then Advance/▇▇▇▇▇▇▇▇ or its Affiliates shall use reasonable best
efforts to transfer or assign as promptly as practicable, and shall assign to
the Partnership and/or TWE after receipt of any necessary regulatory consents,
the economic benefits of the System Opportunity (or such portion thereof) to the
Partnership (in a manner and at time intended to preserve any deferral of tax on
such acquisition and otherwise minimize the taxes payable in connection with
such transaction) at a price, payable in tax efficient consideration equal to
the fair market value of the System Opportunity (or such portion thereof)
transferred or assigned to the Partnership and/or TWE; provided that if the
Partnership shall have the right to pursue such System Opportunity (or portion
thereof), but shall elect not to pursue such System Opportunity (or portion
thereof) on account of Advance/▇▇▇▇▇▇▇▇'▇ Executive Committee representatives
not approving the pursuit of such opportunity, and TWE shall elect to pursue
such System Opportunity (or portion thereof), then Advance/▇▇▇▇▇▇▇▇ or its
Affiliates shall use reasonable best efforts to transfer or assign to TWE its
pro rata share of such System Opportunity (or portion thereof) (in addition to
any portion thereof otherwise assigned to TWE pursuant to this Section 10.1(g))
on the terms described above.
10.2 Programming Opportunities.
(a) In the event the TWE Cable Division or its Controlled
Affiliates desire to pursue any opportunity to acquire or make an equity
investment in any programming business that is distributed or distributable
through the facilities of cable television systems, by direct-to-home satellite
or video dial-tone, microwave, or other telephony distribution mechanism (a
"Programming Opportunity"), then TWE and the Partnership shall participate in
such Programming Opportunity pro rata based on the number of Subscribers of the
Other TWE Systems and the Partnership Systems,
72
respectively, and, with respect to regional programming, based on the number of
Subscribers to the Partnership Systems and Other TWE Systems, respectively, in
the region targeted by such programming. Notwithstanding the foregoing, TWE and
its Affiliates shall be permitted to pursue and acquire or invest in any
Programming Opportunity without the consent of the Partnership provided that TWE
and its Affiliates shall use reasonable best efforts to transfer or assign as
promptly as practicable, and shall assign after receipt of any necessary
regulatory consents, the economic benefit to the Partnership of its pro rata
share of such Programming Opportunity (in a manner and at a time intended to
preserve any deferral of tax on such acquisition and otherwise minimize the
taxes payable in connection with such transaction) at a price, payable in tax
efficient consideration, equal to the Partnership's pro rata portion of the fair
market value of such Programming Opportunity.
(b) In the event Advance/▇▇▇▇▇▇▇▇ or TWE or their respective
Affiliates develop a Programming Opportunity that is offered to and invested in
by other multiple system cable operators ("Other Programming Investors"), then,
except for the interest therein held by Advance/▇▇▇▇▇▇▇▇ or TWE on account of
such development activities, subject to the approval of both Partners, the
Partnership shall be entitled to participate in such Programming Opportunity, at
least pro rata with the Other Programming Investors, based on the relative
carriage commitments, with respect to such programming, of the Partnership
Systems and the cable television systems operated by the Other Programming
Investors, respectively (or if such investment opportunity is not offered in
exchange for carriage commitments, then on some other equitable basis).
10.3 Other Services.
(a) In the event Advance/▇▇▇▇▇▇▇▇ or any of its Affiliates
engaging in activities that are similar to activities engaged in by the TWE
Cable Division or that are in the Long Term Strategic Plan (any "Advance
▇▇▇▇▇▇▇▇ Cable Affiliate") or the TWE Cable Division or its Controlled
Affiliates desire to pursue any opportunity to acquire or make an investment in
any business relating to video, programming, data, telephony or other services
that are to be offered substantially through cable television systems (an
"Ancillary Business Opportunity") in the franchise area of the Partnership
Systems, then the Partnership shall have the first right to pursue such
Ancillary Business Opportunity. In the event the Partnership rejects any such
Ancillary Business Opportunity (on account of TWE's representatives on the
Executive Committee not approving such participation), then Advance/▇▇▇▇▇▇▇▇
shall have the next right, at its option, to pursue such Ancillary Business
Opportunity. In the event the Partnership rejects any such Ancillary Business
Opportunity (on account of Advance/▇▇▇▇▇▇▇▇'▇ representatives on the Executive
Committee not approving such participation), then TWE shall have the right, at
its option, to pursue such Ancillary Business Opportunity. In the event
Advance/▇▇▇▇▇▇▇▇ or any Advance/▇▇▇▇▇▇▇▇ Cable Affiliate or the TWE Cable
Division or its Controlled Affiliates desire to pursue any Ancillary Business
Opportunity in the franchise area of the Other TWE Systems, then TWE shall have
the first right to pursue such Ancillary Business Opportunity.
