<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________ to ____________________
Commission File Number 33-60776
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Falcon Holding Group, L.P.
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(Exact name of Registrant as specified in its charter)
Delaware 95-4408577
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10900 Wilshire Boulevard - 15th Floor
Los Angeles, California 90024
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 824-9990
----------------
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Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
The Exhibit Index is located at Page E-1.
<PAGE> 2
PART I - FINANCIAL INFORMATION
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
===================================================
<TABLE>
<CAPTION>
December 31, June 30,
1996* 1997
--------- ---------
(Unaudited)
(Dollars in Thousands)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 13,633 $ 10,799
Receivables:
Trade, less allowance of $907,000 and
$1,006,000 for possible losses 11,607 12,509
Affiliates 5,793 4,479
Other assets 10,555 10,402
Other investments 3,446 3,462
Property, plant and equipment, less accumulated depreciation
and amortization of $230,920,000 and $257,369,000 309,128 307,446
Franchise cost, less accumulated
amortization of $173,742,000 and $191,360,000 256,461 239,275
Goodwill, less accumulated amortization
of $12,454,000 and $15,492,000 72,956 69,918
Customer lists and other intangible costs, less
accumulated amortization of $8,793,000 and $17,393,000 76,448 68,135
Deferred loan costs, less accumulated amortization
of $5,755,000 and $6,853,000 14,296 13,199
--------- ---------
$ 774,323 $ 739,624
========= =========
LIABILITIES AND PARTNERS' DEFICIT
---------------------------------
LIABILITIES:
Notes payable $ 885,786 $ 885,374
Accounts payable 10,561 4,537
Accrued expenses and other 47,228 49,126
Customer deposits and prepayments 1,627 1,790
Deferred income taxes 10,301 8,755
Minority interest 193 177
Equity in losses of affiliated partnerships in excess of investment 3,224 3,253
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TOTAL LIABILITIES 958,920 953,012
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COMMITMENTS AND CONTINGENCIES
REDEEMABLE PARTNERS' EQUITY 271,902 271,902
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PARTNERS' DEFICIT:
General partner (12,591) (12,881)
Limited partners (443,908) (472,409)
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TOTAL PARTNERS' DEFICIT (456,499) (485,290)
--------- ---------
$ 774,323 $ 739,624
========= =========
</TABLE>
*As presented in the audited financial statements.
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 3
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
=======================================================
<TABLE>
<CAPTION>
Unaudited
-------------------------
Three months ended
June 30,
-------------------------
1996 1997
-------- --------
(Dollars in Thousands)
<S> <C> <C>
REVENUES $ 48,172 $ 63,983
-------- --------
EXPENSES:
Service costs 12,528 18,687
General and administrative expenses 8,363 11,728
Depreciation and amortization 20,039 28,840
-------- --------
Total expenses 40,930 59,255
-------- --------
Operating income 7,242 4,728
OTHER INCOME (EXPENSE):
Interest expense (15,821) (18,937)
Equity in net income of investee partnerships 51 42
Other income, net 73 519
-------- --------
NET LOSS $ (8,455) $(13,648)
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 4
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
=======================================================
<TABLE>
<CAPTION>
Unaudited
--------------------------
Six months ended
June 30,
--------------------------
1996 1997
-------- ---------
(Dollars in Thousands)
<S> <C> <C>
REVENUES $ 94,375 $ 127,967
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EXPENSES:
Service costs 25,284 36,982
General and administrative expenses 16,347 22,907
Depreciation and amortization 40,189 58,633
-------- ---------
Total expenses 81,820 118,522
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Operating income 12,555 9,445
OTHER INCOME (EXPENSE):
Interest expense (31,423) (39,321)
Equity in net income (loss) of investee partnerships 66 (29)
Other income, net 1,261 922
-------- ---------
NET LOSS $(17,541) $ (28,983)
======== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 5
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
=======================================================
<TABLE>
<CAPTION>
Unaudited
-------------------------
Six months ended
June 30,
-------------------------
1996 1997
-------- --------
(Dollars in Thousands)
<S> <C> <C>
Net cash provided by operating activities $ 32,399 $ 39,748
-------- --------
Cash flows from investing activities:
Capital expenditures (18,266) (27,624)
Increase in intangible assets (918) (819)
Proceeds from sale of cable assets 255 22
Distributions from investee limited partnerships 20 5
-------- --------
Net cash used in investing activities (18,909) (28,416)
-------- --------
Cash flows from financing activities:
Borrowings from notes payable 42,235 11,500
Repayment of debt (57,635) (25,856)
Minority interest capital contributions -- 192
Deferred loan costs 62 (2)
-------- --------
Net cash used in financing activities (15,338) (14,166)
-------- --------
Net decrease in cash and cash equivalents (1,848) (2,834)
Cash and cash equivalents
at beginning of period 15,050 13,633
-------- --------
Cash and cash equivalents
at end of period $ 13,202 $ 10,799
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 6
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
====================================================
NOTE 1 - BASIS OF PRESENTATION
Falcon Holding Group, L.P., a Delaware limited partnership (the
"Partnership" or "FHGLP"), owns and operates cable television systems serving
small to medium-sized communities and the suburbs of certain cities in 23 states
(the "Owned Systems"). The Partnership also controls, holds varying equity
interests in and manages certain other cable television systems for a fee (the
"Affiliated Systems" and, together with the Owned Systems, the "Systems"). The
Affiliated Systems operate cable television systems in 16 states. FHGLP is a
limited partnership, the sole general partner of which is Falcon Holding Group,
Inc., a California corporation ("FHGI").
The condensed consolidated financial statements include the
consolidated accounts of FHGLP, its subsidiary cable television operating
partnerships and corporations (the "Owned Subsidiaries") and those operating
partnerships' general partners, which are owned by FHGLP. The condensed
consolidated financial statements include the accounts of Enstar Communications
Corporation ("ECC"), a wholly-owned subsidiary of one of the operating
partnerships, which is the general partner of the 15 limited partnerships
operating under the name "Enstar" (which are Affiliated Systems).
As noted in its latest Annual Report on Form 10-K, on July 12, 1996 the
Partnership acquired the assets of Falcon Cable Systems Company ("FCSC"), an
Affiliated Partnership. The results of operations of these Systems have been
included in the condensed consolidated financial statements of FHGLP from July
12, 1996. Management fees and reimbursed expenses received by the Partnership
from FCSC for the period of January 1, 1996 through June 30, 1996 are also
included in the condensed consolidated financial statements and have not been
eliminated in consolidation. Accordingly, the Partnership's results of
operations for the three and six months ended June 30, 1997 are not comparable
to the prior year's amounts reported in the condensed consolidated financial
statements.
NOTE 2 - INTERIM FINANCIAL STATEMENTS
The interim financial statements for the three and six months ended
June 30, 1997 and 1996 are unaudited. These condensed interim financial
statements should be read in conjunction with the audited financial statements
and notes thereto included in the Partnership's latest Annual Report on Form
10-K. In the opinion of management, such statements reflect all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the results of such periods. The results of operations for the
three and six months ended June 30, 1997 are not necessarily indicative of
results for the entire year.
NOTE 3 - MINORITY INTEREST
Included in the operations of Falcon Telecable, one of the Owned
Subsidiaries, are the results of operations of Lake Las Vegas Cablevision, L.P.,
a Delaware limited partnership, a joint venture owned 66 2/3% by Falcon
Telecable. The minority interest reflects the 33 1/3% of the venture that Falcon
Telecable does not own.
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<PAGE> 7
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONCLUDED)
====================================================
NOTE 4 - SALE OF SYSTEMS
On July 1, 1996, the Partnership sold certain Owned Systems located in
Georgia ("Eastern Georgia") that were acquired from Falcon First in December
1995. The sales price of $15 million approximated book value. These cable
systems served approximately 9,500 homes subscribing to cable service at June
30, 1996.
NOTE 5 - RECLASSIFICATIONS
Certain 1996 amounts have been reclassified to conform to the 1997
presentation.
NOTE 6 - ACQUISITION OF FALCON CABLE SYSTEMS COMPANY
The Partnership acquired FCSC on July 12, 1996. Had FCSC been acquired
on January 1, 1996, revenues would have been increased by $13.1 million and
$25.9 million for the three and six months ended June 30, 1996 and net loss
would have been increased by $11.4 million and $21.7 million for the three and
six months ended June 30, 1996 on a pro forma basis. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Results of Operations."
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<PAGE> 8
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
On February 8, 1996, President Clinton signed into law the
Telecommunications Act of 1996 (the "1996 Telecom Act"). This statute
substantially changed the competitive and regulatory environment for
telecommunications providers by significantly amending the Communications Act of
1934, including certain of the rate regulation provisions previously imposed by
the Cable Television Consumer Protection and Competition Act of 1992 (the "1992
Cable Act"). Compliance with those rate regulations has had a negative impact on
the Partnership's revenues and cash flow. The 1996 Telecom Act provides that
certain of the rate regulations will be phased out altogether in 1999. Further,
the regulatory environment will continue to change pending, among other things,
the outcome of legal challenges and Federal Communications Commission (the
"FCC") rulemaking and enforcement activity in respect of the 1992 Cable Act and
the 1996 Telecom Act. There can be no assurance as to what, if any, further
action may be taken by the FCC, Congress or any other regulatory authority or
court, or the effect thereof on the Partnership's business. Accordingly, the
Partnership's historical financial results as described below are not
necessarily indicative of future performance.
On July 12, 1996, the Partnership, through a newly-formed and
wholly-owned partnership, Falcon Cable Systems Company II, L.P. ("FCSC II"),
acquired the assets of FCSC for approximately $247.4 million in cash. FCSC was
previously managed by the Partnership for a fee and, as such, its systems were
classified as Affiliated Systems in the periods prior to the acquisition date.
Commencing July 12, 1996, the FCSC II systems have been included as Owned
Systems. Management fees and reimbursed expenses received by the Partnership
from FCSC prior to July 12, 1996 are included as revenue from the Affiliated
Systems and have not been eliminated in consolidation. Such fees have been
eliminated in consolidation since July 12, 1996.
This Report includes certain forward looking statements regarding,
among other things, future results of operations, regulatory requirements,
pending business combination and acquisition transactions, competition, capital
needs and general business conditions applicable to the Partnership. Such
forward looking statements involve risks and uncertainties including, without
limitation, the uncertainty of legislative and regulatory changes and the rapid
developments in the competitive environment facing cable television operators
such as the Partnership. In addition to the information provided herein,
reference is made to the Partnership's Annual Report on Form 10-K for the year
ended December 31, 1996 and the other periodic reports filed by the Partnership
with the Securities and Exchange Commission from time to time for additional
information regarding such matters and the effect thereof on the Partnership's
business.
RECENT DEVELOPMENTS
On June 3, 1997, the Partnership entered into a non-binding memorandum
of understanding (the "MOU") with TCI Communications, Inc. ("TCI"). The MOU was
approved by the requisite vote of the Partnership's Board of Representatives and
Partners on June 23, 1997. The MOU contemplates the formation of a newly-formed
limited partnership ("Newco") and the contribution to Newco by TCI of the assets
of certain cable television systems serving approximately 300,000 homes
subscribing to cable service, subject to certain indebtedness. FHGLP will
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<PAGE> 9
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
RECENT DEVELOPMENTS (CONCLUDED)
contribute to Newco its Owned Subsidiaries, representing approximately 594,000
homes subscribing to cable service. (The 594,000 includes 48,000 homes
subscribing to cable service to be acquired from Falcon Classic Cable Income
Properties, L.P. ("Classic" or "Falcon Classic") prior to the consummation of
the contemplated transactions with TCI). The Partnership also intends to acquire
the cable television systems owned by Falcon Video Communications, L.P.
("Video"), an affiliated partnership, and contribute those systems to Newco in
exchange for limited partnership interests in the Partnership. Video owns cable
television systems which serve approximately 70,000 homes subscribing to cable
service. The requisite approval of the owners of Video to this transaction has
not, however, been received as of the date of this Report. As consideration for
the contribution of these assets (including Video), it is currently contemplated
that TCI will receive limited partnership interests representing approximately
43% of the equity of Newco and the Partnership will receive 57% of the equity of
Newco.
In addition, in connection with the consummation of the transactions
with TCI and Newco, (i) all of the Partnership's outstanding Class C limited
partnership units; and (ii) certain of the Class A and B limited partnership
units of other partners ("Other Partners") in the Partnership (other than those
interests held by Falcon Holding Group, Inc., the general partner, members of
management of the Partnership and entities controlled by or affiliated with Marc
B. Nathanson or members of the Nathanson family, the foregoing, collectively,
"Falcon Management") will be redeemed for interests in Newco. TCI will purchase
these interests from the Other Partners for an aggregate cash payment of $156.3
million. Assuming completion of these transactions as currently contemplated
(including ultimate approval by the owners of Video), the equity interests in
the Partnership will thereafter be owned approximately 58% by Falcon Management,
33% by the Other Partners and 9% by the former owners of Video. In exchange for
such partial redemption, the Class A and B limited partnership holders will
waive their liquidity rights and substantially all of their voting rights. See
"Liquidity and Capital Resources."
The consummation of the transactions described above is subject to TCI,
the Partnership and certain other parties entering into definitive agreements;
to the Partnership entering into a definitive agreement with Video; to the
Partnership and TCI obtaining numerous required regulatory and other related
consents and to obtaining satisfactory financing arrangements on acceptable
terms. Further, the ultimate terms of certain of the transactions described
above, including the contribution of assets by TCI and the acquisition of Video,
are subject to changes that may be necessary to accommodate the tax, accounting,
regulatory and other similar constraints applicable to the parties involved.
Separately, in June 1997 the Partnership also exercised its right to
acquire the cable television systems operated by Falcon Classic for $82 million
in cash, representing the appraised value of those assets. See "Liquidity and
Capital Resources."
Although the foregoing reflects activities which the Partnership and
certain of its affiliates are currently pursuing with respect to the
Partnership, the foregoing is subject to change at any time. Accordingly, there
can be no assurance that the transactions described above will be successfully
consummated or, if successfully completed, when they might be completed or the
ultimate terms thereof.
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<PAGE> 10
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
RESULTS OF OPERATIONS (PRO FORMA)
The historical results of operations of the Partnership for 1996 did
not include the results of FCSC for the period January 1, 1996 through July 11,
1996. FCSC has been managed by the Partnership prior to and subsequent to the
acquisition and has been affected by the same general trends in operating costs
and revenues as all of the Partnership's cable systems. Accordingly, the
Partnership believes that it is more meaningful to compare 1997 operations to
1996 operations on a pro forma basis assuming that the acquisition of FCSC had
occurred on January 1, 1996. The pro forma results include the effect of
increased amortization relating to the allocated purchase price of the assets
acquired, and the effect of increased interest expense related to the increase
in debt incurred to finance the acquisition. Set forth in the table below are
pro forma results of operations prepared on this basis. These results are not
necessarily indicative of what would have occurred had the acquisition actually
been made as of that date or of results which may occur in the future.
<TABLE>
<CAPTION>
Pro Forma Actual Pro Forma Actual
Three months Three months Six months Six months
ended ended ended ended
June 30, June 30, June 30, June 30,
1996 1997 1996 1997
-------- -------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
OPERATIONS STATEMENT DATA
Revenues $ 61,243 $ 63,983 $ 120,250 $ 127,967
Costs and expenses (28,088) (30,415) (54,925) (59,889)
Depreciation and amortization (31,361) (28,840) (62,832) (58,633)
-------- -------- --------- ---------
Operating income 1,794 4,728 2,493 9,445
Interest expense, net (21,617) (18,937) (42,769) (39,321)
Equity in net income (loss)
of investee partnerships 52 42 67 (29)
Other income (expense), net 164 (38) (290) (200)
Income tax benefit (247) 557 1,307 1,122
-------- -------- --------- ---------
Loss before extraordinary item $(19,854) $(13,648) $ (39,192) $ (28,983)
======== ======== ========= =========
</TABLE>
The Partnership's revenues increased from $61.2 million to $64 million,
or by 4.5%, and $120.3 million to $128 million, or by 6.4%, for the three and
six months ended June 30, 1997 compared to the corresponding periods in 1996. Of
the $2.8 million net increase in revenues for the three months ended June 30,
1997 as compared to the corresponding period in 1996, $2.6 million was due to
increased cable service revenues and $136,000 was due to increases in management
fees. The $2.6 million increase in cable service revenues was caused principally
by increases of $3.5 million related to increases in regulated service rates
implemented during 1996, $820,000 due to the restructuring of The Disney Channel
from a premium channel to a tier channel on July 1, 1996, $819,000 related to
increases in unregulated service rates implemented during 1996 and in May 1997
and $307,000 due to increases in advertising sales. These increases were
partially offset by decreases of $1.3 million due to reductions in the number of
premium subscriptions for cable service, $907,000 related to the Eastern Georgia
cable systems sold on July 1, 1996, $497,000 due to reductions in the number of
regulated subscriptions for cable service and $143,000 related to decreases in
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<PAGE> 11
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
RESULTS OF OPERATIONS (PRO FORMA) (CONTINUED)
other revenues. Of the $7.7 million net increase in revenues for the six months
ended June 30, 1997 compared to the corresponding period in 1996, $7.1 million
was due to increased cable service revenues and $583,000 was due to increased
management fees. The $7.1 million increase in cable service revenues was caused
principally by increases of $9.1 million related to increases in regulated ($7.8
million) and unregulated ($1.3 million) service rates, $1.6 million due to the
restructuring of The Disney Channel, $311,000 due to programmer incentives and
$537,000 due to increases in advertising sales. These increases were partially
offset by decreases of $1.8 million related to the Eastern Georgia cable systems
sold on July 1, 1996, $1.6 million due to reductions in the number of premium
subscriptions for cable service, $668,000 due to reductions in the number of
subscriptions for cable service and $264,000 related to decreases in other
revenues. As of June 30, 1997, the Owned Systems had approximately 546,300 homes
subscribing to cable service and 184,100 premium service units. Excluding the
Eastern Georgia cable systems sold on July 1, 1996, the Partnership's revenues
increased 6% and 8% for the three and six months ended June 30, 1997 compared to
the corresponding periods in 1996.
Management and consulting fees earned by the Partnership increased from
$1.1 million and $2.2 million to $1.3 million and $2.8 million for the three and
six months ended June 30, 1997 compared to the corresponding periods in 1996.
The increased fees resulted primarily from recording in 1997 the balance of
previously deferred 1995 fees from one of the Affiliated Partnerships, Falcon
Classic.
Service costs increased from $17 million to $18.7 million, or by 9.9%,
and from $33.4 million to $37 million, or by 10.6%, for the three and six months
ended June 30, 1997 compared to the corresponding periods in 1996. Service costs
represent costs directly attributable to providing cable services to customers.
