<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 16, 1996
REGISTRATION NOS. 333-03741
333-03741-01
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
MUZAK LIMITED PARTNERSHIP
MUZAK CAPITAL CORPORATION
(FORMERLY MUZAK, INC.)
(EXACT NAME OF REGISTRANTS AS SPECIFIED IN THEIR CHARTERS)
DELAWARE 7389 13-3647593
DELAWARE 7389 91-1722302
(STATE OR OTHER (I.R.S. EMPLOYER
JURISDICTION OF IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBERS)
---------------
2901 THIRD AVENUE, SUITE 400
SEATTLE, WA 98121
(206) 633-3000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
---------------
MR. JOHN R. JESTER
PRESIDENT
MUZAK LIMITED PARTNERSHIP
MUZAK CAPITAL CORPORATION
2901 THIRD AVENUE, SUITE 400
SEATTLE, WA 98121
(206) 633-3000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
NORMAN D. CHIRITE, LOUISA BARASH, ESQ. PHILIP E. COVIELLO, JR.,
ESQ. ESQ.
HELLER, EHRMAN, WHITE & MCAULIFFE
WEIL, GOTSHAL & MANGES 701 FIFTH AVENUE, SUITE 6100 LATHAM & WATKINS
LLP SEATTLE, WA 98104 885 THIRD AVENUE, SUITE
767 FIFTH AVENUE (206) 447-0900 1000
NEW YORK, NY 10153 NEW YORK, NY 10022-4802
(212) 310-8000 (212) 906-1200
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
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- ------------------------------------------------------------------------------------------------------
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT TO MAXIMUM AGGREGATE MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED OFFERING PRICE OFFERING PRICE(1) REGISTRATION FEE(2)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
% Senior Notes due
2003................... $100,000,000 100% $100,000,000 $34,483
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933.
(2) The Company previously paid $29,310 of this registration fee.
---------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
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<PAGE>
MUZAK LIMITED PARTNERSHIP
MUZAK CAPITAL CORPORATION
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM NUMBER AND HEADING CAPTION OR LOCATION IN PROSPECTUS
<S> <C> <C>
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus................. Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus..................................... Inside Front Cover Page;
Available Information; Outside
Back Cover Page
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges...................... Outside Front Cover Page;
Prospectus Summary; Risk
Factors; The Issuers; Unaudited
Pro Forma Financial Information;
Selected Financial Data
4. Use of Proceeds................................. Prospectus Summary; Use of
Proceeds
5. Determination of Offering Price................. Not Applicable
6. Dilution........................................ Not Applicable
7. Selling Security Holders........................ Not Applicable
8. Plan of Distribution............................ Outside Front Cover Page;
Underwriting
9. Description of Securities to be Registered...... Outside Front Cover Page;
Prospectus Summary; Description
of the Senior Notes; Federal
Income Tax Consequences
10. Interests of Named Experts and Counsel.......... Legal Matters; Experts
11. Information with Respect to the Registrants..... Outside Front Cover Page;
Prospectus Summary; Risk
Factors; The Issuers; Use of
Proceeds; Capitalization;
Unaudited Pro Forma Financial
Information; Selected Financial
Data; Management's Discussion
and Analysis of Financial
Condition and Results of
Operations; Business;
Management; Certain
Relationships and Related
Transactions; Security Ownership
of Certain Beneficial Owners;
Description of the Partnership
Agreement; Index to Financial
Statements; Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................... Not Applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED SEPTEMBER 16, 1996
PROSPECTUS
, 1996
$100,000,000
MUZAK
MUZAK LIMITED PARTNERSHIP
MUZAK CAPITAL CORPORATION
% SENIOR NOTES DUE 2003
The % Senior Notes due 2003 (the "Senior Notes") are being offered (the
"Offering") by Muzak Limited Partnership, a Delaware limited partnership (the
"Company"), and Muzak Capital Corporation, a Delaware corporation ("Capital
Corp.", and together with the Company, the "Issuers"). The Senior Notes are the
joint and several obligations of the Issuers. Capital Corp. is a wholly-owned
subsidiary of the Company. The Company will receive all of the net proceeds of
the Offering.
Interest on the Senior Notes is payable semi-annually in cash on and
of each year, commencing , 1997. The Senior Notes will be redeemable
at the option of the Issuers, in whole or in part, at any time on or after ,
2000, in cash at the redemption prices set forth herein, plus accrued and
unpaid interest, if any, thereon to the date of redemption. In addition, during
the first 36 months after the date of this Prospectus, the Issuers may on any
one or more occasions redeem up to 35% of the initially outstanding aggregate
principal amount of Senior Notes at a redemption price equal to % of the
principal amount thereof, plus accrued and unpaid interest, if any, thereon to
the redemption date, with the net proceeds of one or more equity offerings of
the Issuers; provided that at least 65% of the initially outstanding aggregate
principal amount of Senior Notes remains outstanding immediately after the
occurrence of any such redemption. See "Description of the Senior Notes--
Optional Redemption." In addition, upon the occurrence of a Change of Control
(as defined herein), each holder of Senior Notes will have the right to require
the Issuers to repurchase all or any part of such holder's Senior Notes at an
offer price in cash equal to 101% of the aggregate principal amount thereof,
plus accrued and unpaid interest, if any, thereon to the date of purchase. See
"Description of the Senior Notes--Repurchase at the Option of Holders--Change
of Control." There can be no assurance that, in the event of a Change of
Control, the Issuers would have sufficient funds to purchase all Senior Notes
tendered. See "Risk Factors--Risk of Inability to Satisfy Change of Control
Offer."
The Senior Notes will represent unsecured senior obligations of the Issuers,
will rank senior in right of payment to all Subordinated Indebtedness (as
defined herein) of the Issuers and will rank pari passu in right of payment
with all senior indebtedness of the Issuers. At June 30, 1996, on a pro forma
basis after giving effect to the Offering and the application of the estimated
net proceeds therefrom, the Issuers would have had approximately $1.1 million
of total indebtedness, other than the Senior Notes. The Senior Notes will be
guaranteed on a senior basis by all future Domestic Subsidiaries (as defined
herein) of the Company (other than Capital Corp.). As of the date hereof, the
Company has no subsidiaries other than Capital Corp., which will be a
Restricted Subsidiary (as defined herein). The Indenture (as defined herein)
will limit the ability of the Company and its Restricted Subsidiaries to incur
additional indebtedness; however, the Company and its Restricted Subsidiaries
will be permitted to incur certain indebtedness, which may be secured. See
"Description of the Senior Notes--General" and "--Certain Covenants."
The Issuers do not intend to list the Senior Notes on any national securities
exchange or include the Senior Notes for quotation through an inter-dealer
quotation system. Although the Underwriters have indicated that they presently
intend to make a market in the Senior Notes, there can be no assurance that any
market for the Senior Notes will develop or, if any such market develops, that
it would continue to exist. Such market-making activities may be discontinued
at any time. See "Risk Factors--Absence of Public Market; Illiquidity; Market
Value."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SENIOR NOTES,
INCLUDING:
.The substantial leverage of the Company and its ability to incur
additional indebtedness.
.The risk of possible future net losses from operations.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC (1) COMMISSIONS (2) COMPANY (3)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Senior Note......................... % % %
Total................................... $ $ $
</TABLE>
- --------------------------------------------------------------------------------
(1) Plus accrued interest, if any, from the date of issuance.
(2) The Issuers have agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses of the Offering payable by the Issuers estimated
at $ .
The Senior Notes are being offered by the several Underwriters, subject to
prior sale, when, as and if delivered to and accepted by the Underwriters, and
subject to various conditions, including the right of the Underwriters to
reject any order in whole or in part. It is expected that delivery of the
Senior Notes will be made in New York, New York on or about , 1996.
DONALDSON, LUFKIN & JENRETTE LAZARD FRERES & CO. LLC
SECURITIES CORPORATION
<PAGE>
[GRAPHICS TO BE SUPPLIED]
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SENIOR NOTES
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless the context otherwise requires, all
references to the "Company" include Muzak Limited Partnership and its
consolidated subsidiary, Muzak Capital Corporation ("Capital Corp.").
THE COMPANY
The Company is the leading provider of business music in the United States,
based on the number of customer locations served. The Company and its
franchisees serve approximately 180,000 customer locations in the United
States, representing a market share of approximately 50% of the estimated
number of domestic locations currently served by business music providers and
approximately twice the estimated number of locations served by its nearest
competitor. Through a network of distributors, the Company also provides
business music to subscribers outside the United States. In addition, the
Company offers its customers a range of non-music services, including broadcast
data delivery, video, audio marketing and in-store advertising services, and
sells, installs and services related equipment.
The Company markets business music in a variety of formats, including (i) its
well-known proprietary Environmental Music(R) (or "background" music) and (ii)
over 100 "foreground" music formats ranging from top-of-the-charts hits to
contemporary jazz, country music and classical music. Internal and third-party
studies sponsored by the Company have indicated that properly programmed music
can have a favorable impact on listeners in business and retail environments.
The broadcasting of music, including the rebroadcasting of commercial music, in
such locations is not permitted without licenses and the payment of royalties.
Environmental Music(R), which is principally comprised of instrumental versions
of popular songs that have been adapted and rerecorded by the Company, is
generally used in business offices and manufacturing facilities to improve
employee concentration and reduce stress. Foreground music, consisting
principally of original artist recordings, is most commonly used in public
areas, such as restaurants and retail establishments, primarily as a sales
enhancement tool. The Company distributes 30 of its channels by broadcast media
(principally direct broadcast satellite ("DBS") transmission) and supplies the
balance to subscribers in the form of long-playing audio tapes.
Since 1991, the total number of domestic customer locations served by the
Company and its franchisees has grown from 134,000 to 180,000, with the number
of domestic customer locations served by the Company growing from approximately
32,000 to approximately 62,000 and the number of domestic customer locations
served by the Company's franchisees growing from approximately 102,000 to
approximately 118,000. Over the same period, the Company's total revenues and
earnings before interest, taxes, depreciation, amortization and other
income/expense ("EBITDA") have grown from $56.0 million and $12.6 million in
1991, respectively, to $86.9 million and $20.0 million in 1995, respectively.
COMPETITIVE STRENGTHS
The Company believes that it possesses a number of attributes that have
allowed it to become the leading provider of business music in the nation
(based on number of customer locations served), including:
Broad Appeal to Diverse Customer Base. The Company's music products have been
programmed to appeal to a variety of end users, including business offices,
manufacturing facilities, retail establishments and restaurants. The Company's
salesforce markets over 100 different music formats, allowing each customer to
select a format appropriate for its line of business and customer base. The
Company's major national customers include national restaurant chains, such as
Taco Bell, McDonald's and Boston Market, and specialty retailers, such as
Nordstrom, Crate & Barrel, Kroger, Staples, Hallmark and Wal-Mart, as well as a
large number of local and regional accounts, none of which represents more than
3% of the Company's consolidated revenues and the top five of which represent
in the aggregate less than 10% of consolidated revenues. The Company believes
that the geographic dispersion of its customers, and the diversity of
businesses in which they are engaged minimizes the impact to the Company of a
cyclical downturn in any one area of the country or in any one sector of the
economy.
3
<PAGE>
Attractive Economics to Customers and the Company. The Company believes that
its services are highly cost effective, providing an important business tool to
its customers for a low monthly cost. On average, the Company receives
approximately $45 of revenue per month per subscriber location, net of
licensing fee and applicable royalties, for which it makes an investment per
subscriber location (including sales commission) of approximately $950 for
medium-powered DBS subscribers (substantially lower for local broadcast
technology subscribers). This allows the Company to recover its capital costs
within two years. The Company's customers typically enter into long-term
contracts, which are generally for a period of five years with an automatic
renewal option. The Company's annual cancellation rate is less than 10% of
music and other business services revenues, which equates to an average length
of service per customer of approximately ten years.
Full Line of Audio, Video and Data Products and Services. The Company can
provide its customers with an integrated package of services including: (i)
over 100 different music formats including both background and foreground
music; (ii) customized audio messages inserted in regular programming; (iii) e-
mail and computer bulk data transfer; (iv) on-premise music videos; (v)
customized messages for use with "on-hold" business telephone systems; and (vi)
"point of purchase" audio advertising and merchandising services. The ability
to deliver a package of music and non-music services over a common transmission
system has been a critical factor in enabling the Company to generate
incremental revenues from its customers at little or no additional cost, gain
new customers and protect existing customers from competitive business music
providers that do not offer such a broad line of products and services.
Multiple Delivery Systems. The Company believes that its ability to
distribute its services through each of high-powered and medium-powered DBS
transmission, local radio broadcast transmission, telephone lines and audio
tapes enables it to effectively serve customers with either single or multiple
locations as well as those having varied music or service needs. The number of
domestic subscriber locations served by medium-powered DBS transmission has
grown from approximately 26,000 at the end of 1991 to approximately 120,000 at
June 30, 1996. In addition, the Company has recently entered into a unique
distribution arrangement with EchoStar Satellite Corporation ("EchoStar"). The
Company anticipates that its agreements with EchoStar will enable it to: (i)
attract additional business music subscribers by offering an expanded array of
DBS-delivered music programming; (ii) deliver music services to residential
subscribers for the first time; and (iii) deliver television programming, such
as CNN(R), MTV(R) and ESPN(R), to business music subscribers in packages
specifically designed for businesses (i.e., news, entertainment or lifestyles).
In addition, the EchoStar agreements provide the Company with high-powered DBS
transmission capability to supplement its existing medium-powered DBS system,
reduced equipment installation costs and an opportunity to shift certain
equipment costs to the subscriber.
Integrated Sales Network. The Company believes that its 35 sales offices in
the United States, its 81 franchisees, whose sales territories cover the
remaining market in the United States, and its 20 international distributors in
15 foreign countries, comprise the largest network of customer sales and
service offices among business music providers in the United States. The
Company further believes that this network allows the Company, among other
things, to more effectively market to and support its national and
international accounts.
OPERATING STRATEGY
The Company believes it has opportunities to achieve growth in revenues and
cash flow by:
Increasing U.S. Market Penetration. The Company intends to increase its
penetration of the U.S. market by expanding its local and national account
sales force, offering more music formats (including up to 60 broadcast formats
with the EchoStar agreements), developing sales strategies focused on
underserved market segments and aggressively marketing its services as part of
a unique bundled package. 1993 census data indicate that there are
approximately 6.4 million business locations in the United States, including
approximately 1.1 million retail outlets and 450,000 restaurant and other food
service locations. Of the total 6.4 million business locations, only about 5%
are currently believed by the Company to subscribe to a business music service.
4
<PAGE>
Pursuing Strategic Relationships and Acquisitions. The Company intends to
pursue additional strategic relationships, acquisitions and joint ventures,
such as the Company's recent distribution agreements with EchoStar and its 1994
acquisition of the assets of Comcast Sound Communications Inc. ("Comcast"),
then the Company's largest franchisee, in order to: (i) increase the breadth of
its programming offerings; (ii) further diversify its distribution channels;
and (iii) take advantage of certain economies of scale.
Expanding in International Markets. The Company plans to continue its
expansion in Europe primarily through strategic relationships and joint
ventures, such as Muzak Europe B.V. ("Muzak Europe"), a joint venture formed in
1995 between the Company and Alcas Holdings B.V. ("Alcas"), a leading European
business music provider. This joint venture couples the Company's broadcast
technology skills with Alcas' market knowledge and marketing expertise and
further permits the Company to leverage its assets and programming expertise
and diversify its sources of revenue. The Company also intends to expand into
Latin America and Asia by establishing similar strategic relationships in those
markets.
Exploiting New Market Opportunities. The Company intends to continue to
leverage its music programming expertise and its extensive recorded music
library into new products and markets. For example, the Company has recently
developed and begun operating its proprietary MusicServer SM service, which
permits real-time delivery of digitized song samples over the Internet to music
retailers and others (including companies such as CDnow!, Tower Records and
Microsoft) that require access to a large library of recorded music.
Enhancing Operating Margins. The Company seeks to enhance operating margins
through continued centralization of operations and leveraging fixed expenses
over a wider customer base. The Company strives to exploit less costly
transmission technologies and to reduce the capital required to initiate
service to a customer.
The Company was formed in September 1992 by Centre Capital Investors L.P.
("CCI"), a private investment partnership of which Centre Partners L.P.
("Centre Partners") is the general partner, to acquire substantially all of the
assets and business of the Company (the "1992 Acquisition") from a predecessor
entity (the "Predecessor"). MLP Holdings L.P. ("MLP"), an affiliate of CCI, and
the Management Investors (as defined herein) beneficially own approximately
62.9% and 9.7%, respectively, of the outstanding partnership interests of the
Company. Capital Corp., a Delaware corporation, is acting as co-obligor for the
Senior Notes. Capital Corp. is a wholly-owned subsidiary of the Company which
has nominal assets and will not conduct any operations. Certain institutional
investors that might otherwise be limited in their ability to invest in
securities offered by partnerships by reason of the investment laws of their
states of organization or their charter documents may be able to invest in the
Senior Notes because Capital Corp. is a corporation. A portion of the net
proceeds from the Offering will be used to retire indebtedness incurred in the
1992 Acquisition.
THE OFFERING
Securities Offered........
$100,000,000 in aggregate principal amount of %
Senior Notes due 2003 (the "Senior Notes").
Maturity Date............. , 2003.
Interest Payment Dates.... and of each year, commencing , 1997.
Optional Redemption.......
The Senior Notes will be redeemable at the option
of the Issuers, in whole or in part, at any time on
or after , 2000, in cash at the redemption
prices set forth herein, plus accrued and unpaid
interest, if any, thereon to the date of redemp-
tion. In addition, during the first 36 months after
the date of this Prospectus, the Issuers may on any
one or more occasions redeem up to 35% of the ini-
tially outstanding aggregate principal amount of
Senior Notes at a redemption price equal to % of
the principal amount thereof, plus accrued and un-
paid interest, if any, thereon to the redemption
date, with the net proceeds of one or more equity
offerings of the Issuers; provided that at least
65% of the initially outstanding aggregate princi-
pal amount of Senior Notes remains outstanding im-
mediately after the occurrence of any such redemp-
tion. See "Description of the Senior Notes--Op-
tional Redemption."
5
<PAGE>
Change of Control.........
Upon the occurrence of a Change of Control, each
holder of Senior Notes will have the right to re-
quire the Issuers to repurchase all or any part of
such holder's Senior Notes at an offer price in
cash equal to 101% of the aggregate principal
amount thereof, plus accrued and unpaid interest,
if any, thereon to the date of purchase. See "De-
scription of the Senior Notes--Repurchase at the
Option of Holders--Change of Control." There can be
no assurance that, in the event of a Change of Con-
trol, the Issuers would have sufficient funds to
purchase all Senior Notes tendered. See "Risk Fac-
tors--Risk of Inability to Satisfy Change of Con-
trol Offer."
Ranking...................
The Senior Notes will represent unsecured senior
obligations of the Issuers, will rank senior in
right of payment to all Subordinated Indebtedness
of the Issuers and will rank pari passu in right of
payment with all senior indebtedness of the Is-
suers. At June 30, 1996, on a pro forma basis after
giving effect to the Offering and the application
of the estimated net proceeds therefrom, the Is-
suers would have had approximately $1.1 million of
total indebtedness, other than the Senior Notes.
The Senior Notes will be guaranteed on a senior ba-
sis by all future Domestic Subsidiaries of the Com-
pany (other than Capital Corp.). As of the date
hereof, the Company has no subsidiaries other than
Capital Corp., which will be a Restricted Subsidi-
ary. The Indenture will limit the ability of the
Company and its Restricted Subsidiaries to incur
additional indebtedness; however, the Company and
its Restricted Subsidiaries will be permitted to
incur certain indebtedness, which may be secured.
See "Description of the Senior Notes--General" and
"--Certain Covenants."
Certain Covenants.........
The Indenture will contain certain covenants that
will limit, among other things, the ability of the
Company and its Restricted Subsidiaries to (i) pay
dividends or make certain other restricted payments
or investments, (ii) incur additional indebtedness
or issue preferred equity interests, (iii) merge,
consolidate or sell all or substantially all of
their assets, (iv) create liens on assets, (v) en-
ter into certain transactions with affiliates or
related persons and (vi) engage in other lines of
business. See "Description of the Senior Notes--
Certain Covenants."
Use of Proceeds...........
The net proceeds from the sale of the Senior Notes
are estimated to be approximately $96.5 million
(after deducting underwriting discounts and esti-
mated expenses of the Offering) and will be used:
(i) to repay approximately $49.2 million of secured
indebtedness outstanding under the Company's exist-
ing credit facility; (ii) to repay approximately
$12.5 million of subordinated indebtedness incurred
in connection with the 1992 Acquisition; (iii) to
pay approximately $7.5 million to repurchase the
Company's Class C Limited Partner Interest with a
recorded value of approximately $10.4 million; and
(iv) for general corporate purposes.
RISK FACTORS
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SENIOR NOTES,
INCLUDING:
.The substantial leverage of the Company and its ability to incur
additional indebtedness.
.The risk of possible future net losses from operations.
6
<PAGE>
SUMMARY FINANCIAL DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX-MONTH PERIOD
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------- ------------------
1993 1994(1) 1995 1995 1996
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Revenues:
Music and other business
services.................. $ 36,800 $ 50,410 $ 52,489 $ 25,916 $ 26,977
Equipment and related
services.................. 21,741 33,006 34,392 16,646 15,179
-------- -------- -------- -------- --------
Total revenues........... 58,541 83,416 86,881 42,562 42,156
-------- -------- -------- -------- --------
Cost of revenues:
Music and other business
services.................. 10,611 13,685 14,465 7,063 7,501
Equipment and related
services.................. 16,756 23,413 23,895 11,465 10,303
-------- -------- -------- -------- --------
Total cost of revenues... 27,367 37,098 38,360 18,528 17,804
-------- -------- -------- -------- --------
Gross profit................ 31,174 46,318 48,521 24,034 24,352
Selling, general and
administrative expenses.... 19,603 28,699 28,496 14,628 15,107
Depreciation................ 4,349 8,211 9,382 4,669 5,155
Amortization................ 6,942 9,622 8,909 4,443 4,463
-------- -------- -------- -------- --------
Operating income (loss)..... 280 (214) 1,734 294 (373)
Interest expense............ 3,785 6,990 7,483 3,791 3,574
Other (income) expense,
net........................ (30) (21) (35) (42) 228
-------- -------- -------- -------- --------
Net income (loss)........... $ (3,475) $ (7,183) $ (5,714) $ (3,455) $ (4,175)
======== ======== ======== ======== ========
OTHER INFORMATION:
Gross profit margin(2)...... 53.3% 55.5% 55.8% 56.5% 57.8%
EBITDA(3)................... $ 11,571 $ 17,619 $ 20,025 $ 9,406 $ 9,245
Capital expenditures(4)..... 8,235 13,804 12,757 6,043 7,416
Estimated number of domestic
customer locations:
Company.................. 33,000 56,000 60,000 58,000 62,000
Franchisees.............. 116,000 103,000 111,000 107,000 118,000
-------- -------- -------- -------- --------
Total................... 149,000 159,000 171,000 165,000 180,000
======== ======== ======== ======== ========
Estimated number of domestic
DBS customer locations:
Company.................. 12,000 29,000 35,000 32,000 38,000
Franchisees.............. 49,000 55,000 72,000 64,000 82,000
-------- -------- -------- -------- --------
Total................... 61,000 84,000 107,000 96,000 120,000
======== ======== ======== ======== ========
PRO FORMA INFORMATION:(5)
Total interest expense(6)... -- -- $ 7,517 -- $ 3,700
Ratio of EBITDA to total in-
terest expense(6).......... -- -- 2.66x -- 2.50x
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1996
--------------------
AS
ACTUAL ADJUSTED(7)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 3,239 $ 30,533
Total assets.............................................. 95,358 123,580
Total long-term obligations, including current portion.... 50,672 101,085
Redeemable preferred partnership interests................ 16,265 5,891
Partners' deficit......................................... (3,200) (4,267)
Ratio of net debt to LTM EBITDA(8)........................ -- 3.55x
</TABLE>
(footnotes on following page)
7
<PAGE>
(footnotes to table on preceding page)
- --------------------
(1) Includes the results of Comcast from January 31, 1994. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(2) Gross profit margin represents gross profit as a percentage of total
revenues.
(3) EBITDA represents earnings before interest expense, income taxes,
depreciation, amortization and other income/expense. EBITDA does not
represent and should not be considered as an alternative to net income or
cash flow from operations as determined by generally accepted accounting
principles. The Company, however, believes that EBITDA provides useful
information regarding a company's ability to service and/or incur
indebtedness.
(4) Includes additions to property and equipment and additions to deferred
costs and intangible assets.
(5) Gives pro forma effect to the Offering and the application of $61.7 million
of the estimated net proceeds therefrom to repay existing indebtedness as
if the Offering had taken place on January 1, 1995.
(6) Total interest expense consists of cash interest expense on the Senior
Notes at an assumed rate of 11% plus the amortization of deferred debt
issuance costs. Pro forma total interest expense gives effect to the
issuance of the Senior Notes only to the extent that the proceeds therefrom
are used to repay existing indebtedness. Giving effect to the full amount
of the Senior Notes, cash interest expense would have been $11.1 million
and $5.6 million for the year ended December 31, 1995 and the six-month
period ended June 30, 1996, respectively. The ratio of EBITDA for the
twelve months ended June 30, 1996 to cash interest expense for the same
period (excluding the impact of any interest income earned on the Company's
cash balances) would have been 1.79x.
(7) As adjusted to give effect to the Offering and the application of the
estimated net proceeds therefrom as if the Offering had taken place on June
30, 1996.
(8) For purposes of calculating the ratio of net debt to LTM EBITDA, net debt
is defined as total long-term obligations (including the current portion
thereof) less cash and cash equivalents, and LTM EBITDA is defined as
EBITDA for the twelve months ended June 30, 1996.
8
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following factors, in
addition to the other information contained in this Prospectus, before
deciding whether to make an investment in the Senior Notes offered hereby.
SUBSTANTIAL LEVERAGE
The Company is, and after the consummation of the Offering will continue to
be, highly leveraged. After giving effect to the Offering and the use of
proceeds therefrom, on an as adjusted basis, the Company will have total long-
term indebtedness (excluding the current portion thereof), of approximately
$101.1 million and a ratio of total long-term indebtedness to total
capitalization of 98.4% at June 30, 1996 (as if the Offering and the
application of the net proceeds therefrom had occurred on such date). The
Indenture will permit the Company and its Restricted Subsidiaries to incur
certain specified additional indebtedness.
The Company currently incurs, and after the consummation of the Offering
will continue to incur, significant annual cash interest expense in connection
with its obligations under its long-term indebtedness. As a result of the
Offering, total interest expense would have increased from $3.6 million for
the six-month period ended June 30, 1996, to $5.6 million on a pro forma basis
(giving effect to the issuance of the full amount of Senior Notes), for the
six months ended June 30, 1996, due primarily to the increase in overall debt
levels as well as substitution of long-term fixed-rate debt for high-rate
subordinated debt and the floating-rate debt under the Company's existing
senior secured credit facility.
The degree to which the Company is leveraged could have important
consequences to holders of the Senior Notes, including, but not limited to,
the following: (i) the Company's ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions, general
corporate purposes or other purposes will be restricted; (ii) a significant
portion of the Company's cash flow from operations must be dedicated to the
payment of principal and interest on its indebtedness, thereby reducing the
funds available to the Company for its operations; and (iii) such indebtedness
contains financial and restrictive covenants, the failure to comply with which
may result in an event of default which, if not cured or waived, could have a
material adverse effect on the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
RANKING; UNSECURED STATUS OF THE SENIOR NOTES
The Senior Notes will represent unsecured senior obligations of the Issuers,
will rank senior in right of payment to all Subordinated Indebtedness of the
Issuers and will rank pari passu in right of payment with all senior
indebtedness of the Issuers. At June 30, 1996, on a pro forma basis after
giving effect to the Offering and the application of the estimated net
proceeds therefrom, the Issuers would have had approximately $1.1 million of
total indebtedness, other than the Senior Notes. The Senior Notes will be
guaranteed on a senior basis by all future Domestic Subsidiaries of the
Company (other than Capital Corp.). As of the date hereof, the Company has no
subsidiaries other than Capital Corp., which will be a Restricted Subsidiary.
The Indenture will limit the ability of the Company and its Restricted
Subsidiaries to incur additional indebtedness; however, the Company and its
Restricted Subsidiaries will be permitted to incur certain indebtedness, which
may be secured. See "Description of the Senior Notes--General" and "--Certain
Covenants." In the event of a bankruptcy, liquidation or reorganization of the
Company or any default in the payment of any indebtedness under any senior
secured credit facility or other secured indebtedness, holders of such secured
indebtedness will be entitled to payment in full from the proceeds of all
assets of the Company pledged to secure such indebtedness prior to any payment
of such proceeds to holders of the Senior Notes. Consequently, there can be no
assurance that the Company will have sufficient funds to make payments to
holders of the Senior Notes. See "Description of the Senior Notes."
RISK OF INABILITY TO SATISFY CHANGE OF CONTROL OFFER
Upon the occurrence of a Change of Control, each holder of Senior Notes will
have the right to require the Issuers to repurchase all or any part of such
holder's Senior Notes at an offer price in cash equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest, if any, thereon to
the date of purchase.
9
<PAGE>
There can be no assurance that the Issuers will have the funds necessary to
effect such a purchase if such an event were to occur. In the event a Change
of Control occurs at a time when the Issuers are unable to purchase the Notes,
the Issuers could seek to refinance the Notes. If the Issuers are unsuccessful
in refinancing the Notes, the Issuers' failure to purchase tendered Notes
would constitute an Event of Default under the Indenture. See "Description of
the Senior Notes--Repurchase at the Option of Holders--Change of Control."
NET LOSSES FROM OPERATIONS; WORKING CAPITAL DEFICIT; EXTRAORDINARY ITEMS
The Company had net losses from operations of approximately $3.5 million,
$7.2 million and $5.7 million for the years ended December 31, 1993, 1994 and
1995, respectively, and $3.5 million and $4.2 million for the six-month
periods ended June 30, 1995 and 1996, respectively. During these periods, the
Company was highly leveraged and these losses resulted primarily from interest
payments on acquisition financing, accelerated amortization of income-
producing contracts acquired through acquisitions and other related
acquisition and financing costs. The Company anticipates a net loss from
operations for the year ended December 31, 1996. There can be no assurance
that the Company will not continue to incur net losses from operations. As of
June 30, 1996, the Company had a working capital deficit of $12.1 million.
There can be no assurance that the Company will not experience working capital
deficits in the future. In connection with the Offering, the Company will
recognize non-cash charges of approximately $3.9 million in connection with
write-offs of deferred financing fees, unamortized debt discount and
organizational costs. The Company will record additional future non-cash
charges to earnings in connection with its management option arrangements that
will adversely affect results of operations. The Company will also record a
non-recurring gain of approximately $3.0 million from the retirement at a
discount of a preferred interest in the Partnership in connection with the
Offering. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--General."
DEPENDENCE ON SATELLITE DELIVERY CAPABILITIES
There are a limited number of satellites with orbital positions suitable for
DBS transmission of the Company's signals and a limited number of available
transponders on those satellites. Satellite transponders receive signals,
translate signal frequencies and transmit signals to receiving satellite dish
antennas. The Company leases transponder capacity from Microspace
Communications Corporation ("Microspace"), which also provides facilities for
uplink transmission of the Company's medium-powered DBS signals to the
transponders. Microspace, in turn, leases its transponder capacity on
satellites operated by third parties, including the Galaxy IV satellite
operated by Hughes Communications Galaxy Inc. ("Hughes") through which a
majority of the Company's DBS signals are transmitted. The term of the
Company's principal transponder lease with Microspace for the Galaxy IV
satellite runs through the life of that satellite (which is expected to
continue through 2004). Although there has never been sustained interruption
of the Company's DBS signals due to transponder failure or satellite
unavailability, failure or loss, no assurance can be given that any such event
will not occur in the future. If such an event were to occur or if Microspace
were unable to provide transponder services to the Company, the Company would
have to seek alternative transponder or satellite facilities. However,
alternative facilities may not be available on a timely or cost-effective
basis, may be available only on a satellite that is not positioned as
favorably as the Company's current satellites or may require a change in the
frequency currently used to transmit the Company's signal. Any one or more of
these events would require the Company to incur additional expenditures and
could degrade the Company's ability to serve its customer base and have a
material adverse effect on the Company's financial condition and results of
operations. If the Company is required to enter into new transponder lease
agreements, no assurance can be given that it will be able to do so on terms
as favorable as those in its current agreements with Microspace. See
"Business--Business Music Services."
DEPENDENCE ON ECHOSTAR AND ITS SATELLITES
In December 1995, the Company entered into several agreements with EchoStar,
a high-powered DBS home television service provider. Through these agreements,
the Company furnishes EchoStar with 30 channels of digital music programming,
of which 27 channels have begun to be distributed in stereo to EchoStar's
residential subscribers. The Company has only recently begun providing
services via EchoStar. There can be no assurance
10
<PAGE>
that either EchoStar's business or the Company's relationship with EchoStar
will be successful. In addition, the Company's ability to expand its music
services through the EchoStar satellite system is subject to EchoStar's
ability to provide transponder capacity on its second high-powered direct
broadcast satellite by December 31, 1997, or, if a second satellite is not
operational by that date, EchoStar's willingness to allocate transponder
capacity to the Company on EchoStar's first satellite. The second EchoStar
satellite was launched on September 11, 1996, but there can be no assurance
that the second satellite will be operational in a timely manner. The Company
is obligated to pay certain fees, rents and royalties to EchoStar in
connection with these agreements. Any business failure of EchoStar, breach by
EchoStar of its agreements with the Company or failure by the Company to
satisfy its obligations to EchoStar, or any loss, failure or malfunction of
the EchoStar satellite system could impair the Company's ability to serve
customers through the EchoStar system. See "Business--Business Music Services"
and "--EchoStar Agreements."
UNPROVEN CAPABILITIES OF NEW SERVICES
The Company's operating strategy includes developing new services and
technologies to complement and expand its existing technologies and services.
This strategy presents risks inherent in assessing the value, strengths and
weaknesses of development opportunities, in evaluating the costs and uncertain
returns of new services and in integrating and managing new technologies.
Within these new markets, the Company will encounter technical, financial and
operating challenges, including competition from a variety of sources. There
can be no assurance that the Company will successfully develop new services or
that any new service will achieve market acceptance and generate additional
revenues or earnings for the Company.
The Company has recently started providing its Internet MusicServer SM
service, which permits music retailers and others to offer visitors to their
websites access to digitized 30-second samples from recordings in the
Company's library of recorded songs. At present, the economic viability of
Internet-based technologies, including the Company's Internet service, cannot
be ascertained. There is no assurance that music sampling on the Internet will
increase sales of compact discs, that extensive music-related content and
sales will be provided over the Internet or that any other service that the
Company may develop will achieve market acceptance. There can also be no
assurance that the Internet will be able to support the high bandwidth
required for multimedia services, such as the MusicServerSM service. There are
also relatively limited barriers to entry to the Internet music-sampling
business, so that competition in the market may increase, and it is not
certain that the Company will be able to compete effectively with competitive
services on the Internet. There is also a risk that the record companies that
own the copyrights to the music used in the MusicServerSM service will
restrict the use of music samples by third parties, such as the Company, or
will decide to enter the Internet-based music-sampling business directly. See
"Business--Internet Services."
COMPETITION; TECHNOLOGICAL CHANGE
The Company competes in the business music and business services markets
with many competitors. In providing its business services, such as broadcast
data delivery, video, audio marketing and in-store advertising services, the
Company competes with numerous companies using broadcast as well as other
delivery systems to provide similar business services. There are numerous
methods by which programming, such as the Company's business music, broadcast
data delivery, video, audio marketing and in-store advertising services, can
be delivered by existing and future competitors, including medium and high-
powered DBS, wireless cable and fiber optic cable and digital compression over
existing telephone lines. Many competitors or potential competitors with
access to these delivery technologies have substantially greater financial,
technical, personnel and other resources than the Company.
The communications, media and entertainment industries are undergoing
significant and rapid change, including strategic relationships and the
development of new services, delivery systems and interactive technologies.
Many other companies also offer DBS services and strategic relationships
between these companies and cable, telephone, media and other related
businesses may provide increased competition in the future using new systems
and technologies to deliver business music, business data and other similar
services. In addition, the recently enacted Telecommunications Act of 1996
(the "Telecommunications Act") may increase
11
<PAGE>
competition in the markets in which the Company operates. No assurance can be
given that the Company will be able to compete successfully with existing or
potential new competitors using new delivery methods and technologies, or that
discoveries or improvements in the communications, media and entertainment
industries will not render obsolete some or all of the technologies or
delivery systems currently relied upon by the Company. See "Business--
Competition."
No assurance can be given that the Company will be able to compete
successfully with its existing or potential new competitors or to maintain or
increase its current market share, that it will be able to use, or compete
effectively with competitors that adopt, new delivery methods and
technologies, or that discoveries or improvements in the communications, media
and entertainment industries will not render obsolete some or all of the
technologies or delivery systems currently relied upon by the Company.
DEPENDENCE ON LICENSED RIGHTS; RISK OF INCREASED FEES
The Company and other business music providers license rights to rerecord
and distribute music from a variety of sources and pay royalties to
songwriters and publishers through contracts negotiated with performing rights
societies such as the American Society of Composers, Authors and Publishers
("ASCAP"), Broadcast Music, Inc. ("BMI") and the Society of European Stage
Authors and Composers ("SESAC"). The industry-wide agreement between business
music providers (including the Company) and ASCAP runs through 1999;
agreements with BMI and SESAC expired on December 31, 1993 and December 31,
1995, respectively, and new agreements are being negotiated. In 1995, the fees
paid by the Company to ASCAP, BMI and SESAC were approximately $2.6 million,
$946,000 and $7,000, respectively. The interim fee structure with BMI provides
for continued licensing at the 1993 payment levels. The BMI license extension
stipulates that any settlement of ongoing fees may include retroactivity to
January 1, 1994. If the fees paid by the Company to these licensors increase,
the Company's operating margin could be adversely affected, although the
Company does not believe that its liquidity or financial condition would be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Music Licenses."
RELIANCE ON KEY PERSONNEL
The Company is dependent on the continued services of its senior management
personnel. The Company has in effect a $4.0 million key man term life
insurance policy covering John R. Jester, the Company's President and Chief
Executive Officer, but there can be no assurance that the coverage provided by
such policy will be sufficient to compensate the Company for the loss of
Mr. Jester's services. The Company believes that the loss of any one member of
senior management would not have a material adverse effect upon the Company.
However, the loss of the services of more than one member of senior management
could have a material adverse effect upon the Company. See "Management."
CERTAIN BENEFITS TO PRINCIPAL OWNERS AND MANAGEMENT
The Company intends to use a portion of the net proceeds of the Offering to
repay approximately $49.2 million of indebtedness outstanding under the
Company's existing senior credit facility, which is secured by, among other
things, the interests in the Company held by MLP, and the Named Executive
Officers referred to in "Management--Executive Compensation," Wallace R.
Borgeson, Bruce B. Funkhouser, L. Dale Stewart, Jack D. Craig, Richard
Chaffee, Roger C. Fairchild, J. Gary Henderson, Susan P. Chetwin, Dino J.
DeRose, Daniel Lee Hart and Steven Tracy (the "Management Investors"), and
their respective affiliates.
RISKS OF ADVERSE EFFECTS OF GOVERNMENT REGULATION
The Company is subject to the regulatory authority of the U.S. government
and the governments of other countries in which it provides services to
subscribers. The business prospects of the Company could be adversely affected
by the adoption of new laws, policies or regulations that modify the present
regulatory environment. The Company currently provides music services in a few
areas in the United States through 928 to 960 megahertz
12
<PAGE>
radio broadcast frequencies, which are transmission facilities licensed by the
Federal Communications Commission ("FCC"). Additionally, the radio frequencies
utilized by satellites on which the Company transmits its DBS services in the
United States are licensed by the FCC. If the FCC authorizations for any of
these satellites are revoked or are not extended, the Company would be
required to seek alternative satellite facilities. Laws, regulations and
policy, or changes therein, in other countries could adversely affect the
Company's existing services or restrict the growth of the Company's business
in these countries.
FRAUDULENT CONVEYANCE
Management believes that the indebtedness represented by the Senior Notes is
being incurred for proper purposes and in good faith, and that, based on
present forecasts, internal asset valuations and other financial information,
the Issuers are, and after the consummation of the Offering will be, solvent,
will have sufficient capital for carrying on their business and will be able
to pay their debts as they mature. Notwithstanding management's belief,
however, if a court of competent jurisdiction in a suit by an unpaid creditor
or a representative of creditors (such as a trustee in bankruptcy or a debtor-
in-possession) were to find that, at the time of the incurrence of such
indebtedness, the Issuers were insolvent, were rendered insolvent by reason of
such incurrence, were engaged in a business or transaction for which their
remaining assets constituted unreasonably small capital, intended to incur, or
believed that they would incur, debts beyond their ability to pay such debts
as they matured, or intended to hinder, delay or defraud their creditors, and
that the indebtedness was incurred for less than reasonably equivalent value,
then such court could, among other things, (a) void all or a portion of the
Issuers' obligations to the holders of the Senior Notes, the effect of which
would be that the holders of the Senior Notes might not be repaid in full,
and/or (b) subordinate the Issuers' obligations to the holders of the Senior
Notes to other existing and future indebtedness of the Issuers, the effect of
which would be to entitle such other creditors to paid in full before any
payment could be made on such Senior Notes.
ABSENCE OF PUBLIC MARKET; ILLIQUIDITY; MARKET VALUE
The Senior Notes will not be listed on any national securities exchange or
included for quotation through an inter-dealer quotation system. The Senior
Notes constitute new issues of securities with no established trading market.
Although the Underwriters have indicated that DLJ (as defined) presently
intends to, and Lazard (as defined) may, make a market in the Senior Notes,
there can be no assurance that a trading market will develop or, if any such
market develops, that it would continue to exist. Such market-making may be
discontinued at any time. Therefore, an investment in the Senior Notes may be
illiquid. In addition, the Senior Notes may trade at a discount from their
initial offering prices, depending upon prevailing interest rates, the market
for similar securities and other factors. All of the foregoing may have an
adverse effect on the market value of the Senior Notes.
13
<PAGE>
THE ISSUERS
The Company is the leading provider of business music in the United States,
based on the number of customer locations served. The Company also offers its
customers a range of non-music services, including broadcast data delivery,
video, audio marketing and in-store advertising services, and sells, installs
and services related equipment.
The Company was formed in September 1992 by CCI, a private investment
partnership of which Centre Partners is the general partner, in order to
effectuate the 1992 Acquisition. MLP, an affiliate of CCI, and the Management
Investors beneficially own approximately 62.9% and 9.7%, respectively, of the
outstanding partnership interests of the Company. Capital Corp., a Delaware
corporation, is acting as co-obligor for the Senior Notes. Capital Corp. is a
wholly-owned subsidiary of the Company which has nominal assets and will not
conduct any operations. Certain institutional investors that might otherwise
be limited in their ability to invest in securities offered by partnerships by
reason of the investment laws of their states of organization or their charter
documents may be able to invest in the Senior Notes because Capital Corp. is a
corporation. A portion of the net proceeds from the Offering will be used to
retire indebtedness incurred in the 1992 Acquisition. See "Use of Proceeds."
The Company's business was founded in 1934. The Issuers' principal executive
offices are located at 2901 Third Avenue, Suite 400, Seattle, Washington
98121, and their telephone number is (206) 633-3000.
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
approximately $96.5 million.
Of such proceeds, approximately $49.2 million will be used to repay
outstanding senior secured indebtedness payable in semi-annual installments
through January 2001 and bearing interest at an effective rate of 10.6% per
annum at June 30, 1996 and approximately $12.5 million will be used to repay
outstanding subordinated indebtedness bearing interest at an effective rate of
14.5% per annum and due in installments between September 2001 and September
2002. In addition, approximately $7.5 million will be used to repurchase the
Company's Class C Limited Partner Interest with a recorded value of
approximately $10.4 million. The balance of the net proceeds, approximately
$27.3 million, will be used for general corporate purposes, which may include
acquisitions of the Company's franchisees to further its operating strategy,
other acquisitions or investment opportunities and working capital. The
Company has no material arrangement, commitment or understanding with respect
thereto. Pending such use, the balance of the proceeds will be invested in
short-term investment grade obligations as permitted by the Indenture.
14
<PAGE>
CAPITALIZATION
The following table sets forth the cash and cash equivalents, short-term
debt and capitalization of the Company at June 30, 1996 and as adjusted to
give effect to the Offering. The information presented below should be read in
conjunction with the financial statements of the Company and the historical
and pro forma financial data included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT JUNE 30, 1996
-----------------------
(DOLLARS IN THOUSANDS)
ACTUAL AS ADJUSTED(1)
<S> <C> <C>
Cash and cash equivalents.............................. $ 3,239 $ 30,533
======= ========
Short-term borrowings and current portion of long-term
debt.................................................. $17,121 $ 391
======= ========
Long-term debt (excluding current portion):
Senior secured credit facility....................... $32,519 $ --
Senior Notes......................................... -- 100,000
14.5% subordinated indebtedness (net of unamortized
discount of $1,412)................................. 11,088 --
Other long-term debt................................. 694 694
------- --------
Total long-term debt (excluding current por-
tion)........................................... 44,301 100,694
------- --------
Redeemable preferred partnership interest.............. 16,265 5,891
------- --------
Partners' capital (deficit):
Limited interests.................................... 4,328 3,955
General interests.................................... (7,528) (8,222)
------- --------
Total partners' deficit.............................. (3,200) (4,267)
------- --------
Total capitalization............................. $57,366 $102,318
======= ========
</TABLE>
- ---------------------
(1) Adjusted to reflect the Offering and the application of the net proceeds
therefrom.
15
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following pro forma financial information sets forth historical
information which has been adjusted to reflect (i) the application of the net
proceeds of the Offering to repay $49.2 million of senior secured indebtedness
and $12.5 million of subordinated debt, (ii) the repurchase of the Class C
Limited Partner Interest which has a recorded value of approximately $10.4
million for approximately $7.5 million and (iii) a related impact on interest
expense.
No effect has been given in the Statements of Operations Data to non-
recurring expenses for the year ended December 31, 1995 and six-month period
ended June 30, 1996 for (i) the write-off of $3,056,000 and $2,572,000,
respectively, of deferred financing costs and (ii) the write-off of $1,536,000
and $1,412,000, respectively, of unamortized discount, both of which are
associated with long-term obligations expected to be repaid with the proceeds
of the Offering. In addition, no effect has been given to the extraordinary
gain of $2,573,000 and $2,917,000 for the year ended December 31, 1995 and
six-months ended June 30, 1996, respectively, associated with the retirement
of the Class C Limited Partner Interest at less than its recorded value of
$10.4 million.
