Exhibit 3.5
AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP OF FALCON
COMMUNICATIONS, L.P., DATED AS OF
DECEMBER 30, 1997
AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP OF FALCON
COMMUNICATIONS, L.P., DATED AS OF
DECEMBER 30, 1997
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TABLE OF CONTENTS
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ARTICLE 1 DEFINITIONS
1.1 Terms Defined in this Section..........................................2
1.2 Terms Defined Elsewhere in this Agreement.............................11
1.3 Terms Generally.......................................................12
ARTICLE 2 FORMATION, CONTINUATION, AND PURPOSE
2.1 Formation and Continuation............................................13
2.2 Withdrawal and Admission of Partners..................................13
2.3 Name..................................................................13
2.4 Principal Office......................................................13
2.5 Term..................................................................14
2.6 Purposes of Partnership...............................................14
2.7 Limitations on Activities of the Partnership..........................15
2.8 Certificate...........................................................17
2.9 Addresses of the Partners.............................................17
2.10 Foreign Qualification.................................................17
ARTICLE 3 PARTNERSHIP CAPITAL
3.1 Contributions Pursuant to the Contribution Agreement..................17
3.2 Additional Capital Contributions......................................20
3.3 Assumption of Liabilities.............................................20
3.4 Return of Contributions...............................................20
3.5 Schedule of Percentage Interests......................................21
3.6 Operating Expenses....................................................21
3.7 Interest Payments.....................................................21
ARTICLE 4 DISTRIBUTIONS; ALLOCATIONS OF PROFIT AND LOSS
4.1 Distributions of Cash.................................................22
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4.2 Allocations of Net Profit and Net Loss................................24
4.3 Special Provisions Regarding Allocations of Profit and Loss...........24
4.4 Tax Allocations: Code Section 704(c).................................27
ARTICLE 5 AUTHORITY OF THE MANAGING PARTNER; OTHER MATTERS AFFECTING GENERAL
PARTNERS
5.1 Authority of Managing Partner.........................................27
5.2 Agreements by Falcon Holding Group, Inc...............................33
5.3 No Personal Liability.................................................34
5.4 Limited Liability.....................................................35
5.5 Tax Matters Partner...................................................35
5.6 Compensation to the Managing Partner and Affiliates...................37
5.7 Reimbursement.........................................................37
ARTICLE 6 ADVISORY COMMITTEE
6.1 Membership............................................................38
6.2 Removal and Replacement of Members....................................38
6.3 Frequency and Location of Meetings....................................39
6.4 By-Laws and Other Matters.............................................39
6.5 Reimbursement.........................................................39
6.6 Members...............................................................39
ARTICLE 7 STATUS OF LIMITED PARTNERS; OTHER LIMITATIONS ON PARTNERS
7.1 Limited Liability.....................................................39
7.2 Return of Distributions of Capital....................................40
7.3 No Management and Control.............................................40
7.4 Specific Limitations..................................................40
7.5 Issuance of Partnership Interests.....................................40
7.6 Restrictions on the Powers and Activities of the Limited Partners.....41
ARTICLE 8 WITHDRAWAL OF A GENERAL PARTNER
8.1 Withdrawal............................................................42
8.2 Effect of Withdrawal of Managing Partner..............................42
8.3 No Dissolution........................................................42
ARTICLE 9 ASSIGNMENT OF PARTNERSHIP INTERESTS
9.1 Assignments by Managing Partner.......................................43
9.2 Assignments by Other Partners.........................................43
9.3 Exceptions............................................................43
9.4 Assignee..............................................................44
9.5 Other Consents and Requirements.......................................44
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9.6 Assignment Not In Compliance..........................................45
9.7 Tax Elections.........................................................45
9.8 Division of Partnership Interests.....................................45
9.9 Substitute Partners...................................................45
9.10 Consent...............................................................46
9.11 Covenant and Representation of TCI Communications, Inc................46
9.12 Pledge of Partnership Interests.......................................46
9.13 Effect of Purchase of Partnership Interests in FHGLP..................47
9.14 Impact of Code Section 708............................................48
ARTICLE 10 BUY/SELL RIGHTS
10.1 Commencement of Buy/Sell Process......................................49
10.2 Election by Responding Partner........................................50
10.3 Offering Partner's Option to Liquidate................................50
10.4 Responding Partner's Option to Purchase During Liquidation............51
10.5 Default by Responding Partner.........................................52
10.6 Removal of FHGLP......................................................53
10.7 General Terms Applicable to Purchase and Sale of Partnership
Interests............................................................54
10.8 Termination of Purchase and Sale......................................55
10.9 Restructuring of Transactions.........................................56
10.10 Purchase and Sale of Interests Held by Falcon Holding Group, Inc......56
10.11 Retained TCI Assets...................................................57
ARTICLE 11 CONVERSION TO CORPORATION
11.1 Election by FHGLP.....................................................58
11.2 Public Offering and Registration Rights...............................60
ARTICLE 12 OTHER BUSINESSES AND INVESTMENT OPPORTUNITIES
12.1 Exclusivity...........................................................61
12.2 Exceptions............................................................61
12.3 Clustering Opportunities..............................................63
12.4 Prohibited Cross-Interests............................................63
12.5 No Other Restrictions.................................................66
12.6 Right of First Offer..................................................66
ARTICLE 13 DISSOLUTION AND LIQUIDATION OF PARTNERSHIP
13.1 Events of Dissolution.................................................68
13.2 Liquidation...........................................................69
13.3 Special Provisions Regarding Liquidation by Offering Partner..........71
13.4 Distribution in Kind..................................................72
13.5 No Action for Dissolution.............................................72
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13.6 No Further Claim......................................................72
ARTICLE 14 INDEMNIFICATION
14.1 General...............................................................73
14.2 Exculpation...........................................................73
14.3 Persons Entitled to Indemnity.........................................74
14.4 Procedure Agreements..................................................74
ARTICLE 15 BOOKS, RECORDS, ACCOUNTING, AND REPORTS
15.1 Books and Records.....................................................74
15.2 Delivery to Partner and Inspection....................................75
15.3 Annual Statements.....................................................75
15.4 Quarterly Financial Statements........................................76
15.5 Monthly Statements....................................................77
15.6 Other Information.....................................................77
15.7 Filings...............................................................77
15.8 Non-Disclosure........................................................78
ARTICLE 16 REPRESENTATIONS BY TCI
16.1 Investment Intent.....................................................79
16.2 Securities Regulation.................................................79
16.3 Knowledge and Experience..............................................79
16.4 Economic Risk.........................................................79
16.5 Binding Agreement.....................................................80
16.6 Tax Position..........................................................80
16.7 Information...........................................................80
ARTICLE 17 AMENDMENTS AND WAIVERS
17.1 Amendments to Partnership Agreement...................................80
17.2 Waivers...............................................................81
17.3 Amendments to Other Partnership Agreements............................81
ARTICLE 18 MISCELLANEOUS
18.1 Additional Documents..................................................82
18.2 Inspection............................................................82
18.3 General...............................................................82
18.4 Notices, Etc..........................................................82
18.5 Execution of Papers...................................................82
18.6 Disputed Matters......................................................83
18.7 No Third-Party Beneficiaries..........................................85
18.8 Covenant of TCI Communications, Inc. Regarding Goods and Services.....85
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TABLE OF SCHEDULES
Schedule Description
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Schedule I Addresses of the Partners
Schedule II Capital Contributions and Percentage Interests
Schedule III Certain Transactions and Compensation
Schedule IV Members of the Advisory Committee
TABLE OF EXHIBITS
Exhibit Description
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Exhibit I By-Laws of Advisory Committee
Exhibit II Form of Registration Rights Agreement
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AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
FALCON COMMUNICATIONS, L.P.
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP is made and
entered into as of December 30, 1997, by and between FALCON HOLDING GROUP, L.P.,
a Delaware limited partnership, and TCI FALCON HOLDINGS, LLC, a Delaware limited
liability company.
PRELIMINARY STATEMENT
Falcon Communications, L.P. was organized under the California Revised
Limited Partnership Act on October 23, 1997, pursuant to an Agreement of Limited
Partnership between Falcon Holding Group, L.P. and Stanley S. Itskowitch.
TCI, together with its Affiliates, owns, operates, and has rights to acquire
certain cable television systems.
FHGLP owns and has rights to acquire certain partnership interests and other
equity interests in certain partnerships and other entities that, directly and
indirectly, own, operate, and have rights to acquire certain cable television
systems.
Concurrently with the execution and delivery of this Agreement, the
Partners, and certain other parties, are entering into a Contribution Agreement,
pursuant to which TCI has agreed to contribute or cause to be contributed to the
Partnership substantially all the assets of certain cable television systems,
subject to certain liabilities being assumed by the Partnership, and FHGLP has
agreed to contribute or cause to be contributed to the Partnership substantially
all of its assets, subject to certain liabilities being assumed by the
Partnership.
At the Closing, immediately after the contributions to the Partnership
pursuant to Section 2.2(a) of the Contribution Agreement, and pursuant to the
Contribution Agreement, FHGLP will assign partnership interests in the
Partnership to certain partners of FHGLP and TCI will purchase those partnership
interests in the Partnership.
The parties to this Agreement desire to enter into this Agreement to provide
for the continuation of the Partnership, the withdrawal of Stanley S. Itskowitch
as a partner of the Partnership, the admission of TCI as a partner of the
Partnership, the allocation of profits and losses, cash flow, and other proceeds
of the Partnership between the Partners, the respective rights, obligations, and
interests of the Partners to each other and to the Partnership, and certain
other matters.
NOW, THEREFORE, the parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Terms Defined in this Section.
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For purposes of this Agreement, the following terms shall have the following
meanings (all terms used in this Agreement that are not defined in this Section
1.1 shall have the meanings set forth elsewhere in this Agreement as indicated
in Section 1.2, except as otherwise provided in this Agreement):
"Accredited Investor" has the meaning assigned to such term under Regulation
D promulgated pursuant to the Securities Act.
"Act" means the California Revised Limited Partnership Act.
"Adjusted Capital Account Deficit" means with respect to either Partner, the
deficit balance, if any, in such Partner's Capital Account as of the end of the
relevant Fiscal Year, after:
(i) crediting to such Capital Account any amounts that such Partner is
obligated to restore to the Partnership pursuant to Treasury Regulations Section
1.704-1(b)(2)(ii)(c) or is deemed to be obligated to restore pursuant to the
penultimate sentences of Treasury Regulations Sections 1.704-2(g)(1) and
1.704-2(i)(5); and
(ii) debiting from such Capital Account the items described in Treasury
Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and
1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Treasury Regulations Section 1.704-1(b)(2)(ii)(d)
and shall be interpreted consistently therewith.
"Advisory Committee" means the Advisory Committee established by Article 6.
"Affiliate" means, with respect to any Person, any other Person controlling,
controlled by, or under common control with such Person. For purposes of this
definition, the term "control" means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of Voting Stock or other equity interests,
by contract, or otherwise, and the terms "controlled by" and "under common
control with" have meanings corresponding to the meaning of "control."
Notwithstanding the foregoing, neither the Partnership nor any Person controlled
by the Partnership shall be deemed to be an Affiliate of either Partner or of
any Affiliate of either Partner, or VICE VERSA, solely as a result of such
Partner's Partnership Interest.
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"Agreement" means this Amended and Restated Agreement of Limited
Partnership, as it may be amended from time to time.
"Assignee" means a Person that has acquired a beneficial interest in a
Partnership Interest in accordance with the provisions of Article 9 but has not
become a substitute Partner in accordance with the provisions of Section 9.9.
"Business Day" means any day (other than a day that is a Saturday or Sunday)
on which banks are permitted to be open for business in the State of California.
"Capital Account" means a separate account to be maintained for each Partner
in accordance with the Code, which, subject to any contrary requirements of the
Code, shall equal such Partner's initial Capital Account balance as provided in
Section 3.1(d), increased by:
(i) the amount of money contributed by such Partner to the Partnership,
including money contributed or deemed to be contributed by such Partner pursuant
to Section 2.2(c)(6) of the Contribution Agreement and including money
contributed or deemed contributed by such Partner pursuant to Section 3.2(a),
but excluding money contributed pursuant to any other provision of the
Contribution Agreement and any payment of interest pursuant to any provision of
the Contribution Agreement;
(ii) the fair market value without regard to Code Section 7701(g) of
property, if any, contributed by such Partner to the Partnership (net of
liabilities that are secured by such contributed property or that the
Partnership or any other Partner is considered to assume or take subject to
under Code Section 752), but excluding contributions of property pursuant to the
Contribution Agreement;
(iii) allocations to the Partner of Net Profit and items of income and
gain pursuant to Article 4; and
(iv) other additions made in accordance with the Code;
and decreased by
(i) the amount of cash distributed to such Partner by the Partnership,
including cash deemed to be distributed to such Partner pursuant to Section
2.2(c)(6) of the Contribution Agreement and Section 4.1(d) of this Agreement and
including cash deemed to be distributed to such Partner pursuant to Section
3.2(a);
(ii) allocations to the Partner of Net Loss and items of loss and
deduction pursuant to Article 4;
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(iii) the fair market value without regard to Code Section 7701(g) of
property distributed to such Partner by the Partnership (net of liabilities that
are secured by such distributed property or that such Partner is considered to
assume or take subject to under Code Section 752); and
(iv) other deductions made in accordance with the Code.
The foregoing provisions and the other provisions of this Agreement relating to
the maintenance of Capital Accounts are intended to comply with Treasury
Regulations under Code Section 704(b) and, to the extent not inconsistent with
the provisions of this Agreement, shall be interpreted and applied in a manner
consistent with such Treasury Regulations.
"Capital Contributions" means, with respect to either Partner, the amount of
money and the net fair market value of property contributed by such Partner to
the Partnership pursuant to this Agreement.
"Certificate" means the certificate of limited partnership filed with
respect to the Partnership pursuant to the Act.
"Closing" means the consummation of the contribution of assets and
partnership interests to FHGLP and the Partnership in accordance with Section
2.1(a), Section 2.2(a), and Section 2.2(b) of the Contribution Agreement.
"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.
"Contribution Agreement" means the Contribution and Purchase Agreement,
dated as of December 30, 1997, among the Partnership, the Partners, and certain
other parties identified therein, as it may be amended from time to time in
accordance with its terms.
"Controlled Affiliate" means, with respect to TCI, any Person that, at such
time, is controlled directly or indirectly by TCI or TCI Communications, Inc., a
Delaware corporation, (a) through the ownership of Voting Stock or (b) by other
means if TCI or TCI Communications, Inc. is the beneficial owner of a majority
of the equity of such Person, and, with respect to FHGLP, Marc B. Nathanson or
any Person (other than the Partnership or any Subsidiary) that, at such time, is
controlled directly or indirectly by Marc B. Nathanson either (a) through the
ownership of Voting Stock or (b) by other means if Marc B. Nathanson or one or
more members of his family, alone or in combination, is the beneficial owner of
a majority of the equity of such Person; PROVIDED, HOWEVER, that the term
"Controlled Affiliate," with respect to FHGLP, does not include at any time any
Person that at such time has ceased to be controlled directly or indirectly by
Marc B. Nathanson as a result of the transfer of Voting Stock or other rights to
any other Person, including the estate of Marc B. Nathanson upon his death.
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"Depreciation" means, for each Fiscal Year, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable with
respect to an asset for such Fiscal 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 Fiscal Year, Depreciation shall be determined in the
manner described in Treasury Regulations Section 1.704-1(b)(2)(iv)(g)(3) or
Treasury Regulations Section 1.704-3(d)(2), as applicable.
"Existing Entities" means Falcon Cable Media, a California Limited
Partnership; Falcon Cablevision, a California Limited Partnership; Falcon
Telecable, a California Limited Partnership; Falcon Community Cable, L.P., a
Delaware limited partnership; Falcon Community Ventures I, L.P., a Delaware
limited partnership; Falcon First, Inc, a Delaware corporation; Falcon Cable
Systems Company II, L.P., a California limited partnership; and Falcon Video
Communications, L.P., a Delaware limited partnership.
"Existing Incentive Plan" means, collectively, the Falcon Holding Group,
Inc. 1993 Incentive Performance Plan, the Adoption and Assumption Agreement of
the 1993 Incentive Performance Plan, dated as of December 30, 1993, between the
General Partner and FHGLP, the First Amendment to 1993 Incentive Performance
Plan, dated as of December 31, 1993, the Second Amendment to 1993 Incentive
Performance Plan, dated as of January 1, 1996, the Third Amendment to 1993
Incentive Performance Plan, dated as of July 1, 1996, the Fourth Amendment to
1993 Incentive Performance Plan, dated as of May 1, 1997, and the amendment
contemplated by Section 2.8(i) of the Contribution Agreement.
"FCC" means the Federal Communications Commission.
"FHGLP" means Falcon Holding Group, L.P., a Delaware limited partnership, or
any other Person that succeeds to its Partnership Interest and is admitted as a
Partner in accordance with the provisions of this Agreement.
"FHGLP Partnership Agreement" means the Fourth Amended and Restated
Agreement of Limited Partnership of FHGLP, to be entered into at the Closing
pursuant to the Contribution Agreement.
"Fiscal Year" means the fiscal year of the Partnership, which shall be the
calendar year.
"General Partners" means FHGLP, in its capacity as a general partner of the
Partnership and not as the limited partner of the Partnership, TCI, and any
other Person admitted as a general partner in accordance with the provisions of
this Agreement.
"Gross Asset Value" means with respect to any asset, the asset's adjusted
basis for federal income tax purposes, except as follows:
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(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 in accordance with Section 3.1(e);
(ii) The Gross Asset Values of all assets of the Partnership shall be
adjusted to equal their respective gross fair market values, as determined by
the Managing Partner, 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 Capital Contribution; (B) the distribution
by the Partnership to a Partner of more than a DE MINIMIS amount of property of
the Partnership as consideration for an interest in the Partnership; 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 Managing Partner
determines 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 of the Partnership distributed
to either Partner shall be the gross fair market value of such asset on the date
of distribution; and
(iv) The Gross Asset Value of the assets of the Partnership 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 4.3(g); PROVIDED, HOWEVER, that Gross Asset Value shall not be adjusted
pursuant to this paragraph (iv) to the extent that the Managing Partner
determines that an adjustment pursuant to paragraph (ii) of this definition is
necessary or appropriate in connection with a transaction that would otherwise
result 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.
"Indebtedness" means, with respect to any Person, (a) debt of such Person
for borrowed money, debt of such Person that represents the deferred purchase
price of property, and similar monetary obligations of such Person that are
evidenced by bonds, notes, debentures, or other instruments, and capitalized
lease obligations, but excluding liabilities or obligations with respect to
subscriber deposits, interest rate hedging obligations, accrued interest, other
accrued expenses, trade accounts payable, and other similar items, (b)
guaranties, endorsements, and other contingent obligations of such Person,
whether direct or indirect, in respect of liabilities of any other Person of any
of the types described in clause (a) above (other than endorsements for
collection or deposit in the ordinary course of business), and (c) liabilities
of any other Person of any of the types described in clause (a) above to the
extent of the fair market value of any property of such Person that secures such
liabilities; PROVIDED, HOWEVER, that (a) Indebtedness of any Person
6
shall not include liabilities or obligations arising under any letter of credit,
performance bond, or similar instrument securing the obligations of such Person
under any cable television franchise, pole attachment agreement, lease, or other
similar agreement entered into in connection with the day-to-day operations of a
cable television system, and (b) Indebtedness of the Partnership or any
Subsidiary shall not include liabilities or obligations of the Partnership to
any Subsidiary or liabilities or obligations of any Subsidiary to the
Partnership or any other Subsidiary.
"Investors Partnerships" means Falcon Media Investors Group, a California
Limited Partnership; Falcon Investors Group, Ltd., a California Limited
Partnership; Falcon Telecable Investors Group, a California Limited Partnership;
Falcon Community Investors, L.P., a California limited partnership; and Falcon
Video Communications Investors, L.P., a California limited partnership.
"Limited Partners" means FHGLP, in its capacity as a limited partner of the
Partnership and not as the general partner of the Partnership, and any other
Person admitted as a limited partner in accordance with the provisions of this
Agreement.
"Managing Partner" means FHGLP and any General Partner selected as a
successor managing partner pursuant to Section 8.1 of this Agreement.
"Net Profit and Net Loss" means for each Fiscal Year or other period, an
amount equal to the Partnership's taxable income or loss for such Fiscal Year or
other 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) Code Section 705(a)(2)(B) expenditures of the Partnership 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 property of the
Partnership 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;
7
(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) Notwithstanding anything to the contrary in the definition of the
terms "Net Profit" and "Net Loss," any items that are specially allocated
pursuant to Section 4.3 of this Agreement shall not be taken into account in
computing Net Profit or Net Loss; and
(vii) For purposes of this Agreement, any deduction for a loss on a
sale or exchange of property of the Partnership 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.
"NewFalcon Interests" has the meaning assigned to it in the Contribution
Agreement.
"Nonrecourse Deductions" means losses, deductions, or Code Section
705(a)(2)(B) expenditures attributable to Partnership Nonrecourse Liabilities.
The amount of Nonrecourse Deductions shall be determined pursuant to Treasury
Regulations Section 1.704-2(c), which provides generally that the amount of
Nonrecourse Deductions for a Fiscal Year shall equal the net increase, if any,
in Partnership Minimum Gain during that Fiscal Year, reduced (but not below
zero) by the aggregate distributions made during that Fiscal Year of proceeds of
a Nonrecourse Liability that are allocable to an increase in Partnership Minimum
Gain.
"Nonrecourse Liability" has the meaning set forth in Treasury Regulations
Section 1.752- 1(a)(2).
"Offering Partner" means the Partner that elects pursuant to Section 10.1(a)
to commence the process described in Article 10.
"Operating Cash Flow Ratio" means "Operating Cash Flow Ratio" as defined in
the Amended and Restated Indenture, dated as of October 29, 1993, between Falcon
Holding Group, L.P. and United States Trust Company of New York, as trustee, as
it may be amended from time to time, but calculated as if the Partnership were
the "Company" for purposes of such definition and "Indebtedness" for purposes of
such definition meant Indebtedness as defined in this Agreement.
"Ownership Restriction" means any provision of the Communications Act of
1934, as amended, or any other law subsequently enacted, or any rule,
regulation, or policy of the FCC promulgated thereunder restricting the
ownership and control of communications properties (including cable television
systems, television broadcast stations, radio broadcast stations, telephone
companies, and newspapers), including those relating to cross-ownership and
cross-interest, as those terms are commonly understood in the communications
industry.
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"Partner Nonrecourse Debt" has the meaning set forth in Treasury Regulations
Section 1.704-2(b)(4), which generally defines "Partner Nonrecourse Debt" as any
Partnership liability to the extent such liability is nonrecourse and a partner
(or related Person) bears the economic risk of loss pursuant to Treasury
Regulations Section 1.752-2.
"Partner Nonrecourse Debt Minimum Gain" has the meaning set forth in
Treasury Regulations Section 1.704-2(i)(2), which generally defines "Partner
Nonrecourse Debt Minimum Gain" as the Partnership Minimum Gain attributable to
Partner Nonrecourse Debt. The amount of Partner Nonrecourse Debt Minimum Gain
shall be determined in accordance with Treasury Regulations Section
1.704-2(i)(3).
"Partner Nonrecourse Deductions" means losses, deductions, or Code Section
705(a)(2)(B) expenditures attributable to Partner Nonrecourse Debt. The amount
of Partner Nonrecourse Deductions shall be determined pursuant to Treasury
Regulations Section 1.704-2(i)(2), which provides generally that the amount of
Partner Nonrecourse Deductions for a Fiscal Year shall equal the net increase,
if any, in Partner Nonrecourse Debt Minimum Gain during that Fiscal Year,
reduced (but not below zero) by the proceeds of Partner Nonrecourse Debt
distributed during the Fiscal Year to the partner bearing the economic risk of
loss for such Partner Nonrecourse Debt that are both attributable to such
Partner Nonrecourse Debt and allocable to an increase in Partner Nonrecourse
Debt Minimum Gain.
"Partners" means each General Partner, each Limited Partner, and any other
Person that acquires an interest in the Partnership and is admitted to the
Partnership.
"Partnership" means the partnership created by the Agreement of Limited
Partnership, dated as of October 23, 1997, between FHGLP and Stanley S.
Itskowitch and continued by the Partners pursuant to this Agreement.
"Partnership Interest" means the entire ownership interest of a Partner in
the Partnership at any particular time, including all of its rights and
obligations hereunder and under the Act.
"Partnership Minimum Gain" means the excess of the Partnership Nonrecourse
Liabilities over the adjusted tax basis of property securing such Partnership
Nonrecourse Liabilities. The amount of Partnership Minimum Gain shall be
determined in accordance with Treasury Regulations Section 1.704-2(d), which
provides generally that the amount of Partnership Minimum Gain shall be
determined by first computing for each Nonrecourse Liability any gain the
Partnership would realize if it disposed of the property subject to that
Nonrecourse Liability for no consideration other than full satisfaction of such
Nonrecourse Liability, and then aggregating the separately computed gains.
"Partnership Unit" means, for purposes of calculating a Partner's Percentage
Interest and the purchase price for a Partner's Partnership Interest in the
event of a purchase and sale of such
9
Partnership Interest pursuant to Article 10, the value assigned to such
Partner's Partnership Interest in accordance with the following provisions:
(i) effective as of the Closing, there shall be assigned to the
Partnership Interest of each Partner that is a Partner on the date of this
Agreement, a number of Partnership Units equal to the product of 100,000 times a
fraction the numerator of which is the net fair market value of all Capital
Contributions being made by such Partner pursuant to the Contribution Agreement
and the denominator of which is the net fair market value of all Capital
Contributions being made by both Partners pursuant to the Contribution
Agreement, with all such net fair market values being determined in the manner
specified in Section 3.5(a); and
(ii) there shall be assigned to any Partnership Interest issued
pursuant to Section 7.5 the number of Partnership Units (if any) required to be
assigned to such Partnership Interest under the terms of its issuance.
"Percentage Interest" means (a) as of any date prior to the date on which
the Closing occurs, with respect to FHGLP, 57.0%, and with respect to TCI,
43.0%, and (b) as of any date on or after the date on which the Closing occurs,
the number of Partnership Units assigned to the Partnership Interest of such
Partner divided by the aggregate number of Partnership Units assigned to the
Partnership Interests of both Partners.
