Exhibit 10.10
THE PARTNERSHIP INTERESTS ISSUED UNDER THIS AGREEMENT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES ACT AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF ABSENT SUCH REGISTRATION UNLESS, IN THE OPINION OF
COUNSEL TO THE GENERAL PARTNER, SUCH REGISTRATION IS NOT
REQUIRED.
AGREEMENT OF LIMITED PARTNERSHIP
OF
HEP II, L.P.
This AGREEMENT OF LIMITED PARTNERSHIP is made and entered into as of
March 4, 1996, by and between Hit Entertainment, Inc., a Delaware corporation
(the "General Partner"), and Master Glazier's Karate International, Inc., a
Delaware corporation, as the original limited partner (the "Original Limited
Partner"), and those other parties who from time to time may become limited
partners pursuant to the provisions of this Agreement by execution and delivery
of this Agreement or counterparts hereof (hereinafter referred to collectively
as the "Limited Partners" and referred to individually as a "Limited Partner").
W I T N E S S E T H:
WHEREAS, the General Partner and the Original Limited Partner have
created the Partnership, and the parties hereto desire to set forth their
respective interests in and all rights, duties and obligations in and to the
Partnership, all upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises, and the mutual
covenants and promises hereinafter set forth, the parties to this Agreement of
Limited Partnership do hereby agree as follows:
ARTICLE I
DEFINED TERMS
The following defined terms used in this Agreement shall have the
meanings specified below:
1.1. "ACCOUNTANTS" means any firm of certified public accountants that
may be engaged by the General Partner on behalf of the Partnership for any task.
1.2. "ACT" means the Delaware Revised Uniform Limited Partnership Act
(6 Del. C. 6, 17-101, et seq.), and now in effect and as the same may be amended
from time to time hereafter.
1.3. "AFFILIATE" means (a) any Person directly or indirectly
controlling, controlled by or under common control with, another Person, (b) any
Person owning or controlling 10% or more of the outstanding voting securities of
such other Person, (c) any officer, director or partner of such Person, or (d)
if such other Person is an officer, director or partner, any company for which
such Person acts in any such capacity.
1.4. "AGREEMENT" means this Agreement of Limited Partnership, as
amended, modified or supplemented from time to time.
1.5. "AVAILABLE CASH FLOW" means all cash and cash equivalent funds of
the Partnership on hand at the end of each Year, less (a) provision for payment
of all outstanding and unpaid current cash obligations of the Partnership at the
end of such year (including those which are in dispute), including, but not
limited to, deferred contingent payments due to principal artists and other
talent contributing to the Project, and (b) provisions for reserves for
reasonably anticipated cash expenses and contingencies (which include debt
service on indebtedness of the Partnership, if any, and amounts payable to the
General Partner and Affiliates of the General Partner), not including, but not
limited to, provisions for depreciation, amortization and other non-cash
expenses; provided, however, that Sale Proceeds shall not be included in
Available Cash Flow.
1.6. "CAPITAL ACCOUNT" means, with respect to any Partner, the Capital
Account maintained for such Person in accordance with the following provisions:
(i) To each Person's Capital Account there shall be credited
such Person's Capital Contributions, such Person's distributive share
of Net Income and any items in the nature of income or gain that are
specially allocated hereunder to such Person, and the amount of any
Partnership liabilities assumed by such Person or which are secured by
any Partnership property distributed to such Person.
(ii) To each Person' s Capital Account there shall be debited
the amount of cash and the Gross Asset Value of any Partnership
property distributed to such Person pursuant.to any provision of this
Agreement, such Person's distributive share of Net Loss and any items
in the nature of expenses or losses that are specially
2
allocated hereunder to such Person, and the amount of any liabilities
of such Person assumed by the Partnership or which are secured by any
property contributed by such Person to the Partnership.
(iii) In the event any interest in the Partnership is
transferred in accordance with the terms of this Agreement, the
transferee shall succeed to the Capital Account of the transferor to
the extent it relates to the transferred interest.
(iv) In determining the amount of any liability for purposes
of Sections 1.6(i) and (ii) hereof, there shall be taken into account
Code Section 752(c) and any other applicable provisions of the Code and
Regulations.
The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner
consistent with such Regulations. In the event the General Partner shall
determine that it is prudent to modify the manner in which the Capital Accounts,
or any debits or credits thereto (including, without limitation, debits or
credits relating to liabilities that are secured by contributed or distributed
property or that are assumed by the Partnership or the General Partner), are
computed in order to comply with such Regulations, the General Partner may make
such modification, provided that it is not likely to have a material effect on
the amounts distributable to any Partner pursuant to Article XIII hereof upon
the dissolution of the Partnership. The General Partner also shall (i) make any
adjustments that are necessary or appropriate to maintain equality between the
Capital Accounts of the Partners and the amount of Partnership capital reflected
on the Partnership's balance sheet, as computed for book purposes, in accordance
with Regulations Section 1.704-l(b)(2)(iv)(q), and (ii) make any appropriate
modifications in the event unanticipated events (for example, the acquisition by
the Partnership of oil or gas properties) might otherwise cause this Agreement
not to comply with Regulations Section 1.704-1(b).
1.7. "CAPITAL CONTRIBUTION" in respect of any Partner or transferee of
such Partner means the amount of money and the initial Gross Asset Value of any
property (other than money), tangible or intangible, contributed by such Partner
to the capital of the Partnership.
1.8. "CERTIFICATE" means the Certificate of Limited Partnership of the
Partnership filed pursuant to the Act, as amended from time to time.
1.9. "CODE" means the Internal Revenue Code of 1986, as amended from
time to time.
1.10. "DEPRECIATION" means, for each Year, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable with
respect to an asset for such Year, except that if the Gross Asset Value of an
asset differs from its adjusted basis for federal income tax purposes at the
beginning of such Year, Depreciation shall be an amount which bears the same
ratio to such beginning Gross Asset Value as the federal income tax
depreciation, amortization, or other cost recovery deduction for such Year bears
to such
3
beginning adjusted tax basis; provided, however, that if the federal income tax
depreciation, amortization, or other cost recovery deduction for such Year is
zero, Depreciation shall be determined with reference to such beginning Gross
Asset Value using any reasonable method selected by the General Partner.
1.11. "FINAL PERCENTAGE" Interest Change Date means the day following
the earlier to occur of (i) seven years following the date of this Agreement, or
(ii) the date as of which the cumulative amount of Available Cash Flow
distributed to the Limited Partners by the Partnership equals 200% of the total
Capital Contributions of the Limited Partners.
1.12. "GAIN FROM SALE" means gain or loss, as the case may be,
determined m accordance with the rules of determining Federal taxable income,
gain or loss, arising from a transaction giving rise to Sale Proceeds.
1.13. "GENERAL PARTNER" means the parties designated as the "General
Partner" in the first paragraph of this Agreement, including any successor
general partner or general partners substituted pursuant to the provisions of
this Agreement.
1.14. "GENERAL PARTNER'S PERCENTAGE INTEREST" means (i) 1% until the
Percentage Interest Change Date, (ii) 50% upon and after the Percentage Interest
Change Date and (iii) 100% upon and after the Final Percentage Interest Change
Date.
1.15. "GENERAL PARTNERSHIP INTEREST" means the entire interest of the
General Partner in the Partnership, including the General Partner's Percentage
Interest in capital, income, gains, losses, deductions, credits and
distributions of the Partnership, the General Partner's right to participate in
the management of the Partnership and all other rights and obligations accorded
under this Agreement or under the Act.