The $1.7 million and $3.6 million increases in service costs for the three and
six months ended June 30, 1997 compared to the corresponding periods in 1996
were primarily caused by an increase in programming fees paid to program
suppliers (including primary satellite fees). The increase in programming
expense was due to a combination of higher rates charged by program suppliers.
General and administrative expenses increased from $11.1 million to
$11.7 million, or by 5.8%, and from $21.5 million to $22.9 million, or by 6.6%,
for the three and six months ended June 30, 1997 compared to the corresponding
periods in 1996. The $646,000 and $1.4 million increases for the three and six
months ended June 30, 1997 compared to the corresponding periods in 1996 related
primarily to increases in bad debt expense and higher costs associated with
advertising sales and marketing.
Operating income before income taxes, depreciation and amortization
(EBITDA) is a commonly used financial analysis tool for measuring and comparing
cable television companies in several areas, such as liquidity, operating
performance and leverage. EBITDA as a percentage of revenues decreased from
54.1% to 52.5% and from 54.3% to 53.2% for the three and six months ended June
30, 1997 compared to the corresponding periods in 1996. The decrease was
primarily caused by increases in programming costs and other expenses in excess
of revenue increases, as described above. EBITDA increased from $33.2 million to
$33.6 million, or by 1.2%, and from $65.3 million to $68.1 million, or by 4.2%
during the three and six months ended June 30, 1997 compared to the
corresponding periods in 1996. Excluding the Eastern Georgia
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<PAGE> 12
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
RESULTS OF OPERATIONS (PRO FORMA) (CONCLUDED)
cable systems sold on July 1, 1996, the Partnership's EBITDA increased from
$32.7 million to $33.6 million, or by 2.8% and from $64.3 million to $68.1
million, or by 5.8%. EBITDA should be considered in addition to and not as a
substitute for net income and cash flows determined in accordance with generally
accepted accounting principles as an indicator of financial performance and
liquidity.
Depreciation and amortization expense decreased from $31.4 million to
$28.8 million, or by 8.3%, and from $62.8 million to $58.6 million, or by 6.7%,
for the three and six months ended June 30, 1997 compared to the corresponding
periods in 1996. The $2.5 million and $4.2 million decreases in depreciation and
amortization expense were primarily due to accelerated 1996 depreciation related
to asset retirements and to intangible assets becoming fully amortized.
Operating income increased from $1.8 million to $4.7 million, or by
164%, and from $2.5 million to $9.4 million, or by 279%, for the three and six
months ended June 30, 1997 compared to the corresponding periods in 1996. The
$2.9 million and $6.9 million increases for the three and six months ended June
30, 1997 compared to the corresponding periods in 1996 were principally due to
increases in revenues in excess of increases in operating expenses and to a
decrease in depreciation and amortization expense as discussed above. Excluding
the Eastern Georgia cable systems sold on July 1, 1996, the Partnership's
operating income increased $3.4 million and $7.9 million for the three and six
months ended June 30, 1997 compared to the corresponding periods in 1996.
Interest expense, including the effects of interest rate hedging
agreements, decreased from $21.6 million to $18.9 million, or by 12.4%, and from
$42.8 million to $39.3 million, or by 8.1%, for the three and six months ended
June 30, 1997 compared to the corresponding periods in 1996. The decrease was
primarily due to lower average debt balances outstanding. The decrease during
the three months ended June 30, 1997 included the impact of lower average
interest rates in 1997 versus 1996 (8.5% compared to 8.7%). The decrease during
the six months ended June 30, 1997 was partially offset by the effect of
slightly higher average interest rates (8.8% during the six months ended June
30, 1997 compared to 8.7% during the corresponding period in 1996).
Payment-in-kind interest expense (in which interest payment requirements are met
by an increase in the principal amount of the notes) associated with the 11%
Senior Subordinated Notes amounted to $7.4 million and $14.4 million for the
three and six months ended June 30, 1997 compared to $6.6 million and $12.9
million for the corresponding periods in 1996. Interest rate hedging agreements
resulted in additional interest expense of $98,000 and $348,000 during the three
and six months ended June 30, 1997 compared to $196,000 and $368,000 during the
corresponding periods in 1996.
Other, net changed from $83,000 of expense for the three months ended
June 30, 1996 to $519,000 of income for the corresponding period in 1997 and
from $1.0 million of income for the six months ended June 30, 1996 to $922,000
of income for the corresponding period in 1997. The $601,000 and $96,000 changes
for the three and six months ended June 30, 1997 were primarily due to a
reduction in income tax benefits recorded during 1997.
Due to the factors described above, the Partnership's net loss
decreased from $19.9 million to $13.6 million, or by 31.3%, and decreased from
$39.2 million to $29 million, or by 26%, for the three and six months ended June
30, 1997 compared to the corresponding periods in 1996.
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<PAGE> 13
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Partnership's primary need for capital has been to
acquire cable systems and to finance plant extensions, rebuilds and upgrades,
and to add addressable converters to certain of the Owned Systems. The
Partnership spent $57.7 million during 1996 on capital expenditures, excluding
the acquisition of FCSC. Management's current plan calls for the expenditure of
approximately $85 million in capital expenditures in 1997, including
approximately $45 million to rebuild and upgrade certain of the Owned Systems.
The Partnership's proposed spending plans, (including its plans for 1997), are
constantly being reviewed and revised with respect to changes in technology,
acceptable leverage parameters (including those specified in its debt
agreements), franchise requirements, competitive circumstances and other
factors. The Partnership spent $27.6 million on non-acquisition capital
expenditures during the six months ended June 30, 1997.
As previously discussed in more detail in the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1996, on July 12, 1996 the
Partnership amended its principal credit facility with a $775 million Amended
and Restated Credit Agreement (the "Amended and Restated Credit Agreement") in
order to finance the acquisition of the assets of FCSC, pay transaction and
financing costs of approximately $5.6 million and prepay $28.6 million of
subordinated debt.
The Amended and Restated Credit Agreement provides for maximum
available borrowings as follows: $775 million through at December 30, 1997; $774
million at December 31, 1997; $773 million at December 31, 1998; $706 million at
December 31, 1999; $611 million at December 31, 2000; $535 million at December
31, 2001; and $439 million at December 31, 2002. As of June 30, 1997, the amount
outstanding under the Amended and Restated Credit Agreement was $602 million and
the Partnership had available to it additional borrowings thereunder of
approximately $123 million. The Amended and Restated Credit Agreement requires
that interest be tied to the ratio of consolidated total debt to consolidated
annualized cash flow (in each case, as defined therein), and further requires
that the Partnership maintain hedging arrangements with respect to at least 50%
of the outstanding borrowings thereunder. As of June 30, 1997, borrowings under
the Amended and Restated Credit Agreement bore interest at an average rate of
8.2% (including the effect of interest rate hedging agreements). The Partnership
has entered into fixed interest rate hedging agreements with an aggregate
notional amount at June 30, 1997 of $650 million. Agreements in effect at June
30, 1997 totaled $590 million, with the remaining $60 million to become
effective as certain of the existing contracts mature during 1997 and 1998. The
agreements serve as a hedge against interest rate fluctuations associated with
the Partnership's variable rate debt. These agreements expire through July 21,
2001. The Amended and Restated Credit Agreement also contains various
restrictions relating to, among other things, mergers and acquisitions, a change
in control and the incurrence of additional indebtedness and also requires
compliance with certain financial covenants. The Partnership's management
believes that it was in compliance with all such requirements as of June 30,
1997.
On July 1, 1996, the Partnership sold certain of its Eastern Georgia
cable systems for $15 million, the proceeds being used to temporarily repay
outstanding debt under the former Bank Credit Agreement. The Partnership has
decided not to sell certain other cable assets that were contemplated to be sold
under the Amended and Restated Credit Agreement due to offers it considered
inadequate. The failure to sell these assets may result in the reduction of
capital expenditures permitted under the Amended and Restated Credit Agreement.
The Partnership frequently considers opportunities to sell assets that it views
as non-strategic.
-13-
<PAGE> 14
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
On March 29, 1993, the Partnership issued $175 million aggregate
principal amount of its 11% Senior Subordinated Notes (the "Notes") in
connection with the Partnership's formation. As a result of payment-in-kind
interest payments, the aggregate principal of the Notes outstanding as of June
30, 1997 had increased to $267 million. Future interest payments are expected to
be paid in kind until the year 2000, when cash payment is required. The Notes
also contain various restrictions relating to, among other things, mergers and
acquisitions, a change in control and the incurrence of additional indebtedness.
The incurrence of additional indebtedness test limits the ratio of the total
debt of the Partnership to Operating Cash Flow (as defined in the indenture) to
7.5 to 1 if such indebtedness is incurred through December 31, 1999 and 6.5 to 1
thereafter.
As of June 30, 1997, the Partnership also had outstanding an aggregate
of $15 million in principal amount of subordinated debt.
The Partnership (i.e., FHGLP) is a separate, stand-alone holding
company which employs all of the management personnel. All of the Owned Systems
are owned by subsidiaries of the Partnership. Accordingly, the Partnership is
financially dependent on the receipt of permitted payments from the Owned
Systems, management and consulting fees from both domestic and the remaining
international cable ventures, and the reimbursement of specified expenses by
certain of the Affiliated Systems to fund its operations. Expected increases in
the funding requirements of the Partnership combined with limitations on its
sources of cash may create liquidity issues for the Partnership in the future.
Specifically, the Amended and Restated Credit Agreement permits the Owned
Partnerships to remit to FHGLP no more than 4.25% of their net cable revenues,
as defined, in any year. For the period ended June 30, 1997 the limit was
approximately $5.2 million ($3.1 million was actually remitted). Receivables
from the Affiliated Systems for services and reimbursements described above
amounted to approximately $4.5 million at June 30, 1997.
The Partnership has historically pursued a strategy of seeking to
acquire attractive acquisition candidates, with an emphasis on the acquisition
of systems which can be integrated with its existing operations. Over the past
two years, the Partnership has emphasized the acquisition of Affiliated Systems
due to its familiarity with these assets and because, in many cases, these
assets were already operationally integrated with Owned Systems located nearby.
In August 1996, the Partnership's Board of Representatives authorized its
management to commence the "Appraisal Process," as defined in the partnership
agreement of Falcon Classic, in order to determine whether the Partnership
should exercise its right under that partnership agreement to acquire some or
all of Falcon Classic's cable systems, all of which constitute Affiliated
Systems. On June 27, 1997, certain of the Owned Subsidiaries entered into a
definitive purchase agreement to acquire the cable television systems operated
by Classic for $82 million in cash, representing the appraised value of those
assets (the "Sale"). The parties have begun to seek the necessary regulatory and
other consents. As of June 30, 1997, the Falcon Classic cable systems had
approximately 48,200 homes subscribing to cable service.
The consummation of the Sale will be conditioned upon the receipt of
the necessary regulatory approvals, principally including those required
pursuant to certain cable television system franchises and federal
communications law . There can be no assurance that the receipt of the remainder
of such approvals will occur in a timely manner, if at all. The Partnership
presently expects to finance the Sale with
-14-
<PAGE> 15
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
borrowings under its Amended and Restated Credit Agreement. For further
information regarding the Falcon Classic Appraisal Process, see the information
provided or referred to under the caption "Item 13., Certain Relationships and
Related Transactions - Affiliated Partnerships - Falcon Classic Appraisal
Process" in the Partnership's Annual Report on Form 10-K for the year ended
December 31, 1996 and the related reports filed by Falcon Classic.
Enstar Communications Corporation, a wholly-owned subsidiary of one of
the subsidiaries of the Partnership ("ECC"), has guaranteed the debt obligations
of certain Enstar partnerships in which it acts as general partner. The Enstar
partnerships, most of which are publicly-held, own cable television systems. At
June 30, 1997, the maximum exposure to ECC pursuant to such guarantees was
approximately $5.9 million, plus accrued interest. This guarantee is recourse
only to the assets of ECC, which consist primarily of equity interests in the
Enstar partnerships. On June 6, 1997, ECC and FHGLP formed Enstar Finance
Company, LLC ("EFC"). The sole purpose of EFC is to obtain a bank facility of up
to $35 million in order to provide funds that would in turn be advanced to
certain of the partnerships managed by ECC. Such funds would be used to repay
existing bank obligations and other liabilities of such partnerships and to
provide capital to fund future rebuild and upgrade requirements. Based on
discussions with prospective lenders, ECC believes that this structure, if
implemented, will provide capital to the individual partnerships on terms more
favorable than could be obtained on a "stand-alone" basis. ECC has received a
commitment letter from two agent banks regarding the terms of a bank facility
for EFC, although a definitive credit agreement has not been executed as of the
date of this Report. ECC presently expects the EFC facility to be completed in
the third quarter. FHGLP will incur no liability in respect of these
transactions except for a commitment to contribute $250,000 in cash to the
capital of EFC, and this transaction should have no impact on the borrowing
ability of FHGLP.
The Partnership Agreement contains provisions that may require FHGLP to
purchase substantially all of the limited partnership interests held by the
Group I, II and III limited partners (constituting approximately 60% of the
common equity of the Partnership), at the holders' option, during the period
from September 15, 1996 to June 30, 1999. Certain of these interests are
mandatorily redeemable in 1998. Limited partnership interests held by the Group
IV limited partner become redeemable in 2004, subject to certain shared
liquidity rights. The purchase price for such partnership interests (other than
Class C partnership interests), which would be negotiated based on market
conditions or determined by an appraisal, is to be paid in cash or, under
certain circumstances, through the issuance of debt or equity securities. The
redemption value of the Class C partnership interests will generally be
determined based on a formula due to its preferred status. Certain of the
Partnership's debt agreements (including the Amended and Restated Credit
Agreement and the Notes) will restrict the Partnership's ability to (i) make
distributions to fund the purchase of these partnership interests pursuant to
the provisions described above, (ii) incur indebtedness or issue debt securities
in connection with such purchase or (iii) sell a substantial amount of its
assets. As previously discussed in "Recent Developments," if the proposed
transaction with TCI is consummated, the Group I, II, III and IV limited
partners will waive these liquidity rights. If the TCI transaction is not
consummated, the obligation to redeem any significant amount of the limited
partnership interests in the Partnership could result in a material liquidity
demand on the Partnership and there can be no assurance that the Partnership
will be able to raise such funds on terms acceptable to the Partnership, or at
all.
-15-
<PAGE> 16
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES (CONCLUDED)
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (HISTORICAL)
Cash provided by operating activities (including interest expense and
management fee income) increased from $32.4 million to $39.7 million for the six
months ended June 30, 1997 compared to the corresponding period in 1996, an
increase of $7.3 million. The increase resulted primarily from a net increase of
$5.8 million in other operating items (receivables, other assets, payables,
accrued expenses and subscriber deposits and prepayments) and a $1.5 million
increase in payment-in-kind interest expense related to the 11% Subordinated
Notes.
Cash used in investing activities increased from $18.9 million to $28.4
million for the six months ended June 30, 1997 compared to the corresponding
period in 1996. The increase was due primarily to an increase in capital
expenditures of $27.6 million.
Cash from financing activities decreased from $15.3 million to $14.2
million for the six months ended June 30, 1997 compared to the corresponding
period in 1996 primarily due to decreased repayment of debt in 1997.
INFLATION
Certain of the Partnership's expenses, such as those for wages and
benefits, equipment repair and replacement, and billing and marketing generally
increase with inflation. However, the Partnership does not believe that its
financial results have been, or will be, adversely affected by inflation in a
material way.
-16-
<PAGE> 17
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEMS 1-5. Not applicable.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibit 10.51 - Enstar Finance Company, LLC Limited Liability
Company Agreement dated June 6, 1997.
Exhibit 10.52 - Asset Purchase Agreement,
dated as of June 27, 1997, by and among
Falcon Community Cable, L.P., Falcon Cable
Media, Falcon Cable Systems Company II, L.P.
and Falcon Classic Cable Income Properties,
L.P.
Exhibit 10.53 - Second Amendment to the 1993
Incentive Performance Plan of FHGLP.
Exhibit 10.54 - Third Amendment to the 1993
Incentive Performance Plan of FHGLP.
Exhibit 10.55 - Fourth Amendment to the 1993
Incentive Performance Plan of FHGLP.
(b) The Registrant filed a Form 8-K dated June 3, 1997 reporting
under Item 5 that it had entered into a non-binding Memorandum
of Understanding (MOU) with TCI Communications, Inc. The MOU
contemplates the contribution by TCI of the assets of certain
cable television systems to the Registrant. As part of the
foregoing transaction with TCI, the Registrant also announced
it intended to acquire the cable television systems owned by
Falcon Video Communications, L.P. The Registrant also
separately announced its intent to acquire the assets of Falcon
Classic Cable Income Properties, L.P. as previously disclosed.
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FALCON HOLDING GROUP, L.P.
a DELAWARE LIMITED PARTNERSHIP
------------------------------
(Registrant)
By: Falcon Holding Group
General Partner
Date: August 13, 1997 By: /s/ Michael K. Menerey
-----------------------------------
Michael K. Menerey, Secretary
and Chief Financial Officer
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C>
10.51 Enstar Finance Company, LLC Limited Liability Company Agreement dated
June 6, 1997.
10.52 Asset Purchase Agreement, dated as of June 27, 1997, by and among
Falcon Community Cable, L.P., Falcon Cable Media, Falcon Cable Systems
Company II, L.P. and Falcon Classic Cable Income Properties, L.P.