"Person" means an individual, partnership, joint venture, association,
corporation, trust, estate, limited liability company, limited liability
partnership, or any other legal entity.
"Responding Partner" means TCI, if FHGLP is the Offering Partner, and FHGLP,
if TCI is the Offering Partner.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary" means, at any time, any Person (including any Existing Entity
or any Investors Partnership) that is controlled by the Partnership at such
time, but excluding Falcon/ Capital Cable and Falcon/Capital Cable Partners,
L.P.
"TCI" means TCI Falcon Holdings, LLC, a Delaware limited liability company,
or any other Person that succeeds to its Partnership Interest and is admitted as
a Partner in accordance with the provisions of this 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).
"Unit Liquidation Amount" means the amount that would be distributed to the
Offering Partner in liquidation of the Partnership, per Partnership Unit, if (i)
each Business Asset were sold
10
for its Liquidation Value (as defined in Section 13.3(b)(2)), without reduction
for filing fees, transfer taxes, recordation taxes, sales taxes, document
stamps, other charges levied by any governmental entity, attorneys' and
accountants' fees and expenses, and other transaction costs of any nature that
would be incurred in connection with any such liquidating sale, (ii) Net Profit
and Net Loss and items specially allocated in accordance with Section 4.3,
including any gain or loss resulting from the liquidating sales described in
clause (i), were allocated in accordance with Article 4, and corresponding
allocations were made under the partnership agreement or other governing
instrument of each Subsidiary, (iii) the Partnership and each Subsidiary paid
its accrued, but unpaid, liabilities (which shall not in any event include any
prepayment premiums or penalties or other similar costs attributable to the
payment of any such liabilities), and (iv) each Subsidiary distributed the
remaining proceeds received by it (net of reserves then shown on the financial
statements of each Subsidiary but without establishing additional reserves for
contingent or unknown liabilities) to its equity owners in liquidation in
accordance with its partnership agreement or other governing instrument and the
Partnership distributed the remaining proceeds received by it (net of reserves
then shown on the financial statements of the Partnership but without
establishing additional reserves for contingent or unknown liabilities) to the
Partners in liquidation.
"Voting Stock" means ownership interests in a Person of any class or kind
ordinarily giving the holder the power to vote for the election of directors,
managers, or other members of the governing body of such Person or (as may be
the case with general partnership interests in a partnership) giving the holder
the power to exercise rights typically exercised by directors of a corporation.
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
- ---- -------
AAA Section 18.6(b)
Acceptance Section 10.2
Appraised Liquidation Amount Section 10.6(e)
Arbitration Notice Section 18.6(e)
Business Asset Section 10.1(a)
Cluster Systems Section 12.3
Corporation Section 11.1(c)(1)
Deferred Assignment Section 9.14(b)
FHGLP Appraiser Section 10.6(b)
11
Term Section
- ---- -------
FHGLP Liquidation Amount Section 9.13(a)(1)
Formal Determination Section 12.4(b)
Gross Revenues Section 5.1(b)(2)(N)
Incorporation Section 11.1(a)
Indemnified Persons Section 14.1
Liquidating Sale Offer Section 13.3(a)
Liquidation Value Section 13.3(b)(2)
Liquidator Section 13.2(b)
Management Incentive Plan Section 5.1(b)(2)(L)
Net Overhead Expenses Section 5.1(b)(2)(N)
Offer Section 10.1(a)
Partners' Cumulative Estimated Tax Liability Section 4.1(a)(1)
Regulatory Allocations Section 4.3(i)
Restricted Business Section 12.1(a)
Restricted Telephony Activity Section 2.7(b)
Sale Limit Section 5.1(b)(2)(B)
Secretary Section 5.5(b)
Section 2.2(b) Units Section 3.5(b)
Target Price Section 10.1(a)
TCI Appraiser Section 10.6(b)
Third Appraiser Section 10.6(b)
Unit Price Section 10.1(a)
Wireless Exclusive Services Section 2.7(a)
Withholding Advance Section 4.1(c)(2)
1.3 Terms Generally.
----------------
The definitions in Section 1.1 and elsewhere in this Agreement shall apply
equally to both the singular and plural forms of the terms defined. Whenever the
context requires, any pronoun
12
includes the corresponding masculine, feminine, and neuter forms. The words
"include," "includes," and "including" are not limiting. Any reference in this
Agreement to a "day" or number of "days" (without the explicit qualification of
"Business") shall be interpreted as a reference to a calendar day or number of
calendar days. If any action or notice is to be taken or given on or by a
particular calendar day, and such calendar day is not a Business Day, then such
action or notice shall be deferred until, or may be taken or given on, the next
Business Day.
ARTICLE 2
FORMATION, CONTINUATION, AND PURPOSE
2.1 Formation and Continuation.
---------------------------
The Partnership was formed as a limited partnership pursuant to the Act by
the filing of the Certificate with the Secretary of State of California. The
Partners hereby agree to continue the Partnership as a limited partnership
pursuant to the Act. The rights and liabilities of the Partners shall be
determined pursuant to the Act and this Agreement. To the extent that the rights
or obligations of either Partner are different by reason of any provision of
this Agreement than they would be in the absence of such provision, this
Agreement shall, to the extent permitted by the Act, control. Prior to the date
of this Agreement, the Partnership has not engaged in any business activities or
incurred any liabilities.
2.2 Withdrawal and Admission of Partners.
-------------------------------------
Effective upon the date of this Agreement, TCI shall be admitted to the
Partnership as a General Partner and Stanley S. Itskowitch shall withdraw from
the Partnership. Upon his withdrawal from the Partnership, Stanley S. Itskowitch
shall have no further rights under this Agreement by reason of having been a
partner, including any rights to any Net Profit, Net Loss, or distributions of
the Partnership.
2.3 Name.
-----
(a) The name of the Partnership is Falcon Communications, L.P. Except
as provided in Section 2.3(b), the business of the Partnership may be conducted
under that name or, upon compliance with applicable laws, any other name that
the Managing Partner deems appropriate or advisable. The Managing Partner shall
file any assumed name certificates and similar filings, and any amendments
thereto, that the Managing Partner considers appropriate or advisable.
(b) The Partnership shall not conduct business under the name
"TeleCommunications, Inc.," "TCI," or any variation thereof without the approval
of TCI, except that any asset contributed to the Partnership by TCI may continue
to bear any name borne by such asset at the time of its contribution to the
Partnership for a period of ninety days after its
13
contribution. The parties agree that neither "Communications" nor
"Telecommunications" is a variation of "Tele-Communications, Inc." for purposes
of this Section 2.3(b).
2.4 Principal Office.
-----------------
The office required to be maintained by the Partnership in the State of
California pursuant to Section 15614(a) of the Act shall initially be located at
1801 Century Park East, Suite 2222, Los Angeles, California 90067. The resident
agent of the Partnership pursuant to Section 15614(b) of the Act shall initially
be Mark A. Goldman. The Partnership may, upon compliance with the applicable
provisions of the Act, change its principal office or resident agent from time
to time in the discretion of the Managing Partner. The principal office of the
Partnership shall be located at 10900 Wilshire Blvd., 15th Floor, Los Angeles,
California 90024, or at such other place as the Managing Partner shall from time
to time designate by written notice to TCI. The Partnership may conduct business
at such additional places as the Managing Partner shall deem advisable.
2.5 Term.
-----
The term of the Partnership commenced on October 23, 1997, the date of the
filing of the Certificate with the Secretary of State of California, and shall
continue until July 1, 2013 (or until any later date that at any time shall have
been proposed by the Managing Partner and approved by TCI), unless sooner
terminated as provided in this Agreement.
2.6 Purposes of Partnership.
------------------------
The purposes of the Partnership are:
(a) to acquire, own, hold for investment, and dispose of partnership or
corporate interests in the Existing Entities and the Investors Partnerships, and
to exercise all rights incident thereto;
(b) to acquire, own, hold for investment, and dispose of debt and
equity securities in corporations, general or limited partnerships, or other
entities (including the Corporation) that, directly or indirectly, own, as their
principal asset or business, cable television systems or other related or
ancillary businesses (including cable television programming and personal
communications, alternative access, Internet access, and other telephony-related
investments or businesses);
(c) to engage in the business, directly or indirectly through interests
in one or more corporations, partnerships, or other entities, of acquiring,
developing, owning, operating, managing, and selling cable television systems
and other related and ancillary businesses (including cable television
programming and personal communications, alternative access, Internet access,
and other telephony-related investments or businesses);
14
(d) to engage in the business of managing cable television systems and
other related and ancillary businesses (including cable television programming
and personal communications, alternative access, Internet access, and other
telephony-related investments or businesses);
(e) to possess, transfer, mortgage, pledge, or otherwise deal in, and
to exercise all rights, powers, privileges, and other incidents of ownership or
possession with respect to securities or other assets held or owned by the
Partnership, and to hold securities or assets in the name of a nominee or
nominees;
(f) to borrow or raise money, and from time to time to issue, accept,
endorse, and execute promissory notes, loan agreements, options, stock purchase
agreements, contracts, documents, checks, drafts, bills of exchange, warrants,
bonds, debentures, and other negotiable or non-negotiable instruments and
evidences of indebtedness, and to secure the payment of any thereof and of the
interest thereon by mortgage upon or pledge, conveyance, or assignment in trust
of, the whole or any part of the property of the Partnership whether at the time
owned or thereafter acquired and to guarantee the obligations of others and to
sell, pledge, or otherwise dispose of such bonds or other obligations of the
Partnership for its purposes;
(g) to guarantee the obligations of others in connection with the
purchase or acquisition by the Partnership of securities or assets;
(h) to maintain an office or offices in such place or places as the
Managing Partner shall determine and in connection therewith to rent or acquire
office space, engage personnel, and do such other acts and things as may be
necessary or advisable in connection with the maintenance of such office, and on
behalf of and in the name of the Partnership to pay and incur reasonable
expenses and obligations for legal, accounting, investment advisory,
consultative and custodial services, and other reasonable expenses including
taxes, travel, insurance, rent, supplies, interest, salaries and wages of
employees, and all other reasonable costs and expenses incident to the operation
of the Partnership;
(i) to form and own one or more corporations, trusts, or partnerships
(but no entity so formed or owned, while it is a Subsidiary, may do what the
Partnership is prohibited by this Agreement from doing);
(j) to own, lease, or otherwise acquire any and all assets and services
related to the foregoing purposes and to engage in such other activities related
either directly or indirectly to the foregoing purposes as may be necessary,
advisable, or appropriate, in the opinion of the Managing Partner, for the
promotion or conduct of the business of the Partnership; and
(k) with the approval of the Managing Partner and TCI, to engage in any
other lawful business endeavor.
15
2.7 Limitations on Activities of the Partnership.
---------------------------------------------
Notwithstanding any provision of Section 2.6 to the contrary, the following
restrictions shall apply to the business activities of the Partnership:
(a) On the Closing Date and immediately thereafter, neither the
Partnership nor any Subsidiary will be (1) engaged in the bidding for or
acquisition of any license for the provision of Wireless Exclusive Services, (2)
engaged in the business of providing Wireless Exclusive Services, or (3)
providing, offering, promoting, or branding services that are Wireless Exclusive
Services. For purposes of this Section 2.7(a), "Wireless Exclusive Services"
means wireless communications services that use radio spectrum for cellular,
PCS, ESMR, paging, mobile telecommunications, or other voice or data wireless
service, whether fixed or mobile, and regardless of form (E.G., analog or
digital), method of origination (E.G., voice, data, or telemetry), or content
transmitted, but does not include the provision of video wireless services, the
provision of satellite or broadband microwave transmission services, or any
other businesses or services that do not constitute "Wireless Exclusive
Services" as defined in the Amended and Restated Agreement of Limited
Partnership of Sprint Spectrum Holding Company, L.P. (formerly known as MajorCo,
L.P.), dated January 31, 1996, among Sprint Enterprises, L.P. (formerly known as
Sprint Spectrum L.P.), TCI Network Services, Comcast Telephony Services and Cox
Telephony Partnership.
(b) Prior to January 31, 1999, neither the Partnership nor any
Subsidiary will engage in any Restricted Telephony Activity; PROVIDED, HOWEVER,
that this restriction shall not apply (1) to the extent that a Controlled
Affiliate (as defined in the Parents Agreement, dated as of January 31, 1996,
between Tele-Communications, Inc. and Sprint Corporation) of TeleCommunications,
Inc. would not be subject to a similar restriction under such Parents Agreement
(as a result of any exceptions in such Parents Agreement to the covenants of
TeleCommunications, Inc. and its Controlled Affiliates thereunder, any
variations between the definition of Restricted Telephony Activity and the
activities restricted under such Parent Agreement, or otherwise), or (2)
following the termination of such Parents Agreement. For purposes of this
Section 2.7(b), a "Restricted Telephony Activity" means:
(1) offering or promoting, or packaging any of its products or
services with, or acting as sales agent for, local or long distance wireline
telephony services under the brand name of any Bell Operating Company or any of
GTE Corporation, AT&T Corp., MCI Communications Corporation, British
Telecommunications plc, WorldCom, Inc., Cable & Wireless plc, LCI International
Inc., or Frontier Corporation;
(2) making the distribution facilities of any of its cable
television systems available for use by a Person other than an Affiliate of the
Partnership in connection with the provision by such Person of local telephone
service to residences without making the same
16
facilities available to Sprint Corporation on similar terms for the provision by
Sprint Corporation of the same or similar kinds of local telephone service; or
(3) making the distribution facilities of any of its cable
television systems available for use by any of the Persons described in Section
2.7(b)(1) for the provision to residences of data communications services that
are functionally equivalent to asynchronous data transmission services without
making the same facilities available to Sprint Corporation on similar terms for
the provision by Sprint Corporation of the same or similar kinds of data
communications services.
(c) Prior to the Closing, the Partnership will not engage in any
business activities except as may be appropriate to facilitate the consummation
of the transactions to occur at the Closing in accordance with the Contribution
Agreement.
(d) Neither the Partnership nor any Subsidiary will acquire any equity
interest in Enstar Communications Corp. or any subsidiary of Enstar
Communications Corp.
2.8 Certificate.
------------
The Managing Partner has caused the Certificate to be filed with the
Secretary of State of California. The General Partners shall execute and
acknowledge a certificate of amendment amending the Certificate to reflect the
admission of TCI as a General Partner, and the Managing Partner shall cause the
certificate of amendment to be filed with the Secretary of State of California.
The Managing Partner shall cause the Certificate and the certificate of
amendment to be filed or recorded in any other public office where filing or
recording is required or is deemed by the Managing Partner to be advisable.
2.9 Addresses of the Partners.
--------------------------
The respective addresses of the Partners are set forth on Schedule I.
2.10 Foreign Qualification.
----------------------
The Managing Partner 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 as a
foreign limited partnership in those jurisdictions that provide for registration
or qualification and the filing of a certificate of limited partnership in the
appropriate public offices of those jurisdictions that do not provide for
registration or qualification.
17
ARTICLE 3
PARTNERSHIP CAPITAL
3.1 Contributions Pursuant to the Contribution Agreement.
-----------------------------------------------------
(a) Contributions. At the Closing, or at such later time as provided in
Section 2.2(c), Section 11.10, and Section 11.19 of the Contribution Agreement,
and pursuant to the terms of the Contribution Agreement:
(1) TCI will contribute or cause to be contributed to the
Partnership, free and clear of any claims, liabilities, security interests,
mortgages, liens, pledges, conditions, charges, or encumbrances of any nature
whatsoever (other than liabilities and liens specified in the Contribution
Agreement), the assets specified in Section 2.2(a)(1) of the Contribution
Agreement and, if applicable, cash in the amount specified in Section 2.2(a)(1),
Section 2.2(c)(1), Section 2.2(c)(4), Section 11.10(d), Section 11.10(e),
Section 11.10(f), and Section 11.19(e)(1) of the Contribution Agreement; and
(2) FHGLP will contribute or cause to be contributed to the
Partnership, free and clear of any claims, liabilities, security interests,
mortgages, liens, pledges, conditions, charges, or encumbrances of any nature
whatsoever (other than liabilities and liens specified in the Contribution
Agreement), the assets specified in Section 2.2(a)(2) and Section 2.2(b) of the
Contribution Agreement and, if applicable, cash in the amount specified in
Section 2.2(c)(2) and Section 2.2(c)(3) of the Contribution Agreement.
(b) Allocation of Contributions by FHGLP. The portion of the Capital
Contribution being made by FHGLP pursuant to Section 3.1(a)(2) that is allocable
to its interest as Limited Partner (before giving effect to the assignment of
the NewFalcon Interests by FHGLP to certain of its partners and the sale of the
NewFalcon Interests by such partners to TCI, as provided in the Contribution
Agreement) shall equal the aggregate amount specified next to the names of the
Redeemed Partners (as defined in the Contribution Agreement) in the table in
Section 2.6(a) of the Contribution Agreement (but excluding the amount specified
in such table next to the name of any Partner that elects pursuant to Section
2.6(b) of the Contribution Agreement not to be a Redeemed Partner) plus one
percent of the Capital Contributions made by both Partners (including FHGLP),
and the portion of the Capital Contribution being made by FHGLP pursuant to
Section 3.1(a)(2) that is allocable to its interest as General Partner shall
equal the amount by which the total Capital Contribution being made by FHGLP
pursuant to Section 3.1(a)(2) exceeds the portion of its Capital Contribution
that is allocable to its interest as Limited Partner. The portion of FHGLP's
interest as General Partner that is allocable to FHGLP's contribution of
partnership interests and Mezzanine Securities pursuant to Section 2.2(b) of the
Contribution Agreement shall equal the value of those contributions as
determined under Section 3.3 and Section 3.4 of the Contribution Agreement.
18
(c) NewFalcon Interests. At the time of their assignment to certain
partners of FHGLP pursuant to the Contribution Agreement, the NewFalcon
Interests shall represent Partnership Interests as a Limited Partner of the
Partnership. Upon the purchase by TCI of the NewFalcon Interests pursuant to the
Contribution Agreement, the NewFalcon Interests shall be converted
automatically, without further action by FHGLP or TCI, into Partnership
Interests as a General Partner of the Partnership. The purchase by TCI of the
NewFalcon Interests shall not affect the respective rights and obligations of
FHGLP and TCI under this Agreement except insofar as the number of Partnership
Units assigned to TCI's Partnership Interest, and TCI's Percentage Interest,
shall be increased thereby.
(d) Fair Market Value of Contributions; Capital Account Balances. The
Partners agree that the fair market value without regard to Code Section 7701(g)
of each asset contributed to the Partnership pursuant to Section 3.1(a) (net of
liabilities that are secured by such assets or that the Partnership is
considered to assume or take subject to under Code Section 752) shall be
determined in accordance with Section 3.1(e). The Capital Accounts of the
Partners immediately after the Closing, and after giving effect to the
assignment of the NewFalcon Interests by FHGLP to certain of its partners and
the sale of the NewFalcon Interests by such partners to TCI, as provided in the
Contribution Agreement, shall be as follows:
(1) In the case of FHGLP, the net fair market value of the
partnership interests and other assets of FHGLP that are contributed to the
Partnership pursuant to Section 2.2(a)(2) and Section 2.2(b) of the Contribution
Agreement, as specified in Section 3.5 of the Contribution Agreement, taking
into account any amendment to the Contribution Agreement pursuant to Section 3.8
of the Contribution Agreement, less the aggregate amount specified next to the
names of the Redeemed Partners (as defined in the Contribution Agreement) in the
table in Section 2.6(a) of the Contribution Agreement (but excluding the amount
specified in such table next to the name of any Partner that elects pursuant to
Section 2.6(b) of the Contribution Agreement not to be a Redeemed Partner).
(2) In the case of TCI, the net fair market value of the TCI
Assets (as defined in the Contribution Agreement), as specified in Section 3.2
of the Contribution Agreement, taking into account any amendment to the
Contribution Agreement pursuant to Section 3.8 of the Contribution Agreement and
any adjustment pursuant to Section 11.19(c) of the Contribution Agreement, but
without reduction for the value of any Retained TCI Assets (as defined in the
Contribution Agreement) that are not contributed to the Partnership at the
Closing, plus the amount of cash contributed to the Partnership by TCI at the
Closing pursuant to Section 11.19(c) of the Contribution Agreement, plus the
aggregate amount specified next to the names of the Redeemed Partners (as
defined in the Contribution Agreement) in the table in Section 2.6(a) of the
Contribution Agreement (but excluding the amount specified in such table next to
the name of any Partner that elects pursuant to Section 2.6(b) of the
Contribution Agreement not to be a Redeemed Partner).
19
(e) Determining Fair Market Value of Contributed Assets. Except as
otherwise agreed to between the Partners, the fair market value of any asset
contributed by a Partner to the Partnership shall be determined for purposes of
this Agreement as follows:
(1) The Managing Partner shall determine the fair market value of
such asset and send a written notice to TCI setting forth its determination. In
the case of any asset contributed to the Partnership pursuant to Section 3.1(a),
the Managing Partner's determination shall be consistent with the net fair
market values of contributed assets established by the Contribution Agreement.
(2) Within ten Business Days after its receipt of the Managing
Partner's notice pursuant to Section 3.1(e)(1), TCI may send a written notice to
the Managing Partner accepting or rejecting the Managing Partner's determination
of the fair market value of such asset. If TCI accepts the Managing Partner's
determination or does not send a written notice to the Managing Partner
rejecting the Managing Partner's determination within ten Business Days after
its receipt of the Managing Partner's notice pursuant to Section 3.1(e)(1), the
fair market value of such asset for purposes of this Agreement shall be as
determined by the Managing Partner.
(3) If TCI sends a written notice to the Managing Partner
rejecting the Managing Partner's determination of the fair market value of any
asset within ten Business Days after its receipt of the Managing Partner's
notice pursuant to Section 3.1(e)(1), the fair market value of such asset for
purposes of this Agreement shall be determined by an appraisal to be conducted
by an independent appraisal firm agreed to by the Managing Partner and TCI and
retained by the Partnership, at the Partnership's expense, with experience in
the valuation and appraisal of assets similar to such asset. In the case of
assets contributed to the Partnership pursuant to Section 3.1(a), the appraisal
shall be consistent with the net fair market values of contributed assets
established by the Contribution Agreement.
3.2 Additional Capital Contributions.
---------------------------------
(a) Immediately following any payment by the Partnership under the
Existing Incentive Plan, including any payment made in connection with the
liquidation of the Partnership, FHGLP shall contribute to the Partnership cash
in an amount equal to such payment. If FHGLP is required to contribute cash
pursuant to this Section 3.2(a) following the liquidation of the Partnership,
such cash shall thereafter be distributed to the Partners in accordance with
Section 13.2(d). The Partnership may withhold from any distributions to which
FHGLP would otherwise be entitled pursuant to Section 13.2(d) the amount of
FHGLP's obligations under this Section 3.2(a), and any amounts so withheld shall
be treated as amounts (1) distributed to FHGLP pursuant to Section 13.2(d), and
(2) contributed by FHGLP to the Partnership in accordance with this Section
3.2(a).
(b) There shall be no further assessments for additional Capital
Contributions by the Partners to the Partnership.
20
3.3 Assumption of Liabilities.
--------------------------
In accordance with the terms and conditions of the Contribution Agreement,
the Partnership will, at the Closing (or at such later time as provided in
Section 11.10 or Section 11.19 of the Contribution Agreement), assume and
undertake to pay, discharge, and perform those obligations and liabilities of
TCI, FHGLP, and their respective Affiliates that are specified in Article 4 of
the Contribution Agreement.
3.4 Return of Contributions.
------------------------
Neither Partner shall have the right to demand a return of all or any part
of its Capital Contribution during the term of the Partnership, and any return
of the Capital Contribution of either Partner shall be made solely from the
assets of the Partnership and only in accordance with the terms of this
Agreement. No interest shall be paid to either Partner with respect to its
Capital Contribution to the Partnership.
3.5 Schedule of Percentage Interests.
---------------------------------
At the Closing, the Managing Partner will deliver to TCI Schedule II, to be
attached to this Agreement, which will set forth:
(a) the net fair market value of all Capital Contributions being made
by each Partner pursuant to Section 3.1(a), including, in the case of FHGLP, the
net fair market value of the Capital Contributions being made pursuant to
Section 2.2(b) of the Contribution Agreement, as determined in accordance with
Article 3 of the Contribution Agreement, determined as if (1) the TCI
Adjustments and the Falcon Adjustments were as set forth in the preliminary
settlement statements delivered pursuant to Section 3.7(b) of the Contribution
Agreement; (2) as if all Retained TCI Assets and, if no Ellensburg Exclusion
Event shall have occurred prior to Closing, all assets of the Ellensburg System
were contributed to the Partnership at the Closing, and (3) without regard to
any amendment to the Contribution Agreement required by Section 3.8 of the
Contribution Agreement that, as of the Closing Date, has not yet been agreed to
between FHGLP and TCI or determined by arbitration pursuant to Section 15.9 of
the Contribution Agreement (terms used in this Section 3.5(a) that are not
defined in this Agreement but are defined in the Contribution Agreement have the
meanings assigned to them in the Contribution Agreement); and
(b) the number of Partnership Units assigned to the Partnership
Interest of each Partner, including, in the case of FHGLP, the number of
Partnership Units assigned to the Partnership Interest of FHGLP with respect to
the Capital Contributions being made by FHGLP pursuant to Section 2.2(b) of the
Contribution Agreement (the "Section 2.2(b) Units"), based on the net fair
market value of the Partners' Capital Contributions as specified on Schedule II
pursuant to Section 3.5(a), taking into account the assignment by FHGLP of
Partnership Interests to certain partners of FHGLP and the purchase of those
Partnership Interests by TCI pursuant to
21
the Contribution Agreement, which will occur immediately following the Partners'
Capital Contributions at Closing; and
(c) the Percentage Interest of each Partner, based on the number of
Partnership Units assigned to the Partnership Interest of each Partner, as
specified on Schedule II pursuant to Section 3.5(b).
3.6 Operating Expenses.
-------------------
Subject to Section 5.1(b)(2)(N) and Section 5.6, the Partnership shall pay
(or shall reimburse the Managing Partner for) the operating expenses of the
Partnership.
