<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER 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 333-11893
INTERMEDIA CAPITAL PARTNERS IV, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
CALIFORNIA 94-3247750
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
235 MONTGOMERY STREET, SUITE 420
SAN FRANCISCO, CA 94104
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (415) 616-4600
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 ___
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<PAGE> 2
INTERMEDIA CAPITAL PARTNERS IV, L.P.
INDEX TO REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements.................................................. 1
ITEM 2. Management's Discussion and Analysis of Financial Condition and 11
Results of Operations.................................................
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings..................................................... 20
ITEM 2. Changes in Securities................................................. 20
ITEM 3. Defaults Upon Senior Securities....................................... 20
ITEM 4. Submission of Matters to a Vote of Security Holders................... 20
ITEM 5. Other Information..................................................... 20
ITEM 6. Exhibits and Reports on Form 8-K...................................... 25
SIGNATURES.......................................................................... 26
</TABLE>
INFORMATION CONTAINED IN THIS REPORT INCLUDES "FORWARD-LOOKING STATEMENTS"
WITHIN THE MEANING OF THE SECURITIES LAWS. ALL STATEMENTS, OTHER THAN STATEMENTS
OF HISTORICAL FACT, REGARDING ACTIVITIES, EVENTS OR DEVELOPMENTS THAT THE
COMPANY EXPECTS, BELIEVES OR ANTICIPATES WILL OR MAY OCCUR IN THE FUTURE,
INCLUDING SUCH MATTERS AS, THE COMPANY'S OPERATING STRATEGIES, CAPITAL
EXPENDITURES, THE EFFECTS OF COMPETITION, AND OTHER SUCH MATTERS, ARE
FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THAT THE EXPECTATIONS
REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, THESE
FORWARD-LOOKING STATEMENTS ARE BASED UPON CERTAIN ASSUMPTIONS AND ARE SUBJECT TO
A NUMBER OF RISKS AND UNCERTAINTIES, AND THE COMPANY CAN GIVE NO ASSURANCE THAT
SUCH EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT. IMPORTANT FACTORS THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM SUCH EXPECTATIONS INCLUDE, BUT
ARE NOT LIMITED TO, THOSE DISCUSSED IN PART II, ITEM 5 "OTHER INFORMATION."
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERMEDIA CAPITAL PARTNERS IV, L.P.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
1997
DECEMBER 31, -----------
1996
------------- (UNAUDITED)
<S> <C> <C>
ASSETS
Cash................................................................ $ 8,770 $ 7,462
Accounts receivable, net of allowance for doubtful accounts of
$2,130 and $2,117, respectively................................... 17,539 18,047
Escrowed investments held to maturity............................... 28,237 28,829
Interest receivable on escrowed investments......................... 2,194 1,750
Receivable from affiliate........................................... 923 485
Prepaids............................................................ 2,768 1,273
Other current assets................................................ 232 221
-------- --------
Total current assets...................................... 60,663 58,067
Escrowed investments held to maturity............................... 60,518 45,999
Intangible assets, net.............................................. 634,087 590,345
Property & equipment, net........................................... 230,055 248,237
Deferred income taxes............................................... 9,910 13,372
Other non-current assets............................................ 1,466 1,790
-------- --------
Total assets.............................................. $ 996,699 $ 957,810
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued liabilities............................ $ 28,973 $ 21,372
Payable to affiliates............................................... 3,408 3,651
Deferred revenue.................................................... 11,753 13,682
Accrued interest.................................................... 20,322 20,384
-------- --------
Total current liabilities................................. 64,456 59,089
Deferred channel launch revenue..................................... 5,023
Long-term debt...................................................... 846,000 849,000
Other non-current liabilities....................................... 70 111
-------- --------
Total liabilities......................................... 910,526 913,223
-------- --------
Commitments and contingencies
Minority interest
Mandatorily redeemable preferred shares............................. 12,357 12,785
PARTNERS' CAPITAL
Preferred limited partnership interest.............................. 22,962 20,044
General and limited partners' capital............................... 52,704 13,608
Note receivable from general partner................................ (1,850) (1,850)
-------- --------
Total partners' capital................................... 73,816 31,802
-------- --------
Total liabilities and partners' capital................... $ 996,699 $ 957,810
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
1
<PAGE> 4
INTERMEDIA CAPITAL PARTNERS IV, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1996 1997 1996 1997
------- -------- ------- --------
<S> <C> <C> <C> <C>
Basic and cable services.......................... $ 3,685 $ 42,392 $ 6,108 $ 83,680
Pay service....................................... 704 10,215 1,199 20,216
Other service..................................... 415 9,320 627 18,851
------- -------- ------- --------
4,804 61,927 7,934 122,747
------- -------- ------- --------
Program fees...................................... 928 13,370 1,581 26,395
Other direct and operating expenses............... 552 6,489 902 13,341
Depreciation and amortization..................... 2,842 33,113 4,735 66,403
Selling, general and administrative expenses...... 990 11,827 1,601 23,583
Management and consulting fees.................... 838 1,675
------- -------- ------- --------
5,312 65,637 8,819 131,397
------- -------- ------- --------
Loss from operations.............................. (508) (3,710) (885) (8,650)
------- -------- ------- --------
Other income (expense):
Interest and other income....................... 433 1,403 452 2,781
Interest expense................................ (2,603) (19,614) (4,002) (38,877)
Other expense................................... (132) (1) (302)
------- -------- ------- --------
(2,170) (18,343) (3,551) (36,398)
------- -------- ------- --------
Loss before income tax benefit and minority
interest........................................ (2,678) (22,053) (4,436) (45,048)
Income tax benefit................................ 1,974 3,462
------- -------- ------- --------
Net loss before minority interest................. (2,678) (20,079) (4,436) (41,586)
Minority interest................................. (214) (428)
------- -------- ------- --------
Net loss.......................................... $(2,678) $(20,293) $(4,436) $(42,014)
======= ======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements
2
<PAGE> 5
INTERMEDIA CAPITAL PARTNERS IV, L.P.
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED
LIMITED GENERAL LIMITED NOTES
PARTNER PARTNER PARTNERS RECEIVABLE TOTAL
--------- ------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Syndication costs.................... $ (43) $ (7) $ (575) $ $ (625)
------ ------ ------ -------- --------
Balance at December 31, 1995......... (43) (7) (575) (625)
Cash contributions................... 1,913 188,637 190,550
Notes receivable from General
Partner............................ 1,850 (1,850)
In-kind contributions, historical
cost basis......................... 237,805 237,805
Conversion of GECC debt to equity.... 25,000 11,667 36,667
Allocation of RMG's and IPWT's
historical equity balances......... (2,719) (239,368) (242,087)
Distribution......................... (119,775) (119,775)
Syndication costs.................... (69) (10) (911) (990)
Net loss............................. (1,926) (290) (25,513) (27,729)
------ ------ ------ -------- --------
Balance at December 31, 1996......... 22,962 737 51,967 (1,850) 73,816
Net loss (unaudited)................. (2,918) (439) (38,657) (42,014)
------ ------ ------ -------- --------
Balance at June 30, 1997
(unaudited)........................ $ 20,044 $ 298 $ 13,310 $ (1,850) $ 31,802
====== ====== ====== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE> 6
INTERMEDIA CAPITAL PARTNERS IV, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
1996 1997
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................................ $ (4,436) $(42,014)
Minority interest................................................... 428
Loss on disposal of fixed assets.................................... 2
Depreciation and amortization....................................... 5,216 67,082
Changes in assets and liabilities:
Accounts receivable.............................................. (880) (508)
Interest receivable on escrowed investments...................... 444
Receivable from affiliates....................................... 63 438
Interest receivable.............................................. (347)
Prepaids......................................................... (50) 1,495
Other current assets............................................. 11
Deferred income taxes............................................ (3,462)
Other non-current assets......................................... (13) (324)
Accounts payable and accrued liabilities......................... 1,352 (2,422)
Payable to affiliate............................................. 454 243
Deferred revenue................................................. (3) 1,929
Accrued interest................................................. 171 62
Deferred channel launch revenue.................................. 5,023
Other non-current liabilities.................................... 12 41
--------- --------
Cash flows from operating activities................................ 1,539 28,468
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of cable systems, net of cash acquired.................... (98,701)
Property and equipment.............................................. (497) (45,989)
Intangible assets................................................... (462)
Note receivable..................................................... (15,000)
Proceeds from sale of escrowed investments.......................... 13,927
--------- --------
Cash flows from investing activities................................ (114,198) (32,524)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from long-term debt...................................... 114,000 3,000
Debt issue costs.................................................... (506) (252)
Syndication costs................................................... (96)
--------- --------
Cash flows from financing activities................................ 113,398 2,748
--------- --------
Net change in cash.................................................... 739 (1,308)
Cash, beginning of period............................................. 8,770
--------- --------
Cash, end of period................................................... $ 739 $ 7,462
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 7
INTERMEDIA CAPITAL PARTNERS IV, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
1. THE COMPANY AND BASIS OF PRESENTATION:
InterMedia Capital Partners IV, L.P. ("ICP-IV" or the "Company"), a
California limited partnership, was formed on March 19, 1996, as a successor to
InterMedia Partners IV, L.P. ("IP-IV") which was formed in October 1994, for the
purpose of acquiring and operating cable television systems in three geographic
clusters, all located in the southeastern United States.
As of June 30, 1997, ICP-IV's systems served the following number of basic
subscribers and encompassed the following number of homes passed:
<TABLE>
<CAPTION>
BASIC HOMES
SUBSCRIBERS PASSED
----------- -------
<S> <C> <C>
Nashville/Mid-Tennessee Cluster................ 331,456 515,889
Greenville/Spartanburg Cluster................. 149,100 210,918
Knoxville/East Tennessee Cluster............... 99,768 137,732
------- -------
Total................................ 580,324 864,539
======= =======
</TABLE>
The accompanying unaudited interim consolidated financial statements
include the accounts of ICP-IV and its directly and indirectly, majority-owned
subsidiaries, InterMedia Partners IV, Capital Corp. ("IPCC"), IP-IV, InterMedia
Partners Southeast ("IPSE"), InterMedia Partners of Tennessee ("IP-TN"),
InterMedia Partners of West Tennessee, L.P. ("IPWT"), and Robin Media Group,
Inc. ("RMG"). ICP-IV and its majority-owned subsidiaries are collectively
referred to as the "Company." All significant intercompany accounts and
transactions have been eliminated in consolidation.
The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with generally accepted accounting principles and
are presented in accordance with the rules and regulations of the Securities and
Exchange Commission applicable to interim financial information. Accordingly,
certain footnote disclosures have been condensed or omitted. In the Company's
opinion, the interim unaudited consolidated financial statements reflect all
adjustments (consisting of only normal recurring adjustments) necessary for a
fair presentation of the Company's financial position as of June 30, 1997, and
its results of operations and cash flows for the three and six months ended June
30, 1997. The results of operations for these periods are not necessarily
indicative of results that may be expected for the year ending December 31,
1997. These consolidated financial statements should be read in conjunction with
the Company's audited consolidated financial statements and notes thereto
contained in its Form 10-K for the year ended December 31, 1996.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Certain prior period items have been reclassified in the accompanying
financial statements to conform with the 1997 presentation.
2. ACQUISITIONS
On July 30, 1996 and August 1, 1996, the Company borrowed $558,000 under a
new bank term loan and revolving credit agreement (the "Bank Facility"), issued
$292,000 in senior notes (the "Notes"), and received
5
<PAGE> 8
INTERMEDIA CAPITAL PARTNERS IV, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS)
equity contributions from its partners of $360,000, consisting of: $190,550 in
cash; $117,600 representing the fair market value of certain cable television
systems (the "Greenville/Spartanburg System") contributed, net of cash paid to
the contributing partner of $119,775; $13,333 representing the fair market value
of general and limited partner interests in IPWT, an affiliate; $36,667 in
exchange for notes receivable from IPWT; and $1,850 in the form of a note
receivable from InterMedia Capital Management IV, L.P. ("ICM-IV"), the 1.1%
general partner of ICP-IV (see Note 9 -- Subsequent Events). The Bank Facility,
the Notes and the equity contributions are referred to as the "Financing."
On July 30, 1996, the Company acquired cable television systems serving
approximately 360,100 basic subscribers in Tennessee, South Carolina and Georgia
through the Company's acquisition of controlling equity interests in IPWT and
Robin Media Holdings, Inc. ("RMH"), an affiliate, and through the equity
contribution of the Greenville/Spartanburg System to the Company by affiliates
of Tele-Communications, Inc. ("TCI").
The Company acquired all of the general and limited partner interests of
IPWT in exchange for a $13,333 limited partner interest in ICP-IV. Concurrently,
General Electric Capital Corporation ("GECC") transferred to ICP-IV its $55,800
note receivable from IPWT and related interest receivable of $3,356 in exchange
for an $11,667 limited partner interest in ICP-IV, a $25,000 preferred limited
partner interest in ICP-IV and cash of $22,489.
InterMedia Partners V, L.P. ("IP-V"), a former affiliate, owned all of the
outstanding equity of RMH prior to the Company's acquisition of a majority of
the voting interests in RMH. In conjunction with a recapitalization of RMH,
ICP-IV purchased 3,285 shares of RMH's Class A Common Stock for $329.
Concurrently, a wholly owned subsidiary of TCI converted its outstanding loan to
IP-V into a limited partnership interest and, in dissolution of the IP-V
partnership, received 365 shares of RMH Class B Common Stock valued at $37 and
12,000 shares of RMH Redeemable Preferred Stock valued at $12,000. Upon
completion of the recapitalization, the Company has 60% of the voting interests
of RMH, with TCI owning the remaining 40%. In connection with the acquisition,
the Company assumed approximately $331,450 of long-term debt and $11,565 of
accrued interest, which was repaid with proceeds from the Financing. Upon
consummation of the acquisition, RMH merged into its wholly owned operating
subsidiary RMG. All of the RMH stock just described was converted as a result of
the merger into capital stock of RMG with the same terms.
Affiliates of TCI contributed cash and transferred their interests in the
Greenville/Spartanburg System to the Company in exchange for a 49.0% limited
partner interest in ICP-IV and an assumption of $119,775 of debt which was
simultaneously repaid by the Company with proceeds from the Financing. The cash
paid of $119,775 for debt assumed has been recorded as a distribution to TCI in
the accompanying consolidated financial statements.
TCI held substantial direct and indirect ownership interests in each of
RMH, IPWT and the Greenville/Spartanburg System. As a result of TCI's
substantial continuing interest in RMG, IPWT and the Greenville/Spartanburg
System after the Company's acquisitions, the acquired assets of these entities
have been accounted for at their historical basis as of the acquisition date.
Results of operations for these entities have been included in the Company's
consolidated results only from the acquisition date.
On August 1, 1996, the Company acquired certain cable television systems of
Viacom in metropolitan Nashville, Tennessee (the "Nashville System") for an
aggregate purchase price of $315,333.The Company's acquisition of the Nashville
System has been accounted for as a purchase in accordance with Accounting
Principles Bulletin No. 16 ("APB16") and the Nashville System's results of
operations have been included in the Company's consolidated results only from
the date of the acquisition.
6
<PAGE> 9
INTERMEDIA CAPITAL PARTNERS IV, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS)
During the year ended December 31, 1996, the Company acquired other cable
television systems serving approximately 59,600 basic subscribers primarily in
central and eastern Tennessee for an aggregate purchase price of $102,701 (the
"Miscellaneous Acquisitions"). The Miscellaneous Acquisitions include the
Company's acquisitions of certain cable television systems during the six month
period ended June 30, 1996 located in counties near Nashville, Kingsport and
Hendersonville, Tennessee, serving approximately 57,300 basic subscribers. These
acquisitions have also been accounted for as purchases in accordance with APB16.
Accordingly, results of operations of the Miscellaneous Acquisitions have been
included in the Company's consolidated results only from the dates of
acquisition.
3. ESCROWED INVESTMENTS HELD TO MATURITY
The Company's investments held to maturity are carried at amortized cost
and consist of U.S. Treasury Notes with maturities ranging from one to
twenty-five months. The investments are held in an escrow account to be used by
the Company to make interest payments on the Company's senior notes (see Note
4 -- Long-Term Debt). On February 1, 1997, the Company paid interest of $16,569
on the senior notes with the proceeds from and interest earned on escrowed
investments that matured on January 31, 1997. The fair value and maturities of
U.S. Treasury Notes held in escrow are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 JUNE 30, 1997
----------------------- -----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Matures within 1 year........................... $ 28,237 $ 28,333 $ 28,829 $ 29,026
Matures between 1 and 3 years................... 60,518 61,019 45,999 46,377
------- ------- ------- -------
Total................................. $ 88,755 $ 89,352 $ 74,828 $ 75,403
======= ======= ======= =======
</TABLE>
The fair values of the investments are based on quoted market prices.
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ ---------
<S> <C> <C>
Bank revolving credit facility, $475,000 commitment as of
June 30, 1997, interest currently at LIBOR plus 1.50%
payable quarterly, matures July 1, 2004................ $334,000 $ 337,000
Bank term loan; interest at LIBOR plus 2.375% payable
quarterly, matures January 1, 2005..................... 220,000 220,000
11 1/4% senior notes, interest payable semi-annually, due
August 1, 2006......................................... 292,000 292,000
-------- --------
$846,000 $ 849,000
======== ========
</TABLE>
The Company's bank debt is outstanding under the revolving credit facility
and term loan agreement executed by IP-IV and dated July 30, 1996. The revolving
credit facility currently provides for $475,000 of available credit. Starting
January 1, 1999, revolving credit facility commitments will be permanently
reduced semi-annually by increments ranging from $22,500 to $47,500 through
maturity on July 1, 2004. The term loan requires semi-annual principal payments
of $500 starting January 1, 1999 through January 1, 2004, and final principal
payments in two equal installments of $107,250 on July 1, 2004 and January 1,
2005. Advances under the Bank Facility are available under interest rate options
related to the base rate of the administrative agent for the Bank Facility
("ABR") or LIBOR. Interest rates on borrowings under the term loan are at LIBOR
plus 2.375% or ABR plus 1.125%. Interest rates vary on borrowings under the
revolving credit facility
7
<PAGE> 10
INTERMEDIA CAPITAL PARTNERS IV, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS)
from LIBOR plus 0.75% to LIBOR plus 1.75% or ABR to ABR plus 0.50% based on the
Company's ratio of senior debt to annualized quarterly operating cash flow. For
purposes of this computation, senior debt, as defined, excludes the 11 1/4%
senior notes. The Bank Facility requires quarterly interest payments, or more
frequent interest payments if a shorter period is selected under the LIBOR
option, and quarterly payment of fees on the unused portion of the revolving
credit facility at 0.375% per annum when the senior leverage ratio is greater
than 4.0:1.0 and at 0.25% when the senior leverage ratio is less than or equal
to 4.0:1.0. At December 31, 1996 and June 30, 1997, the interest rate on
borrowings outstanding under the revolving credit facility was 7.125% and 7.25%,
respectively.
Interest expense for the three and six months ended June 30, 1996 related
to borrowings outstanding under a bank revolving loan agreement dated January
29, 1996 (the "Bridge Loan"), which provided for borrowings up to $130,000 and
interest payable quarterly at the bank's reference rate plus 1% or LIBOR plus
2.25%. The Bridge Loan was repaid on July 30, 1996 with proceeds from the Bank
Facility and the Notes.
The Company has entered into interest rate swap agreements in the aggregate
notional principal amount of $120,000 to establish long-term fixed interest
rates on its variable senior bank debt. Under the swap agreements, the Company
pays quarterly interest at fixed rates ranging from 6.28% to 6.3225% and
receives quarterly interest payments equal to LIBOR. The differential to be paid
or received in connection with an individual swap agreement is accrued as
interest rates change over the period to which the payments or receipts relate.
The agreements expire between May 1999 and February 2000.
The estimated fair value of the interest rate swaps, which is gross of
unrealized market gains or losses, is based on the current value in the market
for transactions with similar terms and adjusted for the holding period. At
December 31, 1996 and June 30, 1997, the fair market value of the interest rate
swaps was $(2,700) and $(1,191), respectively.
Borrowings under the Bank Facility are secured by the capital stock and
partnership interests of IP-IV's subsidiaries.
The 11 1/4% senior notes will be redeemable at the option of the Company,
in whole or in part, subsequent to August 1, 2001 at specified redemption prices
which will decline in equal annual increments and range from 105.625% beginning
August 1, 2001 to 100.0% of the principal amount beginning August 1, 2004
through the maturity date, plus accrued interest.
As of December 31, 1996 and June 30, 1997, ICP-IV has $90,949 and $76,578,
respectively, in pledged securities, including interest, which represent
sufficient funds to provide for payment in full of interest on the Notes through
August 1, 1999 and are pledged as security for repayment of the Notes under
certain circumstances. Proceeds from the pledged securities will be used by
ICP-IV to make interest payments on the Notes through August 1, 1999.
ICP-IV is the issuer of the Notes and, as a holding company, has no direct
operations. The Notes are structurally subordinated to borrowings of IP-IV under
the Bank Facility. The Bank Facility restricts IP-IV and its subsidiaries from
paying dividends and making other distributions to ICP-IV.
The debt agreements contain certain covenants which restrict the Company's
ability to encumber assets, make investments or distributions, retire
partnership interests, pay management fees currently, incur or guarantee
additional indebtedness and purchase or sell assets. The debt agreements include
financial covenants which require minimum interest and debt coverage ratios and
specify maximum debt to cash flow ratios.
8
<PAGE> 11
INTERMEDIA CAPITAL PARTNERS IV, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Based on recent trading prices of the Notes, the fair value of these
securities at December 31, 1996 and June 30, 1997 is $297,665 and $314,265,
respectively. Borrowings under the Bank Facility are at rates that would be
otherwise currently available to the Company. Accordingly, the carrying amounts
of bank borrowings outstanding as of December 31, 1996 and June 30, 1997
approximate their fair value.
5. COMMITMENTS AND CONTINGENCIES
The Company is committed to provide cable television services under
franchise agreements with remaining terms of up to twenty years. Franchise fees
of up to 5% of gross revenues are payable under these agreements.
Current FCC regulations require that cable television operators obtain
permission to retransmit major network and certain local television station
signals. The Company has entered into long-term retransmission agreements with
all applicable stations in exchange for in-kind and/or other consideration.
The Company is subject to litigation and other claims in the ordinary
course of business. In the opinion of management, the ultimate outcome of any
existing litigation or other claims will not have a material adverse effect on
the Company's financial condition or results of operations.
6. RELATED PARTY TRANSACTIONS
ICM-IV provides certain management services to ICP-IV and its subsidiaries
for a per annum fee of 1% of the Company's total non-preferred capital
contributions, or $3,350, of which ICM-IV will defer 20% per annum, payable in
each following year, in order to support the Company's bank debt. However,
pursuant to ICP-IV's Limited Partnership Agreement, ICM-IV's first year
management fees of $3,350 were prepaid in July and August 1996. ICM-IV
management fees of $838 and $1,675 were charged to expense for the three and six
months ended June 30, 1997, respectively. ICM-IV management fee expense was not
recognized during the first seven months of 1996, until the Company's capital
contributions were received from its partners.
InterMedia Management, Inc. ("IMI") is wholly owned by the managing general
partner of ICM-IV (see Note 9 -- Subsequent Events). IMI has entered into
agreements with all of ICP-IV's subsidiaries to provide accounting and
administrative services at cost. IMI also provides such services to other cable
systems which are affiliates of the Company. Administrative fees charged by IMI
were $172 and $1,413 for the three months ended June 30, 1996 and 1997,
respectively, and $296 and $3,088 for the six months ended June 30, 1996 and
1997, respectively. Receivable from affiliate represents advances to IMI, net of
administrative fees charged by IMI, and operating expenses paid by IMI on behalf
of ICP-IV's subsidiaries.
As an affiliate of TCI, ICP-IV is able to purchase programming services
from a subsidiary of TCI. Management believes that the overall programming rates
made available through this relationship are lower than ICP-IV could obtain
separately. The TCI subsidiary is under no obligation to continue to offer such
volume rates to ICP-IV, and such rates may not continue to be available in the
future should TCI's ownership in ICP-IV significantly decrease or if TCI or the
programmers should otherwise decide not to offer such participation to the
Company. Programming fees charged by the TCI subsidiary for the three months
ended June 30, 1996 and 1997 amounted to $770 and $10,440, respectively, and
$1,277 and $20,293 for the six months ended June 30, 1996 and 1997,
respectively. Payable to affiliates includes programming fees payable to the TCI
subsidiary of $3,353 and $3,625 as of December 31, 1996 and June 30, 1997,
respectively.
7. CHANNEL LAUNCH REVENUE
During the three months ended June 30, 1997, the Company received payments
of $8,014 from certain programmers to launch and promote their new channels. Of
the total amount received, the Company
9
<PAGE> 12
INTERMEDIA CAPITAL PARTNERS IV, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS)
recognized advertising revenue of $122 and $1,453 during the three and six
months ended June 30, 1997, respectively, for advertisements provided by the
Company to promote the new channels. The remaining payments received from the
programmers are being amortized over the respective terms of the launch
agreements which range between five and ten years.
8. SUPPLEMENTAL DISCLOSURES TO CONSOLIDATED STATEMENTS OF CASH FLOWS
During the six months ended June 30, 1996 and 1997, the Company paid
interest of $3,350 and $38,136, respectively.
As described in Note 2, during 1996 the Company acquired several cable
television systems located in central and eastern Tennessee. In conjunction with
the Miscellaneous Acquisitions completed during the six months ended June 30,
1996, assets acquired and liabilities assumed were as follows:
<TABLE>
<S> <C>
Fair value of assets acquired............................ $98,772
Liabilities assumed, net of current assets............... (71)
-------
Net cash paid............................................ $98,701
=======
</TABLE>
9. SUBSEQUENT EVENTS
In February 1997, Leo J. Hindery, Jr., the managing general partner of
ICM-IV and various other affiliated InterMedia partnerships, was appointed
President of TCI. Subsequent to June 30, 1997, as part of Mr. Hindery's
transition, TCI purchased substantially all of Mr. Hindery's interests in IMI
and ICM-IV as well as various other affiliated InterMedia partnerships. Pursuant
to the purchase, Mr. Hindery no longer holds a controlling interest in any of
the various InterMedia corporations or partnerships, and ICP-IV and its
subsidiaries' various senior debt and partnership agreements have been amended.
See Part II, Item 5 "Other Information -- Change in Managing General Partner."
10
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis is intended to assist in an
understanding of significant changes and trends related to the results of
operations and financial condition of the Company and should be read in
conjunction with the Company's Management's Discussion and Analysis of Financial
Condition and Results of Operations included in the Company's Form 10-K for the
year ended December 31, 1996. This discussion contains, in addition to
historical information, forward-looking statements that are based upon certain
assumptions and are subject to a number of risks and uncertainties. The
Company's actual results may differ significantly from the results predicted in
such forward-looking statements. This discussion and analysis should be read in
conjunction with the separate financial statements of the Company.
OVERVIEW
The Company generates substantially all of its revenues from monthly
subscription fees for basic, expanded basic (also referred to as cable
programming services, "CPS"), premium and ancillary services (such as rental of
converters and remote control devices) and installation charges. Additional
revenues have been generated from local and national advertising sales,
pay-per-view programming and home shopping commissions.
The Company has reported net losses primarily caused by high levels of
depreciation and amortization and interest expense. Management believes that net
losses are common for cable television companies and that the Company will incur
net losses in the future.
Historically, certain programmers have periodically increased the rates
charged for their services. Management believes that such rate increases are
common for the cable television industry and that the Company will experience
program fee rate increases in the future.
Acquisitions
During the year ended December 31, 1996 the Company acquired cable
television systems serving approximately 567,200 basic subscribers in Tennessee,
South Carolina and Georgia through (i) the Company's acquisition on July 30,
1996 of controlling equity interests in IPWT and RMG, (ii) the equity
contribution on July 30, 1996 of the Greenville/Spartanburg System to the
Company by TCI, (iii) the purchase of the Nashville System on August 1, 1996,
(iv) the purchases on January 29, 1996 and February 1, 1996 of cable television
systems serving approximately 55,800 basic subscribers, and (v) the purchases on
May 2, 1996, July 1, 1996, and August 6, 1996 of cable television systems
serving approximately 3,800 basic subscribers (together with the January 29,
1996 and the February 1, 1996 acquisitions, the "Miscellaneous Acquisitions").
The Company paid cash of approximately $418.0 million, including related
acquisition costs and fees, for the Miscellaneous Acquisitions and the purchase
of the Nashville System. The Miscellaneous Acquisitions and the purchase of the
Nashville System have been accounted for as purchases and results of operations
are included in the Company's consolidated results only from the dates the
systems were acquired.
In connection with the Company's acquisitions of RMG and IPWT, the Company
paid cash of $0.3 million for its equity interests in RMG and repaid in cash
$365.5 million of the acquired entities' indebtedness, including $14.9 million
of accrued interest. The Company also paid cash to TCI of $119.8 million in
connection with TCI's contribution of the Greenville/Spartanburg System to the
Company. The cash payment to TCI has been recorded as an equity distribution in
the Company's December 31, 1996 consolidated financial statements.
The Company acquired IPWT and extinguished $36.7 million of IPWT's
indebtedness in exchange for non-cash consideration consisting of a limited
partner interest in ICP-IV of $11.7 million and a preferred limited partner
interest in ICP-IV of $25.0 million. TCI received non-cash consideration of
$117.6 million in the form of a limited partner interest in ICP-IV in exchange
for its contribution of the Greenville/Spartanburg System to the Company.
11
<PAGE> 14
IPWT, RMG and the Greenville/Spartanburg System were acquired from entities
in which TCI had a significant ownership interest. Because of TCI's substantial
continuing interest in these entities as a 49.0% limited partner in ICP-IV,
these acquisitions were accounted for at their historical cost basis as of the
acquisition date. Results of these entities are included in the Company's
consolidated results of operations only from the date of acquisition.
Rate Regulation and Competition
The Company's operations are regulated by the Federal Communications
Commission ("FCC") and local franchise authorities under the Cable Television
Consumer Protection and Competition Act of 1992 (the "1992 Cable Act") and the
Telecommunications Act of 1996 (the "1996 Act"). Certain of the Company's cost
of service cases justifying rates for the CPS or expanded basic tier of service
are pending before the FCC. Additionally, pursuant to the FCC's regulations,
several local franchising authorities are reviewing the Company's basic rate
justifications and several other franchising authorities have requested that the
FCC review the Company's basic rate justifications. Management believes that the
Company has substantially complied in all material respects with related FCC
regulations and the outcome of these proceedings will not have a material
adverse effect on the Company.