10.53 Second Amendment to the 1993 Incentive Performance Plan of FHGLP.
10.54 Third Amendment to the 1993 Incentive Performance Plan of FHGLP.
10.55 Fourth Amendment to the 1993 Incentive Performance Plan of FHGLP.
</TABLE>
E-1
<PAGE> 1
EXHIBIT 10.51
ENSTAR FINANCE COMPANY, LLC
LIMITED LIABILITY COMPANY AGREEMENT
Dated as of June 6, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
DEFINITIONS............................. 1
ARTICLE II
FORMATION AND PURPOSE........................ 5
2.01 Formation........................................................... 5
2.02 Name................................................................ 5
2.03 Principal Office.................................................... 5
2.04 Term................................................................ 5
2.05 Purposes of Company................................................. 5
2.06 Certificate......................................................... 6
2.07 Addresses of the Members............................................ 6
2.08 Foreign Qualification............................................... 6
ARTICLE III
MEMBERS CAPITAL........................... 6
3.01 Initial Capital Contributions....................................... 6
3.02 Additional Capital Contributions.................................... 6
3.03 No Third Party Rights............................................... 7
ARTICLE IV
USE OF PROCEEDS........................... 7
ARTICLE V
STATUS OF MEMBERS.......................... 7
5.01 Limited Liability................................................... 7
5.02 Return of Distributions of Capital.................................. 7
ARTICLE VI
COMPENSATION TO THE MEMBERS...................... 8
ARTICLE VII
COMPANY EXPENSES.......................... 8
7.01 Reimbursement....................................................... 8
7.02 Operating Expenses.................................................. 8
ARTICLE VIII
DISTRIBUTIONS; ALLOCATION OF INCOME AND LOSS............. 8
8.01 Distributions of Cash Available for Distribution.................... 8
8.02 [Intentionally Deleted]............................................. 9
8.03 Withholding......................................................... 9
8.04 Allocations of Net Income and Net Losses............................ 10
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
8.05 Special Allocations................................................. 10
(a) Company Minimum Gain Chargeback............................. 10
(b) Member Minimum Gain Chargeback.............................. 10
(c) Qualified Income Offset..................................... 10
(d) Gross Income Allocation..................................... 11
(e) Nonrecourse Deductions...................................... 11
(f) Member Nonrecourse Deductions............................... 11
8.06 Curative Allocations................................................ 11
8.07 Tax Allocations; Code Section 704(c)................................ 12
8.08 Consent............................................................. 12
ARTICLE IX
ASSIGNMENT OF COMPANY INTERESTS.................... 12
9.01 No Assignment....................................................... 12
9.02 Exceptions.......................................................... 13
9.03 Assignee............................................................ 13
9.04 Other Consents and Requirements..................................... 13
9.05 Assignment Not In Compliance........................................ 13
9.06 Tax Elections....................................................... 14
ARTICLE X
ADMISSION OF ASSIGNEE AS MEMBER.................... 14
10.01 Requirements........................................................ 14
ARTICLE XI
BOOKS, RECORDS, ACCOUNTING AND REPORTS................ 14
11.01 Books and Records................................................... 14
11.02 Delivery to Members and Inspection.................................. 15
11.03 Annual Statements................................................... 15
11.04 Filings............................................................. 15
ARTICLE XII
DESIGNATION RIGHTS, AUTHORITIES, POWERS,
RESPONSIBILITIES AND DUTIES OF THE MANAGER..................... 16
12.01 Designation of Manager.............................................. 16
12.02 Authority of Manager................................................ 16
(a) Permitted Acts.............................................. 16
(b) Limitations and Restrictions................................ 16
12.03 No Personal Liability............................................... 17
12.04 Tax Matters Member.................................................. 17
12.05 Officers............................................................ 18
ARTICLE XIII
RIGHTS, POWERS AND VOTING RIGHTS OF THE MEMBERS........... 20
13.01 Request for Vote.................................................... 20
13.02 Procedures.......................................................... 20
13.03 Action By Consent................................................... 21
13.04 Limitations......................................................... 21
13.05 Amendments to Agreement............................................. 21
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE XIV
OTHER BUSINESSES AND INVESTMENT OPPORTUNITIES............... 21
ARTICLE XV
DISSOLUTION OF COMPANY........................ 21
15.01 Termination of Membership........................................... 21
15.02 Events of Dissolution or Liquidation................................ 22
15.03 Liquidation......................................................... 22
15.04 Distribution in Kind................................................ 23
15.05 No Action for Dissolution........................................... 23
15.06 No Further Claim.................................................... 23
ARTICLE XVI
REPRESENTATIONS BY THE MEMBERS.................... 24
16.01 Investment Intent................................................... 24
16.02 Securities Regulation............................................... 24
16.03 Knowledge and Experience............................................ 24
16.04 Economic Risk....................................................... 24
16.05 Binding Agreement................................................... 24
16.06 Tax Position........................................................ 24
16.07 Information......................................................... 25
ARTICLE XVII
MISCELLANEOUS............................ 25
17.01 Additional Documents................................................ 25
17.02 Severability........................................................ 25
17.03 Inspection.......................................................... 25
17.04 General............................................................. 25
17.05 Notices, Etc........................................................ 25
17.06 Execution of Certificate and Other Papers........................... 25
</TABLE>
-iii-
<PAGE> 5
ENSTAR FINANCE COMPANY, LLC
LIMITED LIABILITY COMPANY AGREEMENT
This Limited Liability Company Agreement (the "Agreement") is made and
entered into as of June 6, 1997, by and among Falcon Holding Group, L.P., a
Delaware limited partnership ("FHGLP") and Enstar Communications Corporation, a
Georgia corporation ("ECC").
WHEREAS, the parties wish to form a limited liability company (the
"Company") under Delaware law for the purpose of organizing a centralized
finance company to raise funds through agreements with banks and other financial
institutions and to in turn lend funds to various cable television partnerships
of which ECC is the general partner ("Enstar Affiliates").
WHEREAS, the parties desire to enter into this Agreement to provide for
the formation of the Company, the management of the business and affairs of the
Company, the allocation of profits and losses, cash flow and other proceeds of
the Company among the Members, the respective rights, obligations and interests
of the Members to each other and to the Company, and certain other matters.
NOW, THEREFORE, the Members agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following terms shall have the
following meanings (all terms used in this Agreement which are not defined in
this Article I shall have the meanings set forth elsewhere in this Agreement):
"Act" shall mean the Delaware Limited Liability Company Act.
"Adjusted Capital Account Deficit" shall mean, with respect to any
Member, the deficit balance, if any, in such Member's Capital Account as of the
end of the relevant fiscal year, after giving effect to the following
adjustments:
(a) Credit to such Capital Account any amounts which such
Member is obligated to restore pursuant to any provision of this Agreement or is
deemed to be obligated to restore pursuant to the next to the last sentence of
Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5) after taking into account
any changes during such year in Company Minimum Gain and Member Minimum Gain;
and
(b) Debit to such Capital Account the items described in
Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Regulations.
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Section
<PAGE> 6
1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted consistently
therewith.
"Affiliate" shall mean, with respect to any Member: (a) any Person
directly or indirectly owning, controlling or holding with power to vote 10% or
more of the outstanding voting securities of such Member; (b) any Person 10% or
more of whose outstanding voting securities are directly or indirectly owned,
controlled or held with power to vote by such Member; (c) any partnership or
limited liability company of which such Member or any other Person described in
clause (a) or clause (b) of this definition is a general or managing partner, or
a manager, as the case may be; and (d) any officer, director or partner in such
Member.
"Agreed Value" means the fair market value of property as determined by
the Manager using such reasonable methods of valuation as it deems appropriate.
"Approved by the Members" shall mean approved by the affirmative vote
(conducted in accordance with Sections 13.01 and 13.02) or written consent
(obtained in accordance with Section 13.03) of Members holding at least sixty
percent (60%) of the Company Interests.
"Assignee" shall mean a person who has acquired a beneficial interest in
a Company Interest in accordance with the provisions of Article IX hereof, but
who is not a Member.
"Book Depreciation" means the depreciation, cost recovery or
amortization of assets allowable to the Company with respect to an asset for any
period, except that if the Book Value of an asset differs from its adjusted
basis for federal income tax purposes at the beginning of such period, Book
Depreciation shall be an amount which bears the same ratio to such beginning
Book Value as federal income tax depreciation, amortization, or other cost
recovery deduction for such period bears to such beginning adjusted basis.
"Book Gain or Book Loss" means the gain or loss that would be recognized
by the Company for federal income tax purposes as a result of sales or exchanges
of its assets if its tax basis in such assets were equal to the Book Value of
such assets.
"Book Value" means (a) as to property contributed to the Company, its
Agreed Value, and (b) as to all other Company property, its adjusted basis for
federal income tax purposes as reflected on the books of the Company. The Book
Value of all Company assets shall be adjusted to equal their respective Agreed
Values, as determined by the Manager, as of the following times: (a) the
acquisition of an additional interest in the Company by any new or existing
Member in exchange for more than a de minimis Capital Contribution; (b) the
distribution by the Company to a Member of more than a de minimis amount of
Company property, unless all Members receive simultaneous distributions of
undivided interests in the distributed property in proportion to their
2
<PAGE> 7
respective Company Interest; and (c) the termination of the Company for federal
income tax purposes pursuant to Code Section 708(b)(1)(B). The Book Value of all
assets shall be adjusted by the Book Depreciation taken into account with
respect to such asset.
"Capital Account" means an individual capital account maintained for
each Member in accordance with Regulation Section 1.704-1(b) adopted pursuant to
Section 704(b) of the Code. Unless otherwise provided in such Regulations, such
capital account shall be credited with (a) Capital Contributions to the Company
by a Member; (b) the Net Income of the Company allocable to a Member; and (c)
any items in the nature of income or gain that are specially allocated pursuant
to Sections 8.05 and 8.06 hereof; and which account shall be debited with (x)
any Distribution to a Member; (y) the Net Loss of the Company allocable to a
Member; and (z) any items in the nature of loss or deduction that are specially
allocated pursuant to Sections 8.05 or 8.06 hereof. In the event the Book Value
of Company Interests are adjusted, the Capital Accounts of all Members shall be
adjusted to reflect such adjustment as if the Company recognized gain or loss
equal to the amount of such aggregate adjustment. The amounts debited or
credited to Capital Accounts shall be adjusted with respect to any liabilities
that are secured by such contributed or distributed property or that are assumed
by the Company or the Members, in the event the Manager shall determine such
adjustments are necessary or appropriate pursuant to Regulation Section
1.704-1(b)(2)(iv).
"Capital Contributions" shall mean the amount of cash or Book Value of
property a Member contributes to the capital of the Company.
"Cash Available for Distribution" means for any period (i) the sum of
the gross receipts for such period, (ii) less the sum of all expenses for such
period (excluding all depreciation or amortization expenses), (iii) less any
principal repayments on indebtedness of the Company (including any capitalized
lease obligations), and (iv) less any increases in amounts reserved for Company
working capital as determined by the Manager.
"Certificate" shall mean the certificate of formation of the Company
which is required to be filed pursuant to the Act.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the corresponding provisions of any future Federal tax law
and, to the extent applicable, the Regulations.
"Company Interest", as of any date, shall mean, with respect to any
Member, the ownership interest of such Member in the Company as of such date,
including all of its rights and obligations under the Act and this Agreement.
The initial Company Interest of each of the Members is set forth on Schedule I.
3
<PAGE> 8
"Company Minimum Gain" has the meaning set forth in Sections
1.704-2(b)(2) and 1.704-2(d) of the Regulations.
"Distributions" means all cash and the Book Value of other property
distributed to the Members arising from their Company Interests.
"Fiscal Year" shall mean the fiscal year of the Company which shall be
the calendar year.
"Manager" shall mean ECC and any other person that succeeds it pursuant
to Section 12.01.
"Member Minimum Gain" means an amount, with respect to each Member
Nonrecourse Debt, equal to the Company Minimum Gain that would result if such
Member Nonrecourse Debt were treated as Nonrecourse Debt, determined in
accordance with Section 1.704-2(c)(i) of the Regulations.
"Member Nonrecourse Debt" has the meaning set forth in Section
1.704-2(b)(4) of the Regulations.
"Member Nonrecourse Deductions" has the meaning set forth in Section
1.704-(2)(i)(2) of the Regulations.
"Members" shall mean the Members and any other Person that acquires a
Company Interest and is admitted to the Company as a Member.
"Net Income" or "Net Loss" shall mean, with respect to any fiscal
period, the gross income, gains and losses of the Company for such period, less
all deductible costs, expenses and depreciation and amortization allowances of
the Company for such period, as determined for federal income tax purposes, with
the following adjustments: (a) any income of the Company that is exempt from
federal income tax and is not otherwise taken into account in computing Net
Income or Net Loss pursuant to this definition shall be added to such taxable
income or loss; (b) any expenditures of the Company not deductible in computing
taxable income or loss, not properly chargeable to capital account and not
otherwise taken into account in computing Net Income or Net Loss pursuant to
this definition shall be subtracted from such taxable income or loss; (c) if the
Book Value of any asset differs from its adjusted basis for federal income tax
purposes at the beginning of such period, the depreciation and amortization
allowances to be deducted from gross income with respect to such asset shall be
Book Depreciation; (d) Book Gain or Book Loss shall be used instead of taxable
gain or loss; and (e) any items that were specially allocated pursuant to
Sections 8.05 or 8.06 hereof shall not be taken into account in computing Net
Income or Net Loss. If such amount shall be greater than zero, it shall be known
as a "Net Income" and if such amount shall be less than zero, it shall be known
as "Net Loss".
4
<PAGE> 9
"Nonrecourse Debt" has the meaning given to the term "nonrecourse
liability" by Regulations Section 1.704-2(b)(3).
"Nonrecourse Deductions" has the meaning set forth in Regulations
Section 1.704-2(c).
"Person" shall mean an individual, partnership, joint venture,
association, corporation, trust, estate, limited liability company, limited
liability partnership or any other legal entity.
"Regulations" shall mean the regulations, including temporary
regulations promulgated under the Code, as such regulations may be amended from
time to time (including the corresponding provisions of any future regulations).
ARTICLE II
FORMATION AND PURPOSE
2.01 Formation. The Company shall be formed as a limited liability
company pursuant to the Act by the filing of the Certificate required by the Act
with the Secretary of State of Delaware. The rights and liabilities of the
Members shall be determined pursuant to the Act and this Agreement. To the
extent that the rights or obligations of any Member are different by reason of
any provision of this Agreement than they would be in the absence of such
provision, this Agreement shall, to the extent permitted by the Act, control.
2.02 Name. The name of the Company is ENSTAR FINANCE COMPANY, LLC.
2.03 Principal Office. The registered office required to be
maintained by the Company in the state of Delaware pursuant to the Act shall
initially be located at c/o Paracorp Incorporated, 15 East North Street, Dover,
Kent County, Delaware. The resident agent shall initially be Paracorp
Incorporated whose address is 15 East North Street, Dover, Kent County,
Delaware. The principal executive office of the Company shall initially be at
474 S. Raymond Avenue, Suite 200, Pasadena, California 91105, or at such other
place as determined by the Manager. The Company may have such additional offices
at such other places as determined by the Manager.
2.04 Term. The term of the Company will commence on the date of
filing of the Certificate with the Secretary of State of Delaware, and shall
continue until January 1, 2035, unless sooner terminated as hereinafter
provided.
2.05 Purposes of Company. The purposes of the Company are:
(a) to maintain, develop and operate a captive lending organization
whereby the Company borrows funds from banks and other financial institutions
and lends such funds to Enstar
5
<PAGE> 10
Affiliates (the "Business"), and to sell or otherwise dispose of the Business
and to do all things necessary, appropriate, incidental or advisable in
connection with such business;
(b) to borrow or raise money, and from time to time to
issue, accept, endorse and execute promissory notes, loan agreements, options,
stock purchase agreements, contracts, documents, checks, drafts, bills of
exchange, warrants, bonds, debentures and other negotiable or nonnegotiable
instruments and evidences of indebtedness, and to secure the payment of any
thereof and of the interest thereon by mortgage upon or pledge, conveyance or
assignment in trust of, the whole or any part of the property of the Company
whether at the time owned or thereafter acquired and to guarantee the
obligations of others and to sell, pledge or otherwise dispose of such bonds or
other obligations of the Company for its purposes; and
(c) to maintain an office or offices in such place or places
as the Manager shall determine and in connection therewith to rent or acquire
office space, engage personnel and do such other acts and things as may be
necessary or advisable in connection with the maintenance of such office, and on
behalf of and in the name of the Company to pay and incur reasonable expenses
and obligations for legal, accounting, investment advisory, consultative and
custodial services, and other reasonable expenses including, without limitation,
taxes, travel, insurance, rent, supplies, interest, salaries and wages of
employees, and all other reasonable costs and expenses incident to the operation
of the Company.
2.06 Certificate. The Manager shall cause the Certificate to be filed
with the Secretary of State of Delaware and shall cause the Certificate to be
filed or recorded in any other public office where filing or recording is
required.
2.07 Addresses of the Members. The respective address of the Members
are set forth on Schedule I.
2.08 Foreign Qualification. The Manager shall take all necessary
actions to cause the Company to be authorized to conduct business legally in
California and all other appropriate jurisdictions.
ARTICLE III
MEMBERS CAPITAL
3.01 Initial Capital Contributions. Each Member shall contribute such
amount as is set forth on Schedule I as its initial Capital Contribution, which
Schedule I shall be revised to reflect any additional contributions contributed
in accordance with Section 3.02.
3.02 Additional Capital Contributions. The Members shall only be
required to contribute additional capital to the Company in such amounts and at
such times as Approved by the Members. Any
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such additional contributions by the Members shall be in proportion to their
respective Company Interests. Upon a vote to require additional capital
contributions, the Manager shall give written notice to each Member. Each Member
shall have fourteen (14) days from the date such notice is given to contribute
his or her share of the additional capital to the Company. Each Member shall
receive a credit to his or her Capital Account in the amount of any additional
capital which he or she contributes to the Company.
3.03 No Third Party Rights. The right of the Manager to require
additional Capital Contributions under the terms of this Agreement shall not be
construed as conferring any rights or benefits to or upon any party not a Member
herein, including but not limited to any creditor of the Company.
ARTICLE IV
USE OF PROCEEDS
The Company shall use the proceeds of the Capital Contributions of the
Members as follows:
(a) to develop and maintain the Business;
(b) to pay Company expenses related to the organization of the
Company;
(c) to pay initial expenses with respect to loans from banks and
financial institutions to the Company; and
(d) for Company working capital.
ARTICLE V
STATUS OF MEMBERS
5.01 Limited Liability. Except as otherwise agreed to by a Member
with any financial institution, no Member shall be bound by or personally liable
for, the expenses, liabilities or obligations of the Company.
5.02 Return of Distributions of Capital. A Member may, under certain
circumstances, be required by law to return to the Company for the benefit of
the Company's creditors, amounts previously distributed. No Member shall be
obligated to pay those distributions to or for the account of the Company or any
creditor of the Company. However, if any court of competent jurisdiction holds
that, notwithstanding the provisions of this Agreement, any Member is obligated
to return or pay over any part of those distributions, it shall be the
obligation of such Member. Any
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payment returned to the Company or made directly by a Member to a creditor of
the Company shall be deemed a Capital Contribution by such Member.
ARTICLE VI
COMPENSATION TO THE MEMBERS
The Members shall not receive any compensation directly or indirectly
in connection with the formation, operation, and dissolution of the Company
except as expressly specified in this Agreement.
ARTICLE VII
COMPANY EXPENSES
7.01 Reimbursement. The Company shall reimburse the Members for all
out-of-pocket costs and expenses reasonably incurred by them in connection with
the formation, organization and funding of the Company, including any legal fees
and expenses.