3.7 Interest Payments.
------------------
FHGLP and TCI shall make interest payments to the Partnership as provided in
Section 2.2(c)(5) of the Contribution Agreement, and TCI shall make interest
payments to the Partnership as provided in Section 11.19 of the Contribution
Agreement. Interest paid or payable to the Partnership pursuant to the
Contribution Agreement shall not, for purposes of this Agreement, be deemed to
be a Capital Contribution.
ARTICLE 4
DISTRIBUTIONS; ALLOCATIONS OF PROFIT AND LOSS
4.1 Distributions of Cash.
----------------------
(a) Amount and Timing of Distributions.
(1) The Managing Partner shall cause the Partnership to distribute
to the Partners prior to March 15 of each Fiscal Year an amount equal to the
lesser of (A) the amount of cash held by the Partnership that the Partnership
can then distribute to its Partners without violating any restrictions imposed
by any contractual covenants of the Partnership, or (B) cash in the amount by
which the Partners' Cumulative Estimated Tax Liability exceeds the aggregate
amount of distributions previously made to the Partners pursuant to this Section
4.1(a) (including Section 4.1(a)(2)). For purposes of this paragraph, the
"Partners' Cumulative Estimated Tax Liability" means the product of (A) the
aggregate amount of taxable income and gain (net of or offset by items of
deduction, loss, and credit) of the Partnership that has been recognized for
income tax purposes and allocated to the Partners for all Fiscal Years of the
Partnership through the end of the preceding Fiscal Year times (B) the highest
marginal combined federal and state income tax rate applicable to either Partner
or, so long as either Partner is treated as a partnership for federal income tax
purposes, to any other Person that recognizes taxable income or gain as a result
of the allocation from the Partnership, such Partner, or any other Person of
taxable income and gain recognized initially by the Partnership (determined
after giving effect to the deduction
22
(if allowable) of state income taxes for federal income tax purposes), as
reasonably determined by the Managing Partner.
(2) All cash of the Partnership not required to be distributed
pursuant to Section 4.1(a)(1) shall be distributed at such times and in such
amounts as the Managing Partner may determine in its sole discretion.
(b) Allocation of Distributions. All distributions of cash pursuant to
Section 4.1(a) and Section 13.2(d)(3) shall be allocated between the Partners in
proportion to their Percentage Interests.
(c) Tax Withholding.
(1) The Partnership shall seek to qualify for and obtain
exemptions from any provision of the Code or any provision of state, local, or
foreign tax law that would otherwise require the Partnership to withhold amounts
from payments or distributions to the Partners. If the Partnership does not
obtain any such exemption, the Partnership is authorized to withhold from any
payment or distribution to either Partner any amounts that are required to be
withheld pursuant to the Code or any provision of any state, local, or foreign
tax law that is binding on the Partnership.
(2) Any amount withheld with respect to any payment or
distribution to either Partner shall be credited against the amount of the
payment or distribution to which the Partner would otherwise be entitled. If the
Code or any provision of any state, local, or foreign tax law that is binding on
the Partnership requires that the Partnership remit to any taxing authority any
withholding tax with respect to, or for the account of, either Partner in its
capacity as a Partner, the Managing Partner shall, to the extent that
Partnership funds are available therefor, cause the Partnership to remit the
full required amount of such withholding tax to the taxing authority and shall
notify such Partner in writing of its obligation to pay to the Partnership such
withholding tax to the extent it exceeds the amount of any payment or
distribution to which such Partner would otherwise then be entitled. Each
Partner shall pay to the Partnership, within five Business Days after its
receipt of written notice from the Managing Partner (or, in the case of the
Managing Partner, within five Business Days after becoming aware) that
withholding is required with respect to such Partner, any amounts required to be
remitted by the Partnership to any taxing authority with respect to such Partner
that are in excess of the amount of any payment or distribution to which such
Partner would otherwise be entitled. If the Partnership is required to remit any
withholding tax with respect to, or for the account of, either Partner prior to
the Partnership's receipt of any payment required to be made by such Partner
pursuant to the preceding sentence, the amount of the payment required to be
made by such Partner shall be treated as a loan (the "Withholding Advance") from
the Partnership to the Partner, which shall accrue interest from the date the
Partnership is required to remit such withholding tax until paid by such Partner
or credited against payments or distributions to which such Partner would
23
otherwise be entitled as provided in Section 4.1(c)(3) at a rate of fifteen
percent per year, compounded semi-annually.
(3) Any Withholding Advance made to a Partner and any interest
accrued thereon shall be credited against, and shall be offset by, the amount of
any later payment or distribution to which the Partner would otherwise be
entitled (without duplication of the credit provided in the first sentence of
Section 4.1(c)(2)), with any credit for accrued and unpaid interest as of the
date such payment or distribution would otherwise have been made being applied
before any credit for the amount of the Withholding Advance. Any Withholding
Advance made to a Partner and any interest accrued thereon, to the extent it has
not previously been paid by the Partner in cash or fully credited against
payments or distributions to which the Partner would otherwise be entitled,
shall be paid by the Partner to the Partnership upon the earliest of (A) the
dissolution of the Partnership, (B) the date on which the Partner ceases to be a
Partner of the Partnership, or (C) demand for payment by the Managing Partner.
(4) All amounts that are credited against payments or
distributions to which a Partner would otherwise be entitled pursuant to this
Section 4.1(c) shall be treated as amounts distributed to such Partner pursuant
to Section 4.1(a) for all purposes of this Agreement.
(d) Credit Against Required Contributions. The Partnership shall
withhold from any distributions to which a Partner (or any Assignee of a Partner
described in Section 2.2(c)(6) of the Contribution Agreement) would otherwise be
entitled pursuant to this Agreement the amount of such Partner's remaining
obligations under Section 2.2(c) of the Contribution Agreement, and any amounts
so withheld shall be treated as amounts (1) distributed to such Partner (or
Assignee) pursuant to Section 4.1(a) and (2) contributed or paid (as applicable)
by such Partner in accordance with Section 2.2(c) of the Contribution Agreement.
4.2 Allocations of Net Profit and Net Loss.
---------------------------------------
(a) Allocations of Net Profit and Net Loss. Except as provided in
Section 4.2(b), Net Profit and Net Loss for each Fiscal Year (or portion
thereof) shall be allocated between the Partners in proportion to their
Percentage Interests.
(b) Allocations of Net Profit and Net Loss Following Dissolution.
Notwithstanding Section 4.2(a), following the dissolution of the Partnership
pursuant to Section 13.1, beginning in the Fiscal Year in which such dissolution
occurs or beginning in any Fiscal Year prior to the Fiscal Year in which such
dissolution occurs if the Partnership's Federal income tax return for such prior
Fiscal Year has not yet been required to be filed (not including extensions),
items of income and gain, loss, and deduction shall be allocated as follows:
(1) first, FHGLP shall be allocated (A) all deductions with
respect to payments made by the Partnership pursuant to the Existing Incentive
Plan in such Fiscal Year, and (B) deductions in an amount equal to all
deductions for payments made by the Partnership
24
pursuant to the Existing Incentive Plan in all prior Fiscal Years (other than
payments with respect to which deductions have previously been allocated to
FHGLP pursuant to clause (A) of this Section 4.2(b)(1)); and
(2) thereafter, items of income and gain, loss, and deduction
shall be allocated between the Partners so as to cause the credit balance in
each Partner's Capital Account to equal the amount of distributions such Partner
would be entitled to receive if an amount equal to the aggregate credit balances
in the Partners' Capital Accounts were distributed pursuant to Section 4.1(b).
4.3 Special Provisions Regarding Allocations of Profit and Loss.
------------------------------------------------------------
(a) Minimum Gain Chargeback. Notwithstanding any other provision of
this Article 4, if there is a net decrease in Partnership Minimum Gain for any
Fiscal Year, each Partner shall be specially allocated items of Partnership
income and gain for such Fiscal Year (and if necessary for succeeding Fiscal
Years) in an amount equal to such Partner's share of the net decrease in
Partnership Minimum Gain, determined in accordance with Treasury Regulations
Section 1.704-2(g); PROVIDED, HOWEVER, that this Section 4.3(a) shall not apply
to the extent the circumstances described in Treasury Regulations Sections
1.704-2(f)(2), 1.704-2(f)(3), 1.704- 2(f)(4), or 1.704-2(f)(5) exist.
Allocations made pursuant to the preceding sentence shall be made in proportion
to the respective amounts required to be allocated to each Partner pursuant
thereto. The items of Partnership income and gain to be allocated pursuant to
this Section 4.3(a) shall be determined in accordance with Treasury Regulations
Section 1.704-2(f)(6). This Section 4.3(a) is intended to comply with the
minimum gain chargeback requirement in Treasury Regulations Section 1.704-2(f)
and shall be interpreted consistently therewith.
(b) Partner Minimum Gain Chargeback. Notwithstanding any other
provision of this Article 4 except Section 4.3(a), if during any Fiscal Year
there is a net decrease in Partner Nonrecourse Debt Minimum Gain, each Partner
with a share of that Partner Nonrecourse Debt Minimum Gain (determined in
accordance with Treasury Regulations Section 1.704-2(i)(5)) as of the beginning
of such Fiscal Year must be allocated items of Partnership income and gain for
the Fiscal Year (and, if necessary, for succeeding Fiscal Years) equal to that
Partner's share of the net decrease in the Partner Nonrecourse Debt Minimum Gain
(determined in accordance with Treasury Regulations Section 1.704-2(i)(4));
PROVIDED, HOWEVER, that this Section 4.3(b) shall not apply to the extent the
circumstances described in the third and fifth sentences of Treasury Regulations
Section 1.704-2(i)(4) exist. Allocations pursuant to the preceding sentence
shall be made in proportion to the respective amounts required to be allocated
to each Partner pursuant thereto. The items of Partnership income and gain to be
allocated pursuant to this Section 4.3(b) shall be determined in accordance with
Treasury Regulations Section 1.704-2(i)(4). This Section 4.3(b) is intended to
comply with the minimum gain chargeback requirement in Treasury Regulations
Section 1.704-2(i)(4) and shall be interpreted consistently therewith.
25
(c) Qualified Income Offset. If a Limited Partner unexpectedly receives
any adjustments, allocations, or distributions described in Treasury Regulations
Sections 1.704- 1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or
1.704-1(b)(2)(ii)(d)(6), items of Partnership income and gain shall be specially
allocated to such Limited Partner in an amount and manner sufficient to
eliminate, to the extent required by the Treasury Regulations, the Adjusted
Capital Account Deficit of such Limited Partner as quickly as possible;
PROVIDED, HOWEVER, that an allocation pursuant to this Section 4.3(c) shall be
made if and only to the extent that such Limited Partner would have an Adjusted
Capital Account Deficit after all other allocations provided for in this Article
4 have been tentatively made as if this Section 4.3(c) were not in this
Agreement. Allocations made pursuant to the preceding sentence shall be made in
proportion to the respective amounts required to be allocated to each Partner
pursuant thereto.
(d) Gross Income Allocation. If a Limited Partner has a deficit Capital
Account at the end of any Fiscal Year that is in excess of the sum of (1) the
amount such Limited Partner is obligated to restore to the Partnership pursuant
to Treasury Regulations Section 1.704- 1(b)(2)(ii)(c), (2) the amount such
Limited Partner is deemed to be obligated to restore pursuant to the penultimate
sentence of Treasury Regulations Section 1.704-2(g)(1), and (3) the amount such
Limited Partner is deemed to be obligated to restore pursuant to the penultimate
sentence of Treasury Regulations Section 1.704-2(i)(5), such Limited Partner
shall be specially allocated items of Partnership income and gain in the amount
of such excess as quickly as possible; PROVIDED, HOWEVER, that an allocation
pursuant to this Section 4.3(d) shall be made if and only to the extent that
such Limited Partner would have a deficit Capital Account in excess of such sum
after all other allocations provided for in this Article 4 have been tentatively
made as if Section 4.3(c) and this Section 4.3(d) were not in this Agreement.
Allocations made pursuant to the preceding sentence shall be made in proportion
to the respective amounts required to be allocated to each Partner pursuant
thereto.
(e) Nonrecourse Deductions. Nonrecourse Deductions for any Fiscal Year
or other period shall be specially allocated between the Partners in proportion
to their Percentage Interests.
(f) Partner Nonrecourse Deductions. Any Partner Nonrecourse Deductions
for any Fiscal Year or other period shall be specially allocated to the Partner
that bears the economic risk of loss with respect to the Partner Nonrecourse
Debt to which such Partner Nonrecourse Deductions are attributable in accordance
with Treasury Regulations Section 1.704-2(i).
(g) 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
26
the Treasury Regulations. Any election permitted under Code Section 754 shall be
made by the Managing Partner in its sole discretion, subject to Section 9.7.
(h) Excess Nonrecourse Liabilities. For purposes of determining a
Partner's proportionate share of the "excess nonrecourse liabilities" of the
Partnership within the meaning of Treasury Regulations Section 1.752-3(a)(3),
each Partner's interest in Partnership profits shall be deemed to be equal to
such Partner's Percentage Interest.
(i) Curative Allocations. The allocations set forth in this Article 4
(other than Section 4.3(g), Section 4.3(h), and this Section 4.3(i)) (the
"Regulatory Allocations") are intended to comply with certain requirements of
the Treasury Regulations. The Partners intend that, to the extent possible, all
Regulatory Allocations shall be offset either with other Regulatory Allocations
or with special allocations of other items of Partnership income, gain, loss, or
deduction pursuant to this Section 4.3(i). Therefore, notwithstanding any other
provision of this Article 4 (other than the Regulatory Allocations), the
Managing Partner shall make such offsetting special allocations of Partnership
income, gain, loss, or deduction in whatever manner it determines appropriate so
that, after such offsetting allocations are made, each Partner's Capital Account
balance is, to the extent possible, equal to the Capital Account balance such
Partner would have had if the Regulatory Allocations were not part of this
Agreement and all Partnership items were allocated pursuant to Section 4.2. In
exercising its discretion under this Section 4.3(i), the Managing Partner shall
take into account any future Regulatory Allocations under Section 4.3(a) and
Section 4.3(b) that, although not yet made, are likely to offset Regulatory
Allocations made under Section 4.3(e) and Section 4.3(f).
4.4 Tax Allocations: Code Section 704(c).
-------------------------------------
(a) In accordance with Code Section 704(c) and the Treasury 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 between 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 using the traditional allocation
method described in Treasury Regulations Section 1.704-3(b).
(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 the same
manner as under Code Section 704(c) and the Treasury Regulations thereunder.
(c) Allocations pursuant to this Section 4.4 are solely for purposes of
federal, state, and local taxes and shall not affect, or in any way be taken
into account in computing, either Partner's Capital Account or share of Net
Profit, Net Loss, other items, or distributions pursuant to any provision of
this Agreement.
27
ARTICLE 5
AUTHORITY OF THE MANAGING PARTNER; OTHER
MATTERS AFFECTING GENERAL PARTNERS
5.1 Authority of Managing Partner.
------------------------------
(a) Permitted Acts. Except as expressly provided otherwise in this
Agreement, the Managing Partner shall have the exclusive authority to manage the
business, operations, and affairs of the Partnership (including internal
matters) and the exclusive right to exercise all rights incident to the
ownership of all partnership or corporate interests held by the Partnership, and
shall have all authority, rights, and powers conferred by law and those required
or appropriate for the management of the Partnership business. Each General
Partner, including each additional and substituted General Partner, other than
the Managing Partner, agrees not to exercise individually any authority, rights,
or powers conferred by law on general partners (including any authority, rights,
or powers conferred on general partners under the Act) other than as expressly
provided in this Agreement or at the direction of or pursuant to authority
delegated to it by the Managing Partner.
(b) Limitations and Restrictions.
(1) Advisory Committee Approval. 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, the Partnership
shall not, and the Managing Partner shall have no authority to cause the
Partnership to, do any of the following without the affirmative vote of at least
a majority of the members of the Advisory Committee:
(A) sell or otherwise dispose of, or cause or permit any
Subsidiary to sell or otherwise dispose of, in any one transaction (or series of
mutually contingent transactions), assets of the Partnership or any Subsidiary
having an aggregate value in excess of $15,000,000, except upon the liquidation
and dissolution of the Partnership in accordance with Article 13 (including a
liquidation following an election by the Offering Partner pursuant to Section
10.3(a) or Section 10.5(a)(2)); PROVIDED, HOWEVER, that the limitations of this
paragraph shall not apply to any disposition of assets by the Partnership to a
Subsidiary or by a Subsidiary to the Partnership or another Subsidiary, to any
pledging of assets by any Person to secure any Indebtedness of such Person
permitted by this Agreement, to any disposition of assets upon the exercise of
any rights granted by such a pledge, or to any transaction approved by TCI
pursuant to Section 5.1(b)(2)(B) or Section 5.1(b)(2)(C);
(B) purchase or otherwise acquire, or cause or permit any
Subsidiary to purchase or otherwise acquire, any assets, business, equity
interest in another Person, or other property in any one transaction (or series
of mutually contingent transactions)
28
having an aggregate value in excess of $15,000,000; PROVIDED, HOWEVER, that the
limitations of this paragraph shall not apply to any transaction approved by TCI
pursuant to Section 5.1(b)(2)(D), any acquisition of assets by a Subsidiary from
the Partnership or from another Subsidiary, the acquisition of the Classic
Systems (as defined in the Contribution Agreement), the contribution of assets
to the Partnership pursuant to the Contribution Agreement, or the purchase of
partnership interests in FHGLP pursuant to Article 9 of the FHGLP Partnership
Agreement; or
(C) engage, or cause or permit any Subsidiary to engage, in
any line of business other than:
(1) acquiring, developing, owning, operating, managing,
and selling cable television systems and any related or ancillary businesses
that involve the distribution of video programming or data to subscribers,
including businesses engaged in the production of cable television programming
and the provision of Internet access, but excluding other related or ancillary
businesses, such as personal communications, alternative access, and other
telephony-related investments or businesses,
(2) preliminary activities undertaken by the Partnership
or any Subsidiary to determine the feasibility of engaging in any line of
business, or
(3) any business activity that does not involve an
aggregate capital commitment by the Partnership and the Subsidiaries in excess
of $1,000,000.
(2) TCI Approval. 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, the Partnership shall not, and
the Managing Partner shall have no authority to cause the Partnership to, do any
of the following without the approval of TCI:
(A) merge with or consolidate into any Person or become a
party to any recapitalization or other form of reorganization, or cause or
permit any Subsidiary to merge with or consolidate into any Person or become a
party to any recapitalization or other form of reorganization (except that,
without the approval of TCI, (1) the Partnership may merge with or consolidate
into another Person for the purpose of effecting an Incorporation pursuant to
Section 11.1(a); (2) a Subsidiary may merge with another Subsidiary or with the
Partnership and the Partnership may merge with a Subsidiary; and (3) a
Subsidiary may merge with a Person other than a Subsidiary as a means of
effecting any acquisition or disposition of assets that is otherwise permitted
by this Agreement);
(B) sell or otherwise dispose of, or cause or permit any
Subsidiary to sell or otherwise dispose of, in any one transaction (or series of
mutually contingent transactions), assets of the Partnership or any Subsidiary
(1) having an aggregate value in excess of $500,000 if the aggregate value of
all assets sold or otherwise disposed of in transactions
29
described in this Section 5.1(b)(2)(B) would exceed the Sale Limit or (2) having
an aggregate value in excess of $30,000,000, except in either case upon the
liquidation and dissolution of the Partnership in accordance with Article 13
(including a liquidation following an election by the Offering Partner pursuant
to Section 10.3(a) or Section 10.5(a)(2)); PROVIDED, HOWEVER, that the
limitations of this paragraph shall not apply to any disposition of assets by
the Partnership to a Subsidiary or by a Subsidiary to the Partnership or another
Subsidiary, to any pledging of assets by any Person to secure any Indebtedness
of such Person permitted by this Agreement, or to any disposition of assets upon
the exercise of any rights granted by such a pledge; for purposes of this
paragraph, the "Sale Limit" means $100,000,000, reduced by the net pre-tax sales
proceeds from the sale of any Retained TCI Assets (as defined in the
Contribution Agreement) pursuant to Section 11.10(e) of the Contribution
Agreement and increased, but not above $100,000,000, by the value of any assets
that are sold or otherwise disposed of by the Partnership or any Subsidiary and
are not TCI Assets (as defined in the Contribution Agreement);
(C) sell or otherwise dispose of, or cause or permit any
Subsidiary to sell or otherwise dispose of, any assets of the Partnership or any
Subsidiary, if such sale or other disposition would result in the allocation of
income or gain to TCI pursuant to Section 4.4 and Code Section 704(c), except
upon the liquidation and dissolution of the Partnership in accordance with
Article 13 (including a liquidation following an election by the Offering
Partner pursuant to Section 10.3(a) or Section 10.5(a)(2)); PROVIDED, HOWEVER,
that the limitations of this paragraph shall not apply to any pledging of assets
by any Person to secure any Indebtedness of such Person permitted by this
Agreement or to any disposition of assets upon the exercise of any rights
granted by such a pledge;
(D) purchase or otherwise acquire, or cause or permit any
Subsidiary to purchase or otherwise acquire, any assets, business, equity
interest in another Person, or other property in any one transaction (or series
of mutually contingent transactions) (1) having an aggregate value in excess of
$500,000 if the aggregate value of all property purchased or otherwise acquired
in transactions described in this Section 5.1(b)(2)(D) would exceed $100,000,000
or (2) having an aggregate value in excess of $30,000,000; PROVIDED, HOWEVER,
that the limitations of this paragraph shall not apply to any acquisition of
assets by a Subsidiary from the Partnership or from another Subsidiary, the
acquisition of the Classic Systems (as defined in the Contribution Agreement),
the contribution of assets to the Partnership pursuant to the Contribution
Agreement, or the purchase of partnership interests in FHGLP pursuant to Article
9 of the FHGLP Partnership Agreement;
(E) make the election provided for in Section 9.1(a)(3) of
the FHGLP Partnership Agreement;
(F) take any other action that is within the discretion of
the Partnership pursuant to Article 9 of the FHGLP Partnership Agreement;
30
(G) incur, create, or assume, or cause or permit any
Subsidiary to incur, create, or assume, any Indebtedness if, after giving effect
to such Indebtedness, the Operating Cash Flow Ratio would exceed 7.5:1;
(H) prior to the second anniversary of the Closing, cause or
permit any Subsidiary to incur any Indebtedness the proceeds of which will be
used to repay any Indebtedness of the Partnership, or cause or permit any
Subsidiary to assume or otherwise become obligated with respect to any
Indebtedness of the Partnership (other than pursuant to the guaranties
contemplated by Section 2.8(e) of the Contribution Agreement), if, after such
repayment, assumption, or other action, the amount of Indebtedness for which the
Partnership is the sole primary obligor would be less than the quotient of (1)
the amount of Indebtedness of TCI assumed by the Partnership pursuant to Section
4.1(c) of the Contribution Agreement divided by (2) TCI's Percentage Interest
immediately after the Closing, after giving effect to TCI's purchase of the
NewFalcon Interests;
(I) issue any Partnership Interest or any option, warrant, or
other debt or equity interest convertible into or evidencing the right to
acquire (whether or not for additional consideration) any Partnership Interest,
except in connection with an Incorporation pursuant to Section 11.1(a) or
pursuant to any Management Incentive Plan approved pursuant to Section
5.1(b)(2)(L);
(J) purchase, redeem, retire, or otherwise acquire any
Partnership Interests, except as provided in Section 9.13(a) or Article 10 and
except for the purchase, redemption, retirement, or other acquisition of any
equity interest where the terms of such interest, as approved in accordance with
Section 5.1(b)(2)(I), permit or require such purchase, redemption, retirement,
or other acquisition;
(K) enter into any transaction or agreement, or cause or
permit any Subsidiary to enter into any transaction or agreement, with FHGLP or
any Affiliate of FHGLP unless the transaction or agreement is on terms that are
no less favorable to the Partnership or Subsidiary than could have been obtained
in a comparable arm's-length transaction with a Person that is not an Affiliate
of FHGLP; PROVIDED, HOWEVER, the limitations of this paragraph shall not apply
to the transactions described on Schedule III;
(L) adopt or materially amend any employee benefit plan or
other compensation arrangement providing for (1) the issuance of Partnership
Interests or options evidencing the right to acquire Partnership Interests or
(2) the payment of compensation based on the value, or any appreciation in
value, of Partnership Interests or the business of the Partnership, to employees
of the Partnership and the Subsidiaries (a "Management Incentive Plan");
(M) make reimbursements pursuant to Section 5.7(b) or Section
5.7(c) for costs and expenses incurred by FHGLP or Falcon Holding Group, Inc. in
any calendar year that exceed $35,000 in the aggregate for both FHGLP and Falcon
Holding Group, Inc.;
31
(N) incur Net Overhead Expenses in any Fiscal Year beginning
after the Closing that exceed 4.5% of the Gross Revenues of the Partnership and
the Subsidiaries for such Fiscal Year, where "Net Overhead Expenses" means (1)
the sum of (a) expenses allocable to administrative employees of the Partnership
(but not employees who are employed primarily in the operations of any cable
television system or group of cable television systems or regions), including
salary, wages, and benefits of such employees and associated payroll taxes, but
excluding payments or accruals pursuant to any Management Incentive Plan, (b)
legal, audit, and accounting fees, other than expenses that relate primarily to
the operations of cable television systems, expenses of a type that FHGLP has
historically allocated to cable television systems or regions, and non-recurring
costs, such as those relating to financings and acquisitions, (c) expenses
relating to office space occupied by the Partnership for its corporate offices,
which are currently located in Westwood and Pasadena, California, (d)
reimbursements by the Partnership pursuant to Section 5.7(b) or Section 5.7(c)
of costs and expenses incurred by FHGLP or Falcon Holding Group, Inc., (e) the
cost of insurance required in connection with the administrative activities of
the Partnership, but not insurance that relates primarily to the operations of
cable television systems or insurance of a type the cost of which FHGLP has
historically allocated to cable television systems or regions, (f) reasonable
expenses in connection with distributions made by the Partnership and
communications necessary in maintaining relations with Partners and outside
parties (other than communications that relate primarily to the operations of
cable television systems), (g) reasonable expenses in connection with preparing
and mailing reports required to be furnished to Partners for investor, tax
reporting, or other purposes, or other reports to Partners that the Managing
Partner deems to be in the best interest of the Partnership; (h) reasonable
expenses of professionals employed by the Partnership in connection with any of
the foregoing, including attorneys, accountants, and appraisers, and (i) other
expenses incurred by the Partnership of the kinds included in FHGLP's
calculation of corporate overhead as reflected in the worksheet presented by
FHGLP to TCI in connection with the negotiation of this Agreement, less (2) the
sum of all management fees, expense reimbursements, and other payments received
by the Partnership from a Person other than a Subsidiary; and "Gross Revenues"
means the aggregate gross revenues of the Partnership and the Subsidiaries, as
determined on a consolidated basis in accordance with generally accepted
accounting principles applied in a manner consistent with the Partnership's
annual financial statements pursuant to Section 15.3;
(O) liquidate or dissolve except in accordance with Article
13;
(P) do any act in contravention of this Agreement;
(Q) possess any property of the Partnership or assign the
rights of the Partnership in specific property of the Partnership for other than
a Partnership purpose; or
(R) perform any act (other than an act required by this
Agreement or any act taken in good faith reliance upon counsel's opinion that
such act will not subject any
32
Limited Partner to liability as a general partner) which would, at the time the
act occurred, subject any Limited Partner to liability as a general partner in
any jurisdiction.