The Company is subject to competition from alternative providers of video
services, including wireless service providers and local telephone companies.
BellSouth has applied for cable franchises in certain areas where the Company
operates. However, BellSouth has since acknowledged it is postponing its request
for cable franchises in the state of Tennessee. On October 22, 1996 the
Tennessee Cable Telecommunications Association and the Cable Television
Association of Georgia filed a formal complaint with the FCC challenging certain
alleged acts and practices that BellSouth is taking in certain areas of
Tennessee and Georgia including, among others, subsidizing its deployment of
cable television facilities with regulated services revenues that are not
subject to competition. The Company is joined by several other cable operators
as the "Complainant Cable Operators" in the complaint. The cross-subsidization
claims are currently pending before the FCC's Common Carrier Bureau. The Company
cannot predict the likelihood of success on this complaint. See Part II, Item 5
"Other Information -- Certain Factors Affecting Future Results -- Competition in
Cable Television Industry; Rapid Technological Change."
The Company cannot predict the extent to which competition will materialize
or, if competition materializes, the extent of its effect on the Company.
Transactions with Affiliates
Due to TCI's equity ownership in the Company, the Company is able to
purchase programming services from Satellite Services, Inc. ("SSI"), a
subsidiary of TCI. Management believes that the aggregate programming rates
obtained through this relationship are lower than the rates the Company could
obtain through arm's-length negotiations with third parties. TCI is under no
obligation to offer such benefits to the Company. The loss of the relationship
with TCI could adversely affect the financial position and results of operations
of the Company. During the three months ended June 30, 1996 and 1997, the
Company paid 83.0% and 78.1%, respectively, of its program fees to SSI. During
the six months ended June 30, 1996 and 1997, the Company paid 80.8% and 76.9%,
respectively, of its program fees to SSI.
The Company and its affiliated entities InterMedia Partners, a California
limited partnership, and InterMedia Partners III, L.P. and their consolidated
subsidiaries (together the "Related InterMedia Entities") have entered into
agreements ("Administrative Agreements") with IMI, pursuant to which IMI
provides accounting, operational, marketing, engineering, legal, regulatory
compliance and other administrative services at cost. Effective August 5, 1997,
IMI owns 95.0% of the equity interests in ICM-IV LLC, as herein defined, the
managing general partner of the Company, and IMI is wholly owned by Robert J.
Lewis. (See Part II, Item 5 "Other Information --Change in Managing General
Partner.") Generally, IMI charges costs to the Related InterMedia Entities based
on each entity's number of basic subscribers as a percentage of total basic
subscribers for all of the Related InterMedia Entities. In addition to changes
in IMI's aggregate cost of providing such services, changes in the number of the
Company's basic subscribers and/or changes in the number of basic subscribers
for the other Related InterMedia Entities will affect the level of IMI costs
charged to the Company. IMI charged $0.2 million and $1.4 million to the Company
for the three months
12
<PAGE> 15
ended June 30, 1996 and 1997, respectively, and $0.3 million and $3.1 million
for the six months ended June 30, 1996 and 1997, respectively.
ICM-IV provides certain management services to the Company for an annual
fee of one percent of the Company's total non-preferred capital contributions.
See Part II, Item 5 "Other Information -- Certain Factors Affecting Future
Results -- Related Party Transactions."
In February of this year Leo J. Hindery, Jr. was appointed president of
TCI. As part of Mr. Hindery's transition to TCI, substantially all of Mr.
Hindery's interests in ICM-IV and its general partner IMI, as well as various
other management partnerships for the Related InterMedia Entities, have been
converted or sold. Pursuant to these transactions, Mr. Hindery no longer holds a
controlling interest in IMI or ICM-IV. See Part II, Item 5 "Other
information --Change in Managing General Partner."
RESULTS OF OPERATIONS
As described above, the Company acquired all of its cable television
systems during the year ended December 31, 1996 ("1996 Acquisitions"). A
significant portion of these acquisitions occurred in July and August 1996.
Results of operations of the acquired cable television systems have been
included in the Company's results of operations only from the dates the systems
were acquired. The Company had no operations prior to its first acquisition on
January 29, 1996. As a result, the comparability of the Company's results of
operations for the three months and six months ended June 30, 1996 and 1997 is
affected by the 1996 Acquisitions, particularly by the acquisitions which closed
subsequent to the six months ended June 30, 1996 ("Late 1996 Acquisitions").
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
--------------------------------------------
1996 1997
-------------------- ---------------------
PERCENTAGE PERCENTAGE
AMOUNT OF REVENUE AMOUNT OF REVENUE
------- ---------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Statement of Operations Data: (dollars in thousands)
Revenue................................................ $ 4,804 100.0% $ 61,927 100.0%
Costs and Expenses:
Program fees......................................... 928 19.3 13,370 21.6
Other direct and operating expenses(1)............... 552 11.5 6,489 10.5
Selling, general and administrative(2)............... 990 20.6 11,827 19.1
Management and consulting fees....................... 838 1.4
Depreciation and amortization........................ 2,842 59.2 33,113 53.5
------- ----- -------- -----
Loss from operations................................... (508) (10.6) (3,710) (6.0)
Interest and other income.............................. 433 9.0 1,403 2.3
Interest expense....................................... (2,603) (54.2) (19,614) (31.7)
Other expense.......................................... (132) (0.2)
Income tax benefit..................................... 1,974 3.2
Minority interest...................................... (214) (0.4)
------- ----- -------- -----
Net loss............................................... $(2,678) (55.7)% $(20,293) (32.8)%
======= ===== ======== =====
Other Data:
EBITDA(3).............................................. $ 2,334 48.6% $ 29,403 47.5%
</TABLE>
13
<PAGE> 16
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------------------------
1996 1997
-------------------- ---------------------
PERCENTAGE PERCENTAGE
AMOUNT OF REVENUE AMOUNT OF REVENUE
------- ---------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenue................................................ $ 7,934 100.0% $122,747 100.0%
Costs and Expenses:
Program fees......................................... 1,581 19.9 26,395 21.5
Other direct and operating expenses(1)............... 902 11.4 13,341 10.9
Selling, general and administrative(2)............... 1,601 20.2 23,583 19.2
Management and consulting fees....................... 1,675 1.4
Depreciation and amortization........................ 4,735 59.7 66,403 54.1
------- ----- -------- -----
Loss from operations................................... (885) (11.2) (8,650) (7.1)
Interest and other income.............................. 452 5.7 2,781 2.3
Interest expense....................................... (4,002) (50.4) (38,877) (31.7)
Other expense.......................................... (1) 0.0 (302) (0.2)
Income tax benefit..................................... 3,462 2.8
Minority interest...................................... (428) (0.3)
------- ----- -------- -----
Net loss............................................... $(4,436) (55.9)% $(42,014) (34.2)%
======= ===== ======== =====
Other Data:
EBITDA(3).............................................. $ 3,850 48.5% $ 57,753 47.1%
</TABLE>
- ---------------
(1) Other direct and operating expenses consist of expenses relating to
installations, plant repairs and maintenance and other operating costs
directly associated with revenues.
(2) Selling, general and administrative expenses consist mainly of costs related
to system offices, customer service representatives and sales and
administrative employees.
(3) EBITDA is defined as earnings before interest, income taxes, depreciation
and amortization, minority interest and other expense. EBITDA is a commonly
used measure of performance in the cable industry. However, it does not
purport to represent cash flows from operating activities in related
Consolidated Statements of Cash Flows and should not be considered in
isolation or as a substitute for measures of performance in accordance with
GAAP. For information concerning cash flows from operating, investing and
financing activities, see Unaudited Financial Statements included elsewhere
in this Report.
Revenues
The Company's revenues for the three and six months ended June 30, 1997
increased to $61.9 million and $122.7 million, respectively, as compared with
$4.8 million and $7.9 million for the same periods ended June 30, 1996,
respectively, due primarily to the Late 1996 Acquisitions. The Company's total
revenues consisted of basic service revenues which represented 68.5% and 68.2%
of total revenues for the three and six months ended June 30, 1997,
respectively, compared to 76.7% and 77.0% for the same periods ended June 30,
1996, respectively. The decreases in basic service revenues as a percentage of
total revenues is due primarily to proportionately higher volume of pay
services, advertising sales, converter rental and other services provided by the
systems acquired subsequent to June 30, 1996, as compared to those systems
acquired during the six months ended June 30, 1996. Pay service revenues of
$10.2 million and $20.2 for the three and six months ended June 30, 1997,
respectively, represented 16.5% of total revenues, compared to 14.7% and 15.1%
for the three and six months ended June 30, 1996, respectively. Other service
revenues represented 15.1% and 15.4% of total revenues for the three and six
months ended June 30, 1997, respectively, compared to 8.6% and 7.9% for the
three and six months ended June 30, 1996, respectively. Other service revenues
for the three and six months ended June 30, 1997 included non-recurring
advertising revenue of $0.1 million and $1.5 million, respectively, earned from
certain programmers to promote and launch their new services. The Company also
recognized $0.4 million of revenues for the three and six months ended June 30,
1997 representing a portion of
14
<PAGE> 17
the remaining payments received during the three months ended June 30, 1997 from
such programmers to launch and promote their new channels (see Part I, Item 1
"Financial Statements -- Note 7 Channel Launch Revenue").
The Company served approximately 580,300 basic subscribers who subscribed
to 455,200 pay units at June 30, 1997, compared to 57,400 basic subscribers and
23,800 pay units at June 30, 1996. Average basic service revenue per basic
subscriber for the three and six months ended June 30, 1997 was $24.40 and
$24.17, respectively, compared to $21.63 and $21.26 for the same periods ended
June 30, 1996, respectively. The increase represents rate increases implemented
by certain of the Company's cable systems in September 1996 and in early 1997
and higher effective basic service rates for the systems acquired subsequent to
June 30, 1996, compared to those systems acquired during the six months ended
June 30, 1996. Average pay service revenue per pay unit for the three and six
months ended June 30, 1997 was $7.56 and $7.54, respectively, compared to $9.74
and $9.46 for the three and six months ended June 30, 1996, respectively. The
decrease is due primarily to marketing promotions offered by the Company and the
impact of the systems acquired subsequent to June 30, 1996 with lower average
pay service revenue per pay unit compared with those systems acquired during the
first six months of 1996.
Program Fees
Program fees for the three and six months ended June 30, 1997 increased to
$13.4 million and $26.4 million, respectively, as compared with $0.9 million and
$1.6 million for the same periods ended June 30, 1996, respectively, due
primarily to the Late 1996 Acquisitions. Program fees for the three and six
months ended June 30, 1997 represent 25.4% of basic and pay service revenues
compared to 21.1% and 21.6% for the three and six months ended June 30, 1996,
respectively. The increase as a percentage of basic and pay service revenues
reflects the impact of program fee increases, which resulted from higher rates
charged by certain programmers and higher pay-per-view program costs' outpacing
revenue growth for the period. The increase in program fees, as a percentage of
basic and pay service revenues, is also attributed to the higher number of
channels offered by the systems acquired subsequent to June 30, 1996 compared to
those acquired during the six months ended June 30, 1996 without the
proportionately higher cable service revenues.
Other Direct Expenses
Other direct expenses, which include costs related to technical personnel,
franchise fees and repairs and maintenance, amounted to $6.5 million and $13.3
million for the three and six months ended June 30, 1997, respectively, compared
to $0.6 million and $0.9 million for the same periods ended June 30, 1996,
respectively. The increase is a result of the Late 1996 Acquisitions. Other
direct expenses as a percentage of total revenues, before non-recurring launch
revenue, remained relatively constant at 10.6% and 11.1% for the three and six
months ended June 30, 1997, respectively, compared to 11.5% and 11.4% for the
same periods ended June 30, 1996, respectively. The slight decrease for the
three and six months ended June 30, 1997 is due primarily to an increase in
capitalized employee costs resulting from increased construction activities.
Selling, General and Administrative
Selling, general and administrative ("SG&A") expenses for the three and six
months ended June 30, 1997 increased to $11.8 million and $23.6 million,
respectively, compared to $1.0 million and $1.6 million for the same periods
ended June 30, 1996, respectively, due primarily to the Late 1996 Acquisitions.
SG&A as a percentage of total revenues, before non-recurring launch revenue,
remained relatively constant at 19.3% and 19.6% for the three and six months
ended June 30, 1997, respectively, compared to 20.6% and 20.2% for the same
periods ended June 30, 1996, respectively.
15
<PAGE> 18
Management and Consulting Fees
Management and consulting fees of $0.8 million and $1.7 million for the
three and six months ended June 30, 1997, respectively, represent fees charged
by ICM-IV. ICM-IV provides certain management services to the Company for a per
annum fee of 1.0% of the Company's total non-preferred capital contributions, or
$3.4 million. ICM-IV management fees were not accrued on the Company's books
prior to July 30, 1996, the date on which the Company's capital contributions
were received from its partners.
Depreciation and Amortization
Depreciation and amortization expense for the three and six months ended
June 30, 1997 increased to $33.1 million and $66.4 million, respectively,
compared to $2.8 million and $4.7 million for the same periods ended June 30,
1996, respectively, as a result of the Late 1996 Acquisitions and capital
expenditures of $83.7 million during the twelve months ended June 30, 1997,
offset by the Company's use of an accelerated depreciation method that results
in higher depreciation expense being recognized in the earlier years and lower
expense in the later years.
Interest and Other Income
Interest and other income of $1.4 million and $2.8 million for the three
and six months ended June 30, 1997, respectively, is comprised primarily of $1.1
million and $2.3 million of interest income earned on the escrowed securities
for the three and six months ended June 30, 1997, respectively. Interest and
other income also includes $0.1 million and $0.2 million of interest income
earned on cash and cash equivalents for the three and six months ended June 30,
1997, respectively. The Company had no escrowed securities until it issued its
11.25% senior notes on July 30, 1996.
Interest Expense
Interest expense increased to $19.6 million and $38.9 million for the three
and six months ended June 30, 1997, respectively, compared to $2.6 million and
$4.0 million for the three and six months ended June 30, 1996, respectively, due
primarily to higher debt balances during 1997 compared to the same periods in
1996. Interest expense for the three and six months ended June 30, 1997 includes
interest on borrowings outstanding under the 11.25% senior notes and bank debt,
which were incurred to finance the Company's acquisitions in July and August
1996. Interest expense for the three and six months ended June 30, 1996 includes
interest on a bridge loan obtained by a subsidiary of ICP-IV for acquisitions of
certain cable television systems during the first six months of 1996.
Income Tax Benefit
As partnerships, the tax attributes of ICP-IV and its subsidiaries other
than RMG and IPCC accrue to the partners. Income tax benefit of $2.0 million and
$3.5 million for the three and six months ended June 30, 1997, respectively, has
been recorded based on RMG's stand alone tax provision. Prior to ICP-IV's
acquisition of RMG on July 30, 1996, the Company had no income tax expense or
benefit.
Minority Interest
Minority interest for the three and six months ended June 30, 1997,
represents accrued dividends of $0.2 million and $0.4 million, respectively, on
RMG's mandatorily redeemable preferred stock held by a subsidiary of TCI as the
minority shareholder of RMG's common stock. Prior to ICP-IV's acquisition of RMG
on July 30, 1996, ICP-IV's consolidated subsidiaries were wholly-owned by
ICP-IV.
Net Loss
The Company's net loss for the three and six months ended June 30, 1997
increased to $20.3 million and $42.0 million, respectively, from $2.7 million
and $4.4 million for the three and six months ended June 30, 1996, respectively.
The increase is due primarily to the Late 1996 Acquisitions, which resulted in
significantly higher expenses relative to the increased revenues. Net losses for
the periods ended June 30, 1996 and 1997
16
<PAGE> 19
were significantly impacted by the Company's significant amounts of
depreciation, amortization and interest expense.
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth certain statement of cash flows information
of the Company (in thousands) for the six months ended June 30, 1996 and 1997.
The Company consummated acquisitions of cable television systems in January,
February, May, July and August 1996. Cash flows from operating activities of the
acquired systems have been included only from the dates of acquisition.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
1996 1997
--------- --------
(UNAUDITED)
<S> <C> <C>
STATEMENT OF CASH FLOWS DATA:
Cash flows from operating activities.......................... $ 1,539 $ 28,468
Cash flows from investing activities.......................... (114,198) (32,524)
Cash flows from financing activities.......................... 113,398 2,748
</TABLE>
SIX MONTHS ENDED JUNE 30, 1996
The Company's cash balance increased from zero as of January 1, 1996 to
$0.7 million as of June 30, 1996.
Cash Flows From Operating Activities
The Company generated cash flows from operating activities of $1.5 million
for the six months ended June 30, 1996 reflecting (i) income from operations of
$3.9 million before non-cash charges to income for depreciation and amortization
of $4.7 million; (ii) interest paid of $3.4 million; and (iii) net working
capital sources of approximately $1.0 million.
Cash Flows From Investing Activities
The Company used cash during the six months ended June 30, 1996 of $98.7
million to fund its purchase of certain cable television systems. The Company
also purchased property and equipment of $0.5 million during the six months
ended June 30, 1996 consisting primarily of cable system upgrades and rebuilds,
plant extensions, converters and initial subscriber installations.
In April 1996, prior to the Company's purchase of RMG, the Company loaned
$15.0 million to RMG.
Cash Flows From Financing Activities
The Company financed the acquisitions described above with net proceeds
from the Bridge Loan.
SIX MONTHS ENDED JUNE 30, 1997
The Company's cash balance decreased by $1.3 million from $8.8 million as
of January 1, 1997 to $7.5 million as of June 30, 1997.
Cash Flows From Operating Activities
The Company generated cash flows from operating activities of $28.5 million
for the six months ended June 30, 1997 reflecting (i) income from operations of
$57.8 million before non-cash charges to income for depreciation and
amortization of $66.4 million; (ii) interest and other income received of $3.2
million, primarily from escrowed investments; (iii) interest paid of $38.1
million; (iv) $6.2 million in deferred revenue relating to payments received
from certain programmers to launch and promote their new programs; and (v) other
working capital uses and non-operating expenses of $0.6 million.
Cash Flows From Investing Activities
The Company purchased property and equipment of $46.0 million during the
six months ended June 30, 1997 consisting primarily of cable system upgrades and
rebuilds, plant extensions, converters and initial subscriber installations.
17
<PAGE> 20
The Company received $13.9 million in proceeds from sale of its escrowed
investments upon maturity on January 31, 1997. These proceeds and related
interest received were used to fund interest payment obligations on the Notes of
$16,569 on February 1, 1997. During the six months ended June 30, 1997, the
Company also paid approximately $0.3 million for the right to provide cable
services to a multiple dwelling unit in Greenville/Spartanburg.
Cash Flows From Financing Activities
The Company's cash flows from financing activities for the six months ended
June 30, 1997 consisted primarily of net borrowings of $3.0 million under the
bank revolving credit facility, which were used, along with cash available from
operations, to fund the Company's capital requirements.
PRO FORMA LIQUIDITY AND CAPITAL RESOURCES
The Company has plans to make substantial expenditures for technological
upgrades and rebuilds over the next several years under its Capital Improvement
Program, which is reviewed and modified periodically by management. Management
believes that substantial growth in revenues and operating cash flows is not
achievable without implementing at least a significant portion of the Capital
Improvement Program.
For each of the years through maturity of the Notes, the Company's
principal sources of liquidity are expected to be cash generated from operations
and borrowings under the Company's revolving credit facility. The revolving
credit facility provides for borrowings up to $475.0 million in the aggregate,
with permanent annual commitment reductions beginning in 1999, and matures in
2004. As of June 30, 1997, the Company had $337.0 million outstanding under the
revolving credit facility, leaving availability of $138.0 million. Prior to
January 1, 1999, the Company has no mandatory amortization requirements under
the Bank Facility.
Management believes that the Company will be able to realize substantial
growth rates in revenue over the next several years through a combination of
household growth, increased penetration and new product offerings that the
Company will be able to make available as technological upgrades are completed
under the Capital Improvement Program.
Management believes that, with the Company's ability to realize operating
efficiencies and sustain substantial growth rates in revenue, it will be able to
generate cash flows from operating activities which, together with available
borrowing capacity under the revolving credit facility, will be sufficient to
fund required interest payments and planned capital expenditures over the next
several years. However, the Company may not be able to generate sufficient cash
from operations or accumulate sufficient cash from other activities or sources
to repay in full the principal amounts outstanding under the Notes on maturity.
In order to satisfy its repayment obligations with respect to the Notes due
August 1, 2006, the Company may be required to refinance the Notes. There can be
no assurance that financing will be available at that time in order to
accomplish any necessary refinancing on terms favorable to the Company. See Part
II, Item 5 "Other Information -- Certain Factors Affecting Future
Results -- Substantial Leverage; Deficiency of Earnings to Cover Fixed Charges";
and "-- Future Capital Requirements."
Borrowings under the revolving credit facility are available under interest
rate options related to ABR (which is based on the administrative agent's
published prime rate) and LIBOR. Interest rates vary under each option based on
IP-IV's senior leverage ratio. For ABR loans the rate varies from ABR to ABR
plus 0.50%, and for LIBOR loans the rate varies from LIBOR plus 0.75% to LIBOR
plus 1.75%. Interest periods are specified as one, two or three months for LIBOR
loans. The Bank Facility requires quarterly interest payments, or more frequent
interest payments if a shorter period is selected under the LIBOR option. The
Bank Facility also requires IP-IV to pay quarterly a commitment fee of 0.25% or
0.375% per year, depending on the senior leverage ratio of IP-IV, on the unused
portion of available credit.
The obligations of IP-IV under the Bank Facility are secured by a first
priority pledge of the capital stock and/or partnership interests of IP-IV's
subsidiaries, a negative pledge on other assets of IP-IV and subsidiaries and a
pledge of any inter-company notes. The obligations of IP-IV under the Bank
Facility are guaranteed by IP-IV's subsidiaries.
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<PAGE> 21
The Bank Facility and the Indenture, as defined herein, restrict, among
other things, the Company's ability to incur additional indebtedness, incur
liens, pay distributions or make certain other restricted payments, consummate
certain asset sales and enter into certain transactions with affiliates. In
addition, the Bank Facility and Indenture restrict the ability of a subsidiary
to pay distributions or make certain payments to ICP-IV, merge or consolidate
with any other person or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of the assets of the Company. The Bank
Facility also requires the Company to maintain specified financial ratios and
satisfy certain financial condition tests. Such restrictions and compliance
tests, together with the Company's substantial leverage and the pledge of
substantially all of IP-IV's equity interests in its subsidiaries, could limit
the Company's ability to respond to market conditions, to provide for
unanticipated capital investments or to take advantage of business
opportunities. As of June 30, 1997 the Company was in compliance with all of the
debt covenants as provided by the Bank Facility and the Indenture.
COMMITMENTS AND CONTINGENCIES
The Company has continuing commitments under franchise agreements and FCC
regulations and is subject to litigation and other claims in the ordinary course
of business. See Note 5 to the Consolidated Financial Statements included
herein. See Part II, Item 5 "Other Information -- Certain Factors Affecting
Future Results -- Regulation of the Cable Television Industry" and
"-- Expiration of Franchises."
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Statements in this report which are prefaced with words such as expects,
anticipates, believes and similar words and other statements of similar sense,
are forward-looking statements. These statements are based on the Company's
current expectations and estimates as to prospective events and circumstances
which may or may not be within the Company's control and as to which there can
be no firm assurances given. These forward-looking statements, like any other
forward-looking statements, involve risks and uncertainties that could cause
actual results to differ materially from those projected or anticipated.
In addition to other risks and uncertainties that may be described
elsewhere in this document, certain risks and uncertainties that could affect
the Company's financial results include the following: the development, market
acceptance and successful introduction of new services and enhancements;
competitors' service introductions and enhancements; and risks associated with
the 1996 Acquisitions, including the Company's ability to successfully integrate
the acquired cable television systems.
(For a description of the above risks and uncertainties, see the Certain
Factors that May Affect Future Results section under Item 5 of PART II.)
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PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material legal proceedings to which the Company is a party or
to which the Company's properties are subject. The Company knows of no
threatened or pending material legal action against it or its properties.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
CHANGE IN MANAGING GENERAL PARTNER
In February of this year Leo J. Hindery, Jr. was appointed president of
TCI. As part of Mr. Hindery's transition to TCI, substantially all of Mr.
Hindery's interests in ICM-IV and its general partner IMI, as well as in various
other management partnerships for the Related InterMedia Entities, were
converted or sold. Pursuant to these transactions, Mr. Hindery no longer holds a
controlling interest in IMI or ICM-IV and ICM-IV is no longer the managing
general partner of the Company.
On August 5, 1997, Robert J. Lewis purchased from Mr. Hindery all of the
outstanding stock of IMI for $0.025 million. IMI retained its .002% general
partner interest in ICM-IV and was appointed managing general partner of ICM-IV.
Concurrently, Mr. Hindery withdrew as managing general partner of ICM-IV and
converted his general partner interest in ICM-IV to a limited partner interest,
and TCI purchased substantially all of the limited partner interests in ICM-IV.
IMI owns 95% of the equity interests in InterMedia Capital Management, LLC
("ICM-IV LLC"), a newly formed limited liability company. ICM-IV LLC purchased
from ICM-IV a .001% general partner interest in ICP-IV and the .01% managing
general partner interests in certain of ICP-IV's subsidiaries for approximately
$0.090 million. ICM-IV's remaining general partner interests in ICP-IV were
converted to limited partner interests, and ICM-IV LLC was appointed the
managing general partner of the Company.
ICP-IV and its subsidiaries' various senior debt and partnership agreements
have been amended to reflect the change in the Managing General Partner of the
Company. In addition, pursuant to the transactions described above, certain
arrangements have been entered into that would cause a change in the Managing
General Partner. In the event that Mr. Lewis dies or Mr. Hindery leaves his
employment with TCI, Mr. Hindery has the right to repurchase all of the stock of
IMI from Mr. Lewis and thereby will hold a controlling interest in IMI which
controls the Managing General Partner. In addition, the limited partners, have
the right to remove the Managing General Partner in certain circumstances.
INTERMEDIA PARTNERS IV, CAPITAL CORP.
InterMedia Partners IV, Capital Corp., a Delaware corporation ("IPCC"), is
the wholly owned subsidiary of the Company and was formed solely for the purpose
of serving as a co-issuer of the Notes. The Notes are the joint and several
obligation of the Company and IPCC. Separate financial statements and other
disclosure concerning IPCC have not been provided because IPCC's financial
position is not deemed to be material and it does not have any operations.
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<PAGE> 23
CERTAIN FACTORS AFFECTING FUTURE RESULTS
SUBSTANTIAL LEVERAGE; DEFICIENCY OF EARNINGS TO COVER FIXED CHARGES
The Company has indebtedness that is substantial in relation to partners'
capital. On June 30, 1997, the Company's total debt balance was approximately
$849.0 million and partners' capital balance was approximately $31.8 million.
Under the Financing, ICP-IV received $360.0 million of new equity from its
partners, comprised of cash and in-kind contributions. See Part I, Item 1
"Financial Statements -- InterMedia Capital Partners IV, L.P. -- Notes to
Consolidated Financial Statements." In addition, subject to the restrictions in
the indenture for the Notes (the "Indenture"), ICP-IV and its subsidiaries
(other than IPCC) may incur additional indebtedness from time to time to finance
acquisitions and capital expenditures or for general corporate purposes. The
high level of the Company's indebtedness will have important consequences,
including: (i) a substantial portion of the Company's cash flow from operations
must be dedicated to debt service and will not be available for general
corporate purposes or for the Capital Improvement Program; (ii) the Company's
ability to obtain additional debt financing in the future for working capital,
capital expenditures, acquisitions or for the Capital Improvement Program may be
limited; and (iii) the Company's level of indebtedness could limit its
flexibility in reacting to changes in the industry and economic conditions
generally. See "-- Future Capital Requirements."
There can be no assurance that the Company will generate earnings in future
periods sufficient to cover its fixed charges, including its debt service
obligations with respect to the Notes. In the absence of such earnings or other
financial resources, the Company could face substantial liquidity problems.
ICP-IV's ability to pay interest on the Notes and to satisfy its other debt
obligations will depend upon its future operating performance, including the
successful implementation of the Capital Improvement Program and will be
affected by prevailing economic conditions and financial, business and other
factors, many of which are beyond the Company's control. Based upon expected
increases in revenue and cash flow, the Company anticipates that its cash flow,
together with available borrowings, including borrowings under the Bank
Facility, will be sufficient to meet its operating expenses and capital
expenditure requirements and to service its debt requirements for the next
several years. See Part I, Item 2 "Management's Discussion and Analysis of
Financial Condition and Results of Operations." However, in order to satisfy its
repayment obligations with respect to the Notes, ICP-IV may be required to
refinance the Notes on their maturity. There can be no assurance that financing
will be available at that time in order to accomplish any necessary refinancing
on terms favorable to the Company or at all. If the Company is unable to service
its indebtedness, it will be forced to adopt an alternative strategy that may
include actions such as reducing or delaying capital expenditures, selling
assets, restructuring or refinancing its indebtedness or seeking additional
equity capital. There can be no assurance that any of these strategies could be
effected on satisfactory terms, if at all. Management believes that substantial
growth in revenues and operating cash flows is not achievable without
implementing at least a significant portion of the Capital Improvement Program.
See Part I, Item 2 "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
HOLDING COMPANY STRUCTURE; STRUCTURAL SUBORDINATION
The Notes are the general obligations of ICP-IV and IPCC and rank pari
passu with all senior indebtedness of ICP-IV and IPCC, if any. The Company's
operations are conducted through the direct and indirect subsidiaries of IP-IV.
ICP-IV and IPCC hold no significant assets other than their investments in and
advances to ICP-IV's subsidiaries, and ICP-IV and IPCC have no independent
operations and, therefore, are dependent on the cash flow of ICP-IV's
subsidiaries and other entities to meet their own obligations, including the
payment of interest and principal obligations on the Notes when due.
Accordingly, ICP-IV's and IPCC's ability to make interest and principal payments
when due and their ability to purchase the Notes upon a Change of Control or
Asset Sale (as defined in the Indenture) is dependent upon the receipt of
sufficient funds from ICP-IV's subsidiaries and will be severely restricted by
the terms of existing and future indebtedness of ICP-IV's subsidiaries. The Bank
Facility was entered into by IP-IV and prohibits payment of distributions by any
of ICP-IV's subsidiaries to ICP-IV or IPCC prior to February 1, 2000, and
permits such distributions thereafter only to the extent necessary for ICP-IV to
make cash interest payments on the Notes
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at the time such cash interest is due and payable, provided that no default or
event of default with respect to the Bank Facility exists or would exist as a
result.