1.16. "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 shall be the gross fair market value of
such asset, as determined by the contributing Partner and the
Partnership;
(ii) The Gross Asset Values of all Partnership assets shall
be adjusted to equal their respective gross fair market values, as
determined by the General Partner, as of the following times: (a) the
acquisition of an additional interest in the Partnership (other than
pursuant to Section 6.3 hereof) by any new or existing Partner in
exchange for more than a de minimis Capital Contribution; (b) the
distribution by the Partnership to a Partner of more than a de minimis
amount of Partnership property as consideration for an interest in the
Partnership; and (c) the liquidation of the Partnership within the
meaning of Regulations Section 1.704- 1(b)(2)(ii)(g); provided,
however, that adjustments pursuant to clauses (a) and (b) above shall
be made only if the General Partner reasonably determines that such
4
adjustments are necessary or appropriate to reflect the relative
economic interests of the Partners in the Partnership;
(iii) The Gross Asset Value of any Partnership asset
distributed to any Partner shall be the gross fair market value of such
asset on the date of distribution; and
(iv) The Gross Asset Values of Partnership 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 Regulations Section
1.704-1(b)(2)(iv)(m); provided, however, that Gross Asset Values shall
not be adjusted pursuant to this Section 1.15(iv) to the extent the
General Partner determines that an adjustment pursuant to Section
1.15(ii) hereof is necessary or appropriate in connection with a
transaction that would otherwise result in an adjustment pursuant to
this Section 1.15(iv).
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to Section 1.15(i), Section 1.15(ii), or Section 1.15(iv) hereof, such
Gross Asset Value shall thereafter be adjusted by the Depreciation taken into
account with respect to such asset for purposes of computing Net Income and Net
Loss.
1.17. "LIMITED PARTNERS" means the Persons who are, from time to time,
admitted to the Partnership as Limited Partners, and whose names, mailing
addresses, Limited Partnership Percentage or Capital Contribution, number of
Units held by, and social security or taxpayer identification numbers appear in
Appendix A to this Agreement, as amended from time to time, including, unless
the context otherwise specifically states, the Organizational Limited Partner.
Such Persons shall become Limited Partners when a duly executed Subscription
Agreement, or such other instrument or document as the General Partner may
require, has been accepted by the General Partner, except as otherwise required
by law.
1.18. "LIMITED PARTNERS' PERCENTAGE INTEREST" means (i) 99% until the
Percentage Interest Change Date, (ii) 50% upon and after the Percentage Interest
Change Date and (iii) 0% upon and after the Final Percentage Interest Change
Date.
1.19. "LIMITED PARTNERSHIP INTEREST" means the entire interest of a
Limited Partner in the Partnership expressed in Units, including such Limited
Partner' s interest in the Limited Partners' Percentage Interest in capital,
income, gains, losses, deductions, credits and distributions of the Partnership.
1.20. "NET INCOME" and "NET LOSS" means, for each Year, an amount equal
to the Partnership' s taxable income or loss for such Year, 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:
5
(i) Any income of the Partnership that is exempt from
federal income tax and not otherwise taken into account in computing
Net Income and Net Loss pursuant to this Section 1.19 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 Regulations Section 1.704-1(b)(2)(iv)(i), and
not otherwise taken into account in computing Net Income or Net Loss
pursuant to this Section 1.19, shall be subtracted from such taxable
income or loss;
(iii) In the event the Gross Asset Value of any Partnership
asset is adjusted pursuant to Section 1.15(ii) or Section 1.15(iv)
hereof, 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 Income 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, computed in accordance with Section 1.10
hereof; and
(vi) Notwithstanding any other provision of this Section
1.19, any items which are specially allocated hereunder to any Person
shall not be taken into account in computing Net Income or Net Loss.
1.21. "ORIGINAL LIMITED PARTNER" means any party designated as an
"Original Limited Partner" in the first paragraph of this Agreement.
1.22. "PARTNERS" means, collectively, the General Partner and the
Limited Partners.
1.23. "PARTNERSHIP" means the limited partnership formed pursuant to
this Agreement by the filing of the Certificate pursuant to the Act.
1.24. "PARTNERSHIP RETURN" means the United States Partnership
Information Return of Income of the Partnership.
1.25. "PERCENTAGE INTEREST CHANGE DATE" means the day following the
date as of which the cumulative amount of Net Losses allocated to and Available
Cash Flow distributed to the Partners equals 110% of the total Capital
Contributions of the Partners.
6
1.26. "PERSON" means (i) a person as that term is defined in Section
7701(a)(1) of the Code, namely, an individual, trust, estate, partnership,
association, company or corporation, and (ii) those persons who are related by
blood or marriage to a person defined in (i), above.
1.27. "PROJECT" means the development, production, distribution and
otherwise effectuating the economic exploitation of artistic properties in the
form of one or more motion pictures, including, but not limited to, no fewer
than two full length motion pictures, and incorporating themes related to
physical fitness, self-defense, action and children.
1.28. "REGULATIONS" means the Income Tax Regulations promulgated under
the Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
1.29. "SALE PROCEEDS" means all proceeds from any sale, exchange,
foreclosure or abandonment of all, or substantially all, of the assets of the
Partnership, or any portion of such proceeds, or proceeds from condemnation
awards or casualty insurance claims, less applicable expenses and any debt paid
or prepaid with the proceeds of, or in connection with, such transaction, which
proceeds are not used to acquire Partnership assets or in the operation of the
business of the Partnership, exclusive of proceeds accruing in the normal course
of business.
1.30. "SECTION" means the designated section of this Agreement if no
reference is specified; otherwise the designated section of the specified
agreement, statute or regulation or the comparable provision of any successor
agreement, statute or regulation.
1.31. "SUBSCRIPTION AGREEMENT" means the agreement between the
Partnership and each Limited Partner pursuant to which the Limited Partner
agrees to subscribe for one or more Units and the Partnership accepts the
subscription.
1.32. "UNIT" means an interest in the capital of the Partnership
contributed by the Limited Partners. The authorized number of Units of the
Partnership is 160.
1.33. "YEAR" means the calendar year, except for the initial and final
Year of the Partnership which may begin or end on a date other than January 1
and December 31, respectively.
ARTICLE II
ORGANIZATION
2.1. FORMATION. The parties hereto hereby form a limited partnership
under and pursuant to the Act. As required by the Act, the General Partner and
the Original Limited Partner shall promptly cause the Certificate to be filed on
behalf of the Partnership as required under the Act.
7
2.2. QUALIFICATION. Promptly after the filing of the Certificate
pursuant to the Act as set forth in Section 2.1, the General Partner shall take
such action as shall be required by law to qualify the Partnership to transact
business as a foreign limited partnership in such other places as shall be
necessary to protect the status of the Partnership as a limited partnership, and
as otherwise required by law.
2.3. NAME. The name of the Partnership is "HEP II, L.P." The business
of the Partnership may be conducted under any name chosen by the General
Partner, and the General Partner may, in its sole discretion from time to time,
change the name of the Partnership.
2.4. PRINCIPAL PLACE OF BUSINESS. The principal place of business of
the Partnership shall be located at 1990 Westwood Boulevard, Third Floor, Los
Angeles, California 90025, or at such other place as the General Partner may
from time to time designate by written notice to the Limited Partners. The
General Partner may establish such other places of business of the Partnership
in addition to the Partnership's principal place of business when and where
required by the Partnership's business and shall give prompt written notice
thereof to the Limited Partners.
2.5. REGISTERED AGENT FOR SERVICE OF PROCESS AND REGISTERED OFFICE;
PARTNERSHIP RECORDS. The agent for service of process on the Partnership in the
State of Delaware shall be CT Corporation System. The address of the registered
agent and the address of the registered office of the Partnership in the State
of Delaware is 1209 Orange Street, Wilmington, Delaware 19801.
ARTICLE III
BUSINESS
The business to be conducted by the Partnership shall be the Project
and to license ancillary rights to such motion pictures and to carry on any and
all activities necessary, proper, convenient or advisable in connection
therewith. In conducting its business, the Partnership shall use personnel of
the Original Limited Partner in both on-screen and technical advisory roles.