The Unaudited Pro Forma Statements of Operations Data assumes that the
Offering took place on January 1, 1995, the beginning of the earliest period
presented. The Unaudited Balance Sheet Data assumes the Offering took place on
June 30, 1996. The pro forma information is based on certain assumptions and
estimates that management believes are reasonable in the circumstances and
does not purport to be indicative of the results which actually would have
been attained had the above transactions occurred at the dates indicated or
the results which may be attained in the future. This information should be
read in conjunction with the Company's audited financial statements and
related notes included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996
--------------------------- -----------------------------
(DOLLARS IN THOUSANDS)
PRO FORMA PRO PRO FORMA PRO
ACTUAL ADJUSTMENTS FORMA ACTUAL ADJUSTMENTS FORMA
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Total interest ex-
pense................ $7,483 $34 (1) $ 7,517 $ 3,574 $ 126 (1) $ 3,700
Net income (loss)..... (5,714) (34) (5,748) (4,175) (126) (4,301)
OTHER INFORMATION:(2)
Total interest ex-
pense(1)............. -- -- $ 7,517 -- -- $ 3,700
Ratio of EBITDA to to-
tal interest
expense.............. -- -- 2.66x -- -- 2.50x
Ratio of earnings to
fixed charges(3)..... -- -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1996
----------------------------------
(DOLLARS IN THOUSANDS)
OFFERING
ACTUAL ADJUSTMENTS AS ADJUSTED
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................. $ 3,239 $27,294 (4) $ 30,533
Total assets.............................. 95,358 28,222 (5) 123,580
Total long-term obligations, including
current portion.......................... 50,672 50,413 (6) 101,085
Redeemable preferred partnership inter-
ests..................................... 16,265 (10,374)(7) 5,891
Total partners' deficit................... (3,200) (1,067)(8) (4,267)
Ratio of net debt to LTM EBITDA(9)........ -- -- 3.55x
</TABLE>
- ---------------------
(1) Total interest expense consists of cash interest expense on the Senior
Notes at an assumed rate of 11% plus the amortization of deferred debt
issuance costs. Pro forma total interest expense gives effect to the
issuance of the Senior Notes only to the extent that the proceeds
therefrom are used to repay existing indebtedness.
16
<PAGE>
Historical interest expense was adjusted as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1995 1996
<S> <C> <C>
Average principal balance refinanced by Senior
Notes............................................. $62,800 $61,750
Assumed interest rate.............................. 11% 11%
------- -------
6,908 3,396
Amortization of new deferred issuance costs........ 500 250
Other interest expense............................. 109 54
------- -------
Pro forma interest expense......................... 7,517 3,700
Less: actual interest expense and amortization of
historical financing fees......................... 7,483 3,574
------- -------
Net increase in interest expense................... $ 34 $ 126
======= =======
</TABLE>
Giving effect to the full amount of the Senior Notes, cash paid for
interest would have been $11.1 million and $5.6 million for the year ended
December 31, 1995 and the six-month period ended June 30, 1996,
respectively. Each 1/4% change in the assumed interest rate on the Senior
Notes would increase/decrease pro forma total interest expense by $0.3
million.
(2) Gives pro forma effect to the Offering and the application of $61.7
million of the net proceeds therefrom to repay existing indebtedness as if
the Offering had taken place on January 1, 1995.
(3) For purposes of computing the ratio of earnings to fixed charges, earnings
include net loss attributable to general and limited partners, plus
redeemable preferred returns and interest expense, including that portion
of lease expense attributable to interest costs. Fixed charges consist of
preferred returns and interest expense, including that portion of lease
expense attributable to interest costs. On a pro forma basis, earnings
were insufficient to cover fixed charges by $6.6 million and $4.7 million
for the year ended December 31, 1995 and the six-month period ended June
30, 1996, respectively.
(4) Reflects the increase in cash and cash equivalents in an amount equal to
net proceeds in excess of refinanced debt and the retirement of the Class
C Limited Partner Interest calculated as follows:
<TABLE>
<S> <C>
Net proceeds................................................... $ 96,500
Less refinanced debt........................................... (61,749)
Less Class C Limited Partner Interest.......................... (7,457)
--------
Net increase in cash and cash equivalents.................... $ 27,294
========
</TABLE>
(5) Reflects increase in total assets due to the following transactions:
<TABLE>
<S> <C>
Net increase in cash and cash equivalents....................... $27,294
Write-off of deferred financing fees on refinanced debt......... (2,572)
Deferred debt issuance cost on Senior Notes..................... 3,500
-------
Net increase in total assets.................................. $28,222
=======
</TABLE>
(6) Reflects the increase in outstanding indebtedness as a result of the
Offering and the application of net proceeds therefrom:
<TABLE>
<S> <C>
Retirement of senior secured indebtedness..................... $(38,499)
Retirement of subordinated debt............................... (12,500)
Write-off of unamortized debt discount........................ 1,412
Issuance of Senior Notes...................................... 100,000
--------
Net increase in outstanding indebtedness.................... $50,413
========
</TABLE>
(7) Reflects the decrease in Class C Limited Partner Interest as a result of
the Offering and the application of net proceeds therefrom:
<TABLE>
<S> <C>
Class C Limited Partner Interest with a recorded value of
$10.4 million.............................................. $( 7,457)
Gain on retirement of Class C Limited Partner Interest...... (2,917)
--------
Net decrease in redeemable preferred partnership inter-
ests..................................................... $(10,374)
========
</TABLE>
17
<PAGE>
(8) Reflects the write-off of deferred financing costs and unamortized debt
discount associated with the refinanced debt net of a gain on retirement
of redeemable preferred partnership interests:
<TABLE>
<S> <C>
Write-off of deferred financing costs.......................... $(2,572)
Write-off of unamortized debt discount......................... (1,412)
Gain on the retirement of Class C Limited Partner Interest..... 2,917
-------
Net increase in partners' deficit............................ $(1,067)
=======
</TABLE>
(9) For purposes of calculating the ratio of net debt to LTM EBITDA, net debt
is defined as total long-term obligations (including the current portion
thereof) less cash and cash equivalents, and LTM EBITDA is defined as
EBITDA for the twelve months ended June 30, 1996.
18
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth certain selected historical and financial and
operating data of the Company and the Predecessor as of the dates and for the
periods indicated. The following selected financial data are qualified by
reference to, and should be read in conjunction with, the financial statements,
related notes and other financial information included elsewhere in this
Prospectus, as well as "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The statements of operations data set
forth below for each of the three years in the period ended December 31, 1995
and the balance sheet data at December 31, 1994, and 1995 are derived from the
financial statements of the Company audited by Deloitte & Touche LLP,
independent auditors, which are included elsewhere in this Prospectus.
The statements of operations data for the year ended December 31, 1991, the
eight-month period ended August 31, 1992 and the four-month period ended
December 31, 1992 and the balance sheet data at of December 31, 1991, August
31, 1992, and December 31, 1992 and 1993 are derived from audited financial
statements of the Predecessor and the Company, respectively, which are not
included herein.
The statements of operations data for the six-month periods ended June 30,
1995 and 1996 and the balance sheet data as of June 30, 1996 are derived from
unaudited financial statements of the Company that, in the opinion of
management, reflect all adjustments, which are of a normal recurring nature,
necessary to present fairly the information set forth therein. The results for
the six-month period ended June 30, 1996 are not necessarily indicative of the
results that may be expected for any other interim period or for the full year.
The pro forma financial information is based on certain assumptions and
estimates that management believes are reasonable in the circumstances and does
not purport to be indicative of the results which actually would have been
attained had the transactions described in the Unaudited Pro Forma Financial
Information occurred at the dates indicated or the results which may be
attained in the future. See "Unaudited Pro Forma Financial Information."
19
<PAGE>
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR THE COMPANY
------------------ ----------------------------------------------------------
EIGHT FOUR
YEAR MONTHS MONTHS SIX MONTH PERIOD
ENDED ENDED ENDED YEAR ENDED DECEMBER 31, ENDED JUNE 30,
DEC. 31, AUG. 31, DEC. 31, ---------------------------- ------------------
1991 1992 1992 1993 1994(1) 1995 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Revenues:
Music and other busi-
ness services......... $ 36,689 $ 23,771 $ 12,039 $ 36,800 $ 50,410 $ 52,489 $ 25,916 $ 26,977
Equipment and related
services.............. 19,318 12,102 6,602 21,741 33,006 34,392 16,646 15,179
-------- -------- -------- -------- -------- -------- -------- --------
Total revenues......... 56,007 35,873 18,641 58,541 83,416 86,881 42,562 42,156
-------- -------- -------- -------- -------- -------- -------- --------
Cost of revenues:
Music and other busi-
ness services......... 9,652 6,420 3,249 10,611 13,685 14,465 7,063 7,501
Equipment and related
services.............. 14,753 9,513 5,235 16,756 23,413 23,895 11,465 10,303
-------- -------- -------- -------- -------- -------- -------- --------
Total cost of reve-
nues.................. 24,405 15,933 8,484 27,367 37,098 38,360 18,528 17,804
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit............ 31,602 19,940 10,157 31,174 46,318 48,521 24,034 24,352
Selling, general & ad-
ministrative expenses.. 19,009 14,230 5,846 19,603 28,699 28,496 14,628 15,107
Depreciation............ 8,187 3,990 1,349 4,349 8,211 9,382 4,669 5,155
Amortization............ 6,936 5,005 2,259 6,942 9,622 8,909 4,443 4,463
-------- -------- -------- -------- -------- -------- -------- --------
Operating income
(loss)................. (2,530) (3,285) 703 280 (214) 1,734 294 (373)
Interest expense........ 7,514 3,639 1,228 3,785 6,990 7,483 3,791 3,574
Other (income) expense,
net.................... (539) (949) (57) (30) (21) (35) (42) 228
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)....... (9,505) (5,975) (468) (3,475) (7,183) (5,714) (3,455) (4,175)
Redeemable preferred re-
turns.................. -- -- (188) (572) (933) (1,029) (506) (543)
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) at-
tributable to general
and limited partners... $ (9,505) $ (5,975) $ (656) $ (4,047) $ (8,116) $ (6,743) $ (3,961) $ (4,718)
======== ======== ======== ======== ======== ======== ======== ========
OTHER INFORMATION:
Gross profit margin(2).. 56.4% 55.6% 54.5% 53.3% 55.5% 55.8% 56.5% 57.8%
EBITDA(3)............... $ 12,593 $ 5,710 $ 4,311 $ 11,571 $ 17,619 $ 20,025 $ 9,406 $ 9,245
Capital expendi-
tures(4)............... 7,722 5,034 3,628 8,235 13,804 12,757 6,043 7,416
Ratio of earnings to
fixed charges(5)....... -- -- -- -- -- -- -- --
Estimated number of do-
mestic customer loca-
tions:
Company................ 32,000 32,000 32,000 33,000 56,000 60,000 58,000 62,000
Franchisees............ 102,000 104,000 112,000 116,000 103,000 111,000 107,000 118,000
-------- -------- -------- -------- -------- -------- -------- --------
Total................. 134,000 136,000 144,000 149,000 159,000 171,000 165,000 180,000
======== ======== ======== ======== ======== ======== ======== ========
Estimated number of do-
mestic DBS customer lo-
cations:
Company................ 5,000 7,000 8,000 12,000 29,000 35,000 32,000 38,000
Franchisees............ 21,000 31,000 36,000 49,000 55,000 72,000 64,000 82,000
-------- -------- -------- -------- -------- -------- -------- --------
Total................. 26,000 38,000 44,000 61,000 84,000 107,000 96,000 120,000
======== ======== ======== ======== ======== ======== ======== ========
PRO FORMA INFORMA-
TION:(6)
Total interest ex-
pense(7).............. -- -- -- -- -- $ 7,517 -- $ 3,700
Ratio of EBITDA to to-
tal interest expense.. -- -- -- -- -- 2.66x -- 2.50x
Ratio of earnings to
fixed charges(5)...... -- -- -- -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR THE COMPANY
----------------- ---------------------------------------------------------
AT AT AT AT DECEMBER 31, AT JUNE 30, 1996
DEC. 31, AUG. 31, DEC. 31, ------------------------ -----------------------
1991 1992 1992 1993 1994 1995 ACTUAL AS ADJUSTED(8)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 2,171 $ 2,070 $ 1,441 $ 1,436 $ 1,445 $ 1,115 $ 3,239 $ 30,533
Total assets............ 62,939 58,837 66,598 66,294 103,092 96,439 95,358 123,580
Total long-term
obligations, including
current portion........ 39,111 37,889 36,218 35,022 56,833 53,005 50,672 101,085
Redeemable preferred
partnership interests.. -- -- 8,188 8,760 14,693 15,722 16,265 5,891
Partners' capital
(deficit).............. 11,259 7,284 12,199 8,047 7,943 1,373 (3,200) (4,267)
Ratio of net debt to LTM
EBITDA(9).............. -- -- -- -- -- -- -- 3.55x
</TABLE>
(footnotes on following page)
20
<PAGE>
(footnotes to table on preceding page)
- -------------------
(1) Includes the results of Comcast from January 31, 1994. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(2) Gross profit margin represents gross profit as a percentage of total
revenues.
(3) EBITDA represents earnings before interest expense, income taxes,
depreciation, amortization and other income/expense. EBITDA does not
represent and should not be considered as an alternative to net income or
cash flow from operations as determined by generally accepted accounting
principles. The Company, however, believes that EBITDA provides useful
information regarding a company's ability to service and/or incur
indebtedness.
(4) Includes additions to property and equipment and additions to deferred
costs and intangible assets.
(5) For purposes of computing the ratio of earnings to fixed charges, earnings
include net loss attributable to general and limited partners, redeemable
preferred returns and interest expense, including that portion of lease
expense attributable to interest costs. Fixed charges consist of preferred
returns and interest expense, including that portion of lease expense
attributable to interest costs. Earnings were insufficient to cover fixed
charges by $9.5 million, $6.0 million, $0.7 million, $4.0 million, $8.1
million, $6.7 million, $4.0 million and $4.7 million for the year ended
December 31, 1991, the eight-month period ended August 31, 1992, four-
month period ended December 31, 1992, the years ended December 31, 1993,
1994, and 1995, and the six-month periods ended June 30, 1995 and 1996,
respectively. On a pro forma basis, earnings were insufficient to cover
fixed charges by $6.0 million and $4.4 million for the year ended December
31, 1995 and the six-month period ended June 30, 1996, respectively.
(6) Gives pro forma effect to the Offering and the application of $61.7
million of the estimated net proceeds therefrom to repay existing
indebtedness as if the Offering had taken place on January 1, 1995.
(7) Total interest expense consists of cash interest expense on the Senior
Notes at an assumed rate of 11% plus the amortization of deferred debt
issuance costs. Pro forma total interest expense gives effect to the
issuance of the Senior Notes only to the extent that the proceeds
therefrom are used to repay existing indebtedness. Giving effect to the
full amount of the Senior Notes, cash interest expense would have been
$11.1 million and $5.6 million for the year ended December 31, 1995 and
the six-month period ended June 30, 1996, respectively. The ratio of
EBITDA for the twelve months ended June 30, 1996 to cash interest expense
for the same period (excluding the impact of any interest income earned on
the Company's cash balances) would have been 1.79x.
(8) As adjusted to give effect to the Offering and the application of the
estimated net proceeds therefrom as if the Offering had taken place on
June 30, 1996.
(9) For purposes of calculating the ratio of net debt to LTM EBITDA, net debt
is defined as total long-term obligations (including the current portion
thereof) less cash and cash equivalents, and LTM EBITDA is defined as
EBITDA for the twelve months ended June 30, 1996.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company operates as a limited partnership and as such, the income tax
effects of all earnings or losses of the Company are passed directly to the
partners and no provision for income taxes is required.
In January 1994, the Partnership acquired the assets of its largest
franchisee, Comcast, for approximately $33.0 million (the "Comcast
Acquisition"). Operating results in 1994 include eleven months of Comcast
operations, while operating results in 1995 include a full year of Comcast
operations. The former Comcast operations represented approximately 28% of the
Company's revenues in 1995. Following the Comcast Acquisition, the Company
eliminated redundant administrative and field operations, resulting in
annualized net savings estimated by the Company to be approximately $1.8
million, the majority of which was realized immediately.
The Company derives revenues from its business services and from the sale,
installation and servicing of customer premises equipment. The Company's
principal business services include broadcast music services, on-premise
tapes, on-premise music video, audio marketing and in-store advertising.
Business services represented approximately 60% of total revenues in 1995.
Equipment and related revenues accounted for the remaining 40% of 1995
revenues. A large majority of the Company's broadcast and on-premise tape
revenues are generated from subscribers who typically execute five-year
contracts at rates ranging from $35 to $75 per month. These subscription rates
typically include the provision of the Company's equipment for use at the
subscriber's location. Royalties received from franchisees and international
distributors are included in broadcast music revenues and represented
approximately 7.9% of total revenues in 1995. The Company's franchisees pay
royalties to the Company based generally on 10% to 11.5% of adjusted music
revenues, which are broadcast music revenues less licensing payments and bad
debt write-offs. In-store advertising revenues are generated from the sale of
advertising for delivery to certain subscribers. On-premise music video
revenues are derived from the sale of specialized on-premise music videos
targeted for certain segments of the market place. Audio marketing revenues
are generated primarily from the sale of customized audio messages for use
with "on-hold" telephone systems. The Company also provides other broadcast
business services, including AdParting(R), data delivery services, custom
business television and other music-related services.
Equipment revenues are derived from the sale or lease of audio system-
related products, principally sound systems and intercoms, to business music
subscribers and other customers. The Company also sells electronic equipment,
principally DBS receivers and dishes, as well as proprietary tape playback
equipment, audio and video equipment to its franchisees to support their
business music services. Installation, service and repair revenues consist
principally of revenues from the installation of sound systems and other
equipment that is not expressly part of a business music contract, such as
paging, security and drive-through systems. These revenues also include
revenue from the installation, service and repair of equipment installed under
a business music contract. Music contract installation revenues are deferred
and recognized over the term of the respective contracts.
Cost of revenues for business services consists primarily of broadcast,
delivery, manufacturing, licensing and research costs associated with
providing music and other business services to a subscriber or a franchisee.
Cost of revenues for equipment represents the purchase cost plus handling,
shipping and warranty expenses. Cost of revenues for installation, service and
repair consists primarily of service and repair labor and labor for
installation that is not associated with new business music subscribers.
Installation costs associated with new business music subscribers are
capitalized and charged to depreciation expense over ten years.
Selling, general and administrative expenses include salaries, benefits,
commissions, travel, marketing materials, training and occupancy costs
associated with staffing and operating local and national sales offices. Such
expenses also include personnel and other costs in connection with the
Company's headquarters functions. A significant portion of commissions and
certain other selling costs are capitalized on a successful-efforts basis and
charged as amortization expense over the average contract term of five years
and, accordingly, are not
22
<PAGE>
reflected in selling, general and administrative expenses. The Company
capitalized $1.3 million, $2.8 million and $3.2 million of such costs in 1993,
1994 and 1995, respectively.
The Company amortizes leasehold improvements over the shorter of the lease
term or five years and deferred costs and intangible assets over lives ranging
from two and one-half to ten years. These deferred costs and intangible assets
consist of the costs associated with subscriber contracts acquired from third
parties (typically amortized on an accelerated basis over eight years),
commissions and certain other sales related expenses (five years), the
acquisition and production costs of a music library (typically five years),
organizational expenses related to acquiring certain franchise operations
(five years) and capitalized financing costs (over the life of the loans).
As part of the Offering, the Company will adopt a performance-based Amended
and Restated Management Option Plan (the "Amended and Restated Option Plan")
that replaces an option plan implemented in connection with the 1992
Acquisition. The options granted under the Amended and Restated Option Plan
represent the same proportionate equity interest and carry equivalent exercise
prices as the options granted under the original plan. The Company has not
been required to record non-cash compensation expense for the original plan
because those options were not deemed exercisable. The Amended and Restated
Option Plan will result in non-cash compensation being recorded in the future.
Non-cash compensation expense will be determined with respect to options under
the Amended and Restated Option Plan based on the difference between the
exercise price and the fair value of the partnership units and recognition of
expense will begin when it is deemed that the options are, in the judgment of
management, likely to become exercisable. Such expense will be recognized from
that date to the date the options actually become exercisable and will appear
in the Company's Statement of Operations as part of operating income (loss) on
a separate line item entitled "Non-cash incentive compensation expense."
23
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain financial information for the periods
presented and should be read in conjunction with the Company's Financial
Statements, including the Notes thereto, appearing elsewhere in this
Prospectus:
<TABLE>
<CAPTION>
SIX-MONTH
PERIOD ENDED
YEAR ENDED DECEMBER 31, JUNE 30, PERCENTAGE CHANGE
------------------------- ---------------- -----------------------------
FIRST HALF
1996 VS.
1994 VS. 1995 VS. FIRST HALF
1993 1994 1995 1995 1996 1993 1994 1995
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Business services:
Broadcast music........ $28,023 $39,519 $40,664 $20,166 $20,858 41.0 % 2.9 % 3.4 %
On-premise tapes....... 5,067 5,434 4,895 2,483 2,236 7.2 (9.9) (9.9)
Other broadcast........ 950 1,227 1,403 669 742 29.2 14.3 10.9
On-premise music vid-
eo.................... 1,010 1,257 1,741 735 1,029 24.5 38.5 40.0
Audio marketing........ 769 1,615 2,027 970 1,199 110.0 25.5 23.6
In-store advertising... 306 814 913 550 320 166.0 12.2 (41.8)
Other.................. 675 544 846 343 593 (19.4) 55.5 72.9
------- ------- ------- ------- -------
Total music and other
business services... 36,800 50,410 52,489 25,916 26,977 37.0 4.1 4.1
------- ------- ------- ------- -------
Equipment.............. 15,885 23,060 23,901 11,641 10,400 45.2 3.6 (10.7)
Installation, service
and repair............ 5,856 9,946 10,491 5,005 4,779 69.8 5.5 (4.5)
------- ------- ------- ------- -------
Total equipment and
related services.... 21,741 33,006 34,392 16,646 15,179 51.8 4.2 (8.8)
------- ------- ------- ------- -------
Total revenues....... 58,541 83,416 86,881 42,562 42,156 42.5 4.2 (1.0)
Gross profit:
Business services...... 26,188 36,725 38,024 18,853 19,476 40.2 3.5 3.3
Equipment.............. 5,139 9,596 10,450 5,206 4,970 86.7 8.9 (4.5)
Installation, service
and repair............ (153) (3) 47 (25) (94) -- -- --
------- ------- ------- ------- -------
Total gross profit... 31,174 46,318 48,521 24,034 24,352 48.6 4.8 1.3
Gross profit margin(1).. 53.3% 55.5% 55.8% 56.5% 57.8%
Selling, general and
administrative ex-
penses................. $19,603 $28,699 $28,496 $14,628 $15,107 46.4 (0.7) 3.3
S,G&A margin(2)......... 33.5% 34.4% 32.8% 34.4% 35.8%
EBITDA(3)............... $11,571 $17,619 $20,025 $ 9,406 $ 9,245 52.3 13.7 (1.7)
EBITDA margin(4)........ 19.8% 21.1% 23.0% 22.1% 21.9%
Net income (loss)....... $(3,475) $(7,183) $(5,714) $(3,455) $(4,175) -- -- --
</TABLE>
- ---------------------
(1) Gross profit margin represents gross profit as a percentage of total
revenues.
(2) S,G&A margin represents selling, general and administrative expenses as a
percentage of total revenues.
(3) EBITDA represents earnings before interest expense, income taxes,
depreciation, amortization and other income/expense. EBITDA does not
represent and should not be considered as an alternative to net income or
cash flow from operations as determined by generally accepted accounting
principles. The Company, however, believes that EBITDA provides useful
information regarding a company's ability to service and/or incur
indebtedness.
(4) EBITDA margin represents EBITDA as a percentage of total revenues.
SIX-MONTH PERIOD ENDED JUNE 30, 1996 COMPARED TO SIX-MONTH PERIOD ENDED JUNE
30, 1995
Revenues. Total revenues decreased 1.0% from $42.6 million in the first six
months of 1995 to $42.2 million in the first six months of 1996 as a result of
an 8.8% decrease in equipment and related services revenues that was partially
offset by a 4.1% increase in business services revenues. Equipment sales
decreased 10.7% as the Company maintained its focus on higher margin sales and
reduced its participation in lower margin competitively bid equipment sales.
Starting in late 1995, the Company also began to deemphasize the sale of
equipment not integral to the Company's business services. Installation,
service and repair revenues decreased from strong levels generated in the 1995
period due to fewer installations of large equipment jobs in the 1996 period.
Broadcast music revenues grew 3.4% in the 1996 period due to increased demand
and the conversion of on-premise tape subscribers to broadcast music services,
which was offset in part by the cancellation of three national broadcast
accounts during the 1996 period. On-premise tape revenues continued to decline
principally due to the Company's conversion of many of these customers to
broadcast services. On-premise music video, audio marketing and other
broadcast services revenues continued to benefit from growing demand for these
24
<PAGE>
services, as a group increasing 25.1% in the 1996 period over the 1995 period.
In-store advertising revenues declined 41.8% principally due to sales to a
single customer in the first six months of 1995 that did not continue into the
last six months of 1995 or the first six months of 1996. Other business
services revenues increased as a result of an increase in reimbursable
satellite fee revenue and the one-time sale of proprietary software and other
rights to Muzak Europe.
Gross Profit. Total gross profit increased 1.3% from $24.0 million in the
first six months of 1995 to $24.4 million for the first six months of 1996
while the gross profit margin increased from 56.5% to 57.8%, respectively.
This improvement was principally due to an improvement in equipment sales
gross profit margin from 44.7% in the 1995 period to 47.8% in the 1996 period
reflecting sales of higher margin equipment. This improvement was partially
offset by a slight decline in the business services gross profit margin
primarily due to lower in-store advertising and on-premise tape revenues and a
decrease in on-premise music video margin, combined with higher compensation,
satellite and licensing costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 3.3% from $14.6 million in the first six
months of 1995 to $15.1 million in the first six months of 1996 and increased
as a percentage of total revenues from 34.4% to 35.8%, respectively. Selling
and marketing expenses remained essentially unchanged at $5.4 million for the
first six months of 1995 and 1996. General and administrative expenses
increased 5.1% from $9.2 million in the first six months of 1995 to $9.7
million over the same period in 1996. This increase was due primarily to an
increase in relocation expenses, consulting expenses related to the EchoStar
agreements and the Internet MusicServer SM project, communication costs
related to the Internet MusicServer SM project and national account rollouts,
the continued centralization of data and collection systems, and higher travel
and rent expense and personal property taxes.
Depreciation Expense. Depreciation expense increased 10.4% from $4.7 million
in the first six months of 1995 to $5.2 million in the first six months of
1996 due to an increase in fixed assets of $8.2 million primarily related to
an increased investment in equipment for business service customers, new
service and delivery vehicles and computers and other equipment for video
production, the EchoStar uplink facility and systems upgrades and development.
Amortization Expense. Amortization expense increased 0.5% from $4.4 million
in the first six months of 1995 to $4.5 million in the first six months of
1996 as a result of an increase to intangible assets of $5.6 million primarily
attributable to business acquisitions, obtaining customer contracts and
creating master recordings partially offset by the final amortization in the
1995 period of the music purchased as part of the 1992 Acquisition.
Interest Expense. Interest expense decreased 5.7% from $3.8 million for the
first six months of 1995 to $3.6 million in the first six months of 1996
principally due to a $2.5 million paydown of the Company's term loan in July
1995, a $2.5 million paydown of the term loan in January 1996 and a reduction
of the effective weighted average interest rate under the term loan and
revolving credit facility from 11.3% for the 1995 period to 10.6% for the 1996
period.
Other (Income) Expense. Other (income) expense reflected expense of $228,000
in the first six months of 1996 versus income of $42,000 in the comparable
period in 1995, primarily due to a loss on the sale of a product line acquired
in the Comcast Acquisition that was inconsistent with the Company's strategic
plans and equity in losses of Muzak Europe not included in the 1995 period.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenues. Total revenues increased 4.2% from $83.4 million in 1994 to $86.9
million in 1995 principally as a result of a 4.1% increase in business
services revenues and a 4.2% increase in equipment and related revenues.
Business services revenues increased due to an increase in the number of
broadcast music subscribers, offset partially by a reduction in the royalty
surcharges paid by franchisees for DBS services. Other business
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services revenues, with the exception of on-premise tape sales, increased at
more rapid rates than broadcast music revenues due to the increased marketing
of, and increasing customer demand for, video, audio messaging, and
AdParting(R) services, among others. On-premise tape revenues declined due to
the Company's conversion of such customers to broadcast services, primarily
DBS transmission. Royalties and other fees from franchisees and international
distributors (included in broadcast music revenues) accounted for $6.9 million
or 7.9% of the Company's revenues in 1995, compared with $6.8 million or 8.2%
of the Company's revenues in 1994 due to growth in the number of customer
locations being served, partially offset by a planned reduction in DBS
surcharges. Equipment revenues increased 3.6% as a result of an increase in
leased equipment subscribers. Installation, service and repair revenues
increased 5.5% primarily related to large job revenue increases. In-store
advertising revenues increased 12.2%, principally due to sales to a single
customer in the first quarter of 1995, which did not continue into the last
three quarters of the year.
Gross Profit. Total gross profit increased 4.8% from $46.3 million in 1994
to $48.5 million in 1995. As a percentage of total revenues, gross profit
increased slightly from 55.5% in 1994 to 55.8% in 1995. The improvement in the
gross profit percentage in 1995 was due to growth in higher margin business
services, such as broadcast music, audio marketing and on-premise music video
services, and improved equipment margins.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased 0.7% from $28.7 million in 1994 to $28.5
million in 1995. As a percentage of total revenues, selling, general and
administrative expenses declined from 34.4% in 1994 to 32.8% in 1995. Selling
and marketing expenses declined 5.1% from $11.3 million in 1994 to $10.7
million in 1995. This decline was primarily attributable to a reduction in
local sales offices' administrative and operating support personnel, reduced
costs of new product and service research, a decrease in promotional expenses
and lower sales award costs, offset somewhat by higher non-capitalized selling
costs. General and administrative costs increased 2.1% from $17.4 million in
1994 to $17.8 million in 1995, primarily due to relocation and expansion of
the headquarters office, additional personnel to support centralization of
local and national sales office services, higher bad debt expense and
consulting expenses for the Internet MusicServer SM and EchoStar projects.
These increased expenses were partially offset by a decrease in bonuses
accrued and expenses incurred in 1994 in connection with an unconsummated
financing.
Depreciation Expense. Depreciation expense increased 14.3% from $8.2 million
in 1994 to $9.4 million in 1995, principally as a result of an increased
investment in equipment installed at customers' premises due to an expanded
customer base, and twelve months of depreciation of the assets acquired in the
Comcast Acquisition in 1995 compared to eleven months in 1994.
Amortization Expense. Amortization expense decreased 7.4% from $9.6 million
in 1994 to $8.9 million in 1995. The decline in amortization expense was due
to the final amortization in early 1995 of music acquired in the 1992
Acquisition.
Interest Expense. Total interest expense increased 7.1% from $7.0 million in
1994 to $7.5 million in 1995. The increase in interest expense in 1995 as
compared to 1994 was the result of increased borrowing as well as an increase
in the effective weighted average interest rate under the Company's existing
term loan and revolving credit facility from 10.0% in 1994 to 11.2% in 1995.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Revenues. Total revenues increased 42.5% from $58.5 million in 1993 to $83.4
million in 1994 primarily as a result of the Comcast Acquisition. Business
services revenues increased 37.0% from $36.8 million to $50.4 million from
1993 to 1994. Equipment revenues increased 45.2% as a result of the Comcast
Acquisition, resulting in higher sales of DBS equipment, sound system
equipment and leased drive-through equipment. Installation, service and repair
revenues increased 69.8% from 1993 to 1994 also as a result of the Comcast
Acquisition. Video revenues increased 24.5% in 1994 as compared to 1993 due to
the acquisition of an on-premises music video operation as of February 28,
1994 that significantly expanded the Company's base of video customers and its
capability to service a larger customer base. In-store advertising revenues
increased 166.0% due to increased efforts in marketing this service.
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Gross Profit. Total gross profit increased 48.6% from $31.2 million in 1993
to $46.3 million in 1994 primarily as a result of the Comcast Acquisition. As
a percentage of total revenues, gross profit increased from 53.3% in 1993 to
55.5% in 1994. The improvement in the gross profit percentage in 1994 was
principally due to improved profit margins on equipment revenues and business
services revenues. The significant improvement in equipment profit margin from
32.4% in 1993 to 41.6% in 1994 was due to a greater proportion of higher
margin equipment lease revenues and more selective bidding of competitive
equipment contracts.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 46.4% from $19.6 million in 1993 to $28.7
million in 1994. As a percentage of total revenues, selling, general and
administrative expenses increased from 33.5% in 1993 to 34.4% in 1994. Selling
and marketing expenses increased 44.7% from $7.8 million in 1993 to $11.3
million in 1994. This increase was attributable to the Comcast Acquisition,
and the acquisition of the video operation as well as an increase in research
and development. General and administrative expenses increased 47.6% from
$11.8 million in 1993 to $17.4 million in 1994, primarily due to the new
locations and facilities acquired from Comcast and expenses incurred in
connection with an unconsummated financing.
Depreciation Expense. Depreciation expense increased 88.8% from $4.3 million
in 1993 to $8.2 million in 1994. The significant increase in 1994 as compared
to 1993 is attributable to the acquisition of approximately $16.0 million in
tangible assets in the Comcast Acquisition.
Amortization Expense. Amortization expense increased 38.6% from $6.9 million
in 1993 to $9.6 million in 1994. The significant increase in 1994 as compared
to 1993 is attributable to the acquisition of approximately $14.0 million of
intangible assets related to the Comcast Acquisition.
Interest Expense. Total interest expense increased 84.7% from $3.8 million
in 1993 to $7.0 million in 1994 as a result of additional borrowings and an
effective weighted average interest rate under the Company's existing term
loan and revolving credit facility of 10.0% in 1994 as compared to 9.1% in
1993. The additional borrowings in 1994 were a result of the Comcast
Acquisition.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs have been primarily for capital expenditures,
business acquisitions, debt service and working capital. As of June 30, 1996,
the Company had a working capital deficit of $12.1 million compared with a
working capital deficit of $4.9 million as of June 30, 1995. The increase in
the deficit for this period was due principally to an increase in short-term
debt, utilized primarily to fund capital expenditures and repay term debt.
The Company's investing activities, excluding the Comcast Acquisition, have
historically included the purchase of on-premise customer equipment (such as
satellite dishes and receivers) and certain capitalized deferred costs related
to business acquisitions, obtaining customer contracts and creating master
recordings. Capital expenditures were $4.5 million in 1993, $9.5 million in
1994, $8.1 million in 1995, $3.7 million in the first half of 1995 and $4.5
million in the first half of 1996. Additions to deferred costs were $3.7
million in 1993, $4.3 million in 1994, $4.6 million in 1995, $2.4 million in
the first half of 1995 and $2.9 million in the first half of 1996. The Company
believes that its future investing activities may include acquisitions of the
Company's franchisees to further its operating strategy and other acquisitions
in addition to these capital expenditures and deferred customer and music
acquisition costs.
The Company's primary sources of liquidity have been cash flows from
operations and bank borrowings. Net cash provided by operating activities for
the first half of 1996 was $10.6 million as compared to $8.1 million for the
comparable 1995 period. This increase was due to an increase in cash from
operating assets and liabilities, primarily payables and accruals. Net cash
provided by operating activities for the year ended December 31, 1995 was
$14.2 million as compared to $15.7 million in 1994. Cash provided by the
Company's operations, adjusted for the effect of non-cash items, totaled $14.7
million in 1995, an increase of $2.3 million over the $12.4 million provided
in 1994, due primarily to a reduction in the Company's net loss through
improved operating performance. Net changes in the operating assets and
liabilities utilized cash of $500,000 in 1995 as compared
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to providing cash of $3.3 million in 1994. The change in operating assets and
liabilities was primarily attributable to a reduction in accounts payable and
accrued expenses.
The Company has a term loan ($38.5 million outstanding as of June 30, 1996)
and a $13.0 million revolving credit facility ($10.8 million outstanding as of
June 30, 1996) provided by Union Bank of Switzerland, New York Branch ("UBS"),
and other lenders. Substantially all of the Company's assets and the interests
in the Company held by MLP, certain of its affiliates and the Management
Investors are pledged as collateral under the UBS term loan and credit
facility. The revolving credit facility is available for, among other things,
ongoing working capital needs and letters of credit. This credit facility
terminates on January 15, 2001. Interest accrues on the outstanding principal
amounts of the term loan and the revolving credit facility at an interest rate
based on UBS's announced base rate plus 1.75% or LIBOR plus 3.00%. The Company
intends to repay the outstanding amounts under the UBS term loan and revolving
credit facility with the proceeds of the Offering. See "Use of Proceeds." As
of June 30, 1996, aggregate maturities of the Company's term loan were $3.0
million in 1996, $7.0 million in 1997, $8.0 million in 1998, $8.0 million in
1999, $8.3 million in 2000 and $4.2 million in 2001.
The Company leases certain facilities under both operating and capital
leases. Minimum lease payments for 1996 under noncancelable leases are $6.3
million.
The Company anticipates capital expenditures of between $11.9 and $12.4
million in 1996 and additions to deferred costs and intangible assets of
between $4.8 and $5.2 million in 1996. The level of capital expenditures and
additions to deferred costs and intangible assets are subject to a variety of
factors which may cause these expenditures to exceed the ranges set forth
above.
Through June 30, 1996, the Company had capitalized approximately $1.1
million of expenses associated with an initial underwritten public offering of
its equity securities. In August 1996, the Company postponed the equity
offering. If it is determined that a public equity offering is not likely to
occur, these capitalized expenses will be charged to operations in the quarter
such determination is made.
The Company believes that subsequent to the Offering, its cash flows from
operations, borrowing availability and cash on hand will be adequate to
support currently planned business operations, capital expenditures and debt
service requirements at least through the foreseeable future. If the Company
engages in one or more material acquisitions, joint ventures or alliances or
other major business initiatives requiring significant cash commitments, or
incurs unanticipated expenses, additional financing could be required.
The 1992 Acquisition of the business of the Predecessor by CCI and certain
of the Management Investors provides for contingent earn-out payments ("Earn-
Out Payments") of between $5.0 million to $24.0 million to the Predecessor if
certain performance measures are achieved in the five years following the
transaction. The minimum performance requirement for the $5.0 million Earn-Out
Payment requires the Company to achieve a cumulative performance target (as
defined in the acquisition documents) over the five-year period ending
August 31, 1997. The Company believes that the minimum performance target
triggering an Earn-Out Payment will not be reached.
The Washington State Department of Revenue has levied an assessment against
the Predecessor for $1.7 million in sales and use and business and occupation
taxes for the period from 1987 through September 1992. Under successor
liability statutes in the State of Washington, the Company could, if the
Predecessor fails to pay its tax obligation, become liable for the assessment.
The assessment is under appeal by the Predecessor. The Company has the right
to offset any future payments from the Company to the Predecessor if the
Predecessor fails to pay its tax obligation. Management does not believe that
the assessment will have an adverse effect on the Company's financial
condition or results of operations.
INFLATION AND CHANGING PRICES
Management does not believe that inflation and other changing prices have
had a significant impact on the Company's operations.
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BUSINESS
GENERAL
The Company is the leading provider of business music in the United States,
based on the number of customer locations served. The Company and its
franchisees serve approximately 180,000 customer locations in the United
States, representing a market share of approximately 50% of the estimated
number of domestic locations currently served by business music providers and
approximately twice the estimated number of locations served by its nearest
competitor. Through a network of distributors, the Company also provides
business music to subscribers outside the United States. In addition, the
Company offers its customers a range of non-music services, including
broadcast data delivery, video, audio marketing and in-store advertising
services, and sells, installs and services related equipment.
The Company markets business music in a variety of formats, including (i)
its well-known proprietary Environmental Music(R) (or "background" music) and
(ii) over 100 "foreground" music formats ranging from top-of-the-charts hits
to contemporary jazz, country music and classical music. Internal and third-
party studies sponsored by the Company have indicated that properly programmed
music can have a favorable impact on listeners in business and retail
environments. The broadcasting of music, including the rebroadcasting of
commercial music, in such locations is not permitted without licenses and the
payment of royalties. Environmental Music(R), which is principally comprised
of instrumental versions of popular songs that have been adapted and
rerecorded by the Company, is generally used in business offices and
manufacturing facilities to improve employee concentration and reduce stress.
Foreground music, consisting principally of original artist recordings, is
most commonly used in public areas, such as restaurants and retail
establishments, primarily as a sales enhancement tool. The Company distributes
30 of its channels by broadcast media (principally DBS transmission) and
supplies the balance to subscribers in the form of long-playing audio tapes.
Since 1991, the total number of domestic customer locations served by the
Company and its franchisees has grown from 134,000 to 180,000, with the number
of domestic customer locations served by the Company growing from
approximately 32,000 to approximately 62,000 and the number of domestic
customer locations served by the Company's franchisees growing from
approximately 102,000 to approximately 118,000. Over the same period, the
Company's total revenues and EBITDA have grown from $56.0 million and $12.6
million in 1991, respectively, to $86.9 million and $20.0 million in 1995,
respectively.
COMPETITIVE STRENGTHS
The Company believes that it possesses a number of attributes that have
allowed it to become the leading provider of business music in the nation
(based on number of customer locations served), including:
Broad Appeal to Diverse Customer Base. The Company's music products have
been programmed to appeal to a variety of end users, including business
offices, manufacturing facilities, retail establishments and restaurants. The
Company's salesforce markets over 100 different music formats, allowing each
customer to select a format appropriate for its line of business and customer
base. The Company's major national customers include national restaurant
chains, such as Taco Bell, McDonald's and Boston Market, and specialty
retailers, such as Nordstrom, Crate & Barrel, Kroger, Staples, Hallmark and
Wal-Mart, as well as a large number of local and regional accounts, none of
which represents more than 3% of the Company's consolidated revenues and the
top five of which represent in the aggregate less than 10% of consolidated
revenues. The Company believes that the geographic dispersion of its
customers, and the diversity of businesses in which they are engaged,
minimizes the impact to the Company of a cyclical downturn in any one area of
the country or in any one sector of the economy.
Attractive Economics to Customers and the Company. The Company believes that
its services are highly cost effective, providing an important business tool
to its customers for a low monthly cost. On average, the Company receives
approximately $45 of revenue per month per subscriber location, net of
licensing fee and applicable royalties, for which it makes an investment per
subscriber location (including sales commission) of
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approximately $950 for medium-powered DBS subscribers (substantially lower for
local broadcast technology subscribers). This allows the Company to recover
its capital costs within two years. The Company's customers typically enter
into long-term contracts, which are generally for a period of five years with
an automatic renewal option. The Company's annual cancellation rate is less
than 10% of music and other business services revenues, which equates to an
average length of service per customer of approximately ten years.
Full Line of Audio, Video and Data Products and Services. The Company can
provide its customers with an integrated package of services including: (i)
over 100 different music formats including both background and foreground
music; (ii) customized audio messages inserted in regular programming; (iii)
e-mail and computer bulk data transfer; (iv) on-premise music videos; (v)
customized messages for use with "on-hold" business telephone systems; and
(vi) "point of purchase" audio advertising and merchandising services. The
ability to deliver a package of music and non-music services over a common
transmission system has been a critical factor in enabling the Company to
generate incremental revenues from its customers at little or no additional
cost, gain new customers and protect existing customers from competitive
business music providers that do not offer such a broad line of products and
services.
Multiple Delivery Systems. The Company believes that its ability to
distribute its services through each of high-powered and medium-powered DBS
transmission, local radio broadcast transmission, telephone lines and audio
tapes enables it to effectively serve customers with either single or multiple
locations as well as those having varied music or service needs. The number of
domestic subscriber locations served by medium-powered DBS transmission has
grown from approximately 26,000 at the end of 1991 to approximately 120,000 at
June 30, 1996. In addition, the Company has recently entered into a unique
distribution arrangement with EchoStar. The Company anticipates that its
agreements with EchoStar will enable it to: (i) attract additional business
music subscribers by offering an expanded array of DBS-delivered music
programming; (ii) deliver music services to residential subscribers for the
first time; and (iii) deliver television programming, such as CNN(R), MTV(R)
and ESPN(R), to business music subscribers in packages specifically designed
for businesses (i.e., news, entertainment or lifestyles). In addition, the
EchoStar agreements provide the Company with high-powered DBS transmission
capability to supplement its existing medium-powered DBS system, reduced
equipment installation costs and an opportunity to shift certain equipment
costs to the subscriber.
Integrated Sales Network. The Company believes that its 35 sales offices in
the United States, its 81 franchisees, whose sales territories cover the
remaining market in the United States, and its 20 international distributors
in 15 foreign countries, comprise the largest network of customer sales and
service offices among business music providers in the United States. The
Company further believes that this network allows the Company, among other
things, to more effectively market to and support its national and
international accounts.
OPERATING STRATEGY
The Company believes it has opportunities to achieve growth in revenues and
cash flow by:
Increasing U.S. Market Penetration. The Company intends to increase its
penetration of the U.S. market by expanding its local and national account
sales force, offering more music formats (including up to 60 broadcast formats
with the EchoStar agreements), developing sales strategies focused on
underserved market segments and aggressively marketing its services as part of
a unique bundled package. 1993 census data indicate that there are
approximately 6.4 million business locations in the United States, including
approximately 1.1 million retail outlets and 450,000 restaurant and other food
service locations. Of the total 6.4 million business locations, only about 5%
are currently believed by the Company to subscribe to a business music
service.
Pursuing Strategic Relationships and Acquisitions. The Company intends to
pursue additional strategic relationships, acquisitions and joint ventures,
such as the Company's recent distribution agreements with EchoStar and its
1994 acquisition of the assets of Comcast, then the Company's largest
franchisee, in order to: (i) increase the breadth of its programming
offerings; (ii) further diversify its distribution channels; and (iii) take
advantage of certain economies of scale.
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Expanding in International Markets. The Company plans to continue its
expansion in Europe primarily through strategic relationships and joint
ventures, such as Muzak Europe, a joint venture formed in 1995 between the
Company and Alcas, a leading European business music provider. This joint
venture couples the Company's broadcast technology skills with Alcas' market
knowledge and marketing expertise and further permits the Company to leverage
its assets and programming expertise and diversify its sources of revenue. The
Company also intends to expand into Latin America and Asia by establishing
similar strategic relationships in those markets.
Exploiting New Market Opportunities. The Company intends to continue to
leverage its music programming expertise and its extensive recorded music
library into new products and markets. For example, the Company has recently
developed and begun operating its proprietary MusicServer SM service, which
permits real-time delivery of digitized song samples over the Internet to
music retailers and others (including companies such as CDnow!, Tower Records
and Microsoft) that require access to a large library of recorded music.
Enhancing Operating Margins. The Company seeks to enhance operating margins
through continued centralization of operations and leveraging fixed expenses
over a wider customer base. The Company strives to exploit less costly
transmission technologies and to reduce the capital required to initiate
service to a customer.
BUSINESS MUSIC SERVICES
MUSIC FORMATS
The Company conducts on-going research into the effects of music on human
behavior. This research has shown that certain types of music may reduce
employee stress and improve worker performance by counteracting the fatigue
cycles that affect workers, particularly those involved in repetitive work.
This research also has shown that, in retail environments, certain types of
music may induce consumers to purchase more and may help the retailer in its
efforts to project a particular image of a store. The Company uses its
research to create proprietary music program formats that will have a
favorable impact on listeners. In addition, the Company's sales staff uses the
results of its research to explain to prospective subscribers the benefits of
business music and to assist each subscriber in choosing a music format which
will further the subscriber's desired business goal. These music formats cover
a wide range of musical tastes.
The Company's best-selling format, Environmental Music(R), is a unique blend
of completely instrumental music that is distributed to subscribers via DBS
transmission and local broadcast technology. Environmental Music(R) is
principally comprised of instrumental versions of popular songs that have been
adapted and rerecorded by the Company ("covers"), instrumentals that have been
composed and recorded exclusively for inclusion in the Environmental Music(R)
program ("originals"), and some commercially available instrumental
recordings, and is generally used in business offices and manufacturing
facilities to improve employee concentration and reduce stress. The
Environmental Music(R) library consists of approximately 30,000 recordings
owned by the Company, of which approximately 5,000 are actively used at any
given time. The library includes the instrumental recordings of titles made
popular by a wide variety of artists and composers, ranging from George
Gershwin to Elvis Presley, Boyz II Men and Toad the Wet Sprocket. The Company
spends over $400,000 annually in payments to third parties to update the
library and adds approximately 1,000 new selections each year. In 1993, in
order to improve the quality of its active Environmental Music(R) library, the
Company digitally remastered all of its recordings on compact discs.