RESTRICTIONS IMPOSED BY LENDERS
The Bank Facility and, to a lesser extent, the Indenture contain a number
of significant covenants that, among other things, restrict the ability of the
Company to dispose of assets or merge, incur debt, pay distributions, repurchase
or redeem capital stock, create liens, make capital expenditures and make
certain investments or acquisitions and otherwise restrict corporate activities.
The Bank Facility also contains, among other covenants, requirements that IP-IV
maintain specified financial ratios, including maximum leverage and minimum
interest coverage, and prohibits IP-IV and its subsidiaries from prepaying the
Company's other indebtedness (including the Notes). The ability of the Company
to comply with such provisions may be affected by events that are beyond the
Company's control. The breach of any of these covenants could result in a
default under the Bank Facility. In the event of any such default, lenders party
to the Bank Facility could elect to declare all amounts borrowed under the Bank
Facility, together with accrued interest and other fees, to be due and payable.
If the indebtedness under the Bank Facility were to be accelerated, all
indebtedness outstanding under such Bank Facility would be required to be paid
in full before IP-IV would be permitted to distribute any assets or cash to
ICP-IV. There can be no assurance that the assets of ICP-IV and its subsidiaries
would be sufficient to repay all borrowings under the Bank Facility and the
other creditors of such subsidiaries in full. In addition, as a result of these
covenants, the ability of the Company to respond to changing business and
economic conditions and to secure additional financing, if needed, may be
significantly restricted, and the Company may be prevented from engaging in
transactions that might otherwise be considered beneficial to the Company.
FUTURE CAPITAL REQUIREMENTS
Consistent with the Company's business strategy, and in order to comply
with requirements imposed by certain of its franchising authorities and to
address existing and potential competition, the Company has implemented the
Capital Improvement Program. Pursuant to the Capital Improvement Program, the
Company is expanding and upgrading the systems' plant to improve channel
capacity and system reliability and to allow for interactive services such as
enhanced pay-per-view, home shopping, data transmission (including Internet
access) and other interactive services to the extent they become technologically
viable and economically practicable. The Company expects to upgrade certain of
its existing systems with a digital-capable, high-capacity, broadband hybrid
fiber/coaxial network architecture to accomplish these objectives. Although the
Company anticipates that it will continue to upgrade portions of its systems
over the next several years, there can be no assurance that the Company will be
able to upgrade its cable television systems at a rate that will allow it to
remain competitive with competitors that either do not rely on cable into the
home (e.g., MMDS and DBS) or have access to significantly greater amounts of
capital and an existing communications network (e.g., certain telephone
companies). The Company's business requires continuing investment to finance
capital expenditures and related expenses for expansion of the Company's
subscriber base and system development. There can be no assurance that the
Company will be able to fund its Capital Improvement Program or any of its other
capital expenditures. The Company's inability to upgrade its cable television
systems or make its other planned capital expenditures could have a material
adverse effect on the Company's operations and competitive position and could
have a material adverse effect on the Company's ability to service its debt,
including the Notes.
LIMITED OPERATING HISTORY; DEPENDENCE ON MANAGEMENT
ICP-IV was organized in March 1996. The partners of IP-IV transferred their
partnership interests to ICP-IV in 1996. Therefore, there is limited historical
financial information about the Company upon which to base an evaluation of its
performance. Pursuant to the Acquisitions, the Company substantially increased
the size of its operations. Therefore, the historical financial data of the
Company may not be indicative of the Company's future results of operations.
Further, there can be no assurance that the Company will be able to successfully
implement its business strategy. The future success of the Company will be
largely dependent
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upon the efforts of senior management of its general partner, ICM-IV LLC.
Although ICM-IV LLC as general partner of ICP-IV may acquire systems on behalf
of the Company, there is no obligation to do so.
COMPETITION IN CABLE TELEVISION INDUSTRY; RAPID TECHNOLOGICAL CHANGE
Cable television systems face competition from other sources of news,
information and entertainment, such as off-air television broadcast programming,
newspapers, movie theaters, live sporting events, interactive computer programs
and home video products, including video tape cassette recorders. Competing
sources of video programming include, but are not limited to, off-air broadcast
television, DBS, MMDS, SMATV and other new technologies. Furthermore, the cable
television industry is subject to rapid and significant changes in technology.
The effect of any future technological changes on the viability or
competitiveness of the Company's business cannot be predicted.
In addition, the Telecommunications Act of 1996 has repealed the
cable/telephone cross-ownership ban, and telephone companies will now be
permitted to provide cable television service within their service areas.
Certain of such potential service providers have greater financial resources
than the Company, and in the case of local exchange carriers seeking to provide
cable service within their service areas, have an installed plant and switching
capabilities, any of which could give them competitive advantages with respect
to cable television operators such as the Company.
BellSouth has applied for cable franchises in certain of the Company's
franchise areas and is acquiring a number of wireless cable companies in regions
where the Company operates. However, BellSouth has since acknowledged it is
postponing its request for cable franchises in the state of Tennessee. On
October 22, 1996 the Tennessee Cable Telecommunications Association ("TCTA") and
the Cable Television Association of Georgia filed a formal complaint with the
FCC challenging certain acts and practices that BellSouth is taking in
connection with its deployment of video distribution facilities in certain areas
of Tennessee and Georgia. In addition, the TCTA also filed a petition for
investigation with the Tennessee Regulatory Authority concerning certain alleged
acts and practices that BellSouth is taking in connection with its construction
and deployment of cable facilities in Tennessee. The Company is joined by
several other cable operators in the complaint. The Company cannot predict the
likelihood of success in this complaint or the petition nor can there be any
assurance that the Company will be successful with either the complaint or the
petition. Furthermore, the Company cannot predict either the extent to which
competition from BellSouth or other potential service providers will materialize
or, if such competition materializes, the extent of its effect on the Company.
REGULATION OF THE CABLE TELEVISION INDUSTRY
The cable television industry is subject to extensive regulation at the
federal, state and local levels, and many aspects of such regulation are
currently the subject of judicial proceedings and administrative or legislative
proposals. In February 1996, Congress passed, and the President signed into law,
major telecommunications reform legislation, the Telecommunications Act of 1996.
Among other things, the 1996 Act reduces in some circumstances and by 1999 will
eliminate, rate regulation for CPS packages for all cable television systems and
immediately eliminates regulation of this service tier for small cable
operators. The FCC is undertaking numerous rulemaking proceedings to interpret
and implement the provisions of the 1996 Act. The 1996 Act and the FCC's
implementing regulations could have a significant effect on the cable television
industry. In addition, the Cable Television Consumer Protection and Competition
Act of 1992 (the "1992 Cable Act") imposed substantial regulation on the cable
television industry, including rate regulation, and significant portions of the
1992 Act remain in effect despite the enactment of the 1996 Act and remain
highly relevant to the Company's operations.
The Company's systems elected the benchmark or cost-of-service
methodologies to justify their basic and CPS tier rates in effect prior to May
15, 1994, but relied primarily upon the cost-of-service methodology to justify
regulated service rates in effect after May 14, 1994. The Company's
cost-of-service cases justifying certain rates for the CPS tier of service are
currently pending before the FCC. Additionally, pursuant to the FCC's
regulations, several local franchising authorities are reviewing the Company's
basic rate justifications
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and several other franchising authorities have requested that the FCC review the
Company's basic rate justifications. Although the Company generally believes
that its rates are justified under the FCC's benchmark or cost-of-service
methodologies, it cannot predict the ultimate resolution of these cases.
Management believes that the regulation of the cable television industry
will remain a matter of interest to Congress, the FCC and other regulatory
bodies. There can be no assurance as to what, if any, future actions such
legislative and regulatory authorities may take or the effect thereof on the
industry or the Company.
RELATED PARTY TRANSACTIONS
Conflicts of interests may arise due to certain contractual relationships
of the Company and the Company's relationship with the Related InterMedia
Entities and its other affiliates. IMI, which is wholly owned by Robert J.
Lewis, provides administrative services at cost to the Company and to the
operating companies of the Related InterMedia Entities. See Part II, Item 5
"Other Information --Change in Managing General Partner." Conflicts of interest
may arise in the allocation of management and administrative services as a
result of such relationships. In addition, the Related InterMedia Entities and
their respective related management partnerships have certain relationships, and
will likely develop additional relationships in the future with TCI, which could
give rise to conflicts of interest.
EXPIRATION OF FRANCHISES
In connection with a renewal of a franchise, the franchising authority may
require the Company to comply with different conditions with respect to
franchise fees, channel capacity and other matters, which conditions could
increase the Company's cost of doing business. Although management believes that
it generally will be able to negotiate renewals of its franchises, there can be
no assurance that the Company will be able to do so and the Company cannot
predict the impact of any new or different conditions that might be imposed by
franchising authorities in connection with such renewals.
LOSS OF BENEFICIAL RELATIONSHIP WITH TCI
The Company's relationship with TCI currently enables the Company to (i)
purchase programming services and equipment from a subsidiary of TCI at rates
that management believes are generally lower than the Company could obtain
through arm's-length negotiations with third parties, (ii) share in TCI's
marketing test results, (iii) share in the results of TCI's research and
development activities and (iv) consult with TCI's operating personnel with
expertise in engineering, technical, marketing, advertising, accounting and
regulatory matters. While the Company expects the relationship to continue, TCI
is under no obligation to offer such benefits to the Company, and there can be
no assurance that such benefits will continue to be available in the future
should TCI's ownership in the Company significantly decrease or should TCI for
any other reason decide not to continue to offer such benefits to the Company.
The loss of the relationship with TCI could adversely affect the financial
position and results of operations of the Company. Further, the Bank Facility
provides that an event of default will exist if TCI does not own beneficially
35.0% or more of ICP-IV's non-preferred partnership interests. See Part I, Item
2 "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Transactions with Affiliates."
PURCHASE OF NOTES UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the ICP-IV and IPCC are
required to make an offer to purchase all outstanding Notes at a purchase price
equal to 101.0% of the principal amount thereof, together with accrued and
unpaid interest, if any, to the date of purchase. There can be no assurance that
ICP-IV and IPCC will have available funds sufficient to purchase the Notes upon
a Change of Control. In addition, any Change of Control, and any repurchase of
the Notes required under the Indenture upon a Change of Control, would
constitute an event of default under the Bank Facility, with the result that the
obligations of the borrowers thereunder could be declared due and payable by the
lenders. Any acceleration of the obligations under the Indenture or the Bank
Facility would make it unlikely that IP-IV could make adequate distributions
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to ICP-IV in order to service the Notes and, accordingly, that IP-IV could make
adequate distributions to ICP-IV as required to permit ICP-IV and IPCC to effect
a purchase of the Notes upon a Change of Control.
ABSENCE OF PUBLIC MARKET; POSSIBLE VOLATILITY OF EXCHANGE NOTE PRICE
The Notes registered pursuant to the exchange offer completed in January
(the "Exchange Notes") are new securities for which there is currently no
market. The Company does not intend to apply for listing of the Exchange Notes
on any securities exchange or for the inclusion of the Exchange Notes in any
automated quotation system. Although the Company was advised by NationsBanc
Capital Markets, Inc. ("NationsBanc") and Toronto Dominion Securities (USA) Inc.
("Toronto Dominion") that, following completion of the private offering in July
1996, NationsBanc and Toronto Dominion intend to make a market in the Notes,
they are not obligated to do so and any such market making activities may be
discontinued at any time without notice. Accordingly, there can be no assurance
as to the development or liquidity of any market for the Exchange Notes. If a
market for the Exchange Notes were to develop, the Exchange Notes could trade at
prices that may be higher or lower than their initial offering price depending
upon many factors, including prevailing interest rates, the Company's operating
results and the markets for similar securities. Historically, the market for
non-investment-grade debt has been subject to disruptions that have caused
substantial volatility in the prices of securities similar to the Exchange
Notes. There can be no assurance that, if a market for the Exchange Notes were
to develop, such a market would not be subject to similar disruptions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Index
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER EXHIBIT NUMBERED PAGES
- ------- -------------------------------------------------------------------- --------------
<C> <S> <C>
3.3 Amended and Restated Agreement of Limited Partnership of InterMedia
Capital Partners IV, L.P. dated as of August 5, 1997 by and among
InterMedia Capital Management, LLC, InterMedia Capital Management
IV, L.P. and various other limited partners. (Exhibits omitted. The
Company agrees to furnish a copy of any exhibit to the Commission
upon request.)
10.12 Consent and Second Amendment to Revolving Credit and Term Loan
Agreement, dated as of July 30, 1996 and amended as of August 6,
1996, dated as of February 28, 1997 among InterMedia Partners IV,
L.P. and The Bank of New York, as Administrative Agent, and The Bank
of New York, NationsBank of Texas, N.A., Toronto Dominion (Texas),
Inc., as Arranging Agents, and NationsBank of Texas, N.A. and
Toronto Dominion (Texas), Inc., as Syndication Agents, and the
Financial Institution Parties thereto. (Exhibit omitted. The Company
agrees to furnish a copy of any exhibit to the Commission upon
request.)
24.1 Power of Attorney (included on page 26).............................
27.1 Schedule of Financial Data for InterMedia Capital Partners IV,
L.P. ...............................................................
</TABLE>
(b) Reports on Form 8-K:
No reports on Form 8-K were filed with the Securities and Exchange
Commission during the fiscal quarter ended June 30, 1997.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
INTERMEDIA CAPITAL PARTNERS IV, L.P.
By: InterMedia Capital Management IV,
L.P., its General Partner
By: InterMedia Management, Inc., its
General Partner
By: /s/ ROBERT J. LEWIS
------------------------------------
Robert J. Lewis
President
Date: August 13, 1997.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints Edon V. Hartley, and Thomas R. Stapleton and each
of them, his true and lawful attorneys-in-fact and agents, each with full power
of substation and resubstation, for him and in his name, place and stead, in any
and all capacities, to sign any and all amendments to this report, and to file
the same, with exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done, and
fully to all intents and purposes as he might or could do in person, hereby
ratifying and conforming all that each of said attorneys-in-fact and agents or
their substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, THIS REPORT HAS
BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES
INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------- -----------------
<S> <C> <C>
/s/ ROBERT J. LEWIS President, Chief Executive August 13, 1997
- ------------------------------------------ Officer and Sole Director of
Robert J. Lewis InterMedia Management, Inc.
(principal executive officer)
/s/ EDON V. HARTLEY Chief Financial Officer of August 13, 1997
- ------------------------------------------ InterMedia Management, Inc.
Edon V. Hartley (principal financial officer)
/s/ THOMAS R. STAPLETON Vice President of InterMedia August 13, 1997
- ------------------------------------------ Management, Inc.
Thomas R. Stapleton (principal accounting officer)
</TABLE>
26
<PAGE> 1
EXHIBIT 3.3
Execution Copy
INTERMEDIA CAPITAL PARTNERS IV, L.P.
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
Dated as of August 5, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1 General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Formation of the Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Principal Place of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Agent for Service of Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Business of the Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 Term of the Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 2 Capital Contributions, Withdrawals and Capital Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Contributions of Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(a) In General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(b) General Partner as Limited Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(c) Additional Limited Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(d) Additional Contributions by Limited Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(e) Additional Contributions by General Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(f) Payment of Capital Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(g) General Partner Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(h) Limited Partner Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(i) Return of Certain Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.2 Withdrawals of Capital Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(a) Withdrawals in General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(b) Required Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(c) Effective Date of Withdrawal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(d) Effect of Withdrawal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(e) Limitations on Withdrawal of Capital Account . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(f) Interest on Capital Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.3 Capital Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 3 Profits and Losses; Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.1 Profits and Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.2 Partnership Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.3 Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 4 Management of Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.1 Management Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.2 Specific Authority of the General Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.3 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.4 Valuation of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.5 Revaluation of Partnership Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.6 Administration Fee and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(a) Administration Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(b) General Partner Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.7 Rights of the Limited Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
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(a) No Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(b) Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(c) Annual Operating Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(d) Advisory Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(e) Dissolution or Bankruptcy of a Limited Partner . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.8 Successor General Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(a) Removal of the General Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(b) Withdrawal of the General Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(c) Hindery's Return to the Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(d) General Provision Regarding Approvals by the Limited Partners. . . . . . . . . . . . . . . . . . 25
(e) Right To Recover Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.9 Sale Initiation Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.10 Nonvoting Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE 5 Tax Matters and Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.1 Filing of Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.2 Tax Reports to Current and Former Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.3 Restriction on General Partner Activity With Respect to Publicly Traded Partnerships . . . . . . . . . . . 28
5.4 Duties and Obligations of the General Partner With Respect to Publicly Traded Partnerships . . . . . . . . 29
5.5 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.6 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.7 Method of Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE 6 Conflicts of Interest; Indemnification; Exculpation . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.1 Outside Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.2 Contracts With the General Partner, Affiliates and Limited Partners . . . . . . . . . . . . . . . . . . . 31
6.3 Indemnification of the Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.4 Exculpation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE 7 Termination and Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.1 No Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.2 Events of Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.3 Winding-up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.4 Order of Liquidating Payments and Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.5 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.6 Government Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.7 Orderly Methods of Liquidating Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE 8 Transfer of Interest, Failure To Pay Capital Contributions, Beneficial Owners . . . . . . . . . . . . . . 36
8.1 Transfer of Partnership Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.2 Transfer of IP Holdings Affiliates' Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.3 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.4 Failure To Pay Capital Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.5 Increase in Beneficial Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE 9 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>
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9.2 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.3 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.5 Waiver of Partition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.6 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.7 Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.8 Confidentiality of Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.10 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.11 Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.12 Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.13 Nonrecourse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.14 Foreign Person. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
</TABLE>
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DEFINITIONS
<TABLE>
<CAPTION>
Term Section
- ---- -------
<S> <C>
1933 Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Legend No. 1
Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1
Adjacent Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1
Administration Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.6(a)
Advisory Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.7(d)
Adverse Regulatory Development . . . . . . . . . . . . . . . . . . . . . . . . 7.6(b)
Affected Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6(b)
AVR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit 2
BHC LP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.10
Capital Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3
FRB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.10
General Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
Greenville/Spartanburg . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit 1 Note 5
Contribution Agreement
ICM-IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
ICM LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
IMI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2
Income Tax Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3
Indemnified Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.2(a)
Indemnifying Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.2(a)
Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Legend No. 1
Investing Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5(a)
Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2(b)
IP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit 1 Note 3
IP-I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.9(b)
IP-IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5(a)
IPSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit 2
</TABLE>
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<TABLE>
<CAPTION>
Term Section
- ---- -------
<S> <C>
IPWT Contribution Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit 1 Note 3
IPWT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit 1 Note 3
LP Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
New Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1(f)
Net Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1(j)(4)
Nonvoting Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.10
Notice Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.9(d)
Override Tax Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1(i)(B)
Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1
Partnership Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1(a)
Preferred Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3(d)(1)
Regulatory Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6(b)
Retrievable Tax Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1(i)(B)
RMG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit 2
Shortfall . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1(i)
Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit 1 Note 5
TCI Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit 1 Note 5
TCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.9(a)
The Cablevision Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit 2
</TABLE>
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INTERMEDIA CAPITAL PARTNERS IV, L.P.
AGREEMENT OF LIMITED PARTNERSHIP
THE LIMITED PARTNERSHIP INTERESTS ("INTERESTS") HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"). SUCH INTERESTS
ARE BEING OFFERED AND SOLD UNDER THE EXEMPTION PROVIDED BY SECTION 4(2) OF THE
1933 ACT AND/OR PURSUANT TO RULE 506 OF REGULATION D THEREUNDER.
A PURCHASER OF ANY INTEREST MUST BE PREPARED TO BEAR THE ECONOMIC RISK OF THE
INVESTMENT FOR AN INDEFINITE PERIOD OF TIME BECAUSE THE INTERESTS HAVE NOT BEEN
REGISTERED UNDER THE 1933 ACT AND, THEREFORE, CANNOT BE SOLD UNLESS THEY ARE
SUBSEQUENTLY REGISTERED OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE. THERE
IS NO OBLIGATION OF THE PARTNERSHIP TO REGISTER THE INTERESTS UNDER THE 1933
ACT.
THE AGREEMENT RESTRICTS TRANSFER OF THE INTERESTS. ACCORDINGLY, PURCHASE OF
THE INTERESTS IS ONLY SUITABLE FOR INVESTORS WILLING AND ABLE TO ACCEPT THE
ECONOMIC RISK OF THE INVESTMENT AND LACK OF LIQUIDITY.
* * *
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP (this
"Agreement"), originally entered into and effective as of March 19, 1996 by and
among INTERMEDIA CAPITAL MANAGEMENT IV, L.P., a California limited partnership,
as general partner ("ICM-IV"), GENERAL ELECTRIC CAPITAL CORPORATION, a New York
corporation ("GECC") as the preferred limited partner (the "Preferred Limited
Partner") with respect to, and only with respect to, a portion of its interest
and as a limited partner with respect to the remainder of its interest, all as
set forth on Exhibit 1 hereto, and the limited partners listed on the signature
pages hereto, who together with such other persons or entities who hereafter
shall be admitted as additional or substituted limited partners pursuant to the
terms hereof, all of which shall be listed on Exhibit 1 hereto, collectively
shall be referred to as the "Limited Partners," as amended as of November 27,
1996, is hereby amended and restated in its entirety as of August 5, 1997, by
and among INTERMEDIA CAPITAL MANAGEMENT, LLC, a Delaware limited liability
company, as general partner ("ICM LLC" or the "General Partner"), ICM-IV, as a
Limited Partner, GECC and the other Limited Partners listed on Exhibit 1
hereto. Unless otherwise specifically set forth herein, the term Limited
Partners shall include the Preferred Limited Partner. The General Partner and
the Limited Partners are collectively referred to as the Partners and
individually as a Partner.
W I T N E S S E T H:
WHEREAS, pursuant to that certain Assignment and Assumption Agreement of
Partnership Interests dated as of April 5, 1997, and subject to the conditions
precedent contained therein, ICM-IV assigned a portion of its general partner
interest in the Partnership to ICM LLC;
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<PAGE> 8
WHEREAS, the Partners desire to admit ICM LLC to the Partnership as a general
partner;
WHEREAS, following the admission of ICM LLC to the Partnership, ICM-IV
desires to withdraw as a general partner of the Partnership and to convert its
remaining interest in the Partnership to a limited partner interest, which
limited partner interest shall include ICM-IV's right to participate in the 20%
carried interest specified in Sections 3.1(k)(5)(A) and 3.3(d)(4) of this
Agreement and its right to the Administration Fee specified in Section 4.6(a)
of the this Agreement (the "LP Interest");
WHEREAS, pursuant to that certain Contribution Agreement dated as of August
5, 1997, TCI of Spartanburg, Inc. transferred a $4.8 million limited partner
interest in the Partnership to ICM-IV, as reflected on Exhibit 1 hereto;
WHEREAS, the Partners consented to the preceding actions in that certain
Consent of Partners of InterMedia Capital Partners IV, L.P. dated as of
February 7, 1997; and
WHEREAS, the Partners desire to amend and restate this Agreement to reflect
the preceding actions and other related amendments;
NOW THEREFORE, in consideration of the mutual promises and agreements herein
made and intending to be legally bound, the Partners hereby agree as follows:
ARTICLE 1
General Provisions
1.1 Formation of the Partnership. The Partners hereby admit ICM LLC as a
general partner of the Partnership, acknowledge the withdrawal of ICM-IV as a
general partner of the partnership immediately thereafter and the conversion of
ICM-IV's remaining interest in the Partnership to the LP Interest, and continue
a limited partnership (the "Partnership") pursuant to the California Revised
Limited Partnership Act (the "Act"). The Partnership shall continue without
interruption as a limited partnership pursuant to the Act. The persons and
entities listed as Limited Partners on Exhibit 1 to this Agreement shall
continue as Limited Partners upon execution of this Agreement.
1.2 Name. The name of the Partnership shall be: InterMedia Capital
Partners IV, L.P. The name of the Partnership may be changed by the General
Partner upon compliance with applicable laws and after notice by the General
Partner to the Limited Partners.
1.3 Principal Place of Business. The principal place of business of the
Partnership shall be 235 Montgomery Street, Suite 420, San Francisco,
California 94104. The principal place of business of the Partnership may be
changed by the General Partner after notice to the Limited Partners.
1.4 Agent for Service of Process. The agent for service of process for the
Partnership and his address shall be Robert J. Lewis, 235 Montgomery
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<PAGE> 9
Street, Suite 420, San Francisco, CA 94104. The agent for service of process
of the Partnership may be changed by the General Partner upon notice to the
Limited Partners.
1.5 Business of the Partnership.
(a) The Partnership was organized for and continues to exist for the purpose
of directly or indirectly making equity and debt investments in, including
acting as a general partner and/or a limited partner of InterMedia Partners IV,
L.P., a California limited partnership ("IP-IV") and various partnerships which
operate cable television systems (each an "Investing Partnership"), and
operating cable television systems and to engage in all necessary and
appropriate activities and transactions as the General Partner may deem
necessary, appropriate or advisable in connection therewith, provided, however,
the Partnership will not make any investments, nor maintain any offices outside
of the United States. Prior to January 1, 1996, the Partnership had no
material assets or liabilities and had not engaged in any material business
activities.
(b) Pending the investment of Partnership funds as described in Section
1.5(a), and the distribution of funds as described in Section 3.3, the
Partnership may invest in certificates of deposit and overnight time deposits
in commercial banks with capital and surplus over $500 million, commercial
paper, money market funds, repurchase agreements and U.S. Treasury bills and
other government obligations and any other short-term, investment grade highly
liquid investments.
(c) The Partnership may enter into, deliver and perform all contracts,
agreements and other undertakings and engage in all activities and transactions
that are necessary or appropriate to carry out the foregoing purposes. Without
limiting the foregoing, the Partnership may:
(i) exercise all rights, powers, privileges, and other incidents of
ownership or possession with respect to Partnership property and investments;
(ii) borrow or raise money and secure the payment of any obligations
of the Partnership, IP-IV or an Investing Partnership by mortgage upon, or
pledge or hypothecation of, all or any part of the assets of the Partnership,
IP-IV or an Investing Partnership;
(iii) engage personnel, whether part-time or full-time and do such
other acts as the General Partner may reasonably deem necessary or advisable
in connection with the maintenance and administration of the Partnership,
IP-IV or an Investing Partnership and their investments; and
(iv) engage attorneys, independent accountants, investment bankers,
consultants or such other persons for the Partnership, IP-IV or an Investing
Partnership as the General Partner may deem necessary or advisable.
1.6 Term of the Partnership. The term of the Partnership shall be from the
date the Certificate of Limited Partnership was filed with the
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California Secretary of State until December 31, 2007, unless the Partnership
is earlier dissolved pursuant to Article 7.
ARTICLE 2
Capital Contributions, Withdrawals and Capital Accounts
2.1 Contributions of Capital.
(a) In General. The committed capital contributions of the Partners shall
be contributed in cash, in the respective amounts set forth next to each
Partner's name on Exhibit 1 attached hereto in the manner provided by Section
2.1(f). Notwithstanding the foregoing, committed capital contributions shall
be contributed in the form of property pursuant to the Greenville/Spartanburg
Contribution Agreement and the IPWT Contribution Agreement (both as defined on
Exhibit 1 hereto). The General Partner shall contribute an amount of capital
to the Partnership such that the General Partner's capital contribution will be
at least one one-thousandth of one percent (.001%) of the aggregate capital
contributions of all of the Partners, a portion of which may be contributed in
the form of a note as set forth on Exhibit 1 hereto.
(b) General Partner as Limited Partner. The General Partner shall also be a
Limited Partner to the extent that it purchases an interest as a Limited
Partner or it purchases or becomes a transferee of all of or any part of the
interest of a Limited Partner, and to such extent shall be treated in all
respects as a Limited Partner, and the consent of the Limited Partners to such
a purchase or transfer and admission of the General Partner as a Limited
Partner need not be obtained; provided, however, the General Partner shall not
be entitled to consent as a Limited Partner on those matters set forth in
Section 4.7(b)(iv). The General Partner's capital contributions referred to in
Sections 2.1(a) and 2.1(e) hereof will be made in its capacity as the General
Partner and such capital contribution as the General Partner will not entitle
the General Partner to any rights of a Limited Partner.
(c) Additional Limited Partners. Until the aggregate committed capital
contributions to the Partnership total $335,000,000 (not including the
preferred limited partner interest of the Preferred Limited Partner), and
subject to the condition that each new Limited Partner shall execute a
signature page of this Agreement, which execution shall be deemed to represent
the execution of a counterpart of this Agreement, and certain other agreements
in connection with its subscription, and such Limited Partner meets the
suitability requirements imposed on the original Limited Partners pursuant to
the subscription agreements, the General Partner may admit one or more
additional Limited Partners and may appropriately amend this Agreement to
reflect such admissions, only with the consent of seventy percent (70%) in
interest of the Limited Partners. Admission of a new Limited Partner shall not
be a cause for dissolution of the Partnership. Upon the aggregate committed
capital contributions to the Partnership equaling $335,000,000 (not including
the preferred limited partner interest of the Preferred Limited Partner), the
General Partner may admit any additional Limited Partners to increase the
aggregate committed capital contributions beyond $335,000,000 only with the
consent of one hundred
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percent (100%) in interest of the Limited Partners or accept any additional
commitment to make capital contributions from the Limited Partners only with
the consent of ninety percent (90%) in interest of the Limited Partners;
provided, however, that the General Partner shall offer, on a pro rata basis,
preemptive rights in connection with any additional cash capital contributions
to the existing Limited Partners and any such additional commitments to make
cash capital contributions shall be on terms no more favorable than those
offered to the existing Limited Partners. The Limited Partners will have
fifteen (15) days from the date of the written notice to exercise such
preemptive rights.
(d) Additional Contributions by Limited Partners. Until the aggregate
committed capital contributions to the Partnership total $335,000,000 (not
including the preferred limited partner interest of the Preferred Limited
Partner), the General Partner shall permit one or more Limited Partners to make
additional contributions to the Partnership until July 31, 1997 and may
appropriately amend this Agreement to reflect such additional contributions,
without the consent of any Limited Partner. A Partner which desires to make
such additional contributions during such period shall notify the General
Partner of its desire to do so not later than fifteen (15) days before such
proposed contribution.
(e) Additional Contributions by General Partner. The General Partner shall
from time to time make additional capital contributions to the extent required
to cause its aggregate capital contributions to equal at least one
one-thousandth of one percent (.001%) of the aggregate capital contributions of
all Partners. Any such additional capital contribution required of the General
Partner shall be made within ten (10) days of the capital contribution of the
Limited Partner(s) giving rise to such requirement.
