-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Gnaky7I2vVbizc/MhGXdG2e8veCINmjTIxuZKhRU1HZVFdkxnUB4Nn8BdNlZrIQx Xawo7EFt9hvu2WuVVG7Ffw== 0000950148-97-002058.txt : 19970814 0000950148-97-002058.hdr.sgml : 19970814 ACCESSION NUMBER: 0000950148-97-002058 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970813 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FALCON HOLDING GROUP LP CENTRAL INDEX KEY: 0000900346 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 954408577 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-60776 FILM NUMBER: 97658622 BUSINESS ADDRESS: STREET 1: 10900 WILSHIRE BLVD STREET 2: 15TH FLOOR CITY: LOS ANGELES STATE: CA ZIP: 90024 BUSINESS PHONE: 3108249990 10-Q 1 FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ 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 --------------------- 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 ---------- Falcon Holding Group, L.P. - -------------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) Delaware 95-4408577 - ------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 10900 Wilshire Boulevard - 15th Floor Los Angeles, California 90024 - ---------------------------------------- ---------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (310) 824-9990 ---------------- - -------------------------------------------------------------------------------- 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. 2 PART I - FINANCIAL INFORMATION FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS ===================================================
December 31, June 30, 1996* 1997 --------- --------- (Unaudited) (Dollars in Thousands) 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 --------- --------- TOTAL LIABILITIES 958,920 953,012 --------- --------- COMMITMENTS AND CONTINGENCIES REDEEMABLE PARTNERS' EQUITY 271,902 271,902 --------- --------- PARTNERS' DEFICIT: General partner (12,591) (12,881) Limited partners (443,908) (472,409) --------- --------- TOTAL PARTNERS' DEFICIT (456,499) (485,290) --------- --------- $ 774,323 $ 739,624 ========= =========
*As presented in the audited financial statements. See accompanying notes to condensed consolidated financial statements. -2- 3 FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS =======================================================
Unaudited ------------------------- Three months ended June 30, ------------------------- 1996 1997 -------- -------- (Dollars in Thousands) 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) ======== ========
See accompanying notes to condensed consolidated financial statements. -3- 4 FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS =======================================================
Unaudited -------------------------- Six months ended June 30, -------------------------- 1996 1997 -------- --------- (Dollars in Thousands) REVENUES $ 94,375 $ 127,967 -------- --------- 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 -------- --------- 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) ======== =========
See accompanying notes to condensed consolidated financial statements. -4- 5 FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS =======================================================
Unaudited ------------------------- Six months ended June 30, ------------------------- 1996 1997 -------- -------- (Dollars in Thousands) 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 ======== ========
See accompanying notes to condensed consolidated financial statements. -5- 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. -6- 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." -7- 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 -8- 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. -9- 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.
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) 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) ======== ======== ========= =========
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 -10- 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 -11- 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. -12- 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- 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- 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- 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- 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. 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 19 EXHIBIT INDEX
Exhibit Number Description 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.
E-1 EX-10.51 2 EXHIBIT 10.51 1 EXHIBIT 10.51 ENSTAR FINANCE COMPANY, LLC LIMITED LIABILITY COMPANY AGREEMENT Dated as of June 6, 1997 2 TABLE OF CONTENTS
Page ---- 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
-i- 3 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
-ii- 4 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
-iii- 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 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 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 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 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 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 6 11 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 7 12 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 8 13 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 9 14 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 10 15 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 11 16 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. 12 17 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 13 18 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. 14 19 (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 15 20 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; 16 21 (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 17 22 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 18 23 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 19 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 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 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 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 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 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. 25 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 ------------------------------ 31 SCHEDULE I
Capital Company Member Contribution Interest - ------ ------------ -------- 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% ========== ========
EX-10.52 3 EXHIBIT 10.52 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 18 SCHEDULE 2.1 ALLOCATION OF PURCHASE PRICE AND CABLE SYSTEMS ACQUIRED
Purchaser Cable System Purchase Price --------- ------------ -------------- 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 ===========
Sched. 2.1 -- 1 19 SCHEDULE 3.4 CONSENTS REQUIRED UNDER CABLE SYSTEM CONTRACTS
GOVERNMENTAL AUTHORITIES CABLE SYSTEM REQUIRED TO CONSENT ------------ ------------------------ 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
Sched. 3.4 -- 1 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 EX-10.53 4 EXHIBIT 10.53 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 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, 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 4 January 1, 1996 MASTER PARTICIPANT'S SCHEDULE
Converted Additional Total FHGLP FHGLP FHGLP FHGLP Class A Performance Performance Performance Performance Participant Shares Shares Shares Shares - ----------- ----------- ----------- ----------- ----------- 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 ================ ================== ================== =================
EX-10.54 5 EXHIBIT 10.54 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 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 EX-10.55 6 EXHIBIT 10.55 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. 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 EX-27 7 FINANCIAL DATA SCHEDULE
5 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. 1,000 6-MOS DEC-31-1997 JUN-30-1997 10,799 0 17,994 1,006 0 0 564,815 257,369 739,624 67,638 885,374 0 0 0 0 739,624 0 127,967 0 118,522 (893) 3,275 39,321 (28,983) 0 (28,983) 0 0 0 (28,983) 0 0
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