(3) TCI Approval Defined. For purposes of this Agreement,
including Section 5.1(b)(2), TCI shall be deemed to have approved any action or
proposed action by or on behalf of Falcon Holding Group, Inc., FHGLP, the
Partnership, or any Subsidiary if:
(A) TCI has affirmatively approved the taking of such action,
or
(B) TCI has failed to object to the taking of such action
within forty-five days (or, in the case of Section 5.1(b)(2)(F), five days)
after its receipt of a request from Falcon Holding Group, Inc. or FHGLP for its
approval of the taking of such action, or
(C) in the case of an action described in Section
5.1(b)(2)(B), Section 5.1(b)(2)(D), Section 5.1(b)(2)(F), or any provision of
this Agreement (including Section 11.1(a)) that requires that TCI not
unreasonably withhold its approval of any action, TCI has unreasonably withheld
its approval of the taking of such action.
(4) Consideration of Financings. The Managing Partner will consult
with the Advisory Committee before entering into any agreement, or making any
material amendment to any agreement, or causing any Subsidiary to enter into any
agreement or to make any material amendment to any agreement, providing for the
incurring, creation, or assumption by the Partnership or any Subsidiary of
Indebtedness in excess of $1,000,000, but the Managing Partner shall not be
required under this Section 5.1(b)(4) or otherwise to obtain the approval of the
Advisory Committee in connection with any such transaction.
(5) Authority to Make Certain Loans. Subject to restrictions in
any credit agreement or other similar agreement to which the Partnership or any
Subsidiary is a party, if any senior executive employee of the Partnership
(other than Marc B. Nathanson) owns a partnership interest in the Managing
Partner at the time of his death, the Managing Partner may, without the approval
of TCI or the Advisory Committee, cause the Partnership to make loans to the
estate of such employee for the sole purpose of permitting the estate of such
employee to pay federal and state estate and inheritance taxes that are
attributable to such employee's ownership of a partnership interest in the
Managing Partner at the time of his death. Any such loan shall be on
commercially reasonable terms determined by the Managing Partner, except that
(A) such loan shall bear interest at the applicable Federal rate under Code
Section 1274 for a debt instrument having the terms of such loan and (B) any
estate of an employee to which such a loan is made shall be required to prepay
such loan to the extent of any distributions made by the Managing Partner with
respect to the partnership interest held by such employee at the time of his
death.
33
5.2 Agreements by Falcon Holding Group, Inc.
----------------------------------------
(a) By executing this Agreement, Falcon Holding Group, Inc. agrees,
subject to Section 5.2(b):
(1) not to take any action in its capacity as general partner of
FHGLP or any Investors Partnership that would be prohibited by the provisions of
Section 5.1(b) if the Managing Partner had caused the Partnership to take such
action directly;
(2) without the approval of TCI or as contemplated by Section
10.10, not to effect a withdrawal (as defined in Section 8.1 or in those
provisions of any applicable partnership act other than the Act that correspond
to the provisions of the Act referred to in Section 8.1) as general partner of
FHGLP or any Investors Partnership, or assign, convey, sell, transfer, encumber,
or in any way alienate all or any part of its interest in any Investors
Partnership,
(3) without the approval of TCI or as contemplated by Section
10.10, not to permit the admission of an additional general partner of any
Investors Partnership,
(4) without the approval of TCI, not to permit the admission of an
additional general partner of FHGLP if Falcon Holding Group, Inc. would not then
have the power to take all material actions that it is entitled to or required
to take under the partnership agreement of FHGLP in its capacity as general
partner of FHGLP,
(5) without the approval of TCI, not to permit any amendment to
the partnership agreement of FHGLP (other than entering into the FHGLP
Partnership Agreement) if (A) Falcon Holding Group, Inc. would not then have the
power to take all material actions that it is entitled to or required to take
under the partnership agreement of FHGLP in its capacity as general partner of
FHGLP, or (B) such amendment would materially and adversely affect TCI in its
capacity as a partner of the Partnership,
(6) without the approval of TCI, not to assign, convey, sell,
transfer, encumber, or in any way alienate all or any part of its interest in
FHGLP, if Falcon Holding Group, Inc. would not then have the power to take all
material actions that it is entitled to or required to take under the
partnership agreement of FHGLP in its capacity as general partner of FHGLP,
(7) not to receive any indemnification or reimbursement from any
of the Investors Partnerships or any of the Existing Entities with respect to
any expense, liability, loss, or damage arising after the date of this Agreement
for which FHGLP would not have been entitled to indemnification or reimbursement
under this Agreement if such expense, liability, loss, or damage had arisen in
connection with the business of the Partnership, and
34
(8) not to receive any payment from any Investors Partnership
other than indemnification for or reimbursement of expenses, liabilities,
losses, and damages (to the extent provided in the partnership agreement of such
Investors Partnership and permitted by Section 5.2(a)(7)) and payments with
respect to Falcon Holding Group, Inc.'s partnership interest in such Investors
Partnership.
(b) Notwithstanding Section 5.2(a), Falcon Holding Group, Inc. may take
any action necessary or appropriate to effect the conversion of FHGLP to a
corporation or another appropriate transaction, including the formation of a
corporate holding company, that results in the partnership interest of Falcon
Holding Group, Inc. in FHGLP being converted into, or exchanged for, stock in a
corporation, in the manner contemplated by Article 10 of the FHGLP Partnership
Agreement, so long as, after such transaction, Falcon Holding Group, Inc. would
have the power to take all material actions with respect to the corporate
successor to FHGLP that it is entitled to or required to take under the
partnership agreement of FHGLP in its capacity as general partner of FHGLP.
5.3 No Personal Liability.
----------------------
Neither General Partner shall have any personal liability for the repayment
of the Capital Contributions of any Limited Partner; provided that each General
Partner shall promptly return to the Partnership or to the Partner or Partners
entitled thereto any distributions received by such General Partner in excess of
those to which the General Partner is entitled under this Agreement.
5.4 Limited Liability.
------------------
The Managing Partner shall use commercially reasonable efforts, in the
conduct of the Partnership's business, to put all suppliers and other Persons
with which the Partnership does business on notice that the Partnership is a
limited partnership organized under the Act and that no Limited Partner has any
personal liability for any obligation of the Partnership.
5.5 Tax Matters Partner.
--------------------
(a) FHGLP is hereby designated as the Tax Matters Partner of the
Partnership, as provided in Treasury Regulations pursuant to Code Section 6231
and analogous provisions of state law. Each Partner, by the execution of this
Agreement, consents to such designation of the Tax Matters Partner and agrees to
execute, certify, acknowledge, deliver, swear to, file, and record at the
appropriate public offices such documents as may be necessary or appropriate to
evidence such consent.
(b) To the extent and in the manner provided by applicable law and
Treasury Regulations, the Tax Matters Partner shall furnish the name, address,
profits interest, and taxpayer identification number of each Partner and any
Assignee to the Secretary of the Treasury or his delegate (the "Secretary").
35
(c) The Tax Matters Partner shall (1) notify each Partner of any audit
that is brought to the attention of the Tax Matters Partner by notice from the
Internal Revenue Service, and (2) forward to each Partner copies of any written
notices, correspondence, reports, or other documents received by the Tax Matters
Partner in connection with such audit. The Tax Matters Partner shall notify each
Partner pursuant to clause (1) of the preceding sentence within ten Business
Days after its receipt of the notice from the Internal Revenue Service described
therein, and shall forward to each Partner copies of any notice, correspondence,
report, or other document pursuant to clause (2) of the preceding sentence
within ten Business Days after its receipt by the Tax Matters Partner. The Tax
Matters Partner shall provide TCI with reasonable advance notice of
administrative proceedings with the Internal Revenue Service, including any
closing conference with the examining agent and any appeals conference.
(d) The Tax Matters Partner shall give the Partners written notice of
its intent to initiate judicial review, file a request for administrative
adjustment on behalf of the Partnership, extend the period of limitations for
making assessments of any tax against a Partner with respect to any Partnership
item, or enter into any agreement with the Internal Revenue Service that would
result in the settlement of any alleged tax deficiency or other tax matter, or
to any adjustment of taxable income or loss or any item included therein,
affecting the Partnership or any Partner. The Tax Matters Partner shall not take
any such action if TCI elects within thirty days after their receipt of the Tax
Matters Partner's notice to require that the Tax Matters Partner refrain from
taking such action.
(e) Subject to the foregoing provisions of this Section 5.5, the Tax
Matters Partner is hereby authorized, but not required:
(1) to enter into any settlement with the Internal Revenue Service
or the Secretary with respect to any tax audit or judicial review, in which
agreement the Tax Matters Partner may expressly state that such agreement shall
bind the other Partners, except that such settlement agreement shall not bind
either Partner that (within the time prescribed pursuant to the Code and
Treasury Regulations thereunder) files a statement with the Secretary providing
that the Tax Matters Partner shall not have the authority to enter into a
settlement agreement on the behalf of such Partner;
(2) if a notice of a final administrative adjustment at the
Partnership level of any item required to be taken into account by a Partner for
tax purposes (a "final adjustment") is mailed to the Tax Matters Partner, to
seek judicial review of such final adjustment, including the filing of a
petition for readjustment with the Tax Court, the District Court of the United
States for the district in which the Partnership's principal place of business
is located, or elsewhere as allowed by law, or the United States Claims Court;
(3) to intervene in any action brought by any other Partner for
judicial review of a final adjustment;
36
(4) to file a request for an administrative adjustment with the
Secretary at any time and, if any part of such request is not allowed by the
Secretary, to file a petition for judicial review with respect to such request;
(5) to enter into an agreement with the Internal Revenue Service
to extend the period for assessing any tax that is attributable to any item
required to be taken into account by a Partner for tax purposes, or an item
affected by such item; and
(6) to take any other action on behalf of the Partners (with
respect to the Partnership) or the Partnership in connection with any
administrative or judicial tax proceeding to the extent permitted by applicable
law or Treasury Regulations.
(f) The Partnership shall indemnify and reimburse the Tax Matters
Partner for all reasonable expenses (including legal and accounting fees)
incurred pursuant to this Section 5.5 in connection with any administrative or
judicial proceeding with respect to the tax liability of the Partners. The
payment of all such reasonable expenses shall be made before any distributions
are made to the Partners. The taking of any action and the incurring of any
expense by the Tax Matters Partner in connection with any such proceeding,
except to the extent provided herein or required by law, is a matter in the sole
discretion of the Tax Matters Partner and the provisions on limitations of
liability of the Managing Partner and indemnification set forth in Article 14
shall be fully applicable to FHGLP in its capacity as the Tax Matters Partner.
(g) Any Limited Partner that receives a notice of an administrative
proceeding under Code Section 6233 relating to the Partnership shall promptly
notify the Tax Matters Partner of the treatment of any Partnership item on such
Partner's federal income tax return that is or may be inconsistent with the
treatment of that item on the Partnership's return.
(h) Either Partner that enters into a settlement agreement with the
Secretary with respect to any Partnership item shall notify the Tax Matters
Partner of such agreement and its terms within sixty days after its date, and
the Tax Matters Partner shall notify the other Partners of the settlement
agreement within thirty days of such notification.
5.6 Compensation to the Managing Partner and Affiliates.
----------------------------------------------------
Except as described on Schedule III, the Managing Partner and its Affiliates
shall not receive any compensation directly or indirectly in connection with the
formation, operation, and dissolution of the Partnership except as specified or
referred to in this Agreement; PROVIDED, HOWEVER, that partners of FHGLP and
officers, directors, and shareholders of Falcon Holding Group, Inc. who are
employees of the Partnership may receive compensation for their services as
employees of the Partnership, subject to Section 5.1(b)(2)(K).
37
5.7 Reimbursement.
--------------
(a) The Partnership shall reimburse each of FHGLP and TCI for all costs
and expenses reasonably incurred by either of them (whether incurred before or
after the formation of the Partnership) in connection with the formation,
organization, and capitalization of the Partnership (including costs and
expenses incurred in arranging any proposed or consummated financing), except
that the Partnership shall not reimburse FHGLP for, and FHGLP shall retain
liability for, the fee described in clause (i) of paragraph 2 of the letter,
dated as of June 2, 1997, from Lazard Freres & Co. LLC to FHGLP.
(b) Subject to Section 5.1(b)(2)(M) and Section 5.1(b)(2)(N), the
Partnership shall also reimburse FHGLP for (1) actual costs and expenses
incurred (including filing fees and reasonable legal fees and expenses) for the
purpose of maintaining the partnership existence of FHGLP and maintaining the
legal status of FHGLP as a partner of the Partnership, (2) costs incurred in the
preparation of FHGLP's tax returns and financial statements, (3) costs incurred
in connection with the audit of FHGLP's annual financial statements, (4)
reasonable expenses in connection with distributions made by FHGLP to its
partners and communications necessary in maintaining relations with its partners
and outside parties, and (5) reasonable expenses in connection with preparing
and mailing reports required to be furnished to its partners for investor, tax
reporting, or other purposes, or other reports to its partners that the general
partner of FHGLP deems to be in the best interest of FHGLP.
(c) Subject to Section 5.1(b)(2)(M) and Section 5.1(b)(2)(N), the
Partnership shall also reimburse Falcon Holding Group, Inc. for (1) actual costs
and expenses incurred (including filing fees and reasonable legal fees and
expenses) for the purpose of maintaining the corporate existence of Falcon
Holding Group, Inc. and maintaining the legal status of Falcon Holding Group,
Inc. as general partner of FHGLP, (2) reasonable costs incurred in the
preparation of Falcon Holding Group, Inc.'s tax returns and financial
statements, and (3) costs incurred in connection with the audit of Falcon
Holding Group, Inc.'s annual financial statements.
(d) The Partnership shall also reimburse FHGLP and TCI for certain
expenses to the extent provided in the Contribution Agreement.
ARTICLE 6
ADVISORY COMMITTEE
6.1 Membership.
-----------
The Partnership shall have an Advisory Committee consisting of six
individual representatives of the Partners, as follows:
38
(a) three members of the Advisory Committee shall be designated from
time to time by FHGLP in its sole discretion, and one of such members shall be
designated by FHGLP as the "chairman" of the Advisory Committee; provided that
FHGLP agrees to designate Marc B. Nathanson as a member of the Advisory
Committee and as the chairman of the Advisory Committee pursuant to this
paragraph for so long as he remains the chief executive officer of the
Partnership;
(b) one member of the Advisory Committee, who shall not be an officer,
director, or employee of FHGLP or any Affiliate of FHGLP, shall be designated by
agreement between FHGLP and TCI (except that the initial member of the Advisory
Committee to be designated pursuant to this Section 6.1(b), as listed on
Schedule IV, shall not require such approval); and
(c) two members of the Advisory Committee shall be designated from time
to time by TCI.
6.2 Removal and Replacement of Members.
-----------------------------------
Any member of the Advisory Committee designated pursuant to Section 6.1(a)
or Section 6.1(c) may be removed and replaced at any time, and from time
to time, by the Partner that originally designated such member in accordance
with Section 6.1(a) or Section 6.1(c). The member of the Advisory Committee
designated pursuant to Section 6.1(b) may be removed at any time, and from time
to time, by agreement between FHGLP and TCI or, if such member has served for at
least two consecutive years, by either FHGLP or TCI. The member of the Advisory
Committee designated pursuant to Section 6.1(b), if removed, shall be replaced
by agreement between FHGLP and TCI.
6.3 Frequency and Location of Meetings.
-----------------------------------
The Advisory Committee shall meet at such times as shall be determined by
the chairman of the Advisory Committee, but in any event at least quarterly
unless otherwise agreed to by FHGLP and TCI. Meetings of the Advisory Committee
may be called from time to time, on at least five days notice (which need not be
in writing), by the chairman of the Advisory Committee. Meetings of the Advisory
Committee shall be held at a location selected from time to time by the chairman
of the Advisory Committee.
6.4 By-Laws and Other Matters.
--------------------------
The By-Laws of the Advisory Committee, in the form attached as Exhibit I,
shall govern the organization of the Advisory Committee, procedures for
meetings of the Advisory Committee, and procedures for actions by the members of
the Advisory Committee in lieu of meetings. The Advisory Committee shall have
the authority, by affirmative vote of a majority of its members then in office,
to amend the By-Laws of the Advisory Committee in any manner that is not
39
inconsistent with the express terms of this Agreement. Members of the Advisory
Committee may participate in any meeting of the Advisory Committee by means of
conference telephone or similar communications equipment through which all
persons participating in the meeting can hear each other. The chairman may
invite individuals who are not members of the Advisory Committee to attend and
participate in meetings of the Advisory Committee.
6.5 Reimbursement.
--------------
The Partnership shall reimburse each member of the Advisory Committee for
expenses, including travel and legal expenses, reasonably incurred in connection
with such member's performance of his duties as a member of the Advisory
Committee.
6.6 Members.
--------
The members of the Advisory Committee, as designated by FHGLP and TCI, as of
the date of this Agreement, are set forth on Schedule IV.
ARTICLE 7
STATUS OF LIMITED PARTNERS; OTHER LIMITATIONS
ON PARTNERS
7.1 Limited Liability.
------------------
No Limited Partner shall be bound by or personally liable for the expenses,
liabilities, or obligations of the Partnership. In no event shall any Limited
Partner be required to make up a deficiency in its Capital Account upon the
dissolution and termination of the Partnership.
7.2 Return of Distributions of Capital.
-----------------------------------
A Limited Partner may, under certain circumstances, be required by law to
return to the Partnership, for the benefit of the Partnership's creditors,
amounts previously distributed. No Limited Partner shall be obligated by this
Agreement to pay those distributions to or for the account of the Partnership or
any creditor of the Partnership. However, if any court of competent jurisdiction
holds that, notwithstanding the provisions of this Agreement, any Limited
Partner must return or pay over any part of those distributions, the obligation
shall be that of such Limited Partner alone and not of any other Partner. Any
payment returned to the Partnership by a Partner or made directly by a Partner
to a creditor of the Partnership shall be deemed a Capital Contribution by such
Partner.
40
7.3 No Management and Control.
--------------------------
Except as expressly provided in this Agreement, no Partner shall take part
in or interfere in any manner with the control, conduct, or operation of the
Partnership or have any right or authority to act for or bind the Partnership.
7.4 Specific Limitations.
---------------------
No Partner shall have the right or power to: (a) withdraw or reduce its
Capital Contribution except as a result of the dissolution of the Partnership or
as otherwise provided by law or in this Agreement, (b) bring an action for
partition against the Partnership or any assets of the Partnership, (c) cause
the termination and dissolution of the Partnership, except as set forth in this
Agreement, or (d) demand or receive property other than cash in return for its
Capital Contribution. Except as otherwise set forth in this Agreement or in any
agreement permitted to be entered into under this Agreement with respect to the
purchase, redemption, retirement, or other acquisition of Partnership Interests,
no Partner shall have priority over any other Partner either as to the return of
its Capital Contribution or as to Net Profit, Net Loss, or distributions. Other
than upon the termination and dissolution of the Partnership as provided by this
Agreement, there has been no time agreed upon when the Capital Contribution of
either Partner will be returned.
7.5 Issuance of Partnership Interests.
----------------------------------
Subject to any approval that may be required by Section 5.1(b)(2)(I) and, if
such approval is required, in accordance with the terms thereof, the Managing
Partner may issue additional Partnership Interests to any Person and may admit
to the Partnership as additional Partners the Persons acquiring such Partnership
Interests, if such Persons were not previously admitted as Partners. The Persons
acquiring such Partnership Interests shall have the rights and be subject to the
obligations attributable to such Partnership Interests in the form issued to
them. A Person admitted as a new Partner shall only be entitled to distributions
and allocations of Net Profit and Net Loss attributable to the period beginning
on the effective date of its admission to the Partnership, and the Partnership
shall attribute Net Profit and Net Loss to the period before the effective date
of the admission of a new Partner and to the period beginning on the effective
date of the admission of a new Partner by the closing of the books method.
7.6 Restrictions on the Powers and Activities of the Limited Partners.
------------------------------------------------------------------
(a) Notwithstanding anything in this Agreement to the contrary, but
subject to Section 7.6(b), each Limited Partner, including each additional and
substituted Limited Partner, in its capacity as such, shall be subject to the
following limitations:
41
(1) No Limited Partner shall act as an employee of the Partnership
if the functions of such Limited Partner, directly or indirectly, relate to any
cable television system or other media enterprise owned or operated by the
Partnership or any Subsidiary;
(2) No Limited Partner shall serve, in any material capacity, as
an independent contractor or agent with respect to any cable television system
or other media enterprise owned or operated by the Partnership or any
Subsidiary;
(3) No Limited Partner shall communicate with any Person that
holds any license, permit, or authorization issued by the FCC and in which the
Partnership holds an interest, or with the Managing Partner, on matters
pertaining to the day-to-day operations of any cable television system or other
media enterprise owned or operated by the Partnership or such Person, and no
Limited Partner shall be entitled to vote on such matters;
(4) No Limited Partner shall vote on the removal of, or otherwise
have the power to remove, any General Partner;
(5) No Limited Partner shall perform any services for the
Partnership materially related to any cable television system or other media
enterprise owned or operated by the Partnership or any Subsidiary; and
(6) No Limited Partner shall become actively involved in the
management or operation of any cable television system or other media enterprise
owned or operated by the Partnership or any Subsidiary.
(b) Section 7.6(a) shall not apply to:
(1) any Limited Partner that is also a General Partner or to any
Limited Partner that is an Affiliate of the Managing Partner; or
(2) any Limited Partner with respect to any media enterprise owned
or operated by the Partnership or any Subsidiary or to any Person that holds any
license, permit, or authorization issued by the FCC if (A) the Partnership or
Subsidiary acquired its interest in such media enterprise or such Person after
the date of this Agreement and (B) such Limited Partner owned an interest in
such media enterprise or such Person at the time the Partnership or Subsidiary
acquired its interest in such media enterprise or such Person and was permitted
to engage in the activities otherwise prohibited by Section 7.6(a) at the time
of such acquisition.
(c) Section 7.6(a) shall apply to TCI if this Agreement has been
amended pursuant to Section 12.4(b)(4) to convert the Partnership Interest of
TCI to that of a Limited Partner.
42
ARTICLE 8
WITHDRAWAL OF A GENERAL PARTNER
8.1 Withdrawal.
-----------
The Managing Partner may retire or withdraw from the Partnership only with
the approval of TCI. For purposes of this Agreement, the term "withdrawal" means
the happening of any event described in Section 15642 of the Act (other than
subsections (c) and (d) thereof). If the Managing Partner withdraws, the
Partnership shall dissolve in accordance with the provisions of Article 13,
unless, within six months after the withdrawal of the Managing Partner,
(a) if there is at least one General Partner remaining, a majority in
interest of the remaining General Partners (as determined in accordance with
Section 15681(c) of the Act) agree in writing to continue the business of the
Partnership and to the appointment, effective as of the date of the withdrawal
of the Managing Partner, of a General Partner to be successor managing partner,
or
(b) if there is not at least one General Partner remaining, a majority
in interest of the Limited Partners (as determined in accordance with Section
15681(c) of the Act) agree in writing to continue the business of the
Partnership pursuant to the terms and provisions of this Agreement, to the
admission of at least one General Partner, and to the appointment, effective as
of the date of the withdrawal of the Managing Partner, of a General Partner to
be successor managing partner.
8.2 Effect of Withdrawal of Managing Partner.
-----------------------------------------
If the Partnership is continued pursuant to Section 8.1 following the
withdrawal of the Managing Partner, then the Partnership Interest of the
Managing Partner shall be converted to that of a Limited Partner. The withdrawal
of the Managing Partner shall not alter the allocations and distributions to be
made to the Partners pursuant to this Agreement.
8.3 No Dissolution.
---------------
The withdrawal of a General Partner other than the Managing Partner shall
not cause the dissolution of the Partnership or alter the allocations and
distributions to be made to the Partners pursuant to this Agreement.
43
ARTICLE 9
ASSIGNMENT OF PARTNERSHIP INTERESTS
9.1 Assignments by Managing Partner.
--------------------------------
Except as provided in Section 9.3, the Managing Partner shall not assign,
convey, sell, transfer, encumber, or in any way alienate all or any part of its
interest in the Partnership without the approval of TCI.
9.2 Assignments by Other Partners.
------------------------------
Except as provided in Section 9.3, a Partner may not assign (whether by
sale, exchange, gift, contribution, distribution, or other transfer, including a
pledge or other assignment for security purposes) all or any part of its
Partnership Interest without first obtaining the prior written consent of the
Managing Partner. Notwithstanding the consent of the Managing Partner to any
assignment by a Partner of all or any part of its Partnership Interest, the
rights of any Assignee shall be subject at all times to the limitations set
forth in Section 9.4.