7.02 Operating Expenses. The Company shall pay the operating expenses
of the Company which may include, but are not limited to: (i) all reasonable
salaries, compensation and fringe benefits of personnel employed by the Company
and involved in the business of the Company; (ii) all costs of funds borrowed by
the Company and all taxes and other assessments on the Company's assets and
other taxes applicable to the Company; (iii) reasonable legal, audit and
accounting fees; (iv) the cost of insurance as required in connection with the
business of the Company; (v) reasonable expenses of revising, amending, or
modifying this Agreement or terminating the Company; (vi) reasonable expenses in
connection with distributions made by the Company, and communications, necessary
in maintaining relations with Members and outside parties, (vii) reasonable
expenses in connection with preparing and mailing reports required to be
furnished to Members for investor, tax reporting or other purposes, or other
reports to Members; (viii) reasonable costs incurred in connection with any
litigation in which the Company is involved, as well as in the examination,
investigation or other proceedings conducted by any regulatory agency with
jurisdiction over the Company, including legal and accounting fees incurred in
connection therewith; and (ix) reasonable expenses of professionals employed by
the Company in connection with any of the foregoing, including attorneys,
accountants and appraisers.
ARTICLE VIII
DISTRIBUTIONS; ALLOCATION OF INCOME AND LOSS
8.01 Distributions of Cash Available for Distribution. At such times
and in such amounts as the Manager shall determine, in his sole and absolute
discretion, and subject to any restrictions
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imposed by any loan or credit agreements of the Company, the Company shall
distribute Cash From Operations to the Members in accordance with their
respective Company Interests.
8.02 [Intentionally Deleted]
8.03 Withholding.
(a) The Company shall seek to qualify for and obtain
exemptions from any provision of the Code or any provision of state, local, or
foreign tax law that would otherwise require the Company to withhold amounts
from payments or distributions to the Members. If the Company does not obtain
any such exemption, the Company is authorized to withhold from any payment or
distribution to any Member any amounts that are required to be withheld pursuant
to the Code or any provision of any state, local, or foreign tax law that is
binding on the Company.
(b) Any amount withheld with respect to any payment or
distribution to any Member shall be credited against the amount of the payment
or distribution to which the Member would otherwise be entitled. If the Code or
any provision of any state, local, or foreign tax law that is binding on the
Company requires that the Company remit to any taxing authority any withholding
tax with respect to, or for the account of, any Member in its capacity as a
Member, the Company shall, to the extent that Company funds are available
therefor, remit the full required amount of such withholding tax to the taxing
authority and shall notify such Member in writing of its obligation to pay to
the Company such withholding tax to the extent it exceeds the amount of any
payment or distribution to which such Member would otherwise then be entitled.
Each Member shall pay to the Company, within five (5) business days after its
receipt of written notice from the Company that withholding is required with
respect to such Member, any amounts required to be remitted by the Company to
any taxing authority with respect to such Member that are in excess of the
amount of any payment or distribution to which such Member would otherwise be
entitled. If the Company is required to remit any withholding tax with respect
to, or for the account of, any Member prior to the Company's receipt of any
payment required to be made by such Member pursuant to the preceding sentence,
the amount of the payment required to be made by such Member shall be treated as
a loan (the "Withholding Advance") from the Company to the Member, which shall
accrue interest until paid at a rate of ten percent (10%) per year.
(c) Any Withholding Advance made to a Member and any
interest accrued thereon shall be credited against, and shall be offset by, the
amount of any later payment or distribution to which the Member would otherwise
be entitled (without duplication of the credit provided in the first sentence of
Section 8.03(b), with any credit for accrued and unpaid interest as of the date
such payment or distribution would otherwise have been made being applied before
any credit for the amount of the Withholding
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Advance. Any Withholding Advance made to a Member and any interest accrued
thereon, to the extent it has not previously been paid by the Member in cash or
fully credited against payments or distributions to which the Member would
otherwise be entitled, shall be paid by the Member to the Company upon the
earliest of (i) the dissolution of the Company, (ii) the date on which the
Member ceases to be a Member of the Company, or (iii) demand for payment by the
Company.
8.04 Allocations of Net Income and Net Losses. Net Income and Net
Losses of the Company for each Fiscal Year shall be allocated to the Members in
accordance with each Member's respective Company Interest.
8.05 Special Allocations. The following special allocations shall be
made in the following order:
(a) Company Minimum Gain Chargeback. Notwithstanding any
other provision of this Article VIII, if there is a net decrease in Company
Minimum Gain during any Fiscal Year, each Member shall be specially allocated
items of Company income and gain for such year (and, if necessary, subsequent
years) in proportion to, and to the extent of, an amount equal to such Member's
share of the net decrease in Company Minimum Gain, determined in accordance with
Section 1.704-(2)(g)(2) of the Regulations. The items to be so allocated shall
be determined in accordance with Section 1.704-2(f) of the Regulations. This
Section 8.05(a) is intended to comply with the minimum gain chargeback
requirement of the Regulations and shall be interpreted consistently therewith.
(b) Member Minimum Gain Chargeback. Notwithstanding any
other provision of this Article VIII except Section 8.05(a), if there is a net
decrease in Member Minimum Gain attributable to a Member Nonrecourse Debt during
any Fiscal Year, each Member with a share of the Member Minimum Gain
attributable to such Member Nonrecourse Debt, determined in accordance with
Section 1.704-2(i)(5) of the Regulations, shall be specially allocated items of
Company income and gain for such year (and, if necessary, subsequent years) in
proportion to, and to the extent of, an amount equal to such Member's share of
the net decrease in Member Minimum Gain attributable to such Member Nonrecourse
Debt, determined in accordance with Section 1.704-2(i)(5) of the Regulations.
The items to be so allocated shall be determined in accordance with Section
1.704-2(i)(5) of the Regulations. This Section 8.05(b) is intended to comply
with the Member minimum gain chargeback requirement of the Regulations and shall
be interpreted consistently therewith.
(c) Qualified Income Offset. In the event any Member
unexpectedly receives any adjustments, allocations or distributions described in
Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Regulations, items of
Company income and gain shall be specially allocated to each such Member in an
amount and manner sufficient to eliminate, to the extent required by the
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Regulations, the Adjusted Capital Account Deficit of such Member as quickly as
possible, provided that an allocation pursuant to this Section 8.05(c) shall be
made only if and to the extent that such Member would have an Adjusted Capital
Account Deficit after all other allocations provided for in this Article VIII
have been tentatively made as if this Section 8.05(c) were not in the Agreement.
(d) Gross Income Allocation. In the event any Member has a
deficit Capital Account at the end of any Fiscal Year which is in excess of the
sum of (i) the amount such Member is obligated to restore pursuant to any
provision of this Agreement, and (ii) the amount such Member is deemed to be
obligated to restore pursuant to Regulations Sections 1.704-2(g)(1) and
1.704-2(i)(5), each such Member shall be specially allocated items of Company
income and gain in the amount of such excess as quickly as possible, provided
that an allocation pursuant to this Section 8.05(d) shall be made only if any to
the extent that such Member would have a deficit Capital Account in excess of
such sum after all other allocations provided for in this Article VIII have been
made as if this Section 8.05(d) and Section 8.05(c) hereof were not in the
Agreement.
(e) Nonrecourse Deductions. Nonrecourse Deductions for any
Fiscal Year or other period shall be specially allocated to the Members in
accordance with each Member's respective Company Interest.
(f) Member Nonrecourse Deductions. Any Member Nonrecourse
Deductions for any Fiscal Year or other period shall be allocated to the Member
who bears the economic risk of loss with respect to the Member Nonrecourse Debt
to which such Member Nonrecourse Deductions are attributable in accordance with
Regulations Section 1.704-2(i).
8.06 Curative Allocations. The "Regulatory Allocations" consist of
the allocations to a Member (or its predecessor) under Sections 8.05(a),
8.05(b), 8.05(c), 8.05(d), 8.05(e) and 8.05(f) hereof. Notwithstanding any other
provisions of this Article VIII (other than the Regulatory Allocations), the
Regulatory Allocations shall be taken into account in allocating other items of
income, gain, loss and deduction among the Members so that, to the extent
possible, the net amount of such allocations of other items and the Regulatory
Allocations to each Member shall be equal to the net amount that would have been
allocated to each such Member if the Regulatory Allocations had not occurred.
For purposes of applying the foregoing sentence (i) no allocations pursuant to
this Section 8.06 with respect to allocations pursuant to Sections 8.05(a) and
8.05(e) shall be made prior to the Fiscal Year during which there is a net
decrease in Company Minimum Gain, and then only to the extent necessary to avoid
any potential economic distortions caused by such net decrease in Company
Minimum Gain, (ii) no allocations pursuant to this Section 8.06 shall be made
with respect to allocations pursuant to Sections 8.05(b) and 8.05(f) relating to
a particular Member Nonrecourse
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Debt prior to the Fiscal Year during which there is a net decrease in Member
Minimum Gain attributable to such Member Nonrecourse Debt, and then only to the
extent necessary to avoid any potential economic distortions used by such net
decrease in Member Minimum Gain, (iii) allocations pursuant to this Section 8.06
shall be deferred with respect to allocations pursuant to Section 8.05(e) hereof
to the extent the Manager reasonably determines that such allocations are likely
to be offset by subsequent allocations pursuant to Section 8.05(a) hereof, and
(iv) allocations pursuant to this Section 8.06 shall be deferred with respect to
allocations pursuant to 8.05(f) hereof relating to a particular Member
Nonrecourse Debt to the extent the Manager reasonably determines that such
allocations are likely to be offset by subsequent allocations pursuant to
Section 8.05(b) hereof. The Manager shall have reasonable discretion, with
respect to each Fiscal Year, to (i) apply the provisions of this Section 8.06 in
whatever order is likely to minimize the economic distortions that might
otherwise result from the Regulatory Allocations, and (ii) divide all
allocations pursuant to this Section 8.06 among the Members in a manner that is
likely to minimize such economic distortions.
8.07 Tax Allocations; Code Section 704(c). In accordance with Code
Section 704(c) and the Regulations thereunder, income, gain, loss, and deduction
with respect to any property contributed to the capital of Company shall, solely
for tax purposes, be allocated among the Members so as to take account of any
variation between the adjusted basis of such property to the Company for federal
income tax purposes and its Book Value. Any elections or other decisions
relating to such allocations shall be made by the Manager in any manner
reasonably reflects the intent of this Agreement. Allocations pursuant to this
Section 8.07 are solely for purposes of federal, state, and local taxes and
shall not affect, or in any way be taken into account in computing, any person's
Capital Account or share of Net Income, Net Loss, other items, or Distributions
pursuant to any provision of this Agreement.
8.08 Consent. The provisions of this Agreement for Distributions and
allocations of Net Income and Net Loss are consented to by each Member (and any
successor thereto) as an express condition to becoming a Member herein.
ARTICLE IX
ASSIGNMENT OF COMPANY INTERESTS
9.01 No Assignment. Except as provided in Section 9.02, a Member may
not assign (whether by sale, exchange, gift contribution, distribution or other
transfer, including a pledge or other assignment for security purposes) all or
any part of its Company Interest unless such assignment is first approved by the
Manager in his sole and absolute discretion.
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9.02 Exceptions. The provisions of Section 9.01 providing for
approval by the Manager shall not apply upon a transfer by a Member (i) to
another Member; (ii) to the partners of a Member; or (iii) to a corporation all
of the shares of which are directly or indirectly owned by such Member;
provided, however, such transferee shall immediately execute all documents
reasonably required by the other Member (A) to cause the Company Interests so
acquired by the transferee to become immediately subject to all of the terms and
conditions of this Agreement, and (B) in the case of a corporate transferee, to
cause the shareholders to agree not to transfer the shares of such corporation
without obtaining the other Member's consent.
9.03 Assignee. Provided the provisions of this Article IX have been
complied with an Assignee shall be entitled to receive Distributions and
allocations of Net Income and Net Losses, from the Company attributable to the
assigned Company Interests from and after the effective date of the assignment,
but an Assignee shall have no other rights of a Member herein, such as rights to
any information, an accounting, inspection of books or records or voting as a
Member on matters set forth herein or by law, until such Assignee is admitted as
a Member pursuant to the provisions of Article X; except that an Assignee shall
have the right solely to receive a copy of the annual financial statements
required herein to be provided the Members. The Company shall be entitled to
treat the assignor as the absolute owner of the Company Interests in all
respects, and shall incur no liability for Distributions, allocations of Net
Income or Net Losses, or transmittal of reports and notices required to be given
to Members which are made in good faith to the assignor until the effective date
of the assignment, or, in the case of the transmittal of reports (other than the
financial statements referred to above) or notices, until the Assignee is so
admitted as a substitute Member. The effective date of an assignment shall be
the first day of the calendar month following the month in which the Manager has
received an executed instrument of assignment in compliance with this Article IX
or the first day of a later month if specified in the executed instrument of
assignment. The Assignee shall be deemed an Assignee on the effective date, and
shall be only entitled to Distributions, Net Income or Net Losses attributable
to the period after the effective date of assignment. Each Assignee will inherit
the balance of the Capital Account, as of the effective date of Assignment, of
the Assignor with respect to the Company Interests transferred.
9.04 Other Consents and Requirements. Any assignment, sale, transfer,
exchange or other disposition of any Company Interests in the Company must be in
compliance with any requirements imposed by any state securities administrator
having jurisdiction over the assignment, sale, transfer, exchange or other
disposition of the Company Interests and the United States Securities and
Exchange Commission.
9.05 Assignment Not In Compliance. Any assignment, sale, exchange or
other transfer in contravention of any of the
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provisions of this Article IX shall be void and of no effect, and shall not bind
nor be recognized by the Company.
9.06 Tax Elections. The Manager will, at the request of an Assignee,
make an election under Code Section 754 to adjust the basis of the Company's
assets, to reflect the purchase price paid by an Assignee; provided, however,
all reasonable costs and expenses incurred in connection with implementing such
election (including, without limitation the reasonable expenses of attorneys and
accountants) with respect to any transfer shall be borne by the Assignee.
ARTICLE X
ADMISSION OF ASSIGNEE AS MEMBER
10.01 Requirements. An Assignee may not become a Member unless all of
the following conditions are first satisfied:
(a) A duly executed and acknowledged written instrument of
assignment is filed with the Company, specifying the Company Interests being
assigned and setting forth the intention of the assignor that the Assignee
succeed to assignor's interest as a substitute Member;
(b) The assignor and Assignee shall execute and acknowledge
any other instruments that the Manager deems necessary or desirable for
substitution, including the written acceptance and adoption by the Assignee of
the provisions of this Agreement;
(c) The admission of the Assignee is Approved by the
Members, the granting or denial of which may be withheld by the Members in their
sole and absolute discretion;
(d) Payment of a transfer fee to the Company, sufficient to
cover all reasonable expenses connected with the substitution; and
(e) Compliance with Article IX of this Company Agreement.
ARTICLE XI
BOOKS, RECORDS, ACCOUNTING AND REPORTS
11.01 Books and Records. The Company shall maintain at its principal
office all of the following:
(a) A current list of the full name and last known business
or residence address of each Member set forth in alphabetical order together
with the Capital Contributions and Company Interest owned by each Member.
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(b) A copy of the Certificate, this Agreement and any and
all amendments to either thereof, together with executed copies of any powers of
attorney pursuant to which any certificate or amendment has been executed;
(c) Copies of the Company's federal, state, and local income
tax or information returns and reports, if any, for the six most recent taxable
years;
(d) The financial statements of the Company for the six most
recent fiscal years;
(e) The Company books and records for at least the current
and past three fiscal years.
11.02 Delivery to Members and Inspection.
(a) Upon the request of a Member, the Manager shall promptly
deliver to the requesting Member, at the expense of the Company, a copy of the
information required to be maintained by Section 11.01 except for 11.01(e).
(b) Each Member, or his duly authorized representative, has
the right, upon reasonable request, to each of the following:
(1) Inspect and copy during normal business hours
any of the Company records; and
(2) Obtain from the Company, promptly after becoming
available, a copy of the Company's federal, state and local income tax or
information returns for each year.
(c) The Company shall send to each Member within eighty-five
(85) days after the end of each Fiscal Year the information necessary for the
Member to complete its federal and state income tax or information returns.
11.03 Annual Statements. The Company shall cause to be prepared for
the Members at least annually, at Company expense financial statements of the
Company prepared on the basis of the accrual method of accounting in accordance
with generally accepted accounting principles. The financial statements will
include a balance sheet, statements of income or loss, cash flows and Members'
equity.
11.04 Filings. The Manager, at Company expense, shall cause the income
tax returns for the Company to be prepared and timely filed with the appropriate
authorities. The Manager, at Company expense, shall also cause to be prepared
and timely filed, with appropriate federal and state regulatory and
administrative bodies, all reports required to be filed by the Company with
those entities under then current applicable laws, rules and regulations. The
reports shall be prepared on the accounting or
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reporting basis required by the regulatory bodies. Upon written request, any
Member shall be provided with a copy of any of the reports without expense to
the requesting Member.
ARTICLE XII
DESIGNATION RIGHTS, AUTHORITIES, POWERS,
RESPONSIBILITIES AND DUTIES OF THE MANAGER
12.01 Designation of Manager. The initial Manager shall be ECC. A
Manager and any successor Manager may be removed and a person designated as
successor Manager at any time by resolution Approved by the Members.
12.02 Authority of Manager.
(a) Permitted Acts. Except as provided otherwise in this
Agreement, the Manager shall have the exclusive authority to manage the
operations and affairs of the Company, shall have the fiduciary responsibility
with respect to the Company which a director and a chief executive officer of a
Delaware corporation would have with respect to a corporation, and shall have
all authority, rights, and powers conferred by law and those required or
appropriate for the management of the Company business including without
limitation (i) entering into loan, credit or other agreements to borrow funds in
connection with the Company's business and in connection therewith to encumber,
pledge, grant security interests or otherwise hypothecate assets of the Company;
and (ii) enter into loan or credit agreements with Enstar Affiliates whereby the
Company loans funds to such Enstar Affiliates on terms and conditions approved
by the Manager.
(b) Limitations and Restrictions. The Manager shall not have
the authority to do the following without it being Approved by the Members:
(1) Alter the primary purpose of the Company as set
forth in Section 2.05;
(2) Except for a sale of the Company's business
which is Approved by the Members, do any other act in contravention of this
Agreement or which would make it impossible to carry on the ordinary business of
the Company;
(3) Confess a judgment against the Company in
connection with any threatened or pending legal action;
(4) Possess any Company property or assign the
rights of the Company in specific Company property for other than a Company
purpose;
(5) Employ or permit to employ the funds or assets
of the Company in any manner except for the exclusive benefit of the Company
without the unanimous vote of the Members;
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(6) Commingle Company funds with those of any other
Person;
(7) Admit additional Members to the Company; or
(8) Sell all or substantially all of the assets of
the Company.