(f) Payment of Capital Contributions. The capital contributions to be
contributed in the form of property pursuant to the Greenville/ Spartanburg
Contribution Agreement or the IPWT Contribution Agreement shall be made at the
time and in the manner set forth in those agreements which in the case of the
Partners contributing assets pursuant to those agreements shall represent their
entire commitment. In no event shall the TCI Entities be required to
contribute more than forty-nine percent (49%) of the total capital
contributions to the Partnership (excluding the capital contributions of the
Preferred Limited Partner with respect to the Preferred Limited Partnership
Interest). Except as otherwise agreed to by the Partnership and any Partner,
the provisions of this Section 2.1(f) shall apply to all committed capital
contributions to be made in cash. Included in the first capital call by the
Partnership, the Partners will pay the portion of their committed capital
contributions necessary to pay the organizational expenses of the Partnership
up to a maximum of $300,000 (in aggregate). The committed capital
contributions of the Limited Partners shall be paid on fifteen (15) business
days written notice in the following manner: (i) as the General Partner
determines is necessary or appropriate for meeting the funding requirements of
the Partnership or to comply with the Partnership's obligations to make capital
contributions to IP-IV or any Investing Partnership, (ii) commencing on January
1, 1996, on the first day of each calendar quarter of each year to the extent
determined necessary by the General Partner for the payment of Partnership
expenses or the reimbursement of the General Partner for Partnership expenses
described in Section 3.2; and (iii) as necessary to pay the Administration Fee
as set
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forth in Section 4.6. The amount to be paid by each Partner in respect of each
such capital call shall be determined by first requiring any additional Partner
admitted to the Partnership pursuant to Section 2.1(c) (and any other Partner
to the extent of any non-pro rata increase in its capital commitment pursuant
to Section 2.1(d)) ("New Partner") to pay an amount such that the proportion of
capital contributions paid by such New Partner in relation to the committed
capital contributions of such New Partner is the same as the proportion of
capital contributions previously made by the other Partners, other than
Partners who contributed property pursuant to the Greenville/Spartanburg
Contribution Agreement and the IPWT Contribution Agreement, in relation to the
committed capital contributions of such other Partners, and then by dividing
each Partner's committed capital contribution by the aggregate committed
capital contributions of all the Partners and multiplying such fraction by the
total remaining amount of capital to be called. In the event a Partner
executes and contributes a promissory note in respect of its capital
commitment, any payment of principal pursuant to such note shall constitute a
funding of its capital contribution. No capital contributions for the
Partnership or for investments in Investing Partnerships will be called by the
General Partner after December 31, 2000. References herein to a Partner's
capital contribution shall mean the amount of cash or the principal amount of
any note contributed by the General Partner or the value of property
contributed as set forth in the Greenville/Spartanburg Contribution Agreement
or the IPWT Contribution Agreement.
(g) General Partner Obligations. The General Partner shall not be
personally obligated to contribute cash or other assets to the Partnership to
make up any reduction in the Capital Accounts of the Limited Partners either
during the term of the Partnership or upon dissolution, subject to the
obligation of the General Partner to return to the Partnership certain
distributions as provided in the Act.
(h) Limited Partner Obligations. Limited Partners shall not be personally
obligated for the debts, liabilities and obligations of the Partnership or of
any other Partner, except that, any other provision of this Agreement to the
contrary notwithstanding, each Limited Partner shall only be obligated to make
its full capital contribution to the Partnership in the amount set forth in
Exhibit 1 hereto to the extent required by this Section 2.1, and each Limited
Partner (and any former Limited Partner) shall be obligated to return to the
Partnership distributions only to the extent provided in section 15666 of the
Act.
(i) Return of Certain Distributions. If upon the liquidation of the
Partnership pursuant to Section 7.3 hereof, the Partners have not received the
full amount described in Sections 3.3(d)(1), 3.3(d)(2) and 3.3(d)(3) hereof
(such deficiency being referred to as the "Shortfall"), then notwithstanding
anything in this Agreement to the contrary, including Section 2.1(g), ICM-IV
shall be obligated to contribute to the Partnership the lesser of:
(A) the amount necessary to provide the Partnership with sufficient
funds to allow the Partnership to make distributions in an amount equal to
the Shortfall; and
(B) an amount equal to the sum of all distributions made to ICM-IV
pursuant to Section 3.3(a) which are attributable to
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allocations of income and gain pursuant to Section 3.1(k)(5)(A) ("Override
Tax Distributions"), but not in excess of the Retrievable Tax Benefit.
For purposes of this Section 2.1(i), the term "Retrievable Tax Benefit" means
an amount equal to the excess, if any, of the Override Tax Distributions over
ICM-IV's net aggregate actual tax liability arising out of allocations of
income and gain pursuant to Section 3.1(k)(5)(A). Such tax liability shall be
computed by taking into account any offsets, allowable for Federal income tax
purposes, against such allocations for (y) allocations of loss and deduction to
ICM-IV pursuant to Section 3.1(j)(4)(A) and (z) any loss or deduction arising
out of any payment to be made under this Section 2.1(i).
2.2 Withdrawals of Capital Accounts. No Partner shall be entitled to
withdraw any amount from its Capital Account, other than as provided in this
Section 2.2.
(a) Withdrawals in General. A Limited Partner may not withdraw from the
Partnership in whole or in part prior to dissolution of the Partnership, except
(i) as required by Section 2.2(b), or (ii) with the unanimous written consent
of all of the Partners. In the event a Limited Partner elects to withdraw with
the consent of the Partners, or upon withdrawal of a Limited Partner pursuant
to Section 2.2(b), the Partnership Interest of such Limited Partner shall be
withdrawn in its entirety and shall be valued pursuant to Section 4.4 as of the
date of withdrawal. Notwithstanding the foregoing, the value of the Preferred
Limited Partnership Interest shall be deemed to be the amount of such Partner's
Capital Contribution plus the Preferred Return, reduced by any distributions
received by the Preferred Limited Partner prior to such valuation. The Capital
Account of such withdrawing Limited Partner shall be paid for in the manner
provided in this Section 2.2(a) as expeditiously as possible, at a time
determined by the General Partner. The General Partner shall not be required
to sell, liquidate, pledge or encumber any Partnership asset or security to
effect such withdrawal. The General Partner shall have sole discretion to make
the payment in respect of the Capital Account of any withdrawing Limited
Partner in cash or, at the option of the General Partner, with a promissory
note bearing interest at a rate per annum equal to the rate announced from time
to time by Bank of America NT&SA as its prime rate. The promissory note will
be payable only after the payment of all third party debt and payment of
preferred return to the Preferred Limited Partner and any payments on such
promissory notes will be paid pari passu with payments due to the other
Partners (excluding the Preferred Limited Partner) with respect to the event
giving rise to such payment to the withdrawing Limited Partner upon the earlier
of (i) final dissolution of the Partnership, (ii) sale of all or substantially
all of the Partnership's assets, or (iii) December 31, 2007. For purposes of
the foregoing, the amount to be paid pari passu shall be determined by treating
the amount that would have been paid to each Partner if no payment were made to
the withdrawing Partner as if it also were represented by a promissory note and
pro rating the amount available for distribution to each Partner and
withdrawing Partner on that basis. Any portion of any payments made to a
withdrawing Limited Partner in kind pursuant to this Section 2.2 shall be made,
based upon the balance in a Partner's Capital Account as of the date of
withdrawal, ratably in proportion to the value that each security or asset then
held by the
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Partnership, including any interest in an Investing Partnership, determined
pursuant to Section 4.4, bears to the value of all assets of the Partnership
determined pursuant to Section 4.4.
(b) Required Withdrawals. The General Partner may terminate the interest of
any Limited Partner in the Partnership, with cause, at the end of any calendar
month upon fifteen (15) days prior written notice. For purposes of this
Agreement, "cause" shall be determined by the General Partner and shall mean
the following: (i) the continued participation of such Limited Partner is
likely, in the sole judgment of the General Partner, to cause the Partnership
or the General Partner to register as an investment company or elect to be a
"business development company" under the Investment Company Act of 1940 (the
"Investment Company Act"), the General Partner or any of its partners to
register as an investment adviser under the Investment Advisers Act of 1940, or
the Partnership or any Partner to violate any law, or (ii) such Limited Partner
fails to make a required capital contribution and the General Partner requires
withdrawal pursuant to Section 8.4(b). Notwithstanding the foregoing,
termination of the Partnership Interest of any Limited Partner as the result of
an Adverse Regulatory Development (as defined in Section 7.6(b)) shall be
treated as set forth in Section 7.6.
(c) Effective Date of Withdrawal. For purposes of this Agreement, the
effective date of a Partner's withdrawal shall mean the last day of the
calendar month in which the General Partner consents to such withdrawal
pursuant to Section 2.2(a) or such Partner's notice period lapses pursuant to
Section 2.2(b).
(d) Effect of Withdrawal. In the event of the withdrawal of any Limited
Partner pursuant to this Section 2.2, the withdrawing Limited Partner shall not
otherwise share in the income, gains and losses of the Partnership from the
valuation date of its Partnership Interest and shall not have any other rights
under this Agreement other than payment to it of its Capital Account as
revalued pursuant to Section 4.5. The interest of a Limited Partner who
withdraws pursuant to this Section 2.2 shall not thereafter be included in
calculating the percentage in interest of the Limited Partners required to take
any action under this Agreement.
(e) Limitations on Withdrawal of Capital Account. The right of any
withdrawn Partner or its legal representatives to have distributed the Capital
Account of such Partner pursuant to this Section 2.2 is subject to the
provision by the General Partner for all Partnership liabilities in accordance
with section 15666 of the Act, and for estimates for contingencies and
expenses. The unused portion of any such estimates shall be distributed after
the General Partner shall have determined that the need therefor shall have
ceased.
(f) Interest on Capital Accounts. No interest or compensation shall be paid
on or with respect to the Capital Account or capital contributions of any of
the Partners, except as otherwise expressly provided herein.
2.3 Capital Accounts. The Partnership shall maintain for each Partner a
separate capital account (a "Capital Account") in accordance with the capital
accounting rules of section 704(b) of the Internal Revenue Code of 1986 (the
"Code"), and the regulations thereunder (the "Income Tax
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Regulations") (including particularly section 1.704-1(b)(2)(iv) of the Income
Tax Regulations).
(a) In general, under such capital accounting rules (but subject to any
contrary requirements of the Code and the Income Tax Regulations), a Partner's
Capital Account shall be (i) increased by the amount of money and the fair
market value (determined in accordance with Section 4.4 or as otherwise
provided in the Greenville/Spartanburg Contribution Agreement or the IPWT
Contribution Agreement) of other property (net of liabilities secured by such
contributed property that the Partnership is considered to take subject to or
assume under section 752 of the Code) contributed by the Partner to the
Partnership and allocations to the Partner of Partnership income and gain (or
items thereof), including income and gains exempt from tax, and (ii) decreased
by the amount of money and the fair market value (determined in accordance with
Section 4.4) of other property distributed (net of liabilities secured by such
distributed property that the Partner is considered to take subject to or
assume under section 752 of the Code) to the Partner by the Partnership and
allocations to the Partner of Partnership loss and deduction (or items
thereof), including Partnership expenditures not deductible in computing its
taxable income and not properly chargeable to Capital Account. For purposes of
making allocations of all items of income, gain, loss and deduction and for
purposes of crediting or charging distributions to Capital Accounts, the
Preferred Limited Partner shall be considered to have a Capital Account
separate and distinct from its Capital Account attributable to its additional
interest as a Limited Partner.
(b) When Partnership property is revalued by the General Partner pursuant to
Section 4.5 or distributed in kind (whether in connection with dissolution and
liquidation of the Partnership or otherwise), the Capital Accounts of the
Partners first shall be adjusted to reflect the manner in which the unrealized
income, gain, loss or deduction inherent in such property (that has not
previously been allocated to Capital Accounts) would be allocated among the
Partners if there were a taxable disposition of such property for its fair
market value (determined in accordance with Section 4.4 and taking into account
section 7701(g) of the Code) and such income, gain, loss or deduction had been
recognized for federal income tax purposes immediately upon such distribution
or the event requiring such revaluation.
(c) Where section 704(c) of the Code applies to Partnership property or when
Partnership property is revalued pursuant to section 1.704-1(b)(2)(iv)(f) of
the Income Tax Regulations, Capital Accounts of the Partners shall be adjusted
in accordance with section 1.704-1(b)(2)(iv)(g) of the Income Tax Regulations
as to allocations to the Partners of depreciation, depletion, amortization and
gain or loss, as computed for book purposes with respect to such property.
(d) The General Partner shall direct the Partnership's accountant to make
all necessary adjustments in each Partner's Capital Account as required by the
rules of section 704(b) of the Code and the regulations thereunder.
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ARTICLE 3
Profits and Losses; Distributions
3.1 Profits and Losses. A Partner's distributive share of the Partnership's
total income, gain, loss, deduction or credit (or items thereof), which total
shall be as shown on the annual federal income tax return prepared by the
Partnership's accountants or as finally determined by the Internal Revenue
Service or the courts, and as modified by the capital accounting rules of
section 704(b) of the Code and the Income Tax Regulations thereunder as
implemented by Section 2.3, as applicable, shall be determined as provided in
this Section 3.1.
(a) Except as otherwise provided in this Section 3.1, items of Partnership
income, gain, loss, deduction and credit shall be allocated among the Partners
in proportion to their respective actual capital contributions (each, a
"Partnership Interest").
(b) Solely for tax purposes, in determining each Partner's allocable share
of the taxable income or loss of the Partnership, depreciation, depletion,
amortization and gain or loss with respect to any contributed property, or with
respect to revalued property where Partnership property is revalued pursuant to
section 1.704-1(b)(2)(iv)(f) of the Income Tax Regulations, shall be allocated
to the Partners under the remedial method as provided in section 1.704-3(d) of
the Income Tax Regulations.
(c) Notwithstanding anything to the contrary in this Section 3.1, if there
is a net decrease in Partnership Minimum Gain or Partner Nonrecourse Debt
Minimum Gain (as such terms are defined in sections 1.704-2(b) and
1.704-2(i)(2), respectively, of the Income Tax Regulations) during a
Partnership taxable year, then each Partner shall be allocated items of
Partnership income and gain for such year (and, if necessary, for subsequent
years), to the extent required by, and in the manner provided in, section
1.704-2 of the Income Tax Regulations. This provision is intended to be a
"minimum gain chargeback" within the meaning of sections 1.704-2(f) and
1.704-2(i)(4) of the Income Tax Regulations and shall be interpreted and
implemented as therein provided.
(d) Subject to the provisions of Section 3.1(c), but otherwise
notwithstanding anything to the contrary in this Section 3.1, if any Partner's
Capital Account has a deficit balance in excess of such Partner's obligation to
restore its Capital Account balance, computed in accordance with the rules of
section 1.704-1(b)(2)(ii)(d) of the Income Tax Regulations (including such
Partner's share of Partnership Minimum Gain and Partner Nonrecourse Debt
Minimum Gain as provided in sections 1.704-2(g) and 1.704-2(i)(5) of the Income
Tax Regulations), then sufficient amounts of income and gain (consisting of a
pro rata portion of each item of Partnership income, including gross income,
and gain for such year) shall be allocated to such Partner in an amount and
manner sufficient to eliminate such deficit as quickly as possible. This
provision is intended to be a "qualified income offset" within the meaning of
section 1.704-1(b)(2)(ii)(d) of the Income Tax Regulations and shall be
interpreted and implemented as therein provided.
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(e) Subject to the provisions of section 704(c) of the Code, Sections 3.1(b)
through 3.1(d) and Sections 3.1(k)(1) and 3.1(l)(1) hereof, gain recognized (or
deemed recognized under the provisions hereof) upon the sale or other
disposition of Partnership property, which is subject to depreciation
recapture, shall be allocated to the Partner who was entitled to deduct such
depreciation.
(f) Except as otherwise provided in Section 3.1(j), if and to the extent any
Partner is deemed to recognize income as a result of any loans described herein
pursuant to the rules of sections 1272, 1273, 1274, 1274A, 7872, 482 or 483 of
the Code, or any similar provision now or hereafter in effect, any
corresponding resulting deduction of the Partnership shall be allocated to the
Partner who is charged with the income. Subject to the provisions of section
704(c) of the Code and Sections 3.1(b) through 3.1(d) hereof, if and to the
extent the Partnership is deemed to recognize income as a result of any loans
described herein pursuant to the rules of sections 1272, 1273, 1274, 1274A,
7872, 482 or 483 of the Code, or any similar provision now or hereafter in
effect, such income shall be allocated to the Partner who is entitled to any
corresponding resulting deduction.
(g) Except as otherwise required by law, tax credits shall be allocated
among the Partners pro rata in accordance with the manner in which Partnership
profits are allocated to the Partners under this Section 3.1, as of the time
the credit property is placed in service or if no property is involved, as of
the time the credit is earned. Recapture of any tax credit required by the
Code shall be allocated to the Partners in the same proportion in which such
tax credit was allocated.
(h) Except as provided in Sections 3.1(f) and 3.1(g) or as otherwise
required by law, if the Partnership Interests of the Partners are changed
hereunder during any taxable year, all items to be allocated to the Partners
for such entire taxable year shall be prorated on the basis of the portion of
such taxable year which precedes each such change and the portion of such
taxable year on and after each such change according to the number of days in
each such portion, and the items so allocated for each such portion shall be
allocated to the Partners in the manner in which such items are allocated as
provided in this Section 3.1 during each such portion of the taxable year in
question.
(i) Any special allocation of income or gain pursuant to Section 3.1(d)
shall be taken into account in computing subsequent allocations of income and
gain pursuant to this Section 3.1 so that the net amount of all such
allocations to each Partner shall, to the extent possible, be equal to the net
amount that would have been allocated to each such Partner pursuant to the
provisions of this Section 3.1 if such special allocations of income or gain
under Section 3.1(d) had not occurred.
(j) (1) Items of deduction and loss attributable to recourse liabilities of
the Partnership (within the meaning of section 1.752-1(a)(1) of the Income
Tax Regulations but excluding Partner nonrecourse debt within the meaning of
section 1.704-2(b)(4) of the Income Tax Regulations) shall be allocated among
the Partners in accordance with the ratio in which the Partners
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share the economic risk of loss (within the meaning of section 1.752-2 of the
Income Tax Regulations) for such liabilities.
(2) Items of deduction and loss attributable to Partner nonrecourse
debt within the meaning of section 1.704-2(b)(4) of the Income Tax
Regulations shall be allocated to the Partners bearing the economic risk of
loss with respect to such debt in accordance with section 1.704-2(i) of the
Income Tax Regulations.
(3) Items of deduction and loss attributable to Partnership
nonrecourse liabilities within the meaning of section 1.704-2(b)(1) of the
Income Tax Regulations shall be allocated among the Partners proportionately
in accordance with their Partnership Interests.
(4) All other items of deduction or loss ("Net Loss") shall be
allocated (A) First, if allocations of items of income or gain have been made
to any Partner under Section 3.1(k)(5)(A), then to such Partner in the amount
of, and proportionate to, the amount of such items of income or gain; (B)
Second, among any New Partners (as defined in Section 2.1(f)), an amount of
Net Loss sufficient to reduce its Capital Account balance to what it would
have been had all Partners been admitted to the Partnership as of the date
hereof, with losses so allocated to each New Partner in the proportion which
such New Partner's capital contribution bears to the capital contributions of
all New Partners; and (C) Third, among (i) the Partners (other than the
Preferred Limited Partner), proportionately in accordance with their
Partnership Interests, except that Net Loss shall not be allocated to any
Partner to the extent it would create a deficit balance in excess of such
Partner's obligation to restore its capital account balance, computed in
accordance with the rules of section 1.704-1(b)(2)(ii)(d) of the Income Tax
Regulations and including such Partner's share of Partnership Minimum Gain and
Partner Nonrecourse Debt Minimum Gain as provided in sections 1.704-2(g) and
1.704-2(i)(5) of the Income Tax Regulations and (ii) thereafter to the
Preferred Limited Partner to the extent of its Capital Account balance until
the balance of its Capital Account is equal to zero (but never reduced below
zero). Any Net Loss which cannot be allocated to a Partner because of the
limitation set forth in the previous sentence shall be allocated first to the
other Partners to the extent such other Partners would not be subject to such
limitation and second any remaining amount to the Partners in the manner
required by the Code and the Income Tax Regulations.
(k) Subject to the provisions of Sections 3.1(c) through 3.1(j), items of
income and gain shall be allocated to the Partners in the following priority:
(1) First, to the Preferred Limited Partner, (i) first, in an amount
equal to the excess of the amount of losses previously allocated to it
pursuant to Section 3.1(j)(4) over
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the amount of income previously allocated to it pursuant to this clause (i)
of Section 3.1(k)(1) and (ii) thereafter in the amount of any distributions
of the Preferred Return made to it pursuant to Section 3.3(d)(1)(i).
(2) Second, to those Partners who have had items of loss or
deductions allocated to them under section 3.1(j)(1), in the amount of, and
proportionate to, the amount of such items of loss or deduction (provided,
however, that no such allocation shall be made with respect to previously
allocated items of loss or deduction to the extent of any income and gains
previously deemed recognized under Section 2.3(b)).
(3) Third, if allocations of Net Loss have been made to the Partners
under Section 3.1(j)(4)(C)(i), then in the amount of, and proportionate to,
the amount of such Net Loss (provided, however, that no such allocation shall
be made with respect to previously allocated Net Loss to the extent of any
income and gains previously deemed recognized under Section 2.3(b)).
(4) Fourth, to the Partners (other than the Preferred Limited
Partner), in amounts sufficient, after taking into account all amounts
previously distributed to such Partner and including such Partner's actual
capital contributions, to yield a pre-tax internal rate of return of fifteen
percent (15%), on such Partner's actual capital contributions and in
proportion to the amount required for each Partner.
(5) Fifth, (A) twenty percent (20%) of the balance to ICM-IV; and
(B) eighty percent (80%) of the balance among the Partners (other than the
Preferred Limited Partner) in proportion to their relative Partnership
Interests;
(l) Notwithstanding Section 3.1(k), but subject to the provisions of Section
3.1(c) through 3.1(j), gain which is recognized (or deemed to be recognized)
upon the sale, exchange or other disposition of all or substantially all of the
assets of the Partnership or upon the dissolution of the Partnership shall be
allocated in the following order:
(1) First, to the Preferred Limited Partner, in an amount sufficient
to bring its Capital Account balance (computed in the same manner as provided
parenthetically in subparagraph 2 below) to an amount equal to the amount of
its accrued and unpaid Preferred Return and its unrepaid capital
contribution.
(2) Second, to the Partners (other than the Preferred Limited
Partner) having deficit balances in their Capital Accounts (computed after
giving effect to all contributions, distributions, allocations and other
Capital Account adjustments for all taxable years, including the year during
which such liquidation or dissolution occurs and including each Partner's
share of Partnership Minimum Gain and Partner Nonrecourse Debt Minimum Gain
as provided in sections 1.704-2(g) and 1.704-2(i)(5) of the Income Tax
Regulations), to the extent of, and in proportion to, those deficits; and
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(3) Thereafter, so as to bring the relationship of the credit
balance in each Partner's (other than the Preferred Limited Partner) Capital
Account (computed in the same manner as provided parenthetically in the
preceding subparagraph (2)), as nearly as possible, the amount such Partner
would receive in a distribution, if the distribution were made in accordance
with the provisions of Section 3.3(d).
(m) Unless otherwise specified by the instruments of transfer, any Partner
transferring part of its interest pursuant to this Agreement shall be deemed to
be transferring that portion of its share in future allocations of the
Partnership attributable to the portion of its total Capital Account
transferred by it.
(n) All matters not expressly provided for by the terms of this Agreement
concerning the valuation of assets of the Partnership, the allocation of
profits, gains, deductions, losses and credits among the Partners, including
taxes thereon, and accounting procedures shall be reasonably determined by the
General Partner, whose determination shall be final and conclusive as to all of
the Partners, provided that such action does not materially decrease the amount
or postpone the timing of any distributions, including distributions upon
liquidation, that any Partner would otherwise be entitled to receive pursuant
to this Agreement.
(o) Any financing or refinancing of TCI Debt (as defined in section 2.3(b)
of the Greenville/Spartanburg Contribution Agreement) shall be a "non-recourse"
liability of the Partnership as such term is used in Section 1.752-1(a)(ii) of
the Income Tax Regulations.
3.2 Partnership Expenses. To the extent not paid by IP-IV or an Investing
Partnership, the Partnership shall pay (or reimburse the General Partner or
ICM-IV for) all expenses relating to the Partnership's business, investments or
reports not required to be borne by the General Partner or ICM-IV pursuant to
Section 4.6(b), including, without limitation, the following expenses:
organization and offering expenses, placement fees, interest, legal,
accounting, consulting and investment banking fees and expenses of the
Partnership in connection with its investments, preparation of federal and
state tax returns, cost of Partnership meetings (if any), all costs of
acquisition and disposition of assets, securities or investments (including
legal, overhead expenses, accounting, banking and advisory fees, expenses and
commissions), all costs of research, market and statistical information which
are paid to unrelated third parties in connection with a potential transaction,
directors and advisers fees paid to unrelated third parties, fees and expenses
incurred in connection with investigation, prosecution, or defense of any
claims by or against the Partnership, all costs of insurance and any
extraordinary or other expenses which the General Partner reasonably determines
should properly be considered related to the investment of the Partnership's
assets or the operations of the Partnership or its assets or investments.
3.3 Distributions.
(a) Subject to Section 3.3(e), prior to dissolution of the Partnership, the
General Partner shall, to the extent of available cash, distribute in cash, no
later than ninety (90) days after the close of each fiscal year,
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the excess, if any, of (i) forty percent (40%) of an amount equal to the
excess, if any, of the cumulative items of income and gain over the cumulative
items of deduction, loss and credit (grossed up to a deduction equivalent at a
forty percent (40%) tax rate) of the Partnership as shown on the federal income
tax returns of the Partnership for all periods over (ii) the sum of amounts
previously distributed pursuant to Section 3.3(a), 3.3(b) or 3.3(c), provided
that the General Partner shall make such distributions on a quarterly basis as
soon as possible to address any Partner's quarterly payments of estimated tax
if such early distribution is feasible in terms of available cash and accurate
anticipation of the fiscal year's net tax position. The General Partner, in
its reasonable discretion, may adjust the rate of distribution provided in this
Section 3.3(a) to reflect any changes made to the ordinary income and capital
gains tax rates of the Code which may have the effect of requiring the Partners
to pay more or less taxes on ordinary income or capital gains generated by
Partnership activities. Distributions pursuant to this Section 3.3(a) shall be
made to the Partners ratably in the proportions in which the net recognized
income and gains (but not income and gains deemed recognized under Section
2.3(b)) for such fiscal periods have been allocated to them for federal income
tax purposes pursuant to Section 3.1. For purposes of this Section 3.3(a), in
the case of property contributed to the capital of the Partnership, items of
income, gain, deduction and loss shall be computed as if the tax basis of such
property were equal to its fair market value at the time of such contribution
as determined in the Greenville/Spartanburg Contribution Agreement or the IPWT
Contribution Agreement, or as otherwise provided herein.
(b) Subject to Sections 3.3(a) and 3.3(e), prior to dissolution of the
Partnership, the General Partner shall distribute the net proceeds from the
sale or other disposition of any investment, after payment of all indebtedness
with respect thereto and less reasonable estimates for the Partnership's
expenses, liabilities, contingencies and working capital requirements, no later
than ninety (90) days after the close of such sale.
(c) Subject to the mandatory distribution provisions set forth in Sections
3.3(a) and 3.3(b) and to Section 3.3(e), prior to dissolution of the
Partnership, the General Partner shall distribute to the Partners no less
frequently than on a quarterly basis cash received by the Partnership from
operations, any transaction not described in Section 3.3(b), and any dividends,
interest or other cash distributions from any corporation or other entity in
which the Partnership has invested and which is not necessary in the reasonable
judgment of the General Partner for the payment of Partnership expenses or debt
or the maintenance of reasonable reserves for the Partnership's expenses,
liabilities, contingencies and working capital requirements. With the consent
of seventy percent (70%) in interest of the Limited Partners, and with the
consent of the Preferred Limited Partner with respect to distributions to such
Partner, distributions may be made in assets of the Partnership other than
those described in the preceding sentence.
(d) Distributions pursuant to Sections 3.3(b) and 3.3(c) shall be made as
follows:
(1) First, to the Preferred Limited Partner (i) in payment of its
accrued Preferred Return until it has received
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the full amount thereof, and (ii) then in payment of its unrepaid capital
contribution. For purposes of this Agreement, the "Preferred Return" shall
be an amount equal to eleven and three quarters percent (11.75%), per annum,
compounded semi-annually, multiplied by its unrepaid capital contributions;
for purposes of calculating Preferred Return for a subsequent period, any
accrued and unpaid Preferred Return shall be added to the principal amount of
the unrepaid capital contribution; and
(2) Second, to those Partners (other than the Preferred Limited
Partner) that have not received distributions pursuant to this Section 3.3
equal to their actual capital contributions, in proportion to their relative
actual capital contributions until the Partners (other than the Preferred
Limited Partner) have received distributions pursuant to this Section 3.3
equal to their actual capital contributions; and
(3) Third, to those Partners (other than the Preferred Limited
Partner) that have not received distributions pursuant to this Section 3.3 of
amounts sufficient to yield a pre-tax internal rate of return of fifteen
percent (15%) on their actual capital contributions, until such time that
they have each received distributions pursuant to this Section 3.3 of amounts
sufficient to yield a pre-tax internal rate of return of fifteen percent
(15%) on their actual capital contributions and in proportion to the amount
required for each such Partner; and
(4) Fourth, twenty percent (20%) of the balance to ICM-IV and eighty
percent (80%) of the balance to the Partners (other than the Preferred
Limited Partner) in proportion to their relative Partnership Interests.
All distributions made pursuant to this Section 3.3 (other than pursuant to
Section 3.3(d)(1)) shall be treated as a return of Partners' capital
contributions until their respective actual capital contributions are returned
in full. Except as otherwise provided herein, no Partner shall have a priority
over any other Partner as to returns of capital contributions or as to
compensation as a Partner by way of income.
(e) Any other provision of this Agreement to the contrary notwithstanding,
no distribution shall be made which would render the Partnership insolvent or
which is prohibited by the terms of any indebtedness of the Partnership, IP-IV
or an Investing Partnership, provided, however, that the General Partner shall
use its reasonable best efforts to obtain the right to make tax distributions
pursuant to Section 3.3(a) above under the terms of any such indebtedness.