73
(b) In the event Advance/▇▇▇▇▇▇▇▇ or any Advance/▇▇▇▇▇▇▇▇
Cable Affiliate or the TWE Cable Division or its Controlled Affiliates desire to
pursue any Ancillary Business Opportunity in a franchise area not covered by
Section 10.3(a), then each of TWE and the Partnership shall have the right to
participate in such Ancillary Business Opportunity pro rata based on the number
of Subscribers to the Other TWE Systems and the Partnership Systems,
respectively. If the TWE Cable Division or any of its Controlled Affiliates
elects to participate in an Ancillary Business Opportunity that the Partnership
rejects (on account of TWE's representatives on the Executive Committee not
approving such participation), then Advance/▇▇▇▇▇▇▇▇ shall have the right, at
its option, to participate in the Ancillary Business Opportunity pro rata as set
forth above.
(c) In the event the Partnership is foreclosed from
participating in any Ancillary Business Opportunity by virtue of any of the
restrictions contained in the Modification of Final Judgment or any regulatory
restrictions imposed by the FCC, or other restrictions arising out of USW's
ownership interest in TWE, including its participation in the TWE Full Service
Network Management Committee, then one of the Service Partnerships (as defined
in the Contribution Agreement) shall have the right to participate in such
Ancillary Business Opportunity to the same extent as the Partnership would have
had but for the restrictions contained in the Modification of Final Judgment.
(d) Notwithstanding paragraphs (a) and (b) above, TWE and its
Affiliates shall be permitted to pursue and acquire or invest in any Ancillary
Business Opportunity without the consent of the Partnership; provided that if,
in accordance with this Section 10.3, the Partnership shall have the right to
pursue such Ancillary Business Opportunity (or a portion thereof) and shall
elect so to pursue such Ancillary Business Opportunity (or such portion
thereof), then TWE and its Affiliates shall use reasonable best efforts to
transfer or assign as promptly as practicable, and shall assign after receipt of
any necessary regulatory consents, the economic benefits of the Ancillary
Business Opportunity (or such portion thereof) to the Partnership (in a manner
and at a time intended to preserve any deferral of tax on such acquisition and
otherwise minimize the taxes payable in connection with such transaction) at a
price, payable in tax efficient consideration equal to the fair market value of
the Ancillary Business Opportunity (or such portion thereof) transferred or
assigned to the Partnership; provided that if the Partnership shall have the
right to pursue such Ancillary Business Opportunity (or portion thereof), but
shall elect not to pursue such Ancillary Business Opportunity (or portion
thereof) on account of TWE's Executive Committee representatives not approving
the pursuit of such opportunity, and Advance/▇▇▇▇▇▇▇▇ shall elect to pursue such
Ancillary Business Opportunity (or portion thereof), then TWE or its Affiliates
shall use reasonable best efforts to transfer or assign to Advance/▇▇▇▇▇▇▇▇ its
appropriate share of such Ancillary Business Opportunity (or portion thereof) to
Advance/▇▇▇▇▇▇▇▇ on the terms described above.
10.4 Programming Carriage Commitment. During the term of the
Partnership, TWE shall cause the distribution of programming services developed
and primarily owned by Advance/▇▇▇▇▇▇▇▇ or its Affiliates to a number of
Subscribers equal to at least one-third of the total Subscribers to the
Partnership Systems. In addition, the
74
Partnership will provide equal distribution over the Partnership Systems to any
programming services developed and primarily owned by TWE and to any similarly
situated (in content, targeted viewers, notoriety, etc.) programming services
developed and primarily owned by Advance/▇▇▇▇▇▇▇▇. For the purposes of the
foregoing, to the extent technologically feasible, TWE will afford similar
treatment to data, video, on-line and other similar services.