Foreground music, consisting principally of original artist recordings, is
most commonly used in public areas, such as restaurants and retail
establishments, primarily as a sales enhancement tool. The Company's most
popular foreground music product, FM-1(R), features moderate tempo, original
artist recordings of familiar adult contemporary favorites. Like Environmental
Music(R), FM-1(R) has been developed for distribution to subscribers via DBS
transmission and local broadcast technology. With its broad appeal, FM-1(R) is
second to the Environmental Music(R) channel in the total number of subscriber
locations served and is the Company's most
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widely-used format in the restaurant and retail markets. FM-1(R) features a
broad range of popular artists from the last 30 years, with an emphasis on
current popular music. FM-1(R) artists include Sting, Celine Dion, Elton John
and Bonnie Raitt, among others.
In addition to FM-1(R), foreground music formats developed by the Company
for DBS or local broadcast transmission include:
HITLINE(R) ADULT CONTEMPORARY
An up-to-the-minute mix of top chart A more consumer-oriented version of
hits. FM-1(R) with higher repetition of
current hits.
COUNTRY CURRENTS(R)
An upbeat mix of current and recent ADULT ALTERNATIVE
country music hits. An eclectic mix of artists and
styles with a progressive edge.
JUKEBOX GOLD(R)
Rock "n' roll hits of the '50s, '60s NON-STOP HIP HOPSM
and early '70s. The hottest new music from the
streets.
'70S SONGBOOKSM
A mix of familiar hits spanning the POWERROCKSM
late '60s to early '80s. Hard-edged hits and heavy metal
album tracks.
URBAN BEATSM
The best of contemporary urban hits THE EDGESM
from today's hottest artists. A mix of top hits and album tracks
from the college and alternative
music charts.
CONTEMPORARY JAZZ FLAVORSSM
Today's light contemporary jazz,
mainstream jazz and soft vocals. CLASSIC ROCK
A non-stop collection of the best
rock "n' roll tunes of all time.
LIGHT CLASSICAL
An artful blend of chamber and small
orchestral pieces from the Baroque NEW COUNTRY
and Romantic periods. An upbeat mix of top chart hits from
today's country superstars.
EXPRESSIONS(R)
Light hits from yesterday and today COUNTRY CLASSICSSM
plus instrumental versions of hit
songs, easy jazz and acoustic music. A blend of classic Country hits from
the '50s, '60s and '70s.
CONTEMPORARY INSTRUMENTALS CONCERT CLASSICSSM
Smart contemporary instrumentals for The most renowned classical
businesses where vocals are symphonies.
inappropriate.
JAZZ TRADITIONSSM
HOT FMSM The more traditional, acoustic side
The upbeat side of current Adult of the jazz genre.
Contemporary music.
BIG BAND ERA
EUROSTYLESM
Dance and Top 40 tracks hot off the A blend of the best known standards
European music charts. and hits from vocalists and
instrumental artists from the '30s,
'40s, and '50s.
LATIN STYLESSM
A smooth blend of today's Spanish- EASY INSTRUMENTALSSM
language hits and Salsa rhythms. A mix of lush and soothing
instrumental favorites.
FIESTA MEXICANASM
An upbeat blend of Mexican regional CONTEMPORARY CHRISTIAN
styles including Mariachi, Nortena The very best from the top artists
and Tejano. of contemporary Christian popular
music.
HOLIDAY
From November 1st through December KIDZONESM
31st the Holiday Channel features a A bright, upbeat mix of sing alongs,
blend of traditional and folk songs, soundtracks and pop hits
contemporary holiday music. targeted to kids ages 3-10.
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The Company has also developed approximately 80 different tape-based formats
of foreground music targeted to the specialized business needs of subscribers
with more focused customer demographics. Among the formats offered are
contemporary jazz, chamber music, reggae, hard rock, German music, Chinese
music and seasonal (holiday) music. These music programs are distributed to
subscribers in the form of long-playing audio tapes that are replayed by the
subscriber on its own premises using specially-designed equipment that has
been installed by the Company. Subscribers typically receive an initial tape
library of approximately 40 hours of music programming and are allowed
unlimited exchanges of tapes during their first 30 days of service, thereby
enabling them to fine-tune their format selections to their individual
preferences and requirements. New tapes are generally sent to subscribers on a
fixed schedule (30, 60 or 90 days), as selected by the subscriber, although
subscribers can elect unlimited exchange privileges. In all cases, subscribers
are required to return old tapes upon receipt of new tapes, and pricing varies
with the frequency of exchange. As of June 30, 1996, the Company and its
franchisees had approximately 18,000 subscribers for taped-based services.
DISTRIBUTION SYSTEMS
The Company's Environmental Music(R) and FM-1(R) programs are distributed to
subscribers either through the Company's medium-powered DBS system or by local
broadcast technology. The Company also uses its medium-powered DBS system to
distribute these programs to its franchisees for local broadcasting to the
franchisees' subscribers. Medium-powered DBS systems utilize satellite dishes
ranging from 0.75 to 1.8 meters in diameter. At June 30, 1996, approximately
120,000 subscriber locations were served by its medium-powered DBS
transmission and approximately 42,000 locations were served by local broadcast
technology. In addition, at that date, on-premise tape programs were being
distributed to approximately 18,000 subscriber locations.
Satellite transmission has become the Company's primary delivery medium for
its business music programs and most of its newest program formats are
generally available only via satellite. The Company's proprietary Music
Plus(R) service permits its medium-powered DBS subscribers to choose the
traditional Environmental Music(R) and FM-1(R) formats as well as up to
fourteen other foreground music formats from a single satellite transmission
signal. In addition, its proprietary DayParting(R) and WeekParting(R) services
enable a subscriber to arrange for automatic switching from one music format
to another on a predetermined schedule to adjust to changing customer
demographic patterns.
The Company leases substantially all of its transponder capacity from
Microspace, which also provides facilities for the uplink of the Company's
signals to Microspace's transponder. Microspace, in turn, leases its
transponder capacity on satellites operated by third parties, including the
Galaxy IV satellite operated by Hughes, on which a majority of the Company's
DBS signals are transmitted. The term of the Company's principal transponder
lease with Microspace for the Galaxy IV satellite runs through the life of
that satellite (which is expected to continue through 2004). Microspace may
terminate its agreements with the Company if the Company materially breaches
its obligations thereunder or if any governmental restriction results in a
sustained interruption of the Company's performance thereunder. Microspace
also is entitled to terminate its agreements with the Company immediately upon
termination of its underlying agreement with Hughes. See "Risk Factors--
Dependence on Satellite Delivery Capabilities."
The Company has begun offering high-powered DBS transmission service through
the EchoStar satellite system, as more fully described below under "--EchoStar
Agreements." High-powered DBS systems utilize satellite dishes as small as 18
inches in diameter. The Company's ability to expand its music services on the
EchoStar satellite system is subject to EchoStar's ability to provide
transponder capacity on its second high-powered direct broadcast satellite by
December 31, 1997 (which satellite was launched on September 11, 1996), or, if
the second satellite is not operational by December 31, 1997, EchoStar's
willingness to allocate additional transponder capacity to the Company on
EchoStar's first satellite. See "Risk Factors--Dependence on EchoStar and its
Satellites" and "--EchoStar Agreements."
Local broadcast transmission is used by the Company and its franchisees to
distribute business music in localized metropolitan areas where the
concentration of subscriber locations is sufficiently large to justify the
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cost. Local area FM broadcasting is primarily made via commercial FM radio
station subcarriers and requires the use of a separate subcarrier and on-
premises subscriber receiver for each program format being distributed.
Accordingly, local broadcasting is not cost-effective for delivery of more
than two formats to a particular area and is generally limited to the
Company's most popular program formats, Environmental Music(R) and FM-1(R).
OTHER SERVICES
NON-MUSIC BROADCAST SERVICES
The Company offers a variety of non-music services to its medium-powered DBS
business music subscribers that complement its music services. These services
are generally "bundled" and marketed in conjunction with the Company's
business music services. As a result, these services serve to stimulate sales
of music services to new customers. In addition to providing incremental
revenue, these services enable the Company to maintain strong relationships
with its business music subscribers. These non-music services generally carry
higher margins, since they require low incremental costs and when the
associated revenue is shared by the Company and its franchisees, the Company
receives 50% or 60% of these revenues in lieu of royalty payments.
The Company currently offers the following non-music business services to
its medium-powered DBS subscribers:
^ AdParting(R). AdParting(R) permits the subscriber to receive customized
audio messages ("spots") interspersed in its business music service and to
control the message content of the spot. This service is used by retailers
ranging from supermarkets and convenience stores, to fast food restaurants
and fashion retailers. At June 30, 1996, the Company was providing
AdParting(R) to approximately 12,300 subscriber locations.
^ Broadcast Data Delivery. The Company's broadcast data delivery service
provides point-to-multipoint electronic mail as well as computer to
computer bulk data transfer. This service provides the subscriber with a
low cost alternative to two-way data transmission systems. For example,
fast food chains use this service to deliver software and other data
updates to in-store computers at their outlets, while wholesale grocery
distributors use it to provide price, inventory, product recall and
delivery information to their network retailers. At June 30, 1996, the
Company was providing broadcast data delivery services to approximately
5,200 subscriber locations.
^ Custom Business Television. The Company takes advantage of the
availability of occasional use video transponder space to offer its
customers the opportunity to broadcast private customer-specific video
programming. At June 30, 1996, the Company was providing custom business
television services to approximately 600 subscriber locations.
ON-PREMISE MUSIC VIDEO--ZTV(R)
The Company programs, duplicates on videotape and sells its proprietary
ZTV(R) on-premise music video service to subscribers wishing to increase the
impact of music through video. The Company's on-premise video programs allow
subscribers to create an "MTV(R)-type" environment for their customers through
specially programmed, long-playing videotapes. The ZTV(R) taped music videos
are produced and shipped directly from the Company's production facilities to
more than 3,000 viewing locations. Subscribers currently using the ZTV(R)
service include Macy's, Bloomingdale's, Lord & Taylor, Filene's Basement,
Oshman's Sporting Goods and Rent-A-Center.
ZTV(R) offerings are available in the following categories, each consisting
of multiple long-playing programs that are supplied to subscribers on a 30, 60
or 90-day rotation:
^ Music and Entertainment Programs. Programs produced for a variety of
retailing environments, such as department stores, specialty shops,
athletic footwear stores, children's apparel stores, sporting goods
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stores, toy and hobby stores, drug stores and appliance stores. These
programs include licensed music video elements in addition to sports
clips, cartoon and fashion segments and other elements appropriate to the
demographics of a particular customer or application. These targeted
programs are produced monthly and are supplied in four-hour tapes.
. Music Video Programs. These are segued music video programs, representing
a style and tempo of music applicable to particular business environments,
and are produced monthly in two-hour and four-hour lengths.
. VeeJay Programs. These monthly programs are produced exclusively for
nightclubs and dance clubs and are furnished in one-hour lengths.
AUDIO MARKETING
The Company creates, produces and records spoken messages for use with "on-
hold" business telephone systems, AdParting(R) broadcasts and other forms of
in-store messaging and advertising.
IN-STORE ADVERTISING
The Company markets in-store "point of purchase" audio advertising and
merchandising services for transmission through its medium-powered DBS system.
The Company has established an industry-specific network (SuperLink(R)) of
grocery wholesalers and wholesaler-supplied retailers and sells time on the
network to advertisers seeking to deliver a message simultaneously to multiple
locations in the network.
ECHOSTAR AGREEMENTS
Through its agreements with EchoStar (the "EchoStar Agreements"), the
Company has begun providing 30 channels of digital music programming, of which
27 channels are being distributed in stereo to EchoStar's residential
customers, thus providing the Company with access to the residential consumer
market for the first time. EchoStar, as part of its overall sales activities,
will brand and market 27 channels of music programming provided by the Company
and currently plans to package these channels as an automatic inclusion in the
majority of its service packages. EchoStar's second high-powered satellite was
launched on September 11, 1996, and when operational will give the Company the
exclusive right to distribute approximately 30 additional channels to business
music subscribers and will also provide EchoStar an additional three channels.
However, there can be no assurance that the second satellite will become
operational in a timely manner.
The music services offered through EchoStar contain much of the Company's
Music Plus(R) programming but are broadcast in digital stereo to appeal to
residential customers instead of the monophonic format used in the Company's
medium-powered DBS transmission system, which is more appropriate to business
music applications. The Company's Environmental Music(R) and FM-1(R) channels
are transmitted in the monophonic format over the EchoStar system to business
music subscribers.
The EchoStar agreements will allow the Company to expand the range of music
that can be made available to businesses. They also provide the Company with
access to a family of television programming services that the Company
believes can be sold in several critical market segments, such as the
hospitality and retailing markets. The availability of these television
services is expected to allow the Company to penetrate commercial market
segments and reach new customers that have traditionally been outside of its
core subscriber base. The Company believes that EchoStar's high-powered DBS
delivery technology also provides the Company with the opportunity to realize
significant cost savings in furnishing music services to business subscribers.
EchoStar's receiving equipment is smaller, lighter in weight, and simpler to
install than the Company's medium-powered DBS receiving equipment, and as DBS
television service increases in popularity, this equipment is expected to be
mass manufactured and marketed, thus reducing its cost. In addition, the
EchoStar receiving equipment generally is not proprietary and has uses and
applications beyond commercial business music. Accordingly, the
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Company believes that subscribers to business music services through the
EchoStar system may be more likely to purchase the necessary receiving
equipment rather than rely on Company-provided equipment, as has generally
been the case to date, thus permitting the Company to reduce its per-
subscriber capital investment with only a limited reduction in the monthly
subscription charge.
Pursuant to the EchoStar Agreements, EchoStar will pay the Company a
programming fee for each residential music subscriber and will pay the
Company's franchisees a commission on sales by EchoStar distributors to
commercial customers in a franchisee's territory. Pursuant to the EchoStar
Agreements, the Company pays EchoStar a fee for uplink transmission of the
approximately 30 exclusive channels and rents space at EchoStar's Cheyenne,
Wyoming uplink facility. The fees for the uplink of the channels and use of
the uplink facility increase significantly upon the launch of EchoStar's
second satellite once the Company is allocated an additional 2.4 megahertz of
transponder capacity. EchoStar's second satellite was launched on September
11, 1996. The Company and its franchisees are obligated to pay EchoStar a
royalty on music sales from EchoStar channels to commercial customers.
EchoStar has agreed that it will not (i) provide transponder space to, (ii)
enter into or maintain distributor agreements or relationships with, or (iii)
enter into any agreements for the programming or delivery of any audio
services via DBS frequencies with, a specified group of the Company's
competitors. The Company has agreed it will not (i) secure transponder space
for, (ii) enter into or maintain distributor agreements or relationships with,
or (iii) enter into any agreement for the programming or delivery of any of
the Company's services with any competitor of EchoStar via DBS frequencies or
with specified competitors of EchoStar via K-band frequencies.
The Company may terminate its agreements with EchoStar if EchoStar is unable
to provide transponder capacity on its second satellite by December 31, 1997,
unless EchoStar allocates 2.4 megahertz of transponder capacity on the
EchoStar-I satellite for the Company's exclusive use.
EchoStar may cancel the terms of the EchoStar Agreements related to the
provision of residential music channels at any time. Upon such cancellation,
EchoStar is required to pay to the Company the depreciated book value of the
Company's capital investment in equipment to support residential music
channels and to continue to provide 2.4 megahertz of transponder capacity for
use by the Company. The Company and its franchisees also would be permitted to
continue to market and sell the video services carried on the EchoStar system.
The EchoStar relationship is still in its formative stage and there can be
no assurance that the benefits anticipated by the Company will be realized.
See "Risk Factors--Dependence on EchoStar and its Satellites."
INTERNET SERVICES
The Company has recently developed and begun operating its Internet
MusicServerSM service.
The Company is seeking to exploit recent software developments in real-time
delivery of audio via low-cost, high-speed modems to provide access to
digitized samples of recordings in its library to businesses having
informational or retailing sites on the Internet. The design of the Company's
Internet MusicServer SM service allows the Company to use a hardware and
software server system to, among other things, supply services to many
different Internet-based retailers and thus provide music samples to many
retailers more economically than those retailers could provide themselves. The
MusicServer SM service permits music retailers and others to offer visitors to
their websites access to digitized 30-second samples from the Company's
library of recorded music. This service, which permits, among other things, a
consumer to preview recordings offered for sale by a retailer, currently is
being provided to CDnow!, an on-line retailer of compact discs and audio
cassettes, Tower Records and Microsoft.
There can be no assurance that Internet services will be economically viable
or generate significant revenue for the Company. See "Risk Factors--Unproven
Capabilities of New Services."
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EQUIPMENT AND RELATED SERVICES
The Company sells or leases various audio system-related products,
principally sound systems and intercoms to its business music subscribers and
other customers. The Company also sells electronic equipment, principally DBS
receivers and dishes as well as proprietary tape playback equipment, to its
franchisees to support their business music services business. All the
equipment is manufactured by third parties, although some items bear the
Muzak(R) brand name. Revenues from equipment and related services accounted
for 40% of the Company's revenues in 1995 and 36% of such revenues during the
six-month period ended June 30, 1996.
The Company and its franchisees also sell, install and maintain non-music
related equipment, such as intercoms and paging systems, for use by their
business music subscribers and other customers. Although the maintenance of
program-receiving equipment provided to business music subscribers is
typically included as part of the overall music subscription fee, installation
and maintenance of audio or other equipment not directly related to reception
of the Company's business music service is provided on a contractual or time-
and-materials basis. Labor rates and charges for installation and service vary
by location and are determined by the Company or its franchisee. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
MARKETING
COMPANY SALES OFFICES
The Company has 35 sales offices in the United States, including in seven of
the top ten U.S. markets (the greater metropolitan areas of New York, Los
Angeles, Chicago, San Francisco, Boston, Dallas and Detroit). These 35 sales
offices accounted for approximately 72% of the Company's revenues in 1995 and
approximately 71% of such revenues during the six-month period ended June 30,
1996.
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The following table shows the locations of the Company's local sales offices
by market size in descending order (major offices within each market are shown
in boldface):
SEATTLE/TACOMA, WA
LONG ISLAND CITY, NY
Hicksville, NY Spokane, WA
LOS ANGELES, CA (BURBANK) MINNEAPOLIS, MN
Tustin, CA
DENVER, CO
CHICAGO, IL Colorado Springs, CO
Peoria, IL
Milwaukee, WI ORLANDO, FL
Moline, IL
Springfield, IL PORTLAND, OR
Medford, OR
SAN FRANCISCO, CA
Sacramento, CA SAN DIEGO, CA
San Jose, CA
INDIANAPOLIS, IN
BOSTON, MA Ft. Wayne, IN
Providence, RI
Exeter, NH HARTFORD, CT
DALLAS, TX CINCINNATI, OH
Tyler, TX Columbus, OH
DETROIT, MI BUFFALO, NY
SCRANTON, PA
Holidaysburg, PA
FRANCHISEES
The Company has 81 franchisees serving 138 separate territories in the
United States. The Company's relationships with its franchisees have been very
stable. More than 80% of its franchisees have been affiliated with the Company
for over 20 years and, during the last ten years, the Company has terminated
relations with only one franchisee. Each franchisee has exclusive
responsibility for sales in its territory, except for sales to national
accounts, sales of in-store advertising services and on-premise music video
services. All marketing literature, customer and training videos and sales
materials are designed and produced by the Company and made available to its
franchisees. The Company also conducts sales training for its franchisees'
sales personnel.
The Company currently has a standard form of franchise agreement in effect
for 132 of 138 of its franchised territories. The standard form of agreement
has a renewable ten-year term, and grants to the franchisee an exclusive
license to offer and sell specified business music services and certain non-
music broadcast services and to use certain of the Company's registered marks
within a defined territory. The agreement also prohibits franchisees from
marketing or selling competing products. The agreement includes provisions
relating to distribution of services via the Company's medium-powered DBS
system and via EchoStar, and establishes terms for the provision of services
to "national accounts" on a unified basis.
Under the standard form of agreement, franchisees pay the Company (i) a
monthly fee based on the number of business locations within the specified
territory, (ii) a monthly royalty equal to 10% of billings for broadcast
business music services (subject to certain deductions and adjustments) and
(iii) additional amounts for non-music broadcast services and on-premise tape
services. In addition, franchisees currently pay or have paid a variable
surcharge of billings to customers for eight years following the commencement
of medium-powered DBS services in the franchisee's territory. As a result of
their agreement to participate in the delivery of services
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via the EchoStar satellite system, franchisees also pay a surcharge of monthly
recurring billings in consideration of the Company's development and
implementation of services for delivery over the EchoStar satellite system.
Franchisees are also responsible for paying performing rights fees in
connection with the provision of services in their territories.
Revenues from the sale of other broadcast business services are shared
between the Company and its franchisees, and the Company receives 50% or 60%
of these revenues in lieu of royalty payments. Franchisees generally pay a
monthly fee for use of various medium-powered DBS-delivered business music
services offered by the Company, such as Dayparting(R) and Weekparting(R).
NATIONAL SALES PROGRAM
The Company has established a national sales program to market its services
more effectively to subscribers with numerous locations in various
territories, including those served by franchisees, and to address the needs
of these subscribers for uniform service and centralized billing for all of
their locations. Subscribers with 50 or more locations operating in four or
more territories are deemed to be "national accounts." The national sales
program includes a committee of representatives of the Company and its
franchisees that oversees the pricing and other material terms for national
account subscriber contracts. The Company, through its Seattle headquarters,
coordinates the servicing of national accounts by its franchisees and
allocates revenues from national accounts among the participating franchisees.
The national sales office is comprised of 10 salespeople and is supported by
additional customer service personnel. At June 30, 1996, the Company and its
franchisees had national accounts representing over 65,000 subscriber
locations (of which approximately 40,000 were franchisee subscriber
locations), including those of Taco Bell, McDonald's, Burger King, Bob Evans,
Boston Markets, Crate & Barrel, Kroger, Staples, Hallmark and Wal-Mart. None
of the Company's national accounts represents more than 3% of the Company's
consolidated revenues, and the Company's top five national accounts represent
in the aggregate less than 10% of consolidated revenues.
INTERNATIONAL SALES
The Company has agreements with 15 international distributors and
franchisees in 10 countries outside the United States, including Canada,
Mexico, Japan, Argentina and Australia. These distributors and franchisees
either pay royalties to the Company based on their sales of business music
services or a flat fee based on the number of subscribers they serve.
Royalties and other fees from international sales accounted for approximately
2% of the Company's revenues in 1995.
In addition, in August 1995, the Company formed the Muzak Europe joint
venture with Alcas to more aggressively market the Company's services in
Europe. The joint venture, which is headquartered in Hilversum, The
Netherlands, has been offering business music and non-music services via
satellite transmission since January 1996 and is seeking to establish
relationships with key distributors throughout Europe. As of June 30, 1996,
Muzak Europe had entered into agreements with distributors in Ireland, the
United Kingdom, The Netherlands, Belgium and Hungary. In addition, it recently
acquired the Company's German distributor. As of June 30, 1996, Muzak Europe
was providing services to approximately 3,400 subscriber locations throughout
Europe.
Muzak Europe is a Netherlands corporation in which the Company and Alcas
each own 50% of the outstanding shares. The joint venture agreement between
the Company and Alcas that established Muzak Europe contains restrictions on
the disposition of both parties' shares in Muzak Europe. A credit facility
entered into by Muzak Europe to finance the purchase of the Company's German
distributor requires the Company and Alcas to make any additional investments
in Muzak Europe necessary to maintain equity of four million Netherlands
guilders (approximately $2.4 million), and of at least 25% of its consolidated
total assets. Any additional equity investments must be made equally by the
Company and Alcas. The credit facility also restricts the transfer of the
Company's shares in Muzak Europe.
The Company plans to expand into Latin America and Asia by establishing
similar strategic relationships in those markets.
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Until recently, the Company has not aggressively pursued the development of
its international business; however, the Company believes that the
international market offers significant growth potential. Although the Company
is now pursuing this market, no assurance can be given that the Company will
achieve significant growth in the international market.
COMPETITION
The Company's principal direct competitors in providing business music
services are AEI Music Network, Inc. ("AEI") of Seattle, Washington, and 3M
Sound and Communications, an affiliate of Minnesota Mining and Manufacturing
Corporation. In addition, the Company competes with a number of local
independent providers of business music. DMX, Inc. and Digital Cable Radio
Associates L.P. market and sell commercial-free music programming over cable
to residential cable television subscribers and have launched DBS services
aimed at business users. No assurance can be given that such competition will
not attract customers to whom the Company markets its services, including its
existing customers. In broadcast data delivery, video, audio marketing and in-
store advertising services, the Company faces competition from numerous
companies using broadcast as well as other delivery systems to provide similar
business services.
There are numerous methods by which programming, such as the Company's
business music services, broadcast data delivery, video, audio marketing and
in-store advertising services, can be delivered by existing and future
competitors, including various forms of DBS services, wireless cable and fiber
optic cable and digital compression over existing telephone lines. Many
competitors or potential competitors with access to these delivery
technologies have substantially greater financial, technical, personnel and
other resources than the Company. In addition, the larger communications
industry of which the Company is a part is undergoing significant and rapid
change, including the development of new services, delivery systems and
interactive technologies. In addition, the recently enacted Telecommunications
Act may increase competition in the markets in which the Company operates. The
Telecommunications Act resulted in comprehensive changes to the regulatory
environment for the telecommunications industry as a whole. The legislation
permits telephone companies to enter certain broadcast services businesses.
The entry of telephone companies into such businesses, with greater access to
capital and other resources, could provide significant competition to the
Company. In addition, the legislation affords relief to DBS transmission
providers by exempting them from local restrictions on small-size reception
antennae and preempting the authority of local governments to impose certain
taxes. The Company cannot reasonably predict how the FCC will enforce the
rules and policies promulgated under the Telecommunications Act, or the effect
of such rules and policies on competition in the market for the Company's
services.
The Company competes internationally with AEI and a number of regional
business music providers, some of whom have substantially greater financial,
technical, personnel and other resources than the Company.
The Company competes on the basis of service and system quality, versatility
and flexibility, the variety of its music formats, the availability of its
broadcast data and other non-music services and, to a lesser extent, price.
Even though it is seldom the lowest-priced provider of business music in any
territory, the Company believes that it can compete effectively on all these
bases due to the widespread recognition of the Muzak(R) name, its nationwide
sales and service infrastructure, the quality and variety of its music
programming and its multiple delivery systems. However, no assurance can be
given that the Company will be able to compete successfully with its existing
or potential new competitors or maintain or increase its current market share,
that it will be able to use, or compete effectively with competitors that
adopt, new delivery methods and technologies, or that discoveries or
improvements in the communications, media and entertainment industries will
not render obsolete some or all of the technologies or delivery systems
currently relied upon by the Company.
MUSIC LICENSES
Most music is copyrighted and the Company is required to enter into license
agreements to rerecord and play music in public spaces. The Company has
various types of licensing agreements and arrangements with
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major rights owners and organizations to permit the production and
distribution of its business music, including (i) master performance licensing
agreements with ASCAP, BMI and SESAC that permit public performance of
copyrighted music in a customer's location, (ii) mechanical licensing
agreements under which the Company receives rights to rerecord and make copies
of copyrighted music and (iii) licensing agreements with record companies that
allow the Company to produce, advertise and distribute to its on-premise tape
subscribers audio tapes containing original artist recordings.
The Company's agreement with ASCAP expires on May 31, 1999. During 1995, the
Company paid ASCAP fees aggregating approximately $2.6 million. The Company's
agreement with BMI expired on December 31, 1993 and its agreement with SESAC
expired on December 31, 1995. The Company has entered into an interim fee
structure with BMI and is in negotiations with BMI and SESAC with respect to
new agreements. The interim fee structure with BMI has been in place on an
ongoing month-to-month basis since the expiration of the underlying agreement,
and provides for continued payments at 1993 levels. The BMI license extension
stipulates that any settlement relating to ongoing fees may be retroactive to
January 1, 1994. Negotiations on a new contract with BMI began in early 1994
and at this time it is not known when negotiations will be completed. The
Company discontinued use of SESAC licensed material upon expiration of the
underlying agreement. Negotiations on a new contract with SESAC began in mid-
1995 and it is not known when these negotiations will be completed. During
1995, the Company paid BMI and SESAC fees aggregating approximately $950,000
and $7,000, respectively. The Company's total fees for mechanical licenses and
original artist recording licenses and licensing agreements with record
companies have not been material.
The Digital Recordings Act of 1995 (the "Digital Recordings Act") was
enacted into law on November 1, 1995. The Digital Recordings Act amends U.S.
copyright law to provide sound recording owners with an exclusive performance
right in sound recordings that are performed through digital transmissions.
The legislation was drafted to protect performers and copyright owners
potentially disadvantaged by the emergence of digital subscription services.
The Digital Recordings Act provides a compulsory license for non-interactive
subscription services, but does not provide a compulsory license for
interactive services (where the listener selects a musical piece based upon a
menu or schedule). As music services to or within a business are specifically
exempted from the provisions of the Digital Recordings Act, the digital
performance right does not apply to the Company's traditional business music
services (whether analog or digital). However, to the extent the Company
provides digital music services to residential customers, via satellite or
other broadcast delivery or via the Internet or other digital means, the
Digital Recordings Act would require the payment of additional royalties.
GOVERNMENT REGULATION
The Company is subject to the regulatory authority of the United States
government and the governments of other countries in which it provides
services to subscribers. The business prospects of the Company could be
adversely affected by the adoption of new laws, policies or regulations that
modify the present regulatory environment. The Company currently provides
music services in a few areas in the United States through 928 to 960
megahertz radio broadcast frequencies, which are licensed by the FCC.
Additionally, the satellites on which the Company transmits its DBS services
in the United States are licensed by the FCC. If the FCC authorizations for
any of these satellites are revoked or are not extended, the Company would be
required to seek alternative satellite facilities. Laws, regulations and
policy, or changes therein, in other countries could adversely affect the
Company's existing services or restrict the growth of the Company's business
in these countries.
PROPERTIES
The Company's headquarters in Seattle, Washington, consisting of
approximately 43,300 square feet, its 35 local and two national sales offices,
which occupy an aggregate of approximately 150,000 square feet, as well as
office and satellite uplink facilities at Raleigh, North Carolina and
Cheyenne, Wyoming and two warehouses in Seattle, are leased. The Company's
total lease payments during 1995 were approximately $2.4 million. In addition,
the Company owns office and warehouse facilities, aggregating approximately
21,000 square feet, in
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Buffalo, New York, Irving, Texas and Peoria, Illinois. The Company considers
its facilities to be adequate to meet its current and reasonably foreseeable
needs.
EMPLOYEES
At June 30, 1996, the Company had 734 full-time and part-time employees, of
whom 211 held sales and marketing positions, 186 held administrative positions
and 337 held technical and service positions. A total of 78 of the Company's
technical and service personnel are covered by ten union contracts with the
International Brotherhood of Electrical Workers ("IBEW"). The IBEW contracts
have currently effective terms that expire on dates ranging from November 30,
1996 to May 31, 1999. All of the IBEW contracts provide for successive
automatic one-year renewals, unless a notice of renegotiation or termination
is given prior to the end of the then-effective term. The Company does not
have any pending renegotiations of any of the IBEW contracts, but anticipates
that some of the contracts may be renegotiated as their current terms expire.
The Company believes its relationships with its employees and the IBEW are
good.
LEGAL PROCEEDINGS
The Company is subject to various proceedings arising in the ordinary course
of business, none of which, individually or in the aggregate, is expected to
have a material adverse effect on the Company's financial condition, results
of operations or liquidity.
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MANAGEMENT
The Board of Directors of Music Holdings Corp. ("Music Holdings"), an
affiliate of Centre Partners and the general partner of MLP Acquisition L.P.
("MLP Acquisition"), the managing general partner of the Company, functions as
the governing body of the Company. Executive officers of the Company also act
as officers of Capital Corp., but do not receive additional compensation for
such services.
DIRECTORS, EXECUTIVE OFFICERS AND OTHER SENIOR MANAGEMENT PERSONNEL
Certain information is set forth below concerning (i) executive officers and
other members of senior management of the Company and (ii) directors of Music
Holdings:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
Directors and Executive Officers:
<S> <C> <C>
John R. Jester.......... 55 President and Chief Executive Officer and a Director
James F. Harrison....... 49 Senior Vice President, Sales and Marketing
Kirk A. Collamer........ 44 Vice President and Chief Financial Officer
Thomas J. Gentry........ 61 Vice President and General Manager, DBS Division
John A. Neal............ 60 Vice President, Owned Operations
Paul F. Balser.......... 54 Director
William A. Boyd......... 55 Director
Mark E. Jennings........ 34 Director
Bruce G. Pollack........ 37 Director
Other Senior Management Personnel:
Wallace R. Borgeson..... 51 Vice President, Centralized Operations
Bruce B. Funkhouser..... 47 Vice President, Programming and Licensing
L. Dale Stewart......... 49 Vice President, Operations and Engineering
Jack D. Craig........... 61 Vice President, Affiliate Sales and Development
Richard Chaffee......... 53 Vice President, Owned Affiliate Operations
Roger C. Fairchild...... 48 Vice President, Owned Affiliate Sales and Market Development
J. Gary Henderson....... 42 President, In-Store Marketing Group
</TABLE>
John R. Jester has been a Director of Music Holdings, an affiliate of Centre
Partners and the general partner of MLP Acquisition, the managing general
partner of the Company, since September 1992, and has been President and Chief
Executive Officer of the Company and its predecessors since January 1988.
Prior to joining the Predecessor, Mr. Jester served from 1985 to 1987 as
President of US West Information Systems. From 1983 to 1985, Mr. Jester was
President of Executone Inc. Prior to that, Mr. Jester held various financial
and management positions with Contel Corporation, ITT Corporation and C & P of
Maryland, Inc. Mr. Jester currently serves as a director of Montana Power
Company.
James F. Harrison has been Senior Vice President for Sales and Marketing of
the Company and the Predecessor since March 1988. Prior to joining the
Predecessor, Mr. Harrison served from 1986 to 1987 as President of Telegence
Corporation, a start-up data communications manufacturer. From 1985 to 1986,
Mr. Harrison was Vice President of Marketing with US West Information Systems.
From 1983 to 1984, Mr. Harrison was Vice President of Business Market
Development for Contel Corporation's unregulated businesses. From 1981 to
1982, he was head of Communications Marketing Division at Wang Laboratories,
Inc., and from 1976 to 1980, Mr. Harrison was PBX Systems Engineering and
Development Supervisor and Member of the Technical Staff for Human Factors
Research with Bell Laboratories, Inc.
Kirk A. Collamer, a certified public accountant, has been Vice President of
Finance and Administration and Chief Financial Officer of the Company since
August 1995. Prior to joining the Company, Mr. Collamer served from July 1990
to July 1995 as Vice President of Finance at Ameritech Corporation for its
Enhanced Business Services division and Chief Financial Officer of its New
Zealand subsidiary. Prior to that time, Mr. Collamer held a variety of
financial and accounting positions with Jack Daniel Distillery/Brown-Forman
Corporation, Aladdin Industries, Inc. and Arthur Andersen LLP.
43
<PAGE>
Thomas J. Gentry has been Vice President and General Manager of the DBS
Division of the Company and the Predecessor since June 1988. Prior to joining
the Predecessor, Mr. Gentry served from 1985 to 1987 as President and Chief
Executive Officer of SkySwitch Satellite Communications. Mr. Gentry has over
30 years of experience in telecommunications and satellite communications with
Westinghouse Defense Group, COMSAT Corporation, Western Union and Contel
A.S.C.
John A. Neal has been Vice President, Owned Operations of the Company and
the Predecessor since January 1991. From October 1988 to December 1990, Mr.
Neal served as Vice President of National Sales for the Predecessor. From 1987
to 1988, Mr. Neal was Vice President and Chief Operating Officer of Executone
Telecommunications, Rochester, New York. From 1979 to 1987, he was Vice
President of Sales for Contel Executone, where he developed and managed
Executone's National Account program.
Paul F. Balser has been a Director of Music Holdings since September 1992.
Mr. Balser was a partner of Centre Partners from 1986 until August 1995. In
August 1995, Mr. Balser resigned as an officer of the managing general partner
of Centre Partners to become a founding partner of Generation Capital Partners
L.P., a newly organized private investment partnership. From 1982 to 1986, Mr.
Balser was a Managing Director and a member of the Board of Directors of J.
Henry Schroeder Corp. Mr. Balser currently serves as a director of Kansas City
Southern Industries, Inc. (NYSE), The Carbide/Graphite Group, Inc. (Nasdaq),
The Quarton Group--Publishers, Inc., Jungle Jim's Playlands, Inc., Scientific
Games Holdings Corp. (Nasdaq) and Victory Holdings Corp.
William A. Boyd has been a Director of Music Holdings since August 1996.
From September 1995 to August 1996, Mr. Boyd was a private investor. From 1982
to September 1995, Mr. Boyd was owner and president of the largest franchisee
of the Company. Mr. Boyd was President of the Independent Affiliate
Organization from 1994 to 1995 and from 1986 to 1987. Mr. Boyd was also
President of the Company's Owned Affiliate division in 1987. Prior to owning a
franchise, Mr. Boyd held various positions with the Predecessor.
Mark E. Jennings has been a Director of Music Holdings since September 1992.
Through August 1995, Mr. Jennings was a partner of Centre Partners where he
has been employed since 1987. In August 1995, Mr. Jennings resigned as an
officer of the managing general partner of Centre Partners to become a
founding partner of Generation Capital Partners L.P. From 1986 to 1987, Mr.
Jennings was employed at Goldman, Sachs & Co. in its Corporate Finance
Department. Mr. Jennings currently serves as a director of The
Carbide/Graphite Group, Inc. (Nasdaq), Jungle Jim's Playlands, Inc.,
Scientific Games Holdings Corp. (Nasdaq) and Johnny Rockets Group, Inc.
Bruce G. Pollack has been a Director of Music Holdings since September 1995.
Mr. Pollack is a partner of Centre Partners, which he joined in January 1991,
and is a Managing Director of Centre Partners Management LLC, which was formed
in December 1995 to manage investments on behalf of Centre Capital Investors
II, L.P. and affiliated entities. From 1988 to June 1991, Mr. Pollack was an
officer and director of RSG Partners, Inc. and its predecessors, and from 1985
to 1988, Mr. Pollack was an officer of TSG Holdings, Inc. Mr. Pollack
currently serves as a director of Johnny Rockets Group, Inc., The Quarton
Group--Publishers, Inc., Jungle Jim's Playlands, Inc. and Victory Holdings
Corp. On December 28, 1992, a petition under chapter 11 of the U.S. bankruptcy
code was filed by SC Corporation and its operating subsidiaries, of which Mr.
Pollack served as a vice president until January 1991. Mr. Pollack is also a
director of, and prior to October 4, 1994 was a vice president of, Victory
Markets Inc. and New Almacs Inc., operating subsidiaries of Victory Holdings
Corp. that filed petitions under chapter 11 on September 20, 1995.
Wallace R. Borgeson has been Vice President of Centralized Operations of the
Company since August 1995. From April 1990 to August 1995, Mr. Borgeson served
as Vice President of Finance and Administration of the Company and the
Predecessor. From 1988 to 1990, Mr. Borgeson was the Chief Financial Officer
of Hickory Farms, Inc., and from 1971 to 1988, he served in various capacities
with Wurlitzer Company, most recently as Chief Financial Officer.
Bruce B. Funkhouser has been Vice President of Programming and Licensing of
the Company and the Predecessor since October 1987. From 1983 to 1987, Mr.
Funkhouser served as Programming and Production Manager for YesCo, Inc., which
was merged with a predecessor to the Predecessor in 1986. Prior to 1983, Mr.
Funkhouser was a record company owner and producer, former broadcasting
manager and on-air talent and Professor of Communications at Bellevue
Community College. He is a member of The American Federation of Television and
Radio Artists and The National Academy of Recording Arts and Sciences.
44
<PAGE>
L. Dale Stewart has been Vice President of Operations and Engineering of the
Company and the Predecessor since November 1987. From 1986 to 1987, Mr.
Stewart was Acting General Manager and Operations Manager at the Predecessor's
New York City office. From 1984 to 1986, Mr. Stewart was General Manager of
the Corpus Christi, Texas franchise, and prior to that he worked for the
franchisee in San Antonio, Texas.
Jack D. Craig has been Vice President, Affiliate Sales and Development of
the Company and the Predecessor since September 1988. From 1983 to 1988, Mr.
Craig was Vice President, Dealer Sales for AEI. From 1979 to 1983, Mr. Craig
was Marketing/Sales Manager for Aiphone Corporation, a leading intercom
manufacturer. Prior to joining Aiphone Corporation, Mr. Craig served as Vice
President/Account Supervisor for 11 years with J. Walter Thompson Advertising.
Richard Chaffee has been Vice President, Owned Affiliate Operations of the
Company and the Predecessor since July 1987. Since joining a predecessor to
the Predecessor in 1968, Mr. Chaffee has served in both local sales offices
and franchisee operations in New York, Boston, Chicago, Minneapolis and
Charlotte, primarily as Chief Engineer and Operations Manager.
Roger C. Fairchild has been Vice President, Owned Affiliate Sales and Market
Development of the Company since December 1993. From January 1991 to December
1993, Mr. Fairchild provided consulting services to the Company and the
Predecessor through Strategic Growth Advisory, a marketing and business
development consultancy. From 1989 to 1991, Mr. Fairchild was President of a
start-up voice processing equipment manufacturer. From 1988 to 1989, Mr.
Fairchild was Director of Marketing for ADC Telecommunications, Inc., a $175
million growth-stage telecommunications manufacturer. From 1983 to 1988, Mr.
Fairchild served as a vice president of operations and marketing for a US West
Information Systems subsidiary.
J. Gary Henderson has been President of the In-Store Marketing Group of the
Company since December 1993. From April 1991 to November 1993, Mr. Henderson
was a private investor. From 1986 to April 1991, Mr. Henderson was Executive
Vice President and Chief Marketing Officer of POP Radio Corporation. From 1982
to 1986, Mr. Henderson was Account Director for Actmedia, Inc.
There are no family relationships among the directors and executive officers
of the Company.
45
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation of
the Company's Chief Executive Officer and to each of the Company's four other
most highly compensated executive officers (together with the Chief Executive
Officer, the "Named Executive Officers") for services in all capacities
rendered to the Company and its subsidiaries in 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------
NAME AND OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION SALARY BONUS(1) COMPENSATION COMPENSATION(2)
<S> <C> <C> <C> <C>
John R. Jester, $213,725 -- -- $2,310
President and Chief Executive
Officer
James F. Harrison, $172,750 -- -- $2,310
Senior Vice President, Sales &
Marketing
John A. Neal, $155,000 -- -- $1,744
Vice President, Owned
Operations
Thomas J. Gentry, $152,000 -- -- $1,995
Vice President and General
Manager, DBS Division
Wallace R. Borgeson, $113,000 -- -- $1,624
Vice President, Centralized
Operations(3)
</TABLE>
- ---------------------
(1) Bonuses in respect of services rendered in 1994 were determined and paid
in 1995 ($20,000 for Mr. Harrison, $25,000 for Mr. Neal, $18,000 for Mr.
Gentry and $12,000 for Mr. Borgeson). No bonuses were awarded to Named
Executive Officers with respect to services rendered in 1995.
(2) Consists of contributions by the Company to a defined contribution 401(k)
plan.
(3) Mr. Borgeson served as an executive officer of the Partnership and the
Predecessor until August 1995.
No restricted partnership interest awards, appreciation rights or long-term
incentive plan awards were awarded to, earned by or paid to the Named
Executive Officers during the fiscal year ended December 31, 1995.
DIRECTORS' COMPENSATION
Directors of Music Holdings, the general partner of the managing partner of
the Company, who are also employees of the Company receive no remuneration for
services as members of the Board or any committee of the Board. Directors who
are not employed by the Company receive an annual retainer of $20,000 plus
$3,000 for each meeting of the Board attended, except in the case of the
Centre Partners designees, who receive an annual retainer of $50,000, in each
case plus reimbursement of expenses. See "Certain Relationships and Related
Transactions."
CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS
Effective August 31, 1992, the Company entered into five-year employment
agreements with each of John R. Jester, President and Chief Executive Officer
of the Company, and James F. Harrison, Senior Vice President of the Company.
Under his employment agreement, Mr. Jester currently receives an annual base
salary of $220,000, subject to cost of living adjustments. Under his
employment agreement, Mr. Harrison currently receives an annual base salary of
$178,000, subject to cost of living adjustments. Mr. Jester will receive a
bonus equal to 50% of his annual base salary if the Company achieves a
specified performance target for the 12 months ended December 31, 1996, which
target the Company believes will not be reached. If the target is not reached,
the Board of Directors may nonetheless award Mr. Jester a bonus in an amount
and on the terms determined by the Board of Directors (which amount shall not
exceed 50% of his annual base salary). Each of the agreements also provides
for a severance payment equal to the annual base salary and pro rata bonus in
the event of termination due to disability or death during the term of
employment. Both employment agreements also contain confidentiality covenants
and non-solicitation covenants which extend for five and two years,
respectively,
46
<PAGE>
beyond the term of the agreements. The Company can terminate either agreement
without further liability in case of the officer's fraud against, or
embezzlement from, the Company, indictment or conviction of a felony or
misdemeanor having a material adverse effect on the Company or material
failure to discharge his duties. In addition, the Company can terminate the
agreements if there is a material uncured default under the Company's credit
agreements or if the Company's cumulative performance level is less than 80%
of the cumulative target projected for any month; provided that in either such
case the Company is required to pay a severance payment equal to, in the case
of Mr. Jester, his annual base salary plus a pro-rated bonus, or, in the case
of Mr. Harrison, his annual base salary. The Company may otherwise terminate
the agreements for any reason during their terms by paying a severance payment
equal to the lesser of (i) two times the then-effective annual base salary and
(ii) the amount of compensation to which Mr. Jester or Mr. Harrison, as the
case may be, would be entitled to receive between the date of termination and
the fifth anniversary of the employment agreement had the agreement in
question not been terminated; but in no event less than one year's annual base
salary at the then effective rate. Mr. Jester would also be entitled to
receive a pro-rated bonus if cumulative performance targets exceed projections
for the twelve-month period preceding such termination.
Pursuant to a letter dated July 7, 1995, Kirk A. Collamer, Vice President
and Chief Financial Officer of the Company, was hired at an annual salary of
$160,000 and is eligible for discretionary bonuses. In addition, Mr. Collamer
was entitled to purchase up to 150,000 units of partnership interests, of
which 60,000 units were subscribed and paid for at $1.75 per unit and the
remainder forfeited. Mr. Collamer was granted options to purchase 150,000
additional units of partnership interests at $1.75 per unit, conditional upon
the performance of the Company. Mr. Collamer also received $120,000 relating
to the sale of his home in Chicago and his relocation to Seattle.
AMENDED AND RESTATED OPTION PLAN
In August 1992, the Company adopted, and issued options under, the Company's
Management Option Plan (the "Original Option Plan"). As part of the Offering,
the Company will adopt the Amended and Restated Option Plan to replace the
Original Option Plan. The total number of outstanding options granted under
the Original Option Plan will be the same under the Amended and Restated
Option Plan, and the Original Option Plan will be terminated, effective upon
consummation of the Offering.
The Amended and Restated Option Plan provides for the granting of options to
purchase an aggregate of 1,869,545 units of partnership interest which will be
granted to 23 existing senior management members at an average exercise price
of $1.12 per unit in substitution of the outstanding options held by such
members of senior management under the Original Option Plan. Options granted
under the Amended and Restated Option Plan are not intended to qualify as
"incentive stock options" within the meaning of Section 422A of the Internal
Revenue Code of 1986, as amended (the "Code").
