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Sample Business ContractsHome: Sample Business Contracts:
SECOND AMENDED AND RESTATED PARTNERSHIP AGREEMENT
OF
TIME WARNER ENTERTAINMENT-ADVANCE/NEWHOUSE PARTNERSHIP
Dated as of August 1, 2002
<PAGE>
SECOND AMENDED AND RESTATED PARTNERSHIP AGREEMENT
OF
TIME WARNER ENTERTAINMENT-ADVANCE/NEWHOUSE PARTNERSHIP
TABLE OF CONTENTS
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SECTION 1 DEFINITIONS..............................................1
1.1 Terms Defined in this Section............................1
1.2 Terms Defined Elsewhere in this Agreement...............15
SECTION 2 THE PARTNERSHIP AND ITS BUSINESS........................17
2.1 Formation...............................................17
2.2 Partnership Name and Trade Names........................18
2.3 Term of the Partnership.................................19
2.4 Purposes................................................19
2.5 Principal Office and Other Offices......................20
2.6 Foreign Qualification...................................20
2.7 Fiscal Year.............................................20
2.8 Addresses of the Partners...............................20
2.9 Property................................................20
2.10 Certain Compliance Policies.............................20
SECTION 3 MANAGEMENT OF THE PARTNERSHIP...........................21
3.1 Management Powers.......................................21
3.2 Limitations On Management Powers........................28
3.3 Financing the Selected Business.........................30
SECTION 4 PARTNERSHIP CAPITAL.....................................30
4.1 Partnership Units.......................................30
4.2 Contributions...........................................31
SECTION 5 CASH DISTRIBUTIONS; ALLOCATIONS OF PROFITS AND LOSSES;
ADJUSTMENTS AND TAX PROCEEDINGS.........................32
5.1 Distributions With Respect to the Residual Business.....32
5.2 Application of First Amended Agreement..................37
5.3 Allocations of Net Profit and Net Loss With Respect
to the Residual Business................................37
5.4 Section 754 Adjustment..................................40
5.5 Other Rules Governing Allocations With Respect to the
Residual Business.......................................40
5.6 Tax Allocations With Respect to the Residual Business...41
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5.7 Regulatory Allocations..................................42
5.8 Allocations With Respect to the Residual Business in
Event of Transfer.......................................42
5.9 Other Distributions.....................................42
5.10 Adjustments.............................................43
5.11 Tax Proceedings.........................................43
SECTION 6 TRANSFERS OF PARTNERSHIP INTERESTS......................44
6.1 Restrictions on Transfer................................44
SECTION 7 FINANCING COVENANTS AND REPRESENTATIONS.................46
7.1 Representations, Warranties and Covenants of
Advance/Newhouse........................................46
7.2 Representations, Warranties and Covenants of TWE........46
SECTION 8 RESTRUCTURING OF PARTNERSHIP AT ELECTION OF EITHER
PARTNER.................................................47
8.1 Restructuring Rights....................................47
8.2 Limitations with Respect to the Selected Business.......49
8.3 TWE Right of First Offer................................52
8.4 Special Right of First Offer............................56
SECTION 9 [Intentionally Omitted.]................................61
SECTION 10 OTHER BUSINESS ACTIVITIES...............................61
10.1 Survival of this Section................................61
10.2 Cable Television Systems................................61
10.3 Programming for Carriage Deals..........................62
SECTION 11 BOOKS AND RECORDS; INFORMATION RIGHTS; OPERATION OF
SELECTED BUSINESS.......................................62
11.1 Books and Records.......................................62
11.2 Tax Return Information..................................63
11.3 Information Rights......................................63
11.4 Bank Accounts...........................................63
11.5 Tax Allocations.........................................63
SECTION 12 DISSOLUTION.............................................64
12.1 Causes of Dissolution...................................64
12.2 Effect of Dissolution...................................64
12.3 Winding Up and Liquidation..............................65
SECTION 13 INDEMNIFICATION.........................................66
13.1 Indemnification by Partnership..........................66
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13.2 Indemnification by Partners.............................67
13.3 Procedures..............................................68
13.4 Survival................................................69
SECTION 14 REPRESENTATIONS.........................................69
14.1 Organization, Standing, and Authority...................69
14.2 Absence of Conflicting Agreements.......................69
14.3 Claims and Legal Actions................................69
SECTION 15 MISCELLANEOUS...........................................69
15.1 Acknowledgments.........................................69
15.2 Bill for Partition......................................70
15.3 Notices.................................................70
15.4 Amendments..............................................70
15.5 Waivers and Further Assurances; Entire Agreement........70
15.6 Severability............................................70
15.7 Specific Enforcement; Attorney's Fees...................71
15.8 Counterparts............................................71
15.9 Captions; Gender........................................71
15.10 Governing Law; Venue; Disputes..........................71
15.11 Interpretation..........................................71
15.12 Binding Effect..........................................72
15.13 Third Parties...........................................72
15.14 Confidentiality.........................................72
15.15 Liability of Partners...................................72
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<PAGE>
SECOND AMENDED AND RESTATED PARTNERSHIP AGREEMENT
OF
TIME WARNER ENTERTAINMENT-ADVANCE/NEWHOUSE PARTNERSHIP
This Second Amended and Restated Partnership Agreement, dated as of August
1, 2002, by and among Advance/Newhouse Partnership, a New York general
partnership (collectively with any of its permitted successors subsequently
admitted as a Partner, "Advance/Newhouse"), Time Warner Entertainment Company,
L.P., a Delaware limited partnership (collectively with any of its permitted
successors subsequently admitted as a Partner, "TWE"), and Paragon
Communications, a Colorado general partnership (collectively with any of its
permitted successors subsequently admitted as a Partner, "Paragon"), amends and
restates in its entirety the Amended and Restated Partnership Agreement, dated
as of February 1, 2001, as amended by the First Amendment thereto, dated as of
March 2, 2001 (the "First Amended Agreement"), by and among Advance/Newhouse,
TWE and Paragon.
PRELIMINARY STATEMENT
The Partnership was formed pursuant to the Partnership Agreement,
dated as of September 9, 1994 (the "Original Agreement"), between
Advance/Newhouse and TWE, as amended by the First Amendment thereto, dated as of
February 12, 1998, the Second Amendment thereto, dated as of December 31, 1998,
and the Third Amendment thereto, dated as of March 1, 1999 (collectively, the
"Amendments to the Original Agreement") and the First Amended Agreement.
Concurrently herewith, Advance/Newhouse, TWE, Paragon and certain other parties
have entered into a Master Transaction Agreement (the "Master Transaction
Agreement") providing for, among other things, the restructuring of the
Partnership. In accordance therewith, the parties now desire to enter into this
Agreement to reflect the restructuring of the Partnership, and to provide for
the allocation of profit and loss, cash flow, and other proceeds of the
Partnership among the Partners, the respective rights, obligations, and
interests of the Partners to each other and to the Partnership, and certain
other matters.
AGREEMENTS
In consideration of the mutual covenants and agreements set forth in this
Agreement, the parties, intending to be bound legally, agree as follows.
Section 1 DEFINITIONS
1.1 Terms Defined in this Section. As used in this Agreement, the following
terms have the following meanings:
"Act" means the New York Uniform Partnership Law, as from time to time in
effect.
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2
"Advance" means Advance Publications, Inc., a New York corporation.
"Advance/Newhouse Accountants" means the independent auditors or other
auditors selected by Advance/Newhouse.
"Advance/Newhouse Group" means Advance/Newhouse and each of its Affiliates.
"Affiliate" means, with respect to any Person, any other Person that,
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with such Person, except that:
(i) neither the Partnership nor any Person controlled by the
Partnership shall be deemed to be an Affiliate of a Partner or of any Affiliate
of such Partner solely by virtue of such Partner's Partnership Interest;
(ii) no Partner nor any Affiliate of any Partner shall be deemed to be
an Affiliate of the other Partners or of any Affiliate of the other Partners
solely by virtue of the Partners' Partnership Interests;
(iii) neither Paragon nor USW shall be deemed an Affiliate of TWE, the
TWE Cable Division or ATW;
(iv) for the avoidance of doubt, the Selected Business shall not be an
Affiliate of TWE or any of its Affiliates and the Selected Business shall be
deemed to be an Affiliate of Advance/Newhouse and its Affiliates; and
(v) for the avoidance of doubt, the Residual Business shall not be an
Affiliate of Advance/Newhouse or any of its Affiliates and the Residual Business
shall be deemed to be an Affiliate of TWE and its Affiliates.
"Agreement" means this Second Amended and Restated Partnership Agreement,
as it may be amended, modified, or supplemented from time to time in accordance
with its terms.
"AOL High Speed Services Agreement" means the High Speed Services
Agreement, effective as of January 31, 2001, between America Online, Inc. and
Time Warner Cable.
"ATW" means AOL Time Warner, Inc.
"Capital Account" means an account to be maintained for each of TWE and
Paragon which, subject to any contrary requirements of the Code, shall equal the
aggregate value of such Partner's Partnership Interest on the Restructuring
Effective Date,
(A) increased by (i) the amount of cash contributed by such Partner to
the Partnership after the Restructuring Effective Date (not including
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3
interest amounts paid by such Partner pursuant to Section
5.1(a)(iii)(z) or Section 5.1(b)(iii)(z); (ii) the fair market value
without regard to Code Section 7701(g) of property contributed by such
Partner to the Partnership after the Restructuring Effective Date (net
of liabilities secured by such contributed property that the
Partnership is considered to assume or take subject to under Code
Section 752); (iii) allocations to it after the Restructuring
Effective Date of Gross Profit and Net Profit pursuant to Section 5;
(iv) the amount of any liabilities of the Partnership that are assumed
by such Partner pursuant to Treasury Regulations Section
1.704-1(b)(2)(iv)(c); and (v) other additions made in accordance with
the Code and the provisions of Treasury Regulations Section
1.704-1(b)(2)(iv); and
(B) decreased by (i) the amount of cash distributed to such Partner by
the Partnership after the Restructuring Effective Date; (ii)
allocations to the Partner after the Restructuring Effective Date of
Gross Loss and Net Loss pursuant to Section 5; (iii) the fair market
value without regard to Code Section 7701(g) of property distributed
to such Partner by the Partnership after the Restructuring Effective
Date (net of liabilities secured by such distributed property or that
such Partner is considered to assume or take subject to under Code
Section 752) (excluding any distribution of or from the Selected
Business); (iv) the amount of such Partner's individual liabilities
that are assumed by the Partnership after the Restructuring Effective
Date pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(c);
and (v) other deductions made in accordance with the Code and the
provisions of Treasury Regulations Section 1.704-1(b)(2)(iv).
Notwithstanding the foregoing, for purposes of determining Capital Accounts, all
of the adjustments and distributions required pursuant to the Restructuring
Transaction Agreements shall be treated as if they had been made on the
Restructuring Effective Date and such adjustments and distributions shall not
give rise to any adjustments to Capital Account balances or redetermination of
amounts contributed by or distributed to TWE or Paragon.
"Capital Contribution" means either a Common Capital Contribution, a Series
A Preferred Capital Contribution, a Series B Preferred Capital Contribution or a
Series C Preferred Capital Contribution.
"Closing" shall have the meaning ascribed to such term in the Master
Transaction Agreement.
"Closing Date" shall have the meaning ascribed to such term in the Master
Transaction 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.
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4
"Common Capital Contribution" means with respect to each of Paragon and
TWE, the excess of (A) the amount of cash contributed by such Partner to the
Partnership pursuant to this Agreement plus the fair market value without regard
to Code Section 7701(g) of property contributed by such Partner to the
Partnership pursuant to this Agreement (net of liabilities that are secured by
such contributed property or that either Partner is considered to assume under
Code Section 752), over (B) in the case of Paragon, the sum of the Series A
Preferred Capital Contribution and the Series B Preferred Capital Contribution
and the Series C Preferred Capital Contribution of such Partner and, in the case
of TWE, the Series C Preferred Capital Contribution of such Partner.