10.5 Advance/▇▇▇▇▇▇▇▇ Right of First Offer. If at any time during the
term of the Partnership, the Partnership seeks to sell any cable television
system (a "Subject System") for consideration consisting exclusively of cash
and/or debt issued by the purchaser of the Subject System, the Partnership shall
give Advance/▇▇▇▇▇▇▇▇ written notice thereof (a "Sale Notice"), which notice
shall specify the price and other material terms (collectively, the "Sale
Terms") on which it would be willing to sell such cable television systems. For
a period of 60 days (or 90 days with respect to sales of cable television
systems for which consent is not required pursuant to Section 3.2(h)) following
delivery of the Sale Notice, Advance/▇▇▇▇▇▇▇▇ shall have the right to elect to
purchase the Subject System from the Partnership on the Sale Terms. If
Advance/▇▇▇▇▇▇▇▇ fails to elect to purchase the Subject System within such
60-day (or 90-day, as applicable) period, or if Advance/▇▇▇▇▇▇▇▇ elects to
purchase the Subject System but fails to consummate such purchase within one
year from delivery of the Sale Notice, subject to extension if reasonably
necessary to obtain regulatory consents (provided that if such necessary
regulatory consents shall not have been obtained by the date which is nine
months following the expiration of such one-year period, the parties shall
negotiate in good faith alternative arrangements intended to achieve the
economic effects of the foregoing transaction), the Partnership may sell the
Subject System to a third party at a price and on other material terms no more
favorable to such third party than the Sale Terms.
SECTION 11 BOOKS AND RECORDS; ACCOUNTING; FISCAL YEAR
11.1 Books and Records. The Partnership's books and records, including
a register showing the names and addresses of the Partners, shall be maintained
at the principal office of the Partnership at the location specified in Section
2.5. The Partnership shall keep current and complete records and books of
account in which shall be entered fully and accurately all transactions of the
Partnership. All such books and records shall be available for inspection and
copying by the Partners or their duly authorized representatives during ordinary
business hours. The books of the Partnership shall be kept on an accrual basis
of accounting and in accordance with generally accepted accounting principles
consistently applied.
11.2 Annual Financial Statements.
(a) Within ninety (90) days after the end of each Fiscal Year
of the Partnership (but in any event as soon as prepared) the Partnership shall
furnish to each Partner audited financial statements, including an audited
balance sheet and an audited income statement, showing the financial condition
of the Partnership as of the close of such Fiscal Year and the results of its
operations during such Fiscal Year, together with a
75
statement of cash flow and additional statements, schedules and footnotes as are
customary in a complete accountant's report (all of the foregoing referred to
hereinafter collectively as the "Partnership Financial Statements"). The
Partnership Financial Statements shall include a report of the independent
auditors of the Partnership, which shall only contain the unqualified opinion of
such independent auditors.
(b) The Advance/▇▇▇▇▇▇▇▇ Accountants shall participate with
the TWE Accountants in the audit of the Partnership financial records. TWE and
Advance/▇▇▇▇▇▇▇▇ shall cause the TWE Accountants and the Advance/▇▇▇▇▇▇▇▇
Accountants, respectively, to cooperate fully with each other in the audit of
the Partnership financial records. The Partnership shall grant both the TWE
Accountants and the Advance/▇▇▇▇▇▇▇▇ Accountants complete access to the
Partnership's books and records, and to the Partnership's employees, in
connection therewith. Nothing contained in the foregoing shall be construed to
limit the performance by the TWE Accountants of the tasks such accountants
believe need to be performed by them in order to render an opinion with respect
to the Partnership's financial statements. Notwithstanding the foregoing, any
audited financial statements of the Partnership contained in public filings
(including filings with the Securities and Exchange Commission) made by TWX and
TWE shall only contain audit reports of the TWE Accountants.
(c) One-third of the total amount paid by the Partnership with
respect to its regular audits for the applicable Fiscal Year for fees and
expenses to its independent auditors shall be paid to the Advance/▇▇▇▇▇▇▇▇
Accountants. Any fees and expenses of the TWE Accountants with respect to such
audits in excess of two-thirds of such total amount shall be paid by TWE, and
any fees and expenses of the Advance/▇▇▇▇▇▇▇▇ Accountants with respect to such
audits in excess of one-third of such total amount shall be paid by
Advance/▇▇▇▇▇▇▇▇.
11.3 Additional Financial Information. The Managing Partner shall
deliver to each Partner the following financial information, all of which shall
be prepared in accordance with GAAP (except as otherwise specifically noted) and
shall set forth information regarding the operations of the Partnership
(including the Beneficial Assets and Subsidiary Beneficial Assets) as a whole:
(a) Within 45 business days after the end of each quarter,
beginning with the quarter in which the Initial Closing Date occurs, a balance
sheet as of the end of such quarter and the related statements of income or
loss, Partner's capital (deficiency), and cash flows for the interim period
through the end of such quarter and for the quarter then ended, and setting
forth in each case in comparative form the figures for the comparable period of
the previous Fiscal Year; and
(b) Within 15 business days after such information is
prepared, beginning on the Initial Closing Date, any other financial information
with respect to the Partnership that is provided to senior management including,
without limitation, division-by-division monthly cash flow statements.