12.03 No Personal Liability. The Manager shall have no personal
liability for the repayment of the Capital Contributions of any Member.
12.04 Tax Matters Member.
(a) The Manager is hereby designated as Tax Matters Member
of the Company as provided in Regulations pursuant to Code Section 6231. Each
Member, by the execution of this Agreement, consents to such designation of the
Tax Matters Member and agrees to execute, certify, acknowledge, deliver, swear
to, file and record at the appropriate public offices such documents as may be
necessary or appropriate to evidence such consent.
(b) (i) To the extent and in the manner provided by
applicable law and Regulations, the Tax Matters Member shall furnish the name,
address, profits interest and taxpayer identification number of each Member,
including any successor to an Interest, to the Secretary of the Treasury or his
delegate (the "Secretary").
(ii) The Tax Matters Member shall keep each Member
informed of the administrative and judicial proceedings for the adjustment at
the Company level of any item required to be taken into account by a Member for
income tax purposes (such administrative proceeding referred to hereinafter as a
"tax audit" and such judicial proceeding referred to hereinafter as "judicial
review").
(iii) The Tax Matters Member shall not enter into any
agreement with the Internal Revenue Service which would result in any material
change either in income as previously reported or in the allocation of Net
Profits or Net Losses unless the Member provides the other Members with at least
thirty (30) days written notice of such proposed agreement.
(c) The Tax Matters Member is hereby authorized, but not
required:
(i) to enter into any settlement with the Internal
Revenue Service or the Secretary of the Treasury (the "Secretary") with respect
to any tax audit or judicial review, in which agreement the Tax Matters Member
may expressly state that such agreement shall bind the other Members except that
such settlement agreement shall not bind any Member who (within the
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time prescribed pursuant to the Code and Regulations thereunder) files a
statement with the Secretary providing that the Tax Matters Member shall not
have the authority to enter into a settlement agreement on the behalf of such
Member;
(ii) in the event that a notice of a final
administrative adjustment at the Company level of any item required to be taken
into account by a Member for tax purposes (a "final adjustment") is mailed to
the Tax Matters Member, to seek judicial review of such final adjustment,
including the filing of a petition for readjustment with the Tax Court, the
District Court of the United States for the district in which the Company's
principal place of business is located or elsewhere as allowed by law, or the
United States Claims Court;
(iii) to intervene in any action brought by any other
Member for judicial review of a final adjustment;
(iv) to file a request for an administrative
adjustment with the Secretary at any time and, if any part of such request is
not allowed by the Secretary, to file a petition for judicial review with
respect to such request;
(v) to enter into an agreement with the Internal
Revenue Service to extend the period for assessing any tax which is attributable
to any item required to be taken into account by a Member for tax purposes, or
an item affected by such item; and
(vi) to take any other action on behalf of the
Members (with respect to the Company) or the Company in connection with any
administrative or judicial tax proceeding to the extent permitted by applicable
law or Regulations.
(d) The Company shall indemnify and reimburse the Tax
Matters Member for all expenses (including legal and accounting fees) incurred
in connection with any administrative or judicial proceeding with respect to the
tax liability of the Members. The payment of all such expenses shall be made
before any distributions are made to the Members. The taking of any action and
the incurring of any expense by the Tax Matters Member in connection with any
such proceeding, except to the extent required by law, is a matter in the sole
discretion of the Tax Matters Member and the provisions on limitations of
liability of the Members and indemnification set forth in Article XVIII hereof
shall be fully applicable to the Tax Matters Member in its capacity as such.
12.05 Officers.
(a) The Manager may appoint officers at anytime. The
officers of the Company, if deemed necessary by the Manager, may include a
president, one or more vice presidents, secretary and one or more assistant
secretaries, and chief financial officer (and one or more assistant treasurers).
Any individual may hold any number of offices. The officers shall exercise such
powers
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and perform such duties as specified in this Agreement and as shall be
determined from time to time by the Manager.
(b) Subject to the rights, if any, of an officer under a
contract of employment, any officer may be removed, either with or without
cause, by the Manager at any time. Any officer may resign at any time by giving
written notice to the Company. Any resignation shall take effect at the date of
the receipt of that notice or at any later time specified in that notice; and,
unless otherwise specified in that notice, the acceptance of the resignation
shall not be necessary to make it effective. Any resignation is without
prejudice to the rights, if any, of the Company under any contract to which the
officer is a party. A vacancy in any office because of death, resignation,
removal, disqualification or any other cause shall be filled in the manner
prescribed in this Agreement for regular appointments to that office.
(c) The president shall be the chief executive officer of
the Company, and shall, subject to the control of the Manager, have general and
active management of the business of the Company and shall see that all orders
and resolutions of the Manager are carried into effect. The president shall have
the general powers and duties of management usually vested in the office of
president of a corporation, and shall have such other powers and duties as may
be prescribed by a Manager or this Agreement. The president shall execute bonds,
mortgages and other contracts requiring a seal, under the seal of the Company,
except where required or permitted by law to be otherwise signed and executed,
and except where the signing and execution thereof shall be expressly delegated
by the Manager to some other officer or agent of the Company.
(d) The vice-president, or if there shall be more than one,
the vice-presidents in the order determined by the Manager, shall, in the
absence or disability of the president, perform the duties and exercise the
powers of the president and shall perform such other duties and have such other
powers as the Manager may from time to time prescribe.
(e) The secretary shall attend all meetings of the Members,
and shall record all the proceedings of the meeting in a book to be kept for
that purpose and shall perform like duties for the standing committees when
required. The secretary shall give or cause to be given, notice of all meetings
of the Members and shall perform such other duties as may be prescribed by the
Manager. The secretary shall have custody of the seal, if any, of the Company
and the secretary shall have authority to affix the same to any instrument
requiring it, and when so affixed, it may be attested by his or her signature.
The secretary shall keep, or cause to be kept at the principal executive office
or at the office of the Company's transfer agent or registrar, as determined by
the Manager, all documents described in Section 11.01 and such other documents
as may be required under the Act. The secretary
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<PAGE> 24
shall perform such other duties and have such other authority as may be
prescribed elsewhere in this Agreement or from time to time by the Manager. The
secretary shall perform such other duties and have such other authority as may
be prescribed elsewhere in this Agreement or from time to time by the Manager.
The secretary shall have the general duties, powers and responsibilities of a
secretary of a corporation.
(f) The chief financial officer shall keep and maintain, or
cause to be kept and maintained, adequate and correct books and records of
accounts of the properties and business transactions of the Company, including
accounts of its assets, liabilities, receipts, disbursements, gains, losses,
Capital Accounts and Company Interests. The chief financial officer shall have
the custody of the funds and securities of the Company, and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
Company, and shall deposit all moneys and other valuable effects in the name and
to the credit of the Company in such depositories as may be designated by the
Manager. The chief financial officer shall disburse the funds of the Company as
may be ordered by the Manager. The chief financial officer shall perform such
other duties and shall have such other responsibility and authority as may be
prescribed elsewhere in this Agreement from time to time by the Manager. The
chief financial officer shall have the general duties, powers and
responsibilities of a chief financial officer of a corporation, and shall be the
chief financial and accounting officer of the Company.
ARTICLE XIII
RIGHTS, POWERS AND VOTING RIGHTS OF THE MEMBERS
13.01 Request for Vote. Any Member holding in the aggregate Company
Interests which equal or exceed five percent (5%) may call a meeting of the
Members for a vote, or may call for a vote without a meeting. In either event,
such Member shall establish a date for the meeting on which votes shall be
counted and shall mail by first class mail a notice to all Members of the time
and place of the Company meeting, if called, and the general nature of the
business to be transacted, or if no such meeting has been called, of the matter
or matters to be voted and the date which the votes will be counted.
13.02 Procedures. Each Member shall be entitled to cast one vote for
each full one percent (1%) interest of such Member's Company Interest: (i) at a
meeting, in person, by written proxy or by a signed notice directing the manner
in which he desires that his vote be cast, which notice must be received by the
Company prior to such meeting, or (ii) without a meeting, by a signed notice
directing the manner in which he desires that his vote be cast, which notice
must be received by the Company prior to the date on which the votes of Members
are to be counted. Only the votes of Members of record on the notice date,
whether at a meeting or otherwise, shall be counted.
20
<PAGE> 25
13.03 Action By Consent. Notwithstanding anything to the contrary
contained in this Article XIII, any action or approval required or permitted by
this Agreement to be taken or given at any meeting of Members (whether by vote
or consent), may be taken or given without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken or
approval so given, shall be signed by Members owning Company Interests having
not less than the minimum number of votes that would be necessary to authorize
or take such action or give such approval at a meeting at which all Members
entitled to vote thereon were present and voted. Prompt notice of the taking of
any action or the giving of any approval without a meeting by less than
unanimous written consent shall be given to those Members who have not consented
in writing.
13.04 Limitations. No Member shall have the right of power to: (i)
withdraw or reduce his Capital Contribution except as a result of the
dissolution of the Company or as otherwise provided by law or in this Agreement,
(ii) bring an action for partition against the Company or any Company assets,
(iii) cause the termination and dissolution of the Company, except as set forth
in this Agreement, or (iv) demand or receive property other than cash in return
for his Capital Contribution. Except as otherwise set forth in this Agreement,
no Member shall have priority over any other Members either as to the return of
his Capital Contribution or as to Net Income, Net Loss or distributions. Other
than upon the termination and dissolution of the Company as provided by this
Agreement, there has been no time agreed upon when the Capital Contribution of
each Member will be returned.
13.05 Amendments to Agreement. This Agreement may only be modified or
amended if Approved by the Members, provided, however, no amendment shall
materially reduce or increase, as the case may be, a Member's right to
allocations of Net Profit or Net Loss or to Distributions without such Member's
consent.
ARTICLE XIV
OTHER BUSINESSES AND INVESTMENT OPPORTUNITIES
Any Member and any Affiliate may engage in or possess an interest in any
other business or venture, independently or with others, and neither the
Company, any other Member nor any Affiliate shall have any right or interest in
and to such venture or business.
ARTICLE XV
DISSOLUTION OF COMPANY
15.01 Termination of Membership. No Member shall resign from the
Company, or take any voluntary action to commence bankruptcy proceedings or
dissolve itself. If any Member ceases to be a Member for any reason, including
death, bankruptcy or
21
<PAGE> 26
dissolution, the business of the Company may be continued only by resolution
approved by the remaining Members who hold a majority of the Company Interests
then held by the remaining Members within ninety (90) days following such event.
In such event, the successor-in-interest to the Member who ceased to be a Member
shall be treated as an Assignee of such Member for all purposes of this
Agreement.
15.02 Events of Dissolution or Liquidation. The Company shall be
dissolved upon the happening of any of the following events:
(a) The failure of the Members to continue the Company in
accordance with the provisions of Section 15.01 hereof after the termination of
a Member's membership.
(b) The expiration of the term of the Company as set forth
in Section 2.04 hereof;
(c) The sale, exchange, or other disposition or transfer of
all or substantially all of the assets of the Company;
(d) Upon the unanimous consent of the Members; or
(e) Subject to any provision of this Agreement that limits
or prevents dissolution, the happening of any event that, under the Act caused
the dissolution of a limited liability company.
15.03 Liquidation. Upon dissolution of the Company for any reason, the
Company shall immediately commence to windup its affairs. A reasonable period of
time shall be allowed for the orderly termination of the Company business,
discharge of its liabilities and distribution or liquidation of the remaining
assets so as to enable the Company to minimize the normal losses attendant to
the liquidation process. A full accounting of the assets and liabilities of the
Company shall be taken and a statement thereof shall be furnished to each Member
within thirty (30) days after the dissolution. Such accounting and statements
shall be prepared under the direction of the Manager or, by a liquidating
trustee selected by unanimous consent of the Members. The Company property and
assets and/or the proceeds from the liquidation thereof shall be applied in the
following order of priority:
(a) First, payment of the debts and liabilities of the
Company, in the order of priority provided by law (including any loans by the
Members to the Company) and payment of the expenses of liquidation;
(b) Second, setting up of such reserves as the Members or
liquidating trustee may deem reasonably necessary for any contingent or
unforeseen liabilities or obligations of the Company or any obligation or
liability not then due and payable; provided, however, that any such reserve
shall be paid over by the Manager or liquidating trustee to an escrow agent, to
be held by
22
<PAGE> 27
such escrow agent for the purpose of disbursing such reserves in payment of such
liabilities, and, at the expiration of such escrow period as the Manager or
liquidating trustee shall deem advisable but not to exceed one calendar year, to
distribute the balance thereafter remaining in the manner hereinafter provided;
and
(c) Third, to the Members in accordance with their
respective positive Capital Accounts. The distributions pursuant to this
paragraph (c) shall, to the extent possible, be made by the end of the Fiscal
Year in which the dissolution occurs, of if later, within ninety (90) days after
the date of such dissolution, or such other time period which may be permitted
under Regulations Section 1.704-1(b)(2)(ii)(b).
15.04 Distribution in Kind. If Approved by the Members, any noncash
asset may be distributed in kind to one or more Members. Any such asset,
however, shall first be valued at its fair market value to determine the gain or
loss used in determining Net Income or Net Losses that would have resulted if
such asset were sold for such value, such gain or loss shall then be allocated
pursuant to Article VIII hereof, and the Members' Capital Accounts shall be
adjusted to reflect such gain or loss. The amount distributed and charged to the
Capital Account of each Member receiving an interest in such distributed asset
shall be the fair market value of such interest (net of any liability secured by
such asset that such Member assumes or takes subject to). The fair market value
of such asset shall be determined by the Manager, or liquidating trustee, as the
case may be, or by an independent appraiser (any such appraiser must be
nationally recognized as an expert in valuing the type of asset involved)
selected by the Manager, or the liquidating trustee, as the case may be.
15.05 No Action for Dissolution. The Members acknowledge that
irreparable damage would be done to the goodwill and reputation of the Company
if any Member should bring an action in court to dissolve the Company. This
Agreement has been drawn carefully to provide fair treatment of all parties and
equitable payment in liquidation of the interests of all Members. Accordingly,
each Member hereby waives and renounces its right to initiate legal action to
seek dissolution, or to seek the appointment of a receiver or trustee to
liquidate the Company.
15.06 No Further Claim. Upon dissolution, each Member shall look
solely to the assets of the Company for the return of its investment, and if the
Company property remaining after payment or discharge of the debts and
liabilities of the Company, including debts and liabilities owed to one or more
of the Members, is insufficient to return the aggregate capital contributions of
each Member such Members shall have no recourse against any other Member.
23
<PAGE> 28
ARTICLE XVI
REPRESENTATIONS BY THE MEMBERS
Each Member hereby represents and warrants to, and agrees with, the
other Members and the Company as follows:
16.01 Investment Intent. It is acquiring its Company Interest with the
intent of holding the same for investment for its own account and without the
intent or a view to participating directly or indirectly in, or for resale in
connection with, any distribution of such Company Interest within the meaning of
the Securities and Exchange Act of 1933, as amended (the "Federal Act"), or any
applicable state securities laws, and it does not intend to divide its
participation with others, nor to resell, assign or otherwise dispose of all or
any part of its Company Interest.
16.02 Securities Regulation.
(a) It acknowledges and agrees that the Company Interest is
being issued and sold in reliance on the exemption from registration contained
in Section 4(2) of the Federal Act and exemptions contained in applicable state
securities laws, and that it cannot and will not be sold or transferred except
in a transaction which is exempt under the Federal Act and those state acts or
pursuant to an effective registration statement under those acts or in a
transaction which is otherwise in compliance with the Federal Act and those
state acts.
(b) It understands that it has no contract right for the
registration under the Federal Act of the Company Interest for public sale and
that, unless such Interest is registered or an exemption from registration is
available, such Interest may be required to be held indefinitely.
16.03 Knowledge and Experience. It has such knowledge and experience
in financial, tax and business matters as to enable it to evaluate the merits
and risks of its investment in the Company and to make an informed investment
decision with respect thereto.
16.04 Economic Risk. It is able to bear the economic risk of an
investment in its Interest.
16.05 Binding Agreement. This Agreement is and will remain its valid
and binding agreement, enforceable in accordance with its terms (subject, as to
the enforcement of remedies, to any applicable bankruptcy, insolvency or other
laws affecting the enforcement of creditor's rights).
16.06 Tax Position. Unless it provides prior written notice to the
Company it will not take a position on its federal income tax return, on any
claim for refund, or in any
24
<PAGE> 29
administrative or legal proceedings, that is inconsistent with any information
return filed by the Company or with the provisions of this Agreement.
16.07 Information. It has received all documents, books and records
pertaining to an investment in the Company requested by it.
ARTICLE XVII
MISCELLANEOUS
17.01 Additional Documents. At any time and from time to time after
the date of this Agreement, upon the request of the Manager, the other Members
shall do and perform, or cause to be done and performed, all such additional
acts and deeds, and shall execute, acknowledge and deliver, or cause to be
executed, acknowledged and delivered, all such additional instruments and
documents, as may be required to best effectuate the purposes and intent of this
Agreement.
17.02 Severability. If any term or provision of this Agreement is held
illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall not affect the legality, validity or enforceability of
the remainder of this Agreement.
17.03 Inspection. Any Member shall have the right at reasonable times
to inspect the books and records of the Company.
17.04 General. This Agreement: (i) shall be binding on the executors,
administrators, estates, heirs and legal successors of the Members; (ii) be
governed by and construed in accordance with the laws of the State of Delaware;
(iii) may be executed in more than one counterpart as of the day and year first
above written; and (iv) contains the entire agreement among the Members. The
waiver of any of the provisions, terms or conditions contained in this Agreement
shall not be considered as a waiver of any of the other provisions, terms or
conditions hereof.
17.05 Notices, Etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery, confirmation of telex or telecopy, or upon the fifth day
following mailing by registered mail, postage prepaid, addressed (a) if to any
Member at such addresses as set forth on the records of the Company, or at such
other address as any Member shall have furnished to the Company in writing, (b)
if to the Company, at 474 S. Raymond Avenue, Suite 200, Pasadena, California
91105.
17.06 Execution of Certificate and Other Papers. The Members agree to
execute such instruments, documents and papers as they deem necessary or
appropriate to carry out the intent of this Agreement.
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<PAGE> 30
IN WITNESS WHEREOF, the parties have executed this Limited Liability
Company Agreement as of the day and year first set forth above.