9.3 Exceptions.
-----------
The provisions of Section 9.1 and Section 9.2 shall not apply and no consent
of the Managing Partner or TCI, as applicable, shall be required for:
(a) an assignment of Partnership Interests pursuant to Article 10;
(b) an assignment by a Partner or an Assignee of a Partner to any
Person that, directly or indirectly, through the ownership of Voting Stock,
controls, is controlled by, or is commonly controlled with such Partner;
PROVIDED, HOWEVER, that the Assignee shall immediately execute all documents
reasonably required by the Managing Partner (1) to cause the Partnership
Interests so acquired by the Assignee to become immediately subject to all of
the terms and conditions of this Agreement, and (2) to establish that the
Assignee is an Accredited Investor;
(c) the assignment by FHGLP of Partnership Interests to certain
partners of FHGLP and the purchase of those Partnership Interests by TCI
pursuant to the Contribution Agreement, which will occur immediately following
the Partners' Capital Contributions at Closing;
(d) any pledge of Partnership Interests pursuant to Section 9.12 or the
assignment of Partnership Interests upon the exercise by any secured party of
any rights granted to it under a pledge agreement entered into pursuant to
Section 9.12; or
44
(e) an assignment of the Managing Partner's Partnership Interest to a
corporate successor to FHGLP in connection with the conversion of FHGLP to a
corporation or the consummation of another appropriate transaction, including
the formation of a corporate holding company, in the manner contemplated by
Article 10 of the FHGLP Partnership Agreement, so long as, after such
transaction, Falcon Holding Group, Inc. would have the power to take all
material actions with respect to the corporate successor to FHGLP that it is
entitled to or required to take under the partnership agreement of FHGLP in its
capacity as general partner of FHGLP.
9.4 Assignee.
---------
If the provisions of this Article 9 have been complied with, an Assignee
shall be entitled to receive distributions of cash or other property, and
allocations of Net Profit and Net Loss and of items of income, deduction, gain,
loss, or credit, from the Partnership attributable to the assigned Partnership
Interests from and after the effective date of the assignment, and shall have
the right to receive a copy of the quarterly and annual financial statements
required herein to be provided the Partners, but an Assignee shall have no other
rights of a Partner herein, such as rights to any other information, an
accounting, inspection of books or records, or voting as a Partner on matters
required by law, unless and until such Assignee is admitted as a substitute
Partner pursuant to the provisions of Section 9.9. The Partnership and the
Managing Partner shall be entitled to treat the assignor as the absolute owner
of the Partnership Interests in all respects, and shall incur no liability for
distributions, allocations of Net Profit or Net Loss, or transmittal of reports
and notices required to be given to Partners that are made in good faith to the
assignor until the effective date of the assignment, or, in the case of the
transmittal of reports (other than the financial statements referred to above)
or notices, until the Assignee is so admitted as a substitute Partner. The
effective date of an assignment shall be the first day of the calendar month
following the month in which the Managing Partner has received an executed
instrument of assignment in compliance with this Article 9 or the first day of a
later month if specified in the executed instrument of assignment. The Assignee
shall be deemed an Assignee on the effective date, and shall be only entitled to
distributions and allocations of Net Profit and Net Loss attributable to the
period beginning on the effective date of assignment. The Partnership shall
attribute Net Profit and Net Loss to the period before the effective date of
assignment and to the period beginning on the effective date of assignment by
the closing of the books method. Each Assignee will inherit the balance of the
Capital Account, as of the effective date of assignment, of the assignor with
respect to the Partnership Interests assigned.
9.5 Other Consents and Requirements.
--------------------------------
Any assignment of any Partnership Interests in the Partnership must be in
compliance with any requirements imposed by any state securities administrator
having jurisdiction over the assignment and the United States Securities and
Exchange Commission and must not cause the Partnership or any Subsidiary to be
in violation of any Ownership Restriction.
45
9.6 Assignment Not In Compliance.
-----------------------------
Any assignment in contravention of any of the provisions of this Article 9
shall be void and of no effect, and shall neither bind nor be recognized by the
Partnership.
9.7 Tax Elections.
--------------
The Managing Partner will make an election under Code Section 754 to adjust
the basis of the Partnership's assets in connection with the assignment by FHGLP
of Partnership Interests to certain partners of FHGLP and the purchase of those
Partnership Interests by TCI pursuant to the Contribution Agreement.
9.8 Division of Partnership Interests.
----------------------------------
The several rights and obligations inherent in the Capital Account,
Percentage Interest, and Partnership Units attributable to a Partner's
Partnership Interest are indivisible except in equal proportions, such that the
assignment of a specified percentage of a Partner's Partnership Interest may
only represent an equal percentage of the total Capital Account, Percentage
Interest, and Partnership Units that were attributable to such Partner's
Partnership Interest prior to the assignment; PROVIDED, HOWEVER, that the
several rights and obligations attributable to all or part of a Partnership
Interest may be further divided between those rights that may be exercised by an
Assignee subject to Section 9.4 and all other rights and obligations, which may
be retained by the assignor. For purposes of applying this Section 9.8, the
Partnership Interest of FHGLP as the General Partner and the Partnership
Interest of FHGLP as a Limited Partner are separate and distinct Partnership
Interests, and all or part of either such Partnership Interest may be assigned
independently of the other Partnership Interest (subject to the other provisions
of this Agreement).
9.9 Substitute Partners.
--------------------
An Assignee may not become a substitute Partner unless all of the following
conditions are first satisfied:
(a) A duly executed and acknowledged written instrument of assignment
shall have been filed with the Partnership, specifying the Partnership Interests
being assigned and setting forth the intention of the assignor that the Assignee
succeed to the assignor's interest as a substitute Partner;
(b) The Assignee shall be an Accredited Investor;
(c) The assignor and Assignee shall have executed and acknowledged any
other instruments that the Managing Partner deems necessary or desirable for
substitution, including the written acceptance and adoption by the Assignee of
the provisions of this Agreement and shall
46
have executed, acknowledged, and delivered to the Managing Partner a special
power of attorney as provided in Section 18.5(b);
(d) Except in the case of an assignment permitted by Section 9.3, the
Managing Partner shall have consented in writing to the admission of the
Assignee as a substitute Partner, the granting of which may be withheld by the
Managing Partner in its sole and absolute discretion;
(e) The Assignee shall have paid to the Partnership a transfer fee
sufficient to cover all reasonable expenses connected with the substitution; and
(f) The assignment to the Assignee shall have complied with the other
provisions of this Article 9.
9.10 Consent.
--------
Each Partner consents to the admission of substitute Partners by the
Managing Partner and to any Assignee of its Partnership Interests becoming a
substituted Partner in accordance with the terms and conditions of this
Agreement.
9.11 Covenant and Representation of TCI Communications, Inc.
-------------------------------------------------------
By executing this Agreement, TCI Communications, Inc., a Delaware
corporation,
(a) agrees that, prior to the seventh anniversary of the Closing, it
will not cause or permit to occur any transaction or series of transactions
(other than an assignment of the Partnership Interest of TCI that is permitted
by Article 10) if, after giving effect to such transaction or series of
transactions, it (or any successor to it that owns, directly or indirectly,
substantially all the cable television systems owned, directly or indirectly, by
TCI Communications prior to such transaction or series of transactions) would
not own, directly or indirectly, more than fifty percent of the outstanding
equity interests in TCI or would not directly or indirectly control TCI; and
(b) represents and warrants to FHGLP and the Partnership that it owns,
directly or indirectly, (1) all of the outstanding equity interests in TCI and
(2) substantially all the cable television systems in the United States or
interests in cable television systems in the United States that are owned,
directly or indirectly, by Tele-Communications, Inc. or any of its Affiliates.
9.12 Pledge of Partnership Interests.
--------------------------------
At the request of the Managing Partner, each Partner agrees to pledge its
Partnership Interest to secure any Indebtedness of the Partnership that is
permitted under this Agreement, on terms determined by the Managing Partner, so
long as all Partners are required to pledge their Partnership Interests and the
terms of the pledge do not impose any personal liability on any
47
Partner. In negotiating the terms of any such pledge, the Managing Partner will
request that the secured party agree to enforce its rights against the
Partnership Interests of the Partners proportionately (based on the number of
Partnership Units assigned to the Partnership Interest of each Partner). If the
secured party under any such pledge enforces its rights against the Partnership
Interests of the Partners other than proportionately, the Partners will afford
each other such rights of contribution and indemnity as are necessary to cause
all liabilities, losses, and damages suffered by the Partners as a result of the
exercise by the secured party of its rights under such pledge to be borne by the
Partners proportionately.
9.13 Effect of Purchase of Partnership Interests in FHGLP.
-----------------------------------------------------
(a) If the Partnership purchases any partnership interests in FHGLP
pursuant to Article 9 of the FHGLP Partnership Agreement, then, immediately
after such purchase, the Partnership shall distribute all of the partnership
interests in FHGLP purchased by the Partnership to FHGLP in redemption of a
portion of FHGLP's Partnership Interest. The partnership interests in FHGLP
distributed to FHGLP pursuant to this Section 9.13(a) shall be deemed to have a
net fair market value equal to the purchase price paid by the Partnership for
such partnership interests, as determined in accordance with Section 9.2(e) of
the FHGLP Partnership Agreement, and the percentage of FHGLP's Partnership
Interest redeemed pursuant to this Section 9.13(a) shall equal the quotient
obtained by dividing the purchase price paid by the Partnership for such
partnership interests, as determined in accordance with Section 9.2(e) of the
FHGLP Partnership Agreement, by the net fair market value of FHGLP's Partnership
Interest, determined in accordance with the following provisions:
(1) For purposes of determining the net fair market value of
FHGLP's Partnership Interest, the "FHGLP Liquidation Amount" of each of the
three appraisers retained pursuant to Article 9 of the FHGLP Partnership
Agreement shall equal the amount that would be distributed to FHGLP in
liquidation of the Partnership, as determined under Section 9.2(e) of the FHGLP
Partnership Agreement for purposes of calculating such appraiser's Appraised
Liquidation Value (as defined in Section 9.2(e)(1) of the FHGLP Partnership
Agreement).
(2) Except as provided in Section 9.13(a)(3), the net fair market
value of FHGLP's Partnership Interest shall be the average of the two closest of
the FHGLP Liquidation Amounts of the three appraisers retained pursuant to
Article 9 of the FHGLP Partnership Agreement.
(3) If the difference between the highest of the three FHGLP
Liquidation Amounts and the middle of the three FHGLP Liquidation Amounts is
equal to the difference between the lowest of the three FHGLP Liquidation
Amounts and the middle of the three FHGLP Liquidation Amounts, then the net fair
market value of FHGLP's Partnership Interest shall be the middle FHGLP
Liquidation Amount.
48
(b) Upon the redemption of a portion of FHGLP's Partnership Interest
pursuant to Section 9.13(a), the number of Partnership Units assigned to its
Partnership Interest shall be reduced by the product of (1) the number of
Partnership Units assigned to its Partnership Interest prior to such redemption
times (2) the percentage of FHGLP's Partnership Interest being redeemed, as
provided in Section 9.13(a).
(c) If the redemption of a portion of FHGLP's Partnership Interest
pursuant to Section 9.13(a) would change the ownership of the Partnership such
that TCI would be required to consolidate its financial statements and those of
the Partnership for financial reporting purposes, then, at TCI's request, the
Partners will use commercially reasonable efforts to create and implement an
alternative structure for the purchase of partnership interests in FHGLP
pursuant to Article 9 of the FHGLP Partnership Agreement and the distribution of
such partnership interests to FHGLP that would prevent such consolidation.
9.14 Impact of Code Section 708.
---------------------------
(a) If the assignment by a Partner of all or part of its Partnership
Interest results in the termination of the Partnership within the meaning of
Code Section 708, the Partner causing such termination (as determined in
accordance with this Section 9.14) will indemnify the other Partner for any
additional income tax paid by such other Partner as a result of such termination
(including income tax attributable to Code Section 704(c) allocations), whether
required to be paid in or for the taxable year in which such termination occurs
or in or for any subsequent taxable year, as offset by any income tax savings to
be realized by the other Partner as a result of such termination (including
income tax savings attributable to Code Section 704(c) allocations), whether
realized in or for the taxable year in which such termination occurs or in or
for any subsequent taxable year. Except as provided in Section 9.14(b), the
Partner whose assignment of all or part of its Partnership Interest resulted in
the termination of the Partnership within the meaning of Code Section 708 shall
be treated as the Partner causing such termination for purposes of Section
9.14(a).
(b) If a Partner desires to assign all or part of its Partnership
Interest in a transaction that, if consummated at one time, would result in the
termination of the Partnership within the meaning of Code Section 708, such
Partner may elect (1) to assign immediately as much of its Partnership Interest
as may then be assigned without resulting in the termination of the Partnership
within the meaning of Code Section 708 and (2) to assign the remaining portion
of its Partnership Interest that it desires to assign as soon thereafter as such
subsequent assignment would not result in the termination of the Partnership
within the meaning of Code Section 708. If a Partner notifies the other Partner
that it has elected to assign all or part of its Partnership Interest in
accordance with this Section 9.14(b), specifying in its notice the portion of
its Partnership Interest to be assigned immediately in accordance with clause
(1) of the preceding sentence and the portion of its Partnership Interest to be
assigned subsequently in accordance with clause (2) of the preceding sentence
(the assignment of such portion, the "Deferred Assignment"), then, if the other
Partner assigns all or any part of its Partnership Interest prior to the
Deferred
49
Assignment by the notifying Partner and the Deferred Assignment therefore
results in the termination of the Partnership within the meaning of Code Section
708, the other Partner and not the notifying partner shall be treated as the
Partner causing such termination for purposes of Section 9.14(a).
ARTICLE 10
BUY/SELL RIGHTS
10.1 Commencement of Buy/Sell Process.
---------------------------------
(a) At any time after the seventh anniversary of the Closing (subject
to Section 10.1(b)), either TCI or FHGLP may elect to commence the process
described in this Article 10 by sending written notice (the "Offer") of its
election to the Responding Partner, offering to sell to the Responding Partner
or, at the Responding Partner's election, to the Partnership, all, but not less
than all, of the Offering Partner's Partnership Interest for a price per
Partnership Unit which shall be specified by the Offering Partner in the Offer
(the "Unit Price") and otherwise on the terms and subject to the conditions set
forth in this Article 10. The Offer shall also specify the Offering Partner's
estimate of the price at which the Partnership and each Subsidiary could sell
each regional cluster of cable television systems owned by the Partnership and
each Subsidiary, each other separate business owned by the Partnership and each
Subsidiary, and each other asset (such as equity interests in a Person that is
not a Subsidiary) or group of assets owned by the Partnership and each
Subsidiary (each such regional cluster, other business, or other asset or group
of assets, a "Business Asset," and such estimate, with respect to each Business
Asset, the "Target Price") in liquidating sales pursuant to Article 13, and the
Unit Price specified by the Offering Partner shall equal the Offering Partner's
good faith estimate, based on the most recent financial information of the
Partnership and the Subsidiaries, of the amount that would be distributed to the
Partners in liquidation of the Partnership, per Partnership Unit, if (1) all of
the assets of the Partnership and each Subsidiary were sold for the sum of the
Target Prices specified by the Offering Partner, without reduction for filing
fees, transfer taxes, recordation taxes, sales taxes, document stamps, other
charges levied by any governmental entity, attorneys' and accountants' fees and
expenses, and other transaction costs of any nature that would be incurred in
connection with any such sale, (2) Net Profit and Net Loss and items specially
allocated in accordance with Section 4.3, including any gain or loss resulting
from the liquidating sales described in clause (1), were allocated in accordance
with Article 4, and corresponding allocations were made under the partnership
agreement or other governing instrument of each Subsidiary, (3) the Partnership
and each Subsidiary paid its accrued, but unpaid, liabilities (which shall not
in any event include any prepayment premiums or penalties or other similar costs
attributable to the payment of any such liabilities), and (4) each Subsidiary
distributed the remaining proceeds received by it (without establishing reserves
for contingent or unknown liabilities) to its equity owners in liquidation in
accordance with its partnership agreement or other governing instrument and the
Partnership distributed the remaining proceeds received by it (without
establishing reserves for contingent or unknown liabilities) to the Partners in
liquidation.
50
(b) A Partner may not elect to commence the process described in this
Article 10, (1) at any time after an election by FHGLP pursuant to Section
11.1(a) unless TCI reasonably declined pursuant to Section 11.1(a) to approve
the Incorporation following such election or (2) at any time following the
delivery of an Offer pursuant to Section 10.1(a) and prior to such time, if any,
that (A) the Offering Partner and the Responding Partner agree to abandon the
purchase and sale of Partnership Interests pursuant to such Offer or, if
applicable, the liquidation and dissolution of the Partnership as a result of
any election made by the Offering Partner pursuant to Section 10.3(a), or (B)
the Offering Partner or the Responding Partner elects pursuant to Section
10.8(a), Section 10.8(b), or Section 10.8(c) to terminate the purchase and sale
of Partnership Interests pursuant to such Offer or pursuant to a subsequent
election pursuant to Section 10.4(a) or Section 10.5(a)(1).
(c) The purchase and sale of Partnership Interests pursuant to this
Article 10 may be abandoned at any time following the delivery of an Offer
pursuant to Section 10.1(a) and prior to the closing thereof by agreement
between the Offering Partner and the Responding Partner.
10.2 Election by Responding Partner.
-------------------------------
The Responding Partner may accept the Offering Partner's offer to sell the
Offering Partner's Partnership Interest, as set forth in the Offer, by sending
written notice (the "Acceptance") of its acceptance of such offer to the
Offering Partner within thirty Business Days after its receipt of the Offer. The
Acceptance shall specify whether the Responding Partner elects that the
Partnership purchase the Offering Partner's Partnership Interest; PROVIDED,
HOWEVER, that the Responding Partner may not elect pursuant to Section 10.1(a)
to require that the Partnership (rather than the Responding Partner) purchase
the Offering Partner's Partnership Interest if a purchase of the Offering
Partner's Partnership Interest by the Partnership would require any waiver,
consent, or approval of any holder of any Indebtedness of the Partnership or any
Subsidiary or would require any other waiver, consent, or approval of any Person
that could impede or materially delay the closing of the purchase and sale of
the Offering Partner's Partnership Interest. Upon the timely delivery of the
Acceptance, the Offering Partner shall be obligated to sell and the Responding
Partner (or the Partnership, if the Responding Partner properly so elected in
its Acceptance) shall be obligated to purchase, in accordance with this Article
10, all of the Offering Partner's Partnership Interest. If the Responding
Partner fails to send the Acceptance to the Offering Partner within thirty
Business Days after its receipt of the Offer, the Responding Partner shall be
deemed to have rejected the Offering Partner's offer.
10.3 Offering Partner's Option to Liquidate.
---------------------------------------
(a) If the Responding Partner rejects or is deemed to reject the
Offering Partner's offer to sell all of the Offering Partner's Partnership
Interest, the Offering Partner may elect to cause the Partnership to be
liquidated and dissolved in accordance with Article 13,
51
including the provisions of Section 13.3. The Offering Partner shall make an
election to cause the Partnership to be liquidated and dissolved pursuant to
this Section 10.3(a) by delivering written notice of its election to the
Responding Partner within ten Business Days after the deadline specified in
Section 10.2 for the Responding Partner's acceptance of the Offering Partner's
offer.
(b) The Offering Partner and the Responding Partner may agree at any
time to abandon the liquidation and dissolution of the Partnership as a result
of any election made by the Offering Partner pursuant to Section 10.3(a).
(c) Upon the commencement of the liquidation and dissolution of the
Partnership pursuant to any election made pursuant to Section 10.3(a) or Section
10.5(a)(2), all rights and obligations of the Partners with respect to the
purchase and sale of their Partnership Interests shall terminate (until such
time, if any, as the Offering Partner and the Responding Partner agree to
abandon the liquidation and dissolution of the Partnership as a result of any
such election), and neither Partner shall have any further obligation to the
other Partner with respect to the purchase and sale of its Partnership Interest
(except in the case of a subsequent election by the Responding Partner pursuant
to Section 10.4(a)). If the Partnership is liquidated, each Partner shall be
entitled to receive with respect to its Partnership Interest only such cash and
property distributions as shall be provided for in Article 13, regardless of
whether such amount is less than the Unit Price or the Unit Liquidation Amount.
10.4 Responding Partner's Option to Purchase During Liquidation.
-----------------------------------------------------------
(a) If the Offering Partner elects pursuant to Section 10.3(a) to cause
the Partnership to be liquidated and dissolved and, following receipt of all
Liquidating Sale Offers solicited by the Offering Partner pursuant to Section
13.3(a) and the completion of any appraisals required by Section 13.3(b)(1), the
aggregate Liquidation Value for all the assets of the Partnership and each
Subsidiary (as determined under Section 13.3(b)(2)) is less than the aggregate
Target Prices for all the assets of the Partnership and each Subsidiary, then
the Responding Partner may elect to purchase or to require that the Partnership
purchase all, but not less than all, of the Partnership Interest of the Offering
Partner for a price per Partnership Unit equal to the Unit Liquidation Amount
and otherwise on the terms and subject to the conditions set forth in this
Article 10. Promptly following the completion of the solicitation of Liquidating
Sale Offers by the Offering Partner pursuant to Section 13.3(a) and any
appraisals required by Section 13.3(b)(1), if the aggregate Liquidation Value
for all the assets of the Partnership and each Subsidiary is less than the
aggregate Target Prices for all the assets of the Partnership and each
Subsidiary, the Offering Partner shall so notify the Responding Partner in
writing.
(b) The Responding Partner may make an election pursuant to Section
10.4(a) by delivering written notice of its election to the Offering Partner
within twenty Business Days after its receipt of the Offering Partner's notice
pursuant to Section 10.4(a). The notice shall specify whether the Responding
Partner elects that the Partnership purchase the Offering Partner's Partnership
Interest; PROVIDED, HOWEVER, that the Responding Partner may not elect pursuant
to
52
Section 10.4(a) to require that the Partnership (rather than the Responding
Partner) purchase the Offering Partner's Partnership Interest if the purchase of
the Offering Partner's Partnership Interest by the Partnership could be impeded
or materially delayed as a result of any required waiver, consent, or approval
of any holder of any Indebtedness of the Partnership or any Subsidiary, or any
other required waiver, consent, or approval of any Person, that either would not
be required or would be more expeditiously obtained if the Offering Partner's
Partnership Interest were purchased by the Responding Partner. Upon the timely
delivery of such notice to the Offering Partner, the Offering Partner shall be
obligated to sell and the Responding Partner (or the Partnership, if the
Responding Partner properly so elected in its notice) shall be obligated to
purchase, in accordance with this Article 10, all of the Offering Partner's
Partnership Interest.
(c) If, following receipt of all Liquidating Sale Offers solicited by
the Offering Partner pursuant to Section 13.3(a) and the completion of any
appraisals required by Section 13.3(b)(1), either (1) the aggregate Liquidation
Value for all the assets of the Partnership and each Subsidiary (as determined
under Section 13.3(b)(2)) is not less than the aggregate Target Prices for all
the assets of the Partnership and each Subsidiary or (2) the Responding Partner
did not make an election pursuant to Section 10.4(a) within twenty Business Days
after its receipt of the Offering Partner's notice pursuant to Section 10.4(a),
the Responding Partner shall have no right to purchase the Partnership Interest
of the Offering Partner and the Offering Partner may cause the Partnership to
accept the most favorable Liquidating Sale Offers and shall otherwise cause the
Partnership to be liquidated and dissolved in accordance with Article 13 (except
as the Offering Partner and the Responding Partner may otherwise agree).
10.5 Default by Responding Partner.
------------------------------
(a) If the Responding Partner elects to purchase all of the Offering
Partner's Partnership Interest under either Section 10.2 or Section 10.4(a), and
the Responding Partner defaults in its obligation to purchase the Offering
Partner's Partnership Interest on the date specified in Section 10.7(a) for the
closing of the purchase and sale of the Offering Partner's Partnership Interest,
then the Offering Partner may elect either:
(1) to purchase or to require that the Partnership purchase all,
but not less than all, of the Partnership Interest of the Responding Partner for
a price per Partnership Unit equal to 95% of the Unit Price and otherwise on the
terms and subject to the conditions set forth in this Article 10; or
(2) to cause the Partnership to be liquidated and dissolved in
accordance with Article 13.
(b) The two options that may be elected by the Offering Partner
pursuant to Section 10.5(a) are exclusive of each other but are not exclusive of
any other right or remedy that may be available to the Offering Partner at law
or equity as a result of the Responding Partner's default.
53
(c) The Offering Partner may make an election pursuant to Section
10.5(a) by delivering written notice of its election to the Responding Partner
at any time after the date specified in Section 10.7(a) for the closing of the
purchase and sale of the Offering Partner's Partnership Interest and prior to
such time, if any, as the Responding Partner stands ready, willing, and able to
purchase the Offering Partner's Partnership Interest in accordance with this
Article 10. The notice shall specify whether the Offering Partner elects that
the Partnership purchase the Responding Partner's Partnership Interest. If the
Offering Partner makes a timely election pursuant to Section 10.5(a)(1), the
Responding Partner shall be obligated to sell and the Offering Partner (or the
Partnership, if the Offering Partner so elected in its notice) shall be
obligated to purchase, in accordance with this Article 10, all of the Responding
Partner's Partnership Interest.
10.6 Removal of FHGLP.
-----------------
(a) The provisions of this Section 10.6 shall apply if:
(1) a court of competent jurisdiction sitting in Los Angeles
County, California, finds that FHGLP has engaged in conduct while acting as
Managing Partner that constitutes either fraud against the Partnership or TCI or
a felony involving moral turpitude and that such conduct has resulted in
material harm to the Partnership or TCI, and
(2) the finding described in Section 10.6(a) has not been
reversed, stayed, enjoined, set aside, annulled, or suspended, and is not the
subject of any pending request for judicial review, reconsideration, appeal, or
stay, and
(3) the time for filing any further request for judicial review,
reconsideration, appeal, or stay of the finding described in Section 10.6(a) has
expired.