"Common Tax Amount" means, for any year, with respect to TWE or Paragon,
the amount obtained by multiplying (a) the Effective Tax Rate for such year by
(b) the excess, if any, of (i) the sum of the Net Profit or Gross Profit
allocated to such Partner for such year (other than pursuant to Sections
5.3(b)(i), 5.3(b)(ii), 5.3(b)(iii), 5.3(d)(i) and 5.3(d)(ii)), over (ii) the Net
Loss or Gross Loss allocated to such Partner for each prior year (other than
pursuant to Section 5.3(d)(ii) and 5.3(c)(ii)) but only to the extent that the
amounts set forth in this clause (ii) were not used in reducing the Common Tax
Amount for such prior year or any intervening year. For purposes of determining
the Common Tax Amount, Net Profit, Gross Profit, Net Loss and Gross Loss, shall
be calculated without taking into account the items described in clause (i),
clause (ii), clause (iii), clause (vi), and clause (vii) of the definition of
"Net Profit" and "Net Loss" or, with respect to any year (or portion thereof)
prior to the Restructuring Effective Date, the items described in clause (i),
clause (ii), clause (iii), clause (vi), clause (vii) and clause (ix) of the
definition of "Net Profit" and "Net Loss" of the First Amended Agreement.
"Consent Decrees" means the Consent Order dated December 14, 2000 and
related decisions and orders of the Federal Trade Commission issued to ATW (or
any of its Affiliates or predecessors).
"control" (including the terms "controlled by," and "under common control
with") means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of a Person, whether through
the ownership of voting securities, by contract, or otherwise.
"Contribution Agreement" has the meaning ascribed to such term in the
Master Transaction Agreement.
"Controlled Affiliate" means, with respect to any Person, any Affiliate of
such Person that is controlled by such Person, directly or indirectly through
one or more intermediaries.
"Depreciation" means, for each fiscal period, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable with
respect to an asset for such fiscal period, except that if the Gross Asset Value
of an asset differs from its adjusted
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5
basis for federal income tax purposes Depreciation shall be determined as set
forth in Treasury Regulations Section 1.704-3(d).
"Distributable Cash" means, at any time, all cash of the Partnership that,
in the judgment of the Managing Partner, can then be distributed to the Partners
without violating any contractual restriction to which the Partnership is
subject and that is not otherwise necessary for the operation of the Residual
Business (including any reserves of such cash established by the Partnership for
any Partnership purpose).
"DMA" means "Designated Market Area" in the Code of Federal Regulations at
47 C.F.R. 76.55.
"EBITDA" means, with respect to each Managed Business, for any period,
operating income before interest, income taxes, depreciation and amortization
for such period determined in accordance with the prior practices of the
Managing Partner with respect to the Residual Business and Advance/Newhouse,
with respect to the Selected Business, in each case consistently applied, and/or
as the Partners shall otherwise mutually agree; provided that for purposes of
determining EBITDA of the Selected Business during any of the four fiscal
quarters immediately following the Restructuring Effective Date, EBITDA shall be
determined in accordance with the prior practices of the Managing Partner,
consistently applied or Advance/Newhouse, consistently applied (whichever
produces lower EBITDA).
"Effective Tax Rate" means, at any time, and from time to time, the
percentage determined by the Managing Partner to be a reasonable estimate of the
highest marginal combined Federal, state, and local income tax rate (giving
effect to the deduction of state and local income taxes, as applicable, for
Federal and state income tax purposes), applicable to corporations doing
business in New York City, with respect to taxable income allocated to the
Partners by the Partnership for Federal income tax purposes.
"Final Determination" means a settlement, compromise or other agreement
with the Internal Revenue Service or the relevant state or local Governmental
Authorities, whether contained in an Internal Revenue Service Form 870 or other
comparable form, or otherwise, or such procedurally later event, such as a
closing agreement with the Internal Revenue Service or the relevant state and
local Governmental Authorities, an agreement contained in Internal Revenue
Service Form 870-D or other comparable form, an agreement that constitutes a
determination under Section 1313(a)(4) of the Code, a deficiency notice with
respect to which the period for filing a petition with the Tax Court or the
relevant state or local tribunal has expired or a decision of any court of
competent jurisdiction that is not subject to appeal or as to which the time for
appeal has expired.
"First Effective Date" means February 12, 1998.
"First Transaction Agreement" means the Amended and Restated Transaction
Agreement, dated as of October 27, 1997, among Advance, Newhouse,
Advance/Newhouse, TWE, TW Holding Co. and the Partnership.
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6
"Fourth Effective Date" means February 1, 2001.
"Fourth Transaction Agreement" means the Amended and Restated Transaction
Agreement, dated as of February 1, 2001, among Advance, Newhouse,
Advance/Newhouse, TWE, Paragon and the Partnership.
"Franchise" means written "franchise" within the meaning of Section 602(8)
of the Cable Communications Policy Act of 1984 (47 U.S.C. 'SS' 522(9)).
"Franchising Authority" has the meaning that term is given by Section
602(9) of the Cable Communications Policy Act of 1984 (47 U.S.C. 'SS' 522(10)).
"GAAP" means generally accepted accounting principles, consistently
applied.
"Governmental Authority" means any supranational, national, state,
municipal or local government, political subdivision or other governmental
department, court, commission, board, bureau, agency, instrumentality, or other
authority thereof, or any quasi-governmental or private body exercising any
regulatory, taxing, importing or other governmental or quasi-governmental
authority, whether domestic or foreign.
"Gross Asset Value" means: in the case of any asset held by the Partnership
on the Restructuring Effective Date, the gross fair market value of such asset
as of the Restructuring Effective Date, and in the case of any asset acquired by
the Partnership after the Restructuring Effective Date, the asset's adjusted
basis for federal income tax purposes, except as follows:
(i) The initial Gross Asset Value of any asset contributed by a
Partner to the Partnership after the Restructuring Effective Date shall be the
gross fair market value of such asset;
(ii) The Gross Asset Value of all assets of the Partnership shall be
adjusted to equal their respective gross fair market values, as agreed to by TWE
and Paragon, as of the following times: (a) the acquisition of an additional
interest in the Partnership by TWE or Paragon in exchange for more than a de
minimis Common Capital Contribution; (b) the distribution by the Partnership to
TWE and Paragon of more than a de minimis amount of Partnership property as
consideration for an interest in the Partnership; and (c) the liquidation of the
Partnership within the meaning of 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 TWE and Paragon agree that such
adjustments are necessary or appropriate to reflect the relative economic
interests of such Partners in the Partnership;
(iii) The Gross Asset Value of any asset distributed by the
Partnership to TWE or Paragon shall be the gross fair market value of such asset
on the date of distribution as determined by such Partner and the Partnership;
and
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7
(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 5.4; provided, however, that Gross Asset Value shall not be adjusted
pursuant to this paragraph (iv) to the extent that an adjustment was made
pursuant to paragraph (ii) of this definition in connection with any transaction
that would otherwise have resulted in an adjustment pursuant to this paragraph
(iv).
If the Gross Asset Value of an asset has been determined or adjusted as
described above, other than pursuant to paragraph (iii), 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.
"Gross Loss" means, with respect to any year, the items of deduction or
loss of the Partnership computed on the same basis that Net Profit and Net Loss
are computed for purposes of this Agreement.
"Gross Profit" means, with respect to any year, the items of income and
gain of the Partnership computed on the same basis that Net Profit and Net Loss
are computed for purposes of this Agreement.
"Income Tax" shall mean any Tax which is based upon, measured by, or
calculated with respect to (i) net income or profits (including, but not limited
to, any capital gains or minimum Tax) or (ii) multiple bases (including, but not
limited to, corporate franchise, doing business or occupation Taxes), if one or
more of the bases upon which such Tax may be calculated is described in clause
(i) hereof.
"Indebtedness" means (i) debt for money borrowed and similar monetary
obligations evidenced by bonds, notes, debentures, or other similar instruments,
other than trade accounts payable in the ordinary course of business, (ii)
obligations with respect to letters of credit, and (iii) guaranties,
endorsements, and other contingent obligations whether direct or indirect in
respect of liabilities of others of any of the types described in clauses (i)
and (ii) above (other than endorsements for collection or deposit in the
ordinary course of business).
"Initial Closing Date" means April 1, 1995.
"Intellectual Property Agreement" has the meaning ascribed to such term in
the Master Transaction Agreement.
"Managed Business" means (a) with respect to TWE, the Residual Business,
and (b) with respect to Advance/Newhouse, the Selected Business.
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8
"Maximum Income Amount" means, for any year, with respect to any Partner,
an amount equal to the product of (i) the Tax Adjustment Percentage for such
year, and (ii) the Special Income of such Partner for such year.
"MSO" means a Person that operates multiple Systems.
"Net Profit" and "Net Loss" mean, for each Fiscal Year or other period, an
amount equal to the Partnership's taxable income or loss for such year or
period, determined in accordance with Code Section 703(a) (for this purpose, all
items of income, gain, loss or deduction required to be stated separately
pursuant to Code Section 703(a)(1) shall be included in taxable income or loss),
with the following adjustments:
(i) Any income of the Partnership that is exempt from Federal income
tax and not otherwise taken into account in computing Net Profit or Net Loss
shall be added to such taxable income or loss;
(ii) Any expenditures of the Partnership described in Code Section
705(a)(2)(B), or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Treasury Regulations Section 1.704-1(b)(2)(iv)(i), that are not otherwise taken
into account in computing Net Profit or Net Loss shall be subtracted from such
taxable income or loss;
(iii) If the Gross Asset Value of any asset of the Partnership is
adjusted pursuant to paragraph (ii) or (iii) of the definition of Gross Asset
Value, the amount of such adjustment shall be taken into account as gain or loss
from the disposition of such asset for purposes of computing Net Profit or Net
Loss;
(iv) Gain or loss resulting from any disposition of Partnership
property with respect to which gain or loss is recognized for Federal income tax
purposes shall be computed by reference to the Gross Asset Value of the property
disposed of, notwithstanding that the adjusted tax basis of such property
differs from its Gross Asset Value;
(v) In lieu of the depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss, there
shall be taken into account Depreciation for such Fiscal Year or other period;
(vi) To the extent any adjustment to the adjusted tax basis of any
asset of the Partnership pursuant to Code Section 734(b) or Code Section 743(b)
is required pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m) to be
taken into account in determining Capital Accounts as a result of a distribution
other than in liquidation of a Partner's interest in the Partnership, the amount
of such adjustment shall be treated as an item of gain (if the adjustment
increases the basis of the asset) or loss (if the adjustment decreases the basis
of the asset) from the disposition of the asset and shall be taken into account
for purposes of computing Net Profit and Net Loss; and
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9
(vii) For purposes of this Agreement, any deduction for a loss on a
sale or exchange of Partnership property that is disallowed to the Partnership
under Code Section 267(a)(1) or Code Section 707(b) shall be treated as a Code
Section 705(a)(2)(B) expenditure.
"Net Tax Amount" means, for any year, with respect to TWE or Paragon, the
sum of (i) the Common Tax Amount of such Partner for such year and (ii) the
Special Tax Amount of such Partner for such year.
"Newhouse" means Newhouse Broadcasting Corporation, a New York corporation.
"Non-Income Tax" means any Tax, other than an Income Tax.
"Original Contribution Agreement" means the Contribution Agreement, dated
as of September 9, 1994, as amended from time to time, among the Partnership,
the Partners, Advance and Newhouse.
"Other TWE Systems" means the Systems owned by TWE or its Affiliates other
than the Partnership Systems.
"Paragon Residual Percentage Interest" means 2.85%.
"Parents Agreement" means the Agreement dated as of September 9, 1994 among
Advance, Newhouse and TWX.
"Partners" means Advance/Newhouse, TWE and Paragon and "Partner" means any
of such Partners, except as otherwise provided in Section 5A or Section 5.
"Partnership" means the partnership created by the Partners pursuant to
this Agreement.