The purchase price of the units of partnership interest issuable upon
exercise of each option granted pursuant to the Amended and Restated Option
Plan will be the same as the exercise prices of the options granted under the
Original Option Plan. Options granted under the Amended and Restated Option
Plan expire five years from the date of grant.
Options granted under the Amended and Restated Option Plan are non-
transferable, except by will, the laws of descent and distribution, or
pursuant to a qualified domestic relations order. As a condition to the
exercise of any option under the Amended and Restated Option Plan, the
optionee is required to become party to the Partnership Agreement (as defined
herein). See "Description of the Partnership Agreement."
Under the Amended and Restated Option Plan, John R. Jester will receive
options to purchase 325,000 units of partnership interest for $1.00 per unit;
James F. Harrison will receive options to purchase 205,000 units of
partnership interest for $1.00 per unit; John A Neal will receive options to
purchase 140,000 units of partnership interest for $1.00 per unit; Thomas J.
Gentry will receive options to purchase 140,000 units of partnership interest
for $1.00 per unit; and Wallace R. Borgeson will receive options to purchase
140,000 units of partnership interest for $1.00 per unit.
47
<PAGE>
SENIOR MANAGEMENT INCENTIVE PLAN
In January 1996, the Company adopted the Senior Management Incentive Plan
(the "Incentive Plan"), to provide for annual incentive awards to senior
executives of the Company.
The Incentive Plan will be administered by the Compensation Committee.
Initially, there will be eleven participants in the Incentive Plan, including
Messrs. Jester, Harrison, Neal, Gentry and Borgeson.
Annual incentive awards under the Incentive Plan will be based on the
achievement by the Company of target levels of three distinct measures:
EBITDA, operating cash flow (as defined in the Incentive Plan) and revenue
growth in a calendar year. The annual incentives for participants may range
from no award (if minimum target levels are not reached) to a maximum of 43%
(if maximum target levels are reached) of base salary in effect at the end of
a plan year. No awards will be made under the Incentive Plan unless the
minimum target level for EBITDA is reached, regardless of the performance
levels for the other measurements. The Incentive Plan will first be effective
for the 1996 plan year.
If a participant's employment is terminated during a plan year, a pro-rated
bonus may be awarded at the discretion of the Compensation Committee.
Performance target levels may be modified, at the discretion of the
Compensation Committee, for significant transactions, such as acquisitions,
divestitures or development projects.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Executive compensation decisions are made by the Board of Directors of Music
Holdings, which consists of Messrs. Balser, Jennings, Jester and Pollack.
Paul F. Balser and Mark E. Jennings are limited partners of MLP and prior to
August 1995 were officers of Park Road Corporation ("Park Road"), the managing
general partner of Centre Partners. Bruce G. Pollack, a director of Music
Holdings, is a limited partner of MLP and is an officer and director of Park
Road.
Centre Partners was paid (i) $324,000 for its efforts in initiating,
structuring and consummating the Comcast Acquisition and (ii) $150,000 as
consideration for the guarantees by MLP and CCI of a $10.0 million unsecured
loan made by UBS (the "UBS Loan"). In addition, the Company agreed to pay
Centre Partners $300,000 if any amounts were required to be paid under either
the MLP or CCI guarantee. Such guarantees have been discharged and no payments
were required to be made thereunder.
During each of 1992, 1993 and 1994, the Company paid to Centre Partners the
aggregate amount of $100,000 for the services of the Centre Partners designees
as directors of Music Holdings for the subsequent calendar year. In 1996, the
Company will pay to Centre Partners $162,500 for services provided by the
Centre Partners designees during 1995 and 1996.
BENEFIT PLAN
The Company maintains a 401(k) defined contribution savings and retirement
plan (the "Benefit Plan") that covers substantially all of the Company's
employees, including certain Named Executive Officers. Under the Benefit
Plan's savings portion, eligible employees may contribute from 2% to 14% of
their compensation per year, subject to certain tax law restrictions. The
Company may make a matching contribution of up to a maximum of 100% of the
first 2% and 50% of the next 4%, up to 6% of the total base salary contributed
by the employee each year. The Company's contributions under the retirement
portion of the Benefit Plan are determined annually by the Company, but may
not exceed 3% of the eligible employee's annual compensation. Benefit Plan
participants are immediately vested in their contributions as well as the
Company's contributions.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 17-108 of the Delaware Revised Uniform Limited Partnership Act (the
"RULPA") empowers a limited partnership to indemnify and hold harmless any
partner or other person from and against any and all claims and demands
whatsoever.
48
<PAGE>
The Third Amended and Restated Agreement of Limited Partnership of the
Company, dated as of November 4, 1994, as amended (the "Partnership
Agreement"), provides that the general partners of the Company, their
respective affiliates and all officers, partners, directors, employees,
stockholders and agents of the general partners and their respective
affiliates and all officers, agents and employees of the Company who are
partners of the Company, shall not be liable to the Company, to limited
partners or to any other person holding an interest in the Company for any
losses sustained or liabilities incurred, including monetary damages, as a
result of any act or omission of the general partners or any such other
person, if the conduct of the general partners or such other person did not
constitute fraud, willful misconduct or criminal conduct.
The Partnership Agreement also provides that the Company shall, to the
fullest extent permitted by law, indemnify and hold harmless the general
partners of the Company, their respective affiliates and the officers,
directors, employees and agents of the general partners and their respective
affiliates, from and against any and all liabilities and expenses which arise
by reason of any such person's management of the affairs of the Company or of
a general partner, or any such person's status as a general partner of the
Company or affiliate thereof, as a partner, director, officer, employee,
stockholder or agent thereof, or as a partner, director, officer, agent or
employee of the Company or a person serving at the request of such persons,
provided, that such liability or expense is not the result of the fraud,
willful misconduct or criminal conduct of the indemnitee.
In the event of the filing of a public offering of securities of the Company
pursuant to a registration statement under the Securities Act of 1933, as
amended (the "Securities Act"), the Partnership Agreement provides that the
Company shall indemnify and hold harmless holders of such securities
participating in such registration, the directors, officers, partners and
controlling persons of such holders, and partners of the Company for any
liability which arises from such filing under the Securities Act.
Pursuant to the provisions of the Delaware General Corporation Law (the
"DGCL"), Capital Corp. has adopted provisions in its Certificate of
Incorporation which provide that directors of Capital Corp. shall not be
personally liable for monetary damages to Capital Corp. or its stockholders
for a breach of fiduciary duty as a director, except for liability as a result
of: (i) a breach of the director's duty of loyalty to Capital Corp. or its
stockholders; (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) an act related to
the unlawful stock repurchase or payment of a dividend under Section 174 of
the DGCL; and (iv) transactions from which the director derived an improper
personal benefit. Such limitation of liability does not affect the
availability of equitable remedies such as injunctive relief or rescission.
Capital Corp.'s Certificate of Incorporation also authorizes the Company to
indemnify its officers, directors and other agents, by bylaws, agreements or
otherwise, to the fullest extent permitted under DGCL.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or other agent of the Company or Capital Corp. as
to which indemnification is being sought, nor is the Company or Capital Corp.
aware of any pending or threatened litigation that may result in claims for
indemnification by any director, officer, employee or other agent.
49
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In January 1994, the Company purchased substantially all of the assets of
Comcast in the Comcast Acquisition for total consideration of approximately
$33.0 million, $28.0 million of which was paid in cash and the balance of
which was paid with a $5.0 million 7% preferred limited partnership interest
of the Partnership.
In order to finance the Comcast Acquisition, the Company's existing secured
term loan and revolving credit facility, in respect of which UBS acts as agent
bank and is a lender, was increased. In addition, the Company borrowed $10.0
million under the UBS Loan. In November 1994, the UBS Loan was repaid in full
with proceeds from a subordinated financing involving the sale of $7.0 million
in additional preferred partnership interests to existing investors, including
MLP and certain of the Management Investors, with a pledge of the limited
partnership interests to the lenders under the term loan and revolving credit
facility, and an increase in an existing subordinated debt facility provided
by Barclays Bank PLC, New York Branch ("Barclays"), and Exeter Venture
Lenders, L.P. ("Exeter"). Barclays and Exeter were also granted the right to
purchase for nominal consideration additional interests in the Company
representing approximately 2.8% of the Company's equity.
During the years ended December 31, 1993, 1994 and 1995, and six-month
periods ended June 30, 1995 and 1996, the Company incurred interest expense of
approximately $3.7 million, $6.9 million, $7.4 million, $3.7 million and $3.5
million, respectively, in connection with the UBS term loan and revolving
credit facility and the Barclays subordinated debt facility. In addition, in
1993, 1994 and 1995, the Company paid an aggregate of $250,000, $1.9 million
and $122,000, respectively, in fees to UBS and Barclays in connection with
increases in the Company's term loan and establishment of and increases in the
revolving credit facility and the subordinated debt facility. The outstanding
senior indebtedness and outstanding subordinated indebtedness will be repaid
with the proceeds of the Offering. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Directors of Music Holdings, the general partner of the managing partner of
the Company, who are also employees of the Company receive no remuneration for
services as members of the Board or any committee of the Board. Directors who
are not employed by the Company receive an annual retainer of $20,000 plus
$3,000 for each meeting of the Board attended, except in the case of the
Centre Partners designees, who receive an annual retainer of $50,000, in each
case plus reimbursement of expenses. See "Management--Directors'
Compensation."
For additional information, See "Use of Proceeds" and "Management--
Compensation Committee Interlocks and Insider Participation."
50
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company as of the date hereof, by (i) each
interestholder known by the Company to beneficially own more than five percent
of the Company, (ii) each director of the general partner of the managing
general partner of the Company, (iii) the Named Executive Officers and (iv)
all directors of the general partner of the managing general partner of the
Company and executive officers of the Company as a group. The following table
excludes units of partnership interest issuable upon the exercise of options
under the Company's Amended and Restated Option Plan. Except pursuant to
applicable community property laws or as otherwise noted below, each of the
owners identified in the table has sole voting and investment power with
respect to the partnership interests beneficially owned by such person.
<TABLE>
<CAPTION>
NUMBER OF
PARTNERSHIP
NAME AND ADDRESS OF BENEFICIAL OWNER INTERESTS PERCENT
<S> <C> <C>
Centre Partners L.P.(1)............................... 12,668,493 62.9%
30 Rockefeller Plaza
Suite 5050
New York, NY 10020
UBS Capital LLC....................................... 1,803,569 9.0
299 Park Avenue
34th Floor
New York, NY 10171
Comcast Corporation(2)................................ 1,420,868 7.1
1500 Market Street
Philadelphia, PA 19102
Barclays Bank PLC..................................... 1,358,617 6.7
600 Fifth Avenue
New York, NY 10023
John R. Jester........................................ 366,816 1.8
James F. Harrison..................................... 217,985 1.1
Thomas J. Gentry...................................... 158,602 0.8
John A. Neal.......................................... 173,637 0.9
Wallace R. Borgeson................................... 99,221 0.5
Paul F. Balser........................................ * (3) * (3)
Mark E. Jennings...................................... * (3) * (3)
Bruce G. Pollack...................................... * (4) * (4)
All directors and executive officers as a group (8
persons)............................................. 1,016,261(5) 5.1(5)
</TABLE>
- ---------------------
* Less than 1%.
(1) Includes partnership interests held by MLP, of which Centre Partners is
the general partner. Centre Partners may be deemed to be indirectly
controlled, through Park Road, the managing general partner of Centre
Partners, by Lester Pollack, a Managing Director of Lazard Freres & Co.
LLC, an underwriter of this Offering, and the father of Bruce G. Pollack,
a director of the general partner of the managing general partner of the
Company.
(2) The Class C-1 Limited Partnership Interest beneficially owned by Comcast
Corporation is a preferred limited partnership interest convertible into
an equivalent number of shares of common stock in the event of the
incorporation of the Company. See "Description of the Partnership
Agreement."
(3) Excludes partnership interests held by Centre Partners and MLP. Messrs.
Balser and Jennings are limited partners of MLP and prior to August 1995
were officers of Park Road. Each disclaims beneficial ownership of such
partnership interests.
(4) Excludes partnership interests held by Centre Partners and MLP. Mr.
Pollack is a limited partner of MLP and is an officer and director of Park
Road. He disclaims beneficial ownership of such partnership interests.
(5) Excludes partnership interests held by Centre Partners and MLP.
51
<PAGE>
DESCRIPTION OF THE SENIOR NOTES
GENERAL
The Senior Notes will be issued pursuant to an Indenture (the "Indenture")
among the Issuers, as joint and several obligors, and , as trustee
(the "Trustee"). The terms of the Senior Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Senior
Notes are subject to all such terms, and holders of Senior Notes are referred
to the Indenture and the Trust Indenture Act for a statement thereof. The
following summary of certain provisions of the Indenture does not purport to
be complete and is qualified in its entirety by reference to the Indenture,
including the definitions therein of certain terms used below. A copy of the
proposed form of Indenture has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part and is available as set forth
under "--Additional Information." The definitions of certain terms used in the
following summary are set forth below under "--Certain Definitions."
The Senior Notes will represent unsecured senior obligations of the Issuers,
will rank senior in right of payment to all Subordinated Indebtedness of the
Issuers and will rank pari passu in right of payment with all senior
indebtedness of the Issuers. At June 30, 1996, on a pro forma basis after
giving effect to the Offering and the application of the estimated net
proceeds therefrom, the Issuers would have had approximately $1.1 million of
total indebtedness, other than the Senior Notes. The Senior Notes will be
guaranteed on a senior basis by all future Domestic Subsidiaries of the
Company (other than Capital Corp.). As of the date hereof, the Company has no
Subsidiaries other than Capital Corp, which will be a Restricted Subsidiary.
The Indenture will limit the ability of the Company and its Restricted
Subsidiaries to incur additional indebtedness; however, the Company and its
Restricted Subsidiaries will be permitted to incur certain indebtedness, which
may be secured. See "--Certain Covenants." Capital Corp. has no substantial
assets and no operations of any kind, and the Indenture will limit Capital
Corp.'s ability to acquire or hold any significant assets or other properties
or engage in any business activities. See "--Certain Covenants--Limitation on
Activities of Capital Corp." Under certain circumstances, the Company will be
able to designate future Subsidiaries as Unrestricted Subsidiaries.
Unrestricted Subsidiaries will not be subject to many of the restrictive
covenants set forth in the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Senior Notes will be limited in aggregate principal amount to $100.0
million and will mature on , 2003. Interest on the Senior Notes will
accrue at the rate of % per annum and will be payable in cash semi-
annually in arrears on and , commencing on ,
1997, to holders of record on the immediately preceding and
. Interest on the Senior Notes will accrue from the most recent date
to which interest has been paid or, if no interest has been paid, from the
date of original issuance. Interest will be computed on the basis of a 360-day
year comprised of twelve 30-day months. Principal, premium, if any, and
interest on the Senior Notes will be payable at the office or agency of the
Issuers maintained for such purpose within the City and State of New York or,
at the option of the Issuers, payment of interest may be made by check mailed
to the holders of the Senior Notes at their respective addresses set forth in
the register of holders of Senior Notes. Until otherwise designated by the
Issuers, the Issuers' office or agency in New York will be the office of the
Trustee maintained for such purpose. The Senior Notes will be issued in
registered form, without coupons, in denominations of $1,000 and integral
multiples thereof.
SUBSIDIARY GUARANTEES
The Issuers' payment obligations under the Senior Notes will be jointly and
severally guaranteed on a senior basis (the "Subsidiary Guarantees") by the
Guarantors. Each Subsidiary Guarantee will be a senior unsecured obligation of
the Guarantor issuing such Subsidiary Guarantee and will rank pari passu in
right of payment with all Guarantor Senior Indebtedness of such Guarantor. The
obligations of each Guarantor under its Subsidiary Guarantee will be limited
so as not to constitute a fraudulent conveyance under applicable law. See
"Risk Factors--Fraudulent Conveyance."
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The Indenture will provide that no Guarantor may consolidate with or merge
with or into (whether or not such Guarantor is the surviving Person), another
corporation, Person or entity whether or not affiliated with such Guarantor,
unless (i) subject to the provisions of the following paragraph, the Person
formed by or surviving any such consolidation or merger (if other than such
Guarantor) assumes all the obligations of such Guarantor pursuant to a
supplemental indenture in form and substance reasonably satisfactory to the
Trustee, under the Senior Notes and the Indenture, (ii) immediately after
giving effect to such transaction, no Default or Event of Default exists and
(iii) such Guarantor, or any Person formed by or surviving any such
consolidation or merger, would be permitted by virtue of the Company's pro
forma Fixed Charge Coverage Ratio to incur, immediately after giving effect to
such transaction, at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the covenant described above
under the caption "--Incurrence of Indebtedness and Issuance of Preferred
Equity Interests;" provided that the foregoing provisions shall not apply to
any Asset Sale subject to the provisions described below under "Repurchase at
the Option of Holders--Asset Sales."
The Indenture will provide that, in the event of a sale or other disposition
of all of the assets of any Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the capital stock of any
Guarantor, such Guarantor (in the event of a sale or other disposition, by way
of such a merger, consolidation or otherwise, of all of the capital stock of
such Guarantor) or the corporation acquiring the property (in the event of a
sale or other disposition of all of the assets of such Guarantor) will be
released and relieved of any obligations under its Subsidiary Guarantee;
provided that the Net Proceeds of such sale or other disposition are applied
in accordance with the applicable provisions of the Indenture described below
under "Repurchase at the Option of Holders--Asset Sales."
OPTIONAL REDEMPTION
The Senior Notes will not be redeemable at the Issuers' option prior to
, 2000. Thereafter, the Senior Notes will be subject to redemption
at the option of the Issuers, in whole or in part, upon not less than 30 nor
more than 60 days' notice, in cash at the redemption prices (expressed as
percentages of principal amount) set forth below, plus accrued and unpaid
interest, if any, thereon to the applicable redemption date, if redeemed
during the twelve-month period beginning on of the years indicated
below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
<S> <C>
2000............................................................. %
2001............................................................. %
2002 and thereafter.............................................. 100.00%
</TABLE>
Notwithstanding the foregoing, during the first 36 months after the date of
this Prospectus, the Issuers may on any one or more occasions redeem up to 35%
of the initially outstanding aggregate principal amount of Senior Notes at a
redemption price equal to % of the principal amount thereof, plus accrued
and unpaid interest, if any, thereon to the redemption date, with the net
proceeds of one or more equity offerings of the Issuers generating in each
case net proceeds of at least $15.0 million; provided that at least 65% of the
initially outstanding aggregate principal amount of Senior Notes remains
outstanding immediately after the occurrence of any such redemption; and
provided, further, that such redemption shall occur within 60 days of the date
of the closing of any such equity offering of the Issuers.
MANDATORY REDEMPTION
Except as set forth below under "Repurchase at the Option of Holders," the
Issuers are not required to make mandatory redemption or sinking fund payments
with respect to the Senior Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each holder of Senior Notes will
have the right to require the Issuers to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such holder's Senior
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Notes pursuant to the offer described below (the "Change of Control Offer") at
an offer price in cash equal to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest, if any, thereon to the date of
purchase (the "Change of Control Payment"). Within ten days following any
Change of Control, the Issuers will mail a notice to each holder describing
the transaction or transactions that constitute the Change of Control and
offering to repurchase Senior Notes pursuant to the procedures required by the
Indenture and described in such notice. The Issuers will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities
laws and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Senior Notes as a result
of a Change of Control.
On the payment date set forth in the Change of Control Offer (the "Change of
Control Payment Date"), the Issuers will, to the extent lawful, (i) accept for
payment all Senior Notes or portions thereof properly tendered pursuant to the
Change of Control Offer, (ii) deposit with the Paying Agent an amount equal to
the Change of Control Payment in respect of all Senior Notes or portions
thereof so tendered and (iii) deliver or cause to be delivered to the Trustee
the Senior Notes so accepted together with an Officers' Certificate stating
the aggregate principal amount of Senior Notes or portions thereof being
purchased by the Issuers. The Paying Agent will promptly mail to each holder
of Senior Notes so tendered the Change of Control Payment for such Senior
Notes, and the Trustee will promptly authenticate and mail (or cause to be
transferred by book entry) to each holder a new Senior Note equal in principal
amount to any unpurchased portion of the Senior Notes surrendered, if any;
provided that each such new Senior Note will be in a principal amount of
$1,000 or an integral multiple thereof. The Issuers will publicly announce the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Payment Date.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all
or substantially all of the assets of the Company and its Restricted
Subsidiaries taken as a whole to any "person" (as such term is used in Section
13(d)(3) of the Exchange Act) other than the Principals or their Related
Parties (as defined below), (ii) the adoption of a plan relating to the
liquidation or dissolution of the Company (other than as part of the
reorganization of the Company as a corporation), (iii) the consummation of any
transaction (including, without limitation, any merger or consolidation) the
result of which is that any "person" (as defined above), other than the
Principals and their Related Parties, becomes the "beneficial owner" (as such
term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly
or indirectly, of more than a majority of the voting Capital Interests of the
Company, (iv) the first day on which a majority of the members of the Board of
Directors are not Continuing Directors or (v) prior to the reorganization of
the Company as a corporation, the first day on which the Company ceases to own
100% of the outstanding Equity Interests of Capital Corp. For purposes of this
definition, any transfer of an equity interest of an entity that was formed
for the purpose of acquiring voting Capital Interests of the Company will be
deemed to be a transfer of such portion of such voting Capital Interests as
corresponds to the portion of the equity of such entity that has been so
transferred. Notwithstanding the foregoing, the reorganization of the Company
as a corporation shall not be deemed to constitute a Change of Control, so
long as such reorganization does not result in any of the occurrences
described above under clauses (i) through (v).
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Restricted Subsidiaries taken as a whole.
Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a holder of Senior Notes to
require the Issuers to repurchase such Senior Notes as a result of a sale,
lease, transfer, conveyance or other disposition of less than all of the
assets of the Company and its Restricted Subsidiaries taken as a whole to
another person or group may be uncertain.
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors who (i) was a member of such Board of Directors on the
date of the Indenture or (ii) was nominated for election or elected to such
Board of Directors with the approval of the Principals and their Related Parties
or a majority of the Continuing Directors who were members of such Board at the
time of such nomination or election.
"Principals" means MLP Acquisition, MLP Holdings, Music Holdings, Centre
Partners and Park Road.
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"Related Party" with respect to any Principal means (a) any controlling
stockholder or general partner, 80% (or more) owned Subsidiary, or spouse or
immediate family member (in the case of an individual) of such Principal or
(b) any trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding an 80% or more
controlling interest of which consist of such Principal and/or such other
Persons referred to in the immediately preceding clause (a), or (c) any Person
employed by the Company in a management capacity as of the date of the
Indenture.
Except as described above with respect to a Change of Control, the Indenture
does not contain provisions that permit the holders of the Senior Notes to
require that the Issuers repurchase or redeem the Senior Notes in the event of
a takeover, recapitalization or similar restructuring.
Asset Sales
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, engage in an Asset Sale, unless (a) the
Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or otherwise disposed of and (b) at least 75% of the
consideration therefor received by the Company or such Restricted Subsidiary
is in the form of cash or Cash Equivalents; provided that the amount of (i)
any liabilities (as shown on the Company's or such Restricted Subsidiary's
most recent balance sheet or in the notes thereto), of the Company or any
Restricted Subsidiary (other than liabilities that are by their terms
subordinated to the Senior Notes or any guarantee thereof) that are assumed by
the transferee of any such assets and (ii) any notes or other obligations
received by the Company or any such Restricted Subsidiary from such transferee
that are promptly converted by the Company or such Restricted Subsidiary into
cash (to the extent of the cash received), shall be deemed to be cash for
purposes of this provision; and provided, further, that the limitation in
clause (b) above shall not apply to any Asset Sale in which the cash portion
of the consideration received therefor, determined in accordance with
foregoing proviso, is equal to or greater than what the after-tax net proceeds
would have been had such Asset Sale complied with the aforementioned
limitation.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Issuers may apply such Net Proceeds (a) to permanently reduce Pari Passu
Indebtedness, (b) to permanently reduce Indebtedness permitted to be incurred
pursuant to clause (i) of the second paragraph of the covenant described below
under "--Incurrence of Indebtedness and Issuance of Preferred Equity
Interests" or (c) to an investment in another business, the making of a
capital expenditure or the acquisition of other tangible assets, in each case,
in the same or a similar or related line of business as the Issuers were
engaged in on the date of the Indenture. Pending the final application of any
such Net Proceeds, the Company and its Restricted Subsidiaries may temporarily
reduce Senior Revolving Debt or otherwise invest such Net Proceeds in any
manner that is not prohibited by the Indenture. Any Net Proceeds from Asset
Sales that are not applied or invested as provided in the first sentence of
this paragraph will be deemed to constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $10.0 million, the Company will be
required to make an offer to all holders of Senior Notes (an "Asset Sale
Offer") to purchase the maximum principal amount of Senior Notes that may be
purchased out of the Excess Proceeds, at an offer price in cash in an amount
equal to 101% of the principal amount thereof, plus accrued and unpaid
interest thereon to the date of purchase (the "Asset Sale Offer Price"), in
accordance with the procedures set forth in the Indenture. To the extent that
the aggregate amount of Senior Notes tendered pursuant to an Asset Sale Offer
is less than the Excess Proceeds, the Company and its Restricted Subsidiaries
may use any remaining Excess Proceeds for general corporate purposes. If the
aggregate principal amount of Senior Notes surrendered by holders thereof
exceeds the amount of Excess Proceeds, the Trustee shall select the Senior
Notes to be purchased on a pro rata basis. Upon completion of such offer to
purchase, the amount of Excess Proceeds shall be reset at zero.
SELECTION AND NOTICE
If less than all of the Senior Notes are to be redeemed at any time,
selection of Senior Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities
exchange, if
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<PAGE>
any, on which the Senior Notes are listed, or, if the Senior Notes are not so
listed, on a pro rata basis, by lot or by such method as the Trustee shall
deem fair and appropriate; provided that no Senior Notes of $1,000 or less
shall be redeemed in part. Notices of redemption shall be mailed by first
class mail at least 30 but not more than 60 days before the redemption date to
each holder of Senior Notes to be redeemed at its registered address. If any
Senior Note is to be redeemed in part only, the notice of redemption that
relates to such Senior Note shall state the portion of the principal amount
thereof to be redeemed. A new Senior Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the holder thereof
upon cancellation of the original Senior Note. On and after the redemption
date, interest ceases to accrue on Senior Notes or portions of them called for
redemption.
CERTAIN COVENANTS
Restricted Payments
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, (i) declare or
pay any dividend or make any distribution on account of the Company's or any
of its Restricted Subsidiaries' Equity Interests (including, without
limitation, any such distribution by such Persons in connection with any
merger or consolidation involving the Company or Capital Corp. but excluding
any such distribution directly relating to the reorganization of the Company
as a corporation) (other than dividends or distributions payable in Equity
Interests (other than Disqualified Interests) of the Company or dividends or
distributions payable to the Company or any Wholly Owned Restricted Subsidiary
of the Company); (ii) purchase, redeem or otherwise acquire or retire for
value any Equity Interests of the Company or any direct or indirect parent of
the Company; (iii) make any principal payment on, or purchase, redeem, defease
or otherwise acquire or retire for value any Subordinated Indebtedness, except
at final maturity; or (iv) make any Restricted Investment (all such payments
and other actions set forth in clauses (i) through (iv) above being
collectively referred to as "Restricted Payments"), unless, at the time of and
after giving effect to such Restricted Payment:
(A) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and
(B) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the most recently ended four fiscal quarters for which
financial statements are available, have been permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of the covenant described above
under caption "--Incurrence of Indebtedness and Issuance of Preferred
Equity Interests;" and
(C) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries
after the date of the Indenture (excluding Restricted Payments permitted by
clauses (ii), (iii), (iv), (vi) and (vii) of the next succeeding
paragraph), is less than the sum of (1) 50% of the Consolidated Net Income
of the Company for the period (taken as one accounting period) from the
beginning of the first fiscal quarter commencing after the date of the
Indenture to the end of the Company's most recently ended fiscal quarter
for which internal financial statements are available at the time of such
Restricted Payment (or, if such Consolidated Net Income for such period is
a deficit, less 100% of such deficit), plus (2) 100% of the aggregate net
cash proceeds received by the Company from the issue or sale since the date
of the Indenture of Equity Interests of the Company or of debt securities
of the Company that have been converted into such Equity Interests (other
than Equity Interests (or convertible debt securities) sold to a Subsidiary
of the Company and other than Disqualified Interests or debt securities
that have been converted into Disqualified Interests), plus (3) to the
extent that any Restricted Investment that was made after the date of the
Indenture is sold for cash or otherwise liquidated or repaid for cash, the
lesser of (x) the cash return of capital with respect to such Restricted
Investment (less the cost of disposition, if any) and (y) the initial
amount of such Restricted Investment.
The foregoing provisions will not prohibit (i) the payment of any dividend
or distribution within 60 days after the date of declaration thereof, if at
said date of declaration such payment would have complied with the
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<PAGE>
provisions of the Indenture; (ii) the redemption, repurchase, retirement or
other acquisition of any Equity Interests of the Company in exchange for, or
out of the proceeds of, the substantially concurrent sale (other than to a
Subsidiary of the Company) of other Equity Interests of the Company (other
than any Disqualified Interests); provided that the amount of any such net
cash proceeds that are utilized for any such redemption, repurchase,
retirement or other acquisition shall be excluded from clause (C)(2) of the
preceding paragraph; (iii) the defeasance, redemption or repurchase of
Subordinated Indebtedness with the net cash proceeds from an incurrence of
Permitted Refinancing Indebtedness or the substantially concurrent sale (other
than to a Subsidiary of the Company) of Equity Interests of the Company (other
than Disqualified Interests); provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase, retirement or
other acquisition shall be excluded from clause (C)(2) of the preceding
paragraph; (iv) distributions not more frequently than quarterly in accordance
with the Code in respect of partners' income tax liability in an amount not to
exceed the Tax Amount; (v) the repurchase, redemption or other acquisition or
retirement for value of any Equity Interests of the Company or any Restricted
Subsidiary of the Company held by any member of the Company's (or any of its
Restricted Subsidiaries') management pursuant to the Partnership Agreement or
any management equity subscription agreement or stock option agreement in
effect as of the date of the Indenture or any successor arrangement entered
into in connection with the reorganization of the Company as a corporation
(provided that such successor arrangement is on terms substantially similar to
those of the arrangement so replaced); provided that the aggregate price paid
for all such repurchased, redeemed, acquired or retired Equity Interests shall
not exceed $500,000 in each twelve-month period, plus the amount of any such
amounts which remain unused at the end of the two prior twelve-month periods,
but in no event shall such aggregate amount exceed $1.5 million in any such
twelve-month period, plus the aggregate cash proceeds received by the Company
during such twelve-month period from any reissuance of Equity Interests by the
Company to members of management of the Company and its Restricted
Subsidiaries; and no Default or Event of Default shall have occurred and be
continuing immediately after such transaction; (vi) prior to the
reorganization of the Company as a corporation, distributions or payments to
partners of the Company in an aggregate amount not to exceed $750,000 in any
fiscal year in respect of Administrative Expenses; and (vii) following the
reorganization of the Company as a corporation, (A) payments by the Company to
its parent pursuant to any tax sharing agreement between the Company and such
parent, (B) reimbursement payments by the Company to such parent in respect of
out-of-pocket insurance payments made by such parent on behalf of the Company
and its Restricted Subsidiaries and (C) payments by the Company to such parent
in respect of Administrative Expenses.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash)
in the Subsidiary so designated will be deemed to be Restricted Payments at
the time of such designation and will reduce the amount available for
Restricted Payments under the first paragraph of this covenant. All such
outstanding Investments will be deemed to constitute Investments in an amount
equal to the fair market value of such Investments at the time of such
designation. Such designation will only be permitted if such Restricted
Payment would be permitted at such time and if such Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the fair
market value (evidenced by a resolution of the Board of Directors set forth in
an Officers' Certificate delivered to the Trustee) on the date of the
Restricted Payment of the asset(s) proposed to be transferred by the Company
or such Subsidiary, as the case may be, pursuant to the Restricted Payment.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant "Restricted Payments" were computed, which
calculations may be based upon the Issuers' latest available financial
statements.
Incurrence of Indebtedness and Issuance of Preferred Equity Interests
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guaranty or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) and that the
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Company will not issue any Disqualified Interests and will not permit any of
its Subsidiaries to issue any shares of preferred stock or preferred
partnership interests; provided that the Company and any of its Restricted
Subsidiaries that is a Guarantor may incur Indebtedness (including Acquired
Debt) or issue Disqualified Interests, if the Fixed Charge Coverage Ratio for
the Company's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which
such additional Indebtedness is incurred or such Disqualified Interests is
issued would have been at least (a) 2.0 to 1, on or prior to December 31,
1998, and (b) 2.25 to 1, thereafter, in each case, determined on a pro forma
basis (including a pro forma application of the net proceeds therefrom), as if
the additional Indebtedness had been incurred, or the Disqualified Interests
had been issued, as the case may be, at the beginning of such four-quarter
period.
The foregoing provisions will not apply to:
(i) the incurrence by the Company and any of its Restricted Subsidiaries
that is a Guarantor of Senior Revolving Debt and letters of credit pursuant
to any Credit Facility for working capital purposes (with letters of credit
being deemed to have a principal amount equal to the maximum potential
liability of the Company thereunder) in an aggregate principal amount not
to exceed the amount of the Borrowing Base;
(ii) the incurrence by the Company and its Restricted Subsidiaries of the
Existing Indebtedness and the Company's Class C-1 Limited Partner Interest
outstanding as of the date of the Indenture and any conversion of such
interest in accordance with the terms of the Partnership Agreement;
(iii) the incurrence by the Company and Capital Corp. of the Indebtedness
represented by the Senior Notes and the incurrence by any Guarantor of the
Indebtedness represented by its Subsidiary Guarantee;
(iv) the incurrence by the Company and any of its Restricted Subsidiaries
that is a Guarantor of Permitted Refinancing Indebtedness in exchange for,
or the net proceeds of which are used to extend, refinance, renew, replace,
defease or refund, Indebtedness that was permitted by the Indenture to be
incurred;
(v) the incurrence by the Company or any of its Restricted Subsidiaries
of intercompany Indebtedness between or among the Company and any of its
Wholly Owned Restricted Subsidiaries; provided that (A) any subsequent
issuance or transfer of Equity Interests that results in any such
Indebtedness being held by a Person other than a Wholly Owned Restricted
Subsidiary and (B) any sale or other transfer of any such Indebtedness to a
Person that is not either the Company or a Wholly Owned Restricted
Subsidiary shall be deemed, in each case, to constitute an incurrence of
such Indebtedness by the Company or such Restricted Subsidiary, as the case
may be;
(vi) the incurrence by the Company and any of its Restricted Subsidiaries
that is a Guarantor of Indebtedness represented by Capital Lease
Obligations, mortgage financings or purchase money obligations, in each
case incurred for the purpose of financing up to all or any part of the
purchase price or cost of construction or improvement of property used in
the business of the Company or such Restricted Subsidiary, in an aggregate
principal amount not to exceed $2.0 million at any time outstanding;
(vii) the incurrence by the Company and any of its Restricted
Subsidiaries that is a Guarantor of Hedging Obligations that are incurred
for the purpose of fixing or hedging interest rate risk with respect to any
floating rate Indebtedness that is permitted by the terms of this Indenture
to be outstanding;
(viii) the incurrence by the Company and any of its Restricted
Subsidiaries that is a Guarantor of statutory obligations, surety or appeal
bonds, performance bonds or other obligations of a like nature incurred in
the ordinary course of business;
(ix) the incurrence by the Foreign Restricted Subsidiaries of the Company
of Indebtedness in an aggregate amount not to exceed $3.0 million at any
time outstanding;
(x) the incurrence by the Company and any of its Restricted Subsidiaries
that is a Guarantor of Indebtedness not otherwise permitted under the
Indenture in an aggregate amount not to exceed $5.0 million at any time
outstanding, less the aggregate principal amount of any Indebtedness
incurred pursuant to clause (ix) of this paragraph; and
(xi) the incurrence by the Company's Unrestricted Subsidiaries of Non-
Recourse Debt, provided that, if any such Indebtedness ceases to be Non-
Recourse Debt of an Unrestricted Subsidiary, such event shall be deemed to
constitute an incurrence of Indebtedness by a Restricted Subsidiary of the
Company.
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Liens
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, create, incur, assume or otherwise
cause or suffer to exist or become effective any Lien of any kind (other than
Permitted Liens) upon any of their property or assets, now owned or hereafter
acquired, unless all payments due under the Indenture and the Senior Notes and
the Subsidiary Guarantees, if any, are secured on an equal and ratable basis
with the obligations so secured until such time as such obligations are no
longer secured by a Lien.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary to (a)(i) pay
dividends or make any other distributions to the Company or any of its
Restricted Subsidiaries (A) on their Capital Interests or (B) with respect to
any other interest or participation in, or measured by, its profits, or (ii)
pay any indebtedness owed to the Company or any of its Restricted
Subsidiaries, (b) make loans or advances to the Company or any of its
Restricted Subsidiaries or (c) transfer any of its properties or assets to the
Company or any of its Restricted Subsidiaries, except for such encumbrances or
restrictions existing under or by reason of (i) Existing Indebtedness as in
effect on the date of the Indenture, (ii) any Credit Facility or Foreign
Credit Facility, provided that any amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or refinancings
thereto are no more restrictive with respect to such dividend and other
payment restrictions than those contained in such credit facility as in effect
on the date of its execution, (iii) the Indenture and the Senior Notes, (iv)
applicable law, (v) by reason of customary non-assignment provisions in leases
entered into in the ordinary course of business and consistent with past
practices, (vi) Capital Lease Obligations, mortgage financings or purchase
money obligations for property acquired in the ordinary course of business
that impose restrictions of the nature described in clause (c) above on the
property so acquired, (vii) existing with respect to any Person or the
property or assets of such Person acquired by the Company or any of its
Restricted Subsidiaries, at the time of such acquisition and not incurred in
contemplation thereof, which encumbrances or restrictions are not applicable
to any Person or the property or assets of any Person other than such Person
or the property or assets of such Person so acquired, or (viii) Permitted
Refinancing Indebtedness, provided that the restrictions contained in the
agreements governing such Permitted Refinancing Indebtedness are no more
restrictive than those contained in the agreements governing the Indebtedness
being refinanced.
Merger, Consolidation, or Sale of Assets
The Indenture will provide that neither the Company nor Capital Corp. may
consolidate or merge with or into (whether or not the Company or Capital
Corp., as the case may be, is the surviving corporation), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of
its properties or assets in one or more related transactions to, another
corporation, Person or entity, unless (i) the Company or Capital Corp., as the
case may be, is the surviving Person or the entity or the Person formed by or
surviving any such consolidation or merger (if other than the Company or
Capital Corp., as the case may be) or to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made is
organized and existing under the laws of the United States, any state thereof
or the District of Columbia, provided that Capital Corp. may not consolidate
or merge with or into any entity other than a corporation satisfying such
requirements for so long as the Company remains a partnership; (ii) the entity
or Person formed by or surviving any such consolidation or merger (if other
than the Company or Capital Corp.) or the entity or Person to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made assumes all the obligations of the Issuers under the Senior Notes and the
Indenture pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee; (iii) immediately after such transaction no
Default or Event of Default exists; and (iv) the Company, Capital Corp. or the
entity or Person formed by or surviving any such consolidation or merger, or
to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made (A) will have Consolidated Net Worth
immediately after the transaction equal to or greater than the Consolidated
Net Worth of the Company or Capital Corp. immediately preceding the
transaction and (B) will, at the time of such transaction and after
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giving pro forma effect thereto as if such transaction had occurred at the
beginning of the applicable four-quarter period, be permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of the covenant described above
under the caption "--Incurrence of Indebtedness and Issuance of Preferred
Equity Interests."
Notwithstanding the foregoing, the Indenture will permit the Company to
reorganize as a corporation in accordance with the procedures established in
the Indenture provided that such reorganization is not materially adverse to
holders of the Senior Notes (it being recognized that such reorganization
shall not be considered materially adverse to the holders of Senior Notes
solely because (a) of the accrual of deferred tax liabilities resulting from
such reorganization or (b) the successor or surviving corporation (i) is
subject to income taxation as an entity or (ii) is considered to be an
"includible corporation" of an affiliated group of corporations within the
meaning of Section 1504(a)(1) of the Code or any similar state or local law)
and certain other conditions are satisfied.
Transactions with Affiliates
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make any contract, agreement, understanding,
loan, advance or guarantee with, or for the benefit of, any Affiliate (each of
the foregoing, an "Affiliate Transaction"), unless (a) such Affiliate
Transaction is on terms that are no less favorable to the Company or the
relevant Restricted Subsidiary than those that would have been obtained in a
comparable transaction by the Company or such Restricted Subsidiary with an
unrelated Person and (b) the Company delivers to the Trustee (i) with respect
to any Affiliate Transaction involving aggregate consideration in excess of
$1.0 million, a resolution of the Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with clause
(a) above and that such Affiliate Transaction has been approved by a majority
of the disinterested members of the Board of Directors and (ii) with respect
to any Affiliate Transaction involving aggregate consideration in excess of
$7.5 million, an opinion as to the fairness to the Company or such Restricted
Subsidiary of such Affiliate Transaction from a financial point of view issued
by a nationally-recognized investment banking firm; provided that (A) any
reasonable employment arrangement entered into by the Company or any of its
Restricted Subsidiaries in the ordinary course of business of the Company or
such Restricted Subsidiary, (B) transactions between or among the Company
and/or its Restricted Subsidiaries, (C) following the reorganization of the
Company as a corporation, the payment of reasonable fees, expense
reimbursement and customary indemnification and other similar arrangements to
directors of the Company, (D) reasonable loans or advances to employees of the
Company and its Restricted Subsidiaries in the ordinary course of business and
(E) transactions permitted by the provisions of the Indenture described above
under the caption "--Restricted Payments," in each case, shall not be deemed
to be Affiliate Transactions.
Sale and Leaseback Transactions
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, enter into any sale and leaseback
transaction; provided that the Company and any of its Restricted Subsidiaries
that is a Guarantor may enter into a sale and leaseback transaction if (a) the
Company or such Restricted Subsidiary could have (i) incurred Indebtedness in
an amount equal to the Attributable Debt relating to such sale and leaseback
transaction pursuant to the covenant described above under the caption "--
Incurrence of Indebtedness and Issuance of Preferred Equity Interests" and
(ii) incurred a Lien to secure such Indebtedness pursuant to the covenant
described above under the caption "--Liens," (b) the gross cash proceeds of
such sale and leaseback transaction are at least equal to the fair market
value (as determined in good faith by the Board of Directors and set forth in
an Officers' Certificate delivered to the Trustee) of the property that is the
subject of such sale and leaseback transaction and (c) the transfer of assets
in such sale and leaseback transaction is permitted by, and the Company or
such Restricted Subsidiary applies the proceeds of such transaction in
compliance with, the covenant described above under the caption "--Asset
Sales."
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Limitation on Issuances and Sales of Capital Interests of Wholly Owned
Subsidiaries
The Indenture will provide that the Company (a) will not, and will not
permit any Wholly Owned Restricted Subsidiary of the Company to, transfer,
convey, sell, lease or otherwise dispose of any Capital Interests of any
Wholly Owned Restricted Subsidiary of the Company to any Person (other than
the Company or a Wholly Owned Restricted Subsidiary of the Company), unless
(i) such transfer, conveyance, sale, lease or other disposition is of all the
Capital Interests of such Wholly Owned Restricted Subsidiary and (ii) the cash
Net Proceeds from such transfer, conveyance, sale, lease or other disposition
are applied in accordance with the covenant described above under the caption
"--Asset Sales," and (b) will not permit any Wholly Owned Restricted
Subsidiary of the Company to issue any of its Equity Interests (other than, if
necessary, Capital Interests constituting directors' qualifying shares or
interests) to any Person other than to the Company or a Wholly Owned
Restricted Subsidiary of the Company; provided that, notwithstanding the
foregoing, Capital Corp. shall, at all times prior to the reorganization of
the Company as a corporation, remain a Wholly Owned Restricted Subsidiary of
the Company.
Limitations on Issuances of Guarantees of Indebtedness
The Indenture will provide that the Company will not permit any Restricted
Subsidiary, directly or indirectly, to Guarantee or secure the payment of any
other Indebtedness, unless such Restricted Subsidiary simultaneously executes
and delivers a supplemental indenture to the Indenture providing for the
Guarantee of the payment of the Senior Notes by such Restricted Subsidiary,
which Guarantee shall be senior to or pari passu with such Restricted
Subsidiary's Guarantee of, or pledge to secure, such other Indebtedness.
Notwithstanding the foregoing, any such Guarantee by a Restricted Subsidiary
of the Senior Notes shall provide by its terms that it shall be automatically
and unconditionally released and discharged upon either (a) the release or
discharge of such Guarantee of such Indebtedness, except a discharge by or as
a result of payment under such Guarantee, or (b) any sale, exchange or
transfer, to any Person not an Affiliate of the Company, of all of the
Company's Capital Interests in, or all or substantially all the assets of,
such Restricted Subsidiary, which sale, exchange or transfer is made in
compliance with the applicable provisions of the Indenture. The form of such
Guarantee will be attached as an exhibit to the Indenture.
Subsidiary Guarantees
The Indenture will provide that if the Company or any of its Restricted
Subsidiaries shall, after the date of the Indenture, (a) transfer or cause to
be transferred, in one or a series of transactions (whether or not related),
any assets, businesses, divisions, real property or equipment having an
aggregate fair market value (as determined in good faith by the Board of
Directors) in excess of $1.0 million to any Domestic Subsidiary that is not a
Guarantor, (b) acquire another Domestic Subsidiary having total assets with a
fair market value (as determined in good faith by the Board of Directors) in
excess of $1.0 million or (c) redesignate an Unrestricted Subsidiary that is a
Domestic Subsidiary as a Restricted Subsidiary having total assets with a fair
market value (as determined in good faith by the Board of Directors) in excess
of $1.0 million, then such transferee or acquired or redesignated Subsidiary
shall execute a Subsidiary Guarantee and a supplemental indenture and deliver
an opinion of counsel, in accordance with the terms of the Indenture; provided
that the foregoing shall not apply to any Subsidiary that has been properly
designated as an Unrestricted Subsidiary in accordance with the Indenture for
so long as such Subsidiary continues to constitute an Unrestricted Subsidiary.
Business Activities
The Company will not, and will not permit any Subsidiary to, engage in any
business other than such business activities as the Company or its
Subsidiaries are engaged in on the date of the Indenture and such business
activities similar or reasonably related thereto.
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Limitation on Activities of Capital Corp.
In addition to the restrictions set forth under "--Incurrence of
Indebtedness and Issuance of Preferred Equity Interests," the Indenture will
provide that Capital Corp. may not incur any Indebtedness, unless (a) the
Company is a co-obligor or guarantor of such Indebtedness or (b) the net
proceeds of such Indebtedness are lent to the Company, used to acquire
outstanding debt securities issued by the Company or used directly or
indirectly to refinance or discharge Indebtedness permitted under the
limitations of this paragraph. The Indenture will also provide that Capital
Corp. may not acquire or hold any significant assets or other properties or
engage in any business activities, other than those business activities
related directly or indirectly to obtaining money or arranging financing for
the Company.
Payments for Consent
The Indenture will provide that neither the Company nor any of its
Subsidiaries will, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any holder of
any Senior Notes for or as an inducement to any consent, waiver or amendment
of any of the terms or provisions of the Indenture or the Senior Notes, unless
such consideration is offered to be paid or agreed to be paid to all holders
of the Senior Notes that consent, waive or agree to amend in the time frame
set forth in the solicitation documents relating to such consent, waiver or
agreement.