FALCON HOLDING GROUP, L.P.,
a Delaware limited partnership
By: FALCON HOLDING GROUP, INC.,
a California corporation,
its general partner
By: /s/ Michael K. Menerey
--------------------------
Title: Chief Financial Officer
------------------------------
ENSTAR COMMUNICATIONS CORPORATION,
a Georgia corporation
By: /s/ Michael K. Menerey
--------------------------
Title: Chief Financial Officer
------------------------------
<PAGE> 31
SCHEDULE I
<TABLE>
<CAPTION>
Capital Company
Member Contribution Interest
- ------ ------------ --------
<S> <C> <C>
Falcon Holding Group, L.P. $ 250,000 20.0%
Enstar Communications Corporation 1,000,000 [in accounts 80.0%
receivable]
$1,250,000 100.00%
========== ========
</TABLE>
<PAGE> 1
EXHIBIT 10.52
ASSET PURCHASE AGREEMENT
by and among
FALCON COMMUNITY CABLE, L.P.,
a Delaware limited partnership,
FALCON CABLE MEDIA,
a California limited partnership,
FALCON CABLE SYSTEMS COMPANY II, L.P.,
a California limited partnership
and
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.,
a California limited partnership,
Dated as of June 27, 1997
<PAGE> 2
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of June 27, 1997 (this
"Agreement") by and among Falcon Classic Cable Income Properties, L.P., a
California limited partnership ("FCCI"), Falcon Community Cable, L.P., a
Delaware limited partnership ("Community Cable"), Falcon Cable Media, a
California limited partnership ("Cable Media"), and Falcon Cable Systems Company
II, L.P., a California limited partnership ("Cable Systems II") (Community
Cable, Cable Media and Cable Systems II are collectively referred to herein as
the "Purchasers" and each a "Purchaser").
RECITALS
A. Falcon Classic Cable Investors, L.P., a California
limited partnership (the "General Partner"), is the general partner of FCCI.
B. Pursuant to Section 4.9 of the Amended and Restated
Agreement of Limited Partnership of FCCI, dated as of May 15, 1989 (the
"Partnership Agreement") (capitalized terms used in this Agreement and not
otherwise defined herein shall have the meaning ascribed thereto in the
Partnership Agreement), the General Partner may cause the sale of all or
substantially all of the Cable Systems to the General Partner or to any
Affiliate of the General Partner for cash at the median of three independent
appraised values of fair market value pursuant to the Appraisal Process (the
"Appraised Value").
C. Falcon Holding Group, L.P., a Delaware limited
partnership ("FHGLP"), (i) is the general partner of the General Partner, (ii)
is a general partner of Community Cable, (iii) is a general partner of Cable
Media, and (iv) is a general partner of Cable Systems II.
D. As a result of the relationships described in the
foregoing recitals, the Purchasers are Affiliates of the General Partner.
E. Pursuant to an Assignment of Right to Purchase, dated
as of the date hereof, among the General Partner and each of the Purchasers, the
General Partner has assigned to the Purchasers the right to purchase all of the
Cable Systems of FCCI at their Appraised Value.
F. The Purchasers desire to purchase all of the Cable
Systems of FCCI at their Appraised Value and the General Partner desires to
cause FCCI to sell all of the Cable Systems of FCCI to the Purchasers at their
Appraised Value in accordance with Section 4.9 of the Partnership Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained herein, and for
other good
<PAGE> 3
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound hereby, the parties hereto
hereby agree as follows:
ARTICLE I.
DEFINITIONS
SECTION 1.1. DEFINED TERMS. The following terms, as used in
this Agreement, shall have the following meanings (and such meanings shall be
equally applicable to both the singular and plural forms of the terms defined
herein):
"Bill of Sale" shall mean such bills of sale, instruments of
conveyance and assignment and assumption as may be necessary to effect the Sale
of the Cable Systems.
"Cable Systems" shall mean, collectively, all right, title and
interest of FCCI in all assets, rights, privileges, interests, claims and
properties, whether tangible or intangible, owned, used or held by FCCI for use
in connection with the provision of cable television services and, if required
by the context, the five specific Cable Systems owned and operated by FCCI in
Redmond, Oregon (the "Redmond Cable System"), Burke County, North Carolina (the
"Burke County Cable System"), Somerset, Kentucky (the "Somerset Cable System"),
Centreville, Maryland (the "Centreville Cable System"), and California City,
California (the "California City Cable System").
"Cable System Contracts" shall mean all contracts, purchase
orders and other agreements of FCCI to the extent relating to the construction,
operation or maintenance of the Cable Systems. Cable System Contracts shall not
include any Local Authorization or FCC License.
"Closing" shall mean the consummation of the Sale.
"Communications Act" shall mean the Communications Act of
1934, as amended.
"FCC" shall mean the Federal Communications Commission.
"FCC Consents" shall mean consents of the FCC to the transfer
of the FCC Licenses to the Purchasers in connection with the Sale.
"FCC Licenses" shall mean the licenses and permits of the FCC
held by FCCI in connection with the operation of the Cable Systems.
"Franchise Areas" shall mean the areas in which FCCI is
authorized to provide cable television service under the Local Authorizations
and the areas served by any of the Cable Systems in which FCCI provides cable
television service without a Local Authorization.
2
<PAGE> 4
"Governmental Authority" shall mean any federal, state,
municipal or local governmental authority or political subdivision thereof.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"Legal Requirement" shall mean the requirements of any law,
ordinance, statute, rule, regulation, code, order, judgment, decree, injunction,
franchise, determination, approval, permit, license, authorization or other
requirement of any Governmental Authority.
"Lien" shall mean, with respect to any asset, any mortgage,
lien, pledge, charge, security interest, adverse claim or encumbrance of any
kind in respect of such asset.
"Local Authority" shall mean any Governmental Authority having
jurisdiction to grant a cable television franchise with respect to all or a
portion of any Cable System.
"Local Authority Consent" shall mean any approval,
authorization or consent of a Local Authority necessary for a change in control
of a Local Authorization or otherwise in connection with the consummation of the
Sale.
"Local Authorizations" shall mean all authorizations,
approvals, franchises, licenses and permits of Local Authorities granted to the
Partnership which permit the operation of the Cable Systems as amended, modified
or supplemented.
"Material Adverse Effect" shall mean a material adverse effect
on the business, financial condition, results of operations or prospects of the
business of FCCI or any of the Cable Systems.
"Permitted Liens" shall mean (i) Liens for Taxes not yet due
and payable; (ii) any carrier's, warehousemen's, mechanic's, materialmen's,
repairmen's, employees' or other like Lien arising in the ordinary course of
business; (iii) easements, rights-of-way, restrictions, encroachments and other
similar encumbrances which do not materially interfere with the use of the Cable
Systems as presently used; and (iv) rights of first refusal in favor of, and
restrictions imposed by, Governmental Authorities.
"Person" shall mean and include an individual, a corporation,
a partnership (general, limited or limited liability), a joint venture, a
limited liability company, an association, a trust or any other organization or
entity, including a Governmental Authority.
"Purchase Price" shall mean $82,000,000 in the aggregate,
allocated among the Cable Systems as provided in Schedule 2.1.
"Right of First Refusal" shall mean any right of first refusal
of a Local Authority in regard to or arising as a result of the Sale.
3
<PAGE> 5
"Taxes" shall mean all taxes, fees, duties, imposts, levies,
withholdings, tax deficiencies, assessments, and charges, including, without
limitation, all net income, gross income, gross receipts, sales, use,
value-added, ad valorem, transfer, franchise, profits, license, withholding,
payroll, employment, excise, estimated, severance, stamp, occupation, property
or other taxes and customs duties of any kind whatsoever, together with any
interest and any penalties, additions to tax or additional amounts relating
thereto, imposed by any Governmental Authority (domestic or foreign).
"Unapproved FCC Assets" shall mean all equipment relating to
Unapproved FCC Licenses.
"Unapproved FCC License" shall mean an FCC License as to which
all FCC Consents have not been obtained or do not remain in full force and
effect immediately prior to the Closing Date.
"Unapproved Franchise Areas" shall mean Franchise Areas
covered by Unapproved Local Authorizations.
"Unapproved Franchise Assets" shall mean, with respect to all
Unapproved Franchise Areas, all Unapproved Local Authorizations and all related
real property and equipment.
"Unapproved Local Authorizations" shall mean a Local
Authorization (other than Right of First Refusal Local Authorizations) as to
which all Local Authority Consents have not been obtained or do not remain in
full force and effect immediately prior to the Closing Date.
ARTICLE II.
PURCHASE AND SALE
SECTION 2.1. PURCHASE AND SALE.
(a) Subject to the satisfaction or waiver in writing of the
conditions set forth herein and to the other terms, conditions and provisions
hereof, on a date as soon as practicable following the satisfaction or waiver of
the conditions set forth herein (the "Closing Date"), FCCI shall execute and
deliver to each Purchaser a Bill of Sale pursuant to which FCCI shall sell,
convey, assign, transfer and deliver to the Purchasers, and the Purchasers shall
purchase, acquire, accept and pay for, all of FCCI's right, title and interest
in all Cable Systems owned by FCCI, including, subject to Section 2.2, FCCI's
rights under the Cable System Contracts and each Purchaser shall execute and
deliver a Bill of Sale and thereby assume and agree to perform in accordance
with their terms the Cable System Contracts, FCC Licenses and Local
Authorizations (the "Sale"). Schedule 2.1 hereto sets forth the Cable Systems of
FCCI to be purchased by each respective Purchaser and the portion of the
Purchase Price to be paid by each such Purchaser.
4
<PAGE> 6
(b) At the Closing, the Purchasers shall, severally but not
jointly, deliver to FCCI the Purchase Price related to the respective Cable
Systems to be purchased by them in immediately available funds (by wire transfer
to an account designated in writing by FCCI prior to the Closing Date).
SECTION 2.2. LACK OF CONSENTS. If the Sale requires the
consent of another Person under any Cable System Contract and such consent has
not been obtained prior to the Closing Date or does not remain in full force and
effect at the Closing Date, such failure to obtain such consent or failure of
such consent to be in full force and effect shall not itself constitute a breach
of any provision hereof. FCCI shall, with respect to each such Cable System
Contract, use its reasonable commercial efforts (at the expense of the Purchaser
of such Cable System Contract and at no out-of-pocket expense to FCCI, but
without such Purchaser being required to provide any consideration therefor) to:
(i) keep each such Cable System Contract in effect and obtain such consent; (ii)
provide to the appropriate Purchaser the benefits of each such Cable System
Contract through subcontract or otherwise; (iii) cooperate in any reasonable
arrangement designed to provide such benefits to such Purchaser; and (iv)
enforce, at the request and sole expense of the appropriate Purchaser, any
rights of such Purchaser included in the Cable Systems under or with respect to
any such Cable System Contract against all other Persons (including termination
of the foregoing in accordance with the terms thereof upon the election of such
Purchaser), in each case of clauses (i)-(iv) to the extent that any Purchaser
performs all obligations of FCCI under such Cable System Contract. If all such
consents under any such Cable System Contract are obtained after the Closing
Date, FCCI shall promptly assign such Cable System Contract to the appropriate
Purchaser and such Purchaser shall assume all obligations under such Cable
System Contract with respect to periods following such assignment, in each case
without the payment of additional consideration by any Purchaser or FCCI.
SECTION 2.3. LACK OF REGULATORY APPROVALS.
(a) If immediately prior to the Closing Date any Local
Authority Consent or FCC Consent has not been obtained or does not remain in
full force and effect immediately prior to the Closing Date, such failure to
obtain such Local Authority Consent or FCC Consent or such failure of such Local
Authority Consents or FCC Consent to be in full force and effect shall not
itself constitute a breach of any provision hereof.
(b) If at any time following the Closing Date, FCCI is able to
transfer to the appropriate Purchaser (or a designee of such Purchaser) an
Unapproved Local Authorization or an Unapproved FCC License, FCCI shall promptly
transfer to such Purchaser (or such designee of such Purchaser) such Unapproved
Local Authorization and all related Unapproved Franchise Assets and such
Unapproved FCC License and all related Unapproved FCC Assets, as the case may
be. Such Purchaser (or such designee of such Purchaser), as the case may be,
shall assume, pay, perform and discharge the obligations arising after the
Closing Date under or in respect of any such Unapproved Local Authorization or
Unapproved FCC License so transferred.
5
<PAGE> 7
SECTION 2.4. RECEIPT OF CONSENTS. It is the intent of the
parties that the arrangements described in Sections 2.2 and 2.3 continue for the
shortest possible time, and to this end they agree to use reasonable commercial
efforts to obtain all consents (including Local Authority Consents) to the Sale
referred to in said Sections as promptly as practicable following the Closing
Date. FHGLP shall coordinate the efforts to obtain such consents, and the
Purchasers shall be responsible for all costs, expenses, liabilities,
obligations and burdens with respect to such consents (allocated to the
appropriate Cable System).
SECTION 2.5. NO ASSUMPTION OF LIABILITIES. FCCI shall retain,
shall continue to be responsible after the Closing for, shall pay, perform and
discharge, and shall indemnify and hold the Purchasers and each of their
Affiliates harmless from and against, all liabilities and obligations (whether
incurred, accrued, arising or known prior to, at or after the Closing, whether
or not known, suspected, asserted or claimed at the Closing or at any time
theretofore or thereafter, whether or not reflected or provided for, or required
to be reflected or provided for, in any balance sheet of FCCI and whether fixed,
liquidated, unliquidated, absolute, contingent or otherwise) which relate to or
arise out of the business, assets or operations of FCCI as heretofore, currently
or hereafter conducted through the Closing Date, any of the Cable Systems or the
past operation, condition or use of any of the Cable Systems, including those
related to: (i) product liability; (ii) general tort liability; (iii) any other
activity undertaken by FCCI or relating to any of the Cable Systems; or (iv) any
obligation or liability of FCCI to any of its partners or in respect of any
management fee or sales fee; other, however, than obligations under the Cable
System Contracts, FCC Licenses and Local Authorizations specifically assumed by
a Purchaser.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF FCCI
FCCI represents and warrants to the Purchasers that:
SECTION 3.1. EXISTENCE AND POWER. FCCI (i) is a limited
partnership duly organized, validly existing and in good standing under the laws
of the State of California, (ii) is authorized to transact business and is in
good standing in each state in which its ownership of assets or conduct of
business requires such qualification, and (iii) has all partnership powers
required to carry on its business as conducted on the date hereof, with such
exceptions to clauses (i), (ii) and (iii) as would not have a Material Adverse
Effect or materially and adversely affect the ability of any Purchaser to
consummate the Sale.
SECTION 3.2. AUTHORIZATION. FCCI has the partnership power to
own and operate the Cable Systems. FCCI has the partnership power to enter into
this Agreement and to consummate the Sale. The execution and delivery by FCCI of
this Agreement and the consummation by FCCI of the Sale has been duly authorized
by all necessary partnership action.
6
<PAGE> 8
SECTION 3.3. GOVERNMENTAL AUTHORIZATION. The execution and
delivery of this Agreement by FCCI, and the performance by FCCI of this
Agreement, and the consummation by FCCI of the Sale, require no material action
by or in respect of, or material filing with, any Governmental Authority other
than compliance with any applicable requirements of the HSR Act, and the Local
Authorizations.
SECTION 3.4. CONSENTS. Except as set out in Schedule 3.4, no
material consent by any Person under any Cable System Contract is required or
necessary for the execution and delivery of this Agreement by FCCI, or the
performance by FCCI of this Agreement, or the consummation of the Sale
contemplated to be consummated by it pursuant hereto, except as would not have a
Material Adverse Effect.
SECTION 3.5. NON-CONTRAVENTION.
(a) The execution, delivery and performance of this Agreement
by FCCI, and the consummation by FCCI of the Sale, do not and on or before the
Closing Date will not, (x) contravene the Partnership Agreement or (y) subject
to obtaining the consents described in Section 3.3 and subject to obtaining,
taking or making the actions and filings described in Schedule 3.4, result in
the imposition of any Lien upon any assets of FCCI pursuant to, or constitute a
breach or default (including any event that, with the passage of time or giving
of notice, or both, would become a breach or default) under or give rise to a
right of termination, cancellation, first refusal or acceleration under any
applicable Legal Requirement or any judgment, injunction, order, decree,
contract, license, lease, indenture, mortgage, loan agreement, note or other
agreement or instrument as to which FCCI is a party or by which any of its
properties may be bound, the effect of which would be to materially impair the
ability of FCCI to perform its obligations under this Agreement.
(b) FCCI is not in breach or default (including any event
that, with the passage of time or giving of notice, or both, would become a
breach or default) under any Cable System Contract or contract by which any of
its assets may be bound, the effect of which would be to impair the ability of
FCCI in any material respect to operate any Cable System as presently operated.
SECTION 3.6. BINDING EFFECT. This Agreement has been duly
executed and delivered by FCCI, and when executed by the parties hereto, this
Agreement constitutes a valid and binding obligation of FCCI, enforceable
against FCCI in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights generally or by the principles
governing the availability of equitable remedies.
SECTION 3.7. SYSTEMS; AUTHORIZATIONS; LICENSES.
(a) Each Local Authorization (x) is in all material respects
validly held by FCCI in accordance with and as required by the terms thereof and
according to all material applicable Legal Requirements and (y) is in all
material respects in full force and effect and has not been revoked or canceled
and FCCI is in material compliance therewith. To the
7
<PAGE> 9
knowledge of FCCI; no proceeding to revoke, cancel or modify in any manner any
such Local Authorization has been initiated or threatened in writing.
(b) Each FCC License (x) is in all material respects validly
held by FCCI in accordance with and as required by the terms thereof and
according to all material applicable Legal Requirements and (y) is in all
material respects in full force and effect and has not been revoked or canceled
and FCCI is in material compliance therewith. To the knowledge of FCCI, no
proceeding to revoke, cancel or modify in any manner any such FCC License has
been initiated or threatened in writing.
SECTION 3.8. ASSETS. FCCI has good and marketable title to,
or a valid leasehold or license interest in, all assets purported to be owned,
leased or licensed by FCCI which constitute the Cable Systems, free and clear of
all Liens other than Permitted Liens and other than any Liens which shall be
fully satisfied, discharged and released effective as of the Closing. Each Bill
of Sale is sufficient to transfer to the identified Purchaser good and, subject
to Permitted Liens, marketable title to the Cable Systems to be acquired by such
Purchaser as set forth on Schedule 2.1.
SECTION 3.9. INTELLECTUAL PROPERTY. To the knowledge of FCCI,
the conduct of its business does not infringe upon the patents, trademarks,
trade names or other intellectual property rights of any Person, with such
exceptions as would not result in a Material Adverse Effect.