ARTICLE 4
Management of Partnership
4.1 Management Generally. Except as otherwise provided herein, the business
of the Partnership shall be conducted and managed exclusively by
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the General Partner and administered by ICM-IV under the supervision of the
General Partner. The General Partner will not be obligated to do or perform
any act in connection with the business of the Partnership not expressly set
forth in this Agreement. The General Partner (including Robert J. Lewis as
chief executive officer of the managing member of the General Partner) shall
devote such time, effort and skill to the business and affairs of the
Partnership, IP-IV and any Investing Partnerships and their management as may
be reasonable and necessary or appropriate for the welfare and success of the
Partnership, IP-IV and the Investing Partnerships. The General Partner shall
have the rights and powers and be subject to all the restrictions and
liabilities of a partner in a partnership without limited partners.
4.2 Specific Authority of the General Partner. Except as otherwise provided
in this Agreement, the General Partner shall have full power and authority to
do all things and to perform all acts that it reasonably deems necessary or
advisable to conduct the business affairs of the Partnership, IP-IV and the
Investing Partnerships, or incidental thereto, without the consent of any
Limited Partner, including, without limitation, full power and authority to
take any of the following actions, each of which is hereby expressly authorized
by the parties hereto:
(a) Enter into contracts and perform the obligations of the Partnership
undertaken in such contracts, including, without limitation, any contract
entered into with the General Partner or a Limited Partner pursuant to Section
6.2;
(b) Make all decisions with respect to the investigation, selection,
negotiation, structure, acquisition, operation and disposition of the assets of
the Partnership, IP-IV or any Investing Partnership; and employ such agents,
consultants, advisers, directors, attorneys, accountants, investment bankers
and other personnel as may be necessary or appropriate for the business of the
Partnership, IP-IV or the Investing Partnerships on such terms and conditions
as the General Partner shall determine are reasonable; provided, however, that
concurrent with the formation of a new Investing Partnership or any partnership
which provides financing to any Investing Partnership, the General Partner will
obtain an opinion of counsel, reasonably satisfactory to the Advisory
Committee, that such Investing Partnership is taxable as a partnership.
(c) Open, maintain and close bank accounts and draw checks and other orders
for the payment of money;
(d) Collect accounts receivable, income and other payments due to the
Partnership, IP-IV or any Investing Partnership;
(e) Keep the books and records of the Partnership and hire independent
certified public accountants;
(f) Pay accounts payable and other expenses of the Partnership;
(g) Transfer, hypothecate, compromise or release any Partnership claim;
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(h) Administer the financial affairs of the Partnership, IP-IV and any
Investing Partnership, make tax and accounting elections, including an election
or elections under section 754 of the Code (which election shall be made upon
the request of any Limited Partner), file all required tax returns relating to
the Partnership, pay the liabilities of the Partnership and distribute the
profits of the Partnership to the Partners;
(i) Borrow money on behalf of the Partnership, IP-IV or any Investing
Partnership and make, issue, accept, endorse and execute promissory notes,
drafts, bills of exchange, guarantees, and other instruments and evidences of
indebtedness in the name of the Partnership, IP-IV or any Investing
Partnership, including, without limitation, in connection with and as part of
purchasing assets and securities for the Partnership, IP-IV or any Investing
Partnership and mortgage, pledge, assign or grant security interests in all or
any part of the assets then owned or thereafter acquired by the Partnership,
IP-IV or any Investing Partnership in connection therewith;
(j) Cause the Partnership, IP-IV and any Investing Partnership to purchase
and maintain any insurance, in amounts and on terms customary in the industry,
covering the potential liabilities of the Partnership, the General Partner and
its members, partners, employees and agents, and the officers, directors and
employees of the members of the General Partner, as well as the potential
liabilities of any person serving at the request of the Partnership, IP-IV or
any Investing Partnership as a director, officer, employee, agent, partner,
consultant or adviser of any corporation or other entity in which the
Partnership, IP-IV or any Investing Partnership has an investment; provided,
however, the General Partner shall cause the Partnership to purchase insurance
for the liabilities of directors and officers to the extent such insurance is
available on commercially reasonable terms;
(k) Commence or defend litigation that pertains to the Partnership, IP-IV or
any Investing Partnership or any assets of the Partnership, IP-IV or any
Investing Partnership and investigate potential claims;
(l) Execute and file fictitious business name statements and similar
documents;
(m) Admit additional Limited Partners and permit additional capital
contributions as provided in Sections 2.1(c) and 2.1(d) (and appropriately
amend this Agreement to reflect such admissions and additional capital
contributions) without the consent of any Limited Partner except as provided in
Section 2.1(c) and admit an assignee of a Limited Partner's interest to be a
substituted Limited Partner in the Partnership (and appropriately amend this
Agreement and the Partnership records to reflect such assignment), without the
consent of any Limited Partner;
(n) Terminate the Partnership pursuant to Section 7.2(vi), (vii) or (viii);
and
(o) Execute and deliver all documents and instruments necessary or advisable
to carry out the foregoing.
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4.3 Reports. The General Partner will distribute annual audited financial
statements of the Partnership, prepared by a "big six" accounting firm, to the
Limited Partners within ninety (90) days after the end of each Partnership
fiscal year. The General Partner will distribute unaudited quarterly progress
reports on the Partnership's investment activities to the Limited Partners
within forty-five (45) days of the end of the first three fiscal quarters. The
General Partner will distribute monthly income statements of the Partnership to
the Limited Partners as soon as practicable after such statements are prepared,
but in no event more than twenty-five (25) days after the end of such month.
The General Partner will distribute any default notices with respect to the
debt of the Partnership, IP-IV or any Investing Partnership to the Limited
Partners within five (5) days of the receipt thereof from a lender or the
delivery thereof by the Partnership, IP-IV or any Investing Partnership to a
lender.
4.4 Valuation of Assets.
(a) The General Partner shall value the assets of the Partnership whenever
the General Partner may, in its sole discretion, deem appropriate, and whenever
else required by this Agreement or under the Code, and on any date provided for
in this Agreement on which valuation is required due to the withdrawal of a
Limited Partner pursuant to Section 2.2 or Section 7.6, and shall within ninety
(90) days of each such date furnish to each Limited Partner a statement showing
the value of each system and the net worth of the Partnership. If the
Partnership is dissolved and the assets are not sold, the General Partner shall
value the assets of the Partnership as of the date of dissolution and shall as
promptly as practicable thereafter furnish the Limited Partners with the
statement showing the value of each system and the net worth of the
Partnership. The value of any system of the Partnership determined by the
General Partner pursuant to this Section 4.4(a) shall be conclusive and binding
on all of the Partners and all parties claiming through or under them except as
provided in Section 4.4(c).
(b) In the event of the withdrawal of a Limited Partner from the Partnership
pursuant to Section 2.2 or Section 7.6, the General Partner shall within a
reasonable period of time notify the Limited Partners in writing of the
valuation of the total amount of the assets of the Partnership attributable to
the withdrawing Limited Partner.
(c) If (i) any of the Limited Partners object in writing to the valuation of
the systems and/or net worth of the Partnership made pursuant to Section 4.4(a)
by the General Partner or (ii) the withdrawing Limited Partner objects in
writing to the valuation of the systems and/or net worth of the Partnership
made pursuant to Section 4.4(b) by the General Partner, in either case, within
thirty (30) days after the General Partner has furnished the Limited Partners
with the statement provided by Section 4.4(a) or 4.4(b) as of such date, the
General Partner shall give notice to all the Limited Partners of such objection
and the General Partner shall attempt to determine an alternative value for the
systems and net worth of the Partnership (with respect to a valuation pursuant
to Section 4.4(a)) or the assets of the Partnership attributable to the
withdrawing Partner (with respect to a valuation pursuant to Section 4.4(b)).
If the General Partner and (i) seventy percent (70%) in interest of the Limited
Partners (with respect to a valuation pursuant to 4.4(a)) or (ii) the
withdrawing Limited Partner (with respect to a valuation pursuant to Section
4.4(b)) are unable to
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determine an alternative value for the systems and/or net worth of the
Partnership within sixty (60) days after such objections, the matter in dispute
shall be submitted to three appraisers of which one shall be chosen by the
General Partner, one by (x) seventy percent (70%) in interest of the Limited
Partners (with respect to a valuation pursuant to Section 4.4(a)) or (y) the
withdrawing Limited Partner (with respect to a valuation pursuant to Section
4.4(b)) and the third by means of the written agreement of the two appraisers
selected by such Partners, provided that such third individual is not
associated with any of the Partners. Each appraiser appointed in accordance
with this paragraph shall complete its appraisal within sixty (60) days of its
appointment. The two appraisals closest to one another shall be averaged and
such valuation shall be final and binding on the Partners. If performed in
connection with Section 4.4(a), the Partnership shall bear all of the costs and
expenses of such appraisal. The Partnership and the withdrawing Limited
Partner shall each bear one-half (1/2) of the costs and expenses of such
appraisal if performed in connection with Section 4.4(b).
4.5 Revaluation of Partnership Assets. The General Partner shall revalue
Partnership property to its fair market value (determined as provided in
Section 4.4) as of the date when any additional or existing Partner makes a
non-pro rata contribution of money or property to the Partnership in exchange
for an interest in the Partnership or when the Partnership distributes money or
property to a withdrawing or continuing Partner in exchange for all or part of
its interest in the Partnership.
4.6 Administration Fee and Expenses.
(a) Administration Fee. The Partnership will pay to ICM-IV in cash during
the period the Partnership is in existence, as full payment for administrative
services rendered to the Partnership, an annual administration fee (the
"Administration Fee") equal to one percent (1%) per annum of the total capital
contributions that have been funded by Partners to the Partnership (other than
with respect to the preferred limited partner interest of the Preferred Limited
Partner) determined as of the beginning of each calendar quarter in each fiscal
year of the Partnership; provided, however, if the acquisition of a cable
system by the Partnership, IP-IV or an Investing Partnership is made with debt
financing of more than two-thirds of the purchase price of such cable system,
capital contributions of one-third of such purchase price shall be deemed to
have been made and the Administration Fee shall be paid on such deemed
contributions. At such time as any such debt financing is replaced with actual
capital contributions of the Partners, the Administration Fee shall be based on
such actual capital contributions rather than a deemed contribution for such
amount. Notwithstanding the foregoing, in no event shall an Administration Fee
be payable on any amounts in excess of the total capital commitments to the
Partnership. Except with respect to acquisitions of cable systems with debt
financing as set forth above, ICM-IV agrees that it will not receive an
administration fee from the Investing Partnerships of the Partnership greater
than one percent (1%) of the capital contributions to the Investing
Partnerships and the Partnership. The Administration Fee for the first year on
any capital contribution shall be paid in advance upon payment of such capital
contribution and shall begin to accrue from the closing of the first cable
television system purchased by the Partnership. The Administration Fee for all
subsequent periods shall be paid quarterly, in advance, one-
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fourth of one percent (.25%) per quarter, on the first business day of each
calendar quarter, beginning with the first calendar quarter that begins after
the first anniversary of the payment of such capital contribution. Any
Administration Fee due for the period from the expiration of such first year
and the next scheduled payment of the Administration Fee shall be paid at such
next payment date. The Administration Fee shall be offset, on a cumulative
basis, by any administration fee received by ICM-IV or any affiliate of ICM-IV
from IP-IV or any Investing Partnership. The Administration Fee for the
Partnership's last annual fiscal year, if less than a full year, shall be
prorated based upon the number of days in such period.
(b) General Partner Expenses. The General Partner and ICM-IV will bear and
be charged with the following expenses: salaries and other expenses (including
bonuses and health, welfare, retirement and other benefits) and overhead
expenses (including rents, travel and costs) of the General Partner, ICM-IV,
and the chief operating officer and the directors of development, finance and
accounting of ICM-IV and their related staffs.
4.7 Rights of the Limited Partners.
(a) No Control. The Limited Partners shall not take part in the control,
management, direction or operation of the business of the Partnership, nor,
except as specified in Section 4.7(b) and Section 4.9, have the right, power or
authority to be consulted with respect to investment decisions or the other
affairs of the Partnership nor have the power to sign documents for or
otherwise bind the Partnership and shall have no right to consent on any matter
except those expressly set forth in this Agreement or otherwise specified in
Section 4.7(b) and Section 4.9.
(b) Consents. The Limited Partners shall have a right to consent only with
respect to those matters expressly set forth in this Agreement and the matters
listed below, which actions may be taken only with the written consent of the
General Partner (except with respect to item (iv) which action may be taken
without the consent of the General Partner and except to the extent provided in
Section 4.9) and the affirmative consent of the percent in interest of the
Limited Partners so indicated. The Preferred Limited Partner shall not be
entitled to consent, initiate or cause any sale of the Partnership's cable
systems or otherwise vote on or take action with respect to any matters in this
Agreement, including without limitation Section 4.9 hereof, unless required by
law and the preferred limited partnership interest of the Preferred Limited
Partner shall not be included in either the numerator or the denominator of any
computation of the required percentage in interest of the Limited Partners
hereunder for all such purposes (except where the consent of the Preferred
Limited Partner is required); provided, that the Preferred Limited Partner
shall be entitled to consent on any matter which requires the unanimous consent
of the Limited Partners and provided further that the Preferred Limited
Partner's consent shall be required for any settlement with a tax authority
which would affect the income, gain, loss, deductions or credits allocated to
it. For any matters on which the Preferred Limited Partner is not entitled to
consent, the required consent shall be the required percent of interest of the
Limited Partners other than the Preferred Limited Partner Interest of the
Preferred Limited Partner. In the event one Limited Partner holds seventy
percent (70%) of the interests of the Limited Partners, all references in this
Agreement to seventy percent (70%) shall be changed to seventy-five
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percent (75%). For purposes of this Agreement a Limited Partner's interest in
the Partnership shall be determined on the basis of its actual capital
contributions. The Limited Partners shall be entitled to consent on the
following matters:
(i) The amendment of this Agreement pursuant to Section 9.3 hereof
upon the affirmative consent of seventy percent (70%) in interest of the
Limited Partners; provided, however, that this Agreement may not be amended
without the approval of the Partner being affected if the amendment would
change the allocation to any Partner of any income or loss or distribution of
cash or property from that which is provided or contemplated herein (other
than as a result of any dilution in their Partnership Interests resulting
from the admission of any new Limited Partners as contemplated by Section
2.1(c) or additional contributions by Partners pursuant to Section 2.1(d) or
2.1(e) hereof, as Section 2.1(c), Section 2.1(d) or 2.1(e) may be amended
from time to time);
(ii) The amendment of the allocations and distributions to the
Limited Partners other than as permitted by Section 3.1 upon the affirmative
consent of each Partner adversely affected;
(iii) The admission of a new general partner where there is an
existing General Partner upon the affirmative consent of seventy percent
(70%) in interest of the Limited Partners;
(iv) The approval of a transaction in which the General Partner or
any of its affiliates has an actual or potential conflict of interest with
the Limited Partners or the Partnership and which is not permitted by Section
6.1 or 6.2 or otherwise expressly permitted by the terms of this Agreement,
upon the affirmative consent of seventy percent (70%) in interest of the
disinterested Limited Partners; provided, however, the transactions set forth
on Exhibit 2 hereto may be consummated by the Partnership, IP-IV or any
Investing Partnership without any further consent of the Limited Partners;
(v) The continuation of the Partnership to effect an orderly
dissolution of the Partnership in accordance with Article 7 upon the
affirmative consent of seventy percent (70%) in interest of the Limited
Partners;
(vi) The agreement to enter into any Investing Partnership or make
any investments in excess of $15,000,000 upon the affirmative consent of
seventy percent (70%) in interest of the Limited Partners; provided, however,
each of the acquisitions set forth on Exhibit 2 hereto may be consummated by
the Partnership, IP-IV or any Investing Partnership without any further
consent of the Limited Partners;
(vii) The merger of or consolidation of the Partnership with any
other entity upon the affirmative consent of each Partner;
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(viii) The taking of any act that would make it impossible to carry
on the business of the Partnership except upon the dissolution of the
Partnership in accordance with this Agreement upon the affirmative consent of
each Partner;
(ix) Confessing a judgment against the Partnership, IP-IV or any
Investing Partnership in excess of one hundred fifty thousand dollars
($150,000) or settling a judgment against the Partnership, IP-IV or any
Investing Partnership in excess of three hundred thousand dollars ($300,000)
upon the affirmative consent of each Partner;
(x) Using any funds or assets of the Partnership other than for the
benefit of the Partnership upon the affirmative consent of each Partner;
(xi) Taking any action that would subject the Limited Partners to
personal liability as a general partner in any jurisdiction upon the
affirmative consent of each Partner;
(xii) The making of, execution of, or delivery of any general
assignment for the benefit of the Partnership's creditors upon the
affirmative consent of each Partner;
(xiii) Any matter in the partnership agreement of IP-IV or any
Investing Partnership that requires the consent of the Limited Partners or of
the limited partner or a general partner other than the managing general
partner of IP-IV or an Investing Partnership; provided, however, that the
consent required under this clause (xiii) shall require the approval of the
applicable percentage of Limited Partners that would have been required if
such consent were required under this Agreement or if no percentage is
specified hereunder, seventy percent (70%); and provided further, that the
amount or timing of any distributions to the Partnership from any Investing
Partnership or IP-IV may not be changed in a manner inconsistent with the
amount or timing of distributions under this Agreement without the unanimous
consent of the Limited Partners and the General Partner;
(xiv) The approval of a transaction with Tele-Communications, Inc.
or any of its affiliates in an amount greater than five hundred thousand
dollars ($500,000) or transactions less than five hundred thousand dollars
($500,000), which exceed an aggregate of two million dollars ($2,000,000), in
any twelve (12) month period, upon the affirmative consent of a majority in
interest of the Limited Partners (other than TCI or any of its affiliates);
provided, however, that purchases of programming and equipment on no less
favorable to the Partnership than arms'-length terms and in the ordinary
course of business shall not require any approval by the Limited Partners;
and provided further, that the transactions set forth on Exhibit 2 hereto may
be consummated by the Partnership, IP-IV or any Investing Partnership without
any further consent of the Limited Partners;
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(xv) The approval of any waiver of rights of the Partnership under
the IPWT Contribution Agreement if such waiver would result in the
Partnership forgoing rights valued in excess of five percent (5%) of the
total consideration paid by the Partnership for the contribution of
partnership interests and debt transferred under such agreement; and
(xvi) The designation of management personnel by the managing
general partner of ICM-IV for allocation of the "IRR Bonus" provided for in
the Incentive Bonus Program for management employees of the general partner
of ICM-IV upon the affirmative consent of seventy percent (70%) in interest
of the Limited Partners, which consent shall not unreasonably be withheld, in
the event that the Limited Partners have not received a fifteen percent (15%)
cumulative internal rate or return on their investment upon termination of
the Partnership (calculated in accordance with Section 3.3(d)(3)); provided,
however, that if TCI or an affiliate of TCI votes against such designation
and a majority in interest of the Limited Partners (excluding TCI) agree to
the designation, then such designation will be deemed approved.
(c) Annual Operating Plan. The General Partner shall prepare and submit to
the Limited Partner having the largest interest as a Limited Partner in the
Partnership for approval (which approval shall not be unreasonably withheld)
each year an annual operating plan for the Partnership (including IP-IV and the
Investing Partnerships) which shall also set forth the amounts to be expended
by the Partnership, IP-IV or any Investing Partnership for capital expenditures
in the following categories: system rebuild, plant extensions, converters and
related equipment, plant maintenance and miscellaneous expenditures. A copy of
the final approved operating plan shall be sent to each Limited Partner.
Notwithstanding any provision of this Agreement to the contrary, the General
Partner, as general partner of IP-IV and each Investing Partnership shall cause
IP-IV and each Investing Partnership not to make any expenditures which would
cause expenditures in any enumerated category of the annual operating plan to
exceed the approved amount for such category by more than ten percent (10%)
without the consent of the largest Limited Partner as set forth above.
(d) Advisory Committee. The Partnership will form an Advisory Committee
(the "Advisory Committee") consisting of one representative from each of the
seven (7) Limited Partners with the largest aggregate interests in the
Partnership (for purposes of selection of the Advisory Committee, (i) each of
the interests of GECC as a Preferred Limited Partner and a Limited Partner
shall be aggregated, (ii) each of the interests of NationsBanc Investment Corp.
and Atlantic Equity Corporation as Limited Partners shall be aggregated, (iii)
each of the interests of Mellon Bank, N.A., as Trustee for Third Plaza Trust
and the interests of Mellon Bank, N.A., as Trustee for Fourth Plaza Trust as
Limited Partners shall be aggregated, and (iv) each of the interests of the IP
Holdings Affiliates (as that term is defined in Exhibit 1 hereto) shall be
aggregated). For purposes of this Agreement, the determination of aggregate
Limited Partner interests in the Partnership shall be based on the aggregate
Limited Partner interests in the Partnership held by a Limited Partner and any
affiliates thereof, which aggregate holdings shall entitle such Limited Partner
and affiliates, if any, to one representative on the Advisory Committee. The
General Partner will be responsible for administration of the Advisory
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Committee and shall have the right to attend any meeting of the Advisory
Committee, but shall be excluded from Advisory Committee membership. The
General Partner will distribute to the Advisory Committee monthly profit and
loss statements of the Partnership and any other monthly financial statements
prepared for management personnel. The General Partner will distribute to the
Advisory Committee quarterly profit and loss statements, balance sheets and
statements of cash flow of the Partnership. The General Partner will
distribute to the Advisory Committee the proposed annual operating plan at the
same time that it is submitted pursuant to Section 4.7(c) to the Limited
Partner having the largest interest in the Partnership, and each member of the
Advisory Committee shall have the right to consult with the General Partner
regarding such plan for ten (10) days after receipt. In addition, the General
Partner will distribute the foregoing reports to any Limited Partner that would
be entitled to be on the Advisory Committee but due to regulatory requirements
is precluded from membership on the Advisory Committee. The Advisory Committee
(including any Limited Partner that because of regulatory requirements is
precluded from membership on the Advisory Committee) will meet quarterly in a
location approved by the General Partner and a majority of the members of the
Advisory Committee, and will consult with and advise the General Partner with
respect to the business of the Partnership and perform such other advisory
functions as may be requested by the General Partner from time to time;
provided, however, that the Advisory Committee shall not perform any functions
or duties, which, if performed by a Limited Partner, would constitute
participation in the control of the business of the Partnership under the Act.
The doing of any act or the failure to do any act by any member of the Advisory
Committee, acting in its capacity as such, the effect of which may cause or
result in loss, liability, damage or expense to the Partnership or any Partner,
shall not subject such member to any liability to the Partnership or to any
Partner, except that such member may be so liable if it acted fraudulently or
in bad faith or was guilty of willful misconduct or a breach of this Agreement.
The Partnership shall pay all reasonable expenses of each member of the
Advisory Committee incurred in connection with attendance at Advisory Committee
meetings or otherwise in the performance of his or her duties as a member of
the Advisory Committee. In the event that interests in the Partnership are
converted into or exchanged for interests in a corporation (other than in
connection with a sale of interests in the Partnership), the General Partner
will take all actions necessary to cause a director of such corporation at all
times to be a person designated by each Limited Partner entitled to a
representative on the Advisory Committee, so long as such Limited Partner owns
an interest in such corporation.
(e) Dissolution or Bankruptcy of a Limited Partner. In the event of the
dissolution, liquidation, bankruptcy or insolvency of a Limited Partner, the
interest of such Limited Partner will continue at the risk of the Partnership
business until the dissolution and winding up of the Partnership. The legal
representative of a Limited Partner who has dissolved, liquidated or been
declared bankrupt or become insolvent will succeed to such Limited Partner's
interest in the Partnership, but will not be a substituted Limited Partner
without the prior written consent of the General Partner which consent may be
granted or denied in the sole and absolute discretion of the General Partner
without the consent of any Limited Partner.
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4.8 Successor General Partner.
(a) Removal of the General Partner.
(i) Seventy percent (70%) in interest of the Limited Partners (or a majority
in interest of the non-TCI Limited Partners with respect to Section
4.8(a)(i)(D)) may initiate removal of the General Partner by delivering written
notice to the General Partner (x) specifying one or more grounds for removal
that the Limited Partners believe exist, and, (y) if the notice specifies
grounds for removal described in Section 4.8(a)(i)(A), selecting an individual
to arbitrate whether such grounds exist in accordance with Section 4.8(a)(ii).
For purposes of this Section 4.8(a), grounds for removal means any of the
following:
(A) conduct by or on behalf of the General Partner in connection
with the Partnership that constitutes willful misconduct, bad faith, gross
negligence, reckless disregard of its duties, criminal intent, or a material
breach of this Agreement;
(B) acceleration of the senior debt of the Partnership, IP-IV, any
Investing Partnership or any operating company for any reason;
(C) the occurrence of any event of default that permits acceleration
of the Partnership's, IP-IV's, any Investing Partnership's or any operating
company's senior debt, if such event of default has not been waived or cured
within sixty (60) days of the date the General Partner knew or should have
known of its occurrence; or
(D) the death or permanent disability of Leo J. Hindery, Jr.
("Hindery"), or the refusal by Hindery, in the event that he ceases to be
employed by TCI or an affiliate of TCI at any time prior to the sale of all
or substantially all of the assets of the Partnership, to return to a
position with the Partnership such that his relationship with the Partnership
is substantially similar to the relationship he had with the Partnership
prior to February 7, 1997.
(ii) The existence of grounds for removal with respect to matters described
in Section 4.8(a)(i)(A) shall be determined by arbitration. Within ten (10)
business days after its receipt of the Limited Partners' notice described in
Section 4.8(a)(i), the General Partner shall send a written notice to the
Limited Partners selecting a second individual to arbitrate whether grounds for
removal exist. If the General Partner fails to select a second arbitrator
within the time period specified in the preceding sentence, the existence of
grounds for removal shall be determined by the arbitrator selected by the
Limited Partners (and such arbitrator shall be deemed to be the "arbitration
panel" for purposes of this Section 4.8(a)). If the General Partner selects a
second arbitrator within the specified time period, the existence of grounds
for removal shall be determined by an arbitration panel consisting of the
arbitrator selected by the Limited Partners, the arbitrator selected by the
General Partner, and a third arbitrator selected by the two arbitrators
previously selected. None
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of the arbitrators selected pursuant to this Section 4.8(a) shall be associated
or affiliated with any of the Partners or with any member of the General
Partner. The arbitration panel shall conduct its proceedings in San Francisco
in accordance with the commercial rules of the American Arbitration Association
then in effect and the determination of such panel shall be final and binding
upon and enforceable against all Partners.
(iii) If the required percent of the Limited Partners (with respect to
matters described in Section 4.8(a)(i)(B), (C) or (D) or the arbitration panel
(with respect to matters described in Section 4.8(a)(i)(A)) determines that
grounds for removal exist, then:
(A) A successor general partner of the Partnership shall be selected
by seventy percent (70%) in interest of the Limited Partners. If the Limited
Partners are unable to agree on a successor general partner within sixty (60)
days after the determination under Section 4.8(a)(i)(B) or (C) that grounds
for removal exist, the Partnership shall be dissolved in accordance with
Article 7. If the Limited Partners are unable to agree on a successor
general partner after the determination under Section 4.8(a)(i)(D) that
grounds for removal exist, the General Partner shall continue to serve as
general partner of the Partnership until a successor general partner is
selected.
(B) Promptly following the determination that grounds for removal
exist, or upon the designation of a successor general partner in accordance
with Section 4.8(c), the Partners and the members of the General Partner
shall undertake to obtain any government consents and approvals necessary to
permit the actions described in the following paragraphs of this Section
4.8(a)(iii) to be taken. Such actions shall be taken as soon as practicable
after all such consents and approvals have been obtained; provided, however,
that if all such consents and approvals shall not have been obtained within
one (1) year after the determination by the arbitration panel that grounds
for removal exist, the Partnership shall be dissolved in accordance with
Article 7.
(C) The successor general partner designated in accordance with
Section 4.8(a)(iii)(A) or Section 4.8(c) shall be admitted as the general
partner of the Partnership and the General Partner shall be converted into a
limited partner of the Partnership as set forth in Section 4.8(a)(iii)(D).
The successor general partner shall, beginning on the date of admission, have
the same authority and obligations that the removed general partner had and
shall have such rights to distributions and allocations as are determined by
the unanimous consent of the Limited Partners and the removed General
Partner. Upon the admission of the successor general partner, the rights to
distributions and allocations of the Partners shall be modified to the extent
required to reflect the rights accorded to the successor general partner.
The admission of a successor general partner to the Partnership shall be
deemed to have occurred prior to the effective date of the conversion of the
General Partner.
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(D) Upon removal of the General Partner as general partner of the
Partnership, its interest in the Partnership shall be converted to a limited
partnership interest and the Partnership Agreement shall be amended to
reflect the events set forth in this Section 4.8.
(E) The removed General Partner shall remain liable for any
obligations and liabilities incurred by it as general partner prior to the
effective date of its removal but shall be free of any and all obligations or
liabilities incurred on account of the activities of the general partner of
the Partnership from and after that time.
(b) Withdrawal of the General Partner.
(i) For purposes of this Section 4.8(b), "withdrawal of the General Partner"
shall include the occurrence of any of the following:
(A) any event that causes the General Partner to cease to be the
General Partner;
(B) the bankruptcy, insolvency, or appointment of a trustee to
manage the affairs of the General Partner or Robert J. Lewis;
(C) the dissolution, whether or not required by operation of law or
judicial decree, of the General Partner;
(D) the death of Robert J. Lewis;
(E) the incapacity of Robert J. Lewis such that he is unable to
perform substantially all of his duties as chief executive officer of the
managing member of the General Partner for a period of nine (9) months; or
(F) any other event that causes the General Partner to cease to be
controlled directly or indirectly through one or more intermediaries by
Robert J. Lewis
(ii) Upon the withdrawal of the General Partner, the provisions of Section
4.8(a)(iii) shall be complied with, however, the time frames set forth in
Sections 4.8(a)(iii)(A) and (B) shall run from the date of withdrawal of the
General Partner.
(c) Hindery's Return to the Partnership. In the event that Hindery ceases
to be employed by TCI or an affiliate of TCI at any time prior to the sale of
all or substantially all of the assets of the Partnership, Hindery may elect,
in his sole discretion, directly or indirectly to return to a position with the
Partnership such that his relationship with the Partnership is substantially
similar to the relationship he had with the Partnership prior to February 7,
1997. In the event that Hindery elects to return to such a position with the
Partnership and his return requires removal of the General Partner, then
Hindery shall designate a successor general partner and the Partners shall
comply with the provisions contained in Sections 4.8(a)(iii)(B) through
4.8(a)(iii)(E) to replace the General
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Partner (or any successor general partner then in existence) with the successor
general partner designated in accordance with this Section 4.8(c) by Hindery.