"Partnership Interest" means, (a) as to TWE or Paragon all of the interest
of such Person in the Partnership, which includes only such Person's (i) right
to a distributive share of the income, gain, losses, and deductions of the
Partnership in accordance with this Agreement, which shall be measured by the
number and type of Partnership Units held by such Person under this Agreement,
(ii) right to a distributive share of the Residual Business' assets, which shall
be measured by the number and type of Partnership Units held by such Person
under this Agreement, (iii) other rights and all obligations hereunder, and (iv)
rights and responsibilities with respect to the management of the business and
affairs of each applicable Managed Business, as provided herein or by law; and
(b) as to Advance/Newhouse, all of the interest of such Person in the
Partnership, which includes only such Person's (x) right to receive
distributions of and from the Selected Business, (y) other rights and all
obligations hereunder and (z) rights and responsibilities with respect to the
management of the business and affairs of the Selected Business, as provided
herein or by law.
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10
"Partnership Systems" means all Systems now owned or hereafter acquired,
directly or indirectly, by the Partnership, including the Residual Systems and
the Selected Systems.
"Partnership Unit" means either a "Series SB Common Partnership Unit," a
"Series RB Common Partnership Unit", a "Series A Preferred Partnership Unit," a
Series B Preferred Partnership Unit", or a "Series C Preferred Partnership
Unit," and all "Partnership Interests" associated therewith each as defined in
this Agreement.
"Person" means any natural person, corporation, general or limited
partnership, limited liability company, joint venture, trust, association,
unincorporated entity of any kind, or a government or any department or agency
thereof.
"Preferred Sub-Account" means, with respect to TWE or Paragon, the portion
of such Partner's Capital Account that is equal to the aggregate amount of
Series A Preferred Capital Contributions, Series B Preferred Capital
Contributions and Series C Preferred Capital Contributions made by such Partner,
(A) increased by allocations of Net Profit made with respect to such Partner
pursuant to Section 5.3(b)(i) or Section 5.3(b)(ii); and (B) decreased by (x)
distributions made with respect to such Partner pursuant to Section 5.1(a)(ii),
Section 5.1(b)(ii) or Section 5.1(b)(iv), and (y) allocations of Net Loss made
with respect to such Partner pursuant to Section 5.3(c)(ii).
"Prior Partnership Unit" means a Prior Common Partnership Unit or a Prior
Preferred Partnership Unit.
"Prior Common Partnership Unit" means a Common Partnership Unit and all
"Partnership Interests" associated therewith in each case as defined in the
First Amended Agreement.
"Prior Preferred Partnership Unit" means a "Series A Preferred Partnership
Unit," a "Series B Preferred Partnership Unit" or a "Series C Preferred
Partnership Unit," and all "Partnership Interests" associated therewith in each
case as defined in the First Amended Agreement.
"Priority Return" shall mean the sum of the Series A Priority Return, the
Series B Priority Return and the Series C Priority Return.
"Refinancing Arrangements" has the meaning ascribed to such term in the
Master Transaction Agreement.
"Residual Business" has the meaning ascribed to such term in the Master
Transaction Agreement.
"Residual Percentage Interests" means the Paragon Residual Percentage
Interest and the TWE Residual Percentage Interest.
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11
"Residual Systems" means all Systems now owned or hereafter acquired,
directly or indirectly, by the Residual Business.
"Restructuring Effective Date" means the date hereof.
"Restructuring Transactions" means the transactions contemplated to be
consummated on or prior the Closing Date under the Restructuring Transaction
Agreements.
"Restructuring Transaction Agreements" means the Master Transaction
Agreement, this Agreement and the other Transaction Agreements (as defined in
the Master Transaction Agreement).
"Road Runner" means Road Runner HoldCo LLC, a Delaware limited liability
company.
"Second Effective Date" means December 31, 1998.
"Second Transaction Agreement" means the Transaction Agreement No. 2, dated
as of June 23, 1998, among Advance, Newhouse, Advance/Newhouse, TWE, Paragon and
the Partnership.
"Selected Business" has the meaning ascribed to such term in the Master
Transaction Agreement.
"Selected Subsidiary" has the meaning ascribed to such term in the Master
Transaction Agreement.
"Selected Systems" means all Systems now owned or hereafter acquired,
directly or indirectly, by the Selected Business.
"Selection Date" means June 24, 2002.
"Series A Preferred Capital Contribution" means, with respect to Paragon, a
Capital Contribution by Paragon of assets having a fair market value of $1,000
for each Prior Preferred Partnership Unit issued to Paragon pursuant to Section
4.2(b)(i) of the First Amended Agreement.
"Series A Preferred Partnership Unit" means Paragon's right to
distributions in an amount equal to the Series A Priority Return allocable to
the Series A Preferred Capital Contribution of $1,000 and the right to a return
of such Series A Preferred Capital Contribution in redemption thereof, all of
which shall be payable in accordance with Section 5, together with all
allocations of income attributable thereto, as specified in Section 5.
"Series A Priority Return" means, with respect to each outstanding Series A
Preferred Partnership Unit, a sum equal to 10 1/4 percent for the actual number
of days in the period for which the Series A Priority Return is being
calculated, cumulative and
<PAGE>
12
compounded annually, on the amount of $1,000 plus any accrued and unpaid Series
A Priority Return with respect to such Series A Preferred Partnership Unit,
commencing on the First Effective Date.
"Series B Preferred Capital Contribution" means with respect to Paragon, a
Capital Contribution by Paragon of assets having a fair market value of $1,000
for each Prior Preferred Partnership Unit issued to Paragon pursuant to Section
4.2(b)(ii) and 4.2(b)(iii) of the First Amended Agreement.
"Series B Preferred Partnership Unit" means, with respect to Paragon, such
Partner's right to distributions in an amount equal to the Series B Priority
Return allocable to such Partner's Series B Preferred Capital Contribution of
$1,000 and the right to a return of such Series B Preferred Capital Contribution
in redemption thereof, all of which shall be payable in accordance with Section
5, together with all allocations of income attributable thereto, as specified in
Section 5.
"Series B Priority Return" means, with respect to each outstanding Series B
Preferred Partnership Unit, a sum equal to 2% plus the Partnership's cost of
borrowing under its senior credit facility for the actual number of days in the
period for which the Series B Priority Return is being calculated, cumulative
and compounded annually, on the amount of $1,000 plus any accrued and unpaid
Series B Priority Return with respect to such Series B Preferred Partnership
Unit, commencing on the (i) Second Effective Date, in the case of Series B
Preferred Partnership Units deemed issued on the Second Effective Date or (ii)
the Third Effective Date, in the case of Series B Preferred Partnership Units
deemed issued on the Third Effective Date.
"Series C Preferred Capital Contribution" means with respect to TWE and
Paragon, a Capital Contribution by such Partner of assets having a fair market
value of $1,000 for each Prior Preferred Partnership Unit issued to such Partner
pursuant to Section 4.2(a)(v)(B) or 4.2(b)(iv) of the First Amended Agreement.
"Series C Preferred Partnership Unit" means, with respect to TWE and
Paragon, such Partner's right to distributions in an amount equal to the Series
C Priority Return allocable to such Partner's Series C Preferred Capital
Contribution of $1,000 and the right to a return of such Series C Preferred
Capital Contribution in redemption thereof, all of which shall be payable in
accordance with Section 5, together with all allocations of income attributable
thereto, as specified in Section 5.
"Series C Priority Return" means, with respect to each outstanding Series C
Preferred Partnership Unit, a sum equal to 2% plus the Partnership's cost of
borrowing under its Senior Credit facility for the actual number of days in the
period for which the Series C Priority Return is being calculated, cumulative
and compounded annually, on the amount of $1,000 plus any accrued and unpaid
Series C Priority Return with respect to such Series C Preferred Partnership
Unit, commencing on the Fourth Effective Date.
<PAGE>
13
"Series RB Common Partnership Unit" means the measure of a Partner's right
to certain distributions and allocations with respect to the Residual Business,
as specified in Section 5A and Section 5.
"Series SB Common Partnership Unit" means the measure of a Partner's right
to receive distributions and allocations with respect to the Selected Business,
as specified in Section 5A and Section 5.
"Special Effective Tax Rate" means, at any time, and from time to time, the
effective combined rate of Federal, state and local income and franchise tax
that the Partnership would be required to pay, if it were a corporation, on its
taxable income for such year, for Federal income tax purposes.
"Special Income" means, for any year, with respect to TWE or Paragon, the
sum of:
(i) the excess, if any, of (a) such Partner's distributive share of
Depreciation and loss determined as provided in clause (iv) of the definition of
Net Profit and Net Loss for such year, over (b) such Partner's distributive
share of depreciation, amortization, and other cost recovery deductions and loss
for such year for Federal income tax purposes, to the extent such excess results
from a difference between the basis for Federal income tax purposes of any
assets and the Gross Asset Value of such assets;
(ii) the excess, if any, of (a) such Partner's distributive share of
gain for Federal income tax purposes for such year, over (b) such Partner's
distributive share of gain determined as provided in clause (iv) of the
definition of Net Profit and Net Loss for such year, to the extent such excess
results from a difference between the basis for Federal income tax purposes of
any assets and the Gross Asset Value of such assets; and
(iii) any remedial items allocated to such Partner pursuant to
Treasury Regulations Section 1.704-3(d) for such year.
"Special Tax Amount" means, for any year, with respect to TWE or Paragon,
the amount obtained by multiplying (a) the Special Effective Tax Rate for such
year, by (b) the excess, if any, of (i) the sum of (x) the sum of the Net Profit
and Gross Profit allocated to such Partner pursuant to Sections 5.3(b)(iii) and
5.3(d)(ii) for such year, (y) the Special Income, if any, allocated to such
Partner for such year, and (z) to the extent that the Common Tax Amount of such
Partner for such year is reduced by any Net Loss or Gross Loss allocated to such
Partner for any prior year which was used to reduce such Partner's Special Tax
Amount for any prior year, an amount (expressed as a positive number) equal to
the sum of such Net Loss and Gross Loss, over (ii) the sum of (x) the Gross Loss
allocated to such Partner pursuant to Section 5.3(d)(ii) for the current year,
and (y) the Net Loss or Gross Loss allocated to such Partner for the current or
prior year (other than pursuant to Section 5.3(c)(ii) and 5.3(d)(ii)) but only
to the extent that the amounts set forth in this clause (y) were not used in
reducing the Common Tax Amount for the current year or the Special Tax Amount
for any prior year. For purposes of determining the Special Tax Amount, Net
Profit, Gross Profit, Net Loss and Gross Loss,
<PAGE>
14
shall be calculated without taking into account the items described in clause
(i), clause (ii), clause (iii), clause (vi), clause (vii), and clause (ix) of
the definition of "Net Profit" and "Net Loss" or, with respect to any year (or
portion thereof) prior to the Restructuring Effective Date, the items described
in clause (i), clause (ii), clause (iii), clause (vi), clause (vii) and clause
(ix) of the definition of "Net Profit" and "Net Loss" of the First Amended
Agreement.
"Subscriber" means a subscriber to basic cable television service on the
applicable System.
"Subsidiary" means, with respect to any Person, any other Person controlled
by such first Person.
"System" means a "cable television system" within the meaning of Section
602(7) of the Communications Act of 1934, as amended.
"Tax" shall mean all forms of taxes, fees, imposts, levies or other
assessments whenever created or imposed, and whether of the United States or
elsewhere, and whether imposed by a Governmental Authority, and, without
limiting the generality of the foregoing, shall include income, gross receipts,
business and occupation, property, sales, use, license, excise, franchise,
capital stock, employment, payroll, unemployment insurance, social security,
stamp, environmental, value added, alternative or added minimum, ad valorem,
trade, recording, withholding, occupation or transfer tax, custom or duty or
other like governmental assessment or charge of any kind whatsoever, whether
computed on a separate, consolidated, unitary, combined or any other basis,
together with any related interest, penalties and additions imposed by any
Governmental Authority.