SECTION 3.10. CABLE SYSTEM CONTRACTS.
(a) FCCI is not in material default or breach of any Cable
System Contract and, to the knowledge of FCCI, (i) there exists no state of
facts which after notice or lapse of time or both would constitute such a
material default or breach and (ii) no other party to such Cable System Contract
is in default or breach thereunder.
(b) The real property and personal property which are the
subject of leases that constitute Cable System Contracts are currently used in
the construction, operation or maintenance of the FCCI business.
SECTION 3.11. LITIGATION. There are no actions, suits or
proceedings pending and, to the knowledge of FCCI, there are no claims,
grievances, governmental investigations, actions, suits or proceedings
threatened, against or affecting FCCI with respect to its business at law or in
equity or before or by any Governmental Authority, or before or by an arbitrator
or arbitration board which would have a Material Adverse Effect or materially
delay the Closing. Except as set out in Schedule 3.11, there are no judgments,
decrees or orders outstanding against FCCI with respect to its business or any
of the Cable Systems or the Sale.
SECTION 3.12. COMPLIANCE WITH LEGAL REQUIREMENTS. (i) FCCI
is in compliance with all applicable Legal Requirements and (ii) FCCI's business
is being conducted in compliance with all applicable Legal Requirements, with
such exceptions to
8
<PAGE> 10
clauses (i) and (ii) as would not have a Material Adverse Effect or materially
delay the Closing.
SECTION 3.13. REPORTS AND FINANCIAL STATEMENTS. FCCI has
filed all reports required to be filed with the Securities Exchange Commission
("SEC") since January 1, 1994 (collectively, the "FCCI SEC Reports"), and has
previously furnished or made available to the Purchasers true and complete
copies of all the FCCI SEC Reports. None of the FCCI SEC Reports, as of their
respective dates (as amended through the date hereof), contained any untrue
statement of material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Each of the balance
sheets (including the related notes) included in the FCCI SEC Reports presents
fairly, in all material respects, the consolidated financial position of FCCI as
of the respective dates thereof, and the other related statements (including the
related notes) included therein present fairly, in all material respects, the
results of operations and the changes in financial position of FCCI for the
respective periods or as of the respective dates set forth therein, all in
conformity with generally accepted accounting principles consistently applied
during the periods involved, except as otherwise noted therein and subject, in
the case of the unaudited interim financial statements, to normal year-end
adjustments and any other adjustments described therein. All of the FCCI SEC
Reports, as of their respective dates (as amended through the date hereof),
complied in all material respects with the requirements of the Securities
Exchange Act of 1934 and the applicable rules and regulations thereunder.
SECTION 3.14. FINDERS' FEES. There is no investment banker,
broker, finder or other intermediary which has been retained by or is authorized
to act on behalf of FCCI who might be entitled to any fee or commission from
FCCI or any Purchaser in connection with the execution, delivery or performance
of this Agreement or the Sale.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PURCHASERS
The Purchasers, severally and not jointly, represent and
warrant to FCCI that:
SECTION 4.1. EXISTENCE AND POWER. Each Purchaser, except
Community Cable, is a limited partnership duly organized, validly existing and
in good standing under the laws of the State of California. Community Cable is a
limited partnership duly organized, validly existing and in good standing under
the laws of the State of Delaware.
SECTION 4.2. AUTHORIZATION. Each Purchaser has the
partnership power to enter into this Agreement and to consummate the acquisition
of the Cable System(s) to be acquired by it in the Sale. The execution and
delivery by each Purchaser of this Agreement and the consummation by each
Purchaser of the Sale has been duly authorized by all necessary partnership
action.
9
<PAGE> 11
SECTION 4.3. GOVERNMENTAL AUTHORIZATION. The execution and
delivery of this Agreement by each Purchaser, and the performance by each
Purchaser of this Agreement, and the consummation by each Purchaser of the
acquisition of the Cable System(s) to be acquired by it in the Sale, require no
material action by or in respect of, or material filing with, any Governmental
Authority other than compliance with any applicable requirements of the HSR Act,
and the Local Authorizations.
SECTION 4.4. NON-CONTRAVENTION. The execution, delivery and
performance of this Agreement by each Purchaser, and the consummation by each
Purchaser of the acquisition of the Cable System(s) to be acquired by it in the
Sale, do not or on or before the Closing Date will not, (a) contravene the
partnership agreement of any Purchaser or (b) subject to obtaining the consents
described in Schedule 4.4 constitute a breach or default (including any event
that, with the passage of time or giving of notice, or both, would become a
breach or default) under or give rise to a right of termination, cancellation,
first refusal or acceleration under any applicable material Legal Requirement or
any material judgment, injunction, order, decree, contract, license, lease,
indenture, mortgage, loan agreement, note or other agreement or instrument as to
which any Purchaser is a party or by which any of its properties may be bound,
the effect of which would be to materially impair the ability of any Purchaser
to perform its obligations under this Agreement.
SECTION 4.5. BINDING EFFECT. This Agreement has been duly
executed and delivered by each Purchaser, and when executed by the parties
hereto, this Agreement constitutes a valid and binding obligation of each
Purchaser, enforceable against each Purchaser in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights generally
or by the principles governing the availability of equitable remedies.
SECTION 4.6. LITIGATION. There are no actions, suits or
proceedings pending and, to the knowledge of any Purchaser, there are no claims,
grievances, governmental investigations, actions, suits or proceedings
threatened, against or affecting any Purchaser at law or in equity or before or
by any Governmental Authority, or before or by an arbitrator or arbitration
board which would materially delay the Closing. There are no judgments, decrees
or orders outstanding against any Purchaser with respect to the Sale.
SECTION 4.7. COMPLIANCE WITH LEGAL REQUIREMENTS. Each
Purchaser is in compliance with all applicable Legal Requirements, except as
would not materially delay the Closing.
SECTION 4.8. QUALIFICATION OF PURCHASERS. Each Purchaser is
and pending Closing will be legally, technically, financially and otherwise
qualified under the Communications Act to acquire and operate the Cable Systems.
To the knowledge of the Purchasers, there are no facts or proceedings which
would reasonably be expected to disqualify any Purchaser under the
Communications Act from acquiring or operating the Cable Systems or would cause
the FCC to not approve the transfer of control of the FCC Licenses to the
applicable Purchasers. No Purchaser has any knowledge of any fact or
circumstance relating to any Purchaser or any of their Affiliates that would
reasonably be
10
<PAGE> 12
expected to (i) cause the filing of any material objection to the FCC
application for transfer of control of the FCC Licenses as provided for in this
Agreement, or (ii) cause the FCC to deny the FCC application for transfer of
control of the FCC Licenses as provided for in this Agreement, or (iii) lead to
a delay in the processing of the FCC application for transfer of control of the
FCC Licenses as provided for in this Agreement. No waiver of any FCC rule or
policy is necessary to be obtained by any Purchaser and/or Affiliates thereof
for the grant of the FCC Consents as provided for in this Agreement, nor will
processing pursuant to any exception to a rule of general applicability be
requested or required in connection with the consummation by any Purchaser of
the transactions contemplated hereby.
SECTION 4.9. FINDERS' FEES. There is no investment banker,
broker, finder or other intermediary which has been retained by or is authorized
to act on behalf of any Purchaser who might be entitled to any fee or commission
from any Purchaser in connection with the execution, delivery or performance of
this Agreement or the Sale.
ARTICLE V.
CONDITIONS
SECTION 5.1. MUTUAL CONDITIONS. The obligations of FCCI on
the one hand and the Purchasers on the other to take the actions required to be
taken by them pursuant to Article II shall be subject to the satisfaction of
each of the following conditions, each of which may be waived by FCCI or the
Purchasers:
(a) Any applicable waiting period (and any extension thereof)
under the HSR Act shall have expired or been terminated without the commencement
or threat of any litigation by a Governmental Authority of competent
jurisdiction to restrain the consummation of the Sale contemplated by this
Agreement in any material respect.
(b) No order, stay, judgment or decree shall have been issued
by any court and be in effect restraining or prohibiting the consummation of the
Sale in any material respect.
(c) All consents required to be obtained in connection with
the Sale shall have been obtained and remain in full force and effect.
SECTION 5.2 ACCURACY OF REPRESENTATIONS AND WARRANTIES.
(a) The obligations of FCCI to take the actions required to be
taken by it pursuant to Article II shall be subject to the satisfaction of the
following condition, which may be waived by FCCI: the representations and
warranties of each of the Purchasers set forth in Article IV shall be true and
correct as of the date of this Agreement and as of the Closing except as would
not have a Material Adverse Effect on the ability of any Purchaser to consummate
the transactions contemplated hereby.
11
<PAGE> 13
(b) The obligations of each Purchaser to take the actions
required to be taken by it pursuant to Article II shall be subject to the
satisfaction of the following condition, which may be waived by the Purchasers:
the representations and warranties of FCCI set forth in Article III shall be
true and correct as of the date of this Agreement and as of the Closing except
as would not have a Material Adverse Effect on (i) the ability of any Purchaser
to consummate the transactions contemplated hereby or (ii) the business,
operations, financial condition or results of operation of FCCI.
SECTION 5.3. ADDITIONAL CONDITION TO THE OBLIGATIONS OF THE
PURCHASERS. The obligations of the Purchasers to take the action required to be
taken by them pursuant to Article II shall be subject to the receipt by each
Purchaser of financing in an amount necessary to satisfy each Purchaser's
obligations under Article II and the performance by each other Purchaser of its
obligations hereunder.
ARTICLE VI.
COVENANTS
SECTION 6.1. PRESERVATION OF BUSINESS. Except as contemplated
by this Agreement, FCCI will use its best efforts to preserve its business
organization intact, to keep available to the Purchasers the services of its
present employees, and to preserve for the Purchasers the goodwill of the
suppliers, customers and others having business relations with FCCI.
SECTION 6.2. CONSUMMATION OF THE SALE. Each of the parties
hereto agrees that it shall, prior to, on and after the Closing, take or cause
to be taken and cause their respective affiliates to take or cause to be taken
such actions, and execute, deliver and file or cause to be executed, delivered
and filed, such certificates, documents and instruments, and obtain such
consents, as may be necessary or reasonably requested in connection with the
consummation of the Sale contemplated by this Agreement or in order to fully
effectuate the purposes, terms and conditions of this Agreement.
ARTICLE VII.
MISCELLANEOUS
SECTION 7.1. TERMINATION. This Agreement may be terminated at
any time prior to the Closing by FCCI or any Purchaser if the Sale shall not
have been consummated on or before December 31, 1997, unless the failure to
consummate the Sale is the result of a willful and material breach of this
Agreement by the party seeking to terminate this Agreement; provided, however,
that the December 31, 1997 termination date shall be extended to March 31, 1998
if (i) all conditions to the Closing have been satisfied on or before December
31, 1997 except the receipt of one or more required Local Authority
12
<PAGE> 14
Consents and (ii) the General Partner, in its reasonable judgment, believes that
the pending Local Authority Consents are likely to be obtained on or before
March 31, 1998.
SECTION 7.2. EXPENSES. Except as expressly set forth herein,
the fees and expenses (including the fees of any lawyers, accountants,
investment bankers or others engaged by such party) in connection with this
Agreement and the transactions contemplated hereby whether or not the Sale is
consummated will be borne by the party incurring such expenses. Any expenses of
the Purchasers generally will be paid by each Purchaser on a pro rata basis by
the Purchasers (based on the relative purchase price as allocated on Schedule
2.1). Any charges, taxes, user fees or other similar costs or expenses incurred
in connection with this Agreement and the transactions contemplated hereby shall
be allocated among the parties in a manner that is customary for agreements of
this type.
SECTION 7.3. HEADINGS. The section headings herein are for
convenience of reference only, do not constitute part of this Agreement and will
not be deemed to limit or otherwise affect any of the provisions hereof.
References to Sections, Schedules and Exhibits, unless otherwise indicated, are
references to Sections, Schedules and Exhibits hereof.
SECTION 7.4. ASSIGNMENT. This Agreement and all provisions
hereof will be binding upon and inure to the benefit of the parties hereto and
their respective successors, however, neither this Agreement nor any right,
interest, or obligation hereunder may be assigned by FCCI (other than by
operation of law) without the prior written consent of each Purchaser, and any
such assignment or purported assignment without such consent shall be void.
SECTION 7.5. ENTIRE AGREEMENT. This Agreement embody the
entire agreement and understanding of the parties with respect to the
transactions contemplated hereby and supersede all prior written or oral
commitments, arrangements or understandings with respect thereto.
SECTION 7.6. AMENDMENT; WAIVER.
(a) This Agreement may only be amended or modified in writing
signed by the party against whom enforcement of any such amendment or
modification is sought.
(b) Any party hereto may, by an instrument in writing, waive
compliance with any term or provision of this Agreement on the part of such
other party hereto. The waiver by any party hereto of a breach of any term or
provision of this Agreement will not be construed as a waiver of any subsequent
breach.
SECTION 7.7. COUNTERPARTS. This Agreement may be executed in
two or more counterparts, all of which will be considered one and the same
agreement and each of which will be deemed an original. All signatures need not
be on one counterpart.
13
<PAGE> 15
SECTION 7.8. GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED
BY THE LAWS OF THE STATE OF CALIFORNIA (REGARDLESS OF THE LAWS THAT MIGHT BE
APPLICABLE UNDER PRINCIPLES OF CONFLICTS OF LAW) AS TO ALL MATTERS, INCLUDING
BUT NOT LIMITED TO MATTERS OF VALIDITY, CONSTRUCTION, EFFECT AND PERFORMANCE.
SECTION 7.9. SEVERABILITY. If any one or more of the
provisions of this Agreement is held to be invalid, illegal or unenforceable,
the validity, legality or enforceability of the remaining provisions of this
Agreement will not be affected thereby, and FCCI and the Purchasers will use
their reasonable efforts to substitute one or more valid, legal and enforceable
provisions which insofar as practicable implement the purposes and intent
hereof. To the extent permitted by applicable law, each party waives any
provision of law which renders any provision of this Agreement invalid, illegal
or unenforceable in any respect.
SECTION 7.10. THIRD PERSON BENEFICIARIES. This Agreement is
not intended and shall not be construed to confer upon any Person (other than
FCCI and the Purchasers) any rights or remedies whatsoever.
SECTION 7.11. SPECIFIC PERFORMANCE. The Purchasers and FCCI
recognize that any breach of any covenant or agreement contained in this
Agreement may give rise to irreparable harm for which money damages would not be
an adequate remedy, and accordingly agree that, in addition to other remedies,
any non-breaching party will be entitled to enforce the agreements and covenants
contained herein of the Purchasers and FCCI, as the case may be, by a decree of
specific performance without the necessity of proving the inadequacy as a remedy
of money damages.
(SIGNATURE PAGE FOLLOWS)
14
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
FALCON CLASSIC CABLE INCOME
PROPERTIES, L.P., A CALIFORNIA
LIMITED PARTNERSHIP
By: Falcon Classic Cable Investors,
L.P., General Partner
By: Falcon Holding Group, L.P.,
General Partner
By: Falcon Holding Group, Inc.
General Partner
By: MICHAEL K. MENEREY
---------------------------
Name: Michael K. Menerey
Title: Secretary and Chief
Financial Officer
FALCON COMMUNITY CABLE, L.P.,
A DELAWARE LIMITED
PARTNERSHIP
By: Falcon Holding Group, L.P.,
General Partner
By: Falcon Holding Group, Inc.
General Partner
By: MICHAEL K. MENEREY
---------------------------
Name: Michael K. Menerey
Title: Secretary and Chief
Financial Officer
15
<PAGE> 17
FALCON CABLE MEDIA, A
CALIFORNIA LIMITED PARTNERSHIP
By: Falcon Holding Group, L.P.,
General Partner
By: Falcon Holding Group, Inc.
General Partner
By: MICHAEL K. MENEREY
---------------------------
Name: Michael K. Menerey
Title: Secretary and Chief
Financial Officer
FALCON CABLE SYSTEMS
COMPANY II, L.P., A CALIFORNIA
LIMITED PARTNERSHIP
By: Falcon Holding Group, L.P.,
General Partner
By: Falcon Holding Group, Inc.
General Partner
By: MICHAEL K. MENEREY
---------------------------
Name: Michael K. Menerey
Title: Secretary and Chief
Financial Officer
16
<PAGE> 18
SCHEDULE 2.1
ALLOCATION OF PURCHASE PRICE AND CABLE SYSTEMS ACQUIRED
<TABLE>
<CAPTION>
Purchaser Cable System Purchase Price
--------- ------------ --------------
<S> <C> <C>
Falcon Community Cable Redmond, Oregon $ 6,200,000
Falcon Cable Media Burke County, North $19,000,000
Carolina
Falcon Community Cable Somerset, Kentucky $31,000,000
Falcon Cable Media Centreville, Maryland $23,000,000
Falcon Cable Systems
Company II, L.P. California City, California $ 2,800,000
-----------
TOTAL $82,000,000
===========
</TABLE>
Sched. 2.1 -- 1
<PAGE> 19
SCHEDULE 3.4
CONSENTS REQUIRED UNDER CABLE SYSTEM CONTRACTS
<TABLE>
<CAPTION>
GOVERNMENTAL AUTHORITIES
CABLE SYSTEM REQUIRED TO CONSENT
------------ ------------------------
<S> <C>
Burke County, NC Burke County, NC
Connelly Springs, NC
Drexel, NC
Glen Alpine, NC
Rutherford College, NC
Valdese, NC
California City, CA California City, CA
Centreville, MD Barclay, MD
Betterton, MD
Centreville, MD
Chestertown, MD
Church Hill, MD
Kent County, MD
Millington, MD
Oxford, MD
Queen Anne's County, MD
Queenstown, MD
Rock Hall, MD
St. Michaels, MD
Sudlersville, MD
Talbot County, MD
Templeville, MD
Trappe, MD
Redmond, OR Redmond, OR
Somerset, KY Adair County, KY
Burnside, KY
Columbia, KY
Eubank, KY
Ferguson, KY
Laurel County, KY
Lincoln County (Eubank), KY
Lincoln County (McKinney), KY
Pulaski Co. (Burnside), KY
Pulaski Co. (North), KY
Science Hill, KY
Somerset, KY
</TABLE>
Sched. 3.4 -- 1
<PAGE> 20
SCHEDULE 4.4
PURCHASER CONSENTS
1. Consent from the FHGLP bank group.
2. Consent from the Board of Representatives and partners of FHGLP
pursuant to its Third Amended and Restated Agreement of Limited
Partnership.