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11.4 Tax Return Information. As soon as reasonably practicable
following the end of each fiscal year, but in no event later than July 31
following the end of such Fiscal Year, the Partnership shall furnish to each
Partner a preliminary draft Schedule K-1 of the Partnership. As soon as
practicable thereafter, the Partnership shall furnish to each Partner a final
report of the Preferred Profit or Preferred Loss, and the Net Profit or Net
Loss, and distributions, if any, for such Fiscal Year, a schedule setting forth
each Partner's Capital Account as at the end of the period covered by such
statements and a Schedule K-1 for each Partner, a copy of the Partnership's
federal and state tax returns, and other information required by applicable tax
regulations or necessary for each Partner to prepare its federal, state, and
local tax returns.
11.5 Other Information. The Managing Partner promptly shall deliver to
each Partner all internally prepared and distributed management and other
reports with respect to the operations of the Partnership that are delivered to
members of a board of directors or senior management. Any information or report
furnished to one Partner (in its capacity as such) shall simultaneously be
furnished to the other Partners. In addition, the Managing Partner promptly
shall deliver to each Partner any report, appraisal or document prepared for the
Partnership by any accountant, appraiser, attorney, management consultant,
engineer or other third party that is delivered to members of a board of
directors or senior management and any such report, appraisal or document
reasonably requested by Advance/▇▇▇▇▇▇▇▇. For purposes of the foregoing, "senior
management" shall mean the following officers of the TWE Cable Division (or
persons having comparable responsibilities): the Chairman and Chief Executive
Officer (currently, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇), the President (currently, ▇▇▇▇▇ ▇.
▇▇▇▇▇), the Senior Executive Vice President (currently, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇), the
Chief Financial Officer (currently, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇), the Executive Vice
Presidents responsible for telephony (currently, ▇▇▇ ▇▇▇▇) and for cable
television systems owned by the Partnership (currently, ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇▇), the Senior Vice Presidents whose
responsibilities significantly relate to the operations of the Partnership
(currently, ▇▇▇▇▇ ▇. ▇'▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇▇), the Vice President of Marketing
(currently, ▇▇▇▇▇ ▇▇▇▇▇▇), the Senior Vice President of Information Technology
(currently, ▇▇▇▇▇ ▇▇▇▇▇▇▇) and the Presidents of the operating divisions, if
any, of the Time Warner Cable Division (currently, none). Further, the term
"reports" shall include any correspondence to or from such senior management
individuals which relate to the operations of the Partnership, except it shall
not include preliminary drafts or material prepared in connection with or in
preparation for adversarial proceedings between TWE and Advance/▇▇▇▇▇▇▇▇.
11.6 Bank Accounts. The Partnership shall maintain bank accounts in
such banks or institutions as the Managing Partner from time to time shall
select, and such accounts shall be drawn upon by check signed by such person or
persons, and in such manner, as may be designated by the Managing Partner. All
moneys of the Partnership shall be deposited in the bank or other financial
institution account or accounts of the Partnership. Partnership funds shall not
be commingled with those of any other Person without the consent of all
Partners.
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11.7 Other Audit Procedures. Advance/▇▇▇▇▇▇▇▇ shall have the right, at
its cost and expense, to cause the Advance/▇▇▇▇▇▇▇▇ Accountants to audit any
Partnership activities and to perform the audit procedures that it deems
advisable in its sole and absolute discretion. TWE shall cause the TWE
Accountants and the Partnership to cooperate fully with the Advance/▇▇▇▇▇▇▇▇
Accountants and shall grant the Advance/▇▇▇▇▇▇▇▇ Accountants complete access to
the Partnership's books and records, and to the Partnership's employees, in
connection therewith.
11.8 Tax Allocations. No later than 45 days prior to the filing of the
Partnership's federal information return and Schedules K-1 thereto, the Managing
Partner shall deliver a draft of such return to the Advance/▇▇▇▇▇▇▇▇
Accountants, together with such workpapers as are necessary for the
Advance/▇▇▇▇▇▇▇▇ Accountants to review the proposed determinations of Special
Income, Maximum Income Amount, and Net Tax Amount of each of the Partners,
together with the allocations required by Sections 5.3(b)(iii) and 5.3(d)(ii).