In addition, when feasible, the Partnership will incorporate the name,
logo, and personnel and/or students of the Original Limited Partner in the
Project.
ARTICLE IV
TERM
The term of the Partnership shall be from the date on which the
Certificate was originally filed in accordance with the Act, and shall continue
until the Final Percentage Interest Change Date, unless sooner terminated by law
or as hereafter provided in this Agreement.
8
ARTICLE V
NAMES AND ADDRESSES OF PARTNERS
5.1. GENERAL PARTNER. Hit Entertainment, Inc., a Delaware corporation,
is the General Partner, and its principal places of business is 1200
AmSouth/Harbert Plaza, Birmingham, Alabama 35203.
5.2. ORIGINAL LIMITED PARTNER AND LIMITED PARTNERS. The name, mailing
address, the Limited Partnership Percentage or Capital Contribution of, the
number of Units held by, and the social security or taxpayer identification
number of, each Original Limited Partner and Limited Partner of the Partnership
is set forth in Appendix A attached to this Agreement, as amended from time to
time, which is incorporated herein by reference and made a part hereof as though
set out in full herein. Such information shall always be kept available to any
Partner at the principal place of business of the Partnership.
ARTICLE VI
CAPITAL CONTRIBUTIONS AND
ADDITIONAL WORKING CAPITAL
6.1. CAPITAL CONTRIBUTION OF THE GENERAL PARTNER. The General Partner
has contributed to the capital of the Partnership the sum of $1,000, which has
an Initial Gross Asset Value of and the General Partner' s capital account will
be credited in the amount of $1,000. The General Partner may make additional
Capital Contributions from time to time.
6.2. CAPITAL CONTRIBUTION OF THE ORIGINAL LIMITED PARTNER. The Original
Limited Partner has contributed $1,500,000 in cash to the capital of the
Partnership upon the formation of the Partnership. Such contribution shall be
returned to the Original Limited Partner in the event that an additional
$1,500,000 in capital is not contributed by additional Limited Partners within
SiXtY (60) days after the effective date of this Agreement.
6.3. CAPITAL CONTRIBUTIONS OF THE LIMITED PARTNERS. It is contemplated
by the parties to this Agreement that at some indeterminate time in the future,
it will be in the best interest of the Partnership and its Partners to admit to
the Partnership certain parties as Limited Partners. In such event, all Capital
Contributions made by such Limited Partners shall be paid to and received by the
Partnership and each Limited Partner, other than the Organizational Limited
Partner, shall contribute money to the capital of the Partnership in the amount
of $25,000 per Unit subscribed for under a Subscription Agreement.
6.4. WITHDRAWAL OF CAPITAL CONTRIBUTIONS.
(a) Limited Partners. Subject to the provisions of Section 11.5, no
Limited Partner shall have the right to withdraw or reduce his Capital
Contribution without the consent of the General Partner. No Limited Partner
shall have the right to demand or
9
receive property other than cash in return for his Capital Contribution, and,
except as provided in Section 6.2, no Limited Partner (other than the Original
Limited Partner) shall have priority over any other Limited Partner, either as
to the return of his Capital Contribution or as to the allocation of income,
gains, losses, deductions, credits or as to distributions.
(b) General Partner. The General Partner will not withdraw its Capital
Contribution prior to the dissolution and liquidation of the Partnership or
sooner than the time the Limited Partners have withdrawn their Capital
Contributions hereunder, whichever first occurs.
6.5. ASSESSMENTS. Limited Partners will not be subject to assessments
for contributions to the capital of the Partnership in excess of the Capital
Contribution required by Sections 6.2 and 6.3.
6.6. INTEREST ON CAPITAL. Interest equal to seven percent (7%) shall be
paid quarterly on Capital Contributions to the Partnership.
6.7. NO VOLUNTARY CAPITAL CONTRIBUTIONS. No Limited Partner shall have
the right to make voluntary Capital Contributions to the Partnership.
6.8. WORKING CAPITAL LOANS. The General Partner shall make or arrange
for such loans as are necessary or desirable, in the sole discretion of the
General Partner, to meet the working capital needs of the Partnership. Such
loans shall be on such terms as the General Partner, in its sole discretion,
shall deem reasonable; provided, however, that any loans made by the General
Partner shall be on terms no less favorable than those that the Partnership
could obtain from an unaffiliated lender.
ARTICLE VII
EXPENSES OF THE PARTNERSHIP
7.1. NO COMPENSATION TO GENERAL PARTNER AS GENERAL PARTNER. The General
Partner shall receive no direct compensation or fees for acting as the general
partner of the Partnership.
7.2. REIMBURSEMENT OF EXPENSES INCURRED BY THE GENERAL PARTNER. The
General Partner may charge the Partnership for all direct costs and expenses
incurred by it in connection with the Partnership's business, including legal
and accounting expenses.
7.3. ORGANIZATIONAL AND OFFERING EXPENSES. All expenses incurred in
connection with the formation of the Partnership and obtaining the Partnership's
capital shall be paid by the Partnership.
10
ARTICLE VIII
CAPITAL ACCOUNTS; ALLOCATION OF
INCOME AND LOSS; CASH DISTRIBUTIONS
8.1. CAPITAL ACCOUNTS. A Capital Account shall be determined and
maintained for each Partner. No interest shall be payable on the Capital
Accounts of the Partners. The General Partner shall maintain a minimum balance
in its Capital Account equal to one percent of the total positive balance of all
Capital Accounts maintained for the Partners.
8.2. ALLOCATION OF NET INCOME OR NET LOSS. With respect to each Year,
the General Partner shall be allocated the percentage of Net Income or Net Loss
for such Year equal to the applicable General Partner's Percentage Interest, and
the Limited Partners shall be allocated the percentage of Net Income or Net Loss
for such Year equal to the applicable Limited Partners' Percentage Interest.
8.3. DISTRIBUTION OF AVAILABLE CASH FLOW AND PROPERTY OTHER THAN CASH.
(a) The General Partner shall make distributions of Available Cash Flow
in cash or assets of the Partnership in kind at such times as the General
Partner, in its sole discretion, deems such distributions to be advisable and in
the best interest of the Partnership to do so. Notwithstanding any contrary
provision contained in this Agreement, to the extent any amount of a
distribution of Available Cash Flow would create or increase a deficit in the
capital account of any Partner, such amount shall not be distributed to such
Partner, but shall be distributed to the other Partners in proportion to the
amount of the distributions to such other Partners without regard to this
proviso. The General Partner shall have the right to withhold any distribution
of Available Cash Flow if it deems it to be in the best interest of the
Partnership to do so.
(b) With respect to each Year, distributions of Available Cash Flow for
such Year shall be made to the General Partner in an amount equal to the General
Partner's Percentage Interest of such distribution of Available Cash Flow and to
the Limited Partners in an amount equal to the Limited Partners' Percentage
Interest of such distribution of Available Cash Flow; provided, however, that
such distributions of Available Cash Flow shall be made to the General Partner
and Limited Partners taking into account their respective varying percentage
interests which occur with respect to each such Year.
(c) If assets other than cash are distributed by the Partnership, the
capital accounts of the Partners shall be adjusted to reflect how much gain or
loss would have been allocated to the respective Partners if the property had
been sold at the value or values assigned thereto for purposes of making the
distribution.