Sched. 4.4 -- 1
<PAGE> 1
EXHIBIT 10.53
SECOND AMENDMENT TO
1993 INCENTIVE PERFORMANCE PLAN
WHEREAS, Falcon Holding Group, L.P., a Delaware limited partnership
("FHGLP"), has, as of December 30, 1993, adopted the 1993 Incentive Performance
Plan of Falcon Holding Group, Inc. dated as of April 1, 1993 (the "Plan") and
has assumed all obligations of Falcon Holding Group, Inc. with respect to the
Participants under said Plan; and
WHEREAS, the Plan was amended by that certain First Amendment to the
1993 Incentive Performance Plan dated as of December 31, 1993; and
WHEREAS, the Third Amended and Restated Agreement of Limited Partnership
of Falcon Holding Group, L.P. was entered into by the Partners of FHGLP as of
December 28, 1995 to reflect the merger of the Falcon First group of companies
into FHGLP; and
WHEREAS, pursuant to such Third Amended and Restated Agreement of
Limited Partnership the FHGLP partnership units subject to the Incentive
Performance Plan were converted into new partnership units of FHGLP; and
WHEREAS, each existing FHGLP partnership unit under the Plan was
converted into .97568 of a new partnership unit and each existing FHGLP Class A
unit subject to the Plan was converted into .93059 of a new Class A unit; and
WHEREAS, pursuant to Section 3.01 (d) of the Plan, the Plan is to be
amended by the Board to take into account any such merger and modification of
the units subject to the Plan.
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Section 3.01 of the Plan is hereby amended and restated in its
entirety to read as follows:
"3.01 Definition of Performance Shares.
(a) FHGLP Performance Shares. FHG holds eleven
thousand fifty-two and thirty-eight hundredths (11,052.38) units representing
general and limited partnership interests in FHGLP (the 'FHGLP Units') which
entitles FHG to receive certain distributions from FHGLP. FHG also holds a one
percent (1%) general partnership interest in each of the Investor Group
Partnerships (collectively, the 'Investor Group Units'). FHG hereby allocates
Distributions with respect to three thousand eight hundred thirty-one and
seventy-one hundredths (3,831.71) of the FHGLP Units and Distributions with
respect to eighty-one and six-tenths percent (81.6%) of the Investor Group Units
(collectively, the 'Designated Units') to provide Benefits under this Plan. A
Participant shall be entitled to receive Benefits with respect to the Designated
Units in an amount equal to such Participant's 'Vested FHGLP Performance Share
Percentage' times the amount of Distributions received by FHG with respect to
its interest in the Designated Units. A Participant's 'Vested
<PAGE> 2
FHGLP Performance Share Percentage' shall be a ratio (expressed as a
percentage) where the numerator is the number of such Participant's FHGLP
Performance Shares multiplied by such Participant's then Applicable Vesting
Percentage and where the denominator is the aggregate number of FHGLP
Performance Shares then allocated to all Participants under this Plan. Any
amounts received by FHG as management fees or other fees and reimbursements
shall not be considered to have been received with respect to the Designated
Units and shall not be included in determining Distributions. The Board may
grant full or partial FHGLP Performance Shares up to an aggregate of fourteen
thousand nine hundred thirty-five (14,935) FHGLP Performance Shares under this
Plan. The granting of the FHGLP Performance Shares under this Plan shall not
entitle a Participant to any rights as a partner in FHGLP, including without
limitation, voting, allocation of income, gain, or loss, distributions, or any
other rights of a partner or assignee. An FHGLP Performance Share only
represents a contingent right to certain amounts measured by the amount of any
Distributions FHG receives with respect to the Designated Units, and confers no
other rights whatsoever.
An example of the allocation of Distributions under the
Plan is as follows: If FHG received an aggregate distribution of $10,000,000
with respect to the FHGLP Units, 34.669% (3,831.71 Designated Units/11,052.38
Total FHGLP Units) of such amount (i.e., $3,466,970) would be treated as a
Distribution under the Plan. If a Participant has 100 FHGLP Performance Shares
and is 100% vested, then such Participant would be entitled to $23,213.72 with
respect to such Distribution (100/14,935 X $3,466,970)."
2. Section 3.01(c) of the Incentive Plan is hereby amended and
restated in its entirety to read as follows:
"(c) FHGLP Class A Performance Shares. In addition to
the FHGLP Units held by FHG, FHG also holds two hundred ninety-one and
forty-seven hundredths (291.47) of Class A Units of FHGLP (the 'Class A Units').
These Class A Units entitle FHG to distributions from FHGLP after the holders of
the FHGLP Units have received a specified amount of distributions from FHGLP.
FHG hereby allocates Distributions with respect to two hundred thirty-seven and
ninety-eight hundredths (237.98) of the Class A Units to provide Benefits under
this Plan (the 'Designated Class A Units'). A Participant shall be entitled to
receive Benefits with respect to the Designated Class A Units in an amount equal
to such Participant's 'Vested FHGLP Class A Performance Share Percentages' times
the amount of the Distributions received by FHG with respect to the Designated
Class A Units. A Participant's 'Vested FHGLP Class A Performance Share
Percentage' shall be a ratio (expressed as a percentage) where the numerator is
the number of such Participant's FHGLP Class A Performance Shares multiplied by
such Participant's then Applicable Vesting Percentage and where the denominator
is the aggregate number of FHGLP Class A Performance Shares then allocated to
all Participants. Any amounts received by FHG as management fees or other fees
and reimbursements shall not be considered to have been received with respect to
the Designated Class A Shares and shall not be included in determining
Distributions. The Board may grant full or partial FHGLP Class A Performance
Shares up to an aggregate of two hundred thirty-seven and ninety-eight
hundredths (237.98). The granting of the FHGLP Class A Performance Shares under
this Plan shall not entitle a Participant to any rights as a partner in FHGLP,
including without limitation, voting,
<PAGE> 3
allocations of income, gain or loss, distributions, or any other rights of a
Partner or assignee. An FHGLP Class A Performance Share only represents a
contingent right to receive certain amounts measured by the amount of any
Distributions FHG receives with respect to the Designated Class A Units and
confers no other rights whatsoever.
FHGLP Class A Performance Shares have been granted to
certain Participants as set forth on each such Participant's Account Schedule."
3. Section 4.01A. is hereby amended and restated in its entirety to
read as follows:
"4.01 A. Distributions Upon Termination of Plan. On
January 5, 1998, FHGLP shall distribute to all Participants in the Plan 3,831.71
of FHGLP Units and it shall distribute 81.6% of all the Investor Group Units,
all as defined in Section 3.01(a) as the Designated Units. Each Participant
shall receive such portion of the Designated Units, calculated in accordance
with the provisions of Section 3.01 (a). On January 5, 1998, FHGLP shall also
distribute to all Participants 237.98 of the Class A Units of FHGLP. Each
Participant shall receive such portion of the Class A Units as calculated in
accordance with the provisions of Section 3.01 (c). Upon such distribution of
such Units by FHGLP, this Plan shall be terminated."
4. Except as amended hereby, all other provisions of the Incentive
Plan, as previously amended, shall remain in full force and effect.
IN WITNESS WHEREOF, the undersigned has executed this Amendment
effective as of January 1, 1996.
FALCON HOLDING GROUP, L.P.,
a Delaware limited partnership
By: Falcon Holding Group, Inc.,
a California corporation,
its general partner
By /s/ Michael K. Menerey
-------------------------------
Title Chief Financial Officer
<PAGE> 4
January 1, 1996
MASTER PARTICIPANT'S SCHEDULE
<TABLE>
<CAPTION>
Converted Additional Total FHGLP
FHGLP FHGLP FHGLP Class A
Performance Performance Performance Performance
Participant Shares Shares Shares Shares
- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Marc Nathanson -0- 4,496.000 4,496.000 -0-
Frank Intiso -0- 1,195.000 1,195.000 -0-
Stan Itskowitch -0- 1,051.000 1,051.000 -0-
Mike Menerey 498.000 727.000 1,225.000 -0-
David Tomick 151.000 280.000 431.000 14.73
Joe Johnson 198.000 262.000 460.000 15.71
Tom Hatchell 159.000 301.000 460.000 15.71
Howard Gan 143.000 282.000 425.000 14.51
Ray Tyndall 81.000 319.000 400.000 13.66
Skip Harris -0- 360.000 360.000 12.30
Joan Scully 225.000 100.000 325.000 11.10
Ovie Cowles -0- 235.000 235.000 8.02
Bernie Zaia 53.000 207.000 260.000 8.88
Jim Ashjian 94.000 148.000 242.000 8.26
Simon Furie -0- 170.000 170.000 5.81
Anne Burlas 13.000 22.000 35.000 1.20
Bob Smith -0- 215.000 215.000 7.34
Mike Kemp 4.000 201.000 205.000 7.00
Vic Wible -0- 185.000 185.000 6.32
Mike Singpiel -0- 185.000 185.000 6.32
Ron Hall -0- 185.000 185.000 6.32
Shery Brennan 0.168 79.832 80.000 2.73
Abel Crespo 45.000 55.000 100.000 3.41
Gloria Norris 45.000 55.000 100.000 3.41
Carol Plessel 0.168 59.832 60.000 2.05
Les Cooke -0- 60.000 60.000 2.05
Senait Yilma -0- 60.000 60.000 2.05
John Patke -0- 60.000 60.000 2.05
Marty Schwartz -0- 60.000 60.000 2.05
Terry Laskoy -0- 60.000 60.000 2.05
Frank Engle -0- 60.000 60.000 2.05
Clive Fleissig -0- 125.000 125.000 4.27
Lori Spagna -0- 50.000 50.000 1.71
Linda Leszczynski-Passaris 0- 50.000 50.000 1.71
Gilbert Gomez -0- 40.000 40.000 1.36
Nick Nocchi -0- 185.000 185.000 6.32
Carrie Pierce -0- 65.000 65.000 2.22
Ann Curnutt -0- 40.000 40.000 1.36
Jon Lunsford -0- 150.000 150.000 -0-
Angela von Ruden -0- 40.000 40.000 -0-
Lynn Buening -0- 150.000 150.000 -0-
Perry Daniel -0- 80.000 80.000 -0-
Rich Olson -0- 65.000 65.000 -0-
---------------- ------------------ ------------------ -----------------
Subtotal 1,709.336 12,775.664 14,485.000 206.04
Reserved:
Unallocated -0- 450.000 450.000 31.94
---------------- ------------------ ------------------ -----------------
Subtotal 0.000 450.000 450.000 31.94
GRAND TOTAL 1,709.336 13,225.664 14,935.000 237.98
================ ================== ================== =================
</TABLE>
<PAGE> 1
EXHIBIT 10.54
THIRD AMENDMENT TO
1993 INCENTIVE PERFORMANCE PLAN
WHEREAS, Falcon Holding Group, L.P., a Delaware limited partnership
("FHGLP"), has, as of December 30, 1993, adopted the 1993 Incentive Performance
Plan of Falcon Holding Group, Inc. dated as of April 1, 1993 (the "Plan") and
has assumed all obligations of Falcon Holding Group, Inc. with respect to the
Participants under said Plan; and
WHEREAS, the Plan was amended by that certain First Amendment to the
1993 Incentive Performance Plan dated as of December 31, 1993 and the that
certain Second Amendment to the 1993 Incentive Performance Plan dated as of
January 1, 1996; and
WHEREAS, certain partners of FHGLP made additional capital contributions
to FHGLP which reduced the number of units held by Falcon Holding Group, Inc.;
and
WHEREAS, each existing FHGLP partnership unit held by Falcon Holding
Group, Inc. under the Plan was, in effect, converted into .986502 of a new
partnership unit; and
WHEREAS, pursuant to Section 3.01 (d) of the Plan, the Plan is to be
amended by the Board to take into account any such modification of the units
subject to the Plan.
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Section 3.01 of the Plan is hereby amended and restated in its
entirety to read as follows:
"3.01 Definition of Performance Shares.
(a) FHGLP Performance Shares. FHG holds ten thousand
nine hundred three and twenty hundredths (10,903.20) units representing general
and limited partnership interests in FHGLP (the 'FHGLP Units') which entitles
FHG to receive certain distributions from FHGLP. FHG also holds a one percent
(1%) general partnership interest in each of the Investor Group Partnerships
(collectively, the 'Investor Group Units'). FHG hereby allocates Distributions
with respect to three thousand seven hundred eighty and fourteen hundredths
(3,780.14) of the FHGLP Units and Distributions with respect to eighty-one and
six-tenths percent (81.6%) of the Investor Group Units (collectively, the
'Designated Units') to provide Benefits under this Plan. A Participant shall be
entitled to receive Benefits with respect to the Designated Units in an amount
equal to such Participant's 'Vested FHGLP Performance Share Percentage' times
the amount of Distributions received by FHG with respect to its interest in the
Designated Units. A Participant's 'Vested FHGLP Performance Share Percentage'
shall be a ratio (expressed as a percentage) where the numerator is the number
of such Participant's FHGLP Performance Shares multiplied by such Participant's
then Applicable Vesting Percentage and where the denominator is the aggregate
number of FHGLP Performance Shares then allocated to all Participants under
<PAGE> 2
this Plan. Any amounts received by FHG as management fees or other fees and
reimbursements shall not be considered to have been received with respect to the
Designated Units and shall not be included in determining Distributions. The
Board may grant full or partial FHGLP Performance Shares up to an aggregate of
fourteen thousand nine hundred thirty-five (14,935) FHGLP Performance Shares
under this Plan. The granting of the FHGLP Performance Shares under this Plan
shall not entitle a Participant to any rights as a partner in FHGLP, including
without limitation, voting, allocation of income, gain, or loss, distributions,
or any other rights of a partner or assignee. An FHGLP Performance Share only
represents a contingent right to certain amounts measured by the amount of any
Distributions FHG receives with respect to the Designated Units, and confers no
other rights whatsoever.
An example of the allocation of Distributions under the
Plan is as follows: If FHG received an aggregate distribution of $10,000,000
with respect to the FHGLP Units, 34.67% (3,780.14 Designated Units/10,903.20
Total FHGLP Units) of such amount (i.e., $3,467,000) would be treated as a
Distribution under the Plan. If a Participant has 100 FHGLP Performance Shares
and is 100% vested, then such Participant would be entitled to $23,213.92 with
respect to such Distribution (100/14,935 X $3,467,000)."
2. Section 4.01A. is hereby amended and restated in its entirety to
read as follows:
"4.01 A. Distributions Upon Termination of Plan. On January 5,
1998, FHGLP shall distribute to all Participants in the Plan 3,780.14 of FHGLP
Units and it shall distribute 81.6% of all the Investor Group Units, all as
defined in Section 3.01(a) as the Designated Units. Each Participant shall
receive such portion of the Designated Units, calculated in accordance with the
provisions of Section 3.01 (a). On January 5, 1998, FHGLP shall also distribute
to all Participants 237.98 of the Class A Units of FHGLP. Each Participant shall
receive such portion of the Class A Units as calculated in accordance with the
provisions of Section 3.01 (c). Upon such distribution of such Units by FHGLP,
this Plan shall be terminated."
3. Except as amended hereby, all other provisions of the Incentive
Plan, as previously amended, shall remain in full force and effect.
IN WITNESS WHEREOF, the undersigned has executed this Amendment
effective as of July 1, 1996.
FALCON HOLDING GROUP, L.P.,
a Delaware limited partnership
By: Falcon Holding Group, Inc.,
a California corporation,
its general partner
By /s/ Michael K. Menerey
-------------------------------
Title Chief Financial Officer
<PAGE> 1
EXHIBIT 10.55
FOURTH AMENDMENT TO
1993 INCENTIVE PERFORMANCE PLAN
WHEREAS, Falcon Holding Group, L.P., a Delaware limited partnership
("FHGLP"), has, as of December 30, 1993, adopted the 1993 Incentive Performance
Plan of Falcon Holding Group, Inc. dated as of April 1, 1993 (the "Plan") and
has assumed all obligations of Falcon Holding Group, Inc. with respect to the
Participants under said Plan; and
WHEREAS, the Plan was amended by that certain First Amendment to the
1993 Incentive Performance Plan dated as of December 31, 1993 by that certain
Second Amendment to the 1993 Incentive Performance Plan dated as of January 1,
1996 and by that certain Third Amendment to the 1993 Incentive Plan dated as of
July 1, 1996; and
WHEREAS, FHGLP desires to make certain amendments to the provisions of
the Plan to extend the termination date of the Plan.
NOW, THEREFORE, the Plan is hereby amended as follows:
1. The following defined term is hereby added to Article I of the
Plan:
"'Termination Date' means January 5, 2003."
2. Section 4.01A. is hereby amended and restated in its entirety to
read as follows:
"4.01 A. Distributions Upon Termination of Plan. On the
Termination Date, FHGLP shall distribute to all Participants in the Plan
3,780.14 of FHGLP Units and it shall distribute 81.6% of all the Investor Group
Units, all as defined in Section 3.01(a) as the Designated Units. Each
Participant shall receive such portion of the Designated Units, calculated in
accordance with the provisions of Section 3.01 (a). On the Termination Date,
FHGLP shall also distribute to all Participants 237.98 of the Class A Units of
FHGLP. Each Participant shall receive such portion of the Class A Units as
calculated in accordance with the provisions of Section 3.01 (c). Upon such
distribution of such Units by FHGLP, this Plan shall be terminated."
3. The last sentence of Section 4.04 is hereby amended to read as
follows:
"This Plan shall terminate on January 5, 2003."
4. Except as amended hereby, all other provisions of the Incentive
Plan, as previously amended, shall remain in full force and effect.
<PAGE> 2
IN WITNESS WHEREOF, the undersigned has executed this Amendment
effective as of May 1, 1997.
FALCON HOLDING GROUP, L.P.,
a Delaware limited partnership
By: Falcon Holding Group, Inc.,
a California corporation,
its general partner
By /s/ Michael K. Menerey
-------------------------------
Title Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT JUNE 30, 1997, AND THE STATEMENTS OF OPERATIONS FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 10,799
<SECURITIES> 0
<RECEIVABLES> 17,994
<ALLOWANCES> 1,006
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 564,815
<DEPRECIATION> 257,369
<TOTAL-ASSETS> 739,624
<CURRENT-LIABILITIES> 67,638
<BONDS> 885,374
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 739,624
<SALES> 0
<TOTAL-REVENUES> 127,967
<CGS> 0
<TOTAL-COSTS> 118,522
<OTHER-EXPENSES> (893)
<LOSS-PROVISION> 3,275
<INTEREST-EXPENSE> 39,321
<INCOME-PRETAX> (28,983)
<INCOME-TAX> 0
<INCOME-CONTINUING> (28,983)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (28,983)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