The Advance/▇▇▇▇▇▇▇▇ Accountants shall promptly review such proposed
determinations and allocations and shall deliver, within 30 days after receipt
of the draft return and necessary workpapers, a report ("Adjustment Report")
setting forth in reasonable detail the determinations and allocations with which
such Accountants disagree. Thereafter, the Managing Partner and the
Advance/▇▇▇▇▇▇▇▇ Accountants shall endeavor in good faith to agree to such
determinations and allocations prior to the filing of the Partnership's
information returns. If any dispute cannot be resolved by the Managing Partner
and the Advance/▇▇▇▇▇▇▇▇ Accountants within 10 days after the delivery of the
Adjustment Report, the disputed matters shall be referred to a mutually
satisfactory independent public accounting firm of national stature which has
not been employed by any Partner for the two year preceding the date of such
referral, such firm to be selected by the TWE Accountants and the
Advance/▇▇▇▇▇▇▇▇ Accountants. In settling any disputed matter (other than a
disputed matter arising in connection with a restructuring pursuant to Section
8.2 or a put of the Advance/▇▇▇▇▇▇▇▇ interest pursuant to Section 9), such
independent public accounting firm shall apply the understanding of the Partners
that on an annual basis the after-tax positions of the Partners with respect to
the contributed assets are to be in proportion to their respective Percentage
Interests (assuming all Partners are taxable at the Special Effective Tax Rate).
The fees of such firm shall be paid by the Partners in accordance with their
Percentage Interests.
SECTION 12 DISSOLUTION
12.1 Causes of Dissolution. To the extent permitted by the Act, the
Partnership shall dissolve upon the first to occur of the following dates or
events:
(a) the termination of the Contribution Agreement, prior to
the Initial Closing Date, in accordance with its terms;
(b) the sale, exchange, involuntary conversion, or other
disposition of all or substantially all of the assets of the Partnership
(including the Beneficial Assets and the Subsidiary Beneficial Assets);
78
(c) the expiration of the term of the Partnership as specified
in Section 2.3 or the restructuring of the Partnership pursuant to Section 8; or
(d) the bankruptcy (within the meaning of Section 1531(5), or
any successor provision, of the Act) of any Partner.
12.2 Effect of Dissolution. Upon the dissolution of the Partnership,
the Partnership shall cease its regular business operations, except for the
taking of such actions as shall be necessary for the performance and discharge
of the Partnership's obligations, the winding-up of its affairs, and the
liquidation and distribution of its assets in accordance with the provisions of
this Agreement.
12.3 Winding Up and Liquidation.
(a) Liquidator. Upon the dissolution of the Partnership, the
Managing Partner shall act as liquidator (the "Liquidator") to wind up the
Partnership; provided, however, if the Managing Partner is the subject of a
bankruptcy proceeding, the other Partners shall act as Liquidator. The
Liquidator shall have full power and authority, subject to Section 3.2, to sell,
assign, and encumber any or all of the Partnership's assets and to wind up and
liquidate the affairs of the Partnership in an orderly and businesslike manner.
(b) Application of Proceeds. The proceeds of liquidation shall
be applied first to the payment of the debts and liabilities of the Partnership
(including any loans to the Partnership made by any Partner), the expenses of
liquidation, and the establishment of any reserves that the Liquidator deems
necessary for potential or contingent liabilities of the Partnership. In the
event that Section 8.2 is applicable, the remaining assets of the Partnership
shall be distributed in accordance with Section 8.2. In the event that Section
8.2 is not applicable the remaining assets of the Partnership shall be
distributed to the Partners as provided in Section 5.1(d).
(c) Final Accounting. Upon the dissolution and winding up of
the Partnership, a proper accounting shall be made from the date of the last
previous accounting to the date of winding up.
(d) Statement of Liquidation. Within a reasonable time
following the completion of the liquidation of the Partnership, the Liquidator
shall submit a statement (which need not be audited) to each Partner setting
forth the assets and liabilities of the Partnership as of the date of
liquidation and the amount of the distribution to each Partner pursuant to
Section 5.1(c).
(e) Effect of Withdrawal of a Partner. To the extent permitted
by the Act, the withdrawal of a Partner shall not alter the allocations and
distributions to be made to the Partners pursuant to this Agreement.
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(f) Termination of Partnership. Upon the completion of the
distribution of the Partnership's assets and the proceeds of liquidation as
provided in this Section 12.3, the Partnership shall be terminated.
SECTION 13 INDEMNIFICATION
13.1 Indemnification by Partnership. The Partnership shall indemnify
and save harmless each Partner, the officers, directors, and stockholders of
each Partner and its Affiliates, and the officers and employees of the
Partnership, from any loss, damage, or expense incurred by any of them by reason
of any act or omission to act on behalf of the Partnership (including any action
or omission by the Partner acting as Tax Matters Partner), performed by any of
them in good faith and without gross negligence, willful misconduct, or breach
of this Agreement. Any reasonable expenses incurred by any indemnified person
pursuant to this Section 13.1 in defending any civil or criminal action, suit or
proceeding (or the threat thereof), other than a claim, action, suit, or
proceeding brought by the Partnership, which is based, in whole or in part, upon
any alleged act or omission to act on behalf of the Partnership shall be borne
and paid by the Partnership in advance of the final disposition of such action,
suit, or proceeding (or the threat thereof) upon receipt of a reasonably
satisfactory undertaking by or on behalf of the indemnified person to repay to
the Partnership the amount of such expenses if it shall ultimately be determined
that such person is not entitled to the indemnification provided for under this
Section 13.1. Any indemnity under this Section 13.1 shall be provided out of and
to the extent of the Partnership's assets only.