8.4. ALLOCATION OF GAIN FROM SALE AND DISTRIBUTION OF SALE PROCEEDS.
The General Partner shall be allocated an amount of the Gain from Sale equal to
the applicable General Partner's Percentage Interest, and the Limited Partners
shall be allocated an amount of the Gain from Sale equal to the applicable
Limited Partners' Percentage Interest. The General Partner shall make
distributions of Sale Proceeds as soon after the receipt thereof by the
11
Partnership as the General Partner deems practicable, such distributions to be
made to the Partners in proportion to their respective capital accounts, taking
into account the allocations of Gain from Sale set forth in this Section 8.4;
provided, however, that to the extent that any amount of a cash distribution to
any Partner would create or increase a deficit in the capital account of such
Partner, such amount shall not be distributed to such Partner, but shall be
distributed to the other Partners in proportion to the amounts distributed to
such other Partners without regard to this proviso.
8.5. CONSEQUENCES OF DISTRIBUTIONS. Upon the determination to
distribute cash or property other than cash in any manner expressly provided in
this Article VIII, made in good faith, the General Partner shall incur no
liability on account of such distribution, even though such distribution may
have resulted in the Partnership retaining insufficient funds for the operation
of its business, which insufficiency resulted in loss to the Partnership or
necessitated the borrowing of funds by the Partnership.
8.6. ALLOCATION OF NET INCOME, NET LOSS AND DISTRIBUTIONS IN RESPECT OF
UNITS TRANSFERRED OR SOLD BY THE PARTNERSHIP. If one or more Units are
transferred during any Year of the Partnership, the Net Income or Net Loss
attributable to such Unit or Units for such Year shall be divided and allocated
between the transferor and the transferee based on the time each such party was,
according to the books and records of the Partnership, the owner of record of
the Unit or Units transferred during the Year in which the transfer occurs.
Distributions of Partnership assets in respect of Units shall be made only to
persons who, according to the books and records of the Partnership, are the
owners of such Units on a date selected by the General Partner. The General
Partner and the Partnership shall incur no liability for making distributions in
accordance with the provisions of the preceding sentence whether or not the
General Partner or the Partnership has knowledge or notice of any transfer of
ownership of any Unit or Units. For purposes of the foregoing, in the case of a
transfer of a Unit, and also in the case of a sale of a Unit by the Partnership
(except for the first time any Person or Persons other than the Original Limited
Partner is admitted to the Partnership as a Limited Partner or Limited
Partners), a Limited Partner who becomes a Limited Partner or who acquires a
Unit according to the books and records of the Partnership after the 15th day of
a month will be treated as becoming a Limited Partner or acquiring such Unit on
the first day of the following month, and a Limited Partner who becomes a
Limited Partner or who acquires a Unit according to the books and records of the
Partnership during the first 15 days of a month shall be treated as becoming a
Limited Partner or acquiring such Units on the first day of such month. In the
case of a sale of a Unit by the Partnership (except for the first time any
Person or Persons other than the Original Limited Partner is admitted to the
Partnership as a Limited Partner or Limited Partners), the General Partner shall
have the right to allocate Net Income and Net Loss to the purchaser of such Unit
as of the date such purchaser fully executes and delivers a Subscription
Agreement.
8.7. TAX ALLOCATIONS: CODE SECTION 704(C). In accordance with Code
Section 7W(c) and the Regulations thereunder, income, gain, loss, and deduction
with respect to any property contributed to the capital of the Partnership
shall, solely for tax purposes, be allocated among the Partners so as to take
account of any variation between the adjusted
12
basis of such property to the Partnership for federal income tax purposes and
its initial Gross Asset Value (computed in accordance with Section 1.15).
In the event the Gross Asset Value of any Partnership asset is adjusted
pursuant to Section 1.15(ii), subsequent allocations of income, gain, loss, and
deduction with respect to such asset shall take account of any variation between
the adjusted basis of such asset for federal income tax purposes and its Gross
Asset Value in the same manner as under Code Section 704(c) and the Regulations
thereunder.
Any elections or other decisions relating to such allocations shall be
made by the General Partner in any manner that reasonably reflects the purpose
and intention of this Agreement. Allocations pursuant to this Section 8.7 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 Person's Capital Account or
share of Net Income or Net Loss, other items, or distributions pursuant to any
provisions of this Agreement.
ARTICLE IX
RIGHTS, POWERS AND OBLIGATIONS
OF THE GENERAL PARTNER
9.1. POWERS. The management and control of the Partnership and its
business and affairs shall rest exclusively with the General Partner, which
shall have all the rights and powers which may be possessed by a general partner
pursuant to the Act, and such additional rights and powers as are otherwise
conferred by law or are necessary, advisable or convenient to the discharge of
its duties under this Agreement. The General Partner shall be the "tax matters
partner" within the meaning of the Code. Without limiting the generality of the
foregoing, the General Partner may, at the cost, expense and risk of the
Partnership:
(a) spend the capital and net income of the Partnership in the
exercise of any rights or powers possessed by the General Partner
hereunder pursuant to a production budget for the Project;
(b) purchase, hold, manage, distribute and license the
Partnership's property, and enter into agreements containing such
terms, provisions and conditions as the General Partner in its
discretion shall approve;
(c) purchase from or through others contracts of liability,
casualty and other insurance and a completion bond, which the General
Partner deems advisable for the protection of the Partnership or for
any purpose convenient or beneficial to the Partnership;
(d) incur indebtedness in the ordinary course of business;
13
(e) pledge, grant security interests in, hypothecate or
otherwise encumber, under such terms and conditions as the General
Partner deems advisable, the assets of the Partnership;
(f) sell, distribute, license or otherwise dispose of, under
such terms and conditions as the General Partner deems advisable for
the Partnership, or for any purpose convenient or beneficial to the
Partnership, any of the assets of the Partnership, including, without
limitation, the Project;
(g) invest such funds as are temporarily not required for the
purposes of the Partnership's operations in such investments as the
General Partner, in its sole discretion, shall deem prudent;
(h) negotiate employment contracts with principal artists and
other talent which may contribute to the Project, including negotiating
employment contracts providing for profits participation in the Project
for such principal artists and other talent, provided, however, such
profits participation shall be subordinated to the Limited Partners'
right to the return of their total Capital Contribution pursuant to
Section 1.24;
(i) delegate all and any of its duties hereunder and, in
furtherance of any delegation, appoint, employ, or contract with any
person (including Affiliates of the General Partner) for the
transaction of the business of the Partnership, which persons may,
under the supervision of the General Partner, act as distributors,
licensees, consultants, accountants, attorneys, brokers or in any other
capacity deemed by the General Partner necessary or desirable, and pay
appropriate fees to any of such persons.
9.2. INDEPENDENT ACTIVITIES. The General Partner may engage in whatever
activities it chooses, whether or not the same be competitive with the
Partnership, without having or incurring any obligation to offer any interest in
such activities to the Partnership or any party hereto, and, as a material part
of the consideration for the General Partner' s execution hereof, for the
admission of such Limited Partner, each Limited Partner hereby waives,
relinquishes and renounces any such right or claim of participation. The
Partnership shall be considered to be an entity and business wholly separate,
for all purposes, from the business and affairs of the General Partner, it being
understood that the only obligations undertaken by the General Partner are those
expressly provided in this Agreement and those which are inherent to the role of
a general partner.
9.3. DUTIES. The General Partner shall manage and control the
Partnership, its business and affairs, including, without limitation, the
Project, to the best of its ability and shall use its best efforts to carry out
the business of the Partnership. The General Partner shall devote itself to the
business of the Partnership to the extent that it, in its discretion, deems
necessary for the efficient carrying on thereof. The General Partner shall act
as a fiduciary with respect to the safekeeping and use of the funds and assets
of the Partnership.