Reports
The Indenture will provide that, whether or not required by the rules and
regulations of the Commission, so long as any Senior Notes are outstanding,
the Issuers will furnish to the holders of Senior Notes (i) all quarterly and
annual financial information that would be required to be contained in a
filing with the Commission on Forms 10-Q and 10-K if the Issuers were required
to file such Forms, including a "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and, with respect to the annual
information only, a report thereon by the Issuers' certified independent
accountants and (ii) all current reports that would be required to be filed
with the Commission on Form 8-K if the Issuers were required to file such
reports. In addition, whether or not required by the rules and regulations of
the Commission, the Issuers will file a copy of all such information and
reports with the Commission for public availability (unless the Commission
will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request.
EVENTS OF DEFAULT AND REMEDIES
The Indenture will provide that each of the following constitutes an Event
of Default: (i) default for 30 days in the payment when due of interest on the
Senior Notes; (ii) default in the payment of all or any part of the principal,
or premium, if any, on the Senior Notes when and as the same becomes due and
payable at maturity, upon redemption, by acceleration, or otherwise,
including, without limitation, the payment of the Change of Control Payment or
the Asset Sale Offer Price, or otherwise; (iii) failure by any of the Issuers
or any of their respective Subsidiaries to observe or perform any other
covenant or agreement on the part of such Issuer or such Subsidiary contained
in the Senior Notes or the Indenture and, subject to certain exceptions, the
continuance of such failure for a period of 30 days after written notice is
given to the Issuers by the Trustee or to the Issuers and the Trustee by the
holders of at least 25% in aggregate principal amount of the Senior Notes then
outstanding, specifying such default and requiring that it be remedied; (iv)
default under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Indebtedness for
money borrowed by the Company or any of its Restricted Subsidiaries (or the
payment of which is guaranteed by the Company or any of its Restricted
Subsidiaries) whether such Indebtedness or guarantee now exists, or is created
after the date of the Indenture, which default (A) is caused by a failure to
pay principal of or premium, if any, or interest on such Indebtedness prior to
the expiration of the grace period provided in such Indebtedness on the date
of such default (a "Payment Default") or (B) results in the acceleration of
such Indebtedness prior to its express maturity and, in each case, the
principal amount of any such Indebtedness, together with the
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principal amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, aggregates
$5.0 million or more; (v) failure by the Company or any of its Subsidiaries to
pay final judgments aggregating in excess of $5.0 million, which judgments are
not paid, discharged or stayed for a period of 60 days; (vi) except as
permitted by the Indenture, any Subsidiary Guarantee shall be held in any
judicial proceeding to be unenforceable or invalid or shall cease for any
reason to be in full force and effect or any Guarantor, or any Person acting
on behalf of any Guarantor, shall deny or disaffirm its obligations under its
Subsidiary Guarantee; and (vii) certain events of bankruptcy or insolvency
with respect to the Company or any of its Significant Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the then outstanding Senior Notes may
declare all the Senior Notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, with respect to the Company, any
Significant Subsidiary or any group of Subsidiaries that, taken together,
would constitute a Significant Subsidiary, all outstanding Senior Notes will
become due and payable without further action or notice. Holders of the Senior
Notes may not enforce the Indenture or the Senior Notes except as provided in
the Indenture. Subject to certain limitations, holders of a majority in
principal amount of the then outstanding Senior Notes may direct the Trustee
in its exercise of any trust or power. The Trustee may withhold from holders
of the Senior Notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Issuers with
the intention of avoiding payment of the premium that the Issuers would have
had to pay if the Issuers then had elected to redeem the Senior Notes pursuant
to the optional redemption provisions of the Indenture, an equivalent premium
shall also become and be immediately due and payable to the extent permitted
by law upon the acceleration of the Senior Notes. If an Event of Default
occurs prior to , 2000 by reason of any willful action (or inaction)
taken (or not taken) by or on behalf of the Issuers with the intention of
avoiding the prohibition on redemption of the Senior Notes prior to ,
2000, then the premium specified in the Indenture shall also become immediately
due and payable to the extent permitted by law upon the acceleration of the
Senior Notes.
The holders of a majority in aggregate principal amount of the Senior Notes
then outstanding by notice to the Trustee may on behalf of the holders of all
of the Senior Notes waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of
Default in the payment of interest on, or the principal of, the Senior Notes.
The Issuers are required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Issuers are required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, PARTNERS AND
STOCKHOLDERS
No director, officer, employee, incorporator, partner or stockholder of any
Issuer, as such, shall have any liability for any obligations of such Issuer
under the Senior Notes or the Indenture or for any claim based on, in respect
of, or by reason of, such obligations or their creation. Each holder of Senior
Notes by accepting a Senior Note waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the Senior
Notes. Such waiver may not be effective to waive liabilities under the federal
securities laws and it is the view of the Commission that such a waiver is
against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Issuers may, at their option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Senior Notes ("Legal
Defeasance") except for (i) the rights of holders of outstanding Senior Notes
to receive payments in respect of the principal of, premium, if any, and
interest on such Senior Notes
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when such payments are due from the trust referred to below, (ii) the Issuers'
obligations with respect to the Senior Notes concerning issuing temporary
Senior Notes, registration of Senior Notes, mutilated, destroyed, lost or
stolen Senior Notes and the maintenance of an office or agency for payment and
money for security payments held in trust, (iii) the rights, powers, trusts,
duties and immunities of the Trustee, and the Issuers' obligations in
connection therewith and (iv) the Legal Defeasance provisions of the
Indenture. In addition, the Issuers may, at their option and at any time,
elect to have the obligations of the Issuers released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Senior Notes. In the event
Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events) described
under "Events of Default" will no longer constitute an Event of Default with
respect to the Senior Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Issuers must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the Senior Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and interest on
the outstanding Senior Notes on the stated maturity or on the applicable
redemption date, as the case may be, and the Issuers must specify whether the
Senior Notes are being defeased to maturity or to a particular redemption
date; (ii) in the case of Legal Defeasance, the Issuers shall have delivered
to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (A) the Issuers have received from,
or there has been published by, the Internal Revenue Service a ruling or (B)
since the date of the Indenture, there has been a change in the applicable
federal income tax law, in either case to the effect that, and based thereon
such opinion of counsel shall confirm that, the holders of the outstanding
Senior Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred; (iii) in
the case of Covenant Defeasance, the Issuers shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that the holders of the outstanding Senior Notes will
not recognize income, gain or loss for federal income tax purposes as a result
of such Covenant Defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been the
case if such Covenant Defeasance had not occurred; (iv) no Default or Event of
Default shall have occurred and be continuing on the date of such deposit
(other than a Default or Event of Default resulting from the borrowing of funds
to be applied to such deposit) or insofar as Events of Default from bankruptcy
or insolvency events are concerned, at any time in the period ending on the
91st day after the date of deposit; (v) such Legal Defeasance or Covenant
Defeasance will not result in a breach or violation of, or constitute a default
under any material agreement or instrument (other than the Indenture) to which
the Company or any of its Subsidiaries is a party or by which the Company or
any of its Subsidiaries is bound; (vi) the Issuers must have delivered to the
Trustee an opinion of counsel to the effect that after the 91st day following
the deposit, and assuming that prior to such 91st day no voluntary or
involuntary bankruptcy case has been commenced with respect to any Issuer, such
deposit will not constitute a preference as defined in Section 547 of the U.S.
Bankruptcy Code, and, assuming such a bankruptcy case is commenced on or after
such 91st day, the trust funds will not constitute property included within the
estate of the debtor; (vii) the Issuers must deliver to the Trustee an
Officers' Certificate stating that the deposit was not made by the Issuers with
the intent of preferring the holders of Senior Notes over the other creditors
of the Issuers with the intent of defeating, hindering, delaying or defrauding
creditors of the Issuers or others; and (viii) the Issuers must deliver to the
Trustee an Officers' Certificate and an opinion of counsel, each stating that
all conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A holder may transfer or exchange Senior Notes in accordance with the
Indenture. The Registrar and the Trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents
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and the Issuers may require a holder to pay any taxes and fees required by law
or permitted by the Indenture. The Issuers are not required to transfer or
exchange any Senior Note selected for redemption. Also, the Issuers are not
required to transfer or exchange any Senior Note for a period of 15 days
before a selection of Senior Notes to be redeemed.
The registered holder of a Senior Note will be treated as the owner of it
for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Senior Notes may be amended or supplemented with the consent of the
holders of at least a majority in principal amount of the Senior Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange offer for Senior Notes), and any existing default or compliance with
any provision of the Indenture or the Senior Notes may be waived with the
consent of the holders of a majority in principal amount of the then
outstanding Senior Notes (including consents obtained in connection with a
tender offer or exchange offer for Senior Notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any Senior Notes held by a non-consenting holder) (i) reduce
the principal amount of Senior Notes whose holders must consent to an
amendment, supplement or waiver, (ii) reduce the principal of or change the
fixed maturity of any Senior Note or alter the provisions with respect to the
redemption of the Senior Notes, (iii) reduce the rate of or change the time
for payment of interest on any Senior Note, (iv) waive a Default or Event of
Default in the payment of principal of or premium, if any, or interest on the
Senior Notes (except a rescission of acceleration of the Senior Notes by the
holders of at least a majority in aggregate principal amount of the Senior
Notes and a waiver of the payment default that resulted from such
acceleration), (v) make any Senior Note payable in money other than that
stated in the Senior Notes, (vi) make any change in the provisions of the
Indenture relating to waivers of past Defaults or the rights of holders of
Senior Notes to receive payments of principal of or premium, if any, or
interest on the Senior Notes, (vii) waive a redemption payment with respect to
any Senior Note or (viii) make any change in the foregoing amendment and
waiver provisions.
Notwithstanding the foregoing, without the consent of any holder of Senior
Notes, the Issuers and the Trustee may amend or supplement the Indenture or
the Senior Notes to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Senior Notes in addition to or in
place of certificated Senior Notes, to provide for the assumption of the
Issuers' obligations to holders of Senior Notes in the case of a merger or
consolidation, to make any change that would provide any additional rights or
benefits to the holders of Senior Notes or that does not materially adversely
affect the legal rights under the Indenture of any such holder, to provide for
Subsidiary Guarantees of the Senior Notes or to comply with requirements of
the Commission in order to effect or maintain the qualification of the
Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of any Issuer, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage
in other transactions; however, if it acquires any conflicting interest it
must eliminate such conflict within 90 days, apply to the Commission for
permission to continue or resign.
The holders of a majority in principal amount of the then outstanding Senior
Notes will have the right to direct the time, method and place of conducting
any proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the
Indenture at the request of any holder of Senior Notes, unless such
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holder shall have offered to the Trustee security and indemnity satisfactory
to it against any loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture
without charge by writing to Muzak Limited Partnership, 2901 Third Avenue,
Suite 400, Seattle, Washington 98121, Attention: Chief Financial Officer.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Administrative Expenses" means, with respect to the General Partner, any
general partner of the Company or the parent of the Company (in the event that
the Company is reorganized as a corporation), ordinary operating expenses
(including reasonable professional fees and expenses) in connection with (a)
complying with reporting obligations pursuant to the federal securities laws
and obligations to prepare and distribute business records in the ordinary
course of business, (b) maintaining such Person's corporate or partnership
existence and franchise (including annual franchise taxes) and (c) the payment
of reasonable fees and expense reimbursements to directors thereof.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with"), as used with respect to any Person,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such Person, whether
through the ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of the voting securities of
a Person shall be deemed to be control.
"Asset Sale" means (a) the sale, lease, conveyance or other disposition of
any assets (including, without limitation, by way of a sale and leaseback)
other than sales of inventory in the ordinary course of business consistent
with past practices (provided that the sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company and its
Restricted Subsidiaries taken as a whole will be governed by the provisions of
the Indenture described above under the caption "--Change of Control" and/or
the provisions described above under the caption "--Merger, Consolidation or
Sale of Assets" and not by the provisions of the Asset Sale covenant), (b) the
issuance by any Restricted Subsidiary of Equity Interests of such Restricted
Subsidiary and (c) the disposition by the Company or any of its Restricted
Subsidiaries of Equity Interests of any of the Company's Subsidiaries, in the
case of either clause (a), (b) or (c), whether in a single transaction or a
series of related transactions, (i) that have a fair market value in excess of
$2.0 million or (ii) for net proceeds in excess of $2.0 million.
Notwithstanding the foregoing, (a) a transfer of assets by the Company to a
Wholly Owned Restricted Subsidiary or by a Wholly Owned Restricted Subsidiary
to the Company or to another Wholly Owned Restricted Subsidiary, (b) an
issuance of Equity Interests by a Wholly Owned Restricted Subsidiary to the
Company or to another Wholly Owned Restricted Subsidiary, (c) a Restricted
Payment that is permitted by the covenant described above under the caption
"--Restricted Payments" and (d) any sale and leaseback
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transaction otherwise permitted pursuant to the covenant described above under
the caption "--Sale and Leaseback Transactions" will not be deemed to be Asset
Sales.
"Attributable Debt" in respect of a sale and leaseback transaction means, at
the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Board of Directors" means the Board of Directors of the General Partner, on
behalf of the Company (or the Company, if the Company is reorganized as a
corporation), or of Capital Corp. or any authorized committee of the Board of
Directors.
"Borrowing Base" means, as of any date, an amount equal to (a) 80.0% of the
face amount of all accounts receivable owned by the Company and its Restricted
Subsidiaries as of such date that are not more than 90 days past due, plus (b)
60.0% of the book value (calculated on an average cost basis) of all inventory
owned by the Company and its Restricted Subsidiaries as of such date, minus
(c) any amount applied pursuant to the second paragraph of the covenant
described above under the caption "--Asset Sales" to permanently reduce
Indebtedness permitted to be incurred pursuant to clause (i) of the second
paragraph of the covenant described above under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Equity Interests," all calculated on a
consolidated basis and in accordance with GAAP. To the extent that information
is not available as to the amount of accounts receivable or inventory as of a
specific date, the Company may utilize the most recent available information
for purposes of calculating the Borrowing Base.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Interests" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition, (iii) certificates of deposit and
eurodollar time deposits with maturities of six months or less from the date
of acquisition, bankers' acceptances with maturities not exceeding six months
and overnight bank deposits or demand deposits, in each case with any lender
party to any Credit Facility or with any domestic commercial bank having
capital and surplus in excess of $1.0 billion, (iv) repurchase obligations
with a term of not more than seven days for underlying securities of the types
described in clauses (ii) and (iii) above entered into with any financial
institution meeting the qualifications specified in clause (iii) above, (v)
commercial paper having the highest rating obtainable from Moody's Investors
Service, Inc. or Standard & Poor's Ratings Service, a division of The McGraw-
Hill Companies, Inc., and in each case maturing within six months after the date
of acquisition and (vi) investments in money market funds all of whose assets
comprise securities of the types described in clauses (i), (ii) and (iii) above.
"Centre Partners" means Centre Partners L.P., a Delaware limited
partnership, the parent of Music Holdings and the general partner of MLP
Holdings.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
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"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person and its Restricted Subsidiaries for
such period plus (i) an amount equal to any extraordinary loss plus any net
loss realized in connection with an Asset Sale (to the extent such losses were
deducted in computing such Consolidated Net Income), plus (ii) provision for
taxes based on income or profits of such Person and its Restricted
Subsidiaries for such period, to the extent that such provision for taxes was
included in computing such Consolidated Net Income, plus (iii) consolidated
interest expense of such Person and its Restricted Subsidiaries for such
period, whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
imputed interest with respect to Attributable Debt, commissions, discounts and
other fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Hedging
Obligations), to the extent that any such expense was deducted in computing
such Consolidated Net Income, plus (iv) all items classified as "depreciation"
or "amortization" on such Person's statement of operations and other non-cash
charges (including non-cash equity-based compensation charges but excluding
any non-cash charge to the extent that it represents an accrual of or reserve
for cash charges in any future period or amortization of a prepaid cash
expense that was paid in a prior period) of such Person and its Restricted
Subsidiaries for such period to the extent that such depreciation,
amortization and other non-cash charges were deducted in computing such
Consolidated Net Income, plus (v) in the case of calculations with respect to
the Company, the amount of any Tax Distributions by the Company to its
partners or, following the reorganization of the Company as a corporation, any
tax sharing payment made pursuant to a tax sharing agreement executed in
connection therewith, in each case, on a consolidated basis and determined in
accordance with GAAP. Notwithstanding the foregoing, the provision for taxes
on the income or profits of, and the depreciation and amortization and other
non-cash charges of, a Restricted Subsidiary of the referent Person shall be
added to Consolidated Net Income to compute Consolidated Cash Flow only to the
extent (and in the same proportion) that the Net Income of such Restricted
Subsidiary was included in calculating the Consolidated Net Income of such
Person and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Subsidiary without prior
approval (that has not been obtained), pursuant to the terms of its charter
and all agreements, instruments, judgments, decrees, orders, statutes, rules
and governmental regulations applicable to that Subsidiary or its stockholders
or partners. Notwithstanding the foregoing, the provision for taxes based on
the income or profits of, and the depreciation and amortization and other non-
cash charges of, a Subsidiary of a Person shall be added to Consolidated Net
Income to compute Consolidated Cash Flow only to the extent (and in the same
proportion) that the Net Income of such Subsidiary was included in calculating
the Consolidated Net Income of such Person and only if a corresponding amount
would be permitted at the date of determination to be dividended or
distributed to the Company by such Subsidiary without prior approval (that has
not been obtained), pursuant to the terms of its organizational documents and
all agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Restricted Subsidiary or its
stockholders or partners.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned Restricted
Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at the
date of determination permitted without any prior governmental approval (which
has not been obtained) or, directly or indirectly, by operation of the terms
of its charter or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulation applicable to that Restricted Subsidiary or
its stockholders or partners, (iii) the Net Income of any Person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition shall be excluded, (iv) in the case of calculations with respect
to the Company, Consolidated Net Income of the Company shall be reduced by the
amount of any Tax Distributions by the Company to its partners, (v) the
cumulative effect of a change in accounting principles shall be excluded, (vi)
Consolidated Net Income shall not include any gain (but not loss), together
with any related provision for taxes on such gain (but
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not loss), realized in connection with (A) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (B)
the disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any
of its Restricted Subsidiaries, (vii) Consolidated Net Income shall not
include any extraordinary or nonrecurring gain (but not loss), together with
any related provision for taxes on such extraordinary or nonrecurring gain
(but not loss) and (viii) the Net Income of any Unrestricted Subsidiary shall
be excluded, whether or not distributed to the Company or one of its
Subsidiaries.
"Consolidated Net Worth" means, (a) with respect to a partnership, the
common and preferred partnership interests of such partnership and its
consolidated Subsidiaries, as determined on a consolidated basis in accordance
with GAAP, and (b) with respect to any other Person, the sum of (i) the
consolidated equity of the common stockholders of such Person and its
consolidated Subsidiaries plus (ii) the respective amounts reported on such
Person's most recent balance sheet with respect to any series of preferred
stock; provided that the preferred partnership interests or the preferred
stock, as the case may be, shall be included in Consolidated Net Worth only if
such preferred partnership interests or preferred stock (A) is not a
Disqualified Interest and (B) is not by its terms entitled to the payment of
dividends or distributions, unless such dividends or distributions may be
declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred partnership interests or preferred
stock, less (x) all write-ups (other than write-ups resulting from foreign
currency translations and write-ups of tangible assets of a going concern
business made within twelve months after the acquisition of such business)
subsequent to the date of the most recently completed fiscal quarter in the
book value of any asset owned by such Person or a consolidated subsidiary of
such Person, (y) all investments in unconsolidated Subsidiaries and in Persons
that are not Subsidiaries (except, in each case, investments in marketable
securities), and (z) all unamortized debt discount and expense and unamortized
deferred financing charges, all of the foregoing determined in accordance with
GAAP.
"Credit Facility" means any credit facility entered into by and among the
Company, any of its Subsidiaries that is a Guarantor and the lending
institutions party thereto, including any credit agreement, related notes,
Guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, modified, renewed,
refunded, replaced or refinanced from time to time.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Interests" means any Equity Interest which, by its terms (or
by the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is
redeemable at the option of the holder thereof, in whole or in part, on or
prior to the 91st day after the date on which the Senior Notes mature.
"Domestic Subsidiary" of a Person means any direct or indirect Subsidiary of
such Person that is not a Foreign Subsidiary.
"Equity Interests" means Capital Interests and all warrants, options or
other rights to acquire Capital Interests (but excluding any debt security
that is convertible into, or exchangeable for, Capital Interests).
"Existing Indebtedness" means the aggregate principal amount of Indebtedness
of the Company and its Subsidiaries in existence on the date of the Indenture,
until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum of
(i) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued (including, without
limitation, amortization of original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
imputed interest with respect to Attributable Debt, commissions, discounts and
other fees and
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charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging Obligations but
excluding amortization of deferred financing fees), (ii) the consolidated
interest expense of such Person and its Restricted Subsidiaries that was
capitalized during such period, (iii) any interest expense on Indebtedness of
another Person that is Guaranteed by such Person or one of its Restricted
Subsidiaries or secured by a Lien on assets of such Person or one of its
Restricted Subsidiaries (whether or not such Guarantee or Lien is called upon)
and (iv) the amount of dividends or distributions paid in respect of preferred
stock or preferred partnership interests of such Person, in each case, on a
consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person
and its Restricted Subsidiaries for such period. In the event that the Company
or any of its Restricted Subsidiaries incurs, assumes, Guarantees or redeems
any Indebtedness (other than revolving credit borrowings) or issues preferred
stock or preferred partnership interests subsequent to the commencement of the
period for which the Fixed Charge Coverage Ratio is being calculated but prior
to the date on which the event for which the calculation of the Fixed Charge
Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, Guarantee or redemption of Indebtedness, or such issuance or
redemption of preferred stock or preferred partnership interests, as if the
same had occurred at the beginning of the applicable four-quarter reference
period. For purposes of making the computation referred to above, (i)
acquisitions that have been made by the Company or any of its Restricted
Subsidiaries, including through mergers or consolidations and including any
related financing transactions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the Calculation Date
shall be deemed to have occurred on the first day of the four-quarter
reference period, (ii) the Consolidated Cash Flow attributable to discontinued
operations, as determined in accordance with GAAP, and operations or
businesses disposed of prior to the Calculation Date, shall be excluded, and
(iii) the Fixed Charges attributable to discontinued operations, as determined
in accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, but only to the extent that the
obligations giving rise to such Fixed Charges will not be obligations of the
referent Person or any of its Restricted Subsidiaries following the
Calculation Date.
"Foreign Credit Facility" means any credit facility entered into by and
among any Foreign Subsidiary of the Company and the lending institutions party
thereto, including any credit agreement, related notes, Guarantees, collateral
documents, instruments and agreements executed in connection therewith, and in
each case as amended, modified, renewed, refunded, replaced or refinanced from
time to time.
"Foreign Restricted Subsidiary" of a Person means any Restricted Subsidiary
of such Person that is also a Foreign Subsidiary.
"Foreign Subsidiary" of a Person means any direct or indirect Subsidiary of
such Person that is organized under the laws of any jurisdiction outside the
United States, any district or territoriality thereof and The Commonwealth of
Puerto Rico.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture.
"General Partner" means Music Holdings Corp., as general partner of MLP
Acquisition, the general partner of the Company.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantor" means any Domestic Subsidiary of the Company (other than Capital
Corp.) that executes a Subsidiary Guarantee in accordance with the provisions
of the Indenture, and their respective successors and assigns.
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"Guarantor Senior Indebtedness" means any Indebtedness permitted to be
incurred by any Guarantor under the terms of the Indenture, unless the
instrument under which such Indebtedness is incurred expressly provides that
it is subordinated in right of payment to such Guarantor's Subsidiary
Guarantee. Notwithstanding the foregoing, Guarantor Senior Indebtedness shall
not include (i) any Obligation of such Guarantor to any Subsidiary of such
Guarantor, (ii) any liability for federal, state, local or other taxes owed or
owing by such Guarantor, (iii) any accounts payable or other liability to
trade creditors arising in the ordinary course of business (including
Guarantees thereof or instruments evidencing such liabilities), (iv) any
Indebtedness, Guarantee or Obligation of the Guarantor that is contractually
subordinated or junior in any respect to any other Indebtedness, Guarantee or
Obligation of such Guarantor or (v) any Indebtedness incurred in violation of
the Indenture.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed solely to protect such Person against fluctuations in
interest rates.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced
by bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable,
if and to the extent any of the foregoing indebtedness (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance
sheet of such Person prepared in accordance with GAAP, as well as all
indebtedness of others secured by a Lien on any asset of such Person (whether
or not such indebtedness is assumed by such Person) and, to the extent not
otherwise included, the Guarantee by such Person of any indebtedness of any
other Person.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations but
excluding advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of such Person or its
Subsidiaries in accordance with GAAP), advances or capital contributions
(excluding commission, travel and similar advances to officers and employees
made in the ordinary course of business), purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities and all
other items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP; provided that an acquisition of assets,
Equity Interests or other securities by the Company for consideration
consisting of common equity securities of the Company shall not be deemed to
be an Investment.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"MLP Acquisition" means MLP Acquisition L.P., a Delaware limited partnership
and the general partner of the Company.
"MLP Holdings" means MLP Holdings L.P., a Delaware limited partnership and a
limited partner of MLP Acquisition.
"Music Holdings" means Music Holdings Corp., a Delaware corporation, a
wholly owned subsidiary of Centre Partners and the general partner of MLP
Acquisition.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP.
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"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of
any non-cash consideration received in any Asset Sale), net of the direct
costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied
to the repayment of Indebtedness (other than Senior Revolving Debt) secured by
a Lien on the asset or assets that were the subject of such Asset Sale and any
reserve for adjustment in respect of the sale price of such asset or assets
established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness (a) as to which neither the Company
nor any of its Restricted Subsidiaries (i) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness or any agreement to maintain specified levels of financial or
operational performance), (ii) is directly or indirectly liable (as a
guarantor or otherwise), or (iii) constitutes the lender; (b) no default with
respect to which (including any rights that the holders thereof may have to
take enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such
other Indebtedness or cause the payment thereof to be accelerated or payable
prior to its stated maturity; and (c) as to which the lenders have been
notified in writing that they will not have any recourse to the stock or
assets of the Company or any of its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Pari Passu Indebtedness" means any Indebtedness which ranks pari passu in
right of payment with, and which is not expressly by its terms subordinated in
right of payment of principal, interest or premium, if any, to, the Senior
Notes.
"Park Road" means Park Road Corporation, a Delaware corporation and the
managing general partner of Centre Partners.
"Partnership Agreement" means the Third Amended and Restated Agreement of
Limited Partnership of the Company, as amended, supplemented or otherwise
modified and as in effect from time to time.
"Permitted Investments" means (a) any Investments in the Company or in a
Wholly Owned Restricted Subsidiary of the Company that is engaged in the same
or a similar or related line of business as the Company and its Restricted
Subsidiaries were engaged in on the date of the Indenture; (b) any Investments
in Cash Equivalents; (c) Investments by the Company or any Restricted
Subsidiary of the Company in a Person, if as a result of such Investment (i)
such Person becomes a Wholly Owned Restricted Subsidiary of the Company that
is engaged in the same or a similar or related line of business as the Company
and its Restricted Subsidiaries were engaged in on the date of the Indenture
or (ii) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated
into, the Company or a Wholly Owned Restricted Subsidiary of the Company that
is engaged in the same or a similar or related line of business as the Company
and its Restricted Subsidiaries were engaged in on the date of the Indenture;
(d) Restricted Investments made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in compliance
with the covenant described above under the caption "--Repurchase at the
Option of Holders--Asset Sales;" (e) Investments in endorsements of negotiable
instruments and similar negotiable documents in the ordinary course of
business; (f) Investments existing on the date of the Indenture; (g)
Investments in obligations of account debtors to the Company or any of its
Restricted Subsidiaries and stock or obligations issued to the Company or any
such Restricted Subsidiary by any Person, in each case, in connection with the
insolvency, bankruptcy, receivership or reorganization of such Person or a
composition or readjustment of such Person's Indebtedness and (h) other
Investments in any one or more Persons that do not exceed $5.0 million in the
aggregate at any time outstanding.
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"Permitted Liens" means (i) Liens on accounts receivable and inventory
securing Indebtedness permitted to be incurred under clause (i) of the second
paragraph of the covenant described above under "--Incurrence of Indebtedness
and Issuance of Preferred Equity Interests;" (ii) Liens in favor of the
Company; (iii) Liens on property of a Person existing at the time such Person
is merged into, consolidated with or acquired by the Company or any Restricted
Subsidiary of the Company; provided that such Liens were not incurred in
contemplation of such merger or consolidation and do not extend to any assets
other than those of the Person merged into or consolidated with the Company;
(iv) Liens on property existing at the time of acquisition thereof by the
Company or any Subsidiary of the Company, provided that such Liens were in
existence prior to the contemplation of such acquisition; (v) Liens to secure
the performance of statutory obligations, surety or appeal bonds, performance
bonds or other obligations of a like nature incurred in the ordinary course of
business; (vi) Liens to secure Indebtedness permitted by clause (vi) of the
second paragraph of the covenant entitled "Incurrence of Indebtedness and
Issuance of Preferred Equity Interests" covering only the assets acquired with
such Indebtedness; (vii) Liens existing on the date of the Indenture; (viii)
Liens for taxes, assessments or governmental charges or claims that are not
yet delinquent or that are being contested in good faith by appropriate
proceedings promptly instituted and diligently concluded, provided that any
reserve or other appropriate provision as shall be required in conformity with
GAAP shall have been made therefor; (ix) Liens securing Permitted Refinancing
Indebtedness, provided that such Liens do not extend to or cover any assets or
property other than the collateral securing the Indebtedness to be refinanced;
(x) Liens arising by operation of law in connection with judgments, for a
period not resulting in an Event of Default with respect thereto; (xi)
easements, rights of way, zoning restrictions and other similar encumbrances
or title defects which do not materially detract from the value of the
property or the assets subject thereto or interfere with the ordinary conduct
of the business of the Company and its Restricted Subsidiaries, taken as a
whole; (xii) Liens securing Attributable Debt with respect to any sale and
leaseback transaction in an aggregate amount not to exceed the aggregate
principal amount of Attributable Debt permitted to be incurred pursuant to the
covenant described above under "--Incurrence of Indebtedness and Issuance of
Preferred Equity Interests," provided that such Liens do not extend to or
cover any assets or property other than the collateral securing such
Attributable Debt; (xiii) Liens on assets of any Foreign Restricted Subsidiary
securing Indebtedness of such Foreign Restricted Subsidiary incurred pursuant
to clause (ix) of the second paragraph of the covenant described above under
"--Incurrence of Indebtedness and Issuance of Preferred Equity Interests;"
(xiv) Liens incurred in the ordinary course of business of the Company or any
Restricted Subsidiary of the Company with respect to obligations that (A) are
not incurred in connection with the borrowing of money or the obtaining of
advances or credit (other than trade credit in the ordinary course of
business) and (B) do not in the aggregate materially detract from the value of
the property or materially impair the use thereof in the operation of business
by the Company or such Restricted Subsidiary; and (xv) Liens on accounts
receivable and inventory securing Hedging Obligations.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted
Subsidiaries; provided that (i) the principal amount of such Permitted
Refinancing Indebtedness does not exceed the principal amount of the
Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded
(plus the amount of reasonable expenses incurred in connection therewith);
(ii) such Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and has a Weighted Average Life to Maturity
equal to or greater than the Weighted Average Life to Maturity of, the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the
Senior Notes, such Permitted Refinancing Indebtedness has a final maturity
date later than the final maturity date of, and is subordinated in right of
payment to, the Senior Notes on terms at least as favorable to the holders of
Senior Notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; and (iv) such Indebtedness is incurred either by the Company or by
the Restricted Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
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"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Securities Act" means the Securities Act of 1933, as amended, and the rules
and regulations of the Commission promulgated thereunder.
"Senior Revolving Debt" means revolving credit borrowings under any Credit
Facility.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date
hereof; provided that Capital Corp. and each Guarantor shall be deemed a
Significant Subsidiary.
"Subordinated Indebtedness" means any Indebtedness which is expressly by its
terms subordinated in right of payment of principal, interest or premium, if
any, to the Senior Notes.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of Capital Interests entitled (without regard to the occurrence
of any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a
combination thereof) and (ii) any partnership (A) the sole general partner or
the managing general partner of which is such Person or a Subsidiary of such
Person or (B) the only general partners of which are such Person or one or
more Subsidiaries of such Person (or any combination thereof).
"Tax Amount" means, with respect to any Person for any period, the aggregate
amount of tax distributions required to be made by the Company to its partners
under the Partnership Agreement as in effect on the date of the Indenture.
Notwithstanding anything to the contrary, Tax Amount shall not include taxes
resulting from such Person's reorganization as or change in the status to a
corporation.
"Tax Distribution" means a distribution in respect of taxes to the partners
of the Company pursuant to clause (iv) of the second paragraph of the covenant
described above under the caption "--Certain Covenants-- Restricted Payments."
"Taxable Income" means, with respect to any Person for any period, the
taxable income or loss of such Person for such period for federal income tax
purposes; provided that (i) all items of income, gain, loss or deduction
required to be stated separately pursuant to Section 703(a)(1) of the Code
shall be included in taxable income or loss, (ii) any basis adjustment made in
connection with an election under Section 754 of the Code shall be disregarded
and (iii) such taxable income shall be increased or such taxable loss shall be
decreased by the amount of any interest expense incurred by such Person that
is not treated as deductible for federal income tax purposes by a partner or
member of such Person.
"Unrestricted Subsidiary" means any Subsidiary (other than Capital Corp.)
that is designated by the Board of Directors as an Unrestricted Subsidiary
pursuant to a board resolution; but only to the extent that such Subsidiary
(i) has no Indebtedness other than Non-Recourse Debt; (ii) is not party to any
agreement, contract, arrangement or understanding with the Company or any
Restricted Subsidiary of the Company unless the terms of any such agreement,
contract, arrangement or understanding are no less favorable to the Company or
such Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Company; (iii) is a Person with respect
to which neither the Company nor any of its Restricted Subsidiaries has any
direct or indirect obligation (A) to subscribe for additional Equity Interests
or (B) to maintain or preserve such Person's financial condition or to cause
such Person to achieve any specified levels of operating results; (iv) has not
guaranteed or otherwise directly or indirectly provided credit support for any
Indebtedness of the Company or any of its Restricted Subsidiaries; and (v) has
at least one director on its board of directors that is
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not a director or executive officer of the Company or any of its Restricted
Subsidiaries and has at least one executive officer that is not a director or
executive officer of the Company or any of its Restricted Subsidiaries. Any
such designation by the Board of Directors shall be evidenced to the Trustee
by filing with the Trustee a certified copy of the board resolution giving
effect to such designation and an officers' certificate certifying that such
designation complied with the foregoing conditions and was permitted by the
covenant described above under the caption "--Restricted Payments." If, at any
time, any Unrestricted Subsidiary would fail to meet the foregoing
requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of
such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of
the Company as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under the covenant described under the caption "--
Incurrence of Indebtedness and Issuance of Preferred Equity Interests," the
Company shall be in default of such covenant). The Board of Directors of the
Company may at any time designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that such designation shall be deemed to be an
incurrence of Indebtedness by a Restricted Subsidiary of the Company of any
outstanding Indebtedness of such Unrestricted Subsidiary and such designation
shall only be permitted if (a) such Indebtedness is permitted under the
covenant described under the caption "--Incurrence of Indebtedness and
Issuance of Preferred Equity Interests," and (b) no Default or Event of
Default would be in existence following such designation; and provided,
further, that, to the extent applicable, the Company shall cause such
Subsidiary to comply with the covenant described above under the caption "--
Subsidiary Guarantees."
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the sum of the
products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (b) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Interests or other
ownership interests of which (other than directors' qualifying shares or
interests) shall at the time be owned by such Person or by one or more Wholly
Owned Restricted Subsidiaries of such Person and one or more Wholly Owned
Restricted Subsidiaries of such Person.
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FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a general summary of the material federal income
tax consequences expected to result to holders of the Senior Notes. The
discussion is based on laws, regulations, rulings and judicial decisions now
in effect, all of which are subject to change, possibly on a retroactive
basis. The discussion does not cover all aspects of federal income taxation
that may be relevant to a particular holder in light of its individual
investment circumstances or to holders that may be subject to special tax
treatment (such as life insurance companies, financial institutions, tax-
exempt organizations (including qualified pension or profit sharing plans) and
foreign taxpayers), and no aspect of foreign, state or local taxation is
addressed. The discussion is limited to holders who hold their Senior Notes as
"capital assets" (generally, property held for investment) within the meaning
of Section 1221 of the Code.
EACH HOLDER IS URGED TO CONSULT ITS OWN TAX ADVISOR FOR THE FEDERAL AND
STATE INCOME AND OTHER TAX CONSEQUENCES PECULIAR TO IT FROM HOLDING OR
DISPOSING OF THE SENIOR NOTES.
INTEREST
Holders of the Senior Notes will be required to report any interest earned
on the Senior Notes as ordinary interest income for federal income tax
purposes in accordance with their method of tax accounting.
MARKET DISCOUNT
Generally, a holder who purchases a Senior Note subsequent to original
issuance at a "market discount" (i.e., at a price below the stated redemption
price at maturity) must, unless the amount thereof is de minimis, treat gain
recognized on the disposition of such Senior Note as ordinary income to the
extent market discount accrued while the Senior Note was held by the holder.
Further, if a subsequent holder makes a gift of a Senior Note, accrued market
discount, if any, will be recognized by such holder as if such Senior Note had
been sold for its fair market value. In addition, the holder may be required
to defer, until the maturity of the Senior Note or its earlier disposition in
a taxable transaction, the deduction of a portion of the interest expense on
any indebtedness incurred or continued to purchase or carry such Senior Note.
Any market discount will be considered to accrue on a straight-line basis
during the period from the date of acquisition to the maturity date of the
Senior Note, unless the holder elects to accrue market discount under a
constant interest method. A holder also may elect to include market discount
in income currently as it accrues (under either a straight-line or constant
interest method), in which case the holder would increase its adjusted tax
basis in the Senior Note by the amount includible in income and would not be
subject to the rules described above regarding the recognition of gain as
ordinary income and the deferral of interest deductions. Such an election to
include market discount in income currently would apply to all market discount
obligations acquired on or after the first day of the first taxable year of
the holder to which the election applies and may be revoked only with the
consent of the Internal Revenue Service (the "IRS").
Holders who purchase Senior Notes subsequent to original issuance should
consult their own tax advisors regarding the treatment of any market discount
with respect to their Senior Notes.
AMORTIZABLE BOND PREMIUM
If the holder's initial tax basis in the Senior Notes at acquisition exceeds
the amount payable at maturity, the excess will be treated as "amortizable
bond premium." In such case, the holder may elect under Section 171 of the
Code to amortize the bond premium annually under a constant yield method. The
holder's adjusted tax basis in the Senior Note would be decreased by the
amount of the allowable amortization. Because the Senior Notes have early call
provisions, holders must take such call provisions into account to determine
the amount of amortizable bond premium. Amortizable bond premium is treated as
an offset to interest received on the
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obligation rather than as an interest deduction, except as may be provided in
the Treasury regulations. An election to amortize bond premium would apply to
amortizable bond premium on all taxable bonds held at or acquired after the
beginning of the holder's taxable year as to which the election is made, and
may be revoked only with the consent of the IRS. Holders who acquire their
Senior Notes with amortizable bond premium should consult their own tax
advisor.
REORGANIZATION OF THE COMPANY
Any assumption of the Senior Notes by a corporate successor to the Company
upon its reorganization into a corporation, as is specifically permitted by
the Indenture, should not be a taxable event for federal income tax purposes.
As a result, holders should not recognize any gain or loss upon such
assumption of the Senior Notes. Instead, each holder should have a tax basis
in its new Senior Note of the corporate successor to the Company equal to its
basis in its old Senior Note immediately prior to the reorganization of the
Company as a corporation, and its holding period in such new Senior Note
should include the period the old Senior Note was held.
SALE, REDEMPTION AND MATURITY OF THE SENIOR NOTES
A holder will recognize gain or loss, if any, on the sale, redemption or
maturity of a Senior Note equal to the difference between the fair market
value of all consideration received (excluding amounts received that are
attributable to accrued and unpaid interest, which amounts must be included as
ordinary interest income) upon such sale, redemption or maturity of the Senior
Note and the holder's adjusted tax basis in the Senior Note. Except to the
extent of any unrecognized accrued market discount, discussed above, such gain
or loss will be capital gain or loss and will be long-term if the holder has
held the Senior Notes for more than one year.
BACKUP WITHHOLDING
A holder of Senior Notes may be subject to backup withholding at the rate of
31% with respect to interest paid on, or gross proceeds from the sale of, the
Senior Notes, unless such holder (a) is a corporation or comes within certain
other exempt categories or (b) provides a correct taxpayer identification
number, certifies as to no loss of exemption from backup withholding, and
otherwise complies with applicable requirements of the backup withholding
rules. A holder of Senior Notes who does not provide the Company with its
correct taxpayer identification number may be subject to penalties imposed by
the IRS. Any amounts withheld under the backup withholding rules will be
allowed as a refund or a credit against the holder's federal income tax
liability, provided that the required information is furnished to the IRS.
The Company will report to the holders of the Senior Notes and the IRS the
amount of any "reportable payments" (including any interest paid) and any
amount withheld with respect to the Senior Notes during the calendar year.
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DESCRIPTION OF THE PARTNERSHIP AGREEMENT
The Company was organized on February 18, 1992 as a limited partnership
under the RULPA. The following is a summary of certain provisions of the
Partnership Agreement. The rights and obligations of the General Partners and
of the Limited Partners (each as defined in the Partnership Agreement) are as
set forth in the Partnership Agreement. This summary does not constitute a
complete discussion of the Partnership Agreement and is qualified in its
entirety by reference to the Partnership Agreement, a copy of which has been
filed as an exhibit to the Registration Statement of which this Prospectus is
a part.
MANAGEMENT OF THE COMPANY
The Managing General Partner (as defined in the Partnership Agreement) is
responsible for the general management and operation of the Company. The
General Partners receive no compensation for the performance of their services
under the Partnership Agreement, provided that the Managing General Partner
and its affiliates are entitled to reimbursement for expenses incurred on
behalf of the Company and for certain directors' fees and expenses of the
general partner of the Managing General Partner. In addition, the General
Partners and their affiliates are entitled to the benefit of certain
exculpatory and indemnification provisions in the Partnership Agreement. See
"Management--Limitation of Liability and Indemnification."
DISSOLUTION OF THE COMPANY
The Company will be dissolved and its affairs wound up upon the occurrence
of any of the following events: (i) the expiration of the term of the Company
on December 31, 2020 (subject to extension with the consent of the General
Partners and a majority vote of the partners); (ii) certain events of
withdrawal or bankruptcy of a General Partner under the RULPA, subject to the
right of a remaining General Partner or a successor general partner to
continue the Company in accordance with terms of the Partnership Agreement;
(iii) the consent of the General Partners and the majority vote of the
partners to dissolve the Company; (iv) an incorporation of the Company in
accordance with the Partnership Agreement; (v) a sale of all or substantially
all of the assets of the Company in one transaction or a series of related
transactions; or (vi) the entry of a decree of dissolution under Section 17-
802 of the RULPA.
DISTRIBUTIONS
Distributions by the Company generally may be made at the discretion of the
Managing General Partner from cash on hand in excess of costs and expenses of
the Company, including reserves, subject to Section 17-607(a) of the RULPA or
other applicable law and subject to any applicable contractual restrictions on
such payments. In addition, the Managing General Partner is required to make
distributions from time to time for periods in which Company exists in the
form of a partnership to the holders of equity interests in the Company (other
than the Class C Limited Partner Interest and, in certain circumstances, the
Class C-1 Limited Partner Interest) in an amount for each fiscal year equal to
the product of (A) the taxable income of the Company for any taxable year for
which the Company reports taxable income for federal income tax purposes
determined as if the Company were a separately taxable entity and (B) the sum
of (x) the highest marginal federal income tax rate applicable to individuals
in effect for such year and (y) ten percentage points; provided that no such
payments shall be permitted if any amounts due in respect of the Class C
Limited Partner Interest shall not have been paid on the required retirement
date thereof as described below.
TRANSFERABILITY OF PARTNERSHIP INTERESTS
The Partnership Agreement contains significant restrictions on the
transferability of the equity interests in the Company.
Partnership interests held by management employees of the Company are
subject to purchase at the option of the Company upon termination of
employment for a termination price equal to either the fair market value or
cost of such interests, depending on the circumstances of the termination and
subject to certain vesting criteria set forth in the Partnership Agreement.
Upon any such purchase of partnership interests of a terminated
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employee, the remaining management holders are permitted to acquire such
interests for fair market value. In addition to the foregoing, certain
interests held by management are subject to additional restrictions on
transfer prior to September 4, 1997.
Subject to limited exceptions (including transfers upon death of a Limited
Partner to his estate, transfers to family members and related trusts, certain
transfers to other Limited Partners of the Company and other transfers to
affiliates), transfers of Limited Partner interests in the Company are subject
to rights of first refusal of the Company and certain other interestholders.
In addition to the rights of first refusal, in connection with certain
transfers of equity interests the transferring holder is required to offer the
other interestholders the right to sell a ratable portion of their respective
equity interests on the same terms and at the same price as the interests
proposed to be disposed of by the transferring holder.
PUT OPTION
At any time and from time to time after September 4, 1998, the Managing
General Partner, certain affiliates of MLP and certain other non-management
interestholders have the right to cause the Company to purchase the
partnership interests held by such persons at the fair market value thereof,
provided that such purchase would not result in a material adverse change in
the business of the Company or a breach of or default under any agreement or
instrument to which the Company is party or by which it or its assets is bound
and as to which a consent or waiver thereunder for such purpose (or any
related incurrence of indebtedness) has not been obtained after all best
efforts by the Company (including consideration of a sale of the Company) and
the Company provides appropriate notice thereof to the interestholder. In
connection with any such purchase, the Company is required to retire all of
the outstanding Class C Limited Partner Interest, Class C-1 Limited Partner
Interest (unless such interests have been converted into participating
partnership interests as described below) and Preferred Limited Partner
Interests.
REGISTRATION RIGHTS
The Managing General Partner and MLP have the right to require the Company
to use best efforts to register under the Securities Act the partnership
interests held by such persons. If the Company receives such a request or
otherwise determines to effect any such registration of equity securities, the
Company is required to offer to register the equity interests held by the
other Limited Partners (other than the Class C Limited Partner Interest). The
registration rights provisions contain additional customary rights and
obligations of the parties, including holdback, indemnification and cut-back
rights, subject to certain priorities of a non-management equity holder.
INCORPORATION
The Partnership Agreement permits the Managing General Partner to
incorporate the Company pursuant to specified procedures. In the event of an
incorporation, the Partnership Agreement provides that the Managing General
Partner shall use reasonable best efforts to effectuate such arrangements as
are reasonably required to reflect substantially the same rights and
restrictions that the equityholders have pursuant to the Partnership
Agreement. In the event of any such incorporation, the Partnership Agreement
further provides for the conversion of the Preferred Limited Partner Interests
into preferred stock of the incorporated entity having substantially similar
terms and provisions as the applicable preferred interests.
LIMITED PARTNER INTERESTS
In addition to the General Partner interests, the Class A-1 Limited Partner
Interests, the Class A-2 Limited Partner Interests and the Class B Limited
Partner Interests, which are all participating limited partner interests, the
following preferred interests are provided for under the Partnership
Agreement:
Class C Limited Partner Interest. The Class C Limited Partner Interest is a
non-participating preferred limited partner interest having a liquidation
preference of $8 million plus a preferred return of 7% per annum compounding
annually from August 1992. The Company may convert the Class C Limited Partner
Interest into
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a subordinated note or retire the interest at any time. Until the retirement
of the Class C Limited Partner Interest, the Company is required to observe
certain covenants, including restrictions on dispositions of assets for less
than fair market value, certain affiliate party transactions and distributions
in respect of, or purchases or retirements of, equity interests in the
Company, subject to limited exceptions specified in the Partnership Agreement.
The Company is required to retire the Class C Limited Partner Interest on the
91st day following August 31, 2002 or, if earlier, upon the occurrence of
certain specified change of control or sale transactions. The Company will
retire the Class C Limited Partner Interest with a portion of the proceeds of
the Offering.
Class C-1 Limited Partner Interest. The Class C-1 Limited Partner Interest is
a convertible preferred limited partner interest having a liquidation
preference of $5 million plus a preferred return of 7% per annum compounded
annually from November 1994, that may be converted into 8% of the aggregate
participating Limited Partner interests in the Company at the election of the
holder in connection with an equity registration by the Company. The Class C-1
Limited Partner Interest may be converted into a convertible subordinated note
at the election of the Company and may be redeemed for its liquidation
preference in connection with specified change of control or sale
transactions, and may otherwise be redeemed for such amount subject to the
right of the holder to retain an equity purchase option to preserve its equity
conversion right until the date such interest would have been required to be
retired, unless the holder shall have had the right to convert into a
participating equity interest in connection with a proposed equity
registration by the Company but shall have elected to retain its liquidation
preference. Unless earlier converted into a participating equity interest, the
Company is obligated to retire the Class C-1 Limited Partner Interest on the
earlier of November 4, 2004 or the occurrence of certain specified change of
control or sale transactions. Until the conversion of such interest into a
participating equity security or the retirement thereof, the Company is
required to observe the same covenants as are applicable to the Class C
Limited Partner Interest.
Preferred Limited Partner Interests. The Preferred Limited Partner Interests
are convertible senior preferred limited partner interests having an aggregate
liquidation preference of $7 million plus a preferred return of 8% per annum
compounded annually from November 1994, that currently may be converted into
approximately an aggregate 23% of the participating limited partner interests
in the Company. At the option of the interest holder, the Preferred Limited
Partnership Interests may be converted at any time into units of Class B
Limited Partnership Interests. The Preferred Limited Partner Interests may be
redeemed by the Company in connection with any registration of its equity
securities, subject to the right of the holders to exercise the equity
conversion right specified above.
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UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement (the
"Underwriting Agreement") among the Issuers and Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ") and Lazard Freres & Co. LLC ("Lazard," and
together with DLJ, the "Underwriters"), the Underwriters have agreed,
severally and not jointly, to purchase from the Issuers, and the Issuers have
agreed to sell to each of the Underwriters, the respective principal amount of
Senior Notes set forth opposite its name below, at the public offering price
set forth on the cover page of this Prospectus, less the underwriting
discounts and commissions:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
UNDERWRITER SENIOR NOTES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation...........
Lazard Freres & Co. LLC.......................................
------------
Total..................................................... $100,000,000
============
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to certain conditions precedent. The
Underwriting Agreement also provides that the Issuers will indemnify the
Underwriters and certain persons controlling the Underwriters against certain
liabilities and expenses, including liabilities under the Securities Act or
will contribute to payments the Underwriters are required to make in respect
thereof. The nature of the Underwriters' obligations under the Underwriting
Agreement is such that they are committed to purchase all of the Senior Notes
if any of the Senior Notes are purchased.
The Underwriters have advised the Issuers that they propose to offer the
Senior Notes directly to the public initially at the public offering price set
forth on the cover page of this Prospectus and to certain dealers at such
price less a concession not in excess of % of the principal amount of the
Senior Notes. The Underwriters may allow, and such dealers may reallow, a
concession to certain other dealers not in excess of % of the principal
amount of the Senior Notes. After the initial public offering of the Senior
Notes, the public offering price, concession and reallowance may be changed by
the Underwriters.
Under Rule 2720 of the Conduct Rules ("Rule 2720") of the National
Association of Securities Dealers, Inc. (the "NASD"), the Company may be
considered an affiliate of Lazard because affiliates of Lazard beneficially
own voting securities of the Company. This Offering is being conducted in
accordance with Rule 2720, which provides that, among other things, when an
NASD member participates in the underwriting of an affiliate's debt
securities, the yield to maturity can be no lower than that recommended by a
"qualified independent underwriter" meeting certain standards ("QIU"). In
accordance with this requirement, DLJ has assumed the responsibilities of
acting as QIU and will recommend a minimum yield to maturity in compliance
with the requirements of Rule 2720. In connection with the Offering, DLJ is
performing due diligence investigations and reviewing and participating in the
preparation of this Prospectus and the Registration Statement of which this
Prospectus forms a part. As compensation for the services of DLJ as QIU, the
Company has agreed to pay DLJ $5,000.
The Underwriters have informed the Company that they will not confirm sales
to any accounts over which they exercise discretionary authority without prior
written approval of such transactions by the customer.
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There is currently no public market for the Senior Notes, and the Issuers
have no present plan to list any of the Senior Notes on a national securities
exchange or to include any of the Senior Notes for quotation through an inter-
dealer quotation system. The Underwriters have advised the Issuers that DLJ
currently intends to, and Lazard may, make a market in the Senior Notes, but
are not obligated to do so and may discontinue any such market-making at any
time without notice. Accordingly, there can be no assurance that an active
public market will develop for, or as to the liquidity of, the Senior Notes.
See "Risk Factors--Absence of Public Market; Illiquidity; Market Value."
LEGAL MATTERS
Certain legal matters in connection with the Senior Notes offered hereby
will be passed upon for the Issuers by Weil, Gotshal & Manges LLP, New York,
New York. Certain legal matters in connection with the offering of the Senior
Notes will be passed upon for the Underwriters by Latham & Watkins, New York,
New York.
EXPERTS
The financial statements of Muzak Limited Partnership included in this
Prospectus and the related financial statement schedules included elsewhere in
the Registration Statement have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein and
elsewhere in the Registration Statement. These financial statements and the
financial statement schedule have been included herein and elsewhere in the
Registration Statement in reliance upon the reports of said firm given upon
their authority as experts in accounting and auditing.
The financial statement of Muzak Capital Corporation included in this
Prospectus has been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein and has been so included in reliance
upon the report of said firm given upon their authority as experts in
accounting and auditing.
The financial statements of Comcast Sound Communications, Inc. and
subsidiaries included in this Prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report appearing herein
(which report expresses an unqualified opinion and includes an explanatory
paragraph referring to allocated management fees and costs), and have been so
included in reliance upon the report of said firm given upon their authority
as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") pursuant to the Securities Act, covering the Senior Notes offered
hereby. This Prospectus does not contain all of the information set forth in
the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. Statements made in this
Prospectus as to the contents of any contract, agreement or other document are
summaries of the material terms of such contract, agreement or document. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibits for a more
complete description of the matter involved. The Registration Statement
(including the exhibits and schedules thereto) filed with the Commission by
the Company may be inspected and copied (at prescribed rates) at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the regional offices of the
Commission at Seven World Trade Center, 13th Floor, New York, New York 10048
and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661.
The Company is not subject to the informational requirements of the Exchange
Act. The Company intends to furnish to the Trustee and the holders of the
Senior Notes annual reports containing audited financial statements certified
by its independent auditors and quarterly reports containing unaudited
financial information for the first three quarters of each fiscal year.
82
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
MUZAK LIMITED PARTNERSHIP
Independent Auditors' Report............................................ F-2
Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996....... F-3
Statements of Operations for the years ended December 31, 1993, 1994,
and 1995 and the six-month periods ended June 30, 1995 and 1996........ F-4
Statements of Partners' Capital (Deficit) for the years ended December
31, 1993, 1994, and 1995 and the six-month period ended June 30, 1996.. F-5
Statements of Cash Flows for the years ended December 31, 1993, 1994,
and 1995 and the six-month periods ended June 30, 1995 and 1996........ F-6
Notes to Financial Statements........................................... F-7
MUZAK CAPITAL CORPORATION
Independent Auditors' Report............................................ F-18
Balance Sheet as of May 8, 1996......................................... F-19
Note to Financial Statement............................................. F-20
COMCAST SOUND COMMUNICATIONS, INC. AND SUBSIDIARIES
Independent Auditors' Report............................................ F-21
Consolidated Statement of Operations and Retained Earnings
for the year ended December 31, 1993................................... F-22
Consolidated Statement of Cash Flows for the year ended December 31,
1993................................................................... F-23
Notes to Consolidated Financial Statements.............................. F-24
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
General and Limited Partners
Muzak Limited Partnership
Seattle, Washington
We have audited the accompanying balance sheets of Muzak Limited Partnership
(the "Company") as of December 31, 1995 and 1994, and the related statements
of operations, partners' capital (deficit), and cash flows for each of the
three years in the period ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Muzak Limited Partnership as of December
31, 1995 and 1994, and the results of operations and its cash flows for each
of the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Seattle, Washington
March 6, 1996
(August 23, 1996, as to Note 10)
F-2
<PAGE>
MUZAK LIMITED PARTNERSHIP
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JUNE 30,
1994 1995 1996
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................... $ 1,445 $ 1,115 $ 3,239
Accounts receivable, net of allowance for
doubtful accounts
of $736, $632 and $576........................ 15,868 15,534 14,630
Inventories.................................... 4,070 3,473 3,041
Prepaid expenses............................... 1,462 1,543 1,443
Other.......................................... 491 357 346
-------- ------- -------
Total current assets......................... 23,336 22,022 22,699
Property and equipment, net...................... 37,588 36,586 36,055
Deferred costs and intangible assets, net........ 41,435 36,706 35,357
Other............................................ 733 1,125 1,247
-------- ------- -------
Total assets................................. $103,092 $96,439 $95,358
======== ======= =======
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
CURRENT LIABILITIES:
Revolving credit facility...................... $ 6,000 $ 9,300 $10,750
Accounts payable............................... 8,085 6,818 9,048
Advance billings............................... 4,337 4,533 4,641
Accrued expenses............................... 3,525 2,902 3,990
Current portion of long-term obligations....... 4,455 5,911 6,371
-------- ------- -------
Total current liabilities.................... 26,402 29,464 34,800
Long-term obligations, net of current portion.... 52,378 47,094 44,301
Unearned installation income..................... 1,676 2,786 3,192
Commitments and contingencies (Note 7)...........
Redeemable preferred partnership interests....... 14,693 15,722 16,265
PARTNERS' CAPITAL (DEFICIT):
Limited partners' interests.................... 7,368 5,637 4,328
General partners' interests (deficiencies)..... 575 (4,264) (7,528)
-------- ------- -------
Total partners' capital (deficit)............ 7,943 1,373 (3,200)
-------- ------- -------
Total liabilities and partners' capital (def-
icit)....................................... $103,092 $96,439 $95,358
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
MUZAK LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX-
MONTH PERIOD
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------- ----------------
1993 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Music and other business
services....................... $36,800 $50,410 $52,489 $25,916 $26,977
Equipment and related services.. 21,741 33,006 34,392 16,646 15,179
------- ------- ------- ------- -------
Total revenues................ 58,541 83,416 86,881 42,562 42,156
------- ------- ------- ------- -------
Cost of revenues:
Music and other business
services....................... 10,611 13,685 14,465 7,063 7,501
Equipment and related services.. 16,756 23,413 23,895 11,465 10,303
------- ------- ------- ------- -------
Total cost of revenues........ 27,367 37,098 38,360 18,528 17,804
------- ------- ------- ------- -------
Gross profit...................... 31,174 46,318 48,521 24,034 24,352
Selling, general and
administrative expenses.......... 19,603 28,699 28,496 14,628 15,107
Depreciation...................... 4,349 8,211 9,382 4,669 5,155
Amortization...................... 6,942 9,622 8,909 4,443 4,463
------- ------- ------- ------- -------
Operating income (loss)......... 280 (214) 1,734 294 (373)
Interest expense.................. 3,785 6,990 7,483 3,791 3,574
Other (income) expense, net....... (30) (21) (35) (42) 228
------- ------- ------- ------- -------
Net loss........................ (3,475) (7,183) (5,714) (3,455) (4,175)
Redeemable preferred returns.... (572) (933) (1,029) (506) (543)
------- ------- ------- ------- -------
Net loss attributable to general
and limited partners........... $(4,047) $(8,116) $(6,743) $(3,961) $(4,718)
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
MUZAK LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND THE UNAUDITED SIX-
MONTH PERIOD ENDED JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
GENERAL PARTNERS' CLASS B TOTAL LIMITED
INTERESTS CLASS A CLASS B LIMITED PREFERRED PARTNERS' INTERESTS
------------------- LIMITED CLASS A LIMITED PARTNERS' LIMITED ----------------------
NUMBER PARTNERS' PUT/CALL PARTNERS' SUBSCRIPTIONS PARTNERS' NUMBER
OF UNITS AMOUNT INTERESTS OPTIONS INTERESTS RECEIVABLE INTERESTS OF UNITS AMOUNT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January
1, 1993......... 9,101 $ 8,921 $ 1,315 $ 927 $ 1,628 $(592) $ -- 4,376 $ 3,278
Net loss........ (2,422) (360) (255) (438) (1,053)
Payment of
foreign income
taxes.......... (56) (8) (6) (10) (24)
Preferred return
on redeemable
preferred
interests...... (399) (59) (42) (72) (173)
Redemption of
Class B limited
partnership
interest....... (50) 25 (50) (25)
------- --------- ------- ----- ------- ----- ------ -------- ----------
Balance, December
31, 1993........ 9,101 6,044 888 624 1,058 (567) -- 4,326 2,003
Net loss........ (4,802) (887) (561) (933) (2,381)
Payment of
foreign income
taxes.......... (43) (8) (5) (8) (21)
Preferred return
on redeemable
preferred
interests...... (624) (115) (73) (121) (309)
Contributions by
partners....... 967 175 (246) 7,000 4,663 7,896
Principal
payments on
subscriptions
receivable..... 180 180
------- --------- ------- ----- ------- ----- ------ -------- ----------
Balance, December
31, 1994........ 9,101 575 (122) 952 171 (633) 7,000 8,989 7,368
Net loss........ (3,690) (682) (621) (721) (2,024)
Payment of
foreign income
taxes.......... (51) (14) (9) (12) (35)
Preferred return
on redeemable
preferred
interests...... (665) (123) (112) (129) (364)
Preferred return
on preferred
limited
partners'
interests...... (433) (80) (73) (85) 671 433
Principal
payments on
subscriptions
receivable..... 259 259
------- --------- ------- ----- ------- ----- ------ -------- ----------
Balance, December
31, 1995........ 9,101 (4,264) (1,021) 137 (776) (374) 7,671 8,989 5,637
Net loss........ (2,697) (499) (453) (526) (1,478)
Payment of
foreign income
taxes.......... (17) (3) (3) (4) (10)
Preferred return
on redeemable
preferred
interests...... (351) (65) (59) (68) (192)
Preferred return
on preferred
limited
partners'
interests...... (199) (37) (33) (39) 308 199
Principal
payments on
subscriptions
receivable..... 67 67
Contribution by
Partner........ 105 60 105
------- --------- ------- ----- ------- ----- ------ -------- ----------
Balance, June 30,
1996
(unaudited)..... 9,101 $(7,528) $(1,625) $(411) $(1,308) $(307) $7,979 9,049 $ 4,328
======= ========= ======= ===== ======= ===== ====== ======== ==========
<CAPTION>
TOTAL
-----------------
NUMBER
OF UNITS AMOUNT
<S> <C> <C>
Balance, January
1, 1993......... 13,477 $12,199
Net loss........ (3,475)
Payment of
foreign income
taxes.......... (80)
Preferred return
on redeemable
preferred
interests...... (572)
Redemption of
Class B limited
partnership
interest....... (50) (25)
-------- --------
Balance, December
31, 1993........ 13,427 8,047
Net loss........ (7,183)
Payment of
foreign income
taxes.......... (64)
Preferred return
on redeemable
preferred
interests...... (933)
Contributions by
partners....... 4,663 7,896
Principal
payments on
subscriptions
receivable..... 180
-------- --------
Balance, December
31, 1994........ 18,090 7,943
Net loss........ (5,714)
Payment of
foreign income
taxes.......... (86)
Preferred return
on redeemable
preferred
interests...... (1,029)
Preferred return
on preferred
limited
partners'
interests...... --
Principal
payments on
subscriptions
receivable..... 259
-------- --------
Balance, December
31, 1995........ 18,090 1,373
Net loss........ (4,175)
Payment of
foreign income
taxes.......... (27)
Preferred return
on redeemable
preferred
interests...... (543)
Preferred return
on preferred
limited
partners'
interests...... --
Principal
payments on
subscriptions
receivable..... 67
Contribution by
Partner........ 60 105
-------- --------
Balance, June 30,
1996
(unaudited)..... 18,150 $(3,200)
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
MUZAK LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX-
MONTH PERIOD
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------- ----------------
1993 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss........................ $(3,475) $(7,183) $(5,714) $(3,455) $(4,175)
Adjustments to reconcile net
loss to net cash provided by
operating activities:
Provision for doubtful
accounts..................... 464 610 810 299 225
Depreciation.................. 4,349 8,211 9,382 4,669 5,155
Amortization, net of deferred
financing costs.............. 6,942 9,622 8,909 4,443 4,463
Deferred financing cost
amortization................. 529 1,159 1,310 658 605
Loss in equity of joint
venture...................... -- -- -- -- 117
Changes in operating assets and
liabilities:
Accounts receivable........... (3,442) (1,890) (476) 1,988 750
Inventories................... (476) (259) 597 995 220
Accounts payable.............. 1,137 1,970 (1,267) (1,631) 1,531
Accrued expenses.............. (840) 1,198 (623) (362) 1,089
Advance billings.............. 507 1,200 194 27 107
Unearned installation income.. 577 1,099 1,110 558 406
Other, net.................... 154 (79) (35) (85) 70
------- ------- ------- ------- -------
Net cash provided by operating
activities................... 6,426 15,658 14,197 8,104 10,563
------- ------- ------- ------- -------
INVESTING ACTIVITIES
Additions to property and
equipment...................... (4,537) (9,531) (8,116) (3,675) (4,546)
Additions to deferred costs and
intangible assets.............. (3,698) (4,273) (4,641) (2,368) (2,870)
Acquisitions of businesses and
ventures, net of cash
acquired....................... -- (33,294) (557) -- --
Other, net...................... 42 52 3 -- 156
------- ------- ------- ------- -------
Net cash used in investing
activities................... (8,193) (47,046) (13,311) (6,043) (7,260)
------- ------- ------- ------- -------
FINANCING ACTIVITIES
Borrowings (repayment) under
revolving notes
payable, net................... 3,250 2,250 3,300 (400) 1,450
Borrowings on term debt......... -- 34,034 -- -- --
Principal payments on term
debt........................... (900) (11,500) (4,111) (1,622) (2,490)
Borrowing (payments) on other
long-term debt................. -- (986) (30) 47 (46)
Payments under capital leases... (484) (413) (432) (246) (213)
Contributions by partners....... -- 8,076 259 48 172
Other, net...................... (104) (64) (202) (21) (52)
------- ------- ------- ------- -------
Net cash provided by (used in)
financing activities......... 1,762 31,397 (1,216) (2,194) (1,179)
------- ------- ------- ------- -------
Net increase (decrease) in
cash and cash equivalents.... (5) 9 (330) (133) 2,124
CASH AND CASH EQUIVALENTS,
beginning of period.............. 1,441 1,436 1,445 1,445 1,115
------- ------- ------- ------- -------
CASH AND CASH EQUIVALENTS, end of
period........................... $ 1,436 $ 1,445 $ 1,115 $ 1,312 $ 3,239
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
MUZAK LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1995 AND 1996
IS UNAUDITED.)
1. THE COMPANY AND ITS BUSINESS:
Muzak Limited Partnership (the "Company") provides business music services
and also produces, markets and sells broadcast data delivery, video, audio
marketing and in-store advertising services through a network of domestic and
international franchises and owned operations. The franchisees are charged a
fee based on their revenues, as well as certain other fees, in exchange for
broadcast music, marketing, technical and administrative support. The Company
and its franchisees also sell, install and maintain electronic equipment
related to the Company's business.
The Company develops and uses proprietary techniques for blending music into
programs which have a measurable and predictable effect on listeners. The
Company's music is primarily sold for use in public areas, such as retail
establishments and restaurants, and work areas, such as business offices and
manufacturing facilities. Services are distributed through direct broadcast
satellite transmission, local broadcast transmissions and pre-recorded tapes
played on the customers' premises.
The Company is subject to certain business risks which could affect future
operations and financial performance. These risks include rapid technological
change, competitive pricing, concentrations in and dependence on satellite
delivery capabilities, and development of new services.
BUSINESS ACQUISITIONS
As of September 1, 1992, the Company commenced operations in its current
form (the "Partnership") through an acquisition (the "1992 Acquisition") of
substantially all of the assets, including the right to operate under its
current name, from a predecessor partnership (the "Seller"). The acquisition
was accounted for as a purchase with the purchase price allocated to the
individual assets, based on their estimated fair values at the date of
acquisition.
On January 31, 1994, the Company acquired substantially all the net assets
of Comcast Sound Communications, Inc. ("Comcast"), previously the Company's
largest franchisee. The net assets were acquired for approximately $33
million, including a $5 million redeemable preferred partnership interest
issued to Comcast and closing costs. The acquisition was financed through
additional bank borrowings and the contribution of certain assets by Comcast
in exchange for a redeemable preferred partnership interest. The transaction
was accounted for as a purchase with the purchase price allocated to the
individual assets based on the fair values at the date of acquisition.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION
The interim financial information, as of and for the six-month periods ended
June 30, 1995 and 1996, was prepared by the Company in a manner consistent
with the audited financial statements and pursuant to the rules and
requirements of the Securities and Exchange Commission. The unaudited
information, in management's opinion, reflects all adjustments which are of a
normal recurring nature and which are necessary to present fairly the results
of the periods presented. The results of operations for the six-month period
ended June 30, 1996, are not necessarily indicative of the results to be
expected for the entire year.
CASH EQUIVALENTS
Short-term investments with maturities at the date of purchase of ninety
days or less are considered cash equivalents. Their recorded amount
approximates fair value.
F-7
<PAGE>
MUZAK LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1995 AND 1996
IS UNAUDITED.)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONTINUED)
INVENTORIES
Inventories consist primarily of electronic equipment and are recorded at
the lower of cost (first-in, first-out) or market.
PROPERTY AND EQUIPMENT
Property and equipment consist primarily of equipment provided to
subscribers and machinery and equipment, recorded at cost. Major renewals and
betterments are capitalized to the property accounts while replacements,
maintenance and repairs that do not improve or extend the lives of the
respective assets are expensed.
Property and equipment are depreciated on a straight-line basis over the
estimated useful lives of the related assets, ranging from five to forty
years. Assets acquired under capital leases and leasehold improvements are
amortized on a straight-line basis over the shorter of their estimated useful
lives or the term of the related leases.
DEFERRED COSTS AND INTANGIBLE ASSETS
Income producing contracts, acquired through acquisitions, are being charged
to amortization expense on an accelerated method over their period of expected
benefit of eight years. Deferred financing costs are being charged to interest
expense on the effective interest method over the term of the related
agreements. Other deferred costs and intangible assets are recorded at cost
and are being charged to amortization expense over their estimated useful
lives or their period of expected benefit ranging from two and one-half to ten
years.
The carrying value of long lived assets is reviewed on a regular basis for
the existence of facts or circumstances that may indicate that the carrying
amount is not recoverable. To date, no impairment has been indicated. Should
there be an impairment in the future, the Company will measure the impairment
based on the discounted expected future cash flows from the impaired assets.
REVENUE RECOGNITION
Revenues are recognized in the month that the services are provided. Fees
from franchisees are recognized as music revenues in the month that the
franchisee generates its revenues. Equipment and related services revenues are
recorded in the period that the installation is completed.
ADVANCE BILLINGS
The Company bills certain customers in advance for contracted music and
other business services. Amounts billed in advance of the service period are
deferred when billed and recognized as revenue in the period earned.
UNEARNED INSTALLATION INCOME
The Company defers recognition of income from the installation of equipment
provided to subscribers and recognizes these amounts as revenue on a straight-
line basis over the average subscriber service period.
INCOME TAXES
The income tax effects of all earnings or losses of the Company are passed
directly to the partners. Payment of foreign income taxes is reflected as a
reduction to the partners' capital accounts. Thus, no provision or benefit for
federal, state, local or foreign income taxes is required.
F-8
<PAGE>
MUZAK LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1995 AND 1996
IS UNAUDITED.)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONTINUED)
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
ACCOUNTING FOR STOCK-BASED COMPENSATION
Statement of Financial Accounting Standard ("SFAS") Number 123, "Accounting
for Stock-Based Compensation" was recently issued and is effective for the
Company beginning January 1, 1996. SFAS Number 123 requires expanded
disclosures of equity-based compensation arrangements with employees and does
not require, but encourages compensation cost to be measured based on fair
value of the equity instrument when awarded. The Company, as allowed, intends
to continue to measure equity-based compensation using its current method of
accounting prescribed by Accounting Principles Board Opinion Number 25 that
recognizes compensation cost based on the intrinsic value of the equity
instrument awarded. The Company will be required to disclose certain
additional information related to its stock-based compensation; however,
management believes the impact to the financial statements, as a whole, will
not be material.
3. PROPERTY AND EQUIPMENT, NET:
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1994 1995 1996
<S> <C> <C> <C>
Equipment provided to subscribers............ $ 37,305 $ 42,847 $ 45,668
Machinery and equipment...................... 6,469 7,628 8,654
Vehicles..................................... 2,403 2,872 2,959
Furniture and fixtures....................... 1,948 2,133 2,205
Land and buildings........................... 1,001 858 858
Leasehold improvements....................... 710 833 850
-------- -------- --------
Total property and equipment............... 49,836 57,171 61,194
Less--accumulated depreciation and amortiza-
tion........................................ (12,248) (20,585) (25,139)
-------- -------- --------
$ 37,588 $ 36,586 $ 36,055
======== ======== ========
</TABLE>
F-9
<PAGE>
MUZAK LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1995 AND 1996
IS UNAUDITED.)
4. DEFERRED COSTS AND INTANGIBLE ASSETS, NET:
Deferred costs and intangible assets consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1994 1995 1996
<S> <C> <C> <C>
Income producing contracts................... $ 39,676 $ 39,826 $ 39,828
Deferred subscriber acquisition costs........ 4,604 7,784 9,356
Master recording rights and deferred
production costs............................ 6,310 7,770 8,664
Deferred financing costs..................... 5,661 5,783 6,508
Organization costs........................... 4,202 4,454 4,836
Non-compete agreements....................... 846 846 846
Other........................................ 634 702 722
-------- -------- --------
Total deferred costs and intangible
assets.................................... 61,933 67,165 70,760
Less--accumulated amortization............... (20,498) (30,459) (35,403)
-------- -------- --------
$ 41,435 $ 36,706 $ 35,357
======== ======== ========
</TABLE>
5. LONG-TERM OBLIGATIONS:
Long-term obligations are summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JUNE 30,
1994 1995 1996
<S> <C> <C> <C>
Variable rate senior term loan................... $45,100 $40,989 $38,499
Fixed rate subordinated note, net of unamortized
discount
of $1,792, $1,536 and $1,412.................... 10,708 10,964 11,088
Capital lease obligations........................ 705 762 842
Other............................................ 320 290 243
------- ------- -------
Total long-term obligations.................... 56,833 53,005 50,672
Less--current portion............................ ( 4,455) ( 5,911) (6,371)
------- ------- -------
$52,378 $47,094 $44,301
======= ======= =======
</TABLE>
CREDIT AGREEMENTS
The variable rate senior term loan is a $46,600,000 term loan (the "Credit
Agreement") with a group of banks for which Union Bank of Switzerland (the
"Agent Bank"), an affiliate of a limited partner, is acting as agent. The
Credit Agreement also includes a $13,000,000 revolving credit facility. The
terms of the Credit Agreement, as amended, require the Company to meet certain
financial ratios and performance criteria and impose restrictions on capital
spending, the incurrence of additional debt, and distributions to partners,
among other things. Distributions to partners are limited to distributions
that offset tax liabilities to the partners resulting from the Company's
taxable income. Substantially all of the Company's assets and proceeds from
certain insurance policies are pledged as collateral under the Credit
Agreement.
The fixed rate subordinated note (the "Subordinated Note") was obtained from
a group of banks that were issued options to purchase Class A limited
partnership units (the "Put/Call Units") in connection with this credit
arrangement. The value of these Put/Call Units has been accounted for as debt
discount and amortized on the effective interest method over the term of this
note. The Subordinated Note requires the Company to maintain certain
performance criteria and covenants, similar to, but less restrictive than the
Credit Agreement. Substantially all of the Company's assets and proceeds from
certain insurance policies are pledged as collateral under this agreement.
F-10
<PAGE>
MUZAK LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1995 AND 1996
IS UNAUDITED.)
5. LONG-TERM OBLIGATIONS, (CONTINUED)
INTEREST RATES AND PAYMENTS
Interest under the Credit Agreement is paid at an interest rate based on the
Agent Bank's prime rate or LIBOR in quarterly installments. During the years
ended December 31, 1993, 1994 and 1995 and for the six-month periods ended
June 30, 1995 and 1996, the effective weighted average interest rates on
borrowings under the Credit Agreement were 9.1%, 10.0%, 11.2%, 11.3% and
10.6%, respectively, including the effects of the interest rate swap agreement
described below. Interest under the Subordinated Note is paid in semi-annual
installments at a rate of 12.5%, an effective rate of 14.5%, after
amortization of the debt discount. The capital lease obligations require
monthly installments of interest at a weighted average interest rate of
approximately 10.0%. Total cash paid for interest on long-term obligations was
approximately $3,340,000, $5,460,000 and $5,760,000 for the years ended
December 31, 1993, 1994 and 1995, and for the six-month periods ended June 30,
1995 and 1996 were $3,214,000 and $3,025,000, respectively.
FUTURE MATURITIES
The variable rate senior term loan under the Credit Agreement requires semi-
annual principal installments through 2001. The Subordinated Note payable is
due in semi-annual installments in 2001 and 2002. The lease obligations are
due in monthly installments through 1999. The revolving credit facility
terminates and requires final payment on January 15, 2001. Total future
maturities of long-term obligations, for the five years following December 31,
1995 are: $5,911,000 in 1996; $7,323,000 in 1997; $8,139,000 in 1998;
$8,064,000 in 1999; and $8,297,000 in 2000.
INTEREST RATE HEDGING
The Company has entered into an interest rate swap agreement with the Agent
Bank that effectively fixed the rate on $10,000,000 of the debt under the
Credit Agreement at December 31, 1995 and June 30, 1996. Net settlements are
recorded in interest expense. The risk of credit loss in the event of non-
performance by the counterparty to the swap agreement is considered by
management to be minimal.
FINANCING COSTS PAID TO RELATED PARTIES
As of December 31, 1995 and June 30, 1996, the Agent Bank was an affiliate
of a Class A limited partner. In addition, the Subordinated Note holder held
the Put/Call Units. During the years ended December 31, 1993, 1994 and 1995,
and six-month periods ended June 30, 1995 and 1996, the Company incurred
interest expense related to these credit facilities of $3,670,000, $6,888,000,
$7,367,000, $3,736,000 and $3,514,000, respectively. Of these amounts,
$1,046,000, $1,336,000 and $1,252,000 are included in accrued expenses at
December 31, 1994 and 1995 and June 30, 1996, respectively. In addition, the
Company paid fees to the holders of the senior and subordinated notes payable
of $250,000, $1,943,000 and $122,000 in 1993, 1994 and 1995, respectively,
related to amendments to the Credit Agreement and the subordinated note
agreement. During the year ended December 31, 1994, the Company paid the
general partner $474,000 for its efforts related to obtaining the Company's
credit facilities and acquiring Comcast.
FAIR VALUE
The recorded amount of the Company's long-term debt and related deferred
financing costs approximate current market prices for the same or similar
issues available to the Company for debt with similar remaining maturities.
F-11
<PAGE>
MUZAK LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1995 AND 1996
IS UNAUDITED.)
6. BENEFIT PLANS:
DEFINED CONTRIBUTION PLAN
The Company maintains a defined contribution savings and retirement plan
(the "Benefit Plan") that covers substantially all employees. Under the
savings portion of the Benefit Plan, eligible employees may contribute from 2%
to 14% of their compensation, subject to Internal Revenue Code limitations.
For the years ended 1993, 1994 and 1995 the Company, at its discretion, may
contribute a matching amount of up to 50% of the first 6% contributed by the
employee. Employees are 100% vested in their contribution at all times and
vest 100% in the Company portion at December 31 of the year of the
contribution. The Company recorded contribution expense for the savings
portion of the Benefit Plan of approximately $114,000, $170,000 and $181,000
for the years ended December 31, 1993, 1994 and 1995 and $90,000 and $202,000
for the six-month periods ended June 30, 1995 and 1996, respectively.
The retirement portion of the Benefit Plan is determined annually by the
Company at its discretion, but may not exceed 3% of the eligible employee's
compensation. The employees vest in the retirement portion of the Benefit Plan
ratably over five years, but become fully vested in the event of death,
disability or the attainment of the age of 65. The Company accrued $180,000,
$260,000 and $135,000 for the retirement portion of the Benefit Plan for the
years ended December 31, 1993 and 1994 and the six-month period ended June 30,
1995, respectively. No amounts were accrued for the year ending December 31,
1995, or the six-month period ended June 30, 1996.
MULTI-EMPLOYER DEFINED CONTRIBUTION PLANS
The Company participates in several multi-employer defined contribution
benefit plans that provide benefits to employees covered by certain labor
union contracts. The amount of expense related to contributions to these plans
was approximately $83,000, $110,000 and $108,000 for the years ended December
31, 1993, 1994 and 1995 and approximately $54,000 and $60,000 for the six-
month periods ended June 30, 1995 and 1996, respectively. These amounts were
determined by union contract and the Company does not administer or control
the funds.
7. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company leases certain facilities and equipment under both operating and
capital leases. In addition, the Company has entered into agreements to obtain
satellite channel capacity and subsidiary communication authorization rights
for the transmission of programs to the Company's customers. Total rental
expense under operating leases was approximately $5,590,000, $6,384,000 and
$7,698,000 for the years ended December 31, 1993, 1994 and 1995 and $3,833,000
and $3,148,000 for the six-month periods ended June 30, 1995 and 1996,
respectively.
F-12
<PAGE>
MUZAK LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1995 AND 1996
IS UNAUDITED.)
7. COMMITMENTS AND CONTINGENCIES, (CONTINUED)
Future annual minimum lease payments under noncancelable leases for the
years ended December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
<S> <C> <C>
1996................................................... $338 $ 6,011
1997................................................... 275 4,842
1998................................................... 147 3,955
1999................................................... 67 3,202
2000................................................... -- 2,765
Thereafter............................................. -- 6,208
---- -------
Total minimum lease payments........................... 827 $26,983
=======
Less amount representing interest...................... (65)
----
Present value of future minimum capital lease payments
included in long-term obligations..................... $762
====
</TABLE>
Assets acquired under capital leases were $135,000, $460,000 and $489,000
for the years ended December 31, 1993, 1994 and 1995, respectively. Assets
recorded under capital leases were $1,294,000, $1,141,000 and $1,412,000 with
accumulated amortization of $428,000, $307,000 and $439,000 as of December 31,
1994 and 1995 and June 30, 1996, respectively.
CONTINGENT PURCHASE CONSIDERATION
The 1992 Asset Purchase Agreement, as amended ("Purchase Agreement"),
provides for contingent payments to the Seller if certain performance levels
are achieved in the five years following the closing of the 1992 Acquisition.
If the performance levels are achieved the Company will owe the Seller
additional purchase price of $5 million to $24 million. Any such payments, if
earned, will be allocated to the assets acquired or, if applicable, recorded
as additional purchased assets. No amounts have been paid or accrued as of
December 31, 1995 or June 30, 1996 pursuant to this provision, as the
possibility of obtaining the required performance objectives has been deemed
remote by management.
TAXES
An assessment was made against the Seller resulting from an audit performed
by the Washington State Department of Revenue for sales and use and business
and occupation taxes paid for the period from 1987 through September 1992.
Under successor liability statutes in the state of Washington, the Company
could, if the Seller fails to pay its tax obligation, become liable for the
assessment outstanding against the Seller of approximately $1,700,000.
This assessment is under appeal by the Seller, who under the Purchase
Agreement is liable for the entire assessment. Under the terms of the Purchase
Agreement, the Company has the right to offset any future payments (including
any contingent purchase payments or any redemption of Class C redeemable
preferred partnership interests) from the Company to the Seller if the Seller
fails to pay its tax obligation. The Company's management does not believe
that the assessment will have an adverse effect on the Company's financial
condition or results of operations.
F-13
<PAGE>
MUZAK LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1995 AND 1996
IS UNAUDITED.)
7. COMMITMENTS AND CONTINGENCIES, (CONTINUED)
EMPLOYMENT AGREEMENTS
The Company has five-year employment agreements with certain senior
executive officers. These five-year agreements, expiring August 31, 1997,
provide certain benefits to the officers if involuntarily terminated by the
Company. As of December 31, 1994 and 1995 and June 30, 1996 no amounts have
been accrued related to these agreements.
LEGAL PROCEEDINGS
The Company is subject to various legal proceedings which arise in the
ordinary course of business. Company management believes none of these
proceedings, individually or in the aggregate, will have a material adverse
effect on the financial condition or results of operations of the Company.
8. REDEEMABLE PREFERRED PARTNERSHIP INTERESTS:
The redeemable preferred partnership interests are comprised of a Class C
and a C-1 preferred partnership interest. Both are non-voting interests that
do not participate in the Company's profits or losses. A summary of these
interests and their accumulated returns by period are as follows (in
thousands):
<TABLE>
<CAPTION>
CLASS C CLASS C-1 TOTAL
<S> <C> <C> <C>
Balance, January 1, 1993.......................... $ 8,188 $ -- $ 8,188
Preferred return................................. 572 -- 572
------- ------ -------
Balance, December 31, 1993........................ 8,760 -- 8,760
Class C-1 contribution........................... -- 5,000 5,000
Preferred return................................. 613 320 933
------- ------ -------
Balance, December 31, 1994........................ 9,373 5,320 14,693
Preferred return................................. 657 372 1,029
------- ------ -------
Balance, December 31, 1995........................ 10,030 5,692 15,722
Preferred return................................. 344 199 543
------- ------ -------
Balance, June 30, 1996............................ $10,374 $5,891 $16,265
======= ====== =======
</TABLE>
CLASS C INTEREST
The Class C limited partner is entitled to receive the amount of its initial
contribution of $8,000,000, plus a return of 7% compounded annually, through
November 30, 2002, the date of redemption. The Class C limited partner is
entitled to a preference in liquidation equal to its contribution plus
accumulated return. A general partner may, at its sole discretion, require the
Class C limited partner to exchange its interest for a note equal its then
aggregate liquidation preference amount. If the Class C limited partnership
units remain outstanding on November 30, 2002 the Company is required to
redeem such units for an amount equal to the Class C contribution plus
accumulated return.
CLASS C-1 INTEREST
The Class C-1 limited partner is entitled to receive the amount of its
initial contribution of $5,000,000, plus a return of 7% compounded annually,
through January 31, 2004, the date of redemption. The Class C-1 limited
partner may become, at its option, a participating partner. Upon becoming a
participating partner, the Class C-1
F-14
<PAGE>
MUZAK LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1995 AND 1996
IS UNAUDITED.)
8. REDEEMABLE PREFERRED PARTNERSHIP INTERESTS, (CONTINUED)
limited partner will forfeit any accrued portion of the return. If it has not
previously become a participating partner, the Class C-1 limited partner is
entitled to a preference in liquidation equal to its contribution plus
accumulated return. Unless the Class C-1 interest becomes a participating
interest, a general partner may, at its sole discretion, require the Class C-1
limited partner to exchange its interest for a note equal to its then
aggregate liquidation preference amount. If such exchange occurs prior to the
time the Class C-1 limited partner has the opportunity to obtain participation
status, the Class C-1 limited partner will also be issued an option to acquire
the participating interest on substantially the same terms as if such exchange
had not occurred. If the Class C-1 limited partner has not obtained
participation status, or has not exchanged such units for notes, on or prior
to January 31, 2004, the Company is required to redeem such units for an
amount equal to the Class C-1 contribution plus accumulated return.
9. PARTNERS' CAPITAL:
Partners' capital is comprised of two general partners ("General Partners'
Interests"); Class A limited partners and Class B limited partners ("Limited
Partners' Interests"); Put/Call Units, and; preferred limited partners'
interests.
PUT/CALL UNITS
In connection with obtaining the fixed rate subordinated note payable, the
Company issued a lender an option to purchase 1,529,898 units of Class A
limited partnership interests, for an aggregate exercise price of $10. These
units are currently exercisable. The estimated value of the Put/Call Units was
recorded as a debt discount and is being amortized as an adjustment to
interest expense over the life of the related debt obligation.
SUBSCRIPTIONS RECEIVABLE
Officers and key employees of the Company have acquired limited partnership
interests, a portion of which were financed with subscription notes. As of
December 31, 1994 and 1995 and June 30, 1996, the Class B limited partners'
capital accounts were reduced by subscription notes receivable. Interest
income on the subscriptions receivable totaled $51,000 and $49,000 for the
years ended December 31, 1994 and 1995, and $28,000 and $16,000 for the six-
month periods ended June 30, 1995 and 1996.
PREFERRED LIMITED PARTNERS' INTERESTS
The preferred limited partners' interests, which were issued on November 4,
1994, do not participate in the Company's profits or losses. Such limited
partners are entitled to receive an 8% return, compounded quarterly, on the
amount of their initial contribution and are generally entitled to a priority
on distributions from the Company. At December 31, 1995 and June 30, 1996, the
return was credited to the preferred limited partners. These limited partners
are also entitled to a preference in liquidation equal to their initial
contribution plus accumulated and unpaid return. Upon the occurrence of
certain events, the units may, at the option of the Company, be redeemed by
the Company for an amount equal to the then aggregate liquidation preference
amount. The units (and any accrued and unpaid return) may, at the option of
the holder, be converted into units of Class B limited partnership interest at
any time.
OPTION PLAN
Certain limited partners and key employees of the Company have the ability,
under certain conditions, as defined in the Management Option Plan (the
"Management Option Plan"), to exercise options to purchase partnership units.
These options vest at a rate of 20% per year, however, the scheduled vesting
rate of the options
F-15
<PAGE>
MUZAK LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1995 AND 1996
IS UNAUDITED.)
9. PARTNERS' CAPITAL, (CONTINUED)
will be delayed and exercise precluded, if the Company fails to meet certain
performance standards, similar to those described in Note 7.
Activity under this plan and option price information is as follows:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
OPTIONS PRICE
<S> <C> <C>
Balance, January 1, 1993............................... 1,704,545 $1.00
Options granted....................................... -- --
Options canceled...................................... (70,000) 1.00
--------- ------------
Balance, December 31, 1993............................. 1,634,545 1.00
Options granted....................................... 165,000 1.50 - 1.75
Options canceled...................................... (85,000) 1.00
--------- ------------
Balance, December 31, 1994............................. 1,714,545 1.00 - 1.75
Options granted....................................... 150,000 1.75
Options canceled...................................... (30,000) 1.00
--------- ------------
Balance, December 31, 1995............................. 1,834,545 1.00 - 1.75
--------- ------------
Options granted....................................... -- --
Options canceled...................................... -- --
--------- ------------
Balance, June 30, 1996................................. 1,834,545 $1.00 - 1.75
========= ============
</TABLE>
Non-cash compensation expense resulting from this plan, if any, will be
charged to operations over the periods subject to these conditions when
management determines that it is probable that these performance objectives
will occur. From the inception of the Management Option Plan through June 30,
1996, no options have become exercisable. As the possibility of obtaining the
required performance objectives has been deemed remote by management, no
compensation expense has been recorded.
PUT OPTION
After September 4, 1998, a general partner and certain of the Class A
limited partners can require the Company to purchase limited partnership units
held by them at fair market value. However, such right may not be exercised if
the purchase of units would have a material adverse effect on the Company or
would be in contravention of any then existing agreement to which the Company
is a party.
ALLOCATION OF PROFITS AND LOSSES
Losses are allocated among the general partners and Class A and B limited
partners based upon the total of the interests held by each individual,
including the Put/Call Units under option, as a percentage of the total of all
such interests.
10. SUBSEQUENT EVENTS:
JOINT VENTURE GUARANTEE
The Company and Alcas Holding B.V., 50/50 joint venture partners in Muzak
Europe B.V. ("Muzak Europe"), have agreed to make pro rata equity
contributions to Muzak Europe to the extent necessary to enable
F-16
<PAGE>
MUZAK LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1995 AND 1996
IS UNAUDITED.)
Muzak Europe to maintain minimum net worth requirements under its outstanding
credit facility. As of June 30, 1996, the amount outstanding under the credit
facility was $1.8 million.
PUBLIC OFFERING AND MUZAK CAPITAL CORPORATION
In May 1996, the Company organized Muzak Capital Corporation ("Capital
Corp.") (formerly Muzak, Inc.), a wholly-owned subsidiary of the Company. In
August 1996, the general and limited partners authorized a plan for the filing
of a registration statement for the underwritten public offering of the
Company's Senior Notes. In connection with this plan, Capital Corp. is being
utilized for the purpose of serving as a co-issuer of the Senior Notes in
order to facilitate the offering. The offering is expected to close in the
third quarter of 1996.
REPAYMENT OF CLASS C LIMITED PARTNER INTEREST
In conjunction with the Offering, the Company intends to use a portion of
the net proceeds therefrom to repurchase for approximately $7.5 million the
Company's Class C Limited Partner Interest with a recorded value of
approximately $10.4 million and will record a non-recurring gain of
approximately $3.0 million from the retirement of such interest at a discount.
F-17
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Muzak Capital Corporation
Seattle, Washington
We have audited the accompanying balance sheet of Muzak Capital Corporation
(the "Company") as of May 8, 1996. This financial statement is the
responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such financial statement presents fairly, in all material
respects, the financial position of Muzak Capital Corporation as of May 8,
1996 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Seattle, Washington
August 27, 1996
F-18
<PAGE>
MUZAK CAPITAL CORPORATION
BALANCE SHEET
AS OF INCEPTION MAY 8, 1996
<TABLE>
<S> <C>
ASSETS
Cash.................................................................. $ 1
====
STOCKHOLDER'S EQUITY
Preferred Stock--authorized 10,000,000 shares of $0.01 par value each;
no shares issued and outstanding..................................... $ --
Common Stock--authorized 30,000,000 shares of $0.01 par value each;
100 shares issued and outstanding.................................... 1
----
TOTAL............................................................... $ 1
====
</TABLE>
F-19
<PAGE>
NOTE TO FINANCIAL STATEMENT
Muzak Capital Corporation (the "Company") (formerly Muzak, Inc.), a wholly-
owned subsidiary of Muzak Limited Partnership ("MLP"), was formed on May 8,
1996. The Company intends, along with MLP, to file a registration statement
for the underwritten offering of senior notes of which the Company and MLP
will be co-issuers. The offering is expected to close in the third quarter of
1996.