13.2 Indemnification by Partners. Each Partner shall indemnify and save
harmless the Partnership and each other Partner and former Partner, the
officers, directors, and stockholders of each other Partner and former Partner,
and any of their respective officers, directors, shareholders, partners,
employees, agents, and Affiliates, from any loss, damage, or expense incurred by
any of them by reason of or resulting from any unauthorized act taken by such
Partner in the name of the Partnership or the other Partner. Any reasonable
expenses incurred by any Person entitled to indemnification pursuant to this
Section 13.2 in defending any civil or criminal action, suit, or proceeding (or
the threat thereof) by reason of or resulting from any such indemnified matter
shall be borne and paid by the indemnifying Partner in advance of the final
disposition of such action, suit or proceeding (or the threat thereof) upon
receipt of a reasonably satisfactory undertaking by or on behalf of the
indemnified Person to repay to the indemnifying Partner the amount of such
expenses if it shall ultimately be determined that such Person is not entitled
to the indemnification provided for under this Section 13.2.
13.3 Procedures. With respect to the indemnities provided above in this
Section 13, an indemnified party shall, with respect to any claim made against
such indemnified party for which indemnification is available, notify the
indemnifying party in writing of the nature of the claim as soon as practicable
but not more than ten days after the indemnified party shall have received
notice of the assertion thereof before any court or governmental authority. The
failure by an indemnified party to give notice as provided in the foregoing
sentence shall not relieve the indemnifying party of its obligations under this
Section except to the extent that the failure results in the failure of
80
actual notice to the indemnifying party and the indemnifying party is damaged as
a result of the failure to give notice. Upon receipt of notice by an
indemnifying party from an indemnified party of the assertion of any such claim,
the indemnifying party shall employ counsel reasonably acceptable to the
indemnified party and shall assume the defense of such claim. The indemnified
party shall have the right to employ separate counsel and to participate in (but
not control) any such action, but the fees and expenses of such counsel shall be
at the expense of such indemnified party unless (a) the employment of counsel by
the indemnified party has been authorized by the indemnifying party, (b) the
indemnified party shall have been advised by its counsel in writing that there
is a conflict of interest between the indemnifying party and the indemnified
party in the conduct of the defense of such action (in which case the
indemnifying party shall not have the right to direct the defense of such action
on behalf of the indemnified party), or (c) the indemnifying party shall not in
fact have employed counsel to assume the defense of such action, in each of
which cases the fees and expenses of such counsel shall be at the expense of the
indemnifying party. An indemnifying party shall not be liable for any settlement
of an action effected without its written consent (which consent shall not be
unreasonably withheld). No indemnifying party will consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect of such action. Whether or not the
Partnership chooses to defend or prosecute a claim, each Partner shall, to the
extent requested by the Partnership and at the Partnership's expense, cooperate
in the prosecution or defense of such claim and shall furnish such records,
information, and testimony and attend such conferences, discovery proceedings,
hearings, trials, and appeals as may reasonably be requested in connection
therewith.
13.4 Survival. The provisions of this Section 13 shall survive the
withdrawal of any Partner from the Partnership and the dissolution of the
Partnership.
SECTION 14 REPRESENTATIONS
Each Partner represents and warrants to the other Partners as follows:
14.1 Organization, Standing, and Authority. Such Partner is a
partnership duly organized, validly existing, and in good standing under the
laws of its state of organization. Such Partner has all requisite power and
authority to execute and deliver this Agreement and the documents contemplated
hereby, and to perform and comply with all of the terms, covenants, and
conditions to be performed and complied with by it hereunder and thereunder.
14.2 Absence of Conflicting Agreements. Except as disclosed in the
Contribution Agreement, the execution, delivery, and performance of this
Agreement and the documents contemplated hereby by such Partner (with or without
the giving of notice, the lapse of time, or both): (a) do not require the
consent of any third party; (b) do not and will not conflict with any provision
of the partnership agreement or other organizational document of such Partner;
(c) do not and will not conflict with, result in a breach of, or constitute a
default under, any law, judgment, order, ordinance, injunction, decree, rule,
81
regulation, or ruling of any court or governmental instrumentality; and (d) do
not and will not conflict with, constitute grounds for termination of, result in
a breach of, constitute a default under, or accelerate or permit the
acceleration of any performance required by the terms of, any agreement,
instrument, license, or permit to which either such Partner or any of its
Affiliates is a party or by which either such Partner or any of its Affiliates
may be bound.