(d) General Provision Regarding Approvals by the Limited Partners. For
purposes of any provision of this Section 4.8 that refers to the approval of a
specified interest of the Limited Partners, any Limited Partner that is an
affiliate of the General Partner shall not be entitled to consent or approve
the matter at issue and such Limited Partner's interest shall not be taken into
account in determining whether the matter at issue has been approved by Limited
Partners holding the requisite interest.
(e) Right To Recover Damages. (i) Removal of the General Partner pursuant
to this Section 4.8 shall not limit the right of the Partnership or any Partner
to recover any direct compensatory damages suffered by such person as a result
of any breach of this Agreement by the General Partner or any other person.
(ii) Removal of the General Partner, except pursuant to the terms of this
Agreement, shall entitle the General Partner to receive, in cash compensation,
damages for all direct and indirect economic consequences of such removal,
including, but not limited to, damages for all lost profits. Such removed
General Partner's interest in the Partnership shall be converted to a limited
partnership interest pursuant to Section 4.8(a)(iii)(D).
4.9 Sale Initiation Rights.
(a) Any time after July 31, 1999, Partners (other than Tele-Communications,
Inc. or any directly or indirectly controlled affiliate thereof which is a
Partner (collectively "TCI")) comprising twenty percent (20%) or more of the
Interests in the Partnership may petition the General Partner to review, report
on and recommend (or not) a sale of some or all of the Partnership's cable
systems.
(b) Any time after July 31, 2001, (i) Partners (other than TCI, the General
Partner and InterMedia Partners, a California limited partnership ("IP-I")),
comprising a majority or more of the Interests in the Partnership (other than
Interests in the Partnership held by TCI, the General Partner and IP-I) may
force a sale of one (1) or both of the Partnership's two significant cable
system clusters (i.e., (a) middle Tennessee and (b) eastern Tennessee, eastern
Georgia and western South Carolina), by sending a notice to such effect (the
"Sale Notice") to the General Partner; provided that TCI shall have a "right of
first offer" related thereto as provided in Section 4.9(d) and the terms of any
such sale shall be approved by Partners (other than TCI, the General Partner
and IP-I) comprising a majority or more of the Interests in the Partnership
(other than Interests in the Partnership held by TCI, the General Partner and
IP-I), provided that any Sale Notice must include the sale of all of the
systems in each cluster and shall include all significant clusters, or (ii)
Partners (including TCI, the General Partner and IP-I) comprising seventy
percent (70%) or more of
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the Interests in the Partnership may force a sale of some or all of the
Partnership's cable systems by sending a Sale Notice to the General Partner and
the terms of any such sale shall be approved by Partners (including TCI, the
General Partner and IP-I) comprising seventy percent (70%) or more of the
Interests in the Partnership unless such sale is to TCI in which case the
foregoing percentage required to approve the terms of the sale to TCI shall be
75%. The Sale Notice shall indicate which cable television systems are desired
to be sold and any desired price. The General Partner shall promptly respond
to the Partners that sent the Sale Notice (the "Sale Partners") with a good
faith proposal for effectuating the sale of the assets specified in the Sale
Notice, such proposal to be approved by the Sale Partners. Immediately upon
approval of such proposal, the General Partner shall use its best efforts to
effect the sale on such terms as soon as is reasonably practicable and the
General Partner will provide the Partners with monthly progress reports on the
sale process.
(c) In addition to Section 4.9(b), at any time, the General Partner may
elect to (i) sell all or substantially all of the Partnership's cable systems
subject to obtaining the consent of Partners (other than TCI) comprising a
majority or more of the Partnership Interests (other than Partnership Interests
held by TCI); provided that, if the General Partner makes an election to sell
pursuant to this Section 4.9(c)(i) prior to July 31, 2001, TCI shall have a
"right of first refusal" related thereto in accordance with the procedures set
forth in Section 4.9(e) or (ii) sell some or all of the Partnership's cable
systems subject to obtaining the consent of Partners (including TCI) comprising
at least seventy percent (70%) of the Partnership Interests unless the sale is
to TCI in which case the foregoing percentage shall be 75%.
(d) Before the Partnership shall offer to sell any of the Partnership's
cable television systems pursuant to Section 4.9(b)(i), the General Partner
shall (i) first deliver a notice to TCI offering to sell all such assets to TCI
and specifying the purchase price and other terms on which the General Partner
would propose to sell such assets to any third party (the date of such notice
being the "Notice Date") and (ii) deliver to each Limited Partner a copy of an
appraisal of any such cable television system conducted by an independent
appraisal firm to be selected by the General Partner to the reasonable
satisfaction of the Advisory Committee, provided, that such appraisal firm has
no current or pre-existing relationship with the General Partner or any of its
Affiliates other than transactions in which the appraisal firm (i) represents
the General Partner or any of its Affiliates as a buyer or seller, (ii)
represents the other party to a transaction with the General Partner or any of
its Affiliates as a buyer or seller or (iii) any other transaction in the
ordinary course of business with such appraisal firm on arm's-length terms.
Within thirty (30) days after the Notice Date, TCI may, by giving notice to the
General Partner elect, to purchase all such assets for such purchase price and
on such other terms specified in such notice and shall enter into an agreement
binding it to such purchase within ninety (90) days after its election to
exercise the right under such notice. If TCI fails to notify the General
Partner of its agreement to purchase all of such assets as of the end of such
thirty (30) day period, fails to enter into a purchase agreement within ninety
(90) days of such election date, or fails to purchase the assets within either
(i) one hundred fifty (150) days after entering into a purchase agreement or
(ii) the earlier of ten (10) days after all regulatory and franchise approvals
have been obtained or three hundred sixty (360) days after the Notice Date
(each an "Abandonment Date"), TCI will not have the right to purchase any of
such assets except as provided in the subsequent provisions of this Section
4.9(d) or if the failure to purchase such assets
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is due to a breach of such purchase agreement by the Partnership and, in the
event of such abandonment, the TCI affiliates who are Limited Partners will be
deemed to have approved any subsequent sale by the Partnership pursuant to the
terms of this Section 4.9(d); provided, however, that nothing contained herein
shall preclude TCI and its affiliates from participating in any auction of such
assets by the Partnership. If TCI elects not to or does not purchase such
assets offered in accordance with the terms of this Section 4.9(d), the General
Partner may thereafter sell such assets to any third party only at a price
equal to or greater than the price and on terms and conditions not materially
more favorable to the purchaser than those specified in the notice delivered
pursuant to this Section 4.9(d), provided that a binding agreement for such
sale is executed within two hundred ten (210) days after the Abandonment Date
and such sale shall be consummated within four hundred fifty (450) days of the
Abandonment Date and, provided, further that in the event TCI enters into a
purchase agreement with respect to such assets, but fails to close (other than
due to a breach of the agreement by the Partnership), then the Partnership will
be free to sell such assets at a price less than the price, and on terms and
conditions materially more favorable to the purchaser than those, agreed to
with TCI, but TCI will be permitted to participate in any auction by the
Partnership for such assets. If a binding agreement is not executed within
such two hundred ten (210) day period or such sale is not consummated within
such four hundred fifty (450) day period, then the Partnership shall be
required to again offer such assets to TCI pursuant to and must otherwise
comply with the terms of this Section 4.9(d) unless the Partnership had
previously entered into an agreement with respect to such assets and TCI had
failed to close such agreement due to failure to obtain regulatory or franchise
consents or due to a breach by TCI. The rights of TCI pursuant to this Section
shall terminate if TCI enters into a binding agreement with respect to any of
the Partnership's cable television systems and fails to close such purchase due
to its breach; provided that TCI and its affiliates may participate in any
auction by the Partnership of its assets.
(e) If the Partnership desires to sell any of its cable systems as
provided in Section 4.9(c)(i) to a third party pursuant to a bona fide written
offer (which shall set forth all material terms of the proposed sale but may be
subject to reasonable and customary conditions in the cable television
industry) by such third party to purchase such cable systems for cash, then the
Partnership shall first offer to sell such cable systems to TCI at the price
and on the other terms stated in such bona fide written offer. The
Partnership's offer to TCI shall be in writing and shall be accompanied by a
copy of the third party bona fide offer. TCI shall have thirty (30) days from
the date of receipt of such offer in which to accept it by giving written
notice of such acceptance to the General Partner. If TCI fails to accept the
Partnership's offer within such thirty (30) day period, the Partnership will be
free to sell such cable systems for a period of three hundred sixty (360) days
after the end of the thirty (30) day right of first refusal period, or such
longer or shorter period as may be specified in the original bona fide offer,
but only at a price and on terms not more favorable to the purchaser than those
contained in the bona fide offer. If TCI timely accepts the Partnership's
offer, TCI must enter into an agreement binding it to such purchase within
ninety (90) days after its acceptance of such offer and must purchase such
cable systems within either (i) one hundred fifty (150) days after entering
into a purchase agreement or (ii) the earlier of ten (10) days after all
regulatory and franchise
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approvals have been obtained or three hundred sixty (360) days after receipt of
the Partnership's offer, or in either case, such longer or shorter period as
may have been specified in the original bona fide offer. If TCI accepts the
Partnership's offer but fails to enter into a purchase agreement or fails to
purchase the cable systems, in either case within the respective periods
specified in the preceding sentence, then the Partnership may sell such cable
systems at a price and on terms not more favorable to the purchaser than those
contained in the bona fide written offer within the time period specified in
such offer or, if no time period is specified in the offer, within three
hundred sixty (360) days and TCI will not have the right to purchase any of
such cable systems within such period. Any sale to any third party pursuant to
this Section 4.9(e) shall not be connected in any way with any other
transaction (including the sale of any other assets) under which consideration
of any kind is transferred to the third party by the Partnership such that the
price purported to be paid for the Partnership's cable systems (as specified in
the bona fide offer) could overstate the value assigned thereto by the third
party.
(f) For purposes of this Section 4.9, all references to the Partnership's
cable systems shall mean any cable system in which the Partnership has an
ownership interest either directly or indirectly through IP-IV or any Investing
Partnership.
4.10 Nonvoting Interests. Notwithstanding anything to the contrary in this
Agreement, if (i) a Limited Partner or any affiliate of such Limited Partner is
subject to the Bank Holding Company Act of 1956, as amended, and Regulation Y
of the Board of Governors of the Federal Reserve System (the "FRB") promulgated
thereunder (such Limited Partner and any of its affiliates hereinafter
collectively referred to as a "BHC LP"), (ii) the limited partnership interests
of the Partnership (the "Interests") held by the BHC LP exceed 5.0% of the then
total outstanding Interests (exclusive of the Nonvoting Interests, as defined
below); and (iii) the BHC LP has not received the approval of the FRB to hold
more than 5.0% of the Interests, then the overline amount of the Interests in
excess of 5.0% shall constitute a separate class of limited partnership
interests hereinafter referred to as "Nonvoting Interests". In addition, the
aggregate amount of the Interests and Nonvoting Interests held by a BHC LP,
that has not received the approval of the FRB to hold more than 5.0% of the
Interests, shall at no time exceed 24.9% of the aggregate amount of all
outstanding Interests and Nonvoting Interests. The rights, privileges,
benefits and liabilities appertaining to the Nonvoting Interests shall be
identical in all respects to the rights, privileges, benefits and liabilities
appertaining to the Interests, except that (i) holders of Nonvoting Interests
shall not be entitled to vote upon or give consents in respect of any action by
the Partners, except those matters that, in the judgment of the BHC LP, acting
upon advice of legal counsel, would significantly and adversely affect the
rights or preference of its Interests or Nonvoting Interests, including but not
limited to the issuance of additional Interests or Nonvoting Interests; any
modification or amendment relating to the terms of its Interests, Nonvoting
Interests or this Agreement; or the dissolution of the Partnership and (ii) the
Nonvoting Interests (other than such Nonvoting Interests that are subject to
the exception set forth in the immediately preceding clause (i)) shall not be
included in either the numerator or the denominator of any computation of the
required percentage in interest of the Limited Partners hereunder for
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all such purposes (except where the consent of the holders of the Nonvoting
Interests is required).
ARTICLE 5
Tax Matters and Reports
5.1 Filing of Tax Returns. The General Partner, at the expense of the
Partnership, shall prepare and file, or cause the accountants of the
Partnership to prepare and file, all required tax returns, including a federal
information tax return in compliance with section 6031 of the Code and any
required state and local income tax and information returns for each tax year
of the Partnership. The General Partner shall act as the Tax Matters Partner
of the Partnership as that term is defined in section 6231(a)(7) of the Code.
5.2 Tax Reports to Current and Former Partners. Within ninety (90) days of
the end of each fiscal year, the Partnership shall prepare and mail, or cause
its accountants to prepare and mail, to each Partner and, to the extent
necessary, to each former Partner (or its legal representatives), a report
setting forth in sufficient detail such information as is required to be
furnished to the Partners by law (e.g., section 6031(b) of the Code and
regulations thereunder) and as shall enable such Partner or former Partner (or
his or its legal representatives) to prepare their respective federal and state
income tax or informational returns in accordance with the laws, rules and
regulations then prevailing. Partners subject to ERISA will receive
information necessary for them to calculate the fair market value of their
Partnership Interests (determined in accordance with Section 4.4).
5.3 Restriction on General Partner Activity With Respect to Publicly Traded
Partnerships. Without the consent of all of the Limited Partners, the General
Partner shall not have the authority on behalf of the Partnership to:
(a) list, recognize, or facilitate the trading of partnership interests (or
any interest therein) on any "established securities market" within the meaning
of section 7704 of the Code, or permit any of its affiliates to take such
actions, if as a result thereof the Partnership might be taxed for federal
income tax purposes as an association taxable as a corporation; or
(b) create for the partnership interests (or any interest therein) a
"secondary market (or the substantial equivalent thereof)" within the meaning
of section 7704 of the Code or otherwise permit, recognize or facilitate the
trading of such interests (or any interest therein) on any such market, or
permit any of its affiliates (or to the extent the General Partner has rights
with respect thereto, the selling agents or any of their affiliates) to take
such actions, if as a result thereof the Partnership might be taxed for federal
income tax purposes as an association taxable as a corporation.
5.4 Duties and Obligations of the General Partner With Respect to Publicly
Traded Partnerships. The General Partner shall monitor the transfers of
partnership interests to determine if such interests are being
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traded on an "established securities market" or a "secondary market (or the
substantial equivalent thereof)" within the meaning of section 7704 of the
Code, and shall take (and cause its affiliates to take) all steps within its
power and authority as are reasonably necessary or appropriate to prevent any
such trading of interests.
5.5 Books and Records. Complete books and records accurately reflecting the
accounts, business, transactions and Partners of the Partnership shall be
maintained and kept by the General Partner at the Partnership's principal place
of business. The books and records of the Partnership required to be
maintained by section 15615 of the Act shall be open at reasonable business
hours on prior appointment for inspection and copying by the Partners.
Notwithstanding anything to the contrary in this Agreement, the General Partner
shall have the right to keep confidential from the Limited Partners for such
period of time as the General Partner deems reasonable, any information which
the Partnership is required by law or by agreement with a third party to keep
confidential and any information which relates to its purchasing of individual
items of programming, plant or equipment which it reasonably deems
confidential.
5.6 Fiscal Year. Except as may otherwise be required by the federal tax
laws, the fiscal year of the Partnership for both financial and tax reporting
purposes shall end on December 31.
5.7 Method of Accounting. The books and accounts of the Partnership shall
be maintained using the accrual method of accounting for financial reporting
purposes and for tax purposes and shall be annually audited by a "Big Six"
accounting firm (or a successor thereof). Those documents relating to
allocations of items of Partnership income, gain, loss, deduction or credit and
Capital Accounts shall be kept under federal income tax accounting principles
as provided herein.
ARTICLE 6
Conflicts of Interest; Indemnification; Exculpation
6.1 Outside Activities. Without the consent of seventy percent (70%) in
interest of the Limited Partners, the General Partner (and its members,
partners, employees, agents and affiliates, including, but not limited to,
Robert J. Lewis) may not begin the offer and sale of interests in other
enterprises with the purpose of investing in cable television systems until the
earlier of July 31, 1997 or such time as sixty-six and two-thirds percent
(66-2/3%) of the committed capital contributions to the Partnership shall be
invested or committed for investment. Without the consent of a majority in
interest of the Limited Partners, the General Partner (and its members,
partners, employees, agents and affiliates, including, but not limited to,
Robert J. Lewis) may not begin to actively supervise the investment of capital
of such other enterprises or partnerships until the earlier of July 31, 1997 or
such time as ninety-five percent (95%) of the committed capital contributions
to the Partnership shall be invested or committed for investment. The General
Partner shall first offer any investment opportunities within the scope of the
Partnership, IP-IV's and the Investing Partnerships' business purpose and for
which the Partnership, IP-IV or the Investing Partnerships have adequate
resources to take advantage of the
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opportunity to the Partnership, IP-IV and the Investing Partnerships and, to
the extent that the Partnership and the Investing Partnerships, after good
faith consideration by the General Partner, do not invest in such opportunity
or take all of such opportunity, the General Partner may elect to give or share
such investment opportunity to or with one or more of the following: any
Partner, any officer, director, shareholder, member, partner, employee or
affiliate of a Partner, any enterprise or partnership in which the General
Partner has an interest, or any nonaffiliated person. Notwithstanding the
foregoing, in the event the General Partner is permitted under the provisions
of this Section 6.1 to begin the offer and sale of interests in other
enterprises with the purpose of investing in cable television systems, and the
General Partner believes such enterprises may invest in cable television
systems in areas contiguous to those owned by the Partnership, IP-IV or any
Investing Partnership, the General Partner will offer the Limited Partners an
opportunity to invest in such enterprise. Except as set forth in this Section
6.1, the General Partner or its members, partners, employees, agents or
affiliates shall not be prohibited from engaging directly or indirectly in
other activities, or from directly or indirectly purchasing, selling and
holding securities or assets in cable television systems or corporations for
their account or for the accounts of others. Any Limited Partner (and their
members, partners, employees, agents and affiliates) may engage in any other
enterprises, including enterprises in competition or in conflict with the
Partnership. The Partnership shall not have any right to any income or profit
derived by any Partner, or its members, partners, officers, directors,
employees, agents or affiliates from any enterprise, opportunity or
transactions permitted by this paragraph. Each Limited Partner shall have the
right to transact business with the Partnership, IP-IV or the Investing
Partnerships. Neither the General Partner nor any of its affiliates shall sell
securities or assets to or purchase securities or assets from the Partnership
without the unanimous consent of the Limited Partners; provided that the
transactions set forth in Exhibit 2 hereto may be consummated by the
Partnership, IP-IV or any Investing Partnership without any further consent of
the Limited Partners. The General Partner may, on behalf of the Partnership or
cable systems of IP-IV or any Investing Partnership, enter into cost and
revenue sharing agreements with cable systems adjacent to those owned by the
Partnership, IP-IV or any Investing Partnership including those systems
purchased by any enterprise or partnership in which the General Partner, any
affiliate of the General Partner or the Partnership or any member of the
General Partner has an interest (the "Adjacent Systems"), to operate the
Adjacent Systems as a single system with the cable systems of the Partnership,
IP-IV or any Investing Partnership with costs equitably allocated between the
various systems as the General Partner and the owner or operator of such
Adjacent System shall determine based on the relative costs associated with
such systems and, if determined by the General Partner and the owner or
operator of such Adjacent System to be in the best interests of the
Partnership, IP-IV, the Investing Partnerships and the Adjacent Systems, to
sell such systems as a single system and allocate the sales revenues in such
manner as such parties deem appropriate based on the relative values of such
systems; provided, however, the terms of any such arrangement are disclosed to
the Limited Partners and are on arm's-length terms and conditions. The parties
hereto hereby waive, and covenant not to sue on the basis of, any law
(statutory, common law or otherwise) respecting the rights and obligations of
the Partners inter se which is or may be inconsistent with this Section 6.1
with respect to the matters covered by this Section 6.1, but in no event shall
the foregoing be
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construed as limiting any rights or remedies with respect to a breach of this
Section 6.1.
6.2 Contracts With the General Partner, Affiliates and Limited Partners.
The General Partner may, on behalf of the Partnership, IP-IV or portfolio
companies of the Investing Partnerships, enter into contracts with itself or
any of its members, partners, employees, agents or affiliates, including but
not limited to InterMedia Management, Inc. ("IMI"), a corporation wholly owned
by Robert J. Lewis; provided, however, that such transactions shall be on terms
no less favorable to the Partnership than are generally afforded from unrelated
third parties or shall require the approval of seventy percent (70%) in
interest of the Limited Partners, excluding any interest as a Limited Partner
owned or controlled directly or indirectly by the General Partner, which
approval shall not be unreasonably withheld. The validity of any transaction,
agreement or payment involving the Partnership, IP-IV or an Investing
Partnership and the General Partner or any affiliate of the General Partner or
a Limited Partner shall not be affected by reason of (a) the relationship
between the Partnership, IP-IV or portfolio companies of an Investing
Partnership, and the General Partner or such member, partner, employee, agent
or affiliate of the General Partner or a Limited Partner or the relationship
between such member, partner, employee, agent or affiliate of the General
Partner or a Limited Partner and the General Partner or (b) the absence of
approval of said transaction, agreement or payment by the Limited Partners if
the proceeds therefrom offset but do not exceed the Administration Fee.
6.3 Indemnification of the Partners. The Partnership shall indemnify and
hold harmless the General Partner, any Limited Partner, any Advisory Committee
member and any member, partner, employee or agent of the General Partner, any
Limited Partner or any Advisory Committee member and any employee or agent of
the Partnership and/or the legal representatives of any of them, and each other
person who may incur liability as a general partner in connection with the
management of the Partnership or any corporation or other entity in which the
Partnership has an investment, against all liabilities and expenses (including
amounts paid in satisfaction of judgments, in compromise, and as counsel fees)
reasonably incurred by him or it in connection with the defense or disposition
of any civil action, suit or other proceeding, in which he or it may be
involved or with which he or it may be threatened, while a general partner or
serving in such other capacity or thereafter, by reason of its being or having
been a general partner, or by serving in such other capacity, except with
respect to any matter which constitutes willful misconduct, bad faith, gross
negligence or reckless disregard of the duties of its office, or material
breach of this Agreement. The Partnership shall advance, in the sole
discretion of the General Partner, to the General Partner, any Limited Partner,
any Advisory Committee member and any member, partner, employee or agent of the
General Partner, any Limited Partner, any Advisory Committee member or the
Partnership reasonable attorneys' fees and other costs and expenses incurred in
connection with the defense of any such action or proceeding. The General
Partner hereby agrees, and each member, partner, employee or agent of the
General Partner and the Partnership shall agree in writing prior to any such
advancement, that in the event he or it receives any such advance, such
indemnified party shall reimburse the Partnership for such fees, costs and
expenses to the extent that it shall be determined that he or it was not
entitled to indemnification under this Section. The rights accruing to a
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General Partner, any Limited Partner and each member, partner, employee or
agent of the General Partner, any Limited Partner or the Partnership under this
paragraph shall not exclude any other right to which it or they may be lawfully
entitled; provided, that any right of indemnity or reimbursement granted in
this paragraph or to which any indemnified party may be otherwise entitled may
only be satisfied out of the assets of the Partnership, and no withdrawn
General Partner, and no Limited Partner, shall be personally liable with
respect to any such claim for indemnity or reimbursement. Notwithstanding any
of the foregoing to the contrary, the provisions of this Section 6.3 shall not
be construed so as to provide for the indemnification of the General Partner,
any Limited Partner, and Advisory Committee member or any member, partner,
employee or agent of the General Partner, any Limited Partner or Advisory
Committee member for any liability to the extent (but only to the extent) that
such indemnification would be in violation of applicable law or such liability
may not be waived, modified or limited under applicable law, but shall be
construed so as to effectuate the provisions of this Section 6.3 to the fullest
extent permitted by law.
6.4 Exculpation. The General Partner and any member, partner, employee or
agent of the General Partner or the Partnership shall not be liable to any
Limited Partner or the Partnership for mistakes of judgment or for action or
inaction which the General Partner or any such member, partner, employee or
agent of the General Partner or the Partnership reasonably believed to be in
the best interests of the Partnership unless such action or inaction
constitutes willful misconduct, bad faith, gross negligence, reckless disregard
of its duties or material breach of this Agreement. The General Partner may
consult with counsel, accountants and other experts in respect of Partnership
affairs and be fully protected and justified in any action or inaction which is
taken in accordance with the advice or opinion of such counsel, accountants or
other experts, provided that they shall have been selected with reasonable
care. Notwithstanding any of the foregoing to the contrary, the provisions of
this Section 6.4 shall not be construed so as to relieve (or attempt to
relieve) the General Partner and any member, partner, employee or agent of the
General Partner or the Partnership of any liability, to the extent (but only to
the extent) that such liability may not be waived, modified or limited under
applicable law, but shall be construed so as to effectuate the provisions of
this Section 6.4 to the fullest extent permitted by law.
ARTICLE 7
Termination and Dissolution
7.1 No Dissolution. The Partnership shall not be dissolved by the admission
of substituted Limited Partners or by the admission of a new General Partner in
accordance with the terms of this Agreement. The dissolution or bankruptcy of
a Limited Partner shall not cause a dissolution of the Partnership.
7.2 Events of Dissolution. The Partnership shall dissolve upon the first to
occur of the following: (i) expiration of the term of the Partnership
specified in Section 1.6 hereof, (ii) the bankruptcy, insolvency or appointment
of a trustee or receiver to manage the affairs of the General Partner, (iii)
the voluntary resignation of Robert J. Lewis as chief
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executive officer of the managing member of the General Partner if a successor
general partner has not been appointed in accordance with Section 4.8 hereof,
(iv) the removal of the General Partner pursuant to Section 4.8(a) if a
successor general partner of the Partnership is not appointed pursuant to
Section 4.8 hereof, (v) dissolution being required by operation of law or
judicial decree including, without limitation, the withdrawal of the General
Partner where there is no remaining or surviving general partner, (vi) the
determination by the General Partner with the affirmative consent of seventy
percent (70%) in interest of the Limited Partners, (vii) the Partnership
becoming taxable as a corporation for federal tax purposes or, (viii) the
determination by the General Partner, based upon advice of counsel, that the
Partnership would be required to register as an investment company under the
Investment Company Act and there is no reasonably practicable means of avoiding
such requirement. Notwithstanding anything to the contrary in this Section
7.2, without the unanimous consent of the Limited Partners, the General Partner
agrees not to voluntarily withdraw as a general partner of the Partnership, and
Robert J. Lewis agrees not to voluntarily resign as chief executive officer of
the managing member of the General Partner, and the General Partner and Robert
J. Lewis each agrees that it or he will not voluntarily take or permit any
action that would cause the Partnership to cease to be controlled directly or
indirectly by Robert J. Lewis and if any of such persons effects such
withdrawal or cessation of control in violation of this Agreement, the
Partnership may recover damages for breach of this Agreement.
7.3 Winding-up. Upon the occurrence of an event of dissolution, the
Partnership shall be wound up and liquidated. The General Partner or, if there
is no general partner or if the General Partner or the managing member of the
General Partner wrongfully caused the dissolution of the Partnership, a
liquidator appointed by a majority in interest of the Limited Partners, shall
proceed with the dissolution and the final distribution. In the dissolution,
the General Partner or such liquidator shall use its best efforts to reduce to
cash and cash equivalent items such assets of the Partnership as the General
Partner or such liquidator shall deem it advisable to sell, subject to
obtaining fair value for such assets and any tax or other legal considerations.
A reasonable time shall be allowed for the orderly winding up of the business
and affairs of the Partnership and the liquidation of its assets in order to
minimize any losses otherwise attendant upon such a winding up, provided that
the liquidation is carried out in conformity with the requirements of Section
7.4 and section 1.704-1(b)(2)(ii)(b)(2) and (3) of the Income Tax Regulations.
7.4 Order of Liquidating Payments and Distributions. In settling accounts
after dissolution, the assets of the Partnership shall be distributed as
expeditiously as possible in the following order not later than the end of the
taxable year of the liquidation (i.e., the date upon which the Partnership
ceases to be a going concern as provided in section 1.704-1(b)(2)(ii)(g) of the
Income Tax Regulations) or if later, within ninety (90) days after the date of
such liquidation:
(a) To creditors, including the Partners to the extent of any unpaid
expenses or any outstanding loan or advance;
(b) To the payment of the costs of winding up the affairs of, liquidating
and dissolving the Partnership including, without limitation,
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expenses of selling assets of the Partnership, discharging the liabilities of
the Partnership, distributing the assets of the Partnership and terminating the
Partnership in accordance with Section 7.3 hereof;
(c) To the establishment of reasonable reserves to provide for obligations
to creditors;
(d) To the Partners with respect to which any other debts of the Partnership
are owing, other than debts arising out of the expulsion or withdrawal of a
Partner;
(e) To the Preferred Limited Partner in an amount equal to the positive
balance in its Capital Account as determined after all adjustments to such
account for the taxable year of the Partnership during which the liquidation
occurs as are required by this Agreement and section 1.704-1(b) of the Income
Tax Regulations, such adjustments to be made within the time specified in such
Regulations;
(f) To the Partners (other than the Preferred Limited Partner) in the
proportion of their respective Capital Accounts as those accounts are
determined after all adjustments to such accounts for the taxable year of the
Partnership during which the liquidation occurs as are required by this
Agreement and section 1.704-1(b) of the Income Tax Regulations, such
adjustments to be made within the time specified in such Regulations.
7.5 Termination. The Partnership shall terminate following its dissolution
and liquidation pursuant to this Article 7 when all of the Partnership assets
as to which it is practicable to do so in the sole discretion of the General
Partner or the liquidator shall have been converted into cash, the net proceeds
therefrom, as well as any other assets of the Partnership, after payment of or
due provision for all debts, liabilities and obligations of the Partnership,
shall have been distributed to the Partners as provided for herein and the
Partnership shall have been terminated in the manner required by the Act.
7.6 Government Regulation.
(a) The General Partner shall use its best efforts to insure that it and the
Partnership are in substantial compliance with those provisions, if any, of
ERISA with which they are obligated by that statute to comply, and to qualify
as a venture capital operating company (as defined in the Department of Labor
regulations promulgated under ERISA) subject to the following provisions of
this Section 7.6.