14
9.4. CERTAIN LIMITATIONS. Without obtaining the consent of Limited
Partners holding greater than 50% of the issued and outstanding Units, or such
greater percentage of the issued and outstanding Units as is required under the
Act, the General Partner shall not:
(i) act in contravention of this Agreement;
(ii) except as provided in Article XIII of this Agreement, do
any act which would make it impossible to carry on the ordinary
business of the Partnership;
(iii) confess a judgment against the Partnership;
(iv) possess Partnership property, or assign any rights in
specific Partnership property, including any assignment for the benefit
of Partnership creditors, for other than a Partnership purpose;
(v) admit a person as a Limited Partner other than as
provided in this Agreement;
(vi) amend this Agreement;
(vii) dissolve the Partnership;
(viii) sell, pledge or exchange all, or substantially all,
of the assets of the Partnership; or
(ix) remove a general partner of the Partnership.
9.5. NET WORTH OF THE GENERAL PARTNER. The General Partner shall have
and maintain at all times during which it is the general partner of the
Partnership a net worth which is sufficient to conduct the business of the
Partnership in a prudent manner and to comply with any requirements of the Code
or the regulations thereunder or interpretations of the Internal Revenue Service
thereof necessary to avoid the taxation of the Partnership as an association
taxable as a corporation.
9.6. INDEMNIFICATION. Neither the General Partner nor any of its
Affiliates, officers, directors, employees or agents shall be liable to the
Partnership or any Limited Partners for any action or inaction of the General
Partner in connection with the business or affairs of the Partnership, so long
as the person against whom liability is asserted acted in good faith on behalf
of the Partnership and in a manner reasonably believed by such person to be in
the best interests of the Partnership, but only if such course of conduct does
not constitute gross negligence or willful misconduct. The General Partner and
its Affiliates, officers, directors, employees and agents shall be indemnified
and held harmless by the Partnership for any claim, liability, damage, loss, or
other expense (including, without limitation, investigating and defending any
claims and lawsuits and settlement thereof, and legal and accounting costs in
connection therewith) incurred by them solely by virtue of the
15
performance by any of them of the duties of the General Partner acting as
general partner in connection with the Partnership's business, so long as such
indemnified person acted in good faith on behalf of the Partnership and in a
manner reasonably believed by such person to be in the best interests of the
Partnership, but only if such course of conduct does not constitute gross
negligence or willful misconduct; provided that such indemnification or
agreement to hold harmless shall be recoverable only out of assets of the
Partnership and not from the Limited Partners.
9.7. GENERAL PARTNER AS LIMITED PARTNER. The General Partner may be a
Limited Partner to the extent that it (a) contributes capital under Section 6.3,
or (b) purchases or otherwise acquires or becomes the transferee of all or any
part of a Limited Partnership Interest. The General Partner's Capital
Contribution pursuant to Section 6.1 shall be made solely in its capacity as
general partner and shall not entitle the General Partner to any rights as a
Limited Partner.
9.8. SUCCESSION AS GENERAL PARTNER. The General Partner may at any time
assign its General Partnership Interest to any subsidiary or other Affiliate of
the General Partner without the consent of the Limited Partners. Any corporation
into which the General Partner may be merged or with which it may be
consolidated, or any corporation resulting from any merger or consolidation to
which the General Partner shall be a party, shall be the successor of the
General Partner hereunder, without the execution or filing of any paper or any
further act on the part of any of the parties hereto. In any such event, the
General Partner shall amend the Certificate within 90 days thereafter.
ARTICLE X
STATUS OF LIMITED PARTNERS
10.1. NO PARTICIPATION IN MANAGEMENT. No Limited Partner shall take
part in the management of the business of the Partnership, transact any business
for the Partnership, have the power to sign for or to bind the Partnership to
any agreement or document, or otherwise act as an agent for the Partnership for
any purpose. Such powers to manage and transact Partnership business, to bind
the Partnership or otherwise to act as the agent of the Partnership are vested
solely and exclusively in the General Partner.
10.2. LIMITED LIABILITY. No Limited Partner shall have any personal
liability whatsoever, whether to the Partnership, to the Partners or to the
creditors of the Partnership, for the debts of the Partnership or any of its
losses beyond the amount committed by him to the capital of the Partnership, as
set forth in Section 6.2 and 6.3, and his undistributed balance in his Capital
Account. Each Unit shall be fully paid and nonassessable, and no Limited Partner
shall have any personal liability whatsoever to another Limited Partner on
account of his Capital Contribution.
16
ARTICLE XI
TRANSFER OF INTERESTS IN THE PARTNERSHIP
11.1. IN GENERAL. Subject to the rights of first refusal granted to the
General Partner, the Partnership and the Limited Partners below, a Limited
Partner may sell, assign or otherwise transfer any or all of the Units owned by
him; provided, however, that:
(a) such Limited Partner and his purchaser, assignee or
transferee execute, acknowledge and deliver to the General Partner such
instruments of transfer and assignment with respect to such transaction
as are in form and substance satisfactory to the General Partner; and
(b) such Limited Partner pays the Partnership a transfer fee
which is sufficient to pay all reasonable expenses of the Partnership
in connection with such transaction;
provided, further, that such purchaser, assignee, or transferee shall not become
a substituted Limited Partner within the meaning of the Act unless the General
Partner consents in writing to such person's becoming a substituted Limited
Partner, which consent may be given or withheld in the sole discretion of the
General Partner. Neither the Partnership nor the General Partner shall recognize
or be bound by any sale, assignment or transfer of any Unit unless the General
Partner consents to such sale, assignment or transfer in writing. The General
Partner will not consent to any sale, assignment or transfer of any Unit or to
the admission of any person as a substituted Limited Partner if, in its opinion,
such consent and substitution would result in the Partnership being treated for
Federal income tax purposes as an association taxable as a corporation, would
result in a termination of the Partnership within the meaning of the Code, or
would constitute a violation of any applicable Federal or state law pertaining
to securities regulation.
Notwithstanding the foregoing, each Limited Partner agrees that at
least 60 days prior to any sale, assignment or transfer (by operation of law or
otherwise) of any Unit by it, such Limited Partner will give written notice
thereof to the General Partner and all Limited Partners, including the name of
the proposed purchaser, assignee or transferee and all of the terms, conditions
and other material details of such proposed sale, assignment or transfer. The
General Partner shall have a right of first refusal for its own account for 30
days after receipt by the General Partner of such written notice in which to
elect to consummate such sale, transfer or assignment itself pursuant to the
same terms, conditions and material details set forth in such notice. If the
General Partner does so purchase the Unit, it may resell such Unit, at any time,
on whatever terms and conditions it deems appropriate, to any Person without
regard to the rights of first refusal set forth herein. If the General Partner
fails to consummate the transaction during such 30-day period, the Partnership
shall then have 10 days in which to consummate such sale, transfer or assignment
pursuant to such terrns, conditions and material details. The right of first
refusal in the General Partner provided in this Section 11.1 shall be a right in
each party designated as the "General Partner" in the first paragraph of this
Agreement, or either of them if the other party designated the "General Partner"
fails to exercise its rights thereunder, provided, however, that such
disjunctive right in each party designated as the "General Partner" shall not
expand the time periods provided for herein with respect to such right of first
refusal, and further provided that such right, if jointly exercised by the
parties
17
designated the "General Partner", shall be proportionate to the interests in the
Partnership of each party designated the "General Partner". If the Partnership
does so purchase the Unit, it may resell such Unit, at any time, on whatever
terms and conditions it deems appropriate, to any Person without regard to the
rights of refusal set forth herein. If the Partnership fails to consummate the
transaction during such 10-day period, the General Partner shall give written
notice of such failure within two days of the expiration of the above 4-day
period to all the Limited Partners. The Limited Partners shall then have 20 days
from the end of the above 40-day period in which to consummate such sale,
transfer or assignment pursuant to such terms, conditions and material details
in proportion to the pro rata Limited Partnership Interests of the Limited
Partners participating in such purchase. If any Limited Partner does so purchase
a Unit or Units, such Limited Partner may resell such Unit or Units only in
accordance with the provisions of this Section 11.1. If none of the General
Partner, the Partnership or the other Limited Partners consummate the
transaction during such 60-day period, the selling Limited Partner shall then
have 30 days from the end of such 60 day period in which to consummate such
sale, transfer or assignment pursuant to such terms, conditions and material
details and to such named purchaser. If the Limited Partner shall not consummate
the sale, transfer or assignment during such 30-day period, such Unit shall
again be subject to the rights of first refusal contained herein.