F-20
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Comcast Corporation
Philadelphia, Pennsylvania
General and Limited Partners
Muzak Limited Partnership
Seattle, Washington
We have audited the accompanying consolidated statements of operations and
retained earnings and cash flows of Comcast Sound Communications, Inc. (a
wholly owned subsidiary of Comcast Corporation) and subsidiaries (the
"Company") for the year ended December 31, 1993. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of Comcast Sound Communications, Inc. and subsidiaries for the year
ended December 31, 1993 in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for postretirement benefits other than
pensions effective January 1, 1993, to conform with Statement of Financial
Accounting Standards No. 106.
As discussed in Note 5 to the consolidated financial statements, Comcast
Corporation provided financing, allocated management fees and costs, and
conducted certain other business transactions with the Company. The
accompanying consolidated financial statements may not necessarily be
indicative of the conditions that would have existed or the results of
operations if Comcast Sound Communications, Inc. and subsidiaries had been
unaffiliated with Comcast Corporation.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
February 10, 1994
F-21
<PAGE>
COMCAST SOUND COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<S> <C>
Revenues:
Music and other business services................................ $16,710,062
Equipment and related services................................... 9,410,707
-----------
Total revenue................................................... 26,120,769
Cost of revenues.................................................. 10,255,239
-----------
Gross profit.................................................... 15,865,530
Selling, general and administrative expenses...................... 12,338,877
Depreciation and amortization..................................... 3,078,293
-----------
Operating income................................................ 448,360
Interest expense.................................................. 443,201
Other income...................................................... (70,866)
-----------
Income before income taxes and cumulative effect of accounting
change......................................................... 76,025
Income taxes...................................................... (152,000)
-----------
Loss before cumulative effect of accounting change................ (75,975)
Cumulative effect of accounting change............................ (405,000)
-----------
Net loss........................................................ (480,975)
Retained earnings, beginning of year.............................. 9,060,949
-----------
Retained earnings, end of year.................................... $ 8,579,974
===========
</TABLE>
See notes to consolidated financial statements.
F-22
<PAGE>
COMCAST SOUND COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1993
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net loss......................................................... $ (480,975)
Noncash items included in net loss:
Cumulative effect of accounting change.......................... 405,000
Depreciation and amortization................................... 3,078,293
Deferred income taxes........................................... 242,000
----------
3,244,318
Adjustments to reconcile net income to net cash provided by oper-
ating activities:
Increase in accounts receivable, inventories, and prepaid
charges and other assets....................................... (1,515,717)
Increase in accounts payable and accrued expenses, state income
and other taxes,
and deferred revenue........................................... 327,118
----------
Net cash provided by operating activities....................... 2,055,719
----------
FINANCING ACTIVITIES
Repayment of long-term debt...................................... (11,929)
Proceeds from note payable....................................... 121,235
Net transactions with Comcast and affiliates..................... 1,668,899
----------
Net cash provided by financing activities....................... 1,778,205
----------
INVESTING ACTIVITIES
Additions to property and equipment.............................. (4,389,710)
Deferred charges and other....................................... (221,938)
----------
Net cash used in investing activities........................... (4,611,648)
----------
Net decrease in cash and cash equivalents....................... (777,724)
CASH AND CASH EQUIVALENTS, beginning of year....................... 1,397,347
----------
CASH AND CASH EQUIVALENTS, end of year............................. $ 619,623
==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid.................................................... $ 445,000
Income taxes paid................................................ 483,000
</TABLE>
See notes to consolidated financial statements.
F-23
<PAGE>
COMCAST SOUND COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Comcast Sound
Communications, Inc. and its subsidiaries (the "Company"). The Company
provides sound communication services in the following states: California,
Colorado, Connecticut, Florida, Illinois, Indiana, Michigan, New York,
Pennsylvania and Texas. All significant intercompany accounts and transactions
among the consolidated entities have been eliminated. Through January 31,
1994, the Company was a wholly owned subsidiary of Comcast Corporation
("Comcast") (See Note 6).
Cash and cash equivalents includes cash on deposit and overnight investments
at a financial institution.
Depreciation of property and equipment is provided by the straight-line
method over estimated useful lives of 3-25 years.
Deferred charges and other assets include contract acquisition costs and
non-compete covenants and are being amortized over estimated useful lives
ranging from 5-10 years.
Excess of costs over net assets acquired is being amortized over 40 years
except for costs arising prior to November 1, 1970 of approximately $441,000,
which are not being amortized.
Revenues from the sale, service and installation of equipment are recognized
at the time the customer receives the product or service. Revenue for audio
services to customers under five-year contracts is recognized over the
contract period when earned.
Effective January 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes" (see Note 2), and SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" (see Note 5).
2. INCOME TAXES
The Company joins with Comcast in filing a consolidated federal income tax
return. Effective January 1, 1993, Comcast and the Company adopted SFAS No.
109. SFAS No. 109 generally provides that deferred tax assets and liabilities
be recognized for temporary differences between the financial reporting basis
and the tax basis of the Company's assets and liabilities and expected
benefits utilizing net operating loss ("NOL") carryforwards. The impact on
deferred taxes of changes in tax rates and laws, if any, applied to the years
during which temporary differences are expected to be settled is reflected in
the financial statements in the period of enactment.
Pursuant to the deferred method under Accounting Principles Board Opinion
No. 11, "Accounting for Income Taxes," which was applied in 1992 and prior
years, deferred income taxes were recognized for income and expense items that
were reported in different years for financial reporting purposes and income
tax purposes using the tax rate applicable for the year of the calculation.
Under the deferred method, deferred taxes were not adjusted for subsequent
changes in tax rates.
In 1992 and prior years, under a tax sharing arrangement between the Company
and Comcast, income taxes were computed based upon book income and were
recorded as due to Comcast and affiliates. This tax sharing arrangement was
amended with the adoption of SFAS No. 109 to require the Company to pay to
Comcast taxes currently payable as if the Company was filing separate tax
returns.
F-24
<PAGE>
COMCAST SOUND COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has determined the amount of its deferred tax liability balance
at January 1, 1993, computed on a separate return basis, using Comcast's
effective tax rate, and has adjusted the due to Comcast and affiliate to
separately report this amount as a deferred tax liability, computed under SFAS
No. 109. The cumulative effect of adopting SFAS No. 109 is not material to the
Company's results of operations. Income tax expense consists of the following
components:
<TABLE>
<CAPTION>
1993
<S> <C>
Current expense (benefit):
Federal......................................................... $(174,000)
State........................................................... 84,000
---------
(90,000)
---------
Deferred expense:
Federal......................................................... 222,000
State........................................................... 20,000
---------
242,000
---------
Income tax expense............................................... $ 152,000
=========
The effective income tax expense of the Company differs from the statutory
amount because of the effect of the following items:
<CAPTION>
1993
<S> <C>
Federal tax at statutory rate ................................... $ 26,600
State income taxes, (net federal benefit)........................ 67,600
Increase in corporate federal income tax rate from 34% to 35%.... 43,000
Other............................................................ 14,800
---------
Income tax expense............................................... $ 152,000
=========
</TABLE>
3. COMMITMENTS
The Company and its subsidiaries lease office, warehouse and distribution
space and other equipment under various noncancellable operating leases.
Certain of the lease agreements contain renewal options.
At December 31, 1993, minimum annual commitments for rentals under
noncancellable leases are:
<TABLE>
<S> <C>
1994.............................................................. $1,066,779
1995.............................................................. 853,741
1996.............................................................. 651,311
1997.............................................................. 469,926
1998.............................................................. 303,615
Thereafter........................................................ 488,176
----------
$3,833,548
==========
</TABLE>
Rental expense (including amounts charged by Comcast) was approximately
$1,399,000 in 1993.
4. RELATED PARTY TRANSACTIONS
Management fees are charged by Comcast based on the Company's recurring and
nonrecurring revenues in 1993. Under these policies, management fees of
approximately $2,601,000 were charged to the Company and recorded in selling,
general and administrative expense in 1993. The 1993 management fee included
charges to
F-25
<PAGE>
COMCAST SOUND COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the Company of approximately $2,000,000 for salary continuation, closing
bonuses and legal fees associated with, but not contingent upon, the
subsequent sale of certain assets and liabilities of the Company (see Note 6).
The Company has entered into cost sharing arrangements with Comcast for
certain services, including insurance, rent and employee benefits. Under these
arrangements, the Company was charged approximately $1,682,000 in 1993.
The Company incurred $428,000 of interest expense related to a note payable
of $9,500,000, bearing an interest rate of 4.5%, to an affiliate (see Note 6).
See Note 2--Income Taxes.
See Note 3--Commitments
See Note 5--Postretirement Benefits Other than Pensions.
5. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Certain employees of the Company are participants in Comcast's
postretirement benefit plans other than pensions. Effective January 1, 1993,
the Company adopted SFAS No. 106. This statement requires the Company to
accrue the estimated cost of retiree benefits earned during the years the
employee provides services. The Company previously expensed the cost of these
benefits as claims were incurred.
The Company's allocation from Comcast for the cumulative effect as of
January 1, 1993 of the adoption of SFAS No. 106 was to increase the Company's
amount due to Comcast and affiliate by approximately $675,000 and net loss by
approximately $405,000 (net of tax). The effect of SFAS No. 106 on loss before
the cumulative effect of accounting change was not significant to the
Company's 1993 results of operations.
6. SUBSEQUENT EVENT
On January 31, 1994, Comcast sold substantially all of the Company's assets
and liabilities to Muzak Limited Partnership. In connection with this sale,
the Company's $9.5 million long-term debt payable to an affiliate of Comcast
has been forgiven.
F-26
<PAGE>
[CHART OMITTED]
[Chart omitted depicting schematic representation of the Company's five
different distribution technologies linked in the center by the Company's goal
of using such technologies to meet customers' various needs.]
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE ISSUERS OR ANY OF THE UNDERWRITERS. THIS PRO-
SPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF AN OFFER TO
BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION
WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE IN-
FORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 9
The Issuers.............................................................. 14
Use of Proceeds.......................................................... 14
Capitalization........................................................... 15
Unaudited Pro Forma Financial Information................................ 16
Selected Financial Data.................................................. 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 22
Business................................................................. 29
Management............................................................... 43
Certain Relationships and Related Transactions........................... 50
Security Ownership of Certain Beneficial Owners.......................... 51
Description of the Senior Notes.......................................... 52
Federal Income Tax Consequences.......................................... 76
Description of the Partnership Agreement................................. 78
Underwriting............................................................. 81
Legal Matters............................................................ 82
Experts.................................................................. 82
Available Information.................................................... 82
Index to Financial Statements............................................ F-1
</TABLE>
----------
UNTIL , 1996 (90 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING, ALL
DEALERS EFFECTING TRANSACTIONS IN THE SENIOR NOTES, WHETHER OR NOT PARTICIPAT-
ING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$100,000,000
MUZAK
MUZAK LIMITED PARTNERSHIP
MUZAK CAPITAL CORPORATION
% SENIOR NOTES DUE 2003
--------------
PROSPECTUS
--------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
LAZARD FRERES & CO. LLC
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the Registrants' estimated expenses in
connection with the issuance of the securities being registered, other than
underwriting discounts and commissions.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee........... $34,483
NASD Filing Fee............................................... 10,500
Printing and Engraving Expenses............................... *
Counsel Fees and Expenses..................................... *
Financial Advisory Fee........................................ *
Accountants' Fees and Expenses................................ *
Blue Sky Fees and Expenses.................................... *
Trustee Fees.................................................. *
Rating Agency Fees............................................ *
Miscellaneous................................................. *
-------
Total....................................................... $44,983
=======
</TABLE>
- ---------------------
* To be filed by amendment
All such fees and expenses have been or will be paid by the Registrants.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 17-108 of the Delaware Revised Uniform Limited Partnership Act
empowers a limited partnership to indemnify and hold harmless any partner or
other person from and against any and all claims and demands whatsoever.
The Third Amended and Restated Agreement of Limited Partnership of Muzak
Limited Partnership (the "Company"), dated as of November 4, 1994, as amended
(the "Partnership Agreement"), provides that the general partners of the
Company, their respective affiliates and all officers, partners, directors,
employees, stockholders and agents of the general partners and their
respective affiliates and all officers, agents and employees of the Company
who are partners of the Company, shall not be liable to the Company, to
limited partners or to any other person holding an interest in the Company for
any losses sustained or liabilities incurred, including monetary damages, as a
result of any act or omission of the general partners or any such other
person, if the conduct of the general partners or such other person did not
constitute fraud, willful misconduct or criminal conduct.
The Partnership Agreement also provides that the Company shall, to the
fullest extent permitted by law, indemnify and hold harmless the general
partners of the Company, their respective affiliates and the officers,
directors, employees and agents of the general partners and their respective
affiliates, from and against any and all liabilities and expenses which arise
by reason of any such person's management of the affairs of the Company or of
a general partner, or any such person's status as a general partner of the
Company or affiliate thereof, as a partner, director, officer, employee,
stockholder or agent thereof, or as a partner, director, officer, agent or
employee of the Company or a person serving at the request of such persons,
provided that such liability or expense is not the result of the fraud,
willful misconduct or criminal conduct of the indemnitee.
In the event of the filing of a public offering of securities of the Company
pursuant to a registration statement under the Securities Act, the Partnership
Agreement provides that the Company shall indemnify and hold harmless holders
of such securities participating in such registration, the directors,
officers, partners and controlling persons of such holders, and partners of
the Company for any liability which arises from such filing under the
Securities Act.
II-1
<PAGE>
Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL"), the law of the state in which Muzak Capital Corporation ("Capital
Corp.") is incorporated, empowers a corporation within certain limitations to
indemnify a director, officer, employee or agent of the corporation and
certain other persons serving at the request of the corporation in related
capacities against expenses, including attorneys' fees, judgments, fines and
amounts paid in settlement actually and reasonable incurred by him in
connection with any action, suit or proceeding to which he is or was
threatened to be a party (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the corporation or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, as long as
he acted in good faith and in a manner which he reasonably believed to be in,
or not opposed to, the best interests of the corporation. With respect to any
criminal proceeding, he must have had no reasonable cause to believe his
conduct was unlawful. No such indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery of the State of Delaware or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication of
liability but in view of all of the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court
of Chancery of the State of Delaware or such other court shall deem proper.
The Certificate of Incorporation of Capital Corp. provides that any person
may be indemnified against all expenses and liabilities to the fullest extent
permitted by the DGCL. The By-Laws of Capital Corp. allow Capital Corp. to
advance or reimburse litigation expenses upon submission by the director,
officer or employee of an undertaking to repay such advances or reimbursements
if it is ultimately determined that indemnification is not available to such
director, officer or employee and allow Capital Corp. to purchase and maintain
insurance for its directors and officers against liability asserted against
them in such capacity whether or not Capital Corp. would have the power to
indemnify them against such liability.
As permitted by Section 102 of the DGCL, the Certificate of Incorporation of
Capital Corp. provides that no director shall be liable to Capital Corp. or
its stockholders for monetary damages for breach of fiduciary duty as a
director other than (i) for breaches of the director's duty of loyalty to
Capital Corp. or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) for the unlawful payment of dividends or unlawful stock purchases or
redemptions under Section 174 of the DGCL and (iv) for any transaction from
which the director derived an improper personal benefit.
The Underwriting Agreement being filed as Exhibit 1 hereto provides for
indemnification of directors and officers of the Registrants under certain
circumstances, including for liabilities under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In connection with the closing of the acquisition of the franchises of
Comcast Sound Communications, Inc. ("Comcast"), on January 31, 1994, the
Registrant issued a $5.0 million 7% preferred limited partnership interest of
the Partnership to Comcast. This transaction was exempt from registration
under Section 4(2) of the Securities Act as not involving a public offering.
No underwriter was involved in the transaction.
In November 1994, the Registrant amended its senior credit facility whereby
the Company's $10.0 million loan from Union Bank of Switzerland, New York
Branch, was repaid in full with proceeds from a subordinated financing
involving the sale of $7.0 million additional preferred partnership interests
to certain existing investors, identified below, with a pledge of the limited
partnership interests to the lenders under the senior credit facility and an
increase in the number of units subject to the option agreement of Barclays
Bank PLC, New York Branch. This transaction was exempt from registration under
Section 4(2) of the Securities Act as not involving a public offering. No
underwriter was involved in the transaction. The purchasers of the preferred
partnership interests were MLP Holdings L.P., MLP Acquisition L.P., UBS
Capital Corp., Barclays Bank PLC, John A. Hawkins, John R. Jester, James F.
Harrison, Thomas J. Gentry, Jack D. Craig, Richard Chaffe, Bruce B.
Funkhouser, L. Dale Stewart, Dino J. DeRose, J. Gary Henderson and Susan P.
Chetwin.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following documents are filed as part of this Registration Statement:
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
<C> <S>
1 --Form of Underwriting Agreement
** 3.1 --Certificate of Incorporation of Capital Corp.
** 3.2 --By-Laws of Capital Corp.
* 3.3 --Certificate of Amendment to the Certificate of Incorporation of
Capital Corp.
* 3.4 --Third Amended and Restated Agreement of Limited Certificate of
Limited Partnership of Muzak Limited Partnership (formerly, MLP
Operating, L.P.), dated as of November 4, 1994, as amended
3.5 --Amendment to Third Amended and Restated Partnership Agreement of
Muzak Limited Partnership, dated as of April 13, 1996
4.1 --Form of Indenture, dated as of , 1996, among the Registrants
and , as trustee, in respect of the Registrants' % Senior Notes
due 2003
4.2 --Form of Senior Note (included in the form of Indenture to be filed
as Exhibit 4.2 to this Registration Statement)
* 5 --Opinion of Weil, Gotshal & Manges LLP
**10.1 --Asset Purchase Agreement dated as of March 11, 1992, among Muzak
Limited Partnership, Field/Muzak Inc., The Field Corporation and MLP
Operating, L.P., as amended by Muzak Limited Partnership's letters
dated April 22, 1992, August 6, 1992 and August 20, 1992, Amendment
No. 1 dated as of June 26, 1992, Amendment No. 2, dated July 31,
1992 and Amendment No. 3, dated as of August 26, 1992
**10.2 --Asset Purchase Agreement and Contribution Agreement dated as of
November 24, 1993 among Comcast Corporation, et al. and Muzak
Limited Partnership
**10.3 --Amended and Restated Credit Agreement dated as of September 4,
1992, as amended as of October 22, 1992 and as of December 15, 1993;
and as amended and restated as of January 31, 1994 among Muzak
Limited Partnership, Union Bank of Switzerland, New York Branch,
Internationale Nederlanden (U.S.) Capital Corporation and the other
Lenders parties thereto and Union Bank of Switzerland, New York
Branch, as Agent; as amended by Waiver and Agreement dated as of
February 10, 1994; Waiver and Amendment No. 1 dated as of October
31, 1994; Waiver and Amendment No. 2 dated as of November 2, 1994;
Amendment No. 3 and Consent dated as of November 4, 1994; Amendment
No. 4 to Amended and Restated Credit Agreement dated as of November
17, 1994; Waiver dated January 10, 1995; Waiver dated as of July 31,
1995; Amendment No. 5 to Amended and Restated Credit Agreement dated
as of November 7, 1995; and Waiver dated as of April 1, 1996
**10.4 --Amended and Restated Term Notes issued as of September 4, 1992,
amended and restated as of January 31, 1994
**10.5 --Subordinated Loan Agreement dated as of September 4, 1992, as
amended, between Muzak Limited Partnership and Barclays Bank PLC,
New York Branch
**10.6 --Option Agreement dated as of September 4, 1992 between Muzak
Limited Partnership and Barclays Bank PLC, New York Branch
**+10.7 --Uplink Facility Agreement dated as of December 28, 1995 between
EchoStar Satellite Corporation and Muzak Limited Partnership
**+10.8 --DBS Programming Affiliation Agreement dated as of December 28, 1995
between EchoStar Satellite Corporation and Muzak Limited Partnership
**+10.9 --Video Programming Sales Agent Agreement dated as of December 28,
1995 between EchoStar Satellite Corporation and Muzak Limited
Partnership
**+10.10 --Form of Muzak(R) Participating Affiliate Agreement
**10.11 --Third and Broad Office Lease dated June 8, 1994, between Martin
Selig and Muzak Limited Partnership
**10.12 --ASCAP License
**10.13 --Joint Venture Agreement dated August 2, 1995 between Muzak Limited
Partnership and Alcas Holdings B.V.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
<C> <S>
**10.14 --Muzak(R) Master Affiliate Agreement (Mexico) dated March 1, 1992
between Muzak Limited Partnership and Audioplan S.A.
**10.15 --Muzak(R) Master Affiliate Agreement (Canada) dated August 30, 1990
between Muzak Limited Partnership and Chum Limited, as amended--Form
of Underwriting Agreement
**10.16 --FCC Licenses
**10.17 --Form of License Agreement (New Franchise Agreement), as amended
**10.18 --Form of Music Services Agreement
**10.19 --Form of Multi-Territory Account Service Agreement
**10.20 --Form of Sales of Adjunct Services and Form of Muzak Adjunct
Services Subscriber Agreement
**+10.21 --Transponder Lease Agreement dated December 9, 1993 between
Microspace Communications Corporation and Muzak Limited Partnership
**+10.22 --Transmission Lease Agreement dated January 31, 1995 between
Microspace Communications Corporation and Muzak Limited Partnership
**+10.23 --Transponder Lease Agreement dated January 31, 1995 between
Microspace Communications Corporation and Muzak Limited Partnership
**+10.24 --Transponder Lease Agreement dated April 27, 1995 between Microspace
Communications Corporation and Muzak Limited Partnership
**+10.25 --Transponder Lease Agreement dated July 5, 1995 between Microspace
Communications Corporation and Muzak Limited Partnership
**+10.26 --Transponder Lease Agreement dated April 29, 1996 between Microspace
Communications Corporation and Muzak Limited Partnership
**+10.27 --Agreement to Provide Telecommunications Service dated August 8 and
9, 1995 between Keystone Communications Corporation and Muzak
Limited Partnership
**+10.28 --Sales Agreement and License dated September 28, 1995 between
Mainstream Data, Inc. and Muzak Limited Partnership
**10.29 --Muzak Limited Partnership Tempo Savings and Retirement Plan
**10.30 --Muzak Limited Partnership Tempo Savings and Retirement Trust
**10.31 --Muzak Limited Partnership Management Incentive Plan
**10.32 --Muzak Limited Partnership Management Option Plan
**10.35 --Employment Agreement dated August 31, 1992 of John R. Jester
**10.36 --Employment Agreement dated August 31, 1992 of James F. Harrison
**10.37 --Employment Letter dated July 7, 1995 of Kirk A. Collamer
*10.38 --Amended and Restated Management Option Plan
**12 --Statement of Computations of Ratios of Earnings to Fixed Charges
**21 --List of Subsidiaries of the Registrants
23.1 --Consent of Deloitte & Touche LLP and Report on Financial Statement
Schedule of Muzak Limited Partnership
23.2 --Consent of Deloitte & Touche LLP
23.3 --Consent of Deloitte & Touche LLP
*23.4 --Consent of Weil, Gotshal & Manges LLP (included in Exhibit 5)
**24 --Power of Attorney (included on the signature page to this
Registration Statement)
*25 --Statement of Eligibility and Qualification of , as Trustee, on
Form T-1 with respect to the % Senior Notes due 2003.
**27 --Financial Data Schedules
</TABLE>
- ---------------------
* To be filed by amendment
** Previously filed
+ Confidential treatment requested
II-4
<PAGE>
<TABLE>
<C> <S>
(b) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts and Reserves
</TABLE>
All other Schedules have been omitted because the information is not
applicable or is presented in the financial statements or the notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrants hereby undertake to file an application for the
purpose of determining the eligibility of the trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under Section 305(b)(2) of the Act.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the Registrants under the General Corporation Law of
the State of Delaware or under the Delaware Revised Uniform Limited
Partnership Act or pursuant to Capital Corp.'s Certificate of Incorporation or
By-Laws or the Company's Partnership Agreement, or otherwise, the Registrants
have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrants in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrants will, unless
in the opinion of their counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrants hereby undertake that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrants pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrants
have duly caused this Registration Statement to be signed on their behalf by
the undersigned, thereunto duly authorized, in the City of Seattle, State of
Washington, on September 16, 1996.
MUZAK LIMITED PARTNERSHIP
(Registrant)
MLP Acquisition L.P.,
By __________________________________
Managing General Partner
Music Holdings Corp.,
By __________________________________
General Partner
/s/ John R. Jester
By __________________________________
John R. Jester
President
MUZAK CAPITAL CORPORATION
(Registrant)
/s/ John R. Jester
By __________________________________
John R. Jester
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURES TITLE DATE
/s/ John R. Jester President and Chief
_____________________________________ Executive Officer September 16,
JOHN R. JESTER (Principal Executive 1996
Officer) of the Company
and Capital Corp. and
Director of Music
Holdings and Capital
Corp.
/s/ Kirk A. Collamer Vice President and Chief
_____________________________________ Financial Officer September 16,
KIRK A. COLLAMER (Principal Financial 1996
Officer and Principal
Accounting Officer) of
the Company and Capital
Corp.
* Director of Music
_____________________________________ Holdings and Capital September 16,
BRUCE G. POLLACK Corp. 1996
* Director of Music
_____________________________________ Holdings and Capital September 16,
PAUL F. BALSER Corp. 1996
II-6
<PAGE>
* Director of Music
____________________________________ Holdings and Capital September 16,
MARK E. JENNINGS Corp. 1996
* Director of Music September 16,
Holdings and Capital 1996
________________________________ Corp.
WILLIAM A. BOYD
/s/ Kirk A. Collamer
By__________________________________
Kirk A. Collamer Attorney-in-fact
II-7
<PAGE>
MUZAK LIMITED PARTNERSHIP
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
SCHEDULE II (REG 210.12-09)
<TABLE>
<CAPTION>
ADDITIONS
--------------------- DEDUCTIONS,
BALANCE AT CHARGED TO CHARGED TO WRITE-OFFS, BALANCE
BEGINNING COSTS AND OTHER NET OF AT END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS RECOVERIES PERIOD
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1995
Allowance for Doubtful
Accounts............... $736,000 $810,000 $(914,000) $632,000
======== ======== ========= ========
YEAR ENDED DECEMBER 31,
1994
Allowance for Doubtful
Accounts............... $558,000 $610,000 $359,000(a) $(791,000) $736,000
======== ======== ======== ========= ========
YEAR ENDED DECEMBER 31,
1993
Allowance for Doubtful
Accounts............... $648,000 $464,000 $(554,000) $558,000
======== ======== ========= ========
</TABLE>
- ---------------------
(a) Comcast Sound Communications, Inc. acquisition as of January 31, 1994.
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
<C> <S> <C>
1 --Form of Underwriting Agreement
** 3.1 --Certificate of Incorporation of Capital Corp.
** 3.2 --By-Laws of Capital Corp.
* 3.3 --Certificate of Amendment to the Certificate of Incorporation
of Capital Corp.
* 3.4 --Third Amended Restated Agreement of Limited Partnership of
Muzak Limited Partnership (formerly, MLP Operating, L.P.),
dated as of November 4, 1994, as amended.
3.5 --Amendment to Third Amended and Restated Agreement of Limited
Partnership of Muzak Limited Partnership, dated as of April
13, 1996
4.1 --Form of Indenture, dated as of , 1996, among the
Registrant and , as trustee, in respect of the Registrants'
% Senior Notes due 2003.
4.2 --Form of Senior Note (included in the form of Indenture to be
filed as Exhibit 4.2 to this Registration Statement)
* 5 --Opinion of Weil, Gotshal & Manges LLP
**10.1 --Asset Purchase Agreement dated as of March 11, 1992, among
Muzak Limited Partnership, Field/Muzak Inc., The Field
Corporation and MLP Operating, L.P., as amended by Muzak
Limited Partnership's letters dated April 22, 1992, August 6,
1992 and August 20, 1992, Amendment No. 1 dated as of June 26,
1992, Amendment No. 2, dated July 31, 1992 and Amendment No.
3, dated as of August 26, 1992
**10.2 --Asset Purchase Agreement and Contribution Agreement dated as
of November 24, 1993 among Comcast Corporation, et al. and
Muzak Limited Partnership
**10.3 --Amended and Restated Credit Agreement dated as of September
4, 1992, as amended as of October 22, 1992 and as of December
15, 1993; and as amended and restated as of January 31, 1994
among Muzak Limited Partnership, Union Bank of Switzerland,
New York Branch, Internationale Nederlanden (U.S.) Capital
Corporation and the other Lenders parties thereto and Union
Bank of Switzerland, New York Branch, as Agent; as amended by
Waiver and Agreement dated as of February 10, 1994; Waiver and
Amendment No. 1 dated as of October 31, 1994; Waiver and
Amendment No. 2 dated as of November 2, 1994; Amendment No. 3
and Consent dated as of November 4, 1994; Amendment No. 4 to
Amended and Restated Credit Agreement dated as of November 17,
1994; Waiver dated January 10, 1995; Waiver dated as of July
31, 1995; Amendment No. 5 to Amended and Restated Credit
Agreement dated as of November 7, 1995; and Waiver dated as of
April 1, 1996
**10.4 --Amended and Restated Term Notes issued as of September 4,
1992, amended and restated as of January 31, 1994
**10.5 --Subordinated Loan Agreement dated as of September 4, 1992, as
amended, between Muzak Limited Partnership and Barclays Bank
PLC, New York Branch
**10.6 --Option Agreement dated as of September 4, 1992 between Muzak
Limited Partnership and Barclays Bank PLC, New York Branch
**+10.7 --Uplink Facility Agreement dated as of December 28, 1995
between EchoStar Satellite Corporation and Muzak Limited
Partnership
**+10.8 --DBS Programming Affiliation Agreement dated as of December
28, 1995 between EchoStar Satellite Corporation and Muzak
Limited Partnership
**+10.9 --Video Programming Sales Agent Agreement dated as of December
28, 1995 between EchoStar Satellite Corporation and Muzak
Limited Partnership
**+10.10 --Form of Muzak(R) Participating Affiliate Agreement
**10.11 --Third and Broad Office Lease dated June 8, 1994, between
Martin Selig and Muzak Limited Partnership
**10.12 --ASCAP License
**10.13 --Joint Venture Agreement dated August 2, 1995 between Muzak
Limited Partnership and Alcas Holdings B.V.
**10.14 --Muzak(R) Master Affiliate Agreement (Mexico) dated March 1,
1992 between Muzak Limited Partnership and Audioplan S.A.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
<C> <S> <C>
**10.15 --Muzak(R) Master Affiliate Agreement (Canada) dated August 30,
1990 between Muzak Limited Partnership and Chum Limited, as
amended--Form of Underwriting Agreement
**10.16 --FCC Licenses
**10.17 --Form of License Agreement (New Franchise Agreement), as
amended
**10.18 --Form of Music Services Agreement
**10.19 --Form of Multi-Territory Account Service Agreement
**10.20 --Form of Sales of Adjunct Services and Form of Muzak Adjunct
Services Subscriber Agreement
**+10.21 --Transponder Lease Agreement dated December 9, 1993 between
Microspace Communications Corporation and Muzak Limited
Partnership
**+10.22 --Transmission Lease Agreement dated January 31, 1995 between
Microspace Communications Corporation and Muzak Limited
Partnership
**+10.23 --Transponder Lease Agreement dated January 31, 1995 between
Microspace Communications Corporation and Muzak Limited
Partnership
**+10.24 --Transponder Lease Agreement dated April 27, 1995 between
Microspace Communications Corporation and Muzak Limited
Partnership
**+10.25 --Transponder Lease Agreement dated July 5, 1995 between
Microspace Communications Corporation and Muzak Limited
Partnership
**+10.26 --Transponder Lease Agreement dated April 29, 1996 between
Microspace Communications Corporation and Muzak Limited
Partnership
**+10.27 --Agreement to Provide Telecommunications Service dated August
8 and 9, 1995 between Keystone Communications Corporation and
Muzak Limited Partnership
**+10.28 --Sales Agreement and License dated September 28, 1995 between
Mainstream Data, Inc. and Muzak Limited Partnership
**10.29 --Muzak Limited Partnership Tempo Savings and Retirement Plan
**10.30 --Muzak Limited Partnership Tempo Savings and Retirement Trust
**10.31 --Muzak Limited Partnership Management Incentive Plan
**10.32 --Muzak Limited Partnership Management Option Plan
**10.35 --Employment Agreement dated August 31, 1992 of John R. Jester
**10.36 --Employment Agreement dated August 31, 1992 of James F.
Harrison
**10.37 --Employment Letter dated July 7, 1995 of Kirk A. Collamer
*10.38 --Amended and Restated Management Option Plan
**12 --Statement of Computations of Ratios of Earnings to Fixed
Charges
**21 --List of Subsidiaries of the Registrants
23.1 --Consent of Deloitte & Touche LLP and Report on Financial
Statement Schedule of Muzak Limited Partnership
23.2 --Consent of Deloitte & Touche LLP
23.3 --Consent of Deloitte & Touche LLP
*23.4 --Consent of Weil, Gotshal & Manges LLP (included in Exhibit 5)
**24 --Power of Attorney (included on the signature page to this
Registration Statement)
*25 --Statement of Eligibility and Qualification of , as
Trustee, on Form T-1 with respect to the % Senior Notes due
2003
**27 --Financial Data Schedules
</TABLE>
- -------------------
* To be filed by amendment
** Previously filed
+ Confidential treatment requested
<PAGE>
L&W DRAFT 9/11/96
================================================================================
Muzak Limited Partnership
Muzak Capital Corporation
$100,000,000
Aggregate Principal Amount
of ___% Senior Notes due 2003
UNDERWRITING AGREEMENT
Dated as of _____________, 1996
Donaldson, Lufkin & Jenrette
Securities Corporation
Lazard Freres & Co. LLC
================================================================================
<PAGE>
______________, 1996
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
LAZARD FRERES & CO. LLC
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
Ladies and Gentlemen:
Muzak Limited Partnership, a Delaware limited partnership (the
"Company"), and Muzak Capital Corporation, a Delaware corporation ("Capital
Corp." and together with the Company, the "Issuers"), proposes to issue and sell
$100,000,000 aggregate principal amount of ___% Senior Notes due 2003 (the
"Senior Notes") to Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"),
and Lazard Freres & Co. LLC ("Lazard" and, together with DLJ, the
"Underwriters"). The Senior Notes are to be issued pursuant to the provisions
of an Indenture, dated as of ______________, 1996 (the "Indenture"), among the
Issuers and ______________, as trustee (the "Trustee"). This Agreement, the
Indenture and the Senior Notes are hereinafter referred to as the "Operative
Documents."
1. REGISTRATION STATEMENT AND PROSPECTUS. The Issuers have prepared
and filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"Securities Act"), a registration statement on Form S-1 (Nos. 333-03741 and 333-
03741-01) including a prospectus relating to the Senior Notes, which may be
amended. The registration statement, as amended at the time it becomes
effective, including a registration statement, if any, filed pursuant to Rule
462(b) under the Securities Act increasing the size of the offering registered
under the Securities Act, or, if a post-effective amendment is filed with
respect thereto, as amended by such post-effective amendment at the time of its
effectiveness, including, in each case, all documents incorporated by reference
therein, all financial statements and exhibits thereto, and the information (if
any) contained in a prospectus subsequently filed with the Commission pursuant
to Rule 424(b) under the Securities Act and deemed to be a part of the
registration statement at the time of its effectiveness pursuant to Rule 430A
under the Securities Act, is hereinafter referred to as the "Registration
Statement;" and the prospectus in the form first used to confirm sales of the
Senior Notes, whether or not filed with the Commission pursuant to Rule 424(b)
under the Securities Act, including all documents incorporated by reference
therein, is hereinafter referred to as the "Prospectus."
2. AGREEMENTS TO SELL AND PURCHASE. The Issuers agree to issue and
sell to the Underwriters, and, on the basis of the representations and
warranties contained in this Agreement, and subject to its terms and conditions,
each Underwriter agrees, severally and not jointly, to purchase from the Issuers
the principal amount of Senior Notes set forth opposite the name of such
Underwriter on Schedule I hereto, on the Closing Date (as defined herein), at
____% of the principal amount thereof (the "Purchase Price") plus accrued
interest thereon, if any, from _____________, 1996 to the date of payment and
delivery.
1
<PAGE>
The Issuers hereby confirm their engagement of DLJ as, and DLJ hereby
confirms its agreement with the Company to render services as, a "qualified
independent underwriter" within the meaning of Section (b)(15) of Rule 2720 of
the Conduct Rules of the National Association of Securities Dealers, Inc. (the
"NASD") with respect to the offering and sale of the Senior Notes. DLJ, solely
in its capacity as qualified independent underwriter and not otherwise, is
referred to herein as the "QIU." As compensation for the services of the QIU
hereunder, the Company agrees to pay the QIU $5,000 on the Closing Date. The
yield of the Senior Notes shall not be lower than the minimum yield recommended
by DLJ acting as QIU.
3. TERMS OF PUBLIC OFFERING. The Underwriters have advised the Issuers
that the Underwriters propose (a) to make a public offering of their respective
portions of the Senior Notes as soon after the effective date of the
Registration Statement as in the Underwriters' judgment is advisable and (b)
initially to offer the Senior Notes upon the terms set forth in the Prospectus.
4. DELIVERY AND PAYMENT. Delivery to the Underwriters of and payment
for the Senior Notes shall be made at 10:00 A.M., New York City time, on the
third or fourth business day, unless otherwise permitted by the Commission
pursuant to Rule 15c6-1 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")(the "Closing Date"), following the date of the initial
public offering at the offices of Latham & Watkins, 885 Third Avenue, New York,
New York 10022, or such other time or place as the Underwriters and the Issuers
shall designate.
Certificates for the Senior Notes shall be registered in such names and
issued in such denominations as the Underwriters shall request in writing not
later than two full business days prior to the Closing Date. Such certificates
shall be made available to the Underwriters for inspection at the offices of DLJ
(or at such other place as shall be acceptable to the Underwriters) not later
than 9:30 A.M., New York City time, on the business day next preceding the
Closing Date. Certificates in definitive form evidencing the Senior Notes shall
be delivered to the Underwriters on the Closing Date, with any transfer taxes
thereon duly paid by the Issuers, for the respective accounts of the several
Underwriters, against payment of the Purchase Price therefor by wire or
certified or official bank checks payable in New York Clearing House/Federal
funds to the order of the Issuers.
5. AGREEMENTS OF THE ISSUERS. The Issuers hereby, jointly and
severally, agree with the Underwriters:
(a) To use their best efforts to cause the Registration Statement to
become effective at the earliest possible time.
(b) To advise the Underwriters promptly and, if requested by the
Underwriters, to confirm such advice in writing, (i) when the Registration
Statement has become effective and when any post-effective amendment to it
becomes effective, (ii) of any request by the Commission for amendments to the
Registration Statement or amendments or supplements to the Prospectus or for
additional information, (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or of the
suspension of qualification of the Senior Notes for offering or sale in any
jurisdiction, or the initiation of any proceeding for such purposes, and (iv) of
the happening of any event during the period referred to in paragraph (e) below
which makes any statement of a material fact made in the Registration Statement
or the Prospectus untrue or which requires the making of any additions to or
changes in the Registration Statement or the Prospectus in order to make the
statements therein not misleading. If at any time the Commission shall issue
any stop order suspending the
2
<PAGE>
effectiveness of the Registration Statement, the Issuers shall make every
reasonable effort to obtain the withdrawal or lifting of such order at the
earliest possible time.
(c) To furnish to the Underwriters, without charge, three signed copies
of the Registration Statement as first filed with the Commission and of each
amendment to it, including all exhibits, and to furnish to each Underwriter such
number of conformed copies of the Registration Statement as so filed and of each
amendment to it, without exhibits, as such Underwriter may reasonably request.
(d) Not to file any amendment or supplement to the Registration
Statement, whether before or after the time when it becomes effective, or to
make any amendment or supplement to the Prospectus of which the Underwriters
shall not previously have been advised or to which the Underwriters shall
reasonably object; and to prepare and file with the Commission, promptly upon
the Underwriters' reasonable request, any amendment to the Registration
Statement or supplement to the Prospectus that may be necessary or advisable in
connection with the distribution of the Senior Notes by the Underwriters, and to
use their best efforts to cause the same to become promptly effective.
(e) Promptly after the Registration Statement becomes effective, and from
time to time thereafter for such period as, in the opinion of counsel for the
Underwriters, a prospectus is required by law to be delivered in connection with
sales by an Underwriter or a dealer, to furnish to the Underwriters and each
dealer as many copies of the Prospectus (and of any amendment or supplement to
the Prospectus) as such Underwriter or dealers may reasonably request.
(f) If, during the period specified in paragraph (e), any event shall
occur as a result of which, in the opinion of counsel for the Underwriters, it
becomes necessary to amend or supplement the Prospectus in order to make the
statements therein, in the light of the circumstances when the Prospectus is
delivered to a purchaser, not misleading, or if it is necessary to amend or
supplement the Prospectus to comply with any law, forthwith to prepare and file
with the Commission an appropriate amendment or supplement to the Prospectus so
that the statements in the Prospectus, as so amended or supplemented, will not,
in the light of the circumstances when it is so delivered, be misleading, or so
that the Prospectus will comply with applicable law, and to furnish to the
Underwriters and to such dealers as the Underwriters shall specify such number
of copies thereof as the Underwriters or such dealers may reasonably request.
(g) Prior to any public offering of the Senior Notes, to cooperate with
the Underwriters and counsel for the Underwriters in connection with the
registration or qualification of the Senior Notes for offer and sale by the
several Underwriters and by dealers under the state securities or Blue Sky laws
of such jurisdictions as the Underwriters may request, to continue such
qualification in effect so long as required for distribution of the Senior Notes
and to file such consents to service of process or other documents as may be
necessary in order to effect such registration or qualification.
(h) To mail and make generally available to their security holders as
soon as reasonably practicable an earnings statement covering a period of at
least twelve months after the effective date of the Registration Statement (but
in no event commencing later than 90 days after such date) which shall satisfy
the provisions of Section 11(a) of the Securities Act, and to advise the
Underwriters in writing when such statement has been so made available.
(i) During the period of five years after the date of this Agreement, (i)
to mail as soon as reasonably practicable after the end of each fiscal year to
the record holders of its Senior Notes a financial report of the Company and its
subsidiaries on a consolidated basis (and a similar financial report
3
<PAGE>
of all unconsolidated subsidiaries, if any), all such financial reports to
include a consolidated balance sheet, a consolidated statement of operations, a
consolidated statement of cash flows and a consolidated statement of
shareholders' equity as of the end of and for such fiscal year, together with
comparable information as of the end of and for the preceding year, certified by
independent certified public accountants, and (ii) to mail and make generally
available as soon as practicable after the end of each quarterly period (except
for the last quarterly period of each fiscal year) to such holders, a
consolidated balance sheet, a consolidated statement of operations and a
consolidated statement of cash flows (and similar financial reports of all
unconsolidated subsidiaries, if any) as of the end of and for such period, and
for the period from the beginning of such year to the close of such quarterly
period, together with comparable information for the corresponding periods of
the preceding year.
(j) During the period referred to in paragraph (i), to furnish to the
Underwriters as soon as available a copy of each report or other publicly
available information of the Issuers mailed to the security holders of the
Issuers or filed with the Commission and such other publicly available
information concerning the Company and its subsidiaries as the Underwriters may
reasonably request.
(k) Whether or not the transactions contemplated by this Agreement are
consummated or this Agreement becomes effective or is terminated, to pay all
costs, expenses, fees and taxes incident to and in connection with (i) the
preparation, printing, filing and distribution under the Securities Act of the
Registration Statement (including financial statements and exhibits), each
preliminary prospectus and all amendments and supplements to any of them prior
to or during the period specified in paragraph (e) above, (ii) the printing and
delivery of the Prospectus and all amendments or supplements to it during the
period specified in paragraph (e) above, (iii) the printing and delivery of the
Operative Documents and all other agreements, memoranda, correspondence and
other documents printed and delivered in connection with the offering of the
Senior Notes (including, in each case, any disbursements of counsel for the
Underwriters relating to such printing and delivery), (iv) the preparation of
certificates for the Senior Notes (including, without limitation, printing and
engraving thereof), (v) the issuance and delivery of the Senior Notes, (vi) the
registration or qualification of the Senior Notes for offer and sale under the
securities or Blue Sky laws of the several states (including, in each case,
without limitation, the fees and disbursements of counsel for the Underwriters
relating to such registration or qualification and memoranda relating thereto),
(vii) filings and clearance with the NASD in connection with the offering,
(viii) furnishing such copies of the Registration Statement, the Prospectus and
all amendments and supplements thereto as may be requested for use in connection
with the offering or sale of the Senior Notes by the Underwriters or by dealers
to whom Senior Notes may be sold, (ix) the fees, disbursements and expenses of
the Issuers' counsel and accountants, (x) all fees and expenses (including fees
and expenses of counsel) of the Issuers in connection with approval of the
Senior Notes by The Depository Trust Company for "book-entry" transfer, (xi) the
reasonable fees and expenses of the Trustee in connection with the Indenture and
the Senior Notes, (xii) the payment of a fee of $5,000 and the reimbursement of
any expenses (including attorneys' fees) of the QIU and (xiii) the performance
by the Issuers of their other obligations under this Agreement.
(l) During the period beginning on the date hereof and continuing to and
including the Closing Date, not to sell, offer for sale, contract to sell, or
otherwise dispose of any debt securities of the Issuers or warrants to purchase
debt securities of the Issuers substantially similar to the Senior Notes (other
than (i) the Senior Notes and (ii) commercial paper issued in the ordinary
course of business), without the prior written consent of DLJ.
(m) Not to claim voluntarily, and to resist actively any attempts to
claim, the benefit of any usury laws against the holders of the Senior Notes.
4
<PAGE>
(n) To apply the net proceeds from the sale of the Senior Notes to be
sold hereunder for the purposes set forth in the Registration Statement and the
Prospectus (and any supplements or amendments thereto).
(o) To use their best efforts to do and perform all things required or
necessary to be done and performed under this Agreement by the Issuers prior to
the Closing Date and to satisfy all conditions precedent to the delivery of the
Senior Notes.
6. REPRESENTATIONS AND WARRANTIES OF THE ISSUERS. The Issuers hereby,
jointly and severally, represent and warrant to the Underwriters that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect, and no
proceedings for such purpose are pending before or threatened by the Commission.
(b)(i) Each part of the Registration Statement, when such part became
effective, did not contain, and each such part, as amended or supplemented, if
applicable, will not contain, any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) the Registration Statement and the
Prospectus comply and, as amended or supplemented, if applicable, will comply in
all material respects with the Securities Act and (iii) the Prospectus does not
contain and, as amended or supplemented, if applicable, will not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, except that the representations and warranties
set forth in this paragraph (b) shall not apply to statements or omissions in
the Registration Statement or the Prospectus based upon information relating to
any Underwriter furnished to the Issuers in writing by such Underwriter
expressly for use therein.
(c) Each preliminary prospectus filed as part of the Registration
Statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Securities Act, and each registration statement
filed pursuant to Rule 462(b) under the Securities Act, if any, complied when so
filed in all material respects with the Securities Act; and did not contain an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
(d) The Company has been duly organized, is validly existing as a limited
partnership in good standing under the laws of its jurisdiction of organization,
and has the partnership power and authority to carry on its business as it is
currently being conducted and to own, lease and operate its properties, and is
duly qualified and is in good standing as a foreign limited partnership
authorized to do business in each jurisdiction in which the nature of its
business or its ownership or leasing of property requires such qualification,
except where the failure to be so qualified would not have a material adverse
effect on the assets, properties, business, results of operations, condition
(financial or other), or business prospects of the Company and its subsidiaries
(a "Material Adverse Effect"). The Company has no subsidiaries, other than
Capital Corp.
(e) Capital Corp. has been duly incorporated, is validly existing as a
corporation in good standing under the laws of its jurisdiction of
incorporation, and has the corporate power and authority to carry on its
business as it is currently being conducted and to own, lease and operate its
properties, and is duly qualified and is in good standing as a foreign
corporation authorized to do business in each jurisdiction in which the nature
of its business or its ownership or leasing of property requires such
5
<PAGE>
qualification, except where the failure to be so qualified would not have a
Material Adverse Effect. Capital Corp. has no subsidiaries.
(f) All of the outstanding shares of capital stock of, or other ownership
interests in, each of the Company's subsidiaries have been duly authorized and
validly issued and are fully paid and non-assessable, and are owned by the
Company, free and clear of any security interest, claim, lien, encumbrance or
adverse interest of any nature.
(g) Each of the Issuers have all requisite partnership or corporate power
and authority, as the case may be, to execute, deliver and perform its
obligations under the Operative Documents to which it is or will be a party and
to consummate the transactions contemplated hereby and thereby, including,
without limitation, the partnership or corporate power and authority, as the
case may be, to issue, sell and deliver the Senior Notes as provided herein and
therein.
(h) This Agreement has been duly authorized and validly executed by each
of the Issuers and (assuming the due execution and delivery hereof by the
Underwriters) is the legally valid and binding agreement of such Issuer,
enforceable against such Issuer in accordance with its terms, except as the
enforceability thereof may be limited (i) by the effect of bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium or other similar
laws now or hereafter in effect relating to or affecting the rights and remedies
of creditors, (ii) by the effect of general principles of equity, whether
enforcement is considered in a proceeding in equity or at law, and the
discretion of the court before which any proceeding therefor may be brought and
(iii) to the extent that rights to indemnification and contribution thereunder
may be limited by federal or state securities laws or public policy relating
thereto.
(i) Each of the Issuers has duly authorized the Indenture and, when each
of the Issuers has duly executed and delivered the Indenture (assuming the due
authorization, execution and delivery thereof by the Trustee), the Indenture
will be the legally valid and binding obligation of each of the Issuers,
enforceable against it in accordance with its terms, except as the
enforceability thereof may be limited (i) by the effect of bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium or other similar
laws now or hereafter in effect relating to or affecting the rights and remedies
of creditors and (ii) by the effect of general principles of equity, whether
enforcement is considered in a proceeding in equity or at law, and the
discretion of the court before which any proceeding therefor may be brought.
(j) Each of the Issuers has duly authorized the Senior Notes and, when
issued and authenticated in accordance with the terms of the Indenture and
delivered to and paid for by the Underwriters in accordance with the terms
hereof, the Senior Notes will conform in all material respects to the
description thereof in the Prospectus, will be entitled to the benefits of the
Indenture and will be the legally valid and binding obligations of such Issuer,
enforceable against it in accordance with their terms, except as the
enforceability thereof may be limited (i) by the effect of bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium or other similar
laws now or hereafter in effect relating to or affecting the rights and remedies
of creditors and (ii) by the effect of general principles of equity, whether
enforcement is considered in a proceeding in equity or at law, and the
discretion of the court before which any proceeding therefor may be brought.
(k) The Indenture has been duly qualified under the Trust Indenture Act
of 1939, as amended (the "TIA").
(l) None of the Issuers will be (i) in violation of its organizational
documents, (ii) in default in the performance of any obligation, agreement or
condition contained in any bond, debenture,
6
<PAGE>
note, indenture, mortgage, deed of trust or any other evidence of indebtedness
or in any other agreement or instrument to which such Issuer is a party or by
which it or its property is bound or (iii) in violation of any law, statute,
rule, regulation, judgment, order or decree of any court or governmental agency
or authority that is applicable to such Issuer or its assets or properties,
except, with regard to clauses (ii) and (iii) above, as would not reasonably be
expected, either individually or in the aggregate, to have a Material Adverse
Effect.
(m) The execution, delivery and performance by any of the Issuers of the
Operative Documents, the issuance and sale of the Senior Notes, the compliance
by any of the Issuers with all the provisions hereof and thereof and the
consummation of the transactions contemplated hereby and thereby will not
violate, conflict with or constitute a breach of any of the terms or provisions
of, or a default under (or an event that with notice or the lapse of time, or
both, would constitute a default) or result in the imposition of a lien or
encumbrance (other than pursuant to the Indenture) on any assets or properties
of such Issuer or an acceleration of indebtedness pursuant to, (A) the
organizational documents of such Issuer, (B) any bond, debenture, note,
indenture, mortgage, deed of trust or other agreement or instrument to which
such Issuer is a party or by which it or its assets or properties is bound, (C)
any statute, rule or regulation that is applicable to such Issuer or any of its
assets or properties, or (D) any judgment, order or decree of any court or
governmental agency or authority that has jurisdiction over such Issuer or its
assets or properties, except insofar as any such violation, conflict, breach,
default, lien, encumbrance or acceleration pursuant to any of the documents,
agreements or instruments described under clause (B) above would not reasonably
be expected, either individually or in the aggregate, to have a Material Adverse
Effect.
(n) No consent, waiver, approval, authorization or order of, or filing,
registration, qualification, license or permit of or with, any court or
governmental agency, body or administrative agency or other person is required
for the execution, delivery and performance by the Issuers of the Operative
Documents, the issuance and sale of the Senior Notes and the consummation of the
transactions contemplated hereby and thereby, except (i) such as have been
obtained and made under the Securities Act and the TIA or have been obtained as
described in the Prospectus, (ii) such as are required under state securities or
Blue Sky laws and regulations and (iii) such as to which the failure to be
obtained or made would not reasonably be expected, either individually or in the
aggregate, to have a Material Adverse Effect.
(o) Except as otherwise set forth in the Prospectus, there is (A) no
action, suit or proceeding before or by any court, arbitrator or governmental
agency, body or official, domestic or foreign, pending or, to the knowledge of
the Issuers, threatened to which any Issuer is a party or to which the business,
assets or property of any of the Issuers are subject, (B) no statute, rule,
regulation or order that has been enacted, adopted or issued by any governmental
agency or governmental body, (C) no injunction, restraining order or order of
any nature that has been issued by a federal or state court or foreign court of
competent jurisdiction to which any of the Issuers is subject or to which the
business, assets or property of any of the Issuers are subject that would, in
the case of clauses (A), (B) and (C), reasonably be expected, either
individually or in the aggregate, to have a Material Adverse Effect. There is
no legal or administrative proceeding, statute, contract or document concerning
any of the Issuers of a character required to be described in the Prospectus
that is not so described as required.
(p) None of the Issuers has violated any foreign, federal, state or local
law or regulation relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), nor any federal or state law relating to
discrimination in the hiring, promotion or pay of employees nor any applicable
federal or state wages and
7
<PAGE>
hours laws, nor any provisions of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or the rules and regulations promulgated thereunder,
which in each case might result in a Material Adverse Effect.
(q) In the ordinary course of its business, the Issuers conduct a
periodic review of the effect of Environmental Laws on the business, operations
and properties of the Issuers, in the course of which they identify and evaluate
associated costs and liabilities (including, without limitation, any capital or
operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or any permit, license or approval, any
related constraints on operating activities and any potential liabilities to
third parties). On the basis of such review, the Issuers have reasonably
concluded that such associated costs and liabilities would not, singly or in the
aggregate, have a Material Adverse Effect.
(r) The Issuers have such permits, licenses, franchises and
authorizations of governmental or regulatory authorities ("permits"), including,
without limitation, under any applicable Environmental Laws, as are necessary to
own, lease and operate its properties and to conduct its business; the Issuers
have fulfilled and performed all of their obligations with respect to such
permits and no event has occurred which allows, or after notice or lapse of time
would allow, revocation or termination thereof or results in any other material
impairment of the rights of the holder of any such permit; and, except as
described in the Prospectus, such permits contain no restrictions that are
materially burdensome to the Issuers.
(s) Except as otherwise set forth in the Prospectus or such as are not
material to the assets, properties, business, results of operations, condition
(financial or other) or business prospects of the Issuers, the Issuers have good
and marketable title, free and clear of all liens, claims, encumbrances and
restrictions, except liens for taxes not yet due and payable, to all property
and assets described in the Registration Statement as being owned by them. All
leases to which the Issuers are a party will be valid and binding, no default
will have occurred or be continuing thereunder, and the Issuers enjoy peaceful
and undisturbed possession under all such leases to which they are a party as
lessee with such exceptions as do not materially interfere with the use made by
the Issuers.
(t) The Issuers maintain liability, casualty and other insurance (subject
to customary deductibles and retentions) with responsible insurance companies in
such amounts and against such risks as is customarily carried by responsible
companies engaged in similar businesses and owning similar assets in the general
areas in which the Issuers operate (which may include self-insurance in
comparable form to that maintained by such responsible companies).
(u) Deloitte & Touche LLP are independent public accountants with respect
to the Issuers as required by the Securities Act.
(v) The financial statements, together with related schedules and notes
forming part of the Registration Statement and the Prospectus (and any amendment
or supplement thereto), present fairly the financial position, results of
operations and changes in financial position of the Company and its subsidiaries
on the basis stated in the Registration Statement at the respective dates or for
the respective periods to which they apply; such statements and related
schedules and notes have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved,
except as disclosed therein; and the other financial and statistical information
and data set forth in the Registration Statement and the Prospectus (and any
amendment or supplement thereto) is, in all material respects, accurately
presented and prepared on a basis consistent with such financial statements and
the books and records of the Issuers.
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(w) The Company and each of its subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(x) Since the respective dates as of which information is given in the
Prospectus, except as otherwise stated in the Prospectus, (A) there have been no
transactions entered into by the Company or any of its subsidiaries, other than
those in the ordinary course of business, which are material with respect to the
Company or any of its subsidiaries, (B) there has not been any material adverse
change, or any development involving a prospective material adverse change, in
the capital stock or in the long-term debt of the Company or any of its
subsidiaries, (C) there has been no dividend or distribution of any kind
declared, paid or made by the Company or any of its subsidiaries on any class of
its capital stock and (D) there are no liabilities or obligations of the Company
or any of its subsidiaries, direct or indirect, contingent or matured, which are
material to the Company or any of its subsidiaries.
(y) None of the Issuers is (i) an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended (the "Investment Company Act"), or (ii) a
"holding company" or a "subsidiary company" or an "affiliate" of a holding
company within the meaning of the Public Utility Holding Company Act of 1935, as
amended (the "Public Utility Holding Company Act").
(z) There are no holders of securities of any Issuer who, by reason of
the execution of the Operative Documents, the issuance and sale of the Senior
Notes and the consummation of the transactions contemplated thereby, have the
right to request or demand that such Issuer register under the Securities Act,
in the offering of the Senior Notes, securities held by them who have not waived
such right.
(aa) There are no outstanding subscriptions, rights, warrants, options,
calls, convertible securities, commitments of sale or liens related to or
entitling any person to purchase or otherwise to acquire any shares of the
capital stock of, or other ownership interest in, any Issuer, except as
otherwise disclosed in the Registration Statement.
(ab) There is (i) no significant unfair labor practice complaint pending
against any Issuer or, to the best knowledge of the Issuers, threatened against
any Issuer before the National Labor Relations Board or any state or local labor
relations board, and no significant grievance or more significant arbitration
proceeding arising out of or under any collective bargaining agreement is so
pending against any Issuer or, to the best knowledge of the Issuers, threatened
against any of them and (ii) no significant strike, labor dispute, slowdown or
stoppage pending against any Issuer or, to the best knowledge of the Issuers,
threatened against any of them, except for such actions specified in clause (i)
or (ii) above, which, either individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
(ac) All tax returns required to be filed by the Issuers in any
jurisdiction have been filed, other than those filings being contested in good
faith, and all taxes, including withholding taxes, penalties and interest,
assessments, fees and other charges due pursuant to such returns or pursuant to
any
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assessment received by the Issuers, have been paid, other than those being
contested in good faith and for which adequate reserves have been provided.
(ad) The Issuers have complied with all provisions of Section 517.075,
Florida Statutes (Chapter 92-198, Laws of Florida).
7. INDEMNIFICATION. (a) The Issuers hereby, jointly and severally,
agree to indemnify and hold harmless each Underwriter and each person, if any,
who controls any Underwriter within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act, from and against any and all losses,
claims, damages, liabilities and judgments caused by any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or the Prospectus (as amended or supplemented if the Issuers shall
have furnished any amendments or supplements thereto) or any preliminary
prospectus, or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages,
liabilities or judgments are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information relating to any
Underwriter furnished in writing to the Issuers by or on behalf of such
Underwriter expressly for use therein; provided that the foregoing indemnity
agreement with respect to any preliminary prospectus shall not inure to the
benefit of any Underwriter from whom the person asserting any such losses,
claims, damages and liabilities and judgments purchased Senior Notes, or any
person controlling such Underwriter, if a copy of the Prospectus (as then
amended or supplemented if the Company shall have furnished amendments or
supplements thereto) was not sent or given by or on behalf of such Underwriter
to such person, if required by law so to have been delivered, at or prior to the
written confirmation of the sale of the Senior Notes to such person, and if the
Prospectus (as so amended and supplemented) would have cured the defect giving
rise to such loss, claim, damage, liability or judgment.
(b) In case any action shall be brought against any Underwriter or any
person controlling such Underwriter, based upon any preliminary prospectus, the
Registration Statement or the Prospectus or any amendment or supplement thereto
and with respect to which indemnity may be sought against the Issuers, such
Underwriter shall promptly notify the Issuers in writing and the Issuers shall
assume the defense thereof, including the employment of counsel reasonably
satisfactory to such indemnified party and payment of all fees and expenses.
Any Underwriter or any such controlling person shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such
Underwriter or such controlling person unless (i) the employment of such counsel
shall have been specifically authorized in writing by the Issuers, (ii) the
Issuers shall have failed to assume the defense and employ counsel or (iii) the
named parties to any such action (including any impleaded parties) include both
such Underwriter or such controlling person and the Issuers and such Underwriter
or such controlling person shall have been advised by such counsel that there
may be one or more legal defenses available to it which are different from or
additional to those available to the Issuers (in which case the Issuers shall
not have the right to assume the defense of such action on behalf of such
Underwriter or such controlling person, it being understood, however, that the
Issuers shall not, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) for all such Underwriters and controlling persons, which firm shall be
designated in writing by DLJ and that all such fees and expenses shall be
reimbursed as they are incurred). The Issuers shall not be liable for any
settlement of any such action effected without their written consent but if
settled with the written consent of the Issuers, the Issuers agree to indemnify
and hold harmless any Underwriter and any such controlling person from and
against any loss or liability by
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reason of such settlement. Notwithstanding the immediately preceding sentence,
if in any case where the fees and expenses of counsel are at the expense of the
indemnifying party and an indemnified party shall have requested the
indemnifying party to reimburse the indemnified party for such fees and expenses
of counsel as incurred, such indemnifying party agrees that it shall be liable
for any settlement of any action effected without its written consent if (i)
such settlement is entered into more than ten business days after the receipt by
such indemnifying party of the aforesaid request and (ii) such indemnifying
party shall have failed to reimburse the indemnified party in accordance with
such request for reimbursement prior to the date of such settlement. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all liability
on claims that are the subject matter of such proceeding.
(c) Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless each of the Issuers, its directors, its officers who sign the
Registration Statement and any person controlling the Issuers within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act, to the
same extent as the foregoing indemnity from the Issuers to each Underwriter but
only with reference to information relating to such Underwriter furnished in
writing by or on behalf of such Underwriter expressly for use in the
Registration Statement, the Prospectus or any preliminary prospectus. In case
any action shall be brought against any of the Issuers, any of its directors,
any such officer or any person controlling any of the Issuers based on the
Registration Statement, the Prospectus or any preliminary prospectus and in
respect of which indemnity may be sought against any Underwriter, such
Underwriter shall have the rights and duties given to the Issuers (except that
if the Issuers shall have assumed the defense thereof, such Underwriter shall
not be required to do so, but may employ separate counsel therein and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Underwriter), and such Issuer, its directors,
any such officers and any person controlling such Issuer shall have the rights
and duties given to such Underwriter by Section 7(b).
(d) If the indemnification provided for in this Section 7 is unavailable
to an indemnified party in respect of any losses, claims, damages, liabilities
or judgments referred to therein, then each indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages,
liabilities and judgments (i) in such proportion as is appropriate to reflect
the relative benefits received by the Issuers on the one hand and the
Underwriters on the other hand from the offering of the Senior Notes or (ii) if
the allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Issuers and
the Underwriters in connection with the statements or omissions which resulted
in such losses, claims, damages, liabilities or judgments, as well as any other
relevant equitable considerations. The relative benefits received by the
Issuers and the Underwriters shall be deemed to be in the same proportion as the
total net proceeds from the offering (before deducting expenses) received by the
Issuers, and the total underwriting discounts and commissions received by the
Underwriters, bear to the total price to the public of the Senior Notes, in each
case as set forth in the table on the cover page of the Prospectus. The
relative fault of the Issuers and the Underwriters shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission to state a material fact relates to
information supplied by the Issuers or the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
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(e) The Issuers and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) and Section 8 hereof
were determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or judgments referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 7 and Section 8
hereof, no Underwriter shall be required to contribute any amount in excess of
the amount by which the total price at which the Senior Notes underwritten by it
and distributed to the public were offered to the public exceeds the amount of
any damages which such Underwriter has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations pursuant to this Section 7(d) and Section 8 hereof are several in
proportion to the respective principal amount of Senior Notes purchased by each
of the Underwriters hereunder and not joint.
8. INDEMNIFICATION OF QUALIFIED INDEPENDENT UNDERWRITER.
------------------------------------
(a) The Issuers hereby, jointly and severally, agree to indemnify and
hold harmless the QIU and each person, if any, who controls the QIU within the
meaning of Section 15 of the Securities Act of Section 20 of the Exchange Act
from and against any and all losses, claims, damages, liabilities and judgments
relating to, based upon or arising out of (i) any untrue statement or alleged
untrue statement of a material fact contained in Registration Statement or the
Prospectus (as amended or supplemented if the Issuers shall have furnished any
amendments or supplements thereto) or any alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, provided that none of the Issuers shall be liable with
reference to information relating to the QIU furnished by or on behalf of the
QIU expressly for use in the Registration Statement, any preliminary prospectus,
the Prospectus or any amendments or supplements thereto, or (ii) the QIU's
activities as a QIU under its engagement pursuant to Section 2 hereof, provided
--------
that, to the extent that any such loss, claim, damage, liability or judgment is
found in a final judgment by a court of competent jurisdiction, not subject to
further appeal, to have resulted from the willful misconduct or gross negligence
of the QIU, none of the Issuers shall be liable to that extent.
(b) In case any action shall be brought against the QIU or any person
controlling the QIU, based upon (i) any preliminary prospectus, the Registration
Statement or the Prospectus or any amendment or supplement thereto or (ii) the
QIU's activities as a QIU under its engagement pursuant to Section 2 hereof, and
with respect to which indemnity may be sought against the Issuers, the QIU shall
promptly notify the Issuers in writing and Issuers shall assume the defense
thereof, including the employment of counsel reasonably satisfactory to such
indemnified party and payment of all fees and expenses. The QIU or any such
controlling persons shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of the QIU of such controlling person unless (i)
the employment of such counsel shall be specifically authorized in writing by
the Issuers, (ii) the Issuers shall have failed to assume the defense and employ
counsel or (iii) the named parties to any such action (including any impleaded
parties) include both the QIU or such controlling person and the Issuers, as the
case may be, and the QIU or such controlling person shall have been advised by
such counsel that there may be one or more legal defenses
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<PAGE>
available to it which are different from or additional to those available to the
Issuers, as the case may be (in which case the Issuers shall not have the right
to assume the defense of such action on behalf of the QIU or such controlling
persons, it being understood, however, that the Issuers shall not, in connection
with any one such action or separate but substantially similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more than one separate
firm of attorneys (in addition to any local counsel) for the QIU and the
controlling persons, which firm shall be designated in writing by the QIU and
that all such fees and expenses shall be reimbursed as they are incurred). The
Issuers shall not be liable for any settlement of any such action effected
without the written consent of the Issuers but if settled with the written
consent of the Issuers, the Issuers agree to indemnify and hold harmless the QIU
and any such controlling person from and against any loss or liability by reason
of such a settlement. Notwithstanding the immediately preceding sentence, if in
any case where the fees and expense of counsel are at the expense of the
indemnifying party and an indemnified party shall have requested the
indemnifying party to reimburse the indemnified party for such fees and expenses
of counsel as incurred, such indemnifying party agrees that it shall be liable
for any settlement of any action effected without its written consent if (i)
such settlement is entered into more than ten business days after the receipt by
such indemnifying party of the aforesaid request and (ii) such indemnifying
party shall have failed to reimburse the indemnified party in accordance with
such request for reimbursement prior to the date of such settlement. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is nor could have been a party and indemnity
could have been sought thereunder by such indemnified party, unless such
settlement includes an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such proceeding.
(c) The QIU agrees to indemnify and hold harmless the Issuers and
directors of the Issuers, the officers of the Issuers who sign the Registration
Statement and each person, if any, who controls the Issuers within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act to the
same extent as the foregoing indemnity from the Issuers, but only with reference
to information relating to the QIU furnished by or on behalf of the QIU
expressly for use in the Registration Statement, any preliminary prospectus, the
Prospectus or any amendments or supplements thereto. In the case any action
shall be brought against any of the Issuers, any of its directors, any such
officer or any person controlling such Issuer based on the Registration
Statement, the Prospectus or any preliminary prospectus and in respect of which
indemnity may be sought against the QIU, the QIU shall have the rights and
duties given to the Issuers (except that if the Issuers have assumed the defense
thereof) the QIU shall not be required to do so, but may employ separate counsel
therein and participate in the defense thereof but the fees and expenses of such
counsel shall be at the expense of the QIU), and such Issuer, its directors, any
such officers and any person controlling such Issuer shall have the rights and
duties given to the QIU, by Section 8(b).
(d) If the indemnification provided for in this Section 8 is unavailable
to an indemnified party in respect of any losses, claims, damages, liabilities
or judgments referred to therein, then each indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages,
liabilities and judgments (i) in such proportion as is appropriate to reflect
the relative benefits received by the Issuers on the one hand and the QIU on the
other hand from the offering of the Senior Notes or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Issuers, the
Underwriters and the QIU in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or judgments, as well as
any other relevant equitable
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<PAGE>
considerations. The relative benefits received by the Issuers and the QIU shall
be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Issuers, as set forth in
the cover page of the Prospectus, and the total fee received by the QIU, as set
forth in the "Underwriting" section of the Prospectus, bear to the total price
to the public of the Senior Notes. The relative fault of the Issuers and the
QIU shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the Issuers or the QIU and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission and whether the QIU's
recommendation, advice or services as QIU pursuant to Section 2 hereof involved
any willful misconduct or gross negligence on the part of the QIU.
The Issuers and the QIU agree that it would not just and equitable if
contribution pursuant to this Section 8(d) were determined by pro rata
allocation or any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or judgments referred to in the immediately
receding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 8, the QIU shall not be required
to contribute any amount in excess of the amount by which its fee received for
acting as QIU exceeds the amount of any damages which the QIU has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission or by reason of alleged willful misconduct or gross
negligence. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
9. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several obligations of
the Underwriters to purchase the Senior Notes under this Agreement are subject
to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Issuers contained in
this Agreement shall be true and correct on the Closing Date with the same force
and effect as if made on and as of the Closing Date.
(b) The Registration Statement shall have become effective not later than
5:00 P.M., New York City time (and in the case of a Registration Statement filed
under Rule 462(b) under the Securities Act, not later than 10:00 P.M.), on the
date of this Agreement or at such later date and time as the Underwriters may
approve in writing, and on the Closing Date no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been commenced or shall be pending
before or contemplated by the Commission.
(c) Subsequent to the execution and delivery of this Agreement and prior
to the Closing Date, there shall not have been any downgrading, nor shall any
notice have been given of any intended or potential downgrading or of any review
for a possible change that does not indicate the direction of the possible
change in the rating accorded any of the Issuers' securities by any "nationally-
recognized statistical rating organization," as such term is defined for
purposes of Rule 436(g)(2) under the Securities Act.
(d)(i) Since the date of the latest balance sheet included in the
Registration Statement and the Prospectus, there shall not have been any
material adverse change, or any development involving a
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prospective material adverse change in the condition, financial or otherwise, or
in the earnings, affairs or business prospects, whether or not arising in the
ordinary course of business, of the Company and its subsidiaries, (ii) since the
date of the latest balance sheet included in the Registration Statement and the
Prospectus (including the pro forma financial information contained therein),
there shall not have been any change, or any development involving a prospective
material adverse change, in the capital stock or in the long-term debt of the
Company and its subsidiaries from that set forth in the Registration Statement
and Prospectus, (iii) the Company and its subsidiaries shall have no liability
or obligation, direct or contingent, which is material to the Company and its
subsidiaries, other than those reflected in the Registration Statement and the
Prospectus and (iv) on the Closing Date, the Underwriters shall have received a
certificate dated the Closing Date, signed by John R. Jester and Kirk A.
Collamer, in their capacities as the Chief Executive Officer and Chief Financial
Officer of the Issuers, confirming the matters set forth in paragraphs (a), (b),
(c) and (d) of this Section 9.
(e) The Underwriters shall have received on the Closing Date an opinion
(satisfactory to the Underwriters and counsel for the Underwriters), dated the
Closing Date, of Weil Gotshal & Manges LLP, counsel for the Issuers,
substantially in the form set forth in Exhibit A hereto, as well as such other
opinions relating to the Issuers as the Underwriters may reasonably request.
The opinion of Weil Gotshal & Manges LLP described in this paragraph (f) shall
be rendered to the Underwriters at the request of the Issuers and shall so state
therein.
(f) The Underwriters shall have received on the Closing Date an opinion
(satisfactory to the Underwriters), dated the Closing Date, of Latham & Watkins,
counsel for the Underwriters.
(g) The Underwriters shall have received a letter on and as of the
Closing Date, in form and substance satisfactory to the Underwriters, from
Deloitte & Touche LLP, independent public accountants, with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Prospectus and substantially in the form and
substance of the letter delivered to the Underwriters by Deloitte & Touche LLP
on the date of this Agreement.
(h) The Issuers shall not have failed at or prior to the Closing Date to
perform or comply with any of the agreements herein contained and required to be
performed or complied with by the Issuers at or prior to the Closing Date.
10. EFFECTIVE DATE OF AGREEMENT AND TERMINATION. This Agreement shall
become effective upon the later of (i) execution of this Agreement and (ii) when
notification of the effectiveness of the Registration Statement has been
released by the Commission.
This Agreement may be terminated at any time prior to the Closing Date by
the Underwriters by written notice to the Issuers if any of the following has
occurred: (i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change or
development involving a prospective material adverse change in the condition,
financial or otherwise, of the Company and its subsidiaries or the earnings,
affairs, or business prospects of the Company and its subsidiaries, whether or
not arising in the ordinary course of business, which would, in the
Underwriters' judgment, make it impracticable to market the Senior Notes on the
terms and in the manner contemplated in the Prospectus, (ii) any outbreak or
escalation of hostilities or other national or international calamity or crisis
or change in economic conditions or in the financial markets of the United
States or elsewhere that, in the Underwriters' judgment, is material and adverse
and would, in the Underwriters' judgment, make it impracticable to market the
Senior Notes on the terms and in the manner contemplated in the Prospectus,
(iii) the suspension or material limitation of trading in securities on the
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New York Stock Exchange, the American Stock Exchange or the Nasdaq National
Market System or limitation on prices for securities on any such exchange or
national market system, (iv) the enactment, publication, decree or other
promulgation after the date hereof of any federal or state statute, regulation,
rule or order of any court or other governmental authority which, in the
Underwriters' opinion, materially and adversely affects, or will materially and
adversely affect, the business or operations of the Company and its
subsidiaries, (v) the declaration of a banking moratorium by either federal or
New York State authorities or (vi) the taking of any action by any federal,
state or local government or agency in respect of its monetary or fiscal affairs
which, in the Underwriters' opinion, has a material adverse effect on the
financial markets in the United States.
If on the Closing Date any one or more of the Underwriters shall fail or
refuse to purchase the Senior Notes which it or they have agreed to purchase
hereunder on such date and the aggregate amount of Senior Notes which such
defaulting Underwriter or Underwriters, as the case may be, agreed but failed or
refused to purchase is not more than one-tenth of the total amount of Senior
Notes to be purchased on such date by all Underwriters, each non-defaulting
Underwriter shall be obligated severally, in the proportion which the amount of
Senior Notes set forth opposite its name in Schedule I bears to the total amount
of Senior Notes which all the non-defaulting Underwriters, as the case may be,
have agreed to purchase, or in such other proportion as the Underwriters may
specify, to purchase the Senior Notes which such defaulting Underwriter or
Underwriters, as the case may be, agreed but failed or refused to purchase on
such date; provided that in no event shall the amount of Senior Notes which any
Underwriter has agreed to purchase pursuant to Section 2 hereof be increased
pursuant to this Section 10 by an amount in excess of one-ninth of such amount
of Senior Notes without the written consent of such Underwriter. If on the
Closing Date any Underwriter or Underwriters shall fail or refuse to purchase
Senior Notes and the aggregate amount of Senior Notes with respect to which such
default occurs is more than one-tenth of the aggregate amount of Senior Notes to
be purchased on such date by all Underwriters and arrangements satisfactory to
the Underwriters and the Issuers for purchase of such Senior Notes are not made
within 48 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter and the Issuers. In any
such case which does not result in termination of this Agreement, either the
Underwriters or the Issuers shall have the right to postpone the Closing Date,
but in no event for longer than seven days, in order that the required changes,
if any, in the Registration Statement and the Prospectus or any other documents
or arrangements may be effected. Any action taken under this paragraph shall
not relieve any defaulting Underwriter from liability in respect of any default
of any such Underwriter under this Agreement.
11. MISCELLANEOUS. Notices given pursuant to any provision of this
Agreement shall be addressed as follows: (a) if to the Issuers, to Muzak
Limited Partnership/Muzak Capital Corporation, 2901 Third Avenue, Suite 400,
Seattle, Washington 98121, Attention: Chief Financial Officer, and (b) if to the
Underwriters, c/o Donaldson, Lufkin & Jenrette Securities Corporation, 277 Park
Avenue, New York, New York 10172, Attention: Syndicate Department, or in any
case to such other address as the person to be notified may have requested in
writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Issuers, their officers and directors and
of the Underwriters set forth in or made pursuant to this Agreement shall remain
operative and in full force and effect, and will survive delivery of and payment
for the Senior Notes, regardless of (i) any investigation, or statement as to
the results thereof, made by or on behalf of the Underwriters or by or on behalf
of the Issuers, the officers or directors of the Issuers or any controlling
person of the Issuers, (ii) acceptance of the Senior Notes and payment for them
hereunder and (iii) termination of this Agreement.
16
<PAGE>
If this Agreement shall be terminated by the Underwriters because of any
failure or refusal on the part of the Issuers to comply with the terms or to
fulfill any of the conditions of this Agreement, the Issuers agree to reimburse
the Underwriters for all out-of-pocket expenses (including the fees and
disbursements of counsel) reasonably incurred by them.
Except as otherwise provided, this Agreement has been and is made solely
for the benefit of and shall be binding upon the Issuers, the Underwriters, any
controlling persons referred to herein and their respective successors and
assigns, all as and to the extent provided in this Agreement, and no other
person shall acquire or have any right under or by virtue of this Agreement.
The term "successors and assigns" shall not include a purchaser of any of the
Senior Notes from the Underwriters merely because of such purchase.
This Agreement shall be governed and construed in accordance with the
laws of the State of New York without regard to the conflict of laws provisions
thereof.
This Agreement may be signed in various counterparts which together shall
constitute one and the same instrument.
17
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Please confirm that the foregoing correctly sets forth the agreement
between the Issuers and the Underwriters.
Very truly yours,
Muzak Limited Partnership
By MLP Acquisition L.P., its General Partner
By Music Holdings Corp., its General Partner
By: _______________________________
Name:
Title:
Muzak Capital Corporation
By: __________________________________
Name:
Title:
18
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Acknowledged and accepted on the
date first described herein.
Donaldson, Lufkin & Jenrette
Securities Corporation
By: _____________________________
Name:
Title:
Lazard Freres & Co. LLC
By: _____________________________
Name:
Title:
19
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SCHEDULE I
Amount of
Senior Notes
Name of Underwriter to be Purchased
------------------- ---------------
Donaldson, Lufkin & Jenrette Securities Corporation.............
Lazard Freres & Co. LLC......................................... ______________
Total.................................................... $100,000,000
============
20
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EXHIBIT 3.4
THIRD AMENDED AND RESTATED AGREEMENT
OF
LIMITED PARTNERSHIP
OF
MUZAK LIMITED PARTNERSHIP
(formerly, MLP Operating, L.P.)
THE LIMITED PARTNERSHIP INTERESTS IN THE PARTNERSHIP REFERRED TO IN THIS
LIMITED PARTNERSHIP AGREEMENT HAVE NOT BEEN REGISTERED WITH THE SECURITIES
AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
APPLICABLE STATE SECURITIES LAWS, INCLUDING THE SECURITIES ACT OF
WASHINGTON CHAPTER 21.20 RCW, AS AMENDED, THE ILLINOIS SECURITIES LAW OF
1953, AS AMENDED, CHAPTER 815, AND THE SECURITIES ACT OF COLORADO CHAPTER
11-51. THE SALE OR OTHER DISPOSITION OF THE LIMITED PARTNERSHIP INTERESTS
IS RESTRICTED, AS STATED IN THE LIMITED PARTNERSHIP AGREEMENT. BY ACQUIRING
THE LIMITED PARTNERSHIP INTERESTS REPRESENTED BY THIS LIMITED PARTNERSHIP
AGREEMENT, EACH LIMITED PARTNER REPRESENTS THAT HE HAS ACQUIRED SUCH
INTERESTS FOR INVESTMENT AND THAT HE WILL NOT SELL OR OTHERWISE DISPOSE OF
SUCH LIMITED PARTNERSHIP INTERESTS WITHOUT REGISTRATION OR OTHER COMPLIANCE
WITH THE AFORESAID ACT AND THE RULES AND REGULATIONS THEREUNDER.
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TABLE OF CONTENTS
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ARTICLE I DEFINITIONS................................................... 2
ARTICLE II ORGANIZATION.................................................. 24
Section 2.01 Formation of the Partnership....................... 24
Section 2.02 Initial Contributions.............................. 25
Section 2.03 Additional Capital Contributions................... 25
Section 2.04 Name............................................... 26
Section 2.05 Place of Business.................................. 26
Section 2.06 Registered Office and Registered Agent............. 27
ARTICLE III PURPOSES...................................................... 27
Section 3.01 Purposes and Business.............................. 27
Section 3.02 Powers............................................. 27
Section 3.03 Changes in the Tax Laws............................ 28
ARTICLE IV TERM OF THE PARTNERSHIP....................................... 31
ARTICLE V CAPITAL ACCOUNTS.............................................. 31
Section 5.01 Capital Contributions.............................. 31
Section 5.02 Capital Accounts................................... 31
Section 5.03 Negative Capital Accounts.......................... 35
Section 5.04 General Partners Not Liable
for Return of Capital.............................. 35
ARTICLE VI PROFITS AND LOSSES; DISTRIBUTIONS............................. 36
Section 6.01 Fiscal Year; Fiscal Period;
Taxable Year....................................... 36
Section 6.02 Accounting Method.................................. 36
Section 6.03 Allocations for Capital Account Purposes........... 36
Section 6.04 Allocations for Tax Purposes....................... 42
Section 6.05 Distributions...................................... 44
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ARTICLE VII MANAGEMENT.................................................... 52
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Section 7.01 Management and Control of
the Partnership.................................... 52
Section 7.02 Powers of the Managing General Partner............. 53
Section 7.03 Title to Assets of the Partnership................. 55
Section 7.04 Other Business Activities of Partners.............. 56
Section 7.05 Transactions with the General Partners
or Affiliates...................................... 56
Section 7.06 Exculpation; Indemnification....................... 56
Section 7.07 Other Matters Concerning the
General Partners................................... 59
Section 7.08 Resolution of Conflicts of Interest................ 60
ARTICLE VIII LIMITED PARTNERS.............................................. 61
Section 8.01 Liability of Limited Partners...................... 61
Section 8.02 No Management by Limited Partners.................. 61
Section 8.03 No Mention of Limited Partners..................... 62
Section 8.04 Employees, Agents or Officers
of the Partnership or a General
Partner............................................ 62
ARTICLE IX COMPENSATION AND EXPENSES..................................... 62
Section 9.01 Compensation to the General Partners............... 62
Section 9.02 Direct and Indirect Expenses; Expenses
in Connection with the Organization
and Operation of Partnership....................... 62
ARTICLE X FINANCIAL MATTERS............................................ 63
Section 10.01 Books and Records.................................. 63
Section 10.02 Financial Statements and Information............... 64
Section 10.03 Accounting Decisions............................... 65
Section 10.04 Place Maintained................................... 65
Section 10.05 Preparation of Tax Returns......................... 65
Section 10.06 Tax Elections...................................... 65
Section 10.07 Tax Matters Partner................................ 66
Section 10.08 Confidentiality.................................... 66
ARTICLE XI TRANSFER OF UNITS OF GENERAL PARTNER
INTEREST AND LIMITED PARTNER INTEREST;
ADMISSION OF NEW PARTNERS.................................... 67
Section 11.01 Transfer of Units of General
Partner Interest................................... 67
</TABLE>
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Section 11.02 Admission of an Additional or
Successor General Partner......................... 68
Section 11.03 Transfer of Units of Limited Partner
Interest.......................................... 71
Section 11.04 Rights of First Refusal for Units of
Partner Interest Owned by Class A
Limited Partners, the Managing General
Partner, Preferred Interest Limited
Partners, holders of Class B Conversion
Units or Class C-1 Limited Partners............... 75
Section 11.05 Rights of First Refusal for Units of
Partner Interest (other than Class B
Conversion Units) Owned by Class B
Limited Partners or the Administrative
General Partner................................... 78
Section 11.06 Bring Along....................................... 83
Section 11.07 Put Option........................................ 86
Section 11.08 Right to Purchase on Termination of
Employment........................................ 90
Section 11.09 Allocations and Distributions Subsequent
to Assignment..................................... 93
Section 11.10 Admission of Substituted Limited
Partners; Assignees............................... 94
Section 11.11 Admission of Additional Partners.................. 96
Section 11.12 Purchase of Additional Units Upon the
Cash Settlement of Performance Options............ 100
Section 11.13 Participation by Barclays with respect
to Put/Call Units................................. 100
Section 11.14 Ownership of the Administrative
General Partner................................... 101
Section 11.15 Certain Adjustments............................... 102
ARTICLE XII DISSOLUTION AND LIQUIDATION................................. 102
Section 12.01 No Dissolution.................................... 102
Section 12.02 Events Causing Dissolution........................ 102
Section 12.03 Dissolution....................................... 103
Section 12.04 Liquidation....................................... 103
Section 12.05 Termination of Partnership........................ 105
ARTICLE XIII AMENDMENTS.................................................. 105
Section 13.01 Amendments To Be Adopted Solely by
the Managing General Partner...................... 105
Section 13.02 Amendment Procedures.............................. 107
Section 13.03 Amendment Restrictions............................ 108
</TABLE>
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Section 13.04 Limitations on Voting Rights of
Preferred Interest Limited Partners,
Class C Limited Partners and Class C-1
Limited Partners ........................ 108
Section 13.05 Further Amendment Restrictions........... 110
ARTICLE XIV POWER OF ATTORNEY ............................ 111
ARTICLE XV REGISTRATION RIGHTS .......................... 113
Section 15.01 Required Registration by Holdings;
Partnership Registration ................ 113
Section 15.02 Limitation on Registration .............. 119
Section 15.03 Limitations on Sales Before or
After Registration ...................... 120
Section 15.04 Cooperation by Holders .................. 120
Section 15.05 Indemnification ......................... 121
Section 15.06 Registration Rights upon Incorporation
of the Partnership ...................... 125
ARTICLE XVI INCORPORATION OF THE PARTNERSHIP;
THE CLASS C LIMITED PARTNER INTEREST ......... 126
Section 16.01 Incorporation of the Partnership ........ 126
Section 16.02 Exchange or Retirement of the Class C
Limited Partner Interests ............... 128
Section 16.03 Designation by Class C Limited
Partners ................................ 129
Section 16.04 Covenants ............................... 130
Section 16.05 Debt Financing Agreements ............... 133
ARTICLE XVII THE CLASS C-1 LIMITED PARTNER INTEREST ....... 134
Section 17.01 Incorporation of the Partnership ........ 134
Section 17.02 Exchange or Retirement of the Class C-1
Limited Partner Interests ............... 135
Section 17.03 Designation by Class C-1 Limited
Partners ................................ 138
Section 17.04 Covenants ............................... 138
Section 17.05 Debt Financing Agreements ............... 141
Section 17.06 Notice of Election; Class C-1
Participation Event; Class C-1 Accrual
Event ................................... 142
iv
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ARTICLE XVIII MISCELLANEOUS PROVISIONS ..................... 144
Section 18.01 Additional Actions and Documents......... 144
Section 18.02 Notices.................................. 144
Section 18.03 Severability............................. 145
Section 18.04 Survival................................. 145
Section 18.05 Waivers.................................. 145
Section 18.06 Exercise of Rights....................... 146
Section 18.07 Binding Effect........................... 146
Section 18.08 Consent of Limited Partners.............. 146
Section 18.09 Entire Agreement......................... 146
Section 18.10 Pronouns................................. 147
Section 18.11 Headings................................. 147
Section 18.12 Governing Law............................ 147
Section 18.13 Execution in Counterparts................ 147
ARTICLE XIX PREFERRED LIMITED PARTNER INTERESTS .......... 148
Section 19.01 Incorporation of the Partnership......... 148
Section 19.02 Priority to Distributions................ 148
Section 19.03 Bring Along.............................. 149
Section 19.04 Redemption............................... 150
Section 19.05 Conversion............................... 152
ARTICLE XX EXECUTION..................................... 154
Schedule I - Unit Register (which includes Partners
and Capital Contributions) as of
November 4, 1994
Exhibit A - Form of Limited Partner Interest Certificate
Exhibit B - Form of General Partner Interest Certificate
Exhibit C - Form of Unit Register
Exhibit D - Form of Class C Exchange Note
Exhibit E - Form of Confidentiality Agreement
Exhibit F - Form of Class C-1 Exchange Note
</TABLE>
v
<PAGE>
THIRD AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP OF
MUZAK LIMITED PARTNERSHIP
(formerly, MLP Operating, L.P.)
This THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF
MUZAK LIMITED PARTNERSHIP (formerly, MLP Operating, L.P.) (the "Partnership"),
dated as of November 4, 1994, is made and entered into by and among MLP
Acquisition, L.P., a Delaware limited partnership, as managing general partner
(the "Managing General Partner"), MLP Administration Corp., a Delaware
corporation, as administrative general partner (the "Administrative General
Partner"), MLP Holdings L.P., a Delaware limited partnership ("Holdings"), as
the Class A-1 Limited Partner, those Persons listed on Schedule I hereto as
Class A-2 Limited Partners, those Persons listed on Schedule I hereto as Class B
Limited Partners, those Persons listed on Schedule I hereto as Preferred
Interest Limited Partners, MLP Sales Limited Partnership, a Delaware limited
partnership ("MLP Sales"), as the Class C Limited Partner, Comcast Sound
Communications, Inc., a Colorado corporation, and Comcast Sound Communications,
Inc., an Illinois corporation (the "Contributing Parties"), as the Class C-1
Limited Partners, and all other Persons who shall in the future become Partners,
in accordance with the provisions hereof, and who are listed as such on the
books and records of the Partnership;
W I T N E S S E T H:
WHEREAS, the Managing General Partner heretofore has formed the
Partnership by filing a Certificate of Limited Partnership with the office of
the Secretary of State of the State of Delaware on February 18, 1992 and
entering into an agreement of limited partnership of the Partnership dated as of
February 18, 1992 (the "Original Agreement"), by and between the Managing
General Partner and Centre Capital Investors L.P., as the initial limited
partner;
WHEREAS, an Amended and Restated Agreement of Limited Partnership of
the Partnership was entered into as of September 4, 1992 (the "First Restated
Agreement"), and a Second Amended and Restated Agreement of Limited Partnership
was entered into as of January 31, 1994 (the "Second Restated Agreement");
WHEREAS, the Partners desire to admit the Preferred Interest Limited
Partners as additional Partners by issuance of
<PAGE>
Preferred Limited Partner Interests to the Preferred Interest Limited Partners;
and
WHEREAS, the Partners desire to amend and restate in its entirety the
Second Restated Agreement as hereinafter set forth;
NOW, THEREFORE, for and in consideration of the foregoing and the
mutual covenants hereinafter set forth, the Partners hereby amend and restate
the Second Restated Agreement in its entirety, and it is hereby agreed as
follows:
ARTICLE I
DEFINITIONS
Unless the context otherwise specifies or requires, the terms defined
in this Article I shall, for the purposes of this Agreement, have the meanings
herein specified.
Adjusted Capital Account Deficit: Adjusted Capital Account Deficit
shall mean, with respect to any Units, the deficit balance, if any, in the
Capital Account maintained for such Units as of the end of the relevant Fiscal
Year (or as of any other relevant determination date), after giving effect to
the following adjustments solely for this purpose:
(i) Increase such Capital Account by the sum of (x) any amounts
which are required to be contributed to the Partnership (pursuant to the
terms of this Agreement or otherwise) with respect to such Units or which
are deemed to be required to be contributed as provided in Section 1.704-
1(b)(2)(iv)(c) or Section 1.704-1(b)(2)(iv)(d)(2) of the Treasury
Regulations with respect to such Units, plus (y) the share of Minimum Gain
allocable to such Units at the time of determination computed as provided
in Section 1.704-2(g)(1) or Section 1.704-2(i)(5), as applicable, of the
Treasury Regulations; and
(ii) Reduce such Capital Account by the amount of any
Partnership items described in Sections 1.704-1(b)(2)(ii)(d)(4), (5) and
(6) of the Treasury Regulations.
Affiliate: Any Person that directly or indirectly controls, is
controlled by, or is under common control with, the Person in question. As used
in this definition, the term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies
2
<PAGE>
of a Person, whether through ownership of voting securities, by contract or
otherwise.
Agreed Value: The Agreed Value, with respect to any Contributed
Property, means the fair market value of such property (taking into account
Section 7701(g) of the Code) when contributed or when revalued for purposes of
maintaining Capital Accounts as provided in Section 5.02(c) hereof, in either
case as determined by the Managing General Partner using such reasonable method
of valuation as may be adopted by the Managing General Partner. The aggregate
initial Agreed Value of the Contributed Properties transferred to the
Partnership by the Class C Limited Partner was the sum of Eight Million Dollars
($8,000,000). The aggregate initial Agreed Value of the Contributed Properties
contributed to the Partnership by the Class C-1 Limited Partners is the sum of
Five Million Dollars ($5,000,000). The Managing General Partner shall allocate
the Agreed Value of any Contributed Properties among each separate item of
property constituting a Contributed Property by whatever method the Managing
General Partner deems reasonable.
Agreement: This Third Amended and Restated Agreement of Limited
Partnership, as it may be further amended, supplemented or restated from time to
time.
Assignee: A Person to whom a Partner shall have Transferred Units of
its Partner Interest and who has not become a Partner by reason of at least one
General Partner's refusal (and, with respect to the admission of an additional
or successor General Partner, the refusal of the Partners, by a Majority Vote)
to consent to the admission of such Person to the Partnership as a Substituted
Limited Partner or additional or successor General Partner, as the case may be,
of the Partnership.
Bankruptcy: The Bankruptcy of a Partner shall mean (i) the filing by
a Partner of a voluntary petition seeking liquidation, reorganization,
arrangement or readjustment, in any form, of its debts under