(b) In the event that at any time after its admission to the Partnership,
(i) any Limited Partner delivers to the General Partner a written opinion of
counsel, reasonably satisfactory to the General Partner, to the effect that, by
reason of the adoption of any law, rule or regulation or the issuance of any
order or directive by any governmental authority (a "Regulatory Change"), such
Limited Partner's continued participation in the Partnership or the making by
such Limited Partner of any additional capital contribution to the Partnership
would violate any law, rule, regulation, license, permit or other regulatory
requirement binding upon or required of such Limited Partner or would subject
such Limited Partner to any penalty or tax to which it was not subject at the
time of its admission to the Partner-
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ship and which is, in the reasonable judgment of such Limited Partner, material
in relation to its investment in the Partnership and is not applicable to such
Limited Partner's investments generally or (ii) the General Partner delivers to
any Limited Partner an opinion of the Partnership's counsel to the same effect
or to the effect that, by reason of a Regulatory Change, such Limited Partner's
continued participation in the Partnership would materially restrict the
continued conduct of the Partnership's business (any such event described in
clause (i) or (ii) of this paragraph (b) is referred to as an "Adverse
Regulatory Development" and the Limited Partner affected thereby is referred to
as the "Affected Partner"), then the General Partner and the Affected Partner
shall cooperate with each other in taking or causing to be taken such action as
shall eliminate such Adverse Regulatory Development. Any such opinion of
counsel shall describe the applicable Regulatory Change and its effect on the
Affected Partner and the Partnership and, insofar as practicable, the actions
which would eliminate such Adverse Regulatory Development.
(c) If an Adverse Regulatory Development cannot otherwise be resolved to the
mutual satisfaction of the Affected Partner and the General Partner, the
General Partner and the Affected Partner shall each use its best efforts to
find a purchaser for all the Affected Partner's interest in the Partnership, or
such part thereof as shall be sufficient to eliminate the Adverse Regulatory
Development, on terms and conditions reasonably acceptable to the Affected
Partner, and if acceptable to the Affected Partner, the General Partner shall
consent to the sale of such interest as long as, in the reasonable judgment of
the General Partner, the purchaser thereof has sufficient financial resources
to satisfy any remaining obligation to contribute capital to the Partnership to
be assumed by such purchaser from the Affected Partner with respect to the
interest in the Partnership to be purchased by it and meets the requirements
for transfer set forth in Section 8.1.
(d) If, within thirty (30) business days after the delivery of an opinion
referred to in paragraph (b) above or such later time as the General Partner
and the Affected Partner shall agree, the General Partner and the Affected
Partner have not resolved to their mutual satisfaction the Adverse Regulatory
Development, then the Partnership may take any of the following actions with
respect to the Affected Partner's interest in the Partnership, but only upon
the delivery to the Affected Partner of an opinion of the Partnership's counsel
(which opinion shall be reasonably acceptable to the Affected Partner) to the
effect that the taking of such action should eliminate the Adverse Regulatory
Development: (i) release the Affected Partner from making any capital
contribution with respect to any new investment by the Partnership (and
appropriate provisions shall be made in this Agreement to preserve such
Affected Partner's interest in all existing investments and to eliminate such
Affected Partner's participation in future investments); (ii) redeem the
Affected Partner's interest in the Partnership in exchange for the assignment
to the Affected Partner of the percentage share of the Partnership's cash and
short-term investments which the Affected Partner would receive if all such
assets were then distributed to the Partners plus the percentage share in each
of the Partnership's other investments and any other assets of the Partnership
equal to the share of all such assets it would receive if the Partnership were
dissolved at such time and all such assets were liquidated for their then value
as determined in accordance with Section 4.4(b), or a cash payment in lieu
thereof in an
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amount equal to the fair market value (as determined pursuant to Section 4.4)
of their Partnership Interest as of the date of the determination of an Adverse
Regulatory Development; or (iii) terminate and dissolve the Partnership and, if
in the judgment of the General Partner it is prudent to do so, distribute all
or any portion of the Partnership's investments to the Partners in kind so
that, as nearly as practicable, each Partner receives an equal portion of its
total distribution in each investment distributed in kind, in which event the
General Partner shall offer to establish a successor partnership on terms and
conditions in all material respects the same as this Partnership by
contributing the property distributed to them by this Partnership. The
Partnership shall seek to take the foregoing actions in the order stated and
shall take an action subsequently stated only if, in accordance with the
opinion of counsel referred to above, none of the actions previously stated
should eliminate the Adverse Regulatory Development.
(e) If, within sixty (60) business days after the delivery of the opinion
referred to in paragraph (b) above or such later time as the General Partner
and the Affected Partner shall agree upon, the General Partner and the Affected
Partner have not resolved to their mutual satisfaction the Adverse Regulatory
Development or the Partnership has not taken any of the actions permitted by
paragraph (d) above to eliminate the Adverse Regulatory Development, the
Affected Partner, by notice to the Partnership, may require the Partnership to
take any of such actions but only upon the delivery to the Partnership of an
opinion of counsel (which opinion and counsel shall be reasonably acceptable to
the General Partner) to the effect that the taking of such action should
eliminate the Adverse Regulatory Development; provided that the Affected
Partner shall require the Partnership to take any of the actions stated in
paragraph (d) only if, in the opinion of counsel delivered pursuant to this
paragraph (e), none of the actions stated in paragraph (d) before the action
proposed to be taken would likely eliminate the Adverse Regulatory Development;
and provided further that the Partnership shall not be required to take the
actions referred to in clause (iii) of paragraph (d) if the Regulatory Change
is the imposition on the Affected Partner of a penalty or tax of the type
referred to in paragraph (b) and the General Partner reasonably determines that
such action would have an effect on the other Limited Partners that is material
and adverse in relation to their investment in the Partnership.
(f) The Partnership and the Affected Partner shall each bear all expenses it
may respectively incur in connection with taking any of the actions permitted
or required of it by paragraphs (b) through (e) of this Section 7.6, including
the costs of providing any opinions of counsel it is required to provide.
(g) Whenever the General Partner proposes to make any cash payment to an
Affected Partner as permitted by paragraph (d) or as may otherwise be agreed
upon by the Affected Partner and the General Partner or to take any other
action pursuant to this Section 7.6 which would adversely and materially affect
the interest of the other Limited Partners in relation to their investment in
the Partnership, the General Partner shall first obtain the approval of seventy
percent (70%) of such Limited Partners for such payment or action.
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(h) The Partnership or an Affected Partner may take the actions contemplated
by this Section 7.6 either (i) in advance of any Regulatory Change coming into
effect if all necessary governmental action has occurred to cause such
Regulatory Change to come into effect or (ii) prior to expiration of the time
periods provided hereunder for the taking of such actions if in the opinion of
counsel referred to herein doing so is necessary to avoid an Adverse Regulatory
Development coming into effect with respect to an Affected Partner.
7.7 Orderly Methods of Liquidating Payments. Notwithstanding anything to
the contrary in this Article 7, if required to maximize the proceeds of
liquidation, the General Partner (or the liquidator chosen in accordance with
Section 7.3) may, with the consent of seventy percent (70%) in interest of the
Limited Partners, implement the distribution provisions of Section 7.4(f)
hereof by transfer, on behalf of the Partners, of the assets of the Partnership
to a liquidating trustee or trustees.
ARTICLE 8
Transfer of Interest, Failure To Pay
Capital Contributions, Beneficial Owners
8.1 Transfer of Partnership Interest. No Limited Partner shall sell,
assign, mortgage, encumber, hypothecate or otherwise transfer, whether
voluntarily or involuntarily, its interest in the Partnership or any part
thereof, unless (x) any such transferee entity meets the suitability
requirements originally imposed under the subscription agreement on the
transferring Limited Partner and (y) such assignment or transfer will not (and,
upon request of the General Partner, the transferring Limited Partner provides
an opinion of counsel in form and substance satisfactory to the General Partner
that such assignment or transfer will not) (A) violate any applicable federal
or state securities laws or regulations, subject the Partnership to
registration as an investment company or election as a "business development
company" under the Investment Company Act; (B) require the General Partner or
any of its members to register as an investment adviser under the Investment
Advisers Act of 1940; (C) violate any other federal, state or local laws; (D)
effect a termination of the Partnership under section 708 of the Code; or (E)
cause the Partnership to be treated as an association taxable as a corporation
for federal income tax purposes, or violate this Agreement. Notwithstanding
the preceding sentence, a Partner may assign or transfer its interest in the
Partnership if any such assignment or transfer effects a termination of the
Partnership under section 708 of the Code so long as the transferring Partner
agrees to indemnify and hold harmless the Partnership and all other Partners
against any and all costs and expenses incurred as a direct result of a
termination of the Partnership under section 708 of the Code. No transferee or
assignee of all or any part of a Limited Partner's interest shall become a
Limited Partner without the prior written consent of the General Partner which
consent shall not be unreasonably withheld so long as such Partner sells the
lesser of all its Partnership Interests or a Partnership Interest representing
an initial contribution of at least $5,000,000 and in no event shall the
substitution of an assignee or transferee as a Limited Partner require the
consent of any Limited Partner. Any purported transfer of any interest of a
Limited Partner in the Partnership or any part thereof not in compliance with
this
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Section 8.1 shall be void and of no force or effect and the transferring
Partner shall be liable to the other Partners and the Partnership for all
liabilities, obligations, damages, losses, costs and expenses (including
reasonable attorneys' fees and court costs) arising as a result of such
noncomplying transfer.
8.2 Transfer of IP Holdings Affiliates' Interests. Notwithstanding the
provisions of Section 8.1, any IP Holdings Affiliate (as that term is defined
in Exhibit 1 hereto) may transfer any or all of its interest in the Partnership
to any other IP Holdings Affiliate at any time, provided that such transfer is
made in compliance with clauses (x) and (y) of Section 8.1.
8.3 Indemnification. (a) Each Limited Partner and substituted Limited
Partner (each an "Indemnifying Person") shall indemnify and hold harmless the
Partnership, the General Partner and every other Limited Partner (each an
"Indemnified Person") who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of or arising from
(including without limitation from any actual or alleged misrepresentation or
misstatement of facts or omission to represent or state facts made by such
Limited Partner in connection with) (i) any assignment, transfer, encumbrance
or other disposition of all or any part of such Limited Partner's Partnership
Interest, or (ii) the admission of such substituted Limited Partner, against
losses, liabilities and expenses for which the Partnership or other person has
not otherwise been reimbursed (including attorneys' fees, judgments, fines and
amounts paid in settlement) actually and reasonably incurred by it in
connection with such action, suit or proceeding.
(b) Each Indemnifying Person agrees that no Indemnifying Person will,
without the prior written consent of the Indemnified Person, settle, compromise
or consent to the entry of any judgment in any pending or threatened action in
respect of which indemnification may be sought under this Agreement unless such
settlement includes an unconditional release of the Indemnified Person from all
liability arising therefrom. Any Indemnifying Person shall have no
indemnification obligations with respect to any such claim or demand which has
been settled by an Indemnified Person without the prior written consent of such
Indemnifying Person, which consent will not be unreasonably withheld or
delayed.
8.4 Failure To Pay Capital Contributions. The parties hereto agree that
prompt payment of the installments of required capital contributions hereunder
is of the essence and that failure of any Partner to make such payments as
provided herein will cause substantial injury to the Partnership and the other
Partners; further, the amount of damages caused by such injury will be
difficult to calculate. Accordingly, the parties hereto agree that in the
event that any Limited Partner fails to pay any installment of its required
capital contribution to the Partnership promptly when due, the General Partner
shall give such defaulting Limited Partner written notice thereof, and if such
defaulting Limited Partner shall fail to make such required payment in full
within fifteen (15) days following the mailing of such notice or such other
longer period as the General Partner may elect, the General Partner may elect,
in its sole discretion, either of the following alternatives:
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(a) to commence legal proceedings against such defaulting Limited Partner to
collect the due and unpaid payment, plus interest from the date due at the
reference rate as announced from time to time by Bank of America NT&SA, plus
two (2) percentage points, plus the expenses of collection, including
attorneys' fees; or
(b) to rescind and terminate all of the defaulting Limited Partner's
interest in the Partnership. In such event, the defaulting Limited Partner
will receive, upon termination of the Partnership, the lesser of (1) its
paid-in capital or (2) seventy-five percent (75%) of its Capital Account at the
time of default (reduced by what its Partnership Interest in subsequent
deductions and losses would have been had it remained a Partner in the
Partnership) and in such event the remaining amount that would have been
distributed to such Limited Partners shall be available for distribution to the
remaining Partners in accordance with Article 3.
Notwithstanding the foregoing, without the consent of the Limited Partner
having the largest interest as a Limited Partner (other than with respect to a
default by such Limited Partner) or if the defaulting Limited Partner has not
then paid to the Partnership at least one-third of its commitment of equity to
the Partnership as in effect on the date hereof, the General Partner shall not
have the option to pursue remedies against the defaulting Limited Partner under
the terms of clause 8.3(b) above, but instead may only pursue remedies against
such Limited Partner pursuant to clause 8.3(a) above or as otherwise provided
herein, at law or in equity.
The foregoing alternatives, to the extent available as provided above, are in
addition to and not in limitation of any other right or remedy of the
Partnership under this Agreement, at law or in equity. Losses attributable to
a defaulting Limited Partner pursuant to Section 3.1 shall be calculated as if
such installment had been paid when due.
8.5 Increase in Beneficial Owners. Notwithstanding any other provision of
this Agreement, no Limited Partner shall increase the number of its beneficial
owners if (a) at such time, such Limited Partner owns more than ten percent
(10%) of the Partnership Interests in the Partnership and has more than ten
percent (10%) of its assets invested in private investment companies which are
not registered under the Investment Company Act of 1940, as amended, because
such companies have less than one hundred (100) beneficial owners and do not
presently propose to make a public offering of their interests, or (b) such
Limited Partner was formed for the purpose of investing in a Partnership
Interest.
ARTICLE 9
Miscellaneous
9.1 Notices. All notices, approvals, consents and other communications
required or permitted to be given under this Agreement shall be in writing and
shall be hand delivered (including by messenger or recognized commercial
delivery or courier service), sent by facsimile transmission or sent by
registered or certified mail, postage prepaid, addressed to the Partner
intended at the address set forth below its name on Exhibit 1 hereto or at such
other address as such Partner may designate by notice given to
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the other Partners in the manner aforesaid and shall be deemed given and
received on the date it is delivered, in the case of delivery by hand or by
facsimile (if sent on a business day, or if not sent on a business day, the
next business day thereafter) or, in the case of delivery by mail, actual
delivery as shown by the addressee's return receipt. Rejection or other
refusal to accept or inability to deliver because of a change of address of
which no notice was given shall be deemed to be receipt of the notice.
9.2 Governing Law. This Agreement and this limited partnership continued
hereby shall be governed by and construed in accordance with the laws of the
State of California.
9.3 Amendments. This Agreement may be modified or amended only by an
instrument in writing signed by the General Partner and by seventy percent
(70%) in interest of the Limited Partners (or such other percentage as required
by Section 4.7(b)); provided that, in addition to any amendments otherwise
authorized herein, this Agreement may be amended from time to time by the
General Partner without the consent of any of the Limited Partners to (i) add
to the representations, duties or obligations of the General Partner or
surrender any right or power granted to the General Partner herein, (ii) add to
the rights or powers granted to the Limited Partners, (iii) clarify any
inconsistency between sections hereof and correct any printing, stenographic or
clerical errors or omissions; and (iv) to comply with legal or tax requirements
provided such compliance does not materially decrease the amount or timing of
any distributions, including distributions upon liquidation, or materially
change allocations of income or losses, that the Limited Partners would
otherwise be entitled to receive pursuant to this Agreement, provided however,
that nothing herein shall be construed to permit the General Partner to add to
the rights or powers of the Limited Partners if such addition could reasonably
be expected to cause the Limited Partners to have liability as general partners
or to cause any Limited Partner to be required to consolidate the Partnership
for financial reporting purposes, and provided that the General Partner shall
not relinquish any rights or powers if such relinquishment could reasonably be
expected to prevent it from performing its duties and obligations hereunder or
to cause any Limited Partner to be required to consolidate the Partnership for
financial purposes.
9.4 Entire Agreement. This instrument together with the Subscription
Agreements of the Partners constitute the entire agreement between the Partners
with respect to the Partnership and supersede all prior agreements,
understandings, offers and negotiations, oral or written.
9.5 Waiver of Partition. Each Partner hereby irrevocably waives any and all
rights that it may have to maintain an action for partition of the Partnership
or any of the Partnership's property.
9.6 Consents. All consents, agreements and approvals required or permitted
by this Agreement shall be in writing and a signed copy thereof shall be filed
and kept with the books of the Partnership.
9.7 Successors. Subject to Article 8, all rights and duties of the Partners
hereunder shall inure to the benefit of and be binding upon their respective
successors and assigns.
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<PAGE> 52
9.8 Confidentiality of Investors. Neither the General Partner nor the
Partnership shall disclose to any person or entity (other than to another
Partner or potential partner or to lenders or potential lenders to the
Partnership) the fact that a Limited Partner is an investor in the Partnership
except to the extent (a) required by law or legal process upon prior written
notice to such Limited Partner or (b) authorized by any such Limited Partner in
writing.
9.9 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
9.10 Severability. Each provision of this Agreement shall be considered
severable and if for any reason any provision which is not essential to the
effectuation of the basic purposes of the Agreement is determined by a court of
competent jurisdiction to be invalid or unenforceable and contrary to the Act
or existing or future applicable law, such invalidity shall not impair the
operation of or affect those provisions of this Agreement which are valid. In
that case, this Agreement shall be construed so as to limit any term or
provision so as to make it enforceable or valid within the requirements of any
applicable law, and in the event such term or provision cannot be so limited,
this Agreement shall be construed to omit such invalid or unenforceable
provisions.
9.11 Affiliate. For purposes of this Agreement, an affiliate of any person
shall mean any other person that (i) directly or indirectly through one or more
intermediaries controls, is controlled by, or is under common control with, the
specified person; (ii) is a director or officer of, partner in, member of, or
trustee of, or serves in a similar capacity with respect to, the specified
person or of which the specified person is a director, officer, partner, or
trustee, or with respect to which the specified person serves in a similar
capacity; (iii) directly or indirectly through one or more intermediaries is
the beneficial owner of ten percent (10%) or more of any class of equity
securities of the specified person or of which the specified person is directly
or indirectly through one or more intermediaries the owner of ten percent (10%)
or more of any class of equity securities; (iv) directly or indirectly through
one or more intermediaries controls, is controlled by, or is under common
control with, a person described in clause (iii), (v) is acting at the
direction and primarily in furtherance of the interests of the specified person
or (vi) is an immediate family member of the specified person. Notwithstanding
the foregoing, for purposes of Sections 4.7(d), 4.8, 4.9, 6.1 and 6.2 of this
Agreement in no event shall any person that is under the direct or indirect
control of Robert J. Lewis be deemed to be an affiliate of Tele-Communications,
Inc. or its related entities and for purposes of Sections 4.7(d), 4.8 and 6.1,
IP-I shall not be deemed to be an affiliate of the General Partner, the
Partnership, ICM-IV, IP-IV or any Investing Partnership.
9.12 Power of Attorney. Each Limited Partner, including any additional or
substituted Limited Partner, hereby irrevocably constitutes and appoints the
General Partner, and each member of the General Partner, and each of them
acting singly, its true and lawful agent and attorney-in-fact, with full power
and authority of substitution, to make, amend, execute, acknowledge, swear to,
deliver, file and record for and on behalf of such Limited Partner, such
documents and instruments as may be reasonably
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<PAGE> 53
necessary to carry out the provisions of, and which is permitted by, this
Agreement, including a Certificate of Limited Partnership and any amendments
thereto required by law, any amendments to this Agreement by reason of
admissions, substitutions or withdrawals of Limited Partners or any amendments
to give effect to the voting of the Partners and any amendments permitted by
Section 9.3 without the consent of the Limited Partners.
The foregoing power of attorney, being coupled with an interest, is hereby
declared to be irrevocable, and shall survive the death, dissolution or
incapacity of any Limited Partner.
9.13 Nonrecourse. Neither the Partnership nor the Partners shall have
recourse to any member, partner, officer, director or shareholder of any
Partner or to the assets of any member, partner, officer, director or
shareholder of any Partner with respect to the obligations and liabilities of
such Partner under this Agreement, except that this Section 9.13 shall not
limit or impair the exercise or enforcement of rights and remedies in respect
of any agreement to which such person is a party in accordance with the terms
and provisions of such agreement.
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<PAGE> 54
9.14 Foreign Person. Should any Partner be subject to withholding pursuant
to the Code or any applicable state, local or foreign law, the Partnership may
withhold all amounts otherwise distributable to such Partner or otherwise under
this Agreement or such other amount as may be required by law and any amounts
so withheld shall be deemed to have been distributed to the Partner under this
Agreement. If any sums are withheld pursuant to this provision, the
Partnership shall remit the sums so withheld to and file the required forms
with the Internal Revenue Service or other applicable government agency and, in
the event of any claimed over-withholding, the Partner shall be limited to an
action against the Internal Revenue Service or other applicable government
agency for refund and hereby waives any claim or right of action against the
Partnership on account of such withholding. Moreover, if the amounts required
to be withheld exceed the amounts which would otherwise have been distributed
to such Partner, such Partner shall contribute any deficiency to the
Partnership within five (5) days after receipt of notice from the General
Partner.
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<PAGE> 55
IN WITNESS WHEREOF, the General Partner has executed this Amended and
Restated Agreement of Limited Partnership on behalf of the Partners as
attorney-in-fact as of the date first hereinabove written.
GENERAL PARTNER:
INTERMEDIA CAPITAL MANAGEMENT, LLC
By /s/ Robert J. Lewis
------------------------------
Robert J. Lewis
Member
PREFERRED LIMITED PARTNER:
GENERAL ELECTRIC CAPITAL CORPORATION
By ***
----------------------------------
Name
--------------------------------
Title
-------------------------------
LIMITED PARTNERS:
ATLANTIC EQUITY CORPORATION
By ***
----------------------------------
Name
--------------------------------
Title
-------------------------------
BANCORP HAWAII, INC.
By ***
----------------------------------
Name
--------------------------------
Title
-------------------------------
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<PAGE> 56
By ***
----------------------------------
Name
--------------------------------
Title
-------------------------------
THE BANK OF NEW YORK COMPANY, INC.
By ***
----------------------------------
Name
--------------------------------
Title
-------------------------------
CABLE PARTNERS, AN ILLINOIS GENERAL
PARTNERSHIP
By ***
----------------------------------
Name
--------------------------------
Title
-------------------------------
GENERAL ELECTRIC CAPITAL CORPORATION
By ***
----------------------------------
Name
--------------------------------
Title
-------------------------------
MELLON BANK, N.A., AS TRUSTEE FOR THIRD
PLAZA TRUST
By ***
----------------------------------
Name
--------------------------------
Title
-------------------------------
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<PAGE> 57
MELLON BANK, N.A., AS TRUSTEE FOR FOURTH PLAZA TRUST
By ***
---------------------------------
Name
--------------------------------
Title
-------------------------------
***
------------------------------------
WILLIAM D. HORVITZ
INDOSUEZ CAPITAL
By Indosuez CM II, Inc.
Its Managing General Partner
By ***
----------------------------------
Name
--------------------------------
Title
-------------------------------
By ***
----------------------------------
Name
--------------------------------
Title
-------------------------------
***
-------------------------------------
THIERRY DEVERGNES
INTER CABLE INVESTORS, A CALIFORNIA
LIMITED PARTNERSHIP
By ***
----------------------------------
Name
--------------------------------
Title
-------------------------------
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<PAGE> 58
INTERMEDIA CAPITAL MANAGEMENT IV, L.P.
By InterMedia Management, Inc.
Its General Partner
By ***
----------------------------------
Robert J. Lewis
President and Chief Executive Officer
INTERMEDIA PARTNERS, a California limited
partnership
By InterMedia Capital Management, LLC
Its General Partner
By ***
----------------------------------
Robert J. Lewis
Member
IP HOLDINGS L.P.,
By Centre Partners, L.P.
Its General Partner
By Park Road Corporation
Its General Partner
By ***
----------------------------------
Name
--------------------------------
Title
-------------------------------
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<PAGE> 59
CENTRE CAPITAL INVESTORS II, L.P.
CENTRE CAPITAL TAX-EXEMPT
INVESTORS II, L.P.
By Centre Partners II, L.P. as general
partner of such partnerships
By Centre Partners Management LLC,
attorney-in fact
By ***
----------------------------------
Bruce G. Pollack
Managing Director
CENTRE PARTNERS COINVESTMENT, L.P.
CENTRE PARALLEL MANAGEMENT PARTNERS, L.P.
By Centre Partners II, LLC, a general
partner
By ***
----------------------------------
Bruce G. Pollack
Managing Director
SBA CABLE CORP.
By ***
----------------------------------
Bruce G. Pollack
Treasurer
OVERSEAS CABLE CORP.
By ***
----------------------------------
Bruce G. Pollack
Treasurer
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<PAGE> 60
LJR LIMITED PARTNERSHIP
By ***
----------------------------------
Name
--------------------------------
Title
-------------------------------
NATIONSBANC INVESTMENT CORP.
By ***
----------------------------------
Name
--------------------------------
Title
-------------------------------
RMS LIMITED PARTNERSHIP
By ***
----------------------------------
Name
--------------------------------
Title
-------------------------------
ROYAL BANK OF CANADA
By ***
----------------------------------
Name
--------------------------------
Title
-------------------------------
SUMITOMO CORPORATION
By ***
----------------------------------
Name
--------------------------------
Title
-------------------------------
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<PAGE> 61
SUMITOMO CORPORATION OF AMERICA
By ***
----------------------------------
Name
--------------------------------
Title
-------------------------------
TCI OF GREENVILLE, INC.
By ***
----------------------------------
Name
--------------------------------
Title
-------------------------------
TCI OF PIEDMONT, INC.
By ***
----------------------------------
Name
--------------------------------
Title
-------------------------------
TCI OF SPARTANBURG, INC.
By ***
----------------------------------
Name
--------------------------------
Title
-------------------------------
TORONTO DOMINION INVESTMENTS, INC.
By ***
----------------------------------
Name
--------------------------------
Title
-------------------------------
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<PAGE> 62
WLD LAMONT PARTNERS
By ***
----------------------------------
Name
--------------------------------
Title
-------------------------------
Robert J. Lewis agrees to be bound by the terms of Section 6.1 and Section 7.2
to the extent such Sections relate to him.
Agreed and Accepted this 5th
day of August, 1997
/s/ Robert J. Lewis
- ------------------------------
Robert J. Lewis
InterMedia Capital Management IV, L.P.
a California limited partnership as
Attorney-in-Fact for each Limited Partner
marked with ***
By: InterMedia Management, Inc.
Its general partner
/s/ Robert J. Lewis
- ------------------------------
Robert J. Lewis
President
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<PAGE> 1
EXHIBIT 10.12
CONSENT AND SECOND AMENDMENT TO REVOLVING
CREDIT AND TERM LOAN AGREEMENT
CONSENT AND SECOND AMENDMENT TO REVOLVING CREDIT AND TERM
LOAN AGREEMENT, dated as of February 28, 1997 (this "Consent and Second
Amendment"), to Revolving Credit and Term Loan Agreement dated as of July 30,
1996 and amended as of August 6, 1996 (as amended, the "Original Agreement"),
among InterMedia Partners IV, L.P., a California limited partnership (the
"Borrower"), The Bank of New York, as administrative agent, The Bank, of New
York, NationsBank of Texas, N.A. and Toronto-Dominion (Texas), Inc., as
syndication agents, The Bank of New York, NationsBank of Texas, N.A. and Toronto
Dominion (Texas), Inc., as arranging agents, and the financial institutions
parties thereto.
Capitalized terms used and not otherwise defined in this Consent and
Second Amendment shall have the meanings ascribed thereto in the Original
Agreement as amended by this Consent and Second Amendment.
WITNESSETH
WHEREAS, the parties hereto are parties to the Original
Agreement;
WHEREAS, the Borrower and IP-IV Capital have requested the
Lenders' consent to (i) the sale by Leo J. Hindery, Jr. of 100% of the
outstanding equity interests in InterMedia Management, Inc., a California
corporation ("IMI"), to Robert J. Lewis and the appointment of Robert J. Lewis
as president of IMI, (ii) the conversion of Leo J. Hindery, Jr.'s interest as
managing general partner of InterMedia Capital Management IV, L.P., a California
limited partnership ("ICM IV"), into a limited partnership interest in ICM IV,
(iii) the direct or indirect sale by ICM IV to InterMedia Capital Management,
LLC, a Delaware limited liability company ("ICM LLC"), of a .001% interest in
IP-IV Capital, the conversion of ICM IV's remaining interest as a general
partner in IP-IV Capital into a limited partnership interest and the admission
of ICM LLC as a general partner of IP-IV Capital, (iv) the direct or indirect
sale by ICM IV to ICM LLC of a .01% interest in the Borrower and the admission
of ICM LLC as a general partner of the Borrower, (v) the direct or indirect
sale by ICM IV to ICM LLC of a .01% partnership interest in InterMedia Partners
Southeast,
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<PAGE> 2
A California general partnership ("IP Southeast"), and the admission of ICM LLC
as managing general partner of IP Southeast and (vi) the direct or indirect
sale by ICM IV to ICM LLC of a .01% partnership interest in InterMedia
Partners of Tennessee, a California general partnership ("IP Tennessee"), and
the admission of ICM LLC as managing general partner of IP Tennessee (the
transactions described in clauses (i) through (vi) above are referred to
herein as the "Restructuring Transactions");
WHEREAS, the Borrower and ICM IV have requested that the
Lenders amend certain provisions contained in the original Agreement and certain
other Credit Documents to permit the Restructuring Transactions; and
WHEREAS, the Lenders executing this Consent and Second
Amendment are willing to consent to the Restructuring Transactions and to agree
to the necessary amendments to the original Agreement and such other Credit
Documents.
NOW, THEREFORE, the parties hereby agree as follows:
ARTICLE I
Amendments and Consent
Section 1.1 The Administrative Agent, the Syndication
Agents, the Arranging Agents and the Lenders executing this Consent and Second
Amendment hereby consent, notwithstanding the terms of the Original Agreement as
amended by this Consent and Second Amendment and the Credit Documents, to the
consummation of the Restructuring Transactions.
Section 1.2 The original Agreement is hereby amended by
adding the following definitions to Section 1.01:
"ICM LLC" means InterMedia Capital Management, LLC, a
Delaware limited liability company.
"ICM LLC Hypothecation Agreement" means the Security and
Hypothecation Agreement executed by ICM LLC substantially in the
form of Exhibit G, as it may be amended or supplemented from time to
time.