11.2. SUBSTITUTED LIMITED PARTNERS. If none of the General Partner, the
Partnership or the Limited Partners exercise their rights of first refusal
provided in Section 11.1 and the General Partner consents to the admission of a
Person as a substituted Limited Partner within the meaning of the Act, and such
Person:
(a) elects to become a substituted Limited Partner by
delivering a written notice of such election to the General Partner;
(b) executes and acknowledges such other instruments as the
General Partner may deem necessary or advisable to effect the admission
of such Person as a substituted Limited Partner, including, without
limitation, the written acceptance and adoption by such Person of the
provisions of this Agreement; and
(c) pays the Partnership a transfer fee which is sufficient to
pay all reasonable expenses of the Partnership in connection with the
admission of such Person as a substituted Limited Partner within the
meaning of the Act, including, without limitation, the cost of
preparing, printing and filing for record an amendment to the
Certificate in accordance with the Act;
then the General Partner shall take all steps which, in the opinion of the
General Partner, are reasonably necessary to admit such Person as a substituted
Limited Partner under the Act. Such Person shall thereupon become a substituted
Limited Partner within the meaning of the Act.
11.3. PURCHASE OF UNITS BY THE GENERAL PARTNER. The General Partner may
acquire one or more Units owned by, or reserved for, Limited Partners, and, if
with respect to such
18
additional Unit or Units the General Partner becomes a Limited Partner within
the meaning of the Act, the General Partner shall, with respect to such Unit or
Units, enjoy all the rights and be subject to all the obligations and duties of
a Limited Partner. Any Limited Partnership Interest owned by the General Partner
may be sold, in whole or in part, by the General Partner, on whatever terms and
conditions it deems appropriate, to any Person without regard to the rights of
first refusal set forth in Section 11.1.
11.4. INVOLUNTARY TRANSFER OF PARTNER'S INTEREST.
(a) If any Limited Partner, or more than 50% of the members, partners
or shareholders of a Limited Partner which is not an individual, shall be
adjudicated a bankrupt or make a general assignment for the benefit of creditors
or take the benefit of any insolvency act, or if a permanent receiver or trustee
in bankruptcy be appointed for any such Limited Partner's property, or if a
temporary receiver be appointed for any Limited Partner and such appointment is
not vacated or set aside within 60 days from the date of such appointment, or in
the case of a Limited Partner which is not an individual, such Limited Partner
shall be adjudicated a bankrupt or make a general assignment for the benefit of
creditors or take the benefit of any insolvency act, or if a permanent receiver
or trustee in bankruptcy be appointed for any such Limited Partner' s property,
or if a temporary receiver be appointed for any such Limited Partner and such
appointment is not vacated or set aside within 60 days from the date of such
appointment, or in the event of any attempted transfer or other devolution of
the interest of any Limited Partner in the Partnership except as specifically
provided herein, then such Limited Partner shall become a "defaulting Partner"
(which term as used herein shall include any successor to or assignee of the
defaulting Partner).
(b) If any Limited Partner, or more than 50% of the members, partners
or shareholders of a Limited Partner which is not an individual, shall die, or
in the case of a Limited Partner which is not an individual, such Limited
Partner shall dissolve, then such Limited Partner shall become an "involuntary
defaulting Partner" (which term as used herein shall include any successor to or
assignee of the involuntary defaulting Partner).
(c) The General Partner, at its election, may cause the Partnership to
purchase and, if so elected, the defaulting Partner or the involuntary
defaulting Partner, as the case may be, shall sell the Limited Partnership
Interest of the defaulting Partner or the involuntary defaulting Partner, as the
case may be, in the Partnership at the prices and upon the terrns specified in
Section 11.5 at a closing which shall be held at the principal office of the
Partnership within 120 days following the giving of written notice to the
defaulting Partner or involuntary defaulting Partner of the election to purchase
such Partner's Limited Partnership Interest after receiving appropriate releases
and satisfactions.
11.5. PURCHASE PRICE OF DEFAULTING PARTNER'S INTEREST. If the General
Partner shall elect to cause the Partnership to purchase the Limited Partnership
Interest of a defaulting Partner or an involuntary defaulting Partner pursuant
to Section 11.4, the purchase price shall equal the balance of the Capital
Account related to said Limited Partnership Interest reduced by the amount of
any obligation then due the Partnership by the defaulting Partner
19
or involuntary defaulting Partner (all obligations of the defaulting Partner or
involuntary defaulting Partner shall become immediately due and payable
immediately preceding liquidation of the defaulting Partner' s or the
involuntary defaulting Partner's interest), and the excess (if any) of such
obligations over the value of such Partner' s interest shall be immediately due
and payable to the Partnership by such Partner.
(a) At the closing of the transfer of the Limited Partnership
Interest, the Partnership shall pay in cash to the defaulting Partner
or the involuntary defaulting Partner 20% of the purchase price (net
after reduction for any obligations owed by the Partner to the
Partnership as above provided), and the balance of the purchase price
shall be evidenced by the Partnership's nonnegotiable promissory note
payable in eight approximately equal quarterly installments of
principal, the first of which installments shall be due and payable
three months after the closing, with the remainder being due and
payable serially each three months thereafter. The unpaid balance shall
bear interest at a rate equal to the lower of (x) the prime rate of
Citibank, N.A., New York, New York on the date of closing, or (y) 9%
per annum, payable quarterly with each installment of principal. The
note shall contain provisions for (i) the acceleration of the entire
unpaid balance of principal and accrued interest at the option of the
holder in the event of default in payment of any principal or interest
when due, (ii) the payment of reasonable attorneys' fees in the event
of default, (iii) the prepayment of all or part of the unpaid principal
(any prepayment being first applied to then accrued interest), and (iv)
no prepayment during the taxable year in which the liquidation of the
Limited Partnership Interest occurs.
(b) All determinations and allocations required under this
Section 11.5 shall be made by the Partnership's Accountants, and any
such determination or allocation so made shall be binding on all
parties. For the purpose of the computations required in determining
the defaulting or involuntary defaulting Partner's Limited Partnership
Interest, the books of the Partnership and its Affiliates shall be
accepted as correct.
(c) No payment other than those specifically provided for
herein shall be due or payable with respect to the interest of the
defaulting or involuntary defaulting Partner. Any debt due by the
Partnership to the defaulting Partner or involuntary defaulting
Partner, as the case may be, shall be payable according to it.c terms
ARTICLE XII
RESIGNATION OF THE GENERAL PARTNER
12.1. NO RESIGNATION OF THE GENERAL PARTNER. The General Partner may
not resign as general partner of the Partnership.
12.2. LIABILITY OF THE GENERAL PARTNER AFTER RESIGNATION. If,
notwithstanding the provisions of Section 12.1, the General Partner resigns as
such, its liability as a general
20
partner shall cease upon the appointment of a successor General Partner pursuant
to Section 12.3, and the Partnership shall promptly take all steps reasonably
necessary under the Act to cause such cessation of liability; provided, however,
that, if no successor General Partner is appointed pursuant to Section 12.3, the
General Partner shall remain the General Partner of the Partnership for purposes
of the winding up of the Partnership pursuant to Section 13.2. Upon its
resignation, the General Partner shall not receive its Capital Contribution, nor
the repayment of any indebtedness of the Partnership owed it, nor any
undistributed balance in its capital account nor its share of any Sale Proceeds
as otherwise provided for in Article VIII hereof.