(b) If each of the conditions specified in Section 10.6(a) is
satisfied, then TCI may elect to commence the appraisal procedure described in
this Section 10.6(b) by sending written notice of its election to FHGLP within
ten Business Days after the condition specified in Section 10.6(a)(3) is
satisfied. TCI's notice shall designate one appraiser (the "TCI Appraiser") to
determine the fair market value of each Business Asset. Within ten Business Days
after its receipt of such notice, FHGLP shall send a written notice to TCI
designating a second appraiser (the "FHGLP Appraiser") to determine the fair
market value of each Business Asset. Within ten Business Days after TCI's
receipt of such notice, the TCI Appraiser and the FHGLP Appraiser shall jointly
designate a third appraiser (the "Third Appraiser") to determine the fair market
value of each Business Asset. Each appraiser designated pursuant to this Section
10.6(b) shall determine the fair market value of each Business Asset in
accordance with the provisions of Section 13.3(b)(1). In determining the fair
market value of each Business Asset, each appraiser shall also take into account
the potential public market value of equity interests in a Person owning the
Business Assets. The provisions of Section 13.3(b)(1) regarding the
qualifications of appraisers
54
shall apply to each appraiser designated pursuant to this Section 10.6(b). The
fees and expenses of any appraiser designated pursuant to this Section 10.6(b)
shall be borne by the Partnership.
(c) Within ten Business Days after the completion of the last of the
appraisals to be conducted pursuant to Section 10.6(b), the Third Appraiser will
estimate the purchase price per Partnership Unit for FHGLP's Partnership
Interest (determined in accordance with Section 10.6(e)) and shall send TCI and
FHGLP a written notice specifying its estimate of the fair market value of
FHGLP's Partnership Interest.
(d) TCI may elect to purchase all of the Partnership Interest of FHGLP,
and, upon the consummation of such purchase, to remove FHGLP as a Partner, by
delivering written notice of its election to FHGLP within ten Business Days
after its receipt of the notice from the Third Appraiser pursuant to Section
10.6(c). Upon the timely delivery of such notice to FHGLP, FHGLP shall be
obligated to sell and TCI shall be obligated to purchase, in accordance with
this Article 10, all of FHGLP's Partnership Interest.
(e) The purchase price for FHGLP's Partnership Interest shall be the
price per Partnership Unit determined in accordance with this Section 10.6(e).
For purposes of determining the purchase price for FHGLP's Partnership Interest,
the "Appraised Liquidation Amount" of each appraiser shall be the Unit
Liquidation Amount, calculated as if the determination by such appraiser of the
fair market value of each Business Asset were the Liquidation Value of such
Business Asset.
(1) Except as provided in Section 10.6(e)(2), the purchase price
per Partnership Unit for FHGLP's Partnership Interest shall be the average of
the two closest of the Appraised Liquidation Amount of the TCI Appraiser, the
Appraised Liquidation Amount of the FHGLP Appraiser, and the Appraised
Liquidation Amount of the Third Appraiser.
(2) If the difference between the highest of the three Appraised
Liquidation Amounts and the middle of the three Appraised Liquidation Amounts is
equal to the difference between the lowest of the three Appraised Liquidation
Amounts and the middle of the three Appraised Liquidation Amounts, then the
purchase price per Partnership Unit for FHGLP's Partnership Interest shall be
the middle Appraised Liquidation Amount.
(f) The rights of TCI under this Section 10.6 are in addition to any
other rights and remedies available to TCI at law or equity as a result of any
conduct by FHGLP described in Section 10.6(a).
10.7 General Terms Applicable to Purchase and Sale of Partnership Interests.
-----------------------------------------------------------------------
(a) The closing of the purchase and sale of a Partner's Partnership
Interest in accordance with this Article 10 shall occur not later than (1) if no
governmental consents or approvals are required in connection with the sale of
the selling Partner's Partnership Interest,
55
ninety days after the Offering Partner's receipt of the Responding Partner's
election pursuant to Section 10.2 or Section 10.4(a), the Responding Partner's
receipt of the Offering Partner's election pursuant to Section 10.5(a)(1), or
TCI's election pursuant to Section 10.6(d), whichever is applicable, or (2) in
all other cases, the later of thirty days after the receipt of all governmental
consents and approvals required in connection with the sale of the selling
Partner's Partnership Interest or the date specified in clause (1).
(b) The closing of the purchase and sale of the selling Partner's
Partnership Interest in accordance with this Article 10 shall take place at the
principal office of the Partnership or at any other location agreed to by FHGLP
and TCI.
(c) At the closing of any purchase and sale of the selling Partner's
Partnership Interest pursuant to this Article 10, the purchasing Partner shall
pay or cause to be paid to the selling Partner, by cash or other immediately
available funds or any other form of consideration mutually agreed to by the
selling Partner and the purchasing Partner, the purchase price for the
Partnership Interest being purchased and the selling Partner shall deliver to
the purchasing Partner (or its permitted assignee) good title, free and clear of
any liens (other than those created by this Agreement and those securing
financing obtained by the Partnership or any Subsidiary), to the Partnership
Interest being sold.
(d) The Partnership shall bear all costs relating to any purchase and
sale of a Partner's Partnership Interest pursuant to this Article 10, including
attorneys' fees and filing fees, but excluding taxes measured on the amount of
income, gain, or proceeds realized by the selling Partner or any governmental
charges imposed in lieu of such taxes.
(e) If either Partner elects in accordance with this Article 10 that
the Partnership purchase the other Partner's Partnership Interest, the electing
Partner shall guaranty the performance by the Partnership of its obligation to
purchase the other Partner's Partnership Interest.
(f) The Partners will cooperate in good faith and use their respective
commercially reasonable efforts to obtain as quickly as practicable all
governmental consents and approvals required in connection with the purchase and
sale of a Partner's Partnership Interest pursuant to this Article 10.
10.8 Termination of Purchase and Sale.
---------------------------------
(a) The Offering Partner or the Responding Partner may elect to
terminate the purchase and sale of Partnership Interests pursuant to any Offer
if the closing thereof has not occurred within eighteen months after the
Offering Partner's delivery of such Offer, except that a Partner may not elect
to terminate the purchase and sale of Partnership Interests pursuant to any
Offer if the failure of the closing of such purchase and sale to occur within
eighteen months after
56
the delivery of such Offer was a result of the failure of such Partner to act in
good faith or of any breach by such Partner of its covenants or other
obligations in this Agreement.
(b) If the Responding Partner makes a timely election pursuant to
Section 10.4(a) to purchase or to require that the Partnership purchase the
Partnership Interest of the Offering Partner, the Offering Partner or the
Responding Partner may elect to terminate such purchase and sale if the closing
thereof has not occurred within eighteen months after the Responding Partner's
election, except that a Partner may not elect to terminate the purchase and sale
of Partnership Interests pursuant to any such election if the failure of the
closing of such purchase and sale to occur within eighteen months after of such
election was a result of the failure of such Partner to act in good faith or of
any breach by such Partner of its covenants or other obligations in this
Agreement.
(c) If the Offering Partner makes a timely election pursuant to Section
10.5(a)(1) to purchase or to require that the Partnership purchase the
Partnership Interest of the Responding Partner, the Offering Partner may elect
to terminate such purchase and sale if the closing thereof has not occurred
within eighteen months after the Offering Partner's election, except that the
Offering Partner may not elect to terminate such purchase and sale of
Partnership Interests if the failure of the closing of such purchase and sale to
occur within eighteen months after the Offering Partner's election was a result
of the failure of the Offering Partner to act in good faith or of any breach by
the Offering Partner of its covenants or other obligations in this Agreement.
10.9 Restructuring of Transactions.
------------------------------
Commencing with the delivery of an Offer pursuant to Section 10.1(a), the
Partners will use commercially reasonable efforts for a reasonable period (not
to exceed sixty days) to structure any purchase and sale of Partnership
Interests pursuant to this Article 10 in a manner that minimizes negative tax
consequences to the Partners and the Partnership to the extent doing so would
not materially adversely affect either Partner (except to the extent such
Partner is adequately compensated by the other Partner for such adverse effect);
PROVIDED, HOWEVER, that nothing in this Section 10.9 shall affect the respective
rights and obligations of the Partners if, within such reasonable period, the
Partners are unable to agree on such a structure. The delivery of an Acceptance
pursuant to Section 10.2 shall not terminate or otherwise limit the obligations
of the Partners under this Section 10.9 with respect to the structuring of a
purchase and sale of Partnership Interests pursuant to this Article 10, but the
subsequent failure of the Partners to agree on a structure shall not impair the
validity of any such Acceptance.
10.10 Purchase and Sale of Interests Held by Falcon Holding Group, Inc.
-----------------------------------------------------------------
(a) If TCI or the Partnership is required to purchase the Partnership
Interest of FHGLP pursuant to this Article 10 (including Section 10.6), then,
concurrently with the purchase and sale of FHGLP's Partnership Interest, (1) TCI
or the Partnership, as applicable, shall
57
purchase, and Falcon Holding Group, Inc. shall sell to TCI or the Partnership,
as applicable, all of Falcon Holding Group, Inc.'s partnership interests in each
of the Investors Partnerships, and (2) TCI or the Partnership, as applicable,
shall purchase, and the Falcon Cable Trust shall sell to TCI or the Partnership,
as applicable, all of the Falcon Cable Trust's partnership interest in Falcon
Video Communications Investors, L.P.
(b) The purchase price for the purchase and sale of Falcon Holding
Group, Inc.'s partnership interests in each of the Investors Partnerships shall
be the price per Partnership Unit paid to FHGLP for its Partnership Interest
multiplied by the product of 100,000 times a fraction the numerator of which is
the aggregate net fair market value of Falcon Holding Group, Inc.'s partnership
interests in each of the Investors Partnerships (determined as provided below)
and the denominator of which is the net fair market value of all Capital
Contributions being made by both Partners pursuant to the Contribution
Agreement, with such net fair market values being determined in the manner
specified in Section 3.5(a). The purchase price for the purchase and sale of the
Falcon Cable Trust's partnership interest in Falcon Video Communications
Investors, L.P. shall be the price per Partnership Unit paid to FHGLP for its
Partnership Interest multiplied by the product of 100,000 times a fraction the
numerator of which is the net fair market value of the Falcon Cable Trust's
partnership interest in Falcon Video Communications Investors, L.P. (determined
as provided below) and the denominator of which is the net fair market value of
all Capital Contributions being made by both Partners pursuant to the
Contribution Agreement, with such net fair market values being determined in the
manner specified in Section 3.5(a). The net fair market value of Falcon Holding
Group, Inc.'s partnership interest in any Investors Partnership shall be the
percentage ownership interest in such Investors Partnership held by Falcon
Holding Group, Inc. as of the Closing times the net fair market value of such
Investors Partnership, as determined in accordance with Section 3.5(b) of the
Contribution Agreement. The net fair market value of the Falcon Cable Trust's
partnership interest in Falcon Video Communications Investors, L.P. shall equal
one percent of the net fair market value of Falcon Video Communications
Investors, L.P., as determined in accordance with Section 3.4(a) of the
Contribution Agreement.
10.11 Retained TCI Assets.
--------------------
If at the time any Offer is made pursuant to this Article 10 or any
appraisal is being performed pursuant to Section 10.6 any Retained TCI Assets
(as defined in the Contribution Agreement) have not been contributed to the
Partnership pursuant to Section 11.10(c) of the Contribution Agreement or sold
pursuant to Section 11.10(e) of the Contribution Agreement, then:
(a) all values used in this Article 10 (including the Target Price,
Liquidation Value, and appraised fair market value of each Business Asset) shall
be determined and calculated as if such Retained TCI Assets were owned by the
Partnership; and
(b) if FHGLP purchases the Partnership Interest of TCI pursuant to this
Article 10, all obligations of TCI under Section 11.10 of the Contribution
Agreement with respect to such Retained TCI Assets (including obligations to
contribute the Retained TCI Assets or the proceeds
58
of their sale to the Partnership) shall survive the withdrawal of TCI from the
Partnership upon the sale of its Partnership Interest.
ARTICLE 11
CONVERSION TO CORPORATION
11.1 Election by FHGLP.
------------------
(a) FHGLP may elect at any time, subject to Section 11.1(f), with the
approval of TCI, which shall not be unreasonably withheld, to require that the
Partnership be converted into a corporation or require that the Partnership
effect another appropriate transaction, including the formation of a corporate
holding company, that results in the Partnership Interests being converted into,
or exchanged for, stock in a corporation (any such transaction, an
"Incorporation"), in either case for purposes of effecting an initial public
offering. The Partners agree that adverse, uncompensated tax consequences to TCI
resulting from an Incorporation would be a reasonable basis for TCI to withhold
its approval of the Incorporation, and that the inability of the Corporation (as
defined in Section 11.1(c)(1)) to "pass-through" losses to TCI for tax purposes
shall not be considered an adverse, uncompensated tax consequence to TCI or any
other reasonable basis for TCI to withhold its approval of an Incorporation. TCI
may not assert that adverse, uncompensated tax consequences to TCI were a
reasonable basis for it to withhold its approval of any Incorporation proposed
by FHGLP unless TCI has delivered to FHGLP, within forty-five days after FHGLP's
election pursuant to this Section 11.1(a), a written notice objecting to the
Incorporation and within fifteen days thereafter, if requested by FHGLP, a
description of such tax consequences in reasonable detail. The Partners agree
that the manner of effecting the Incorporation shall be determined by FHGLP,
consistent with this Section 11.1, and may include:
(1) the contribution or other assignment of all or substantially
all of the assets and liabilities of the Partnership and, if appropriate, the
Subsidiaries to one or more Persons formed by FHGLP or any of its Affiliates for
the purpose of effecting the Incorporation;
(2) the merger or consolidation of the Partnership with or into
one or more Persons formed by FHGLP or any of its Affiliates for the purpose of
effecting the Incorporation; or
(3) the contribution, transfer, or other disposition of all of the
Partnership Interests to one or more Persons formed by FHGLP or any of its
Affiliates for the purpose of effecting the Incorporation.
(b) Following an election by FHGLP pursuant to Section 11.1(a) and the
approval of the Incorporation by TCI, FHGLP and TCI shall negotiate in good
faith, and as soon as practicable thereafter shall execute, acknowledge, and
deliver, or cause to be executed,
59
acknowledged, and delivered, all instruments and documents that may be
required to best effectuate the Incorporation.
(c) The terms of any Incorporation shall:
(1) cause the relative equity interests of the Partners or their
successors-in-interest in the corporation that succeeds the Partnership as the
Person through which the Partners or their successors-in-interest own equity
interests in the assets of the Partnership (the "Corporation") to be the same as
the relative equity interests of the Partners in the Partnership immediately
prior to the Incorporation,
(2) impose restrictions on the activities of any Limited Partner,
in its capacity as a stockholder of the Corporation, including restrictions that
are analogous to the restrictions specified in Section 7.6(a), if doing so would
prevent the Incorporation from causing the violation of any Ownership
Restriction by the Corporation or any Person in which the Corporation owns any
equity interest,
(3) at the request of a Limited Partner, impose restrictions on
the activities of such Limited Partner, in its capacity as a stockholder of the
Corporation, including restrictions that are analogous to the restrictions
specified in Section 7.6(a), if doing so would prevent the Incorporation from
causing the violation of any Ownership Restriction by such Limited Partner or
any Person in which such Limited Partner owns any equity interest, and
(4) terminate all other rights and obligations of the Partners
under this Agreement.
(d) FHGLP may elect, in its sole discretion, to cause the terms of the
Incorporation to include either or both of the following features:
(1) Falcon Holding Group, Inc. and its Affiliates shall retain
control of the Corporation and shall have exclusive authority to manage the
operations and affairs of the Corporation, subject to applicable law. Such
control may be achieved by (A) dividing the authorized common stock of the
Corporation into two classes, one of which would have one vote per share and the
other of which would have more than one vote per share, and (B) issuing to FHGLP
and any other stockholder of the Corporation that is an Affiliate of Falcon
Holding Group, Inc. shares of the class of common stock having more than one
vote per share and issuing to TCI and any other stockholder of the Corporation
that is not an Affiliate of Falcon Holding Group, Inc. (including purchasers in
the public offering described in Section 11.2(a)) shares of the class of common
stock having one vote per share (but (A) each share of common stock shall have
identical rights to dividends and liquidating distributions and shall be deemed
to be of equal value, regardless of class, (B) each share of the class of common
stock having more than one vote per share may be converted at the option of the
holder into one share of the class of common stock having one vote per share,
and (C) each share of the class of common stock having more than one
60
vote per share shall convert automatically into one share of the class of common
stock having one vote per share upon its transfer to any Person that is not an
Affiliate of the transferor).
(2) FHGLP and the Partnership shall be consolidated, such that the
owners of the Corporation immediately after the Incorporation (before giving
effect to the public offering described in Section 11.2(a)) shall be the owners
of FHGLP immediately prior to the Incorporation and either TCI or the owners of
TCI. Such a consolidation may be effected through the contribution to the
Corporation by the owners thereof of all equity interests in FHGLP and in TCI in
exchange for equity interests in the Corporation, such that, after the
Incorporation, the Corporation would own, directly or indirectly, all of FHGLP
and TCI. To facilitate such a structure, TCI covenants that, during the term of
this Agreement, it will not acquire any assets or properties other than its
Partnership Interests, will not engage in any business other than the ownership
of its Partnership Interest, and will not incur any liabilities or obligations,
other than liabilities and obligations arising under this Agreement.
(e) Upon any Incorporation that involves the transfer of the assets of
the Partnership to the Corporation in exchange for interests in the Corporation,
the Partnership shall be liquidated and any interests in the Corporation
received by the Partnership in connection with the Incorporation shall be
distributed to the Partners in accordance with the provisions of Article 13.
(f) FHGLP may not make the election provided for in Section 11.1(a),
(1) within one year after a prior election by FHGLP pursuant to Section 11.1(a)
if TCI reasonably declined pursuant to Section 11.1(a) to approve the
Incorporation following such election, or (2) at any time following the delivery
of an Offer pursuant to Section 10.1(a) and prior to such time, if any, that (A)
the Offering Partner and the Responding Partner agree to abandon the purchase
and sale of Partnership Interests pursuant to such Offer or, if applicable, the
liquidation and dissolution of the Partnership as a result of any election made
by the Offering Partner pursuant to Section 10.3(a) or (B) the Offering Partner
or the Responding Partner elects pursuant to Section 10.8(a), Section 10.8(b),
or Section 10.8(c) to terminate the purchase and sale of Partnership Interests
pursuant to such Offer or pursuant to a subsequent election pursuant to Section
10.4(a) or Section 10.5(a)(1).
11.2 Public Offering and Registration Rights.
----------------------------------------
(a) Consummation of the Incorporation shall be conditioned on the
concurrent public offering and sale of equity securities in the Corporation on
such terms and conditions as FHGLP deems appropriate, with the approval of TCI,
which shall not be unreasonably withheld. If requested by FHGLP, as part of such
public offering, TCI shall execute all reasonably necessary documents in
connection therewith, as determined by FHGLP.
(b) In connection with the Incorporation and the consummation of the
public offering described in Section 11.2(a), the Corporation shall offer to
enter into a Registration
61
Rights Agreement, substantially in the form of Exhibit II (as it may be amended
in accordance with this Agreement), with each of the Partners and each of the
partners of FHGLP, in their capacities as stockholders of the Corporation.
ARTICLE 12
OTHER BUSINESSES AND INVESTMENT OPPORTUNITIES
12.1 Exclusivity.
------------
(a) After the Closing and during the term of the Partnership, subject
to Section 12.2(a), TCI Communications, Inc. and TCI agree that, so long as TCI
or any Affiliate of TCI is a Partner, neither TCI nor any Controlled Affiliate
of TCI, and Falcon Holding Group, Inc. and FHGLP agree that, so long as FHGLP or
any Affiliate of FHGLP is a Partner, neither FHGLP nor any Controlled Affiliate
of FHGLP, will directly or indirectly participate in the construction,
ownership, operation, management, or financing of any Person that is engaged
within any of the geographic areas in which the Partnership, any Falcon Entity
(as defined in the Contribution Agreement), or any other Person controlled by
the Partnership or any Falcon Entity (as defined in the Contribution Agreement)
provides or is franchised to provide cable television service in the business
(the "Restricted Business") of offering multichannel video programming to
subscribers, other than programming offered by direct broadcast satellite or
telephony.
(b) During the term of the Partnership, subject to Section 12.2(a) and
Section 12.2(b), Falcon Holding Group, Inc. and FHGLP agree that neither FHGLP
nor any Controlled Affiliate of FHGLP will directly or indirectly acquire any
equity interest in any Person that is principally engaged within the United
States in the Restricted Business.
12.2 Exceptions.
-----------
(a) The provisions of Section 12.1 shall not apply to:
(1) the construction, ownership, operation, management, or
financing by a Partner or any of its Controlled Affiliates of any Restricted
Business disclosed on Schedule V;
(2) any action otherwise prohibited by Section 12.1 that, in the
case of action by TCI or any of its Controlled Affiliates, is consented to by
FHGLP, and, in the case of action by FHGLP or any of its Controlled Affiliates,
is approved by TCI;
(3) the construction, ownership, operation, management, or
financing of any Restricted Business, or the acquisition and ownership of any
equity interest in any Person engaged in the Restricted Business, by the
Partnership, any Subsidiary, or any other Person in which neither the applicable
Partner nor any of its Controlled Affiliates owns, directly or
62
indirectly, any equity interest, other than as a result of its interest in the
Partnership or, in the case of Falcon Holding Group, Inc., as a result of its
interest as a general partner in the Investors Partnerships;
(4) the construction, ownership, operation, management, or
financing by any Person of any Restricted Business if the acquisition by FHGLP
or any Controlled Affiliate of FHGLP of an equity interest in the Person engaged
in such Restricted Business was permitted by Section 12.1(b) (after giving
effect to Section 12.2(b));
(5) the acquisition and ownership of a passive investment in units
of a diversified investment partnership or similar entity that represents less
than five percent of the outstanding units of such entity and does not give the
holder rights to participate in the operations of such entity;
(6) the acquisition and ownership of securities of any company
listed on a national securities exchange or quoted on the Nasdaq Stock Market
and which do not represent control of such company;
(7) the acquisition and ownership of an interest in a Person whose
business consists, directly or indirectly, primarily of (A) investments in
businesses conducted primarily outside the United States of America or (B) the
conduct of businesses conducted primarily outside the United States of America;
(8) the acquisition and ownership of an equity interest in any
Person engaged in the Restricted Business if the Restricted Business does not
constitute the principal activity, in terms of revenues or fair market value, of
the businesses conducted by the Person in which such interest is acquired; or
(9) the continued holding by a Partner or any of its Controlled
Affiliates of an equity interest in any Person that begins to engage in the
Restricted Business after the acquisition by such Partner or its Controlled
Affiliate of such equity interest if neither such Partner nor its Controlled
Affiliate has any responsibility or control over the conduct by such Person of
the Restricted Business and uses all commercially reasonable efforts, including
voting its equity interest, to cause such entity to cease engaging in the
Restricted Business.
(b) The provisions of Section 12.1(b) shall also not apply to the
acquisition and ownership by FHGLP or any Controlled Affiliate of FHGLP of any
equity interest in any Person engaged in the Restricted Business, if:
(1) FHGLP first offered to the Partnership the opportunity for the
Partnership or any Subsidiary to acquire such equity interest instead of FHGLP
or any Controlled Affiliate of FHGLP;
63
(2) the acquisition of such equity interest by the Partnership or
any Subsidiary was not approved by TCI pursuant to Section 5.1(b)(2)(D);
(3) FHGLP or the Controlled Affiliate of FHGLP that acquires such
equity interest assigns to the Partnership, without further consideration, any
carried interest that is part of such equity interest; and
(4) at the time of the acquisition of such equity interest by
FHGLP or its Controlled Affiliate, the total number of subscribers of all
Restricted Businesses in which FHGLP and its Controlled Affiliates have acquired
and continue to hold equity interests pursuant to this Section 12.2(b) does not
exceed twenty-five percent of the total number of subscribers of the Partnership
and the Subsidiaries.
12.3 Clustering Opportunities.
-------------------------
If FHGLP, TCI, or any of their respective Controlled Affiliates acquires or
proposes to acquire in a single transaction multiple cable television systems
and some of those cable television systems (the "Cluster Systems") would present
greater opportunities for operational efficiencies through clustering if they
were operated by the Partnership and the Subsidiaries instead of by the
acquiring Partner and its Controlled Affiliates, then the acquiring Partner and
its Controlled Affiliates will:
(a) use commercially reasonable efforts (taking into account tax and
regulatory considerations) to permit the Partnership or any Subsidiary to
acquire the Cluster Systems either from the acquiring Partner or Controlled
Affiliate or from the Person from which the acquiring Partner or Controlled
Affiliate intends to acquire the multiple cable television systems that include
the Cluster Systems, in either case on substantially the same terms and
conditions as the proposed acquisition of the Cluster Systems by the acquiring
Partner or Controlled Affiliate; and
(b) if tax or regulatory considerations preclude the acquisition of the
Cluster Systems by the Partnership or any Subsidiary, use commercially
reasonable efforts to permit the Partnership or any Subsidiary to manage the
Cluster Systems on terms and conditions to be agreed upon.
12.4 Prohibited Cross-Interests.
---------------------------
(a) Each Partner agrees that, during the term of this Agreement,
neither such Partner nor any Affiliate of such Partner shall, directly or
indirectly, acquire any interest in any business or in any Person if the
acquisition of such interest would cause the Partnership or any Subsidiary to be
in violation of any Ownership Restriction.
(b) If, during the term of this Agreement, there is a Formal
Determination that either Partner's holding of a Partnership Interest causes the
Partnership or any Subsidiary to be
64
in violation of any Ownership Restriction, then the following provisions of this
Section 12.4(b) shall apply. For purposes of this Section 12.4(b), a "Formal
Determination" means (i) an agreement between FHGLP and TCI, (ii) a written
determination by the FCC (including a determination by staff employees of the
FCC acting under delegated authority), regardless of whether such determination
is subject to administrative or judicial review, reconsideration, or appeal
(except to the extent that FHGLP and TCI agree that any such determination will
not constitute a Formal Determination during the pendency of any review,
reconsideration, or appeal), or (iii) a decision of any court of competent
jurisdiction, regardless of whether such decision is subject to administrative
or judicial review, reconsideration, or appeal (except to the extent that FHGLP
and TCI agree that any such decision will not constitute a Formal Determination
during the pendency of any review, reconsideration, or appeal). FHGLP and TCI
will use their respective good faith efforts, after consultation with legal
counsel, to reach an agreement as to whether either Partner's holding of a
Partnership Interest causes the Partnership or any Subsidiary to be in violation
of any Ownership Restriction.