Section 1.3 The Original Agreement is hereby amended by
adding "ICM LLC," after "ICM IV," in the definition of "Hypothecation
Agreements, in Section 1.01.
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<PAGE> 3
Section 1.4 The definition of "Management Agreements" set
forth in Section 1.01(b) of the Original Agreement is hereby amended to read in
its entirety as follows:
"'Management Agreements', means (i) the Administration
Agreement between ICM IV and IP West Tennessee dated as of
July 30, 1996, as amended, (ii) the Administration Agreement
between ICM IV and RMG dated as of July 30, 1996, as amended,
(iii) an Administration Agreement between either IMI or ICM
IV and the Borrower, (iv) an Administration Agreement between
either IMI or ICM IV and IP Southeast and (v) an
Administration Agreement between either IMI or ICM IV and IP
Tennessee."
Section 1.5 The definition of "Management Fees" set forth in
Section 1.01(b) of the Original Agreement is hereby amended to read in its
entirety as follows:
"'Management Fees' means the fees payable pursuant to
the Management Agreements."
Section 1.6 The definition of "Administration Agreements" set
forth in Section 1.01(b) of the Original Agreement is hereby amended to read in
its entirety as follows:
"'Administration Agreements' means the (i)
Service Agreement between IMI and IP-Southeast dated as of
July 30, 1996 as amended, (ii) the Service Agreement between
IMI and IP Tennessee dated as of January 19, 1995, as
amended, (iii) the Amended and Restated Service Agreement
between IMI and IP West Tennessee dated as of December 27,
1990 as amended, and (iv) the Service Agreement between IMI,
the Borrower and IP-IV Capital dated as of March 19, 1996, as
amended."
Section 1.7 The definition of "Permitted Administration Fee
Payments" set forth in Section 1.01(b) of the Original Agreement is hereby
amended to read in its entirety as follows:
"'Permitted Administration Fee Payments' means the
fees payable by Borrower to IMI pursuant to the
Administration Agreements to the extent of
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<PAGE> 4
costs and expenses actually incurred under the relevant
Administration Agreement."
Section 1.8 The Original Agreement is hereby amended by
replacing "Robert J. Lewis" for "Leo J. Hindery, Jr.' in the definition of
"Responsible Person" in Section 1.01.
Section 1.9 Section 6.01(a)(ii) of the Original Agreement is
hereby amended by adding "or limited liability companies, as the case may be"
after "limited partnerships in the second line thereof.
Section 1.10 Section 6.01(b)(i) of the original Agreement is
hereby amended by replacing "ICM IV" with "ICM LLC" in each instance.
Section 1.11 Sections 6.01(b)(ii), (e) through (h), (j), (p),
(q), (r), (v) and (w) of the Original Agreement are hereby amended by adding
"ICM LLC," after "IP-IV Capital," in each instance.
Section 1.12 Section 6.01(d) of the Original Agreement is
hereby amended by adding the following as clause (v) thereto:
"(v) ICM LLC has full power and authority to execute,
deliver and perform each of the Credit Documents and each of
the Related Documents to which it is a party, to grant to the
Lenders the security interests and Liens described therein
and to incur the obligations provided for therein, all of
which have been duly authorized by all proper and necessary
action of ICM LLC and its members. No consent or approval of
the members of ICM LLC is required as a condition to the
validity or performance of, or the exercise by the Lenders or
the Agent of any of their rights and remedies under the
Credit Documents to which ICM LLC is a party (other than the
execution of such Credit Documents by the member(s)) except
for such consents and approvals which have been obtained and
are in full force and effect."
Section 1.13 Sections 6.01(b)(ii) and 6.01(h) of the Original
Agreement are each hereby further amended by adding, "limited liability company
agreement" after the words "partnership agreements" in the second line of
Section
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<PAGE> 5
6.01(b)(ii) and after the words "partnership agreement" in the eighth line of
Section 6.01(h).
Section 1.14 Sections 9.01(k), (1) and (m) of the Original
Agreement are hereby replaced with the following:
"(k) There shall have occurred a breach of the Borrower
Partnership Agreement, resulting in ICM LLC and IP-IV Capital no
longer acting as the general partners thereof or there shall have
occurred a breach of the ICM IV Partnership Agreement, resulting in
IMI no longer acting as the general partner thereof or there shall
have occurred a breach of the IP-IV Capital Partnership Agreement,
resulting in ICM LLC no longer acting as the sole general partner
thereof; or
(1) Robert J. Lewis shall (1) no longer act as President or
no longer be the sole shareholder of IMI or (2) no longer be the
managing member of ICM LLC or no longer directly or indirectly control
ICM LLC, except in the case of his death or physical or mental
incapacity; or
(m) IP-IV Capital shall fail to own directly 99.99% of the
Borrower or ICM LLC shall fail to own .01% of the Borrower; or"
Section 1.15 Section 12.06 of the Original Agreement is
hereby amended by replacing "Leo J. Hindery, Jr." in the notice address for the
Borrower with "Robert J. Lewis".
ARTICLE II
Related Document Amendments
Section 2.1 The Lenders hereby consent to the execution and
delivery by the Borrower of amendments to any and all of the Related Documents
as necessary to permit the consummation of the Restructuring Transactions and to
permit certain other amendments necessary or incidental thereto (such amendments
to the Related Documents, together with the additional Related Documents
executed in connection with the Restructuring Transactions are herein referred
to collectively as the "Related Document Amendments"), and hereby agree to waive
the restriction provided in Section
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<PAGE> 6
8.02 (1) of the Original Agreement to the extent necessary to permit the
execution and delivery of the Related Document Amendments.
ARTICLE III
Representations and Warranties
Section 3.1 The Borrower and, to the extent any of the
following representations are applicable to IP-IV Capital, IP-IV Capital,
represent and warrant to the Lenders that upon the effectiveness of this Consent
and Second Amendment and immediately before and after giving effect to
Restructuring Transactions:
(a) Authority. (i) The Borrower has full power and authority
to execute, deliver and perform its obligations under this Consent and Second
Amendment and each of the Related Document Amendments to which it is a party and
to incur the obligations provided for herein and therein, all of which have been
duly authorized by all proper and necessary partnership action of the Borrower
and its partners. No consent or approval of the partners of the Borrower is
required as a condition to the validity or performance of, or the exercise by
the Lenders, the Administrative Agent, the Syndication Agents or the Arranging
Agents of any of their rights and remedies under, the Credit Documents to which
it is a party (other than the execution of such Credit Documents by the general
partner(s) of the Borrower), except for such consents and approvals which have
been obtained and are in full force and effect and except where the failure to
obtain and maintain in full force and effect any such consent or approval,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.
(ii) IP-IV Capital has full power and authority to execute,
deliver and perform its obligations under this Consent and Second Amendment and
each of the Related Document Amendments to which it is a party and incur the
obligations provided for herein and therein, all of which have been duly
authorized by all proper and necessary partnership action of IP-IV Capital and
its general partners. No consent or approval of the general partners of IP-IV
Capital is required as a condition to the validity or performance of, or the
exercise by the Lenders, the Administrative Agent, the Syndication Agents or the
Arranging Agents of any of their rights and remedies under,
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<PAGE> 7
this Consent and Second Amendment (other than the execution of this Consent and
Second Amendment by the general partner(s) of IP-IV Capital), except for such
consents and approvals which have been obtained and are in full force and effect
and except where the failure to obtain and maintain in full force and effect
any such consent or approval, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
(b) Authorizations. All material authorizations, consents,
approvals, registrations, notices, exemptions and licenses with, to or from
Governmental Authorities and other Persons which are necessary in connection
with the execution of this Consent and Second Amendment, the execution of each
of the Related Document Amendments to which the Borrower, IP-IV Capital, ICM
IV, ICM LLC or any Restricted Subsidiary is a party, the performance by the
Borrower of its obligations under the Original Agreement as amended by this
Consent and Second Amendment, the performance by the Borrower, IP-IV Capital,
ICM IV, ICM LLC or a Restricted Subsidiary, as the case may be, of each Related
Document Amendment, the consummation of the Restructuring Transactions and the
exercise by the Administrative Agent, the Syndication Agents, the Arranging
Agents and the Lenders of their remedies under the Original Agreement as amended
by this Consent and Second Amendment have been effected or obtained and are in
full force and effect, except where the failure to effect or obtain any such
authorization, consent, approval, registration, notice, exemption or license,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.
(c) Binding Agreement. This Consent and Second Amendment,
each of the Related Document Amendments to which the Borrower, IP-IV Capital,
ICM IV, ICM LLC or any Restricted Subsidiary is a party constitutes the valid
and legally binding obligations of the Borrower, IP-IV Capital, ICM IV, ICM LLC
or a Restricted Subsidiary, as the case may be, enforceable in accordance with
their respective terms, subject to bankruptcy, insolvency, reorganization and
similar laws of general applicability relating to or affecting creditors'
rights and to general equity principles.
(d) Litigation. There are no proceedings, investigations or
labor controversies pending or, so far as the Borrower knows, threatened before
any court or arbitrator or before or by any Governmental Authority which are
related to this Consent and Second Amendment, any Related Document Amendment or
the Restructuring Transactions
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<PAGE> 8
which, in any one case or in the aggregate, if determined adversely to the
interests of the Borrower, could have a Material Adverse Effect.
(e) No Conflicts. There is no statute, regulation, rule,
order or judgment, and no provision of any agreement or instrument binding on
IP-IV Capital, the Borrower, its partners or a Restricted Subsidiary or
affecting their respective properties and no provision of the Borrower
Partnership Agreement or the partnership agreement, by-laws or operating
agreement, as the case may be, of IP-IV Capital, ICM LLC or any of the
Restricted Subsidiaries or any general partner or shareholder thereof which
would prohibit, or in any material way be inconsistent with or prevent the
execution, delivery, or performance of the terms of the Original Agreement as
amended by this Consent and Second Amendment or any Related Document Amendment
or result in or require the creation or imposition of any Lien (other than
Permitted Encumbrances) on any of the properties of the Borrower, IP-IV Capital,
ICM LLC or any of the Restricted Subsidiaries as a consequence of the execution,
delivery and performance of this Consent and Second Amendment, any Related
Document Amendment or the Restructuring Transactions. The execution, delivery
and performance by the Borrower, IP-IV Capital, ICM LLC and the Restricted
Subsidiaries of this Consent and Second Amendment and any Related Document
Amendment to which they are a party do not, and will not, as the case may be,
(i) violate any provision of law applicable to the Borrower, IP-IV Capital, ICM
LLC or any Restricted Subsidiary or any of their general partners or
shareholders, the Borrower Partnership Agreement or the partnership agreement or
operating agreement, as the case may be, of any of the Borrower's general
partners or the partnership agreement or by-laws of any Restricted Subsidiary,
or any order, judgment or decree of any court or other agency of government
binding on the Borrower, any of its general partners or any Restricted
Subsidiary, (ii) conflict with, result in a breach of or constitute (with due
notice or lapse of time or both) a default under any agreement or instrument
binding on the Borrower, any of its general partners or any Restricted
Subsidiary, or affecting their respective properties, or (iii) require any
approval of partners or shareholders (other than the execution thereof by the
partner(s) or authorized officer(s) of the Borrower or any Restricted
Subsidiary) or any approval or consent of any Person under any agreement or
instrument binding on the Borrower or any of its partners or any Restricted
Subsidiary, or affecting their respective properties, other than approvals which
have been previously obtained and are in full force and effect, and except for
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<PAGE> 9
conflicts, inconsistencies, liens, violations, breaches, approvals or consents
which individually, or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect.
(f) Security Interests. The provisions of the Hypothecation
Agreements (including the Hypothecation Agreement delivered on the effective
date
of this Consent and Second Amendment by ICM LLC) are effective to maintain, or,
in the case of the aforementioned Hypothecation Agreement delivered by ICM LLC,
create, in favor of the Lenders a valid, binding and enforceable security
interest or lien in all right, title and interest of the Borrower and the
hypothecators in the collateral described therein, and constitute a fully
perfected first priority security interest, lien or mortgage in all right, title
and interest of the Borrower or other hypothecator, as the case may be, in such
collateral, superior in right to any Lien except for the Liens, if any,
permitted to be prior hereunder or under any Hypothecation Agreement, existing
or future, except, with respect to future Liens, as otherwise provided in the
applicable Uniform Commercial Code, which the Borrower or any third Person may
have against such collateral or interests therein.
ARTICLE IV
Conditions Precedent
Section 4.1 The effectiveness of this Consent and Second
Amendment is subject to the conditions precedent that:
(a) Execution of Agreement. This Consent and Second Amendment
shall have been executed by the Borrower, each Lender required by the terms of
the Original Agreement to effect the consents and amendments contemplated
herein, the Administrative Agent, the Syndication Agent, each Arranging Agent,
and consented to by IP-IV Capital, ICM IV, TCID-IP V, Inc., each Restricted
Subsidiary and IP-Southeast.
(b) Opinion of Borrower's Counsel. The Administrative Agent
shall have received a favorable written opinion of Pillsbury Madison, & Sutro
LLP, counsel for the Borrower, dated the date hereof, substantially in the form
of Exhibit A hereto.
-9-
<PAGE> 10
(c) Evidence of Action. The Administrative Agent shall have
received copies on all action taken by the Borrower, its partners and its
affiliates to authorize this Consent and Second Amendment certified by the
Borrower as true and correct as of the date hereof.
(d) Consent of Equity Investors. IP-IV Capital shall have
obtained all consents and approvals necessary from its limited partners to
effect the Restructuring Transactions and the Administrative Agent shall have
received evidence thereof reasonably satisfactory to the Administrative Agent.
(e) No Default. No event of default, and no event which, with
the giving of notice or lapse of time, or both, would constitute an event of
default under the Original Agreement as amended by this Consent and Second
Amendment or any other Credit Document shall have occurred and be continuing or
shall result from the effectiveness of this Consent and Second Amendment or the
consummation of the Restructuring Transactions, and the Administrative Agent
shall have received a certificate to the above effect from the Borrower.
(f) ICM LLC Hypothecation Agreement. ICM LLC shall have duly
authorized, executed and delivered to the Administrative Agent a Security
and Hypothecation Agreement substantially in the form of Exhibit G to the
Original Agreement.
(g) Representations And Warranties. The representations and
warranties contained in Article III shall be true and correct as of the
effective date of this Consent and Second Amendment and the Administrative Agent
shall have received a certificate of the Borrower to the foregoing effect.
(h) Related Document Amendments. Each of the Related
Document Amendments, each of which shall be in form and substance reasonably
acceptable to the Administrative Agent, shall have been duly authorized,
executed and delivered by the parties thereto and true and correct copies
thereof shall have been delivered to the Administrative Agent.
-10-
<PAGE> 11
ARTICLE V
Miscellaneous
SECTION 5.1 Other Credit Documents. The Lenders hereby
consent to the sale by ICM IV to ICM LLC of its .01% general partnership
interest in the Borrower, its .01% managing general partnership interest in IP
Southeast and its .01% managing General partnership interest in IP Tennessee as
part of the Restructuring Transactions and agree to waive the restriction
provided in Section 5(b)(ii) of the Security and Hypothecation Agreement, dated
as of July 30, 1996, made by ICM IV in favor of The Bank of New York in its
capacity as Agent for the benefit of the Lenders (the "ICM IV Hypothecation
Agreement"), to the extent necessary to permit the foregoing sale; provided,
however, that the foregoing sale is made subject to the Lien created in the ICM
IV Hypothecation Agreement, and ICM LLC takes such interests subject to such
Lien. Upon the consummation of the Restructuring Transactions and the sale
described in the immediately preceding sentence, the Hypothecation Agreement
made by ICM IV in favor of the Agent shall be terminated and of no further force
or effect.
SECTION 5.2 Continuing Agreement. Except as amended hereby,
all of the terms of the Original Agreement and the Credit Documents shall remain
and continue in full force and effect and are hereby confirmed in all respects.
SECTION 5.3 GOVERNING LAW. THIS CONSENT AND SECOND AMENDMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK, UNITED STATES OF AMERICA.
SECTION 5.4 Counterparts. This Consent and Second Amendment
may be executed in any number of counterparts and by the different parties
hereto on separate counterparts, each of which when, so executed and delivered,
shall be an original, but all the counterparts shall together constitute one and
the same instrument.
11
<PAGE> 12
IN WITNESS WHEREOF, THE PARTIES THERETO HAVE CAUSED THIS CONSENT AND
SECOND AMENDMENT TO BE DULY EXECUTED AS OF THE DATE FIRST ABOVE WRITTEN.
INTERMEDIA PARTNERS IV, L.P.
BY: INTERMEDIA CAPITAL
MANAGEMENT IV, L.P.
BY: INTERMEDIA MANAGEMENT, INC.
By: /s/ Leo J. Hindery, Jr.
--------------------------
NAME: Leo J. Hindery, Jr.
TITLE: President
THE BANK OF NEW YORK, as Agent and
Arranging Agent
By: /s/ Wade E. Layton
------------------------------
NAME: Wade E. Layton
TITLE: Vice President
NATIONSBANK OF TEXAS, N.A., as
Arranging Agent and Syndication Agent
By: /s/ Whitney L. Busse
------------------------------
NAME: Whitney L. Busse
TITLE: Vice President
TORONTO-DOMINION (TEXAS), INC., as Arranging
Agent and Syndication Agent
By: /s/ L. Allison
------------------------------
NAME: Lisa Allison
TITLE: Vice President
-12-
<PAGE> 13
THE BANK OF NEW YORK COMPANY, INC. , as
Lender
By: /s/ James Whitaker
------------------------------
NAME: James W. Whitaker
TITLE: Authorized Signer
NATIONSBANK OF TEXAS, N.A., as Lender
By: /s/ Whitney L. Busse
------------------------------
NAME: Whitney L. Busse
TITLE: Vice President
TORONTO-DOMINION (TEXAS), INC., as
Lender
By: /s/ L. Allison
------------------------------
NAME: Lisa Allison
TITLE: Vice President
BANK OF AMERICA NATIONAL TRUST &
SAVINGS ASSOCIATION, as Co-Agent and
Lender
By: /s/ Shannon T. Ward
------------------------------
NAME: Shannon T. Ward
TITLE: Vice President
BANK OF HAWAII, as Co-Agent and Lender
By: /s/ J. Bryan Scearce
------------------------------
NAME: J. Bryan Scearce
TITLE: Vice President
13
<PAGE> 14
THE BANK OF NOVA SCOTIA, as Co-Agent
and Lender
By: /s/ Margot C. Bright
------------------------------
Name: Margot C. Bright
Title: Authorized Signatory
BARCLAYS BANK PLC, as Co-Agent and
Lender
By: /s/ Les Bek
------------------------------
Name: Les Bek
Title: Director
CIBC INC., as Co-Agent and Lender
By: /s/ Lorain C. Granberg
------------------------------
Name: Lorain C. Granberg
Title: Director
CREDIT LYONNAIS NEW YORK BRANCH, as
Co-Agent and Lender
By: /s/ Mark D. Thorsheim
------------------------------
Name: Mark D. Thorsheim
Title: Vice President
FIRST HAWAIIAN BANK, as Co-Agent and
Lender
By: /s/ Donald Young
------------------------------
Name: Donald Young
Title: Assistant Vice President
-14-
<PAGE> 15
FLEET BANK, N.A., as Co-Agent and
Lender
By: /s/ Garret Komjathy
------------------------------
Name: Garret Komjathy
Title: Vice President
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD., LOS ANGELES AGENCY, as Co-Agent
and Lender
By: /s/ T. Morgan Edwards II
------------------------------
Name: T. Morgan Edwards II
Title: Deputy General Manager
MELLON BANK, N.A., as Co-Agent and
Lender
By: /s/ Michael Hrycenko
------------------------------
Name: Michael Hrycenko
Title: Vice President
PNC BANK, NATIONAL ASSOCIATION, as
Co-Agent and Lender
By: /s/ Cynthia L. Rogers
------------------------------
Name: Cynthia L. Rogers
Title: Banking Officer
ROYAL BANK OF CANADA, as Co-Agent and
Lender
By: /s/ Edward Salazar
------------------------------
Name: Edward Salazar
Title: Senior Manager
-15-
<PAGE> 16
SOCIETE GENERALE, as Co-Agent and
Lender
By: /s/ Mark Vigil
------------------------------
Name: Mark Vigil
Title: Vice President
BANK BRUSSELS LAMBERT, NEW YORK BRANCH,
as Lender
By: /s/ Dominick N.J. Vangaever
------------------------------
Name: Dominick N.J. Vangaever
Title: Senior Vice President
By: /s/ Denise Isherwood
------------------------------
Name: Denise Isherwood
Title: Assistant Vice President
BANK OF MONTREAL, CHICAGO BRANCH, as
Lender
By: /s/ Karen S. Klapper
------------------------------
Name: Karen S. Klapper
Title: Director
BANQUE PARIBAS, as Lender
By: /s/ Sonia Isaacs
------------------------------
Name: Sonia Isaacs
Title: Vice President
By: /s/ Harry Collyns
------------------------------
Name: Harry Collyns
Title: Vice President
-16-
<PAGE> 17
BANQUE NATIONALE DE PARIS, as Lender
By: /s/ L. Tourne
------------------------------
NAME: L. Tourne
TITLE: Vice President
By: /s/ Mylene Dab
------------------------------
NAME: Mylene Dab
TITLE: Assistant Vice President
CORESTATES BANK, N.A., as Lender
By: /s/ Lynae S. Young
------------------------------
NAME: Lynae S. Young
TITLE: Assistant Vice President
CRESTAR BANK, as Lender
By: /s/ J. Eric Millham
------------------------------
NAME: J. Eric Millham
TITLE: Vice President
THE DAI-ICHI KANGYO BANK, LTD.
LOS ANGELES AGENCY, as Lender
By: /s/ Masatsugu Morishita
------------------------------
NAME: Masatsugu Morishita
TITLE: Sr. Vice President
DEUTSCHE BANK AG, NEW YORK AND/OR
CAYMAN ISLANDS BRANCH, as Lender
By: /s/ Steven M. Godeke
------------------------------
NAME: Steven M. Godeke
TITLE: Vice President
By: /s/ John R. Lilly
------------------------------
NAME: John R. Lilly
TITLE: Vice President
-17-
<PAGE> 18
DRESDNER BANK AG, NEW YORK & GRAND
CAYMAN BRANCHES, as Lender
By: /s/ Jane A. Majeski
------------------------------
Name: Jane A. Majeski
Title: Vice President
By: /s/ Brian Haughney
------------------------------
Name: Brian Haughney
Title: Assistant Treasurer
FIRST AMERICAN NATIONAL BANK, as Lender
By: /s/ Corey Napier
------------------------------
Name: Corey Napier
Title: Vice President
FIRST NATIONAL BANK OF MARYLAND, as
Lender
By: /s/ Mark L. Cook
------------------------------
Name: Mark L. Cook
Title: Senior Vice President
THE FUJI BANK, LIMITED
LOS ANGELES AGENCY, as Lender
By: /s/ Nobuhiro Umemura
------------------------------
Name: Nobuhiro Umemura
Title: Joint General Manager
THE INDUSTRIAL BANK OF JAPAN, LIMITED,
as Lender
By: /s/ Takahide Akiyama
------------------------------
Name: Takahide Akiyama
Title: Joint General Manager
-18-
<PAGE> 19
MEESPIERSON, N.V., as Lender
By: /s/ John O'Connor
------------------------------
NAME: John O'Connor
TITLE: Senior Vice President
By: /s/ Hendrik J. Vroege
------------------------------
NAME: Hendrik J. Vroege
TITLE: Vice President
BANK OF TOKYO-MITSUBISHI TRUST CO.,
as Lender
By: /s/ Glenn B. Eckert
------------------------------
NAME: Glenn B. Eckert
TITLE: Vice President
THE MITSUBISHI TRUST AND BANKING
CORPORATION, as Lender
By: /s/ Patricia Loret de Mola
------------------------------
NAME: Patricia Loret de Mola
TITLE: Senior Vice President
THE NIPPON CREDIT BANK, LTD.,
LOS ANGELES AGENCY, as Lender
By: /s/ Jay Schwartz
------------------------------
NAME: Jay Schwartz
TITLE: Vice President & Manager
THE SAKURA BANK, LIMITED, as Lender
By: /s/ Seiichi Tagusari
------------------------------
NAME: Seiichi Tagusari
TITLE: Senior Vice President & Joint
General Manager
-19-
<PAGE> 20
THE SANWA BANK, LIMITED
LOS ANGELES BRANCH, as Lender
By: /s/
------------------------------
Name:
Title:
THE SUMITOMO BANK, LIMITED, as Lender
By: /s/ Bradford E. Chambers
------------------------------
Name: Bradford E. Chambers
Title: Vice President
By: /s/ Judith M. Bresnen
------------------------------
Name: Judith M. Bresnen
Title: Vice President
SUNTRUST BANK, CENTRAL FLORIDA, N.A.,
as Lender
By: /s/ Janet P. Sammons
------------------------------
Name: Janet P. Sammons
Title: Vice President
UNION BANK OF CALIFORNIA, N.A., as
Lender
By: /s/ Robert Wilson
------------------------------
Name: Robert Wilson
Title: Vice President
-20-
<PAGE> 21
BANKERS TRUST COMPANY, as Lender
By: /s/ Virginia M. Sermier
------------------------------
Name: Virginia M. Sermier
Title: Managing Director
KEYPORT LIFE INSURANCE COMPANY,
as Lender
By: Chancellor LGT Senior Secured
Management, Inc., as Portfolio
Advisor
By: /s/ Gregory L. Smith
------------------------------
Name: Gregory L. Smith
Title: Vice President
MERRILL LYNCH SENIOR FLOATING
RATE FUND, INC., as Lender
By: /s/ Gilles Marchand
------------------------------
Name: Gilles Marchand, CFA
Title: Authorized Signatory
PILGRIM AMERICA PRIME RATE TRUST,
as Lender
By: /s/ Howard Tiffen
------------------------------
Name: Howard Tiffen
Title: Senior Vice President
ML CBO IV (CAYMAN) LTD.,
as Lender
By: Protective Life Insurance Company,
as Collateral Manager
By: /s/ James Dondero
------------------------------
Name: James Dondero, CPA, CFA
Title: President
-21-
<PAGE> 22
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST,
as Lender
By: /s/ Jeffrey W. Maillet
------------------------------
Name: Jeffrey W. Maillet
Title: Senior Vice President
and Director
SENIOR DEBT PORTFOLIO, as Assignee
By: Boston Management
and Research, an
Investment Advisor
By: /s/ Payson F. Swaffield
------------------------------
Name: Payson F. Swaffield
Title: Vice President
CAPTIVA FINANCE, LTD., as Assignee
By: /s/ Derrie Boggess
------------------------------
Name: Derrie Boggess
Title: Director
AERIES FINANCE LTD., as Assignee
By: /s/ Andrew Wignall
------------------------------
Name: Andrew Ian Wignall
Title: Director
-22-
<PAGE> 23
Executed for purposes of Section 5.1
as of the date first above written:
INTERMEDIA CAPITAL MANAGEMENT IV,
L.P., a California limited partnership
By InterMedia Management, Inc.,
a California corporation,
its General Partner
By: /s/ Leo J. Hindery, Jr.
-------------------------
Name: Leo J. Hindery, Jr.
Title: President
Acknowledged, accepted, agreed and
consented to as of the date first
above written:
INTERMEDIA CAPITAL PARTNERS IV, L.P.,
a California limited partnership
By InterMedia Capital
Management IV, L.P., a
California limited
partnership, its Managing
General Partner
By InterMedia Management, Inc.,
a California corporation, its
General Partner
By: /s/ Leo J. Hindery, Jr.
-------------------------
Name: Leo J. Hindery, Jr.
Title: President
INTERMEDIA CAPITAL MANAGEMENT IV, L.P.,
a California limited partnership
By InterMedia Management Inc.,
a California corporation,
its General Partner
By: /s/ Leo J. Hindery, Jr.
-------------------------
Name: Leo J. Hindery, Jr.
Title: President
-23-
<PAGE> 24
INTERMEDIA PARTNERS SOUTHEAST, a California
general partnership
By InterMedia Capital Management IV, L.P.,
a California limited partnership, its
Managing General Partner
By InterMedia Management, Inc.,
a California corporation, its
General Partner
By: /s/ Leo J. Hindery, Jr.
-------------------------
Name: Leo J. Hindery, Jr.
Title: President
INTERMEDIA PARTNERS OF TENNESSEE, a California
general partnership
By InterMedia Capital
Management IV, L.P., a
California limited
partnership, its Managing
General Partner
By InterMedia Management, Inc.,
a California corporation, its
General Partner
By: /s/ Leo J. Hindery, Jr.
-------------------------
Name: Leo J. Hindery, Jr.
Title: President
-24-
<PAGE> 25
INTERMEDIA PARTNERS OF WEST TENNESSEE, L.P.
a California limited partnership
By InterMedia Partners IV, L.P.
a California limited partnership,
its General Partner
By InterMedia Capital Management IV, L.P.,
a California limited partnership,
its Managing General Partner
By InterMedia Management, Inc.,
a California corporation, its
General Partner
By: /s/ Leo J. Hindery, Jr.
-------------------------
Name: Leo J. Hindery, Jr.
Title: President
ROBIN MEDIA GROUP, INC.
By: /s/ Leo J. Hindery, Jr.
-------------------------
Name: Leo J. Hindery, Jr.
Title: President
TCID-IP V, INC.
By: /s/ Leo J. Hindery, Jr.
-------------------------
Name: Leo J. Hindery, Jr.
Title: President
-25-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
INTERMEDIA CAPITAL PARTNERS IV, L.P.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 7,462
<SECURITIES> 74,828
<RECEIVABLES> 18,047
<ALLOWANCES> (2,117)
<INVENTORY> 0
<CURRENT-ASSETS> 58,067
<PP&E> 248,237<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 957,810
<CURRENT-LIABILITIES> 59,089
<BONDS> 0
12,785
0
<COMMON> 0
<OTHER-SE> 31,802
<TOTAL-LIABILITY-AND-EQUITY> 957,810
<SALES> 61,927
<TOTAL-REVENUES> 61,927
<CGS> 13,370<F2>
<TOTAL-COSTS> 65,637
<OTHER-EXPENSES> 132
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,614
<INCOME-PRETAX> (22,053)
<INCOME-TAX> (1,974)
<INCOME-CONTINUING> (20,293)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,293)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>PP&E IS SHOWN NET OF ACCUMULATED DEPRECIATION.
<F2>INCLUDES PROGRAM FEES AND OTHER DIRECT EXPENSES
</FN>
</TABLE>