"Tax Adjustment Percentage" means, with respect to any year, the amount
obtained by dividing (A) the Special Effective Tax Rate for such year by (B) the
excess of one (1) over such Special Effective Tax Rate.
"Tax Proceeding" means any Tax audit, examination, controversy or
litigation with or against any Governmental Authority.
"Taxable Income" or "Taxable Loss" means net income or loss of the
Partnership as determined for Federal income tax purposes.
"TCI Contribution Agreement" has the meaning ascribed thereto in the Second
Transaction Agreement.
"Third Effective Date" means March 1, 1999.
"Third Transaction Agreement" means the Transaction Agreement No. 3, dated
as of September 15, 1998 among Advance, Newhouse, Advance/Newhouse, TWE, Paragon
and the Partnership.
<PAGE>
15
"Transaction Agreements" means, collectively, the First Transaction
Agreement, the Second Transaction Agreement, the Third Transaction Agreement and
the Fourth Transaction Agreement.
"Treasury Regulations" means the Income Tax Regulations, including
Temporary Regulations, promulgated under the Code, as such regulations may be
amended from time to time (including corresponding provisions of succeeding
regulations).
"TWE Accountants" means the independent auditors or other auditors selected
by TWE.
"TWE Cable Division" means the Cable Division of TWE.
"TWE Group" means TWE and its Affiliates.
"TWE Partnership Agreement" means the Agreement of Limited Partnership,
dated as of October 29, 1991, as amended from time to time, among TWI, Itochu
Corporation, Toshiba Corporation, USW and certain of their respective
subsidiaries.
"TWE Residual Percentage Interest" means 97.15%.
"TWE Systems" means all Systems now owned or hereafter acquired, directly
or indirectly, by TWE or its Affiliates, but shall not include any Systems owned
by or beneficially held for the Selected Subsidiary.
"TWI" means Time Warner Inc., a Delaware corporation.
"USW" means U S WEST, Inc., a Colorado corporation, and its successors and
assigns in respect of its interests under the TWE Partnership Agreement.
1.2 Terms Defined Elsewhere in this Agreement. For purposes of this
Agreement, the following terms have the meanings set forth in the sections
indicated:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Adjustment Report 11.5
Advance/Newhouse Preamble
Advance/Newhouse System Opportunity 10.2(a)
Advance/Newhouse Opportunity Notice 10.2(a)
Amendments to the Original Agreement Preamble
Appraiser 8.4(j)
ATW Securities 3.1(h)
Cable Company 8.3(h)
Closing Price 3.1(h)
</TABLE>
<PAGE>
16
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Consideration Period 8.4(d)
Contribution 8.2
Contribution Entity 8.2
Contribution Entity Certification 8.3(c)
Contribution Entity EBITDA 8.2(c)
Credit Partner 5.5(f)
Eligible Option Holder 3.1(h)
Equity for Carriage Programming Opportunity 10.3(a)
Executive Committee 3.1(b)
Final Restructuring Date 8.1
First Amended Agreement Preamble
Fiscal Year 2.7
Intercompany Account 3.3(a)
Liquidator 12.3(a)
Managed Systems 3.1(h)
Managing Partner 3.1(a)
Master Transaction Agreement Preamble
Newhouse Family Member 6.1(a)
NYSE 3.1(h)
Offer Notice 8.3(a)
Offer Period 8.4(f)
Operating Cash Flow 8.2(c)
Original Agreement Preamble
Other Corporate Security 8.3(b)
Paragon Preamble
Post-Bid Offer Notice 8.3(a)
Pre-Bid Offer Notice 8.3(a)
Pre-Closing Operating Costs 3.1(h)
Regular Distributions 8.2(c)
Required Minimum Price 8.4(e)
Residual Business Percentage 12.3(b)
</TABLE>
<PAGE>
17
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Restructuring Notice 8.1
ROFO Required Minimum Price 8.4(f)
ROFO Termination Notice 8.4(d)
Selected Business Percentage 12.3(b)
Special Distributions 8.2(c)
Special ROFO Assets 8.4(a)
Special ROFO Asset Value 8.4(c)
Special ROFO Event 8.4(a)
Special ROFO Notice 8.4(a)
Special ROFO Period 8.4(a)
Special ROFO Process 8.4(a)
Tax Matters Partner 3.1(g)
Third Party Programming 3.1(h)
Transfer Assets 8.3(a)
Transferee 8.2(i)
TWE Preamble
TWE Cable Expenses 3.1(h)
TWE System Opportunity 10.2(b)
TWE Opportunity Notice 10.2(b)
Valuation Notice 8.4(c)
Wholly-Owned Affiliates 3.1(h)
</TABLE>
SECTION 2 THE PARTNERSHIP AND ITS BUSINESS
2.1 Formation.
(a) Formation of Partnership. The Partnership was initially formed as
a general partnership as of September 9, 1994 pursuant to the provisions of the
Act. The Partners hereby expressly agree to continue the Partnership. Except as
provided in this Agreement, all rights, liabilities, and obligations of the
Partners (in their capacities as such), both as among themselves and with
respect to Persons not parties to this Agreement, shall be as provided in the
Act, and this Agreement shall be construed in accordance with the provisions of
the Act. To the extent that the rights or obligations of any Partner are
different by reason of any provision of this Agreement from what they
<PAGE>
18
would be under the Act in the absence of such provision, this Agreement shall,
to the extent permitted by the Act, control.
(b) Formation of Subsidiary. The Selected Subsidiary was formed on
July 9, 2002 and the Partnership remains its sole member. The Selected
Subsidiary shall not engage in any activities prior to the Closing Date other
than (i) in connection with seeking to obtain (A) all consents or waivers from
the relevant Franchising Authorities, Governmental Authorities or other third
parties necessary to transfer the Franchises for all Systems in the Selected
Business, (B) any required consents or waivers from the Federal Communications
Commission to transfer licenses granted by the Federal Communications Commission
to Systems, divisions or other business units in the Selected Business, and (C)
all material consents or material approvals of all Persons, other than
Governmental Authorities, required for or in connection with the execution,
delivery and performance of the Restructuring Transaction Agreements and the
consummation of the Restructuring Transactions and (ii) as required in
connection with the Refinancing Arrangements (provided that such activities do
not otherwise violate this Partnership Agreement). Notwithstanding anything in
this Agreement to the contrary, at no time shall the Selected Subsidiary be
permitted, or have the power, to become an employer or to establish employee
benefit plans or arrangements.
2.2 Partnership Name and Trade Names.
(a) Partnership Name; Subsidiary Name.
(i) Subject to the following sentence, the name of the
Partnership shall continue to be "Time Warner Entertainment-Advance/Newhouse
Partnership" or such other name(s) as may from time to time be agreed to by each
of the Partners. Within 30 days following the Final Restructuring Date, the name
of the Partnership shall be changed to a name selected by TWE and thereafter to
such other name(s) as may from time to time be set forth by TWE; provided,
however, that such name shall not include "Advance/Newhouse", "Advance",
"Newhouse" or any derivation thereof.
(ii) Subject to the following sentence, the name of the Selected
Subsidiary shall continue to be "TWEAN Subsidiary, LLC" or such other name(s) as
may be agreed to by each of the Partners. Following the Closing, the name of the
Selected Subsidiary may be changed to such other name(s) as may from time to
time be selected by Advance/Newhouse (subject to Intellectual Property
Agreement). Within 30 days following the Final Restructuring Date, the name of
the Selected Subsidiary shall be changed to a name selected by Advance/Newhouse
and thereafter to such other name(s) as may from time to time may be set forth
by Advance/Newhouse, in each instance subject to the Intellectual Property
Agreement; provided, however, that such name shall not include "Time Warner
Entertainment," "TWE" or any derivative thereof.
(b) Trade Names. Until Closing, the business of each of the
Partnership Systems shall continue to be conducted under the trade names used by
the Partnership Systems immediately prior to the Restructuring Effective Date.
Within
<PAGE>
19
30 days following Closing, the trade names used by the Selected Business shall
be changed in accordance with the Intellectual Property Agreement. Each other
business of the Partnership shall be conducted under the name of the Partnership
or, upon compliance with applicable laws and the Intellectual Property
Agreement, any other name that TWE deems appropriate or advisable.
(c) Assumed Name Filings. The Partnership and the Selected Subsidiary
shall each file any assumed name certificates and similar filings, and any
amendments thereto, that TWE or Advance/Newhouse respectively, considers
appropriate or advisable.
2.3 Term of the Partnership. The term of the Partnership commenced on
September 9, 1994 and, unless the Partnership is earlier terminated pursuant to
Section 12 of this Agreement or otherwise, shall continue until December 31,
2045.
2.4 Purposes.
(a) Generally. The purposes of the Partnership shall be, to the extent
permitted under applicable law, to engage in the business, directly or
indirectly through interests in one or more Subsidiaries (including the Selected
Subsidiary), of:
(i) acquiring, developing, owning, operating, managing, and
selling the Systems and other assets from time to time contributed to the
Partnership by the Partners;
(ii) acquiring, developing, owning, operating, managing and
selling additional Systems;
(iii) acquiring, developing, owning, operating, managing, and
selling, or investing in, businesses related to the operation of Systems,
including without limitation programming and information services, personal
communications and cable advertising businesses;
(iv) developing, owning, operating, managing, and selling
residential and business telephony services associated with such Systems,
including alternative access services, personal communications services and
other similar services;
(v) developing, owning, operating, managing, and selling other
businesses that utilize broadband distribution facilities, in addition to
residential and business telephony services;
(vi) managing Systems;
(vii) selling at the retail level equipment and other goods used
or useful in connection with the businesses described in clauses (i) through
(vi) above;
(viii) conducting other businesses desired by any of the
Partners; and
<PAGE>
20
(ix) engaging in all activities and transactions incidental to
the foregoing (including owning or leasing real property and incurring
Indebtedness).
(b) Effect on Powers of Partners. The listing of the purposes of the
Partnership in this Section 2.4 shall not be construed to impair the limitations
on the powers of the Partners set forth in Section 3.2 or any of the other
limitations expressly set forth in this Agreement.
2.5 Principal Office and Other Offices. The principal office of the
Partnership shall be located at 290 Harbor Drive, Stamford, Connecticut. The
Partnership may maintain other offices at other places as the Managing Partner
deems advisable.
2.6 Foreign Qualification. The Partners shall take all necessary actions to
cause the Partnership to be authorized to conduct business legally in all
appropriate jurisdictions, including registration or qualification of the
Partnership in those jurisdictions that provide for registration or
qualification.
2.7 Fiscal Year. The Partnership's fiscal year (each, a "Fiscal Year")
shall be the calendar year. The Partnership shall have the same Fiscal Year for
Income Tax purposes and for financial and partnership accounting purposes.
2.8 Addresses of the Partners. The respective addresses of the Partners are
set forth on the signature page to this Agreement.
2.9 Property. Except as otherwise contemplated herein or in the
Restructuring Transaction Agreements, all assets and property, whether real,
personal, or mixed, tangible or intangible, including contractual rights, owned
or possessed by the Partnership shall be held or possessed in the name of the
Partnership or in the name of an appropriate nominee, and such assets, property,
and rights shall be deemed to be owned or possessed by the Partnership as an
entity; and no Partner shall have any separate ownership interest in such
assets, property, or rights. Each Partner's interest in the Partnership is
personal property for all purposes.
2.10 Certain Compliance Policies.
(a) The Partnership will, and each of the Partners will exercise its
powers hereunder and under the Restructuring Transaction Agreements (including,
without limitation, the Management Agreement) to cause the Partnership to,
conduct its business and operations including the Selected Business and the
Residual Business in such manner as to comply with the Consent Decrees, to the
extent applicable, and any other laws and regulations applicable to the TWE
Cable Division and its Affiliates.
(b) TWE will provide Advance/Newhouse with copies of all reports
submitted by TWE or its Affiliates with respect to the Consent Decrees (redacted
as necessary with respect to matters not applicable to the Selected Business)
and will notify Advance/Newhouse sufficiently in advance of any new consent
decrees applicable to the TWE Cable Division and its Affiliates so that
Advance/Newhouse may protect its interest
<PAGE>
21
and, if it so chooses, to cause the consummation of a restructuring under
Section 8.1 before the Selected Business becomes subject to such new consent
decree.
(c) Any litigation, compromise or regulatory activity (including
lobbying) by the Selected Business will be conducted by Advance/Newhouse in its
own name and will not be attributed to the Partnership or any member of the TWE
Group. Any litigation, compromise or regulatory activity (including lobbying) by
the Residual Business will not be attributed to the Selected Subsidiary or any
member of the A/N Group.
SECTION 3 MANAGEMENT OF THE PARTNERSHIP
3.1 Management Powers.
(a) Generally. On and after the Restructuring Effective Date until the
Closing Date, TWE will continue as Managing Partner of the Partnership
("Managing Partner") with exclusive management rights in respect of the conduct
of the Partnership and the Residual Business; provided that Advance/Newhouse
will, to the extent permitted by law, be entitled to exercise exclusive
management rights in respect of the conduct of the Selected Business; and
provided further that TWE Cable will continue to manage programming matters for
the Selected Subsidiary and the Selected Business and provide other services to
the Selected Subsidiary and the Selected Business on the terms and conditions
set forth in the Services Agreement. From and after the Closing Date, TWE will
continue as Managing Partner with exclusive management rights with respect to
the Partnership and the Residual Business; provided that the Selected Subsidiary
will be managed exclusively by Advance/Newhouse pursuant to the Management
Agreement; and provided further that (i) TWE Cable will continue to manage
programming matters for the Selected Subsidiary and the Selected Business and
provide other services to the Selected Subsidiary and the Selected Business on
the terms and conditions set forth in the Services Agreement and (ii) TWE will
continue to manage the Delayed Transfer Assets to the extent required by the
Contribution Agreement.
(b) Rights, Powers, and Duties. The Managing Partner shall be
responsible for the management and operations of the Partnership and shall have
all powers necessary to manage and control the Partnership, to conduct its
business, and to implement any decision of the Partners adopted pursuant to this
Agreement, and all powers possessed by general partners under the Act.
Notwithstanding the preceding sentence, the exercise by the Managing Partner of
any of the powers described in the preceding sentence or listed below in this
Section 3.1(b) is subject to Section 3.1(a), Section 3.2 and any other
limitations set forth in this Agreement. Except as expressly provided herein, no
Partner other than the Managing Partner shall have any right to vote on, or
consent to, any action of any nature whatsoever taken or proposed to be taken by
the Partnership and no Partner other than the Managing Partner shall give any
consent on any matter or take any action as a Partner, including, without
limitation, acting on behalf of or binding the Partnership, unless such matter
or action shall first have been approved or consented to by the Managing Partner
or the Executive Committee. Subject to the
<PAGE>
22
foregoing, the powers of the Managing Partner include, without limitation, the
power on behalf of the Partnership, for itself or on behalf of any Subsidiary of
the Partnership, to:
(i) construct, operate, maintain, improve, expand, buy, own,
sell, convey, assign, mortgage, finance, refinance, rent, or lease real or
personal property, which may be held in the name of the Partnership or any
Subsidiary of the Partnership;
(ii) enter into, perform, and carry out contracts and agreements
of any kind necessary to, in connection with, or incidental to accomplishing the
purposes of the Partnership;
(iii) negotiate for and conclude agreements for the sale,
exchange, or other disposition of all or any part of the property of the
Partnership or of any Subsidiary of the Partnership, for property, cash, or on
terms, or any combination thereof, or for the purchase or lease of additional
property of the Partnership or any Subsidiary of the Partnership;
(iv) bring and defend actions in law and equity;
(v) execute and modify leases and other agreements (including
leases and agreements for terms extending beyond the term of the Partnership or
the term of any Subsidiary of the Partnership), and execute and modify options,
licenses, or agreements with respect to any of the assets or the business of the
Partnership or any Subsidiary;
(vi) obtain loans, secured and unsecured, for the Partnership or
any Subsidiary of the Partnership and secure the same by mortgaging, assigning
for security purposes, pledging, or otherwise hypothecating, all or any part of
the property and assets of the Partnership or of any Subsidiary of the
Partnership (and in connection therewith to place record title to any such
property or assets in the name or names of a nominee or nominees);
(vii) prepay in whole or in part, refinance, recast, increase,
decrease, modify, amend, restate, or extend any such mortgage, security
assignment, pledge, or other security instrument, and in connection therewith to
execute and deliver, for and on behalf of the Partnership or any Subsidiary of
the Partnership, any extensions, renewals, or modifications thereof, any new
mortgage, security assignment, pledge, or other security instrument in lieu
thereof;
(viii) draw, make, accept, endorse, sign, and deliver any notes,
drafts, or other negotiable instruments or commercial paper;
(ix) establish, maintain, and draw upon checking, savings, and
other accounts in the name or any trade name of the Partnership or any
Subsidiary of the Partnership in such banks or other financial institutions as
the Managing Partner may from time to time select;
<PAGE>
23
(x) employ, fix the compensation of, oversee, and discharge
agents and employees of the Partnership and of any Subsidiary of the Partnership
as the Managing Partner deems advisable in the operation and management of the
business of the Partnership, including accountants, attorneys, architects,
consultants, engineers, and appraisers, on such terms and for such compensation,
as the Managing Partner shall determine;
(xi) enter into management agreements with third parties pursuant
to which the management, supervision, or control of the business or assets of
the Partnership may be delegated to third parties for reasonable compensation;
(xii) enter into joint ventures, general or limited partnerships,
or other agreements relating to the Partnership's purposes;
(xiii) compromise any claim or liability due to the Partnership
or any Subsidiary of the Partnership;
execute, acknowledge, verify, and file any notifications, applications,
statements, and other filings that the Managing Partner considers necessary or
desirable to be filed with any state or federal securities administrator or
commission;
(xiv) execute, acknowledge, verify, and file any and all
certificates, documents, and instruments that the Managing Partner considers
necessary or desirable to permit the Partnership or any Subsidiary of the
Partnership to conduct business in any state;
(xv) do any or all of the foregoing, discretionary or otherwise,
through agents selected by the Managing Partner and compensated or uncompensated
by the Partnership; and
(xvi) take any other actions and execute any other contracts,
documents, and instruments that the Managing Partner deems appropriate to carry
out the intents and purposes of this Agreement.
(c) Composition of Executive Committee. A committee (the "Executive
Committee") shall be established which shall be composed of from three to six
individuals. The Executive Committee shall only have the power to act with
regard to those matters set forth in Section 3.2 hereof. Up to three of the
members of the Executive Committee shall be designated from time to time by TWE,
up to two of the members of the Executive Committee shall be designated from
time to time by Advance/Newhouse, and one of the members of the Executive
Committee shall be designated from time to time by Paragon. Any member of the
Executive Committee may be removed and replaced at any time, and from time to
time, by the Partner that originally designated such member. Any Partner, or at
least two members of the Executive Committee, may call a special meeting of the
Executive Committee upon no less than 48 hours' notice to each member. Each
designated member of the Executive Committee shall have one vote. The
affirmative vote (or written consent) of all of the voting power of all members
of the Executive Committee (whether or not present) shall constitute action by
the Executive
<PAGE>
24
Committee. Regular or special meetings of the Executive Committee
may be held in person or telephonically. Each member of the Executive Committee
entitled to vote at any meeting of the Executive Committee may authorize another
person to act for him by proxy (provided that such proxy must be signed by such
member or his attorney-in-fact and shall be revocable by such member at any time
prior to such meeting).
(d) Day-to-Day Conduct of Partnership Business. On and after the
Restructuring Effective Date, the day-to-day operations of the Residual Business
shall be the responsibility of the Managing Partner and the day-to-day
operations of the Selected Business shall be the responsibility of
Advance/Newhouse.
(e) Executive Officers. The Managing Partner may delegate that part of
its day-to-day operational responsibility for the Partnership as the Managing
Partner deems reasonable and prudent to individuals, who will be the Executive
Officers of the Partnership.
(f) Fiduciary Obligations. To the greatest extent permitted by law, a
Partner shall not be liable to another Partner under this Agreement or the Act
with respect to any business of the Partnership (whether the Selected Business
or the Residual Business) by reason of any fiduciary or similar duty, provided
that this section shall in no way excuse any Partner from the performance of its
obligations and liabilities under this Agreement or the other Transaction
Agreements..
(g) Tax Matters Partner. The tax matters partner of the Partnership
pursuant to Code Section 6231(a)(7) (the "Tax Matters Partner") shall be TWE or
any successor tax matters partner designated by TWE. The Tax Matters Partner
shall , except as otherwise provided in Section 5.11, have all powers necessary
to perform fully its responsibilities under the Code. To the extent and in the
same manner as provided by applicable law, the Tax Matters Partner (i) shall
furnish the name, address, and taxpayer identification number of each Partner to
the Secretary of the Treasury or his delegate and (ii) shall keep each Partner
informed of any administrative and judicial proceedings for the adjustment at
the Partnership level of any items required to be taken into account by such
Partner for income tax purposes. The Tax Matters Partner shall give notice to
each Partner of a Partnership audit affecting such Partner. The Tax Matters
Partner shall prepare and file, or cause to be prepared and filed, all tax
returns (including amended tax returns) filed by the Partnership. The Tax
Matters Partner shall be reimbursed by the Partnership for all out-of-pocket
costs and expenses incurred by it in connection with any administrative or
judicial proceeding with respect to any tax matter involving the Partnership or
the Partners in their capacity as Partners; provided, that, with respect to any
taxable period (or portion thereof) beginning on or after the Restructuring
Effective Date, such reimbursement shall be made only out of cash attributable
to the Residual Business, and not the Selected Business.
(h) Compensation of Partners and Reimbursement of Expenses.
(i) TWE shall be compensated by the Partnership for its services
as Managing Partner in an amount equal to (A) the Partnership's pro rata share,
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25
based on the ratio of the number of Subscribers served by the Partnership
Systems to the total number of Subscribers served by the Partnership Systems and
the Other TWE Systems, of the following: (1) TWE Cable Expenses (as defined
below), (2) after receipt of evidence reasonably satisfactory to
Advance/Newhouse of services received by the TWE Cable Division therefor on or
prior to the Closing Date, the management fees payable by TWE to USW pursuant to
Section 8(h) of the Admission Agreement, dated as of May 16, 1993, between TWE
and USW, attributable to such services, and (3) TWE's obligations under Section
17.7(b) of the TWE Partnership Agreement (or any successor provision) to
reimburse ATW with respect to options exercised by employees of TWE's Cable
Division (other than (x) Eligible Option Holders (who are covered by paragraph
(iii) below) and (y) system-level employees of TWE who perform substantially all
of their duties on behalf of one or more Other TWE Systems), and (B) all
specific costs and expenses incurred by TWE and its Affiliates on behalf of the
Partnership. For purposes of the foregoing, "TWE Cable Expenses" shall mean all
expenses incurred in connection with managing and operating the TWE Cable
Division (other than direct and identifiable costs or expenses relating to the
Other TWE Systems, which would not be appropriately allocated to the
Partnership); provided that such expenses shall be calculated net of any
management fees received by TWE with respect to the management of partially
owned Systems ("Managed Systems"), it being understood that in determining the
Partnership's pro rata share of any costs or expenses described in this Section
3.1(h), the Subscribers served by the Managed Systems shall be excluded from the
number of Subscribers served by the Partnership Systems and the number of
Subscribers served by the Other TWE Systems. By way of example, TWE Cable
Expenses include, without limitation, the general costs and expenses incurred by
or allocated to the TWE Cable Division in connection with the development of the
Full Service Network and telephony service and legal expenses incurred by the
TWE Cable Division in connection with legal proceedings (such as "test cases")
which generally affect the TWE Cable Division, but do not include expenses
incurred in connection with the current operations of NY 1. Notwithstanding the
foregoing, to the extent that any TWE Cable Expenses are paid more than one year
beyond the end of the year in which such expenses arise, the Partnership shall
reimburse TWE for such expenses when such expenses are paid; and to the extent
that any TWE Cable Expenses are paid more than one year in advance of the year
in which they arise, the Partnership shall reimburse TWE for such expenses when
they are paid. The Partnership shall reimburse TWE for all costs and expenses
for each calendar month for which TWE is entitled to reimbursement hereunder on
the fifteenth day of such month based on TWE's reasonable estimate thereof;
provided that any discrepancies between actual costs (as set forth in a
certificate signed by an appropriate officer of TWE) and estimated costs and
expenses shall be settled quarterly in arrears by payment by the Partnership to
TWE of the amount of any underpayment for such quarter or by allocating to the
Partnership a credit against future payments required by this paragraph in the
amount of any overpayment for such quarter. During the 120 days following
Closing, the Advance/Newhouse Accountants shall have the right to audit of TWE's
records relevant to reimbursements from the Partnership pursuant to this
subparagraph that were charged to the Selected Business. The costs and expenses
of such audit shall be borne by Advance/Newhouse. TWE and Advance/Newhouse agree
that no adjustment shall be
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26
made to any such charge to the Selected Business in the event that the extent of
any disagreement between the parties shall be less than $500,000.
(ii) Subject to the Services Agreement, TWE, as Managing Partner,
shall make all programming and any other service or product decisions with
respect to the Partnership Systems, and shall use reasonable best efforts to
cause such systems to be included in all programming and other relevant
agreements to which the TWE Cable Division or any of its Controlled Affiliates
is a party. TWE shall be compensated by the Partnership for such programming as
follows (whether or not the Partnership Systems are included within such
programming or other agreements):
(A) With respect to Third Party Programming (as defined
below), the Partnership shall pay TWE for such programming at a net
effective rate (taking into account the appropriate economic benefit and/or
detriment to TWE, if any, including, without limitation, discounts,
credits, marketing support, rate reimbursement, advertising support,
channel position fees, rebates, prepayment loans, deductions for
unallocated accounts and other incentives) equal to the net effective rate
per subscriber paid or accrued for such programming by the TWE Cable
Division or its Controlled Affiliate pursuant to the master programming
agreement or similar agreement between the provider of such programming and
the TWE Cable Division or such Controlled Affiliate.
(B) With respect to any other programming, the Partnership
shall pay TWE for such programming at a rate equal to the pro rata portion
of the costs to TWE or such Affiliate of producing such programming (such
pro rata portion to be determined based on the ratio of the number of
Subscribers served by the Partnership Systems offering such programming to
the total number of Subscribers served by the Partnership Systems and the
Other TWE Systems offering such programming, or, in the case of a la carte
programming, the ratio of the number of Partnership System Subscribers
subscribing to such programming to the number of Subscribers of the
Partnership Systems and the Other TWE Systems subscribing to such
programming).
For the purpose of the foregoing, "Third Party Programming" shall mean
(x) any programming purchased by the TWE Cable Division or any of its Controlled
Affiliates from any person that is not a Wholly-Owned Affiliate (as defined
below) of TWE and (y) any programming (including, without limitation, HBO and
Cinemax) purchased by the TWE Cable Division or its Controlled Affiliates from
TWE or any of its Wholly-Owned Affiliates (as defined below), provided, with
respect to this clause (y), that (1) such programming is offered by TWE or such
Affiliate to unaffiliated third parties for use on Systems, and (2) the amount
paid by the TWE Cable Division or its Controlled Affiliates for such programming
is consistent with the amount paid for such programming by similarly situated
third parties and is otherwise consistent with the principles previously agreed
to by the parties. "Wholly-Owned Affiliate" of TWE shall mean (x) any division
or subdivision of TWE or (y) any direct or indirect subsidiary of TWE all of the
capital stock or other equity interests of which are owned, directly or
indirectly, by TWE.
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27
(iii) Upon exercise by any Eligible Option Holder (as defined
below) of options to purchase securities of ATW or any of its Affiliates ("ATW
Securities"), the Partnership shall pay to TWE for each share of stock or each
$1,000 principal amount of debt securities, as the case may be (such share or
$1,000 principal amount being referred to herein as a "unit" of ATW Securities),
issuable upon exercise of such options an amount equal to the excess of (A) the
Closing Price (as defined below) of a unit of such ATW Securities as of the date
of exercise, over (B) either (1) for options issued prior to the Initial Closing
Date, the greater of (x) the exercise price paid by such Eligible Option Holder
for each such unit of ATW Securities and (y) the Closing Price of a unit of such
ATW Securities on the Initial Closing Date, or (2) for options issued after the
Initial Closing Date, the exercise price paid by such Eligible Option Holder for
each such unit of ATW Securities.
For the purpose of this Section 3.1(h)(iii), the term "Eligible Option
Holder" shall mean any officer or other employee of the Partnership or of TWE or
any of its Subsidiaries who (x) in such capacity performs substantially all of
his or her duties on behalf of the Partnership and (y) has been, or from time to
time is, issued options to purchase units of ATW Securities; and the term
"Closing Price" shall mean, with respect to any ATW Securities on any day, the
last reported sale price of a unit of such ATW Securities (regular way) on such
day as shown on the New York Stock Exchange ("NYSE") Composite Transaction Tape,
or in case no such sale takes place on such day, the average of the closing bid
and asked prices of a unit of such ATW Securities on such day on the NYSE, or,
if such ATW Securities are not listed or admitted to trading on the NYSE, on the
principal national securities exchange on which such ATW Securities are listed
or admitted to trading, or, if they are not listed or admitted to trading on any
national securities exchange, the average of the closing bid and asked prices of
such ATW Securities on such day as reported by NASDAQ, or if such ATW Securities
are not so reported, the average of the closing bid and asked prices of a unit
of such ATW Securities on such day as furnished by any member of the National
Association of Securities Dealers, Inc. selected from time to time by ATW for
that purpose; provided that in each case, the Closing Price shall be equitably
adjusted to take into account any recapitalizations, reclassifications, mergers,
consolidations, spin-offs, extraordinary dividends or distributions,
subdivisions or combinations or the like affecting the ATW Securities.
(iv) Except as expressly provided herein, including without
limitation Section 3.1(g), Section 3.1(h) and Section 13.1 of this Agreement, or
in the Original Contribution Agreement, no Partner shall be entitled, without
the prior written consent of the other Partners, to compensation for its
services on behalf of the Partnership or to be reimbursed for any costs or
expenses incurred by such Partner or any of its Affiliates, agents, or
representatives.
(v) Each of the Partners shall bear its own expenses, including
fees and expenses of legal counsel, financial advisors, brokers or finders, and
consultants incurred by it or its Affiliates in the negotiation and preparation
of this Agreement.
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28
(vi) Notwithstanding any provision in this Agreement to the
contrary, on or prior to the Closing Date, the aggregate payments to be made by
the Partnership to TWE for management fees and reimbursement for exercise of
options with respect to any Fiscal Year pursuant to Section 3.1(h)(i) and
Section 3.1(h)(iii) shall not exceed three percent (3%) of the Partnership's
revenues for such Fiscal Year. The limitations set forth in this Section
3.1(h)(vi) shall be applied separately with respect to each Fiscal Year.
(vii) The Selected Business will pay cash in respect of all
periods ending on or prior to the Closing Date for a portion of all amounts due
and owing by the Partnership during such periods that are allocable to the
Selected Business, including, without limitation, amounts due under the
foregoing provisions of Section 3.1(h) (other than clause (i)(A)(3) or clause
(iii) of this Section 3.1(h)), the AOL High Speed Services Agreement and
Programming Costs (as defined in the Services Agreement), and Section 3.1(g),
such portion to be calculated in the ordinary course of business consistent with
past practice (the "Pre-Closing Operating Costs"); provided, that no portion of
the costs, expenses or fees incurred by or on behalf of the Partnership in
connection with any financing arrangements obtained by it after the Selection
Date will be paid by the Selected Business, except for one-third of such costs,
fees and expenses for financings obtained prior to the Restructuring Effective
Date; provided further that the Selected Business shall not pay more than $1.5
million in the aggregate of such costs, fees and expenses. For the avoidance of
doubt, and notwithstanding anything in this Agreement to the contrary, neither
Advance/Newhouse nor the Selected Business shall have any liability for any
reimbursement obligations (x) pursuant to clause (i)(A)(3) or clause (iii) of
this Section 3.1(h) after the Restructuring Effective Date or (y) pursuant to
Section 3.1(h) or Section 3.1(g) for any period after the Closing Date (subject
to the obligations of the Selected Business after the Closing as provided in the
other Transaction Agreements).
(viii) For the avoidance of doubt, the amount of financing costs,
fees and expenses to be borne by the Selected Business as described in clause
(vii) above shall be borne without duplication, by reason of (x) there being
reduced deductions to Net Debt under Section 3.2(e)(iii) of the Master
Transaction Agreement, to the extent such cost, fee or expense was satisfied
with cash payments from the Partnership prior to the Restructuring Effective
Date or (y) otherwise, through cash payments from the Selected Business or the
Advance/Newhouse Group to TWE for costs, fees and expenses satisfied after the
Restructuring Effective Date.
(ix) With respect to all amounts owed to TWE by the Partnership
under Section 3.1(h) or Section 3.1(g), the Selected Business shall only be
responsible for paying the amounts described in clause (vii) and the Residual
Business shall be responsible for all remaining amounts.
3.2 Limitations On Management Powers. Notwithstanding any provision in this
Agreement or any Restructuring Transaction Agreement to the contrary, and in
addition to any other consent or approval that may be required by the express
terms of this Agreement, neither the Partnership nor any of its Subsidiaries
shall, and neither the
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29
Managing Partner nor any Partner individually shall have the authority to, and
neither TWE nor Advance/Newhouse shall, with respect to the Managed Business,
cause the Partnership or any of its Subsidiaries to, take any of the following
actions without (i) the consent of the Partners or (ii) the unanimous consent
(in person or by proxy) of all members of the Executive Committee:
(a) sell, assign, or otherwise dispose of all or substantially all of
the assets of such Managed Business, taken as a whole, except upon the
restructuring of the Partnership in accordance with Section 8 or Section 12 of
this Agreement;
(b) merge or consolidate such Managed Business with any other Person;
(c) liquidate or dissolve such Managed Business;
(d) admit any new member, or otherwise issue equity in, such Managed
Business, or establish the terms and conditions of any such admission or
issuance;
(e) incur, create, or assume any additional Indebtedness if the ratio
of (x) all Indebtedness of such Managed Business (including such additional
Indebtedness), to (y) EBITDA of such Managed Business for the last four fiscal
quarters, would exceed 5:1;
(f) enter into a new line of business that is reasonably expected to
require an investment in excess of $50,000,000 without providing three months'
prior written notice to the Partners;
(g) require capital contributions from any Partner; or
(h) commence any bankruptcy or insolvency proceeding, acquiesce in the
appointment of a receiver, trustee, custodian or liquidator, admit to the
material allegations of a petition filed against such Managed Business in any
bankruptcy proceeding or make, execute or deliver any general assignment for the
benefit of such Managed Business's creditors.
In addition, notwithstanding any provision in this Agreement or any
Restructuring Transaction Agreement to the contrary, and in addition to any
other consent or approval that may be required by the express terms of this
Agreement, neither the Partnership nor the Managing Partner shall have the
authority to, and shall not cause the Partnership to, take any of the following
actions without (x) the consent of the Partners or (y) the unanimous consent (in
person or by proxy) of all members of the Executive Committee: (A) sell, give,
assign, hypothecate, pledge, encumber, grant a security interest in or otherwise
dispose of (whether by operation of law or otherwise) any equity interest in the
Selected Subsidiary (except in accordance with the Consent agreement executed by
TWE and Paragon as of the date hereof in connection with the Refinancing
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30
Arrangements) or (B) enter into any agreement that would restrict distributions
of cash or other assets from the Selected Subsidiary to Advance/Newhouse.
3.3 Financing the Selected Business. From and after the Restructuring
Effective Date,
(a) the Partnership shall promptly remit to Advance/Newhouse (or to
the account established in clause (c) below) any cash amounts thereafter
received by the Partnership that should have been received by the Selected
Business;
(b) Advance/Newhouse shall be solely responsible for providing cash
and any other working capital needed by the Selected Business, including for any
amounts due and owing to TWE or any of its Affiliates pursuant to the
Restructuring Transaction Agreements; and
(c) Advance/Newhouse shall have the right to designate a commercial
bank account, reasonably acceptable to TWE, for deposit of all cash receipts
from the Selected Business, and the Partnership shall authorize the distribution
of any positive balance in such account to Advance/Newhouse no later than three
business days following Advance/Newhouse's request therefor; provided, however,
that such request is accompanied by a representation of Advance/Newhouse that
the amount of such distribution does not exceed the balance of such account
(after taking into consideration all other pending checks and disbursements
therefrom).
SECTION 4 PARTNERSHIP CAPITAL
4.1 Partnership Units. All Prior Partnership Units held or receivable by
the Partners immediately prior to the execution hereof are hereby converted as
follows:
(a) TWE and Paragon.
(i) TWE's Prior Common Partnership Units are hereby converted
into 9715 Series RB Common Partnership Units and TWE's Prior Preferred
Partnership Units are hereby converted into 24,415 Series C Preferred
Partnership Units (which shall be deemed to have been issued on the Fourth
Effective Date); and
(ii) Paragon's Prior Common Partnership Units are hereby
converted into 285 Series RB Common Partnership Units and Paragon's Prior
Preferred Partnership Units are hereby converted into 150,190 Series A Preferred
Partnership Units (which shall be deemed to have been issued on the First
Effective Date), 30,084 Series B Preferred Partnership Units (which shall be
deemed to have been issued on the Second Effective Date), 27,264 Series B
Preferred Partnership Units (which shall be deemed to have been issued on the
Third Effective Date) and 2,732 Series C Preferred Partnership Units (which
shall be deemed to have been issued on the Fourth Effective Date), respectively.
(b) Advance/Newhouse. Advance/Newhouse's Prior Partnership Units are
hereby converted into 100 Series SB Common Partnership Units.
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31
4.2 Contributions.
(a) No Further Contributions Required. No Partner shall be required to
make further capital contributions.
(b) Treatment of Contributions. Any capital contributed to the
Partnership by TWE or Paragon after the Restructuring Effective Date, and any
capital contributed to the Partnership by any Partner on the Restructuring
Effective Date, shall be applied to and used for the exclusive benefit of the
Residual Business. Any capital contributed to the Partnership by
Advance/Newhouse after the Restructuring Effective Date shall be applied to and
used for the exclusive benefit of the Selected Business.
SECTION 5A TAX MATTERS RELATING TO RESTRUCTURING TRANSACTIONS
5A.1 Redemption of Advance/Newhouse's Partnership Interest.
Advance/Newhouse, TWE and Paragon agree that, as of the Restructuring Effective
Date, for all Income Tax Purposes, the Selected Business shall be treated as
having been distributed to Advance/Newhouse in complete redemption of its
interest in the Partnership. Accordingly, as of the Restructuring Effective
Date, Advance/Newhouse shall no longer constitute a partner of the Partnership
for all Income Tax purposes, and any reference in Section 5 (other than Section
5.9, 5.10 or 5.11) to "Partner" or "Partners" shall not include
Advance/Newhouse.
5A.2 No Partnership Between Selected Business and Residual Business.
Advance/Newhouse, TWE and Paragon agree to take the position for all Income Tax
purposes that the Selected Business and the Residual Business are not operated
as a partnership following the Restructuring Effective Date, unless required to
do otherwise as a result of a Final Determination that the Selected Business and
Residual Business are operated as a partnership. In furtherance of the
foregoing, the parties agree to the following:
(i) Distributions to TWE and Paragon, and the Partnership
distributions provided in Section 5.1, shall be made only out of cash
attributable to the Residual Business (and not the Selected Business), and the
allocations provided in Sections 5.3, 5.5 and 5.6 shall be made only with
respect to the Residual Business (and not the Selected Business);
(ii) Advance/Newhouse shall not be entitled to any distributions
of cash from the Partnership under Section 5, except as provided in Section
3.3(c) and Section 5.9;
(iii) Advance/Newhouse shall not share in any portion of any item
of income, gain, loss, deduction or other tax items attributable to the Residual
Business;
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32
(iv) All items of income, gain, loss, deduction and other tax
items attributable to the Selected Business shall be treated as derived directly
by Advance/Newhouse (and not through an interest in the Partnership) for all
Income Tax purposes, except as may be required as a result of a Final
Determination that the Selected Business and Residual Business are operated as a
partnership; and
(v) All items of income, gain, loss, deduction and other tax
items attributable to the Residual Business shall be allocated between TWE and
Paragon pursuant to the provisions of Section 5.
5A.3 Recharacterization as Partnership for Tax Purposes. In the event of a
Final Determination that the Selected Business and the Residual Business are
operated as a partnership for any Income Tax purpose, the following provisions
shall apply:
(i) Income, gain, loss, deduction and other tax items
attributable to the Selected Business shall be allocated 100% to
Advance/Newhouse; and
(ii) Income, gain, loss, deduction and other tax items
attributable to the Residual Business shall be allocated between TWE and Paragon
pursuant to the provisions of Section 5.3.
SECTION 5 CASH DISTRIBUTIONS; ALLOCATIONS OF PROFITS AND LOSSES; ADJUSTMENTS
AND TAX PROCEEDINGS
5.1 Distributions With Respect to the Residual Business.
(a) Distributions Prior to Sixth Anniversary. Except as provided
in Sections 5.1(d) and 5.1(e), prior to the sixth anniversary of the First
Effective Date, all distributions by the Partnership shall be made as follows:
(i) [Intentionally Omitted]
(ii) With respect to any Fiscal Year in which Paragon and TWE are
expected (based on the Managing Partner's good faith estimate) to be allocated
Net Profit pursuant to Section 5.3(b)(ii), the Partnership shall, at least
quarterly, distribute (to the extent not prohibited by any applicable
contractual restrictions) all Distributable Cash to Paragon and TWE (on a pari
passu basis in proportion to the excess amounts calculated for each of them in
clauses (A) and (B) below, respectively):
(A) until Paragon shall have received distributions, with
respect to the Series A Preferred Partnership Units, the Series B Preferred
Partnership Units and the Series C Preferred Partnership Units held by it
in an amount equal to the excess of (I) the sum of (x) such estimated Net
Profit expected to be allocated to such Partner pursuant to Section
5.3(b)(ii)(A) and (y) the Net Profit allocated to such Partner pursuant to
Section 5.3(b)(ii)(A) for all prior Fiscal Years, over (II) the
distributions to Paragon pursuant to this Section 5.1(a)(ii)(A) for all
prior Fiscal Years, which distributions shall be allocated among the Series
A Preferred Partnership Units, the Series B Preferred
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33
Partnership Units and the Series C Preferred Partnership Units held by
Paragon, pari passu, in proportion to such excess amount calculated for
each of them; and
(B) until TWE shall have received distributions with respect
to the Series C Preferred Partnership Units held by it in an amount equal
to the excess of (I) the sum of (x) such estimated Net Profit expected to
be allocated to such Partner pursuant to Section 5.3(b)(ii)(B) and (y) the
Net Profit allocated to such Partner pursuant to Section 5.3(b)(ii)(B) for
all prior Fiscal Years, over (II) the distributions to TWE pursuant to this
Section 5.1(a)(ii)(B) for all prior Fiscal Years.
(iii) After the Partnership has made distributions with respect
to the Series A Preferred Partnership Units, Series B Preferred Partnership
Units and Series C Preferred Partnership Units in accordance with clause (ii),
the Partnership shall, at least quarterly, distribute (to the extent not
prohibited by any applicable contractual restrictions) to the Partners
Distributable Cash, in proportion to the respective amounts required to be
distributed to each such Partner pursuant to this Section 5.1(a)(iii), in an
amount equal to 25 percent of such Partner's Net Tax Amount for the taxable year
that includes such calendar quarter (as estimated in good faith by the Managing
Partner). The Managing Partner's estimate of such Partner's Net Tax Amount for
such year shall be revised prior to each distribution for such year and upon the
filing of the Partnership's Federal income tax return for such year, and
following such revision, (y) the Partnership shall distribute to such Partner
the excess (if any) of the amount that should have been distributed to such
Partner pursuant to this Section 5.1(a)(iii) based on such revised estimate,
over the amount actually distributed to such Partner pursuant to this Section
5.1(a)(iii), plus interest thereon at the rate paid by the Partnership on its
senior Indebtedness, or (z) such Partner shall contribute to the Partnership the
excess (if any) of the amount actually distributed to such Partner pursuant to
this Section 5.1(a)(iii) over the amount that should have been distributed to
such Partner pursuant to this Section 5.1(a)(iii) based on such revised
estimate, plus interest thereon at the rate paid by the Partnership on its
senior Indebtedness. To the extent there is insufficient available cash to make
distributions pursuant to this Section 5.1(a)(iii) at the time required, the
Partnership shall pay interest on such shortfall at the rate paid by the
Partnership on its senior Indebtedness, and such interest shall be paid out of
the Partnership's first available Distributable Cash.
(iv) After the Partnership has made the distributions required by
clauses (ii) and (iii), any remaining Distributable Cash shall, at least
quarterly, be distributed to the Partners in accordance with their Residual
Percentage Interests; provided, however, that during the period ending on the
third anniversary of the Fourth Effective Date, distributions to any Partner
pursuant to this Section 5.1(a)(iv) shall not, without the consent of TWE,
exceed an amount which, when added to the distributions to such Partner pursuant
to Section 5.1(a)(iii), exceed the sum of (x) such Partner's permitted
"operating cash flow distribution," as determined pursuant to Treasury
Regulation Section 1.707-4(b), and (y) the amount of Partnership indebtedness
incurred by the Partnership during the taxable year that includes such calendar
quarter and the proceeds of which are distributed to the Partners, to the extent
such indebtedness is
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34
included in such Partner's basis in its interest in the Partnership pursuant to
Code Section 752 and Treasury Regulation Section 1.707-5(a)(2).
(b) Distributions After Sixth Anniversary. Except as provided in
Sections 5.1(d) and 5.1(e), on and after the sixth anniversary of the First
Effective Date, all distributions by the Partnership shall be made as follows:
(i) [Intentionally Omitted]
(ii) With respect to any Fiscal Year in which Paragon and TWE are
expected (based on the Managing Partner's good faith estimate) to be allocated
Net Profit pursuant to Section 5.3(b)(ii), the Partnership shall, at least
quarterly, distribute (to the extent not prohibited by any applicable
contractual restrictions) all Distributable Cash to Paragon and TWE (on a pari
passu basis in proportion to the excess amounts calculated for each of them in
clauses (A) and (B) below, respectively):
(A) until Paragon shall have received distributions, with
respect to the Series A Preferred Partnership Units, the Series B Preferred
Partnership Units and the Series C Preferred Partnership Units held by it
in an amount equal to the excess of (I) the sum of (x) such estimated Net
Profit expected to be allocated to such Partner pursuant to Section
5.3(b)(ii)(A) and (y) the Net Profit allocated to such Partner pursuant to
Section 5.3(b)(ii)(A) for all prior Fiscal Years, over (II) the
distributions to Paragon pursuant to this Section 5.1(b)(ii)(A) and Section
5.1(a)(ii)(A) for all prior Fiscal Years, which distributions shall be
allocated among the Series A Preferred Partnership Units, the Series B
Preferred Partnership Units and the Series C Preferred Partnership Units
held by Paragon, pari passu, in proportion to such excess amount
calculated for each of them; and
(B) until TWE shall have received distributions with respect
to the Series C Preferred Partnership Units held by it in an amount equal
to the excess of (I) the sum of (x) such estimated Net Profit expected to
be allocated to such Partner pursuant to Section 5.3(b)(ii)(B) and (y) the
Net Profit allocated to such Partner pursuant to Section 5.3(b)(ii)(B) for
all prior Fiscal Years, over (II) the distributions to TWE pursuant to this
Section 5.1(b)(ii)(B) and Section 5.1(a)(ii)(B) for all prior Fiscal Years.
(iii) After the Partnership has made distributions with respect
to the Series A Preferred Partnership Units, the Series B Preferred Partnership
Units and the Series C Preferred Partnership Units in accordance with clause
(ii), the Partnership shall, at least quarterly, distribute (to the extent not
prohibited by any applicable contractual restrictions) to the Partners
Distributable Cash, in proportion to the respective amounts required to be
distributed to each such Partner pursuant to this Section 5.1(b)(iii), in an
amount equal to 25 percent of such Partner's Net Tax Amount for the taxable year
that includes such calendar quarter (as estimated in good faith by the Managing
Partner). The Managing Partner's estimate of such Partner's Net Tax Amount for
such year shall be revised prior to each distribution for such year and upon the
filing
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35
of the Partnership's Federal income tax return for such year, and
following such revision, (y) the Partnership shall distribute to such Partner
the excess (if any) of the amount that should have been distributed to such
Partner pursuant to this Section 5.1(b)(iii) based on such revised estimate,
over the amount actually distributed to such Partner pursuant to this Section
5.1(b)(iii), plus interest thereon at the rate paid by the Partnership on its
senior Indebtedness, or (z) such Partner shall contribute to the Partnership the
excess (if any) of the amount actually distributed to such Partner pursuant to
this Section 5.1(b)(iii) over the amount that should have been distributed to
such Partner pursuant to this Section 5.1(b)(iii) based on such revised
estimate, plus interest thereon at the rate paid by the Partnership on its
senior Indebtedness. To the extent there is insufficient available cash to make
distributions pursuant to this Section 5.1(b)(iii) at the time required, the
Partnership shall pay interest on such shortfall at the rate paid by the
Partnership on its senior Indebtedness, and such interest shall be paid out of
the Partnership's first available Distributable Cash.
(iv) After the Partnership has made the distributions required by
clauses (ii) and (iii), the Partnership shall distribute (to the extent not
prohibited by any applicable contractual restrictions) any remaining
Distributable Cash to Paragon and TWE on a pari passu basis in redemption of
outstanding Series A Preferred Partnership Units, Series B Preferred Partnership
Units and Series C Preferred Partnership Units, at a redemption price of $1,000
per Series A Preferred Partnership Unit, Series B Preferred Partnership Unit or
Series C Preferred Partnership Unit, as the case may be, so that the Partnership
shall have redeemed such Series A Preferred Partnership Units, Series B
Preferred Partnership Units and Series C Preferred Partnership Units in
accordance with the following:
(A) Prior to the seventh anniversary of the First Effective
Date, the Partnership shall have redeemed one-third of the number of Series
A Preferred Partnership Units and Series B Preferred Partnership Units
originally issued pursuant to Section 4.2(a)(v)(B) or Section 4.2(b) of the
First Amended Agreement;
(B) Prior to the eighth anniversary of the First Effective
Date, the Partnership shall have redeemed, in the aggregate, two-thirds of
the number of Series A Preferred Partnership Units and Series B Preferred
Partnership Units, plus one-third of the number of Series C Preferred
Partnership Units, in each case that were originally issued pursuant to
Sections 4.2(a)(v)(B) and 4.2(b) of the First Amended Agreement; and
(C) Prior to the ninth anniversary of the First Effective
Date, the Partnership shall have redeemed, in the aggregate, all of the
outstanding number of Series A Preferred Partnership Units and Series B
Preferred Partnership Units, plus two-thirds of the number of Series C
Preferred Partnership Units, in each case that were originally issued
pursuant to Sections 4.2(a)(v)(B) and 4.2(b) of the First Amended
Agreement; and
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36
(D) On and after the tenth anniversary of the First
Effective Date, the Partnership shall have redeemed all outstanding Series
A Preferred Partnership Units, Series B Preferred Partnership Units and
Series C Preferred Partnership Units.
Each distribution pursuant to this Section 5.1(b)(iv) shall be made with
respect to the Series A Preferred Partnership Units, the Series B Preferred
Partnership Units and Series C Preferred Partnership Units, as applicable, held
by Paragon and TWE, pari passu, in proportion to the number of each outstanding.
(v) After the Partnership shall have made all distributions
required by clauses (ii), (iii) and (iv), any remaining Distributable Cash
shall, at least quarterly, be distributed to the Partners in accordance with
their Residual Percentage Interests.
(c) [Intentionally Omitted]
(d) Net Proceeds of Sale. Following the sale, exchange, or other
disposition of all or substantially all of the assets of the Partnership, or
upon the liquidation of the Partnership within the meaning of Treasury
Regulations Section 1.704-1(b)(2)(ii)(g), and after payment of, or adequate
provision for, the debts and obligations of the Partnership, the remaining
assets of the Partnership shall be distributed to the Partners (after giving
effect to all contributions, distributions, allocations, and other Capital
Account adjustments for all taxable years, including the year during which such
liquidation occurs) as follows:
(i) [Intentionally Omitted]
(ii) First, the Priority Return accrued and unpaid as of the date
of liquidation shall be distributed to Paragon and TWE in respect of the Series
A Preferred Partnership Units, the Series B Preferred Partnership Units and the
Series C Preferred Partnership Units held by each of them, as applicable, on a
pari passu basis in proportion to the amounts of such returns;
(iii) Second, all outstanding Series A Preferred Partnership
Units, Series B Preferred Partnership Units and Series C Partnership Units shall
be redeemed at a redemption price of $1,000 per Series A Preferred Partnership
Unit, Series B Partnership Unit or Series C Partnership Unit, as the case may
be; and
(iv) Finally, the remaining assets of the Partnership shall be
distributed to the Partners so as to effectuate the agreement among the Partners
that the distributions remaining after paying Taxes on the Partners' Special
Income and Gross Profit and Gross Loss allocated under Section 5.3(d)(ii) with
respect to the year of such distribution are in proportion to their respective
Residual Percentage Interests, assuming all Partners are taxed at the Special
Effective Tax Rate.
(e) Withholding. All amounts withheld pursuant to the Code or any
provision of any state or local tax law with respect to any payment or
distribution to a
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37
Partner shall be treated as amounts distributed to such Partner pursuant to
Section 5.1 for all purposes of this Agreement.
5.2 Application of First Amended Agreement. For the avoidance of doubt, any
reference to an allocation or distribution for any prior Fiscal Year pursuant to
Section 5 (or any subsection thereof) of this Agreement shall include, as
appropriate, any allocation or distribution pursuant to Section 5 (or the
corresponding section thereof) of the First Amended Agreement.
5.3 Allocations of Net Profit and Net Loss With Respect to the Residual
Business.
(a) [Intentionally Omitted]
(b) Allocations of Net Profit. Except as otherwise provided in Section
5.3(d), after giving effect to the allocations provided in Section 5.5, the Net
Profit for each Fiscal Year (or portion thereof) shall be allocated to the
Partners as follows:
(i) First, Net Profit shall be allocated to Paragon and TWE (on a
pari passu basis in proportion to the excess amounts calculated in clauses (A)
and (B) below, respectively):
(A) until Paragon shall have been allocated, with respect to
the Series A Preferred Partnership Units, the Series B Preferred
Partnership Units and the Series C Preferred Partnership Units held by it,
Net Profit in an amount equal to the excess, if any, of (I) the aggregate
Net Loss allocated to Paragon pursuant to Section 5.3(c)(ii)(A) for all
prior Fiscal Years over (II) the aggregate Net Profit allocated to such
Partnership Units pursuant to this Section 5.3(b)(i)(A) for all prior
Fiscal Years, which allocation shall be divided among the Series A
Preferred Partnership Units, the Series B Preferred Partnership Units and
the Series C Preferred Partnership Units held by Paragon, pari passu, in
proportion to such excess amount calculated for each of them; and
(B) until TWE shall have been allocated, with respect to the
Series C Preferred Partnership Units held by it, Net Profit in an amount
equal to the excess, if any, of (I) the aggregate Net Loss allocated to TWE
pursuant to Section 5.3(c)(ii)(B) for all prior Fiscal Years over (II) the
aggregate Net Profit allocated to such Partnership Units pursuant to this
Section 5.3(b)(i)(B) for all prior Fiscal Years.
(ii) Second, Net Profit shall be allocated to Paragon and TWE (on
a pari passu basis in proportion to the excess amounts calculated in clauses (A)
and (B) below, respectively):
(A) until Paragon shall have been allocated, with respect to
the Series A Preferred Partnership Units, the Series B Preferred
Partnership Units and the Series C Preferred Partnership Units held by it,
Net Profit in an amount equal to the excess, if any, of (I) the cumulative
Series A Priority Return,
<PAGE>
38
the cumulative Series B Priority Return and the cumulative Series C
Priority Return, in each case accrued through the end of such Fiscal
Year (or portion thereof) over (II) the aggregate Net Profit allocated
to such Partner pursuant to this Section 5.3(b)(ii)(A) for all prior
Fiscal Years, which amount of Net Profit shall be allocated among the
Series A Preferred Partnership Units, the Series B Preferred
Partnership Units and the Series C Preferred Partnership Units held by
Paragon, pari passu, in proportion to such excess amount calculated
for each of them; and
(B) until TWE shall have been allocated with respect to the
Series C Partnership Units held by it, Net Profit in an amount equal
to the excess, if any, of (I) the cumulative Series C Priority Return
accrued through the end of such Fiscal Year (or portion thereof) over
(II) the aggregate Net Profit allocated to such Partner pursuant to
this Section 5.3(b)(ii)(B) for all prior Fiscal Years.
(iii) Third, Net Profit shall be allocated to the Partners, in
proportion to and to the extent of the amount required to be allocated pursuant
to this Section 5.3(b)(iii), until each such Partner has been allocated Net
Profit pursuant to this Section 5.3(b)(iii) in an amount equal to the excess of
(y) such Partner's aggregate Maximum Income Amount for such Fiscal Year and all
prior Fiscal Years, over (z) the aggregate Net Profit allocated to such Partner
pursuant to this Section 5.3(b)(iii) for all prior Fiscal Years; and
(iv) Thereafter, Net Profit shall be allocated to the Partners in
accordance with their Residual Percentage Interests.
(c) Allocations of Net Loss. Except as otherwise provided in
Section 5.3(d), after giving effect to the allocations provided in Section 5.5,
Net Loss for each Fiscal Year (or portion thereof) shall be allocated as
follows:
(i) First, Net Loss for such Fiscal Year (or portion thereof)
shall be allocated to the Partners in accordance with their Residual Percentage
Interests until each Partner's Capital Account is reduced to the sum of (x) the
excess, if any, of the aggregate Net Profit allocated to such Partner pursuant
to Section 5.3(b)(iii) for all prior Fiscal Years, over the aggregate Special
Tax Amounts distributed to such Partner pursuant to Sections 5.1(a)(iii) and
5.1(b)(iii) for all prior Fiscal Years, plus (y) the amount of such Partner's
Preferred Sub-Account.
(ii) Second, Net Loss for such Fiscal Year (or portion thereof)
shall be allocated to Paragon and TWE (on a pari passu basis in proportion to
the excess amounts calculated in clauses (A) and (B) below, respectively):
(A) with respect to the Series A Preferred Partnership Units
and the Series B Preferred Partnership Units and the Series C Preferred
Partnership Units held by Paragon, until Paragon's Capital Account has been
reduced to the excess, if any, of the aggregate Net Profit allocated to
Paragon
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