(1) The Partnership will use reasonable efforts to obtain a stay
of any enforcement action by the FCC against the Partnership or any Subsidiary
as a result of any such violation of an Ownership Restriction, and the Partners
will cooperate reasonably with the Partnership in such efforts, to the extent
necessary to prevent such violation from having a material adverse effect on the
Partnership and the Subsidiaries before it is cured. For purposes of this
Section 12.4(b), a material adverse effect on the Partnership and the
Subsidiaries includes the loss of any license or licenses issued by the FCC
that, in the aggregate, are material to the conduct of the business of the
Partnership and the Subsidiaries, the imposition of any fines or forfeitures
that, in the aggregate, are material in amount, and limitations on the ability
of the Partnership or any Subsidiary to conduct its business in the ordinary
course consistent with its past practices.
(2) The Partnership and the Partners will cooperate reasonably
with each other and negotiate in good faith with the FCC to obtain a
determination by the FCC (including a determination by staff employees of the
FCC acting under delegated authority) that certain actions proposed to be taken
by a Partner or its Affiliates would cure any such violation of an Ownership
Restriction. The actions proposed to be taken by a Partner or its Affiliates to
cure such violation may be those that, in such Partner's judgment, are least
detrimental to such Partner and its Affiliates, and may include the divestiture
of any asset or the restructuring of any investment.
(3) If there is a Formal Determination that TCI's holding of a
Partnership Interest causes the Partnership or any Subsidiary to be in violation
of any Ownership Restriction, TCI agrees to take all actions necessary to cure
any such violation of an Ownership Restriction; PROVIDED, HOWEVER, that:
(A) if the Partnership and the Partners receive a
determination by the FCC (including a determination by staff employees of the
FCC acting under delegated
65
authority) that certain actions proposed to be taken by TCI or its Affiliates
would cure such violation, then, if TCI and its Affiliates take such actions,
TCI shall not be required to take any other action under this Section 12.4(b) to
cure such violation until such time, if any, that there is a subsequent Formal
Determination that such actions did not cure such violation;
(B) TCI shall not be required to take any action to cure such
violation prior to the time that such violation would have a material adverse
effect on the Partnership and the Subsidiaries; and
(C) TCI shall not be required to take any action to cure any
violation that arose from any acquisition made by the Partnership or any
Subsidiary in violation of Section 12.4(c).
(4) The actions that TCI may be required to take pursuant to
Section 12.4(b)(3), subject to the limitations therein, shall include, to the
extent necessary to cure such violation, executing amendments to this Agreement
to convert the Partnership Interest of TCI to that of a Limited Partner or to
eliminate any right of TCI under this Agreement (other than its right to
allocations of income, its right to distributions, its rights under Section
5.1(b)(2)(C), and its right to approve any other action by the Partnership and
the Subsidiaries if such action (A) in the case of an action that does not
uniquely affect either Partner, such as an acquisition or disposition of assets
or a financing, would have a material adverse economic effect on TCI or (B) in
the case of an action that uniquely affects either Partner, such as a
transaction between the Partnership and an Affiliate of a Partner, would have an
adverse economic effect on TCI).
(5) If there is a Formal Determination that FHGLP's holding of a
Partnership Interest causes the Partnership or any Subsidiary to be in violation
of any Ownership Restriction, FHGLP will use its best efforts to cure any such
violation; PROVIDED, HOWEVER, that:
(A) if the Partnership and the Partners receive a
determination by the FCC (including a determination by staff employees of the
FCC acting under delegated authority) that certain actions proposed to be taken
by FHGLP or its Affiliates would cure such violation, then, if FHGLP and its
Affiliates take such actions, FHGLP shall not be required to take any other
action under this Section 12.4(b) to cure such violation until such time, if
any, that there is a subsequent Formal Determination that such actions did not
cure such violation;
(B) FHGLP shall not be required to take any action to cure
such violation prior to the time that such violation would have a material
adverse effect on the Partnership and the Subsidiaries; and
(C) FHGLP shall not be required by this Section 12.4(b)(5) to
convert the Partnership Interest of FHGLP to that of a Limited Partner or to
eliminate any right of FHGLP under this Agreement.
66
(c) The Managing Partner will not permit the Partnership or any
Subsidiary to enter into a binding agreement to effect the acquisition, directly
or indirectly, of any interest in any business or in any Person if the Managing
Partner has actual knowledge that consummating the acquisition described in such
binding agreement would cause either Partner or any Affiliate of either Partner
to be in violation of any Ownership Restriction. If the Managing Partner desires
to cause or permit the Partnership or any Subsidiary to enter into a binding
agreement to effect the acquisition, directly or indirectly, of any interest in
any business or in any Person, the Managing Partner may send a written notice to
each Partner describing the proposed acquisition and specifically requesting
that each Partner notify the Managing Partner promptly if such proposed
acquisition would cause such Partner or any of its Affiliates to be in violation
of any Ownership Restriction. If the Managing Partner sends such a notice at
least thirty days before the Partnership or any Subsidiary enters into a binding
agreement to effect such an acquisition then (1) the Managing Partner shall be
conclusively presumed to have actual knowledge of any violation of an Ownership
Restriction by a Partner or any of its Affiliates that is described in a
response to the Managing Partner's notice that the Managing Partner receives
from such Partner before the Partnership or Subsidiary enters into a binding
agreement to effect such acquisition, and (2) the Managing Partner shall be
conclusively presumed not to have actual knowledge of any violation of an
Ownership Restriction by a Partner or any of its Affiliates that is not
described in a response to the Managing Partner's notice that the Managing
Partner receives from such Partner before the Partnership or Subsidiary enters
into a binding agreement to effect such acquisition. If the Managing Partner
does not send such a notice at least thirty days before the Partnership or any
Subsidiary enters into a binding agreement to effect such an acquisition, and
such acquisition causes either Partner or any Affiliate of either Partner to be
in violation of any Ownership Restriction as a result of circumstances existing
at the time that the Partnership or Subsidiary entered into a binding agreement
to effect such acquisition, the Managing Partner will cause the Partnership and
any Subsidiary to take all actions necessary to cure such violation and will
indemnify and hold harmless such Partner and its Affiliates for all losses,
costs, and expenses resulting from such violation.
12.5 No Other Restrictions.
----------------------
Except as specifically provided above in this Section 12, nothing in this
Agreement shall limit the ability of either Partner, or any partner, Affiliate,
Controlled Affiliate, agent, or representative of either Partner, to engage in
or possess an interest in other business ventures of any nature or description,
independently or with others, whether currently existing or hereafter created
and whether or not competitive with or advanced by the business of the
Partnership. Neither the Partnership nor the other Partner shall have any rights
in or to the income or profits derived therefrom, nor shall either Partner have
any obligation to the other Partner with respect to any such enterprise or
related transaction.
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12.6 Right of First Offer.
---------------------
(a) First Offer Generally. Except as provided in Section 12.6(b), the
sale or other disposition by the Partnership or any Subsidiary of any cable
television system shall be subject to this Section 12.6(a).
(1) If the Partnership or any Subsidiary proposes to sell any
cable television system or group of cable television systems, the Partnership
shall send a written notice to TCI identifying the cable television system or
group of cable television systems that the Partnership or such Subsidiary
proposes to sell. The notice shall describe all offers, letters of intent
(whether or not executed), expressions of interest, and other similar
communications prepared, delivered, received, or solicited by or on behalf of
the Partnership or such Subsidiary with respect to such systems.
(2) TCI shall have the right to offer to purchase the cable
television system or group of cable television systems that the Partnership or
such Subsidiary proposes to sell, on terms determined by TCI in its sole
discretion. If TCI submits an offer to purchase the cable television system or
group of cable television systems that the Partnership or such Subsidiary
proposes to sell, the Partnership or such Subsidiary shall have the right to
accept or reject such offer in its sole discretion.
(3) Neither the Partnership nor any Subsidiary shall sell or
otherwise dispose of any cable television system unless the Partnership
delivered a notice pursuant to Section 12.6(a)(1) with respect to such cable
television system or a group of cable television systems that included such
cable television system and:
(A) if TCI declined or otherwise failed to submit an offer
for such cable television system or group of cable television systems within
thirty Business Days after its receipt of the Partnership's notice pursuant to
Section 12.6(a)(1), the Partnership or such Subsidiary entered into a binding
agreement for the sale or other disposition of such cable television system or
group of cable television systems within 150 days after TCI's receipt of the
Partnership's notice pursuant to Section 12.6(a)(1) and consummated such sale or
other disposition under such binding agreement within nine months after such
binding agreement was entered into; or
(B) if TCI submitted an offer for such cable television
system or group of cable television systems within thirty Business Days after
its receipt of the Partnership's notice pursuant to Section 12.6(a)(1), the
Partnership or such Subsidiary entered into a binding agreement for the sale or
other disposition of such cable television system or group of cable television
systems within 150 days after TCI's receipt of the Partnership's notice pursuant
to Section 12.6(a)(1), the Partnership or such Subsidiary consummated such sale
or other disposition under such binding agreement within nine months after such
binding agreement was entered into, and the terms of such sale or other
disposition were more favorable to the Partnership, in the
68
reasonable judgment of FHGLP, than the terms of the offer made by TCI pursuant
to Section 12.6(a)(2).
(b) Exceptions. The provisions of Section 12.6(a) shall not apply to:
(1) any sale or other disposition of any cable television system
upon the liquidation and dissolution of the Partnership in accordance with
Article 13 (including a liquidation following an election by the Offering
Partner pursuant to Section 10.3(a) or Section 10.5(a)(2));
(2) any sale or other disposition of any cable television system
by the Partnership to any Subsidiary or by any Subsidiary to the Partnership or
to any other Subsidiary; or
(3) any sale or other disposition of any cable television system
approved by TCI pursuant to Section 5.1(b)(2)(B) or otherwise.
ARTICLE 13
DISSOLUTION AND LIQUIDATION OF PARTNERSHIP
13.1 Events of Dissolution.
----------------------
The Partnership shall be dissolved upon the happening of any of the
following events:
(a) the failure of the Partners to continue the Partnership in
accordance with the provisions of Section 8.1 after the withdrawal of the
Managing Partner;
(b) the expiration of the term of the Partnership as set forth in
Section 2.5;
(c) an election to liquidate and dissolve the Partnership made by the
Offering Partner pursuant to Section 10.3(a) or Section 10.5(a)(2);
(d) the sale, exchange, involuntary conversion, or other disposition or
transfer of all or substantially all of the assets of the Partnership;
(e) subject to any restriction in any agreement to which the
Partnership is a party, an election to liquidate and dissolve the Partnership
made by FHGLP with the approval of TCI;
(f) an election to liquidate and dissolve the Partnership made by TCI
if Marc B. Nathanson (or any successor approved by TCI pursuant to this
paragraph) ceases to be active in the business of the Partnership on a regular
and consistent basis (such as by reason of his death
69
or disability) and a successor chief executive officer of the Partnership shall
not have been designated by the Managing Partner and approved by TCI within nine
months after the date on which Marc B. Nathanson (or any successor) ceases to be
active in the business of the Partnership; for purposes of this Section 13.1(f):
(1) Marc B. Nathanson (or any successor) shall not be considered
to have ceased to be active in the business of the Partnership on a regular and
consistent basis solely as a result of (A) normal and customary vacations, (B)
leave not exceeding sixty consecutive days during which he remains in regular
and consistent contact with the Partnership's other senior management, (C) his
failure to spend his time exclusively on the business of the Partnership, or (D)
the exercise by Marc B. Nathanson of reasonable business judgment in choosing
how to perform his duties on behalf of the Partnership); and
(2) Marc B. Nathanson (or any successor) shall not be considered
as being under a disability until such time as either (A) two physicians, one of
whom shall be selected by the Managing Partner and the other of whom shall be
selected by TCI or (B) a third physician selected jointly by the two physicians
described in clause (A) shall have certified that he suffers from a permanent
physical condition that prevents the performance of his duties on behalf of the
Partnership on a regular and consistent basis.
(g) the termination of the Contribution Agreement in accordance with
its terms prior to the Closing; or
(h) subject to any provision of this Agreement that limits or prevents
dissolution, the happening of any event that, under applicable law, causes the
dissolution of a limited partnership.
13.2 Liquidation.
------------
(a) Upon dissolution of the Partnership for any reason, the Partnership
shall immediately commence to wind up its affairs. A reasonable period of time
shall be allowed for the orderly termination of the Partnership business,
discharge of its liabilities, and distribution or liquidation of the remaining
assets so as to enable the Partnership to minimize the normal losses attendant
to the liquidation process.
(b) Liquidation of the assets of the Partnership shall be managed on
behalf of the Partnership by the "Liquidator," which shall be (1) if the
Partnership is being liquidated pursuant to Section 13.1(c), the Offering
Partner and (2) in all other events, either (A) the Managing Partner or (B) if
the Managing Partner has withdrawn (as described in Section 8.1), a liquidating
trustee selected by TCI. The Liquidator shall be responsible for soliciting
offers to purchase the entirety of the Partnership's assets (including equity
interests in other Persons) or portions or clusters of assets of the
Partnership. Notwithstanding any provision of this Agreement to the contrary, if
a Person other than the Managing Partner is the Liquidator, no approval or
70
other action by the Managing Partner shall be required in connection with the
consummation of any liquidating sale of all or any part of the assets of the
Partnership that has been approved by the Liquidator consistent with its
obligations under this Agreement and the Act. The Liquidator shall afford each
Partner an opportunity to offer to purchase any assets of the Partnership that
are offered for sale in connection with the liquidation of the Partnership to
the extent doing so would be consistent with the orderly liquidation of the
Partnership.
(c) The Liquidator shall cause a full accounting of the assets and
liabilities of the Partnership to be taken and a statement thereof to be
furnished to each Partner within thirty days after the distribution of all of
the assets of the Partnership.
(d) The property and assets of the Partnership and the proceeds from
the liquidation thereof shall be applied in the following order of priority:
(1) first, to payment of the debts and liabilities of the
Partnership, in the order of priority provided by law (including any loans by
either Partner to the Partnership) and payment of the expenses of liquidation;
(2) second, to setting up of such reserves as the Liquidator may
deem reasonably necessary for any contingent or unforeseen liabilities or
obligations of the Partnership or any obligation or liability not then due and
payable; provided, however, that any such reserve shall be paid over by the
Liquidator to an escrow agent, to be held by such escrow agent for the purpose
of disbursing such reserves in payment of such liabilities, and, at the
expiration of such escrow period as the Liquidator shall deem advisable, to
distribute the balance thereafter remaining in the manner hereinafter provided;
and
(3) finally, to payment to the Partners, in accordance with
Section 4.1(b). The distributions pursuant to this Section 13.2(d)(3) shall, to
the extent possible, be made prior to the later of the end of the Fiscal Year in
which the dissolution occurs or the ninetieth day after the date of dissolution,
or such other time period which may be permitted under Treasury Regulations
Section 1.704-1(b)(2)(ii)(b).
(e) If in the course of the liquidation and dissolution of the
Partnership pursuant to this Article 13, the Liquidator determines that a sale
by all the Partners to any Person of their Partnership Interests, instead of a
sale by the Partnership and the Subsidiaries of their respective assets, would
more efficiently effect the liquidation of the Partners' economic interests in
the Partnership or would reduce negative tax consequences to the Partners and
the Partnership, but would not adversely affect the rights and obligations of
either Partner (including the tax consequences to either Partner), then each
Partner agrees to sell its Partnership Interest to such Person, and the
Liquidator shall have the authority, pursuant to the power of attorney granted
in Section 18.5(b), to execute, acknowledge, deliver, swear to, file, and record
all agreements, instruments, and other documents that may be necessary or
appropriate to effect the sale of such Partner's Partnership Interest.
71
(f) Following the dissolution of the Partnership pursuant to Section
13.1, the Partners will use commercially reasonable efforts to structure the
liquidation of the Partnership in a manner that minimizes negative tax
consequences to the Partners and the Partnership to the extent doing so would
not materially adversely affect either Partner (except to the extent such
Partner is adequately compensated by the other Partner for such adverse effect).
Any structure agreed to by the Partners pursuant to this Section 13.2(f) shall
supersede the other provisions of this Article 13 to the extent it is
inconsistent with such other provisions, but nothing in this Section 13.2(f)
shall modify or otherwise affect the other provisions of this Article 13 if the
Partners are unable to agree on such a structure.
13.3 Special Provisions Regarding Liquidation by Offering Partner.
-------------------------------------------------------------
If the Partnership is being liquidated pursuant to Section 13.1(c) as the
result of an election by the Offering Partner pursuant to Section 10.3(a), then:
(a) Solicitation of Offers. The Offering Partner, as Liquidator, shall
solicit offers (each, a "Liquidating Sale Offer") to purchase, singly or in
combination, each Business Asset owned by the Partnership and each Subsidiary or
equity interests in the Persons owning each such Business Asset.
(b) Appraisal.
(1) If the Offering Partner, as Liquidator, does not receive or
does not expect to receive a Liquidating Sale Offer with respect to any Business
Asset or equity interests in the Persons owning any such Business Asset, or if
the Liquidation Value of such Business Asset (as determined under Section
13.3(b)(2) without regard to clause (B) thereof, based on the most favorable
Liquidating Sale Offer that the Offering Partner receives or expects to receive
for such Business Asset) is less than eighty-five percent of the Target Price
for such Business Asset, then the Offering Partner may elect to require that the
fair market value of the assets of such Business Asset be determined by
appraisal in accordance with this Section 13.3(b)(1). An appraisal pursuant to
this Section 13.3(b)(1) shall be conducted by an appraiser agreed to by the
Offering Partner and the Responding Partner, who shall be nationally recognized
as being qualified and experienced in the appraisal of the assets to be
appraised and shall not be an Affiliate of either Partner. Any appraiser
retained pursuant to this Section 13.3(b)(1) shall be instructed to complete its
appraisal within thirty days after it was retained. The fees and expenses of any
appraiser retained pursuant to this Section 13.3(b)(1) shall be borne by the
Partnership. In determining the fair market value of any Business Asset, the
appraiser shall:
(A) assume that the fair market value of such Business Asset
is the price at which such Business Asset (as a going concern, if applicable)
would change hands between a willing buyer and a willing seller, neither being
under any compulsion to buy or sell and each having reasonable knowledge of all
relevant facts;
72
(B) assume a sale of such Business Asset for cash; and
(C) use valuation techniques then prevailing in the
applicable industry.
(2) As used in this Agreement, "Liquidation Value" means, with
respect to each Business Asset, the greater of (A) the amount of the most
favorable Liquidating Sale Offer for such Business Asset (provided that, if the
most favorable Liquidating Sale Offer with respect to any Business Asset is an
offer to purchase equity interests in the Persons owning such Business Asset or
an offer to deliver consideration that would allow the Partners to defer or
avoid any tax liability resulting from the disposition of such Business Asset,
the Liquidation Value shall equal the amount of cash consideration for the
assets of such Business Asset that would, upon liquidation of the Partnership
and the Subsidiaries, generate equivalent after-tax proceeds to the Partners as
such Liquidating Sale Offer) or (B) the fair market value of the Business Asset
as determined by an appraisal in accordance with this Section 13.3(b)(1).
(c) Restriction on Sales. If the aggregate Liquidation Value for all
the assets of the Partnership and each Subsidiary is less than the aggregate
Target Prices for all the assets of the Partnership and each Subsidiary, than
neither the Partnership nor any of the Subsidiaries will sell any assets
pursuant to any Liquidating Sale Offer unless the Offering Partner shall have
delivered to the Responding Partner the notice required by Section 10.4(a) and
the Responding Partner shall have failed to make an election pursuant to Section
10.4(a) within ten Business Days after its receipt of the Offering Partner's
notice.
13.4 Distribution in Kind.
---------------------
Except as provided in Section 9.13(a), the Partnership shall not distribute
any non-cash asset to either Partner without the consent of FHGLP and the
approval of TCI. Any asset distributed in kind to one or more Partners shall
first be valued at its fair market value to determine the gain or loss used in
determining Net Profit or Net Loss that would have resulted if such asset were
sold for such value, such gain or loss shall then be allocated pursuant to
Article 4, and the Partners' Capital Accounts shall be adjusted to reflect such
gain or loss. The amount distributed and charged to the Capital Account of each
Partner receiving an interest in such distributed asset shall be the fair market
value of such interest (net of any liability secured by such asset that such
Partner assumes or takes subject to). The fair market value of any asset
distributed in kind in connection with the liquidation of the Partnership shall
be determined by an independent appraiser (any such appraiser must be nationally
recognized as an expert in valuing the type of asset involved) selected by the
Liquidator.
73
13.5 No Action for Dissolution.
--------------------------
The Partners acknowledge that irreparable damage would be done to the
goodwill and reputation of the Partnership if either Partner should bring an
action in court to dissolve the Partnership under circumstances where
dissolution is not required by Section 13.1. This Agreement has been drawn
carefully to provide fair treatment of all parties and equitable payment in
liquidation of the Partnership Interests of both Partners. Accordingly, except
where the Managing Partner has failed to liquidate and dissolve the Partnership
to the extent required by Section 13.1, each Partner hereby waives and renounces
its right to initiate legal action to seek dissolution or to seek the
appointment of a receiver or trustee to liquidate the Partnership.
13.6 No Further Claim.
-----------------
Upon dissolution, each Limited Partner shall look solely to the assets of
the Partnership for the return of its investment, and if the property of the
Partnership remaining after payment or discharge of the debts and liabilities of
the Partnership, including debts and liabilities owed to one or more of the
Partners, is insufficient to return the aggregate capital contributions of a
Limited Partner, such Limited Partner shall have no recourse against any other
Partner.
ARTICLE 14
INDEMNIFICATION
14.1 General.
--------
The Partnership shall indemnify, defend, and hold harmless the Managing
Partner, the Managing Partner's officers, directors, shareholders, employees,
and agents, the employees, officers, and agents of the Partnership, the members
of the Advisory Committee, and either Partner that has designated a member of
the Advisory Committee (but only to the extent such Partner suffers any
liability, loss, or damage as a result of the actions of such member of the
Advisory Committee) (all indemnified persons being referred to as "Indemnified
Persons" for purposes of this Article 14), from any liability, loss, or damage
incurred by the Indemnified Person by reason of any act performed or omitted to
be performed by the Indemnified Person in connection with the business of the
Partnership, including costs and attorneys' fees (which attorneys' fees may be
paid as incurred) and any amounts expended in the settlement of any claims of
liability, loss, or damage; PROVIDED, HOWEVER, that, if the liability, loss,
damage, or claim arises out of any action or inaction of an Indemnified Person,
indemnification under this Section 14.1 shall be available only if (a) either
(i) the Indemnified Person, at the time of such action or inaction, determined,
in good faith, that its or his course of conduct was in, or not opposed to, the
best interests of the Partnership, or (ii) in the case of inaction by the
Indemnified Person, the Indemnified Person did not intend its or his inaction to
be harmful or opposed to the best interests of the Partnership, and (b) the
action or inaction did not constitute fraud, gross negligence, breach of
fiduciary duty (which shall not be construed to encompass mistakes in judgment
or any breach
74
of any Indemnified Person's duty of care that did not constitute gross
negligence), or willful misconduct by the Indemnified Person; and PROVIDED,
FURTHER, however, that indemnification under this Section 14.1 shall be
recoverable only from the assets of the Partnership and not from any assets of
the Partners. The Partnership may pay for insurance covering liability of the
Indemnified Persons for negligence in operation of the Partnership's affairs.
14.2 Exculpation.
------------
No Indemnified Person shall be liable, in damages or otherwise, to the
Partnership or to either Partner for any loss that arises out of any act
performed or omitted to be performed by it or him pursuant to the authority
granted by this Agreement if (a) either (i) the Indemnified Person, at the time
of such action or inaction, determined, in good faith, that its or his course of
conduct was in, or not opposed to, the best interests of the Partnership, or
(ii) in the case of inaction by the Indemnified Person, the Indemnified Person
did not intend its or his inaction to be harmful or opposed to the best
interests of the Partnership, and (b) the conduct of the Indemnified Person did
not constitute fraud, gross negligence, breach of fiduciary duty (which shall
not be construed to encompass mistakes in judgment or any breach of any
Indemnified Person's duty of care that did not constitute gross negligence), or
willful misconduct by such Indemnified Person.
14.3 Persons Entitled to Indemnity.
------------------------------
Any Person who is within the definition of "Indemnified Person" at the time
of any action or inaction in connection with the business of the Partnership
shall be entitled to the benefits of this Article 14 as an "Indemnified Person"
with respect thereto, regardless of whether such Person continues to be within
the definition of "Indemnified Person" at the time of his or its claim for
indemnification or exculpation hereunder.
14.4 Procedure Agreements.
---------------------
The Partnership shall enter into agreements with the officers of Falcon
Holding Group, Inc. setting forth procedures for implementing the indemnities
provided in this Article 14 that are substantially identical to the agreements
in effect between those officers and FHGLP on the date of this Agreement. The
Partnership may enter into additional agreements with any of its employees,
officers, and agents, any of the officers, directors, shareholders, employees,
and agents of Falcon Holding Group, Inc., and any member of the Advisory
Committee, setting forth procedures for implementing the indemnities provided in
this Article 14.
ARTICLE 15
BOOKS, RECORDS, ACCOUNTING, AND REPORTS
75
15.1 Books and Records.
------------------
The Partnership shall maintain at its principal office all of the following:
(a) A current list of the full name and last known business or
residence address of each Partner together with the Capital Contributions and
Partnership Interest of each Partner;
(b) A copy of the Certificate, this Agreement, and any and all
amendments to either thereof, together with executed copies of any powers of
attorney pursuant to which any certificate or amendment has been executed;
(c) Copies of the Partnership's federal, state, and local income tax or
information returns and reports, if any, for the six most recent taxable years;
(d) The audited financial statements of the Partnership for the six
most recent Fiscal Years; and
(e) The Partnership's books and records for at least the current and
past three Fiscal Years.
15.2 Delivery to Partner and Inspection.
-----------------------------------
(a) Upon the request of a Partner, the Managing Partner shall promptly
deliver to the requesting Partner, at the expense of the Partnership, a copy of
the information required to be maintained by Section 15.1 except for Section
15.1(e).
(b) Each Partner, or its duly authorized representative, has the right,
upon reasonable request, to inspect and copy during normal business hours any of
the Partnership records.