12.3. APPOINTMENT OF SUCCESSOR GENERAL PARTNER. Subject to Section
13.1(i), at any time during the 90 day period after any notice of resignation
given by the General Partner, the Limited Partners may, by the affirmative vote
of Limited Partners holding 51% of the issued and outstanding Units, voting at a
meeting called in accordance with Article XVI hereof, elect a successor General
Partner to serve beginning immediately upon the effectiveness of the resignation
of the General Partner.
ARTICLE XIII
DISSOLUTION AND WINDING UP
OF THE PARTNERSHIP
13.1. DISSOLUTION OF THE PARTNERSHIP. The resignation of either party
designated as the General Partner in the first paragraph of this Agreement shall
cause a dissolution of the Partnership unless (i) the other party designated as
the General Partner in the first paragraph of this Agreement elects to serve as
the sole General Partner and continue the Partnership, or (ii) a successor
General Partner is appointed pursuant to Section 12.3. The Partnership shall
also be dissolved upon (a) the final judgment by a court having jurisdiction
over the General Partner adjudicating either party designated as the General
Partner in the first paragraph of this Agreement to be bankrupt, or (b) the
expiration of the term of the Partnership. In no event shall the death of any
Limited Partner result in dissolution of the Partnership.
13.2. WINDING UP OF THE PARTNERSHIP. Upon the dissolution of the
Partnership, the General Partner shall take full account of the Partnership's
assets and liabilities and the assets shall be liquidated as promptly as is
consistent with obtaining the fair value thereof. The proceeds therefrom, to the
extent sufficient therefor, shall be applied and distributed as provided in the
Act; provided, however, that after payment of all Partnership debts, obligations
and liabilities, there shall be distributed to each Partner the balance in his
capital account, and the remaining assets of the Partnership, if any, shall be
distributed according to the Partners' percentage interest in the Partnership.
13.3. COMPLIANCE WITH CERTAIN REQUIREMENTS OF REGULATIONS. In the event
the Partnership is "liquidated" within the meaning of Regulations Section
1.704-l(b)(2)(ii)(g), (a) distributions shall be made pursuant to this Article
XIII to the Partners who have positive Capital Accounts in compliance with
Regulations Section 1.704 1(b)(2)(ii)(b)(2),
21
and (b) if any Partner' s Capital Account has a deficit balance (after giving
effect to all contributions, distributions, and allocations for all taxable
years, including the year during which such liquidation occurs), such Partner
shall contribute to the capital of the Partnership the amount necessary to
restore such deficit balance to zero in compliance with Regulations Section
1.704-l(b)(2)(ii)(b)(3). In the discretion of the General Partner, a pro rata
portion of the distributions that would otherwise be made to the Partners
pursuant to Section 13.2 may be:
(a) distributed to a trust established for the benefit of the
Partners for the purposes of liquidating Partnership assets, collecting
amounts owed to the Partnership, and paying any contingent or
unforeseen liabilities or obligations of the Partnership or of the
Partners arising out of or in connection with the Partnership. The
assets of any such trust shall be distributed to the Partners from time
to time, in the reasonable discretion of the General Partner, in the
same proportions as the amount distributed to such trust by the
Partnership would otherwise have been distributed to the Partners
pursuant to this Agreement; or
(b) withheld to provide a reasonable reserve of Partnership
liabilities (contingent or otherwise) and to reflect the unrealized
portion of any installment obligations owed to the Partnership,
provided that such withheld amounts shall be distributed to the
Partners as soon as practicable.
ARTICLE XIV
BOOKS OF ACCOUNT, ACCOUNTING, REPORTS,
FISCAL YEAR, BANKING AND TAX ELECTION
14.1. BOOKS OF ACCOUNT. The Partnership's books and records (including
a current list of the names and addresses of all Limited Partners) and an
executed COW of this Agreement, as currently in effect, shall be maintained at
the principal office of the Partnership at 1990 Westwood Boulevard, Third Floor,
Los Angeles, California 90025, and each Partner shall have access thereto at all
reasonable times. The books and records of the Partnership shall be kept by the
General Partner using the income tax basis method of accounting consistently
applied, which shall be the cash method of accounting, if allowed under the
Code, and shall reflect all Partnership transactions and be appropriate and
adequate for the Partnership's business. The General Partner shall also keep
adequate federal income tax records using an appropriate method of tax
accounting, which shall be the cash method of accounting, if allowed under the
Code, on a basis consistently applied. Each Limited Partner hereby agrees to
submit to the General Partner the name, address and social security or taxpayer
identification number of a transferee of the Limited Partner and the date of
transfer of the Unit or Units so transferred.
14.2. FINANCIAL REPORTS. The Partnership will send the following
reports to each Person who was a Partner during the period covered by such
report:
22
(a) A report within 90 days after the end of each Year of the
Partnership containing all information necessary for the preparation of
the Partner's Federal and state income tax returns;
(b) An annual report within 120 days after the end of each
Year of the Partnership containing: (i) a balance sheet as of the end
of the fiscal year, a statement of income and a cash flow statement for
the year then ended, all of which, except for the cash flow statement,
shall be prepared in accordance with federal income tax principles, and
(ii) a report of the activities of the Partnership during the period
covered by the report. Such report will set forth distributions to the
Limited Partners for the period covered thereby, and shall separately
identify distributions of Available Cash Flow, whether such be in cash
or non-cash assets during the period, amounts which had been held as
reserves, and proceeds from disposition or sublease of assets, if any.
The report shall also include a detailed statement of any transaction
with the General Partner of the Partnership or its Affiliates and of
commissions, compensation and other benefits paid, or accrued to such
General Partner or its Affiliates for the fiscal year completed,
showing the amount paid or accrued to each recipient and the services
performed; and
(c) Semi-annual progress reports on the operations of the
Partnership.
14.3. FISCAL YEAR. The fiscal year of the Partnership shall be the
Year, as defined in Section 1.32.
14.4. BANKING. All funds of the partnership shall be initially
deposited in a separate bank account or accounts or in an account or accounts of
a savings and loan association as shall be determined by the General Partner,
but such funds may be invested as provided in Section 9.1(g).
14.5. TAX ELECTION. Upon the transfer of an interest in the Partnership
or in the event of a distribution of the Partnership's property, the Partnership
may elect, but is not required to elect, pursuant to Section 754 of the Code to
adjust the basis of the Partnership's property as allowed by Sections 734(b) and
743(b) thereof. The General Partner shall have the sole authority and discretion
to make such an election. There shall be no requirement that the General Partner
make such an election.
14.6. TAX RETURNS. The General Partner shall, for each fiscal year,
file on behalf of the Partnership with the Internal Revenue Service a
Partnership Return within the time prescribed by law (including any extensions)
for such filing. The General Partner shall also file on behalf of the
Partnership such state and/or local tax returns as may be required by law.
23
ARTICLE XV
POWER OF ATTORNEY
15.1. APPOINTMENT OF ATTORNEY-IN-FACT. Each Limited Partner hereby
makes, constitutes and appoints the General Partner and any officer thereof,
with full power of substitution and resubstitution, his agent and
attorney-in-fact to file for record the Certificate as required by the Act, and
to sign, execute, certify, acknowledge, and file for record any other
instruments which may be required of the Partnership or of the Limited Partners
by law, including, but not limited to, amendments to or cancellations of the
Certificate and specifically including the amendments to the Agreement admitting
Limited Partners to the Partnership as Limited Partners. Each Limited Partner
authorizes such attorney-in-fact to take any further action which such
attorney-in-fact shall consider necessary or advisable in connection with the
foregoing, hereby giving such attorney-in-fact full power and authority to act
to the same extent as if such Limited Partner were himself personally present
and hereby ratifying and confirming all that such attorney-in-fact shall
lawfully do or cause to be done by virtue hereof.