14.3 Claims and Legal Actions. There is no claim, legal action,
counterclaim, suit, arbitration, governmental investigation or other legal,
administrative, or tax proceeding, in progress or pending, or to the knowledge
of such Partner, threatened, against or relating to such Partner or any of its
Affiliates, and no order, decree, or judgment has been issued against such
Partner or any of its Affiliates, that may impair such Partner's ability to
perform and comply with all of the terms, covenants, and conditions to be
performed and complied with by it under this Agreement and the documents
contemplated hereby.
SECTION 15 MISCELLANEOUS
15.1 Acknowledgments. Each Partner affirms and acknowledges that no
representations, warranties, or statements have been made to it by any party to
this Agreement other than those expressly set forth in this Agreement and the
Contribution Agreement and that, in entering into this Agreement, it has not
relied upon anything done or said with respect to this Agreement or with respect
to the relationship between the parties, other than as expressly set forth in
this Agreement and the Contribution Agreement.
15.2 ▇▇▇▇ for Partition. Each of the Partners covenants that neither it
nor any Person claiming through or under it will file a ▇▇▇▇ for partition of
the Partnership property.
15.3 Notices. All notices and other communications hereunder shall be
(a) in writing (except to the extent otherwise expressly provided hereunder);
(b) delivered by telecopy, by commercial overnight or same-day delivery service
with all delivery costs paid by sender, or by registered or certified mail with
postage prepaid, return receipt requested; (c) deemed given on the date and at
the time shown on the telecopy confirmation of receipt (if delivered by
telecopy), on the date and at the time (if recorded) of delivery by the
commercial delivery service, as shown in the records thereof (if delivered by
commercial overnight or same-day delivery service), or on the date shown on the
return receipt (if delivered by registered or certified mail); and (d) addressed
to the parties at their addresses specified on the signature page to this
Agreement (or at such other address for a party as shall be specified by like
notice).
15.4 Amendments. This Agreement may not be amended nor shall any
waiver, change, modification, consent, or discharge be effected, except by an
instrument in writing signed by each Partner; provided that Advance/▇▇▇▇▇▇▇▇
hereby agrees to any amendments or modifications to this Agreement necessitated
by (i) the distribution by TWE of its Partnership Interest to the partners of
TWE (upon a liquidation of TWE
82
otherwise permitted by Section 6.1) or (ii) the incorporation of TWE pursuant to
Article XIII of the TWE Partnership Agreement or otherwise, provided such
amendments or modifications do not adversely affect Advance/▇▇▇▇▇▇▇▇.
15.5 Waivers and Further Assurances; Entire Agreement. Any waiver of
any terms or conditions of this Agreement shall be in writing and shall not
operate as a waiver of any other breach of such terms or conditions or any other
term or condition, nor shall any failure to enforce any provision of this
Agreement operate as a waiver of such provision or of any other provision of
this Agreement. Each of the Partners agrees to execute all such further
instruments and documents and to take all such further action as the other
Partners may reasonably require in order to effectuate the terms and purposes of
this Agreement. The Partners agree that this Agreement, including the Exhibits
to this Agreement, and the other agreements expressly contemplated hereby
constitutes the entire agreement between them with respect to the subject matter
of the Partnership (other than the Contribution Agreement and the exhibits and
schedules thereto) and supersedes all prior agreements and understandings
between them as to such subject matter, and there are no restrictions,
agreements, arrangements, or undertakings, oral or written, between the Partners
relating to the Partnership which are not fully expressed or referred to herein.
15.6 Severability. If any term or other provision of this Agreement is
invalid, illegal, or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal, or incapable of being enforced, the parties to this Agreement shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the greatest extent
possible.
15.7 Specific Enforcement; Attorneys Fees. The Partners agree that the
remedy at law for damages upon violation of the terms of this Agreement would be
inadequate because the Partnership Interests and the business of the Partnership
are unique. Therefore, the Partners agree that the provisions of this Agreement
may be specifically enforced by any court of competent jurisdiction, and each
Partner and its respective transferees agree to submit to the jurisdiction of
the court where any such action for specific performance is brought. If any
Partner defaults in its performance of any of the terms and conditions of this
Agreement and if, as a result of such default, a lawsuit seeking damages,
specific performance, or any other remedy is filed by the other Partner, then,
in that event, the prevailing party in such a lawsuit shall be entitled to
obtain attorney's fees from the losing party in such amount as shall be
determined by the court to be reasonable under the circumstances.