15.3 Annual Statements.
------------------
(a) The Managing Partner shall cause to be prepared for each Partner at
least annually, at Partnership expense, audited financial statements of the
Partnership and a consolidated audited financial statement for the Partnership
and the Subsidiaries (other than any Subsidiary the financial statements of
which cannot, under generally accepted accounting principles, be consolidated
with the financial statements of the Partnership), along with supplemental
information for the Partnership and each Subsidiary included in the consolidated
financial statements, all prepared in accordance with generally accepted
accounting principles and accompanied by a report thereon containing the opinion
of Ernst & Young LLP or other nationally recognized accounting firm chosen by
the Managing Partner. The financial statements will include a balance sheet,
statement of income or loss, statement of cash flows, and statement of Partners'
equity. The supplemental information will consist of a consolidating balance
sheet and
76
a consolidating statement of operations and Partners' equity for the preceding
Fiscal Year. The Managing Partner shall distribute the financial statements or
portions thereof to each Partner as follows:
(1) the Managing Partner shall distribute to each Partner a
statement setting forth the net income or loss of the Partnership for each
Fiscal Year within forty-five days after the close of such Fiscal Year;
(2) the Managing Partner shall distribute to each Partner the
balance sheet, statement of income or loss, statement of cash flows, and
statement of Partners' equity to be included in the financial statements for
each Fiscal Year within sixty days after the close of such Fiscal Year;
(3) the Managing Partner shall distribute to each Partner a
preliminary draft of the complete financial statements for each Fiscal Year
within seventy-five days after the close of such Fiscal Year; and
(4) the Managing Partner shall distribute to each Partner the
complete financial statements for each Fiscal Year as soon as practicable after
the close of such Fiscal Year and, in any event, within ninety days after the
close of such Fiscal Year.
(b) The Managing Partner shall have prepared at least annually, at
Partnership expense, Partnership information necessary for the preparation of
each Partner's federal and state income tax returns. The Managing Partner shall
send the information described in this paragraph to each Partner within
seventy-five days after the end of each Fiscal Year and shall use commercially
reasonable efforts to send such information to each Partner within sixty-five
days after the end of each Fiscal Year.
(c) The Managing Partner shall also cause to be distributed to each
Partner operating and capital expenditure budgets for the Partnership and for
each Subsidiary for which the Partnership prepares such budgets and consolidated
operating and capital expenditure budgets for the Partnership and all
Subsidiaries for which the Partnership prepares such budgets. The Managing
Partner shall cause such budgets to be distributed to each Partner as soon as
practicable after they are prepared and, in any event, on or before February 15
of the year to which they relate.
(d) The Managing Partner shall also cause to be distributed to each
Partner, within ten days after delivery to the Managing Partner, any audited
financial statements that are prepared with respect to any Subsidiary the
financial statements of which are not consolidated with the financial statements
of the Partnership.
77
(e) The Managing Partner shall distribute to each Partner, promptly
after they become available, copies of the Partnership's federal, state, and
local income tax or information returns for each taxable year.
15.4 Quarterly Financial Statements.
-------------------------------
At the close of each of the first three quarters of any Fiscal Year, the
Managing Partner shall cause to be distributed to each Partner a quarterly
report covering each calendar quarter of the operations of the Partnership and
each Subsidiary, consisting of unaudited financial statements (comprising a
balance sheet, a statement of income or loss, and a statement of cash flows),
and a statement of other pertinent information regarding the Partnership and
each such Subsidiary and their activities. The Managing Partner shall cause
copies of the statements and other pertinent information (including a summarized
statement of operations data of the Partnership that complies with the
requirements of APB Opinion No. 18 and Rule 4-08(g) of Regulation S-X under the
Securities Act) to be distributed to each Partner within thirty days after the
close of the calendar quarter to which the statements relate. The Managing
Partner shall distribute to each Partner (a) a preliminary draft of a statement
setting forth the net income or loss of the Partnership for each calendar
quarter within twenty-one days after the close of such calendar quarter, and (b)
a final statement setting forth the net income or loss of the Partnership for
each calendar quarter within thirty days after the close of such calendar
quarter. The Managing Partner shall also cause to be distributed to each
Partner, within ten days after delivery to the Managing Partner, any quarterly
report that is prepared with respect to any Subsidiary the operating results of
which are not included in the quarterly report of the Partnership.
15.5 Monthly Statements.
-------------------
The Managing Partner shall cause to be distributed to each Partner a monthly
report covering each calendar month of the operations of the Partnership and
each Subsidiary, consisting of unaudited statements of income and loss for the
Partnership and each cable television system or other business owned by the
Existing Entities (or regional group thereof), with comparisons to the
applicable budgets prepared by the Partnership. The Managing Partner shall cause
copies of the statements to be distributed to each Partner within thirty days
after the close of the calendar month covered by such report. The Managing
Partner shall also cause to be distributed to each Partner, within ten days
after delivery to the Managing Partner, any monthly report that is prepared with
respect to any Subsidiary the operating results of which are not included in the
monthly report of the Partnership.
15.6 Other Information.
------------------
The Managing Partner shall provide to each Partner any other information and
reports relating to any cable television systems or other businesses owned by,
and the financial condition of, the Partnership, the Existing Entities, any
other Subsidiary, or any other Person in which the Partnership owns, directly or
indirectly, a partnership or other equity interest, the Partner may
78
reasonably request. The Managing Partner shall distribute to each Partner,
promptly after the preparation or receipt thereof by the Managing Partner, any
financial or other information with respect to any Person in which the
Partnership owns, directly or indirectly, a partnership or other equity
interest, but which is not a Subsidiary, that is (a) regularly prepared by any
Person controlled by the Managing Partner for distribution to the partners or
other investors in such Person, or (b) received by the Partnership or any
Subsidiary with respect to any equity interest of the Partnership or any
Subsidiary in such Person.
15.7 Filings.
--------
The Managing Partner, at Partnership expense, shall cause the income tax
returns for the Partnership to be prepared and timely filed with the appropriate
authorities. The Managing Partner shall send to each Partner a draft of the
Partnership's annual federal income tax return at least thirty days before the
filing of such return with the Internal Revenue Service. The Managing Partner,
at Partnership expense, shall also cause to be prepared and timely filed, with
appropriate federal and state regulatory and administrative bodies, all reports
required to be filed by the Partnership with those entities under then current
applicable laws, rules, and regulations. The reports shall be prepared on the
accounting or reporting basis required by the regulatory bodies. Upon written
request, each Partner shall be provided with a copy of any of the reports
without expense to the requesting Partner.
15.8 Non-Disclosure.
---------------
Each Partner agrees that, except as otherwise consented to by the Managing
Partner, all non-public information furnished to it or to which it has access
pursuant to this Agreement (including information relating to any dispute or the
resolution thereof pursuant to Section 18.6) will be kept confidential and will
not be disclosed by such Partner, or by any of its agents, representatives, or
employees, in any manner whatsoever, in whole or in part, except that:
(a) each Partner shall be permitted to disclose such information to
those of its agents, representatives, and employees who need to be familiar with
such information in connection with such Partner's investment in the
Partnership,
(b) each Partner shall be permitted to disclose such information to its
Affiliates,
(c) each Partner shall be permitted to disclose information to the
extent required by law, including federal or state securities laws or
regulations, or by the rules and regulations of any stock exchange or
association on which securities of such Partner or any of its Affiliates are
traded, so long as such Partner shall have first afforded the Partnership with a
reasonable opportunity to contest the necessity of disclosing such information,
(d) each Partner shall be permitted to disclose information to the
extent necessary for the enforcement of any right of such Partner arising under
this Agreement,
79
(e) each Partner shall be permitted to disclose information to a
permitted Assignee or potential Assignee, so long as (1) such Partner shall
first have provided to the Managing Partner written notice thereof and of the
identity of the Person to whom the disclosure is to be made and (2) such Person
agrees (in a writing which provides the Partnership with an independent right of
enforcement) to be bound by the provisions of this Section 15.8,
(f) each Partner shall be permitted to disclose information that is or
becomes generally available to the public other than as a result of a disclosure
by such Partner, its agents, representatives, or employees, and
(g) each Partner shall be permitted to disclose information that
becomes available to such Partner on a nonconfidential basis from a source
(other than the Partnership, any other Partner, or their respective agents,
representatives, and employees) that, to the best of such Partner's knowledge,
is not prohibited from disclosing such information to such Partner by a legal,
contractual, or fiduciary obligation to the Partnership or any other Partner.
ARTICLE 16
REPRESENTATIONS BY TCI
TCI hereby represents and warrants to, and agrees with, FHGLP and the
Partnership as follows:
16.1 Investment Intent.
------------------
It is acquiring its Partnership Interest with the intent of holding the same
for investment for its own account and without the intent or a view to
participating directly or indirectly in, or for resale in connection with, any
distribution of such Partnership Interest within the meaning of the Securities
Act or any applicable state securities laws, and it does not intend to divide
its participation with others, nor to resell, assign, or otherwise dispose of
all or any part of its Partnership Interest. In making such representation, TCI
acknowledges that a purchase now with an intent to resell by reason of any
foreseeable specific contingency, some predetermined event, or an anticipated
change in market value or in the condition of the Partnership would represent a
purchase with an intent inconsistent with the foregoing representation.
16.2 Securities Regulation.
----------------------
(a) It acknowledges and agrees that the Partnership Interest is being
issued and sold in reliance on the exemption from registration contained in
Section 4(2) of the Securities Act and exemptions contained in applicable state
securities laws, and that it cannot and will not be sold or transferred except
in a transaction that is exempt under the Securities Act and those state acts
80
or pursuant to an effective registration statement under those acts or in a
transaction that is otherwise in compliance with the Securities Act and those
state acts.
(b) It understands that it has no contract right for the registration
under the Securities Act of the Partnership Interest for public sale and that,
unless such Partnership Interest is registered or an exemption from registration
is available, such Partnership Interest may be required to be held indefinitely.
16.3 Knowledge and Experience.
-------------------------
It has such knowledge and experience in financial, tax, and business matters
as to enable it to evaluate the merits and risks of its investment in the
Partnership and to make an informed investment decision with respect thereto.
16.4 Economic Risk.
--------------
It is able to bear the economic risk of an investment in its Partnership
Interest.
16.5 Binding Agreement.
------------------
This Agreement is and will remain its valid and binding agreement,
enforceable in accordance with its terms (subject, as to the enforcement of
remedies, to any applicable bankruptcy, insolvency, or other laws affecting the
enforcement of creditor's rights).
16.6 Tax Position.
-------------
Unless it provides prior written notice to the Partnership, it will not take
a position on its federal income tax return, on any claim for refund, or in any
administrative or legal proceedings that is inconsistent with any information
return filed by the Partnership or with the provisions of this Agreement.
16.7 Information.
------------
It has received all documents, books, and records pertaining to an
investment in the Partnership requested by it. It has had a reasonable
opportunity to ask questions of and receive answers from FHGLP concerning the
Partnership, and all such questions have been answered to its satisfaction.
ARTICLE 17
AMENDMENTS AND WAIVERS
81
17.1 Amendments to Partnership Agreement.
------------------------------------
(a) This Agreement may only be modified or amended by the Managing
Partner with the approval of TCI, except that this Agreement may be amended from
time to time by the Managing Partner without the consent or approval of TCI:
(1) to reflect the rights and obligations of any Person admitted
as a Partner upon the issuance of Partnership Interests pursuant to Section 7.5
and any change in the rights and obligations of any existing Partner upon the
issuance to any Person (including any existing Partner) of Partnership Interests
pursuant to Section 7.5,
(2) to change the Partnership's principal office or other place of
business,
(3) to change the Partnership's method of allocating income and
loss for tax purposes to the extent required by new or changed Treasury
Regulations, Internal Revenue Service announcements or rulings, or final court
decisions if such change is not adverse to the interests of TCI;
(4) to add to the representations, duties, or obligations of the
Managing Partner or surrender any right or power granted to the Managing Partner
for the benefit of TCI, so long as such change would not require TCI to
consolidate the Partnership for financial reporting purposes; or
(5) to cause to be deleted from this Agreement any provision or
part of any provision that is found by a court of competent jurisdiction to be
invalid or unenforceable in any respect, which provision may be deleted from
this Agreement by the Managing Partner to the extent of such invalidity or
unenforceability without in any way affecting the remaining parts of such
provision or the remaining provisions of this Agreement.
(b) TCI may elect at any time to cause this Agreement to be amended to
convert the Partnership Interest of TCI to that of a Limited Partner and to
eliminate any right of TCI under this Agreement.
(c) The Managing Partner shall cause to be prepared and filed any
amendment to the Certificate that may be required to be filed under the Act as a
consequence of any amendment to this Agreement.
(d) The Managing Partner will give prompt notice to TCI of any
modification or amendment to this Agreement pursuant to this Section 17.1.
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17.2 Waivers.
--------
The observance or performance of any term or provision of this Agreement may
be waived (either generally or in a particular instance, and either
retroactively or prospectively) by the party entitled to the benefits of such
term or provision.
17.3 Amendments to Other Partnership Agreements.
-------------------------------------------
The partnership agreements or charter documents of each of the Investors
Partnerships and each of the Existing Entities may be modified or amended from
time to time by Falcon Holding Group, Inc., acting as or on behalf of a partner
or shareholder of any of such entities, only with the approval of TCI; PROVIDED,
HOWEVER, that such agreements may be amended from time to time without the
consent or approval of TCI, (a) as contemplated by the Contribution Agreement,
(b) to reflect any change in any such partnership's principal office or other
place of business, or (c) to reflect a change to any such partnership's method
of allocating income and loss for tax purposes to the extent required by new or
changed Treasury Regulations, Internal Revenue Service announcements or rulings,
or final court decisions, if such change is not materially adverse to the
interests of TCI.
ARTICLE 18
MISCELLANEOUS
18.1 Additional Documents.
---------------------
At any time and from time to time after the date of this Agreement, upon the
request of the Managing Partner, each Partner shall do and perform, or cause to
be done and performed, all such additional acts and deeds, and shall execute,
acknowledge, and deliver, or cause to be executed, acknowledged, and delivered,
all such additional instruments and documents, as may be required to best
effectuate the purposes and intent of this Agreement.
18.2 Inspection.
-----------
Each Partner shall have the right at reasonable times to inspect the books
and records of the Partnership.
18.3 General.
--------
This Agreement: (a) shall be binding on the executors, administrators,
estates, heirs, and legal successors of the Partners; (b) be governed by and
construed in accordance with the laws of the State of California, without regard
to conflicts of law principles thereunder, and the United States Arbitration
Act, to the extent provided in Section 18.6; (c) may be executed in more than
one counterpart as of the day and year first above written; and (d) contains the
entire contract
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between the Partners as to the subject matter of this Agreement. The waiver of
any of the provisions, terms, or conditions contained in this Agreement shall
not be considered as a waiver of any of the other provisions, terms, or
conditions of this Agreement.
18.4 Notices, Etc.
-------------
All notices and other communications required or permitted hereunder shall
be in writing and shall be deemed effectively given upon personal delivery,
confirmation of telex or telecopy, or receipt (which may be evidenced by a
return receipt if sent by registered mail), addressed (a) if to either Partner,
at the address of such Partner set forth on Schedule I or at such other address
as such Partner shall have furnished to the Partnership in writing, (b) if to
the Partnership, at 10900 Wilshire Blvd., 15th Floor, Los Angeles, California
90024.
18.5 Execution of Papers.
--------------------
(a) The Partners agree to execute such instruments, documents, and
papers as the Managing Partner deems necessary or appropriate to carry out the
intent of this Agreement.
(b) Each Partner, including each additional and substituted Partner, by
the execution of this Agreement, irrevocably constitutes and appoints the
Liquidator its true and lawful attorney-in-fact with full power and authority in
its name, place, and stead to execute, acknowledge, deliver, swear to, file, and
record all agreements, instruments, and other documents that may be necessary or
appropriate to effect the sale of such Partner's Partnership Interest pursuant
to Section 13.2(e).
(c) The power of attorney granted pursuant to Section 18.5(b) shall be
deemed to be a power coupled with an interest, in recognition of the fact that
each of the Partners under this Agreement will be relying upon the power of the
Liquidator to act as contemplated by this Agreement in any filing and other
action by it on behalf of the Partnership, and shall survive the bankruptcy,
death, adjudication of incompetence or insanity, or dissolution of any Person
hereby giving such powers and the transfer or assignment of all or any part of
such Person's Partnership Interest; PROVIDED, HOWEVER, that in the event of an
assignment by a Partner, the powers of attorney given by the assignor shall
survive such assignment only until such time as the Assignee shall have been
admitted to the Partnership as a substituted Partner and all required documents
and instruments shall have been duly executed, filed, and recorded to effect
such substitution.
(d) Each Partner agrees to be bound by any actions taken by the
Liquidator acting in good faith pursuant to the power of attorney granted
pursuant to Section 18.5(b) that are consistent with and subject to the
provisions of this Agreement and hereby waives any and all defenses that may be
available to contest, negate, or disaffirm any action of the Liquidator taken in
good faith under the power of attorney granted pursuant to Section 18.5(b) that
are consistent with and subject to the provisions of this Agreement.
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18.6 Disputed Matters.
-----------------
(a) Generally. If a dispute arises out of or relates to this Agreement
or any alleged breach thereof, the Partners will attempt in good faith to
resolve such dispute through negotiation. Either Partner may initiate
negotiations by providing written notice in letter form to the other Partner
setting forth in general terms the subject of the dispute. Representatives of
each Partner with full settlement authority shall meet at a mutually agreeable
time and place within thirty days of the date of the initial notice in order to
attempt to resolve the dispute. If the dispute is not resolved at this meeting,
the parties can agree to schedule one or more additional meetings to attempt to
resolve the dispute or either party can elect, by written notice to the other
party, to require that the dispute be submitted for mediation as set forth
below.
(b) Mediation. If a dispute arises out of or relates to this Agreement
or any alleged breach thereof and if the dispute is not settled through
negotiation as described in Section 18.6(a), the Partners agree to submit the
dispute for mediation administered by the American Arbitration Association (or
any organization successor thereto) ("AAA") under its Commercial Mediation Rules
before resorting to arbitration. Either Partner may initiate mediation pursuant
to Rule 2 of the AAA's Commercial Mediation Rules. The Partners will cooperate
with the AAA and with one another in the appointment of a mediator and in
scheduling the mediation proceedings. Unless otherwise agreed by the Partners,
the first mediation session shall be held no later than thirty days after the
date of filing the written request for mediation, and the memorandum provided
for under Rule 9 of the Commercial Mediation Rules shall be provided to the
mediator at least five days prior to the first mediation session. All offers,
promises, conduct, and statements, whether oral or written, made in the course
of the mediation by either of the Partners, their agents, employees, experts,
and attorneys, and by the mediator or any AAA employees, shall be confidential
and inadmissible for any purposes, including impeachment, in any arbitration or
other proceeding involving the parties, but evidence that is otherwise
admissible or discoverable shall not be rendered inadmissible or
non-discoverable as a result of its use in the mediation. Either Partner may
initiate arbitration with respect to the matters submitted to mediation by
filing a written demand for arbitration with the AAA no sooner than thirty days
after the first mediation session. The mediation may continue after the
commencement of arbitration if the Partners so agree. Unless otherwise agreed by
the Partners, the mediator shall be disqualified from serving as arbitrator in
the case.
(c) Arbitration. If a dispute arises out of or relates to this
Agreement or any alleged breach thereof, and if the dispute is not resolved
through negotiation and mediation as described in Section 18.6(a) and Section
18.6(b), such dispute shall be settled by arbitration in Phoenix, Arizona, in
accordance with the Commercial Arbitration Rules of the AAA and the
Supplementary Procedures for Large, Complex Disputes of the AAA or other rules
agreed to by the Partners, by a single arbitrator.
(d) United States Arbitration Act. The Partners acknowledge that this
Agreement evidences a transaction involving interstate commerce. Insofar as it
applies, the
85
United States Arbitration Act shall govern the interpretation of, enforcement
of, and proceedings pursuant to the arbitration clause in this Agreement. After
arbitration has commenced pursuant to Rule 6 of the Commercial Arbitration
Rules, either Partner may make an application to the arbitrator seeking
injunctive relief to maintain the status quo until such time as the arbitration
award is rendered or the dispute is otherwise resolved.
(e) Request for Arbitration. The Partner requesting arbitration shall
do so by giving notice to that effect (the "Arbitration Notice") to the other
Partner and by filing the notice with the AAA in accordance with Rule 6 of the
Commercial Arbitration Rules. Within thirty days after the Arbitration Notice is
filed, the Partners shall select an arbitrator using the procedures for
arbitrator selection of the AAA from the arbitrators in the Large, Complex case
pool for the Phoenix, Arizona AAA office.
(f) Administrative Conference and Hearing. Upon selection of the
arbitrator, the Partners shall conduct an initial administrative conference
provided for by the Supplementary Procedures for Large, Complex Disputes of the
AAA at which the Partners shall agree to a schedule and procedures for the
exchange of relevant information and the hearing and to any other matters the
arbitrator or the Partners involved in the dispute deem appropriate. The
Partners may submit to the arbitrator prior to the hearing any written
information and may make any oral presentation at the hearing that the Partners
deem appropriate to support their respective positions with respect to the
disputed matter. At any hearing before the arbitrator at which witnesses present
testimony either in person or telephonically the Partners involved in the
dispute shall be entitled to cross examine the witnesses; PROVIDED, HOWEVER,
that this provision shall not be deemed to preclude the ability of any party to
present testimony by affidavit in the arbitration hearing.
(g) Decision and Award. The arbitrator shall render his written
decision and award, including a statement of reasons upon which such award is
based, within thirty days after the arbitration hearing. Except insofar as the
United States Arbitration Act applies to such matters, the agreement to
arbitrate set forth in this Section 18.6 shall be construed, and the legal
relations between the Partners shall be determined in accordance with, the
substantive laws of the State of California as provided for in Section 18.3 of
this Agreement. The decision of the arbitrator shall be in writing and shall be
binding upon the Partners involved in the dispute, final and non-appealable.
Judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof.
(h) Exclusivity of Arbitration. Except as provided under the United
States Arbitration Act, no action at law or in equity based upon any dispute
that is subject to arbitration under this Section 18.6 shall be instituted.
(i) Fees and Expenses. All expenses of any arbitration pursuant to this
Section 18.6, including fees and expenses of the Partners' attorneys, fees and
expenses of the arbitrator, and fees and expenses of any witness or the cost of
any proof produced at the request of the arbitrator, shall be borne as
determined by the arbitrator. If either Partner institutes any action
86
in law or in equity in violation of Section 18.6(h) and the other Partner
successfully compels arbitration under this Section 18.6, the Partner
instituting such action shall pay all reasonable expenses incurred by the other
Partner relating to such action, including reasonable fees and expenses of the
other Partner's attorneys.
18.7 No Third-Party Beneficiaries.
-----------------------------
This Agreement is not intended to, and shall not be construed to, create any
right enforceable by any Person not a party hereto, including any partner of
FHGLP or any creditor of the Partnership or of either of the Partners.
18.8 Covenant of TCI Communications, Inc. Regarding Goods and Services.
------------------------------------------------------------------
By executing this Agreement, TCI Communications, Inc., a Delaware
corporation, agrees to use commercially reasonable efforts to (a) cause to be
offered to the Partnership equipment, billing, @Home, digital, HITS, and other
goods or services that are made available by third-party vendors or otherwise to
other cable television systems that are owned by or otherwise affiliated with
TCI Communications, Inc., at a cost equal to the direct cost incurred by TCI
Communications, Inc. on behalf of such cable television systems for such goods
and services (including direct costs incurred by TCI Communications, Inc. that
are paid to Persons other than the applicable third-party vendor), and (b) make
available to the Partnership on a royalty-free basis any technological
innovations that TCI Communications, Inc. develops or becomes aware of and has
access to, for other cable television systems that are owned by or otherwise
affiliated with TCI Communications, Inc.
87
IN WITNESS WHEREOF, the Partners have hereunto set their hands as of the day
first heretofore mentioned.
FALCON HOLDING GROUP, L.P.
By: Falcon Holding Group, Inc., its
general partner
By:
--------------------------------
Name: Marc B. Nathanson
Title: Chief Executive Officer
FOR PURPOSES OF SECTION 5.2,
SECTION 10.10, SECTION 12.1, AND
SECTION 17.3 ONLY:
Falcon Holding Group, Inc.
By:
--------------------------------
Name: Marc B. Nathanson
Title: Chief Executive Officer
FOR PURPOSES OF SECTION 10.10
ONLY:
Falcon Cable Trust
By:
--------------------------------
Name: Marc B. Nathanson
Title: Trustee
THIS IS A SIGNATURE PAGE TO THE AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP OF FALCON COMMUNICATIONS, L.P.
(SIGNATURES CONTINUE)
88
TCI FALCON HOLDINGS, LLC
By:
--------------------------------
Name:
Title:
FOR PURPOSES OF SECTION 9.11,
SECTION 12.1, AND SECTION 18.8
ONLY:
TCI Communications, Inc.
By:
--------------------------------
Name:
Title:
THIS IS A SIGNATURE PAGE TO THE AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP OF FALCON COMMUNICATIONS, L.P.
(SIGNATURES CONTINUE)
89
AS WITHDRAWING PARTNER FOR
PURPOSES OF SECTION 2.2 ONLY:
-------------------------------
Stanley S. Itskowitch
THIS IS A SIGNATURE PAGE TO THE AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP OF FALCON COMMUNICATIONS, L.P.
90
SCHEDULE I
TO
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
ADDRESSES OF THE PARTNERS
Falcon Holding Group, L.P.
10900 Wilshire Blvd., 15th Floor
Los Angeles, California 90024
TCI Falcon Holdings, LLC
c/o Tele-Communications, Inc.
Terrace Tower II
5619 DTC Parkway
Englewood, Colorado 80111-3000
SCHEDULE IV
TO
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
INITIAL MEMBERS OF THE ADVISORY COMMITTEE
1. Members designated by FHGLP pursuant to Section 6.1(a):
Marc B. Nathanson (chairman)
Frank J. Intiso
Stanley S. Itskowitch
2. Member agreed to by FHGLP and TCI pursuant to Section 6.1(b):
John S. Evans
3. Members designated by TCI pursuant to Section 6.1(c):
Leo J. Hindery, Jr.
William R. Fitzgerald