15.2. EFFECT OF POWER. The power of attorney pursuant to Section 15.1:
(a) is a special power of attorney, coupled with an interest,
is irrevocable, and shall survive the death, insanity, or incapacity of
the granting Limited Partner:
(b) may be exercised by such attorney-in-fact for each Limited
Partner by listing all of the Limited Partners executing any agreement,
certificate, instrument or document with the single signature of such
attorney-in-fact as attorney-in-fact for all of them; and
(c) shall survive the delivery of an assignment by a Limited
Partner of the whole or a portion of his interest in the Partnership,
except that where the purchaser, transferee or assignee thereof is to
be admitted as a substituted Limited Partner, the power of attorney
shall survive the delivery of such assignment for the sole purpose of
enabling such attorney-in-fact to sign, execute, certify, acknowledge,
and file any such agreement, certificate, instrument, or document
necessary to effect such substitution.
ARTICLE XVI
MEETINGS AND MEANS OF VOTING
Meetings of the Partners may be called by the General Partner, or by
Limited Partners holding at least 50% of the issued and outstanding Units for
any matter specified in Section 9.4. The General Partner shall call a meeting of
the Partners to be held not later than 60 days following the receipt by the
General Partner of any notice of adjustments of Partnership income or expenses
issued by the Internal Revenue Service in connection with an audit of any
Partnership Return, such meeting to determine the appropriate action to be
taken, including, without limitation, the forum of any litigation contesting the
notice.
24
The notice of any meeting called under this Article XVI shall state the nature
of the business to be transacted. Notice of any such meeting shall be delivered
by the General Partner within ten days of its calling to all Partners in the
manner prescribed in Section 17.1, and such meeting shall be held not less than
15 days nor more than 60 days after the date of such notice. Partners may vote
in person or by proxy at any such meeting. Any matters presented to the Limited
Partners for their vote shall be determined by Limited Partners holding 50% of
the issued and outstanding Units or such greater percentage of the issued and
outstanding Units as is required under the Act or this Agreement. Each Unit
shall be entitled to one vote on all such matters. Whenever the vote or consent
of Partners is permitted or required under this Agreement, such vote or consent
may be given at a meeting of Partners or may be given in writing in accordance
with the procedure for obtaining written votes prescribed in Section 17.1.
ARTICLE XVII
MISCELLANEOUS
17.1. NOTICE. Except as otherwise specifically provided in this
Agreement, any notice, payment, demand or communication required or permitted to
be given by any provision of this Agreement shall be duly given if delivered in
writing personally to the person to whom it is directed, or if sent by mail or
telegraph, as follows: if to the General Partner, at its address set forth in
Section 5.1 or to such other address as the General Partner may from time to
time specify by written notice to the Limited Partners pursuant to this Section
17.1, and if to a Limited Partner, at such Limited Partner' s address set forth
in Appendix A hereto, or to such other address as such Limited Partner may from
time to time specify by written notice to the General Partner and all other
Limited Partners pursuant to this Section 17.1. Any such notice shall be deemed
to be given as of the date so delivered, if delivered personally, or as of the
date on which the same was deposited in the United States mail, postage prepaid,
addressed and sent as aforesaid.
17.2. ADDITIONAL BUSINESSES. The General Partner shall be permitted to
manage or own additional businesses even though such businesses may compete with
the business of the Partnership, including, without limitation, the Project.
17.3. SECTION CAPTIONS. Section and other captions contained in this
Agreement are for reference purposes only and are in no way intended to
describe, interpret, define or limit the scope, extent, or intent of this
Agreement or any provision hereof.
17.4. SEVERABILITY. Every provision of this Agreement is intended to be
severable. If any term or provision of this Agreement is illegal or invalid for
any reason whatsoever, such illegality or invalidity shall not affect the
validity of the remainder of this Agreement.
17.5. AMENDMENTS. Amendments to this Agreement may be proposed by the
General Partner. Following such proposal, the General Partner shall submit to
the Limited Partners a verbatim statement of any proposed amendment and may
include in any such submission its recommendation as to the proposed amendment.
The General Partner shall
25
seek the written vote of the Limited Partners on the proposed amendment or shall
call a meeting of the Partners pursuant to Article XVI of this Agreement to vote
thereon and to transact any other business permitted by the Act to be transacted
by the Limited Partners that they may deem appropriate. For purposes of
obtaining a written vote, the General Partner may require response within a
specified time, but not less than 30 days, and failure to respond in such time
shall constitute a vote which is consistent with the General Partner' s
recommendation with respect to the proposal. A proposed amendment shall be
adopted and effective as an amendment to this Agreement if it receives the
affirmative vote of Limited Partners holding 50% of the issued and outstanding
Units or such greater percentage of the issued and outstanding Units as is
required under the Act.
17.6. RIGHT TO RELY UPON THE AUTHORITY OF THE GENERAL PARTNER. No
person dealing with the General Partner shall be required to determine its
authority to make any commitment or undertaking on behalf of the Partnership,
nor to determine any fact or circumstance bearing upon the existence of its
authority. In addition, no purchaser of any property of the Partnership shall be
required to determine the sole and exclusive authority of the General Partner to
sign and deliver on behalf of the Partnership any such instrument of transfer,
or to see to the application or distribution of revenues or proceeds paid or
credited in connection therewith, unless such purchaser shall have received
written notice from the Partnership affecting the same.
17.7. GOVERNING LAW. The laws of the State of Delaware shall govern the
validity of this Agreement, the construction of its terms and the interpretation
of the rights and duties of the parties hereto.
17.8. WAIVER OF ACTION FOR PARTITION. Each Partner irrevocably waives
during the term of the Partnership, and during the period of its liquidation
following any dissolution, any right to maintain any action for partition with
respect to any of the assets of the Partnership.
17.9. COUNTERPART EXECUTION. This Agreement may be executed in one or
more counterparts all of which together shall constitute one and the same
Agreement.
17.10. PARTIES IN INTEREST. Except as provided in Article XI of this
Agreement, this Agreement shall be binding upon the parties hereto and their
successors, heirs, devisees, assigns, legal representatives, executors and
administrators.
17.11. CONSTRUCTION OF PRONOUNS. The feminine or neuter of the words
"he", "his" and "him" used herein shall be automatically deemed to have been
substituted for such words where appropriate to the particular Limited Partner
executing this Agreement.
17.12. INTEGRATED AGREEMENT. This Agreement constitutes the entire
understanding and agreement among the parties hereto with respect to the subject
matter hereof, and there are no agreements, understandings, restrictions,
representations or warranties among the parties other than those set forth
herein or herein provided for.
26
IN WITNESS WHEREOF, the undersigned parties have hereunto set their
hands as of the day and year first above written.
GENERAL PARTNER
HIT ENTERTAINMENT, INC.
By /s/ Brian Shuster
-------------------------------
Brian Shuster
Its President
ORIGINAL LIMITED PARTNER
MASTER GLAZIER'S KARATE
INTERNATIONAL, INC.
By /s/ Mark Glazier
-------------------------------
Mark Glazier
Its President
27
APPENDIX A
TO THE
AGREEMENT OF LIMITED PARTNERSHIP
OF
HEP II, L.P.
GENERAL PARTNER
Name Mailing Address
------------------------- ----------------------------
Hit Entertainment, Inc. 1200 AmSouth/Harbert Plaza
Birmingham, Alabama 35203
LIMITED PARTNERS
Social Security
or
Number Taxpayer
Mailing Capital of Identification
Name Addresss Contribution Units Number
- ------------------------ ---------------------------- --------------- -------- ----------------
Master Glazier's Karate 570 Broad Street $1,500,000 60 22-3234110
International, Inc. Suite 12
Elizabeth, New Jersey 07202
A-1