15.8 Counterparts. This Agreement may be executed in counterparts each
of which shall be deemed an original and all of which together shall constitute
one and the same instrument, and in pleading or proving any provision of this
Agreement, it shall not be necessary to produce more than one complete set of
such counterparts.
83
15.9 Captions; Gender. Section headings contained in this Agreement are
for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement. Whenever used herein the singular number shall
include the plural, the plural shall include the singular, and the use of any
gender shall include all genders.
15.10 Governing Law; Venue; Disputes. This Agreement shall be governed
by the internal laws of the State of New York. Any action, suit or proceeding
shall be prosecuted as to any party hereto in the County of New York, State of
New York.
15.11 Binding Effect. This Agreement shall bind and inure to the
benefit of each of the Partners and their successors and permitted assigns.
15.12 Third Parties. None of the provisions of this Agreement shall be
for the benefit of, or enforceable by, any creditor of the Partnership or any
Person other than a Partner.
15.13 Confidentiality. Each Partner agrees that it shall not, directly
or indirectly, without the prior written consent of any other Partner, use for
its own benefit (except as a Partner of the Partnership) or disclose to any
Person any information, trade secrets, confidential customer information,
patents, patent rights, technical data, or know-how relating to the products,
processes, methods, equipment, or business practices of the Partnership, except
(a) to the extent any of the foregoing is or becomes available to the public
other than as a result of disclosure by such Partner or any of its Affiliates or
the directors, officers, employees, agents, advisors, and controlling persons of
it or any of its Affiliates, (b) subject to the terms of an appropriate
confidentiality agreement, as necessary to effect a transaction under Section 6,
(c) as may be required by law (including without limitation the federal and
state securities laws and the rules and regulations of applicable stock
exchanges or comparable market systems), and (d) as any Partner may disclose to
its lenders, rating agencies, and business and financial advisors. If any
Partner is required by applicable law or regulation or by legal process to
disclose any of the foregoing, it will provide any other Partner with prompt
notice thereof, to the extent practicable under the circumstances, to enable it
to seek an appropriate protective order.
15.14 Liability of Partners. No Partner shall have any liability for
the debts or obligations of the Partnership owed to any other Partner or its
Affiliates arising under this Agreement or the Contribution Agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ADVANCE/▇▇▇▇▇▇▇▇ PARTNERSHIP
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
By: Advance Cable Holdings Corp.
General Partner
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
_________________________________________
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: President
By: ▇▇▇▇▇▇▇▇ Broadcasting Corporation,
General Partner
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
_________________________________________
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Vice President
TIME WARNER ENTERTAINMENT COMPANY, L.P.
▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
_________________________________________
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
Title: Vice President
PARAGON COMMUNICATIONS
▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
By: KBL COMMUNICATIONS, INC., as
General Manager
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
_________________________________________
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
Title: Executive Vice President
85
EXHIBIT A
(to Transaction Agreement No. 4)
AMENDED AND RESTATED PARTNERSHIP AGREEMENT
OF
TIME WARNER ENTERTAINMENT-ADVANCE/▇▇▇▇▇▇▇▇ PARTNERSHIP
Dated as of February 1, 2001
[SEE TAB 9]
86
SCHEDULE 3.2
DMA LISTS FOR NY, NC, SC AND FL
NY
1. Albany -Schenectady -▇▇▇▇ (52) (excluding VT)
2. Binghamton (154)
3. Buffalo (Jamestown) (40)
4. Burlington, VT -Plattsburgh, NY (Hartford, VT) (91) [3 NY counties only]
5. Elmira (170)
6. Rochester (75)
7. Syracuse (72)
8. Utica (169)
9. Watertown -Carthage (174)
NC, SC
1. Charlotte (Hickory) (28)
2. Greensboro - Winston-Salem - High Point (Burlington) (46)
3. Greenville -New Bern -Washington (▇▇▇▇▇▇▇▇ City) (106)
4. Raleigh -Durham (Fayetteville, Goldsboro & Rocky Mount) (29)
5. Wilmington (152)
6. Columbia S.C. (88)
7. ▇▇▇▇▇▇▇▇ - Myrtle Beach S.C. (111)(1)
FL
--------
(1) Plus that portion of the Partnership's Surfside S.C. system which falls in
the Charleston S.C. (117) DMA.
87
1. Orlando -Daytona Beach -Melbourne (22)
2. Tampa -St. Petersburg (Lakeland) (15)