Partnership Agreement - Advance/Newhouse Partnership, Time Warner Entertainment Co. LP and Paragon Communications
SECOND AMENDED AND RESTATED PARTNERSHIP AGREEMENT
OF
TIME WARNER ENTERTAINMENT-ADVANCE/NEWHOUSE PARTNERSHIP
Dated as of August 1, 2002
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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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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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"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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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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"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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(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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"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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(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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"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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"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,
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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
<PAGE>
39
pursuant to Section 5.3(b)(iii) for all prior Fiscal Years, over the
aggregate Special Tax Amounts distributed to pursuant to Sections
5.1(a)(iii) and 5.1(b)(iii) for all prior Fiscal Years, which allocation
shall be divided among the Series A Preferred Partnership Units, the Series
B Preferred Partnership Units and the Series C Preferred Partnership Units
held by Paragon, pari passu, in proportion the amount calculated with
respect to each of them; and
(B) with respect to the Series C Preferred Partnership Units
held by TWE, until TWE's Capital Account has been reduced to the excess, if
any, of the aggregate Net Profit allocated to TWE pursuant to Section
5.3(b)(iii) for all prior Fiscal Years, over the aggregate Special Tax
Amounts distributed to pursuant to Sections 5.1(a)(iii) and 5.1(b)(iii) for
all prior Fiscal Years.
(iii) Thereafter, Net Loss for such Fiscal Year (or portion
thereof) shall be allocated to the Partners in accordance with their Residual
Percentage Interests.
(d) Allocation of Gain or Loss Upon Sale. Notwithstanding Section
5.3(b) and Section 5.3(c), in the event of a sale, exchange, or other
disposition of all or substantially all of the assets of the Partnership, or
upon the liquidation of the Partnership within the meaning of Treasury
Regulations Section 1.704-1(b)(2)(ii)(g), beginning in the year in which the
contract or agreement for such sale is entered into or, if such contract or
agreement is entered into on or prior to the date on which the Partnership's
Federal income tax return with respect to the prior year is required to be filed
(not including any extensions), beginning in such prior year:
(i) First, Gross Profit shall be allocated to Paragon and TWE (on
a pari passu basis in proportion to the excess amounts calculated in clauses (A)
and (B) below, respectively):
(A) until Paragon shall have been allocated Gross Profit in
an amount equal to the excess, if any, of (I) the sum of (x) the aggregate
Net Loss allocated to Paragon pursuant to Section 5.3(c)(ii)(A) for all
prior Fiscal Years, and (y) the cumulative Series A Priority Return, Series
B Priority Return and Series C Priority Return accrued through the end of
such Fiscal Year (or portion thereof), over (II) the aggregate Net Profit
allocated to Paragon pursuant to Sections 5.3(b)(i)(A) and Section
5.3(b)(ii)(A) for all prior Fiscal Years, which allocation shall be divided
among the Series A Preferred Partnership Units, the Series B Preferred
Partnership Units and the Series C Preferred Partnership Units held by
Paragon, pari passu, in proportion to such excess amount calculated for
each of them; and
(B) Until TWE shall have been allocated Gross Profit in an
amount equal to the excess, if any, of (I) the sum of (x) the aggregate Net
Loss allocated to TWE pursuant to Section 5.3(c)(ii)(B) for all prior
Fiscal Years, and (y) the cumulative Series C Priority Return accrued
through the end of such Fiscal Year (or portion thereof), over (II) the
aggregate Net Profit allocated to TWE
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40
pursuant to Sections 5.3(b)(i)(B) and Section 5.3(b)(ii)(B) for all prior
Fiscal Years.
(ii) Finally, Gross Profit and Gross Loss shall be allocated to
the Partners so as to cause the credit balance in each Partner's Capital Account
to equal, as nearly as possible, the amount each Partner would receive in a
distribution on dissolution, if the distribution were made in accordance with
Section 5.1(d).
In the event that such sale or liquidation does not take place within the
year following the year of the signing of the contract or agreement, or upon the
termination of such contract or agreement, if earlier, allocations of Gross
Profit or Gross Loss shall be made to reverse, as rapidly as possible, the
effect of any such allocations made pursuant to this Section 5.3(d).
5.4 Section 754 Adjustment. To the extent any adjustment to the adjusted
tax basis of any asset of the Partnership pursuant to Code Section 734(b) or
Code Section 743(b) is required, pursuant to Treasury Regulations Section
1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts,
the amount of such adjustment shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis), and such gain or loss shall be specially allocated to the
Partners in a manner consistent with the manner in which their Capital Accounts
are required to be adjusted pursuant to such Section of the Treasury
Regulations. Any Partner may cause the Partnership to make any election
permitted under Code Section 754.
5.5 Other Rules Governing Allocations With Respect to the Residual
Business.
(a) In the event that the Partnership is entitled to an income tax
deduction for the excess of the Closing Price of a unit of TWX Securities on the
Initial Closing Date over the exercise price paid by the Eligible Option Holder
for such unit of TWX Securities, such deduction and an equal amount of Gross
Loss shall be specifically allocated to TWE or Paragon, as appropriate, and TWE
or Paragon, as appropriate, shall be deemed to have made a capital contribution
to the Partnership in the same amount.
(b) In the event that, pursuant to any Final Determination of the
Partnership's Taxable Income or Taxable Loss or the Partner's distributive
shares thereof, (i) the Partnership's Taxable Income or Taxable Loss is adjusted
or (ii) the Partners' distributive shares of the Partnership's Taxable Income or
Taxable Loss are adjusted, Gross Profit or Gross Loss shall be allocated to the
Partners to reflect the adjustments to the Partnership's Taxable Income or
Taxable Loss or the Partners' distributive shares thereof so as to place the
Partners as rapidly as possible, in conjunction with any distribution or
contribution pursuant to Section 5.1(a)(iii) and Section 5.1(b)(iii), in the
same relative positions they would have been in had the Taxable Income or
Taxable Loss or distributive shares thereof as adjusted been taken into account
originally (including any interest with respect to any deficiency or any
refund).
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41
(c) In the event that interest is paid by the Partnership to a Partner
pursuant to Section 5.1(a)(iii) or Section 5.1(b)(iii), a special allocation of
Gross Profit shall be made to such Partner in an amount equal to the amount of
such interest.
(d) If any fees or other payments deducted for federal income tax
purposes by the Partnership are recharacterized by a Final Determination of the
Internal Revenue Service as nondeductible distributions to any Partner, then,
notwithstanding all other allocation provisions, Gross Profit shall be allocated
to such Partner (for each Fiscal Year in which such recharacterization occurs)
in an amount equal to the fees or payments recharacterized.
(e) All items of Partnership income, gain, loss, deduction, and any
other allocations not otherwise provided for shall be allocated among the
Partners in the same proportion as they share the Net Profits, Net Losses, Gross
Profits or Gross Loss to which such items relate for the Fiscal Year. Any
credits against income tax shall be allocated among the Partners in accordance
with their Residual Percentage Interests.
(f) For any year with respect to which the Partnership is required to
pay New York City Unincorporated Business Tax, such tax shall be allocated among
the Partners in a manner so that the benefit of any deduction, credit, exemption
or exclusion that is available to the Partnership as a result of the activities,
income or status of or payments by a particular Partner (a "Credit Partner")
shall be allocated entirely to such Credit Partner. The foregoing shall be
accomplished by charging the amount of such tax to the Capital Account of any
Partner that is not a Credit Partner and by distributing to any Credit Partner
an amount that bears the same proportion to such tax as such Credit Partner's
Residual Percentage Interest bears to the Residual Percentage Interest of the
Partner that is not a Credit Partner.
(g) [Intentionally Omitted]
(h) In the event that any item or items of income, gain, loss or
deduction of the Partnership or any Partner is reallocated between the
Partnership and any Partner, then the allocations of the income, gain, loss or
deduction of the Company for the year in which such reallocation occurs shall be
made in such a fashion that the Capital Accounts of all Partners, after taking
into account any deemed contributions or distributions arising in connection
with such reallocation, shall be, to the greatest extent possible, in the same
amounts as they would have been in had such reallocation not occurred.
5.6 Tax Allocations With Respect to the Residual Business.
(a) Income, gain, loss, and deduction with respect to any property
contributed to the capital of the Partnership, including property purchased with
cash contributed to the capital of the Partnership by a Partner shall, solely
for tax purposes, be allocated among the Partners so as to take account of any
variation between the adjusted basis of such property to the Partnership for
Federal income tax purposes and its initial
<PAGE>
42
Gross Asset Value in accordance with the remedial allocation method set forth in
Treasury Regulations Section 1.704-3(d).
(b) If the Gross Asset Value of any asset of the Partnership is
adjusted pursuant to paragraph (ii) of the definition of Gross Asset Value,
subsequent allocations of income, gain, loss, and deduction with respect to such
asset shall take account of any variation between the adjusted basis of such
asset for Federal income tax purposes and its Gross Asset Value in accordance
with Section 704(c) and the Treasury Regulations promulgated thereunder,
including Treasury Regulations Sections 1.704-1(b)(4)(i) and 1.704-3(d).
(c) Subject to Section 11.5, any election or other decision relating
to any allocations pursuant to this Section 5.6 shall be made by the
Partnership, upon the approval of such election or other decision by the
Managing Partner, in any manner that reasonably reflects the purpose and
intention of this Agreement. Allocations pursuant to this Section 5.6 are solely
for purposes of Federal, state, and local taxes and shall not affect, or in any
way be taken into account in computing, any Partner's Capital Account or share
of Net Profit, Net Loss, other items, or distributions pursuant to any provision
of this Agreement.
5.7 Regulatory Allocations. The provisions of Section 5.3 (and Section
5A.3, if applicable), are intended to comply with Treasury Regulations Section
1.704-1(b) and shall be interpreted and applied in a manner consistent with such
Treasury Regulation. The Managing Partner shall be authorized to make
appropriate amendments to the allocation of items pursuant to Section 5.3 (and
Section 5A.3, if applicable) if necessary to comply with Section 704 of the Code
or the applicable Treasury Regulations thereunder; provided that, nothing in
this Section 5.7 shall affect any amounts to be distributed to the Partners
hereunder (including, in the event that Section 5A.3 becomes applicable,
distributions to Advance/Newhouse from the Selected Business).
5.8 Allocations With Respect to the Residual Business in Event of Transfer.
If any Partnership Units of TWE or Paragon are transferred in accordance with
Section 6.1, the Net Profit and Net Loss of the Partnership shall be allocated
between the periods before and after the transfer by the closing of the books
method. As of the date of such transfer, the transferee shall succeed to the
Capital Account, Common Capital Contribution, Series A Preferred Capital
Contribution, Series B Preferred Capital Contribution and Series C Preferred
Capital Contribution of the transferor Partner, to the extent that the
transferor's Capital Account, Common Capital Contribution, Series A Preferred
Capital Contribution, Series B Preferred Capital Contribution and Series C
Preferred Capital Contribution relate to the transferred interest. This Section
shall apply for purposes of computing a Partner's Capital Account and for
federal income tax purposes.
5.9 Other Distributions.
(a) Pre-Restructuring Effective Date Distributions. With respect to
the period ending on the day immediately preceding the Restructuring Effective
Date, the
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43
Partnership has, on or immediately prior to the satisfaction of
Advance/Newhouse's obligations under the Debt Assumption Agreement (as defined
in the Master Transaction Agreement) on the Restructuring Effective Date, made
certain distributions of cash to Advance/Newhouse, TWE and Paragon in accordance
with the provisions of Section 5.1(a)(ii) and (iii) of the First Amended
Agreement; provided, that no such distribution was made with respect to Taxes
arising as a result of the Restructuring Transactions that would have been
reflected in the calculation of Restructuring Indebtedness and/or Excess Tax
Amount Indebtedness (as such terms are defined in the First Amended Agreement)
pursuant to Section 8.2 of the First Amended Agreement.
(b) Permitted Future Payments to Advance/Newhouse. Following the
Restructuring Effective Date, the Partnership shall authorize the Selected
Business to make payments to Advance/Newhouse out of funds available in the
Selected Business as Advance/Newhouse requests in its sole discretion.
5.10 Adjustments.
In the event that, following the Restructuring Effective Date, an
adjustment is made by any Governmental Authority that results in an increase or
decrease in Tax owed by any Partner with respect to its Partnership Interest (as
defined in the First Amended and Restated Agreement) for any taxable year (or
portion thereof) ending on or prior to the Restructuring Effective Date, the
following provisions shall apply:
(a) If the adjustment results in an increase in Tax:
(i) no Partner shall have any right of reimbursement from any
other Partner for such increase in Tax; and
(ii) Advance/Newhouse shall have no right to additional
distributions, other than from the Selected Business.
(b) If the adjustment results in a decrease in Tax:
(i) no Partner shall have any obligation to make any payment to
any other Partner in respect of such decrease in Tax; and
(ii) no Partner shall have any obligation to make contributions to
the Partnership.
5.11 Tax Proceedings. The Partners agree as follows:
(a) Tax Proceedings Relating to Non-Income Taxes.
(i) Advance/Newhouse shall have sole control over any Tax
Proceeding relating to Non-Income Taxes of the Selected Business, regardless of
the taxable period to which the proceeding relates.
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44
(ii) TWE shall have sole control over any Tax Proceeding relating
to Non-Income Taxes of the Residual Business, regardless of the taxable period
to which the proceeding relates.
(b) Tax Proceedings Relating to Income Taxes.
(i) TWE shall handle Tax Proceedings of the Partnership relating
to Income Taxes for all taxable periods (or portions thereof) ending on or prior
to the Restructuring Effective Date, pursuant to its authority as Tax Matters
Partner.
(ii) Advance/Newhouse shall have sole control over any Tax
Proceeding relating to Income Taxes of the Selected Business for any taxable
period (or portion thereof) that begins on or after the Restructuring Effective
Date.
(iii) TWE shall have sole control over any Tax Proceeding
relating to Income Taxes of the Residual Business for any taxable period (or
portion thereof) that begins on or after the Restructuring Effective Date.
(c) Cooperation.
(i) Advance/Newhouse agrees to provide such cooperation to TWE as
TWE may reasonably request in connection with any Tax Proceeding, including
providing TWE with access to those portions of the books and records of the
Selected Business that may be relevant to such Tax Proceeding.
(ii) TWE agrees to provide such cooperation to Advance/Newhouse
as Advance/Newhouse may reasonably request in connection with any Tax
Proceeding, including providing Advance/Newhouse with access to those portions
of the books and records of the Residual Business that may be relevant to such
Tax Proceeding.
SECTION 6 TRANSFERS OF PARTNERSHIP INTERESTS
6.1 Restrictions on Transfer.
(a) Transfers Generally Prohibited. Except in connection with a
restructuring under Section 8.1, until a restructuring is effected in accordance
with Section 8.1, no Partner shall, directly or indirectly, sell, transfer,
assign, grant a participation in, or otherwise dispose of all or any part of its
Partnership Interest (including through the issuance of equity interests in such
Partner) unless:
(i) the transaction complies with all agreements entered into by
the Partnership with third parties to which transfers of Partnership Interests
are subject; and
(ii) the transferee of the Partner's Partnership Interest is
admitted to the Partnership as a Partner and agrees to be bound by all the
provisions of this Agreement; and
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45
(iii) the transaction is (A) a transfer of all of a Partner's
Partnership Interest (1) to a Newhouse Family Member, or to an Affiliate of
Advance/Newhouse so long as at least 80% of the equity of such Affiliate is
owned directly or indirectly by one or more Newhouse Family Members, in the case
of Advance/Newhouse, (2) to a Wholly-Owned Affiliate of TWE, in the case of TWE,
or (3) to TWE, ATW or a Wholly-Owned Affiliate of TWE or ATW, in the case of
Paragon, (B) a transfer to the partners of TWE pursuant to a liquidation of TWE
in which ATW or one or more of its Affiliates receives a majority of the Series
RB Common Partnership Units owned by TWE, and ATW or such Affiliates agree to
assume all the obligations of Managing Partner of the Partnership hereunder, (C)
a transfer in connection with the incorporation of TWE (including any public
offering of the stock of the corporate successor of TWE) pursuant to Article
XIII of the TWE Partnership Agreement or otherwise, provided that ATW (or its
Affiliates) exercises control over the corporate successor to TWE, and such
corporate successor agrees to assume all the obligations of Managing Partner of
the Partnership hereunder, (D) a transfer in connection with the incorporation
of Advance/Newhouse or pursuant to a public offering of partnership units in
Advance/Newhouse (or of stock in the corporate successor of Advance/Newhouse) so
long as, after giving effect to such public offering, Newhouse Family Members
would own directly or indirectly at least 20% of the equity interests, and a
majority of the voting interests, in Advance/Newhouse (or its corporate
successor); (E) an issuance by TWE of any partnership interest in TWE so long
as, after giving effect to such issuance, ATW would directly or indirectly own
an interest at least equal to the TWI Minimum Interest (as defined in the TWE
Partnership Agreement as in effect on September 9, 1994); (F) a "spinoff" or
other distribution of TWE or its corporate successor to the shareholders of ATW;
or (G) a pledge by any Partner of all or any portion of its Partnership
Interests to a bank or other financial institution in connection with securing a
bona fide loan made to such Partner; and
(iv) the transferee of such Partner's Partnership Interests is a
domestically incorporated corporation, or a partnership or limited liability
company, all of the partners or members of which are domestically incorporated
corporations, or partnerships or limited liability companies of such type.
For the purposes of the foregoing, "Newhouse Family Member" shall mean any
Person who is a lineal descendant (including adoptees) of Meyer and Rose
Newhouse, or any entity which is wholly-owned directly or indirectly by one or
more of such lineal descendants, or any trust established for the sole benefit
of one or more of such lineal descendants or their spouses.
(b) Ownership. Except as expressly permitted by this Agreement, each
Partner shall (i) be the owner of the Partnership Interest indicated in the
Partnership's records as being owned by such Partner, and (ii) have sole voting
power with respect to its Partnership Interest and will not grant any proxy with
respect to such Partnership Interest, enter into any voting trust or other
voting agreement or arrangement with respect to such Partnership Interest, or
grant any other rights to vote such Partnership Interest; provided, however,
that the foregoing shall not limit the ability of a
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Partner to enter into agreements not inconsistent with this Agreement that
restrict such Partner's ability to transfer its Partnership Interest.
(c) Transferees Bound. After any sale, assignment, transfer, or other
conveyance of a Partnership Interest in accordance with the provisions of this
Agreement, the transferred Partnership Interest shall continue to be subject to
all of the provisions of this Agreement, including the provisions of this
Section 6.
SECTION 7 FINANCING COVENANTS AND REPRESENTATIONS
7.1 Representations, Warranties and Covenants of Advance/Newhouse.
(a) Advance/Newhouse represents and warrants to the TWE Group that as
of the Restructuring Effective Date:
(i) the ratio of (A) the sum of all outstanding Indebtedness of
Advance/Newhouse, each of its Controlled Affiliates (including the Selected
Business) to (B) EBITDA of the Selected Business for the last four fiscal
quarters, is not in excess of 5:1.
(ii) all financing arrangements entered into by any member of the
Advance/Newhouse Group (A) permit the payments required by the Master
Transaction Agreement and all Restructuring Transaction Agreements and all
transactions contemplated thereby, and (B) are nonrecourse to all members of the
TWE Group.
(b) Advance/Newhouse hereby covenants and agrees that:
(i) the ratio of (i) the sum of all outstanding Indebtedness of
Advance/Newhouse, each of its Controlled Affiliates (including the Selected
Business) to (ii) EBITDA of the Selected Business for the trailing last four
complete fiscal quarters, shall not exceed 5:1; and
(ii) all financing arrangements entered into by any member of the
Advance/Newhouse Group shall (A) permit the payments required by the Master
Transaction Agreement and all Restructuring Transaction Agreements and all
transactions contemplated thereby, and (B) be nonrecourse to all members of the
TWE Group.
7.2 Representations, Warranties and Covenants of TWE.
(a) TWE represents and warrants to the Advance/Newhouse Group that as
of the Restructuring Effective Date:
(i) the ratio of (A) the sum of all Indebtedness of the Residual
Business to (B) EBITDA of the Residual Business for the last four fiscal
quarters, is not in excess of 5:1; and
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(ii) all financing arrangements entered into by any member of the
TWE Group (A) permit the payments required by the Master Transaction Agreement
and all Restructuring Transaction Agreements and all transactions contemplated
thereby, and (B) are nonrecourse to all members of the Advance/Newhouse Group
(excluding the Selected Business prior to the Closing, but including the
Selected Subsidiary).
(b) TWE hereby covenants and agrees that:
(i) the ratio of (i) the sum of all Indebtedness of the Residual
Business to (ii) EBITDA of the Residual Business for the trailing last four
complete fiscal quarters, shall not exceed 5:1; and
(ii) all financing arrangements entered into by any member of
the TWE Group shall (A) permit the payments required by the Master Transaction
Agreement and all Restructuring Transaction Agreements and all transactions
contemplated thereby, and (B) be nonrecourse to all members of the
Advance/Newhouse Group (excluding the Selected Business prior to the Closing,
but including the Selected Subsidiary).
(c) The Partners and the Partnership have delivered to JP Morgan
Chase Bank, as Collateral Agent, on its own behalf and on behalf of the other
Secured Parties, a Consent and Agreement dated as of the Restructuring Effective
Date (the "Refinancing Consent") relating to certain matters arising under the
Credit Agreement and the Guarantee and Collateral Agreement entered into by
Advance/Newhouse and certain of its Affiliates as of the Restructuring Effective
Date as part of the Refinancing Arrangements. TWE and Paragon hereby extend to
the Advance/Newhouse Group the same agreement set forth in clause 2(a)(vi) of
such Refinancing Consent as if the same clause were set forth herein and
additionally agree that as so incorporated herein the following clause "(or any
subsequent refinancings of such refinanced debt)" shall be deemed to be included
after the reference to "Credit Agreement" in such clause.
SECTION 8 RESTRUCTURING OF PARTNERSHIP AT ELECTION OF EITHER PARTNER
8.1 Restructuring Rights. Advance/Newhouse or TWE, at any time after the
Restructuring Effective Date may, upon written notice (the "Restructuring
Notice") to the other Partner, state its intention to cause a restructuring of
the Partnership.
(a) On the earliest practical date following the delivery of a
Restructuring Notice by either Advance/Newhouse or TWE (the date of consummation
of restructuring, "Final Restructuring Date"), the Selected Business shall be
distributed to Advance/Newhouse in complete liquidation of its Series SB
Partnership Units as follows:
(i) On the Final Restructuring Date, if such date is prior to the
Closing Date, the Partnership shall duly execute and deliver to
Advance/Newhouse, and Advance/Newhouse shall duly execute and deliver to the
Partnership, a contribution agreement substantially in the form of the
Contribution Agreement (including the bill of sale and assignment, instrument of
assignment and assumption agreement attached as
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exhibits thereto); provided, however, that all references to the Selected
Subsidiary therein shall be deemed to be references to Advance/Newhouse and all
references to Closing Date shall be deemed to be references to the Final
Restructuring Date.
(ii) On the Final Restructuring Date, if such date is on or
following the Closing Date, the Partnership shall execute and deliver to
Advance/Newhouse a stock power in blank or other similar form of instrument of
assignment, transferring the Partnership's membership interests in the Selected
Subsidiary to Advance/Newhouse free and clear of any liens created by the
Residual Business and the TWE Group
(iii) On the Final Restructuring Date, if such date is on or
prior to Closing, each of the Partnership and TWE shall duly execute and deliver
to Advance/Newhouse and Advance/Newhouse shall duly execute and deliver to the
Partnership and TWE, an employee benefits agreement substantially in the form of
the Employee Benefits Agreement; provided that references therein to the Closing
Date shall be deemed to be references to the Final Restructuring Date.
(iv) On the Final Restructuring Date, if such date is on or prior
to Closing, each of the Partnership and TWE shall duly execute and deliver to
Advance/Newhouse and Advance/Newhouse shall duly execute and deliver to the
Partnership and TWE, an intellectual property agreement substantially in the
form of the Intellectual Property Agreement; provided, however, that all
references to the Selected Subsidiary therein shall be replaced with
Advance/Newhouse and references therein to the Closing Date shall be deemed to
be references to the Final Restructuring Date.
(v) On the Final Restructuring Date, Advance/Newhouse shall pay
cash to TWE by wire transfer of immediately available funds to an account
designated by TWE in an amount equal to any accrued and unpaid Pre-Closing
Operating Costs.
(vi) On the Final Restructuring Date, the Parents Agreement and
all restrictions thereunder shall automatically terminate without any further
action of the parties.
(vii) Consummation of a restructuring pursuant to this Section
8.1 shall be subject to compliance with applicable laws and receipt of all
required approvals from Governmental Authorities not previously received. Each
Partner will cooperate and use its commercially reasonable efforts to cause the
restructuring to occur as promptly as practicable after the delivery of a
Restructuring Notice, including obtaining all consents from Franchising
Authorities, Governmental Authorities and other Persons required in connection
with the restructuring and otherwise consummating the restructuring in
compliance with all applicable laws.
(b) As of the Final Restructuring Date, Advance/Newhouse shall no
longer be deemed a Partner (as defined in this Agreement) and all of its
Partnership Interests shall terminate, except for (x) the rights and obligations
of Advance/Newhouse
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49
under Section 5.11, this Section 8.1, Section 8.2, Section 8.3, Section 8.4,
Section 11.3, Section 13 and Section 11.5 and (y) the rights set forth in the
last three sentence of Section 3.1(h)(i).
8.2 Limitations with Respect to the Selected Business. Until January 1,
2005, Advance/Newhouse may not contribute or assign (on a beneficial basis or
otherwise) any assets in the Selected Business or any rights related thereto (a
"Contribution") to a partnership, limited liability company, joint venture or
other entity (a "Contribution Entity"); provided that nothing herein shall be
deemed to (i) prevent Advance/Newhouse from receiving any securities from a
third party or parties in connection with a transaction under Section 8.3 or
(ii) prevent any transfers of assets in the Selected Business to any Newhouse
Family Member, so long as such transferee remains subject to the same provisions
of this Agreement with respect to such transferred assets as does
Advance/Newhouse. Following such date, Advance/Newhouse may make such
contribution of all or any portion of the assets in the Selected Business, so
long as the following terms are adhered to in connection with such contribution:
(a) In connection with its contribution of assets in the Selected
Business, Advance/Newhouse must receive and maintain at least 33.33% of the
common equity interests (which may be characterized, in addition to or in lieu
of common stock, as partnership interests, whether limited or general, or
limited liability company interests) or other similar interests in a
Contribution Entity, but subject to Section 8.2(i) below.
(b) Advance/Newhouse shall not receive (except as provided in the
provisos hereto), and the Contribution Entity shall be prohibited from
providing, any consideration in connection with its contribution of assets in
the Selected Business to a Contribution Entity other than common equity in such
Contribution Entity; provided that nothing herein shall be deemed to limit
receipt by Advance/Newhouse of (i) preferred equity interests in such
Contribution Entity in consideration for (A) contributions by Advance/Newhouse
of additional capital (not constituting assets in the Selected Business),
whether in cash or in property, to a Contribution Entity; or (B)
Advance/Newhouse foregoing receipt of distributions from the Contribution Entity
that are otherwise permitted hereunder; or (ii) up to an aggregate amount equal
to the sum of (x) the Assumed Debt (as defined in and as may be adjusted
pursuant to the Master Transaction Agreement) plus (y) one-third of the Cash
Amount (as defined in and as may be adjusted pursuant to the Master Transaction
Agreement), which consideration may be received in any combination of cash or
assumption of Indebtedness by the Contribution Entity.
(c) Advance/Newhouse may receive distributions from the Contribution
Entity, and the Contribution Entity may be allowed to make distributions to
Advance/Newhouse, only as provided in this Section 8.2(c). Advance/Newhouse may
receive distributions to the extent of its pro rata share of Operating Cash Flow
(as hereinafter defined), it being understood and agreed that such Operating
Cash Flow shall be determined on a cumulative basis during the entire period of
Advance/Newhouse's ownership interest in the Contribution Entity ("Regular
Distributions"). In addition to Regular Distributions, Advance/Newhouse may
receive distributions to the extent of its
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pro-rata ownership share in the Contribution Entity of the cash proceeds of (1)
borrowings, (2) issuances of equity in the Contribution Entity, or (3) sales of
assets by the Contribution Entity or its Subsidiaries ("Special Distributions").
Special Distributions (measured on a cumulative basis during the entire period
of Advance/Newhouse's ownership interest in the Contribution Entity) to
Advance/Newhouse out of the proceeds of borrowings or equity issuances or sales
of assets of the Contribution Entity to which the right of first offer described
in Section 8.3 does not apply shall not exceed Advance/Newhouse's pro-rata share
of an amount equal to (x) 2 times (y) Contribution Entity EBITDA for the twelve
month period calculated as of the end of the calendar month immediately
preceding the date of the distribution; provided that in connection with an
asset sale, in calculating Contribution Entity EBITDA pro forma effect shall be
given such asset sale by reducing Contribution Entity EBITDA by the amount of
Contribution Entity EBITDA generated by such assets during the preceding twelve
month period. Special Distributions resulting from asset sales by the
Contribution Entity to which the right of first offer applies will not be
subject to the limitations set forth in the preceding sentence. For purposes of
this Section 8.2(c), "Operating Cash Flow" shall mean, for any applicable
period, the Contribution Entity's consolidated (if applicable) net income (x)
plus, for such period, depreciation, amortization, decreases in working capital
(other than cash) losses on sales of assets, equity losses, dividends or
distributions from subsidiaries to the extent of any income of such subsidiaries
previously excluded from this definition of Operating Cash Flow under clause (z)
of this sentence, (y) minus, for such period, capital expenditures, increases in
working capital (other than cash), gains on sales of assets, equity income
(except to the extent of dividends or distributions actually received) and (z)
minus, for such period, income from subsidiaries to the extent dividends or
distributions from such entities are prohibited (by law or agreement),
determined in accordance with generally accepted accounting principles
consistently applied; and "Contribution Entity EBITDA" shall mean, for any
applicable period, the Contribution Entity's consolidated (if applicable)
operating income before interest, income taxes, depreciation and amortization
for such period, determined in accordance with generally accepted accounting
principles consistently applied; provided that if for any portion of any
applicable period the Contribution Entity was not in existence, Operating Cash
Flow and Contribution Entity EBITDA shall be calculated for such portion of the
applicable period based on the results of operations of the assets in the
Contribution Entity during such portion of the applicable period. It is
understood and agreed that nothing in this Partnership Agreement shall be deemed
to limit in any respect borrowings by the Contribution Entity or its
subsidiaries for purposes other than distributions to its equity holders. For
purposes of this clause (c), (i) borrowings by Advance/Newhouse in anticipation
of the contribution of assets to, and which borrowings are assumed by, a
Contribution Entity, and recourse borrowings by Advance/Newhouse that become
nonrecourse to Advance/Newhouse upon the contribution of assets to the
Contribution Entity, shall each be deemed borrowings by the Contribution Entity
and the distribution of an equivalent amount to Advance/Newhouse, which shall be
subject to the foregoing limitations, and (ii) any sale of assets by
Advance/Newhouse or its Affiliate to a Contribution Entity for a price in excess
of the fair market value of such assets shall be deemed a distribution of the
amount in excess of such fair market value, which shall be subject to the
foregoing limitations.
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(d) Any sale or disposition by the Contribution Entity of assets in
the Selected Business shall be subject to the right of first offer set forth in
Section 8.3 below, but subject to Section 8.2(i) below.
(e) Without the prior written consent of TWE, the equity interest in
the Contribution Entity received by Advance/Newhouse shall not be assignable,
other than an assignment of such interest, in whole or in part, to a Newhouse
Family Member which is subject to the same provisions of this Partnership
Agreement with respect to such transferred interest as are applicable to
Advance/Newhouse.
(f) Advance/Newhouse may pledge or otherwise encumber its equity
interest in the Contribution Entity received in respect of the assets in the
Selected Business contributed to the Contribution Entity provided that the
institution holding such pledge or encumbrance agrees that in the event of
foreclosure (or similar exercise of remedies), it may transfer such interest,
but the transferee of such interest shall be subject to the same limitations set
forth in this Section 8.2 and in Section 8.3 that are applicable to
Advance/Newhouse.
(g) In the event of any liquidation of the Contribution Entity
Advance/Newhouse must receive (except for any properties or assets that have
been sold or disposed of by the Contribution Entity without any violation of
this Section 8.2) the Systems (and related assets and subscribers) in the
Preferred Cluster Area (as defined in the First Amended Agreement) and in
respect of other Systems (and related assets and subscribers), either the
Systems (and related assets and subscribers) that were in the Selected Business
or the Systems (and related assets and subscribers) that were received in
exchange for such systems by the Contribution Entity and the governing documents
relating to the Contribution Entity shall contain a provision to the effect set
forth in this Section 8.2(g).
(h) Any such Contribution to a Contribution Entity must be entered
into by Advance/Newhouse in good faith as a true joint ownership enterprise of
the contributed assets and not a disguised sale of the assets in the Selected
Business.
(i) Notwithstanding anything to the contrary in the foregoing in this
Section 8.4, it is agreed that the Contribution Entity may transfer or assign a
portion of the assets in the Selected Business that was initially transferred to
it by Advance/Newhouse (alone or together with other assets) to another entity
(the "Transferee") in return solely for a common equity interest in such entity,
subject to the following limitations:
(i) the fair market value of the assets in the Selected Business
being contributed to the Transferee shall represent less than fifty percent
(50%) of the fair market value of the total assets of the Selected Business
owned by the contributing Contribution Entity;
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(ii) none of the other equity owners in the Transferee is an
Affiliate of any of the equity owners of the Contribution Entity or any of the
Affiliates of such equity owners;
(iii) the indirect, effective ownership interest of Advance/
Newhouse in the common equity of the Transferee (taking into account the
ownership of Advance/Newhouse in the Contribution Entity) shall be at least
sixteen and six tenths percent (16.6%); and
(iv) the Transferee shall be subject to the provisions of Section
8.4 to the same extent as such provisions are applicable to the Contribution
Entity.
From and after the Closing, the provisions of this Section 8.2 shall become
applicable to the Selected Subsidiary as well as to Advance/Newhouse so that the
Selected Subsidiary shall also have the rights and obligations under this
Section 8.2 as are applicable to Advance/Newhouse.
8.3 TWE Right of First Offer.
(a) If at any time Advance/Newhouse or any of its Affiliates that
succeed to its interest in the Selected Business (including, without limitation,
the Selected Subsidiary) desires to sell or otherwise dispose of all or any
portion of the assets of the Selected Business or any direct or indirect equity
interest therein, but excluding the transactions referred to in Section 8.3(h)
below (the "Transfer Assets"), Advance/Newhouse shall first offer to sell such
Transfer Assets on the terms and subject to the conditions set forth in this
Section 8.3, by giving written notice thereof to TWE (the "Offer Notice").
Advance/Newhouse may either provide an Offer Notice prior to commencing
substantive discussions with or soliciting offers from third parties (a "Pre-Bid
Offer Notice") or provide an Offer Notice after commencing substantive
discussions or soliciting bids from other parties (a "Post-Bid Offer Notice");
provided it is understood and agreed that Advance/Newhouse may, in connection
with a Pre-Bid Offer Notice, consult with and receive advice from investment
bankers or other advisors as to what third parties are likely to offer so long
as such investment bankers or advisors do not contact potential buyers in
connection with providing such advice. It is understood and agreed that for all
purposes of this Section 8.3, if substantive discussions with third parties are
commenced, but such discussions do not result in offers being solicited, then
after the lapse of six months from the date such substantive discussions have
ended, such discussions shall no longer be considered to have taken place for
purposes of determining if an Offer Notice is a Pre-Bid Offer Notice or a
Post-Bid Offer Notice.
(b) An Offer Notice shall specify: (i) the price for the Transfer
Assets subject to the Offer Notice; (ii) the types of currency (and terms of, if
applicable) for payment of such price, which currency may consist only of cash;
debt; common stock; preferred stock; convertible preferred stock; or such other
corporate security (an "Other Corporate Security") that (1) is generally
accepted by the financial community for use in acquisition transactions and (2)
may be replicated by ATW using commercially reasonable efforts; and (iii) other
material terms of the proposed offer to sell, including,
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53
without limitation, whether such transaction is to be tax-advantaged or
tax-deferred, which terms shall be such that ATW could comply with or satisfy
using commercially reasonable efforts. For purposes of this Section 8.3,
commercially reasonable efforts shall include, without limitation, requesting
any necessary shareholder, lender, governmental or other third party consents or
approvals for the lawful issuance of such securities referred to above or the
lawful undertaking of the transactions contemplated hereby that would be
customary in comparable transactions.
(c) Upon receipt of an Offer Notice, TWE may, within 10 days of
receiving such Offer Notice, by written notice to Advance/Newhouse request
information regarding the Transfer Assets subject to the Offer Notice reasonably
required to enable TWE to evaluate the proposed Offer Notice (unless such
information has been provided with or prior to the delivery of the Offer
Notice). Within the earlier of: (x) 20 business days following receipt of the
Offer Notice if TWE does not request additional information pursuant to the
preceding sentence; (y) where the Transfer Assets are not owned by a
Contribution Entity, 30 business days following receipt by TWE of written
certification from Advance/Newhouse that the information provided by
Advance/Newhouse to TWE is all the information that Advance/Newhouse has
provided, or will provide, to prospective purchasers of the Transfer Assets
(except for updated information to be supplied to maintain the accuracy of the
furnished information); or (z) where the Transfer Assets are owned by a
Contribution Entity, 30 business days following receipt by TWE of a written
certification from Advance/Newhouse (the "Contribution Entity Certification")
that TWE has been delivered such information as is reasonably required by TWE to
enable TWE to evaluate the proposed Offer Notice and as is reasonably available
to Advance/Newhouse or the Contribution Entity (which certification may
accompany the Offer Notice in the event such information has been provided with
or prior to the Offer Notice), but subject, in the case of clause (z), to
Section 8.3(g)(i), TWE shall, by written notice to Advance/Newhouse, either
accept or reject the offer set forth in the Offer Notice or make a counter-offer
(which counter-offer shall contain a price, the types of currency (and the terms
thereof) proposed to be paid and other material terms of the proposed
counter-offer; provided, however, that to qualify as a proper counter-offer
pursuant to this Section 8.3 any counter-offer by TWE must match the type or
types of currency proposed by Advance/Newhouse and in the same proportions as
proposed by Advance/Newhouse and, if Advance/Newhouse specifies a tax-advantaged
or tax-deferred transaction, such counter-offer must also specify a similar
transaction). If TWE disputes a Contribution Entity Certification given by
Advance/Newhouse pursuant to Section 8.3(c)(z) that it has delivered to TWE such
information as is reasonably required to enable TWE to evaluate the proposed
Offer Notice and is reasonably available to Advance/Newhouse or the Contribution
Entity, TWE shall give written notice of such dispute to Advance/Newhouse within
3 days of receipt of such certification from Advance/Newhouse.
(d) If TWE does not accept, within the time period specified in
Section 8.3(c) above, the offer set forth in the Offer Notice, or if TWE makes a
proper counter-offer within such time period as set forth in Section 8.3(c)
above, then, at the time of the lapse of such period for acceptance or receipt
of a written notice of rejection of such offer or a counter-offer from TWE,
Advance/Newhouse shall provide a written notice to TWE
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as to whether Advance/Newhouse had provided a Pre-Bid Offer Notice or a Post-Bid
Offer Notice. If a Pre-Bid Offer Notice was provided, the written notice
delivered pursuant to this Section 8.3(d) shall contain a representation to the
effect that neither Advance/Newhouse nor any investment bankers or advisors
acting at the direction of or on behalf of Advance/Newhouse had previously
commenced substantive discussions with or solicited bids from other parties in
respect of the Transfer Assets subject to the Offer Notice; provided that if
Advance/Newhouse must reoffer the Transferred Assets as contemplated pursuant to
Sections 8.3(e) or (f) below, such representation shall only apply to
solicitation of bids in connection with the most recent reoffer.
(e) If TWE does not accept, within the time period set forth in
Section 8.3(c) above, the offer set forth in the Offer Notice, then, subject to
compliance with the time frames set forth in this Section 8.3(e) for execution
of definitive agreements, Advance/Newhouse may sell the Transfer Assets subject
to the Offer Notice to a third party that is not an Affiliate of
Advance/Newhouse:
(i) for the types of currency specified in the Offer Notice and in
at least ninety-five percent (95%) of the minimum amount of each such type of
currency set forth in the Offer Notice;
(ii) in a tax-advantaged or tax-deferred transaction if
Advance/Newhouse specified such a transaction in the Offer Notice;
(iii) at a price equal to or greater than the greater of (A) the
value of TWE's last proper counter-offer pursuant to Section 8.3(c) (if any such
proper counter-offer was made) taking into account the amount and types of
currency offered by TWE and (B) ninety-five percent (95%) of the price specified
by Advance/Newhouse in the Offer Notice (such price, the "Required Minimum
Price"); and
(iv) on the other material terms specified in the Offer Notice.
If Advance/Newhouse does not sign definitive agreements for such a sale
pursuant to this Section 8.3(e) within (a) 90 days of TWE's non-acceptance of a
Post-Bid Offer Notice or (b) 180 days of TWE's non-acceptance of a Pre-Bid Offer
Notice, then the provisions of this Section 8.3 shall again be applicable.
(f) If TWE accepts, within the time period set forth in Section 8.3(c)
above, the offer set forth in the Offer Notice, or if Advance/Newhouse accepts a
counter-offer submitted by TWE, upon such acceptance, the terms of such accepted
offer or counter-offer, as the case may be, shall become binding upon the
parties. Advance/Newhouse and TWE shall negotiate in good faith to enter into
more formal agreements within 45 days of such acceptances (as the case may be),
but it is understood and agreed by TWE and Advance/Newhouse that notwithstanding
any failure to enter into more formal agreements, the terms of the accepted
offer or counter-offer, as the case may be, shall be binding upon the parties
and the transaction shall be consummated on the terms set forth in such accepted
offer or counter-offer, subject to Section 8.3(g)(ii) below.
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(g) (i) To the extent that there is a dispute under this Section 8.3
regarding (1) the Contribution Entity Certification as specified in the last
sentence of Section 8.3(c) above; (2) the general acceptance of the Other
Corporate Security suggested by Advance/Newhouse or replication by ATW of the
Other Corporate Security by ATW using commercially reasonable efforts; or (3)
the ability of ATW to comply with or satisfy with the other material terms
proposed by Advance/Newhouse using commercially reasonable efforts, such dispute
shall be conclusively determined by a nationally recognized investment bank
selected in the same manner as provided for the selection of the Appraiser in
Section 8.4(j) hereof, except that the investment banking firms selected by each
party shall be chosen within five business days of delivery of the Offer Notice
and such investment banking firms shall be instructed to make the selection of
the third investment banking firm within 5 business days after their selection.
Such determination by the investment bank so chosen shall be made as soon as
practicable in accordance with procedures established by such investment bank,
except that in respect of any dispute under clause (1) hereof, such
determination shall be made within 30 business days following the Contribution
Entity Certification given by Advance/Newhouse pursuant to Section 8.3(c)(z)
above. The fees, costs, and expenses of the investment banking firm so selected
shall be borne one-half by Advance/Newhouse and one-half by TWE. To the extent
that the investment bank determines under clause (1) that additional information
must be delivered to TWE, then TWE shall, by written notice to Advance/Newhouse,
either accept or reject the offer set forth in the Offer Notice or make a
counter-offer (in accordance with and subject to the terms of Section 8.3(c)
above), within 30 business days of receipt by TWE of such additional
information. If the investment bank determines under clause (1) that no
additional information is required to be delivered to TWE, then TWE shall, by
written notice to Advance/Newhouse, either accept or reject the offer set forth
in the Offer Notice or make a counter-offer (in accordance with and subject to
the terms of Section 8.3(c) above), within the later of (x) 30 days following
receipt by TWE of the Contribution Entity Certification or (y) 2 business days
of such determination by the investment bank.
(ii) To the extent that following an acceptance of an offer or
counter-offer, as the case may be, under Section 8.3(f) above, the parties fail
to enter into more formal agreements, and a dispute arises as to any additional
customary matters that must be addressed to complete the transaction that were
not addressed in the accepted offer or counter-offer, such dispute shall be
resolved (including whether such matter must be addressed and, if so, the terms
of how such matter should be addressed) by a nationally recognized investment
bank selected in the manner and within the time frames provided in Section
8.3(g)(i) above. Such determination by the investment bank so chosen shall be
made as soon as practicable in accordance with procedures established by such
investment bank. The fees, costs and expenses of the investment banking firm so
selected shall be borne one-half by TWE and one-half by Advance/Newhouse.
(iii) To the extent there is a dispute under this Section 8.3
regarding whether Advance/Newhouse is receiving the Required Minimum Price,
including any determination of the value of any counter-offer by TWE or the
value of an offer by Advance/Newhouse such dispute shall be conclusively
determined by a nationally recognized investment bank selected by Advance/
Newhouse, which selection
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shall be made within 10 business days of notice of a dispute. Such determination
by the investment banking firm so chosen shall be made as soon as practicable in
accordance with procedures established by such investment bank. The fees, costs
and expenses of the investment banking firm so selected shall be borne by
Advance/Newhouse.
(h) The right of first offer set forth in this Section 8.3 shall not
apply to (w) any exchange of Systems (and related assets) in the Selected
Business (other than Systems in Preferred Cluster Areas (as defined in the First
Amended Agreement) for other cable systems (and related assets) of third
parties, including an exchange which contemplates cash or other property being
received by Advance/Newhouse to equalize the exchange so long as the cash or
other property being received by Advance/Newhouse does not exceed 15 percent
(15%) of the total value of the property being exchanged by it; (x) any sale or
disposition of used equipment and similar assets that are not necessary to, or
any longer useful in, the continued operation of the Systems in the Selected
Business and do not constitute a complete System; (y) any contribution or
transfer of assets permitted pursuant to Section 8.2 above; or (z) any issuance
or transfer of equity in any direct or indirect equity holder of
Advance/Newhouse; provided that (i) such equity holder is not a Cable Company
(as defined below), (ii) such issuance or transfer is in compliance with the
Parents Agreement and (iii) the transferee of such equity interest does not have
any direct or indirect equity interest in a Contribution Entity (other than as a
result of such issuance or transfer) and, from and after such issuance or
transfer, such transferee will not acquire any direct or indirect interest in a
Contribution Entity from a Newhouse Family Member (other than as a result of
such issuance or transfer). For purposes of the foregoing, a "Cable Company"
means Advance/Newhouse or any other entity that directly or indirectly (through
the ownership of equity interests) owns assets in the Selected Business if at
least a majority of the fair market value of such entity's assets (other than
cash, cash equivalents and marketable securities) is comprised of Systems or
assets related thereto or a direct or indirect equity interest in an entity
owning or operating such assets.
(i) TWE may assign its rights under this Section 8.3 to ATW or any of
its Affiliates by delivering written notice of such assignment to
Advance/Newhouse; provided that no such assignment shall relieve TWE of its
obligations under this Section 8.3 and ATW shall use, and shall cause its
Affiliates to use, commercially reasonable efforts to prevent such assignment
from hindering or delaying consummation of the transactions contemplated under
this Section 8.3.
From and after the Closing, the provisions of this Section 8.3 shall become
applicable to the Selected Subsidiary as well as to Advance/Newhouse so that the
Selected Subsidiary shall also have the rights and obligations under this
Section 8.3 as are applicable to Advance/Newhouse.
8.4 Special Right of First Offer.
(a) Notwithstanding anything to the contrary in Section 8.3, during
the 30-day period (the "Special ROFO Period") immediately following each of the
first,
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seventh, thirteenth and nineteenth anniversaries of the date of death of the
last to die of Samuel I. Newhouse, Jr. and Donald E. Newhouse (the "Special ROFO
Event"), Advance/Newhouse may, if it wishes to sell any Transfer Assets in a
transaction otherwise subject to Section 8.3, elect to comply with the special
sale process described below (the "Special ROFO Process") for the sale of all or
any portion of the Transfer Assets (the "Special ROFO Assets") to TWE by
delivering written notice of the exercise of such election to TWE (a "Special
ROFO Notice") during such 30-day period.
(b) A Special ROFO Notice shall: (i) describe the Special ROFO Assets
in reasonable detail; (ii) specify the types of currency (and terms, if
applicable) for payment of the Special ROFO Asset Value (as defined below) for
the Special ROFO Assets, which currency may consist only of cash; debt; common
stock; preferred stock; convertible preferred stock; or Other Corporate Security
that (1) is generally accepted by the financial community for use in acquisition
transactions and (2) may be replicated by ATW using commercially reasonable
efforts; and (iii) specify other material terms of the proposed sale of the
Special ROFO Assets to TWE, including, without limitation, whether such
transaction is to be tax-advantaged or tax-deferred, which terms shall be such
that ATW could comply with or satisfy using commercially reasonable efforts. For
purposes of this Section 8.4, commercially reasonable efforts shall include
requesting any necessary shareholder, lender, governmental or other third party
consents or approvals for the lawful issuance of such securities referred to
above or the lawful undertaking of the transactions contemplated hereby that
would be customary in comparable transactions.
(c) (i) Within 60 days following the delivery by Advance/Newhouse of
the Special ROFO Notice to TWE, an appraiser selected in accordance with
paragraph (j) below (an "Appraiser") shall determine the Special ROFO Asset
Value (as defined below) and shall deliver a written notice (the "Valuation
Notice") to each of Advance/Newhouse and TWE setting forth such Special ROFO
Asset Value, which shall be final and binding on the parties. "Special ROFO
Asset Value" shall mean (including taking into account the matters referred to
in this Section 8.4(c)) the fair market value, as of the date of valuation, of
the business of the Special ROFO Assets assuming a private market sale of the
Special ROFO Assets as an ongoing business to an unrelated third party. The
determination of Special ROFO Asset Value shall also take into account (a) the
types of currency (and terms of payment, if applicable) and (b) whether such
transaction is to be tax-advantaged or tax-deferred, each of the foregoing
clauses (a) and (b) as specified in the Special ROFO Notice. It is expressly
understood and agreed that the TWE and Advance/Newhouse shall each be entitled
to provide the Appraiser with more information than is requested by the
Appraiser, in accordance with procedures established by the Appraiser, and that
the parties intend for the Appraiser to consider, to the extent it deems
appropriate, all such information, provided that it is also understood and
agreed that the other party shall be entitled to receive copies of such
additional information furnished to the Appraiser, subject to the same
confidentiality procedures referenced in this Section 8.4.
(ii) Advance/Newhouse shall, and shall cause its Affiliates to,
cooperate in furnishing all information that may be requested by the Appraiser
in accordance with procedures (including confidentiality protections)
established by the
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Appraiser; provided that the production of third party agreements that contain
competitively sensitive information or that are subject to confidentiality
restrictions shall be produced to TWE subject to such protections as the
Appraiser may determine are adequate to protect the legitimate confidentiality
concerns of Advance/Newhouse and its Affiliates taking into account the need for
TWE to review such agreements as part of its presentation to the Appraiser. It
is agreed that as part of such protections the Appraiser may direct that in lieu
of such agreements being produced to TWE directly that such agreement may be
delivered to TWE's legal counsel and other advisors.
(d) Upon receipt of the Valuation Notice, Advance/Newhouse may, within
20 days of receiving such Valuation Notice (the "Consideration Period"), by
written notice to TWE (the "ROFO Termination Notice") terminate the Special ROFO
Process. If Advance/Newhouse terminates the Special ROFO Process, then
notwithstanding Section 8.4(j), Advance/Newhouse shall pay 100% of the fees,
costs and expenses of the Appraiser. If Advance/Newhouse does not so terminate
the Special ROFO Process, then the Special ROFO Notice shall be deemed to be an
offer to sell the Special ROFO Assets to TWE at a purchase price equal to the
Special ROFO Asset Value on the terms and conditions set forth below.
(e) If Advance/Newhouse does not deliver a ROFO Termination Notice
within the Consideration Period, then TWE may, within 10 days of the expiration
of the Consideration Period, by written notice to Advance/Newhouse request
information regarding the Special ROFO Assets reasonably required to enable TWE
to evaluate the proposal contained in the Special ROFO Notice (unless such
information has been provided with or prior to the delivery of the Special ROFO
Notice). Within the earlier of: (i) 20 business days following the expiration of
the Consideration Period if TWE does not request additional information pursuant
to the preceding sentence; (ii) where the Special ROFO Assets are not owned by a
Contribution Entity, 30 business days following receipt by TWE of written
certification from Advance/Newhouse that the information provided by
Advance/Newhouse to TWE is all the information that Advance/Newhouse has
provided, or will provide, to a prospective purchaser of the Special ROFO Assets
(except for updated information to be supplied to maintain the accuracy of the
furnished information); or (iii) where the Special ROFO Assets are owned by a
Contribution Entity, 30 business days following receipt by TWE of a written
certification from Advance/Newhouse (the "ROFO Contribution Entity
Certification") that TWE has been delivered such information as is reasonably
required by TWE to enable TWE to evaluate the offer contained in the Special
ROFO Notice and as is reasonably available to Advance/Newhouse or the
Contribution Entity (which certification may accompany the Special ROFO Notice
in the event such information has been provided with or prior to the Special
ROFO Notice), but subject, in the case of the foregoing clause (iii), to Section
8.4(h)(i), TWE may, by written notice to Advance/Newhouse, either accept or
reject the offer constituted by the Special ROFO Notice. If TWE disputes a ROFO
Contribution Entity Certification given by Advance/Newhouse pursuant to Section
8.4(e)(iii) that it has delivered to TWE such information as is reasonably
required to enable TWE to evaluate the offer contained in the Special ROFO
Notice and is reasonably available to Advance/Newhouse or the Contribution
Entity, TWE shall give written notice of such
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dispute to Advance/Newhouse within 3 days of receipt of such certification from
Advance/Newhouse.
(f) If TWE does not accept, within the applicable time periods set
forth in Section 8.4(e) above (the "Offer Period"), the offer set forth in the
Special ROFO Notice, then, subject to compliance with the time frames set forth
in this Section 8.4(f) for execution of definitive agreements, Advance/Newhouse
may not dispose of the Special ROFO Assets within 180 days of the expiration of
the Offer Period, unless it sells the Special ROFO Assets to a third party that
is not an Affiliate of Advance/Newhouse:
(i) for the types of currency specified in the Special ROFO Notice
and in at least ninety-five percent (95%) of the minimum amount of each such
type of currency set forth in the Special ROFO Notice;
(ii) in a tax-advantaged or tax-deferred transaction if Advance/
Newhouse specified such a transaction in the Special ROFO Notice;
(iii) at a price equal to or greater than ninety-five percent
(95%) of the Special ROFO Asset Value (such price, the "ROFO Required Minimum
Price"); and
(iv) on the other material terms specified in the Special ROFO
Notice.
If Advance/Newhouse does not sign definitive agreements for such a sale
pursuant to this Section 8.4(f) within 180 days of the expiration of the Offer
Period, then the provisions of Section 8.3 shall again be applicable.
(g) If TWE accepts the offer set forth in the Special ROFO Notice in
accordance with the provisions of Section 8.4(e) above, upon such acceptance,
the terms of such accepted offer shall become binding upon the parties.
Advance/Newhouse and TWE shall negotiate in good faith to enter into more formal
agreements within 45 days of such acceptances (as the case may be), but it is
understood and agreed by TWE and Advance/Newhouse that notwithstanding any
failure to enter into more formal agreements, the terms of the accepted offer
shall be binding upon the parties and the transaction shall be consummated on
the terms set forth in such accepted offer, subject to Section 8.4(h)(ii) below.
(h) (i) To the extent that there is a dispute under this Section 8.4
regarding (1) the ROFO Contribution Entity Certification as specified in the
last sentence of Section 8.4(e) above; (2) the general acceptance of the Other
Corporate Security suggested by Advance/Newhouse or replication by ATW of the
Other Corporate Security by ATW using commercially reasonable efforts; or (3)
the ability of ATW to comply with or satisfy with the other material terms
proposed by Advance/Newhouse using commercially reasonable efforts, such dispute
shall be conclusively determined by the Appraiser. Such determination by the
Appraiser shall be made as soon as practicable in accordance with procedures
established by such Appraiser, except that in respect of any
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dispute under clause (1) hereof, such determination shall be made within 30
business days following the ROFO Contribution Entity Certification given by
Advance/Newhouse pursuant to Section 8.4(e)(iii) above. To the extent that the
Appraiser determines under clause (1) that additional information must be
delivered to TWE, then TWE shall, by delivery of a written notice to
Advance/Newhouse, either accept or reject the offer set forth in the Special
ROFO Notice (in accordance with and subject to the terms of Section 8.4(e)
above), within 30 business days of receipt by TWE of such additional
information. If the Appraiser determines under clause (1) that no additional
information is required to be delivered to TWE, then TWE shall, by delivery of a
written notice to Advance/Newhouse, either accept or reject the offer set forth
in the Special ROFO Notice (in accordance with and subject to the terms of
Section 8.4(e) above), within the later of (x) 30 days following receipt by TWE
of the ROFO Contribution Entity Certification or (y) 2 business days of such
determination by the Appraiser.
(ii) To the extent that following an acceptance of an offer under
Section 8.4(h) above, the parties fail to enter into more formal agreements, and
a dispute arises as to any additional customary matters that must be addressed
to complete the transaction that were not addressed in the accepted offer, such
dispute shall be resolved (including whether such matter must be addressed and,
if so, the terms of how such matter should be addressed) by the Appraiser within
the time frames provided in Section 8.4(h)(i) above. Such determination by the
Appraiser shall be made as soon as practicable in accordance with procedures
established by such Appraiser. The fees, costs and expenses of the Appraiser
shall be borne one-half by TWE and one-half by Advance/Newhouse.
(iii) To the extent there is a dispute under this Section 8.4
regarding whether Advance/Newhouse is receiving the ROFO Required Minimum Price,
such dispute shall be conclusively determined by a nationally recognized
investment bank selected by Advance/Newhouse, which selection shall be made
within 10 business days of notice of a dispute. Such determination by the
investment banking firm so chosen shall be made as soon as practicable in
accordance with procedures established by such investment bank. The fees, costs
and expenses of the investment banking firm so selected shall be borne by
Advance/Newhouse.
(i) TWE may assign its rights under this Section 8.4 to ATW or any of
its Affiliates by delivering written notice of such assignment to
Advance/Newhouse; provided that no such assignment shall relieve TWE of its
obligations under this Section 8.4 and ATW shall use, and shall cause its
Affiliates to use, commercially reasonable efforts to prevent such assignment
from hindering or delaying consummation of the transactions contemplated under
this Section 8.4.
(j) An "Appraiser" shall be a nationally recognized investment banking
firm selected by two other nationally recognized investment banking firms, one
selected by Advance/Newhouse and one selected by TWE; provided that if one party
fails to notify the other party of its selection within the time period
specified below, the Appraiser shall be the investment banking firm selected by
the party that has so notified the other party of its selection. Each of
Advance/Newhouse and TWE shall notify the
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other of its selection of an investment banking firm (which notice shall
identify such firm) within ten business days following the delivery by
Advance/Newhouse of the Special ROFO Notice, and each of TWE and
Advance/Newhouse shall instruct the investment banking firms so selected to
select the third investment banking firm within twenty business days following
delivery of the Special ROFO Notice, as applicable. The fees, costs and expenses
of the investment banking firm so selected shall be borne equally by the parties
and each party shall bear the fees, costs and expenses of the investment banking
firm selected by such party.
From and after the Closing, the provisions of this Section 8.4 shall become
applicable to the Selected Subsidiary as well as to Advance/Newhouse so that the
Selected Subsidiary shall also have the rights and obligations under this
Section 8.4 as are applicable to Advance/Newhouse.
SECTION 9 [Intentionally Omitted.]
SECTION 10 OTHER BUSINESS ACTIVITIES
10.1 Survival of this Section 10. Immediately upon delivery of a
Restructuring Notice in accordance with Section 8.1 hereto, all provisions of
this Section 10 shall immediately become null and void and of no further force
or effect.
10.2 Cable Television Systems.
(a) In the event Advance/Newhouse or any of its Affiliates, including
the Subsidiary, desire to pursue any opportunity to acquire or make an
investment in any business (other than any acquisition, whether direct or
indirect, through merger, consolidation or otherwise, of an MSO or all or
substantially all of the Systems of an MSO) (i) the majority of the revenues of
which are derived from the operation of Systems or (ii) consisting of Systems
serving more than 25,000 Subscribers (an "Advance/Newhouse System Opportunity"),
and such Advance/Newhouse System Opportunity is entirely within the DMA of the
TWE Systems, then Advance/Newhouse shall notify TWE in writing of such
Advance/Newhouse System Opportunity and describe such Advance/Newhouse System
Opportunity in reasonable detail (an "Advance/Newhouse Opportunity Notice"). TWE
or any of its Affiliates shall have the first right, exercisable by delivery of
written notice to Advance/Newhouse within 10 business days following delivery of
the Advance/Newhouse Opportunity Notice, to pursue such Advance/Newhouse System
Opportunity. If either (x) TWE or any such Affiliate does not elect to pursue
such Advance/Newhouse System Opportunity within such period, or (y) TWE or any
such Affiliate elects to pursue such Advance/Newhouse System Opportunity but
fails to consummate the acquisition of, or investment in, such Advance/Newhouse
System Opportunity within one year of such election, then Advance/Newhouse or
any of its Affiliates shall have the right to pursue such Advance/Newhouse
System Opportunity. In the event the Advance/Newhouse System Opportunity is
partially within the DMA of the TWE Systems and partially in a geographic area
other than the DMA of the TWE Systems, then Advance/Newhouse shall in good faith
consider whether a mutually beneficial arrangement involving the other
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Partners should be explored with respect to such Advance/Newhouse System
Opportunity.
(b) In the event TWE or any of its Affiliates, including the
Partnership (other than the Selected Subsidiary), desire to pursue any
opportunity to acquire or make an investment in any business (other than any
acquisition, whether direct or indirect, through merger, consolidation or
otherwise, of an MSO or all or substantially all of the Systems of an MSO) (i)
the majority of the revenues of which are derived from the operation of Systems
or (ii) consisting of Systems serving more than 25,000 Subscribers (a "TWE
System Opportunity"), and such TWE System Opportunity is entirely within the DMA
of the Selected Systems, then TWE shall notify Advance/Newhouse in writing of
such TWE System Opportunity and describe such TWE System Opportunity in
reasonable detail (a "TWE Opportunity Notice"). The Selected Subsidiary shall
have the first right, exercisable by delivery of written notice to TWE within 10
business days following delivery of the TWE Opportunity Notice, to pursue such
TWE System Opportunity. If either (x) the Selected Subsidiary does not elect to
pursue such TWE System Opportunity within such period, or (y) the Selected
Subsidiary elects to pursue such TWE System Opportunity but fails to consummate
the acquisition of, or investment in, such TWE System Opportunity within one
year of such election, then TWE or any of its Affiliates shall have the right to
pursue such TWE System Opportunity. In the event the TWE System Opportunity is
partially within the DMA of the Selected Systems and partially in a geographic
area other than the DMA of the Selected Systems, then TWE shall in good faith
consider whether a mutually beneficial arrangement involving the other Partners
should be explored with respect to such TWE System Opportunity.
10.3 Programming for Carriage Deals. In the event the TWE Cable Division or
its Controlled Affiliates desire to pursue a transaction to exchange carriage
commitments for a third party's programming on Systems in exchange for equity in
such third party (an "Equity for Carriage Programming Opportunity"), then TWE
and the Selected Subsidiary shall participate in such Equity for Carriage
Programming Opportunity pro rata based on the number of Subscribers of the TWE
Systems and the Selected Systems, respectively, and, with respect to regional
programming, based on the number of Subscribers to the Selected Systems and TWE
Systems, respectively, in the region targeted by such programming.
SECTION 11 BOOKS AND RECORDS; INFORMATION RIGHTS; OPERATION OF SELECTED BUSINESS
11.1 Books and Records. The books and records of the Residual Business
shall be maintained at the location specified in Section 2.5. The Residual
Business shall keep current and complete records and books of account in which
shall be entered fully and accurately all transactions of the Residual Business.
The books and records of the Selected Business shall be maintained at the
location specified by Advance/Newhouse. The Selected Business shall keep current
and complete records and books of account in which shall be entered fully and
accurately all transactions of the Selected Business.
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11.2 Tax Return Information. As soon as reasonably practicable following
the end of the Fiscal Year, but in no event later than July 31 following the end
of such Fiscal Year, the Partnership shall furnish to each Partner a preliminary
draft Schedule K-1 of the Partnership. As soon as practicable thereafter, the
Partnership shall furnish to each Partner a final report of the Net Profit or
Net Loss, and distributions, if any, for such Fiscal Year, a schedule setting
forth each Partner's Capital Account as at the end of the period covered by such
statements and a Schedule K-1 for each Partner, a copy of the Partnership's
federal and state tax returns, and other information required by applicable tax
regulations or necessary for each Partner to prepare its federal, state, and
local tax returns. With respect to the 2002 Fiscal Year, the Partnership shall
effect a closing of the books of the Partnership as of the close of business on
the day immediately prior to the Restructuring Effective Date, and
Advance/Newhouse shall be entitled to receive 2002 Fiscal Year tax return
information only with respect to the portion of the 2002 Fiscal Year that ends
on the date of such closing of the books. Advance/Newhouse shall not be entitled
to any information under this Section 11.2 for any Fiscal Year, or portion
thereof, beginning on or after the Restructuring Effective Date.
11.3 Information Rights. Advance/Newhouse shall have full access, at
Advance/Newhouse's sole expense, to all premises, properties, financial and
accounting records, Contracts, other records and documents, and personnel, of
the Selected Business. Furthermore, Advance/Newhouse shall be entitled to
receive internal memoranda from the TWE Group's corporate staff to the division
presidents of the Selected Business through the Closing Date. Without limiting
other rights expressly granted under the Transaction Agreements, after the
Restructuring Effective Date, Advance/Newhouse shall have no rights with respect
to the premises, properties, financial and accounting records, Contracts, other
records and documents, and personnel of the Residual Business; provided,
however, that Advance/Newhouse shall have the right to copies of Contracts that
bind the Advance/Newhouse Group.
11.4 Bank Accounts. Except as otherwise provided in Section 3.3(c):
(a) the Partnership shall maintain bank accounts in such banks or
institutions as the Managing Partner from time to time shall select, and such
accounts shall be drawn upon by check signed by such person or persons, and in
such manner, as may be designated by the Managing Partner; and
(b) all moneys of the Partnership shall be deposited in the bank or
other financial institution account or accounts of the Partnership.
In no event shall Partnership funds be commingled with those of any other
Person without the consent of the Managing Partner.
11.5 Tax Allocations. No later than 45 days prior to the filing of the
Partnership's federal information return and Schedules K-1 thereto with respect
to any Fiscal Year beginning prior to the Restructuring Effective Date, the
Managing Partner shall deliver a draft of such return to the Advance/Newhouse
Accountants, together with such workpapers as are necessary for the
Advance/Newhouse Accountants to review the
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proposed determinations of Special Income, Maximum Income Amount, and Net Tax
Amount of each of the Partners, together with the allocations required by
Sections 5.3(b)(iii) and 5.3(d)(ii) of the First Amended Agreement. The
Advance/Newhouse Accountants shall promptly review such proposed determinations
and allocations and shall deliver, within 30 days after receipt of the draft
return and necessary workpapers, a report ("Adjustment Report") setting forth in
reasonable detail the determinations and allocations with which such Accountants
disagree. Thereafter, the Managing Partner and the Advance/Newhouse Accountants
shall endeavor in good faith to agree to such determinations and allocations
prior to the filing of the Partnership's information returns. If any dispute
cannot be resolved by the Managing Partner and the Advance/Newhouse Accountants
within 10 days after the delivery of the Adjustment Report, the disputed matters
shall be referred to a mutually satisfactory independent public accounting firm
of national stature which has not been employed by any Partner for the two year
preceding the date of such referral, such firm to be selected by the TWE
Accountants and the Advance/Newhouse Accountants. In settling any disputed
matter, such independent public accounting firm shall apply the understanding of
the Partners that, until the Restructuring Effective Date, on an annual basis
the after-tax positions of the Partners with respect to the contributed assets
are to be in proportion to their respective Percentage Interests (assuming all
Partners are taxable at the Special Effective Tax Rate). The fees of such firm
shall be paid by the Partners in accordance with their Percentage Interests.
With respect to the 2002 Fiscal Year, the Partnership shall effect a closing of
the books of the Partnership as of the close of business on the day immediately
prior to the Restructuring Effective Date, and Advance/Newhouse shall be
entitled to review and challenge information relating to the 2002 Fiscal Year
only with respect to the portion of the 2002 Fiscal Year that ends on the date
of such closing of the books. This Section 11.5 shall not be operative for any
Fiscal Year beginning on or after the Restructuring Effective Date.
SECTION 12 DISSOLUTION
12.1 Causes of Dissolution. To the extent permitted by the Act, the
Partnership shall dissolve upon the first to occur of the following dates or
events:
(a) the sale, exchange, involuntary conversion, or other disposition
of all or substantially all of the assets of the Partnership;
(b) the expiration of the term of the Partnership as specified in
Section 2.3; or
(c) the bankruptcy (within the meaning of Section 1531(5), or any
successor provision, of the Act) of any Partner.
12.2 Effect of Dissolution. Upon the dissolution of the Partnership, the
Partnership shall cease its regular business operations, except for the taking
of such actions as shall be necessary for the performance and discharge of the
Partnership's obligations, the winding-up of its affairs, and the liquidation
and distribution of its assets in accordance with the provisions of this
Agreement.
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12.3 Winding Up and Liquidation.
(a) Triggering of Restructuring. To the extent permitted by law,
immediately upon the dissolution of the Partnership a restructuring of the
Partnership in accordance with Section 8.1 shall occur; provided that the
requirement that either TWE or Advance/Newhouse deliver a Restructuring Notice
shall be deemed waived.
(i) Following a restructuring described in the preceding sentence,
TWE shall act as liquidator (the "TWE Restructuring Liquidator") to wind up the
Partnership; provided, however, if TWE is the subject of a bankruptcy
proceeding, Paragon shall act as the TWE Restructuring Liquidator. The TWE
Restructuring Liquidator shall have full power and authority to sell, assign,
and encumber any or all of the Partnership's assets and to wind up and liquidate
the affairs of the of the Partnership in an orderly and businesslike manner.
(ii) The proceeds of such liquidation of the Partnership shall be
applied first to the payment of the debts and liabilities of the Partnership
(including any loans made to the Partnership by TWE or Paragon), the expenses of
liquidation of the Partnership and the establishment of any reserves that the
TWE Restructuring Liquidator deems necessary for potential or contingent
liabilities of the Partnership. The remaining assets of the Partnership shall be
distributed to TWE and Paragon in accordance with the priority allocation rules
established in Section 5.1(d).
(b) Alternative Dissolution. If a dissolution and restructuring of the
Partnership described in clause (a) of this Section 12.3 is not permitted by
applicable law:
(i) Liquidator. Upon the dissolution of the Partnership, the
Managing Partner shall act as liquidator (the "Liquidator") to wind up the
Partnership; provided, however, if the Managing Partner is the subject of a
bankruptcy proceeding, Paragon shall act as Liquidator. The Liquidator shall
have full power and authority, subject to Section 3.2, to sell, assign, and
encumber any or all of the Partnership's assets and to wind up and liquidate the
affairs of the Partnership in an orderly and businesslike manner.
(ii) Application of Proceeds. The proceeds of liquidation shall be
applied first to the payment of the debts and liabilities of the Partnership
(including any loans to the Partnership made by any Partner), the expenses of
liquidation, and the establishment of any reserves that the Liquidator deems
necessary for potential or contingent liabilities of the Partnership (excluding
for this purpose the Series A Preferred Partnership Units, the Series B
Partnership Units and the Series C Partnership Units). The remaining assets of
the Partnership shall be distributed to the Partners as follows:
(A) the Selected Business Percentage (as defined below) of
such assets to Advance/Newhouse;
(B) the Residual Business Percentage (as defined below) of
such assets to TWE and Paragon in accordance with the priority allocation
rules established in Section 5.1(d);
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in each case as determined in good faith by the Liquidator.
For purposes hereof,
(x) the "Selected Business Percentage" means a fraction
(expressed as a percentage) (a) the numerator of which is the fair value of
the Selected Business, as of the date of dissolution, taking into account
all attendant circumstances including, without limitation, all debt and
other liabilities attributable to the Selected Business and (b) the
denominator of which is the sum of clause (a) in this definition and clause
(a) in the definition of Residual Business Percentage.
(y) the "Residual Business Percentage" means a fraction
(expressed as a percentage) (a) the numerator of which is the fair value of
the Residual Business, as of the date of dissolution, taking into account
all attendant circumstances including, without limitation, all debt and
other liabilities attributable to the Residual Business and (b) the
denominator of which is the sum of clause (a) in this definition and clause
(a) in the definition of Selected Business Percentage.
(iii) Final Accounting. Upon the dissolution and winding up of the
Partnership, a proper accounting shall be made from the date of the last
previous accounting to the date of winding up.
(iv) Statement of Liquidation. Within a reasonable time following
the completion of the liquidation of the Partnership, the Liquidator shall
submit a statement (which need not be audited) to each Partner setting forth the
assets and liabilities of the Partnership as of the date of liquidation and the
amount of the distribution to each Partner.
(c) Effect of Withdrawal of a Partner. To the extent permitted by the
Act, the withdrawal of a Partner, other than the withdrawal of Advance/Newhouse
in connection with a restructuring in accordance with Section 8.1 hereof, shall
not alter the allocations and distributions to be made to the Partners pursuant
to this Agreement.
(d) Termination of Partnership. Upon the completion of the
distribution of the Partnership's assets and the proceeds of liquidation as
provided in this Section 12.3, the Partnership shall be terminated.
SECTION 13 INDEMNIFICATION
13.1 Indemnification by Partnership.
(a) The Selected Business and Advance/Newhouse shall indemnify and
save harmless the Partnership, each Partner (other than Advance/Newhouse), the
officers, directors, and stockholders of each Partner (other than
Advance/Newhouse) and its Affiliates, and the officers and employees of the
Residual Business, from any loss, damage, or expense incurred by any of them by
reason of any act or omission to act on
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behalf of the Selected Business (including any action or omission by the Partner
acting as Tax Matters Partner), performed by any of them in good faith and
without gross negligence, willful misconduct, or breach of this Agreement.
(b) The Residual Business, TWE and Paragon shall indemnify and save
harmless the Partnership, each Partner, the officers, directors, and
stockholders of each Partner and its Affiliates, and the officers and employees
of the Selected Business, from any loss, damage, or expense incurred by any of
them by reason of any act or omission to act on behalf of the Residual Business
(including any action or omission by the Partner acting as Tax Matters Partner),
performed by any of them in good faith and without gross negligence, willful
misconduct, or breach of this Agreement.
(c) Any reasonable expenses incurred by any indemnified person
pursuant to this Section 13.1 in defending any civil or criminal action, suit or
proceeding (or the threat thereof), other than a claim, action, suit, or
proceeding brought by the Partnership, which is based, in whole or in part, upon
any alleged act or omission to act on behalf of the Selected Business or
Residual Business, as the case may be, shall be borne and paid by the Selected
Business (and Advance Newhouse) or the Residual Business (and TWE and Paragon),
as the case may be, in advance of the final disposition of such action, suit, or
proceeding (or the threat thereof) upon receipt of a reasonably satisfactory
undertaking by or on behalf of the indemnified person to repay to the Selected
Business (and Advance Newhouse) or the Residual Business(and TWE and Paragon),
as the case may be, the amount of such expenses if it shall ultimately be
determined that such person is not entitled to the indemnification provided for
under this Section 13.1. Any indemnity under this Section 13.1 shall be provided
out of and to the extent of the Selected Business' or Residual Business', as the
case may be, assets only.
(d) The Selected Business and Advance/Newhouse shall directly
compensate the Partnership for the amount of any indemnification to be provided
to the Partnership in accordance with this Section 13.1.
13.2 Indemnification by Partners.
(a) Advance/Newhouse shall indemnify and save harmless the Residual
Business and each other Partner and former Partner, the officers, directors, and
stockholders of each other Partner and former Partner, and any of their
respective officers, directors, shareholders, partners, employees, agents, and
Affiliates, from any loss, damage, or expense incurred by any of them by reason
of or resulting from any unauthorized act taken by the Selected Business
orAdvance/Newhouse in the name of the Selected Business, the Residual Business,
the Partnership or any other Partner.
(b) TWE and Paragon shall indemnify and save harmless the Selected
Business and each other Partner and former Partner, the officers, directors, and
stockholders of each other Partner and former Partner, and any of their
respective officers, directors, shareholders, partners, employees, agents, and
Affiliates, from any loss, damage, or expense incurred by any of them by reason
of or resulting from any
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unauthorized act taken by the Residual Business, TWE or Paragon in the name of
the Residual Business, the Selected Business, the Partnership or any other
Partner.
(c) Any reasonable expenses incurred by any Person entitled to
indemnification pursuant to this Section 13.2 in defending any civil or criminal
action, suit, or proceeding (or the threat thereof) by reason of or resulting
from any such indemnified matter shall be borne and paid by the indemnifying
Partner in advance of the final disposition of such action, suit or proceeding
(or the threat thereof) upon receipt of a reasonably satisfactory undertaking by
or on behalf of the indemnified Person to repay to the indemnifying Partner the
amount of such expenses if it shall ultimately be determined that such Person is
not entitled to the indemnification provided for under this Section 13.2.
13.3 Procedures. With respect to the indemnities provided above in this
Section 13, an indemnified party shall, with respect to any claim made against
such indemnified party for which indemnification is available, notify the
indemnifying party in writing of the nature of the claim as soon as practicable
but not more than ten days after the indemnified party shall have received
notice of the assertion thereof before any court or governmental authority. The
failure by an indemnified party to give notice as provided in the foregoing
sentence shall not relieve the indemnifying party of its obligations under this
Section except to the extent that the failure results in the failure of actual
notice to the indemnifying party and the indemnifying party is damaged as a
result of the failure to give notice. Upon receipt of notice by an indemnifying
party from an indemnified party of the assertion of any such claim, the
indemnifying party shall employ counsel reasonably acceptable to the indemnified
party and shall assume the defense of such claim. The indemnified party shall
have the right to employ separate counsel and to participate in (but not
control) any such action, but the fees and expenses of such counsel shall be at
the expense of such indemnified party unless (a) the employment of counsel by
the indemnified party has been authorized by the indemnifying party, (b) the
indemnified party shall have been advised by its counsel in writing that there
is a conflict of interest between the indemnifying party and the indemnified
party in the conduct of the defense of such action (in which case the
indemnifying party shall not have the right to direct the defense of such action
on behalf of the indemnified party), or (c) the indemnifying party shall not in
fact have employed counsel to assume the defense of such action, in each of
which cases the fees and expenses of such counsel shall be at the expense of the
indemnifying party. An indemnifying party shall not be liable for any settlement
of an action effected without its written consent (which consent shall not be
unreasonably withheld). No indemnifying party will consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect of such action. Whether or not the
Partnership chooses to defend or prosecute a claim, each Partner shall, to the
extent requested by the Partnership and at the Partnership's expense, cooperate
in the prosecution or defense of such claim and shall furnish such records,
information, and testimony and attend such conferences, discovery proceedings,
hearings, trials, and appeals as may reasonably be requested in connection
therewith.
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13.4 Survival. The provisions of this Section 13 shall survive the
withdrawal of any Partner from the Partnership and the dissolution of the
Partnership.
SECTION 14 REPRESENTATIONS
Each Partner represents and warrants to the other Partners as follows:
14.1 Organization, Standing, and Authority. Such Partner is a partnership
duly organized, validly existing, and in good standing under the laws of its
state of organization. Such Partner has all requisite power and authority to
execute and deliver this Agreement and the documents contemplated hereby, and to
perform and comply with all of the terms, covenants, and conditions to be
performed and complied with by it hereunder and thereunder.
14.2 Absence of Conflicting Agreements. The execution, delivery, and
performance of this Agreement by such Partner (with or without the giving of
notice, the lapse of time, or both): (a) do not require the consent of any third
party; (b) do not and will not conflict with any provision of the partnership
agreement or other organizational document of such Partner; (c) do not and will
not conflict with, result in a breach of, or constitute a default under, any
law, judgment, order, ordinance, injunction, decree, rule, regulation, or ruling
of any court or governmental instrumentality; and (d) do not and will not
conflict with, constitute grounds for termination of, result in a breach of,
constitute a default under, or accelerate or permit the acceleration of any
performance required by the terms of, any agreement, instrument, license, or
permit to which either such Partner or any of its Affiliates is a party or by
which either such Partner or any of its Affiliates may be bound.
14.3 Claims and Legal Actions. There is no claim, legal action,
counterclaim, suit, arbitration, governmental investigation or other legal,
administrative, or tax proceeding, in progress or pending, or to the knowledge
of such Partner, threatened, against or relating to such Partner or any of its
Affiliates, and no order, decree, or judgment has been issued against such
Partner or any of its Affiliates, that may impair such Partner's ability to
perform and comply with all of the terms, covenants, and conditions to be
performed and complied with by it under this Agreement.
SECTION 15 MISCELLANEOUS
15.1 Acknowledgments. Each Partner affirms and acknowledges that no
representations, warranties, or statements have been made to it by any party to
this Agreement other than those expressly set forth in this Agreement or any
Restructuring Transaction Agreement and that, in entering into this Agreement,
it has not relied upon anything done or said with respect to this Agreement or
with respect to the relationship between the parties, other than as expressly
set forth in this Agreement or any Restructuring Transaction.
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15.2 Bill for Partition. Each of the Partners covenants that neither it nor
any Person claiming through or under it will file a bill for partition of the
Partnership property.
15.3 Notices. All notices and other communications hereunder shall be (a)
in writing (except to the extent otherwise expressly provided hereunder); (b)
delivered by telecopy, by commercial overnight or same-day delivery service with
all delivery costs paid by sender, or by registered or certified mail with
postage prepaid, return receipt requested; (c) deemed given on the date and at
the time shown on the telecopy confirmation of receipt (if delivered by
telecopy), on the date and at the time (if recorded) of delivery by the
commercial delivery service, as shown in the records thereof (if delivered by
commercial overnight or same-day delivery service), or on the date shown on the
return receipt (if delivered by registered or certified mail); and (d) addressed
to the parties at their addresses specified on the signature page to this
Agreement (or at such other address for a party as shall be specified by like
notice).
15.4 Amendments. This Agreement may not be amended nor shall any waiver,
change, modification, consent, or discharge be effected, except by an instrument
in writing signed by each Partner; provided that Advance/Newhouse hereby agrees
to any amendments or modifications to this Agreement necessitated by (i) the
distribution by TWE of its Partnership Interest to the partners of TWE (upon a
liquidation of TWE otherwise permitted by Section 6.1), (ii) the incorporation
of TWE pursuant to Article XIII of the TWE Partnership Agreement or otherwise or
(iii) any other amendments altering the arrangements between TWE and Paragon,
provided such amendments or modifications do not adversely affect
Advance/Newhouse.
15.5 Waivers and Further Assurances; Entire Agreement. Any waiver of any
terms or conditions of this Agreement shall be in writing and shall not operate
as a waiver of any other breach of such terms or conditions or any other term or
condition, nor shall any failure to enforce any provision of this Agreement
operate as a waiver of such provision or of any other provision of this
Agreement. Each of the Partners agrees to execute all such further instruments
and documents and to take all such further action as the other Partners may
reasonably require in order to effectuate the terms and purposes of this
Agreement. The Partners agree that this Agreement, and the other Restructuring
Transaction Agreements, and the other agreements expressly contemplated hereby
or thereby constitutes the entire agreement between them with respect to the
subject matter of the Partnership and supersedes all prior agreements and
understandings between them as to such subject matter, and there are no
restrictions, agreements, arrangements, or undertakings, oral or written,
between the Partners relating to the Partnership which are not fully expressed
or referred to herein or therein.
15.6 Severability. If any term or other provision of this Agreement is
invalid, illegal, or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal, or incapable of being enforced, the parties to
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this Agreement shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in an
acceptable manner to the end that transactions contemplated hereby are fulfilled
to the greatest extent possible.
15.7 Specific Enforcement; Attorney's Fees. The Partners agree that the
remedy at law for damages upon violation of the terms of this Agreement would be
inadequate because the Partnership Interests and the business of the Partnership
are unique. Therefore, the Partners agree that the provisions of this Agreement
may be specifically enforced by any court of competent jurisdiction, and each
Partner and its respective transferees agree to submit to the jurisdiction of
the court where any such action for specific performance is brought. If any
Partner defaults in its performance of any of the terms and conditions of this
Agreement and if, as a result of such default, a lawsuit seeking damages,
specific performance, or any other remedy is filed by the other Partner, then,
in that event, the prevailing party in such a lawsuit shall be entitled to
obtain attorney's fees from the losing party in such amount as shall be
determined by the court to be reasonable under the circumstances.
15.8 Counterparts. This Agreement may be executed in counterparts each of
which shall be deemed an original and all of which together shall constitute one
and the same instrument, and in pleading or proving any provision of this
Agreement, it shall not be necessary to produce more than one complete set of
such counterparts.
15.9 Captions; Gender. Section headings contained in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement. Whenever used herein the singular number shall
include the plural, the plural shall include the singular, and the use of any
gender shall include all genders.
15.10 Governing Law; Venue; Disputes. This Agreement shall be governed by
the internal laws of the State of New York. Any action, suit or proceeding shall
be prosecuted as to any party hereto in the County of New York, State of New
York.
15.11 Interpretation. In this Agreement, unless otherwise specified or
where the context otherwise requires:
(a) a reference to a Recital is to the relevant Recital to this
Agreement, to a Section is to the relevant Section of this Agreement and to an
Exhibit is to the relevant Exhibit to this Agreement;
(b) words importing any gender shall include other genders;
(c) words importing the singular only shall include the plural and
vice versa;
(d) the words "include", "includes" or "including" shall be deemed to
be followed by the words "without limitation";
(e) the words "hereof", "herein", "hereunder" and "herewith" and words
of similar import shall, unless otherwise stated, be construed to refer to this
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Agreement as a whole and not to any particular provision of this Agreement, and
Article, Schedule, clause and Exhibit references are to the Articles, Schedules,
clauses and Exhibits to this Agreement unless otherwise specified;
(f) references to any Person or any other agreement or document shall
include such Person's successors and permitted assigns;
15.12 Binding Effect. This Agreement shall bind and inure to the benefit of
each of the Partners and their successors and permitted assigns.
15.13 Third Parties. None of the provisions of this Agreement shall be for
the benefit of, or enforceable by, any creditor of the Partnership or any Person
other than a Partner.
15.14 Confidentiality. Each Partner agrees that it shall not, directly or
indirectly, without the prior written consent of any other Partner, use for its
own benefit (except as a Partner of the Partnership) or disclose to any Person
any information, trade secrets, confidential customer information, patents,
patent rights, technical data, or know-how relating to the products, processes,
methods, equipment, or business practices of the Partnership, except (a) to the
extent any of the foregoing is or becomes available to the public other than as
a result of disclosure by such Partner or any of its Affiliates or the
directors, officers, employees, agents, advisors, and controlling persons of it
or any of its Affiliates, (b) subject to the terms of an appropriate
confidentiality agreement, as necessary to effect a transaction under Section 6,
(c) as may be required by law (including without limitation the federal and
state securities laws and the rules and regulations of applicable stock
exchanges or comparable market systems), and (d) as any Partner may disclose to
its lenders, rating agencies, and business and financial advisors. If any
Partner is required by applicable law or regulation or by legal process to
disclose any of the foregoing, it will provide any other Partner with prompt
notice thereof, to the extent practicable under the circumstances, to enable it
to seek an appropriate protective order.
15.15 Liability of Partners. Except as set forth in any other Transaction
Agreement, no Partner shall have any liability for the debts or obligations of
the Partnership owed to any other Partner or its Affiliates arising under this
Agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ADVANCE/NEWHOUSE PARTNERSHIP
5015 Campuswood Drive
East Syracuse, New York 13057
By: Advance Cable Holdings Corp.,
General Partner
By:
-----------------------------------
Name: S.I. Newhouse, Jr.
Title: Vice President
By: Newhouse Cable Holdings LLC,
General Partner
By:
-----------------------------------
Name: S.I. Newhouse, Jr.
Title: Vice President
TIME WARNER ENTERTAINMENT COMPANY, L.P.
75 Rockefeller Plaza
New York, New York 10019
By:
-----------------------------------
Name: Robert D. Marcus
Title: Senior Vice President
PARAGON COMMUNICATIONS
75 Rockefeller Plaza
New York, New York 10019
By: KBL COMMUNICATIONS, INC., as
General Manager
By:
-----------------------------------
Name: Robert D. Marcus
Title: Senior Vice President
STATEMENT OF DIFFERENCES
------------------------
The section symbol shall be expressed as............................... 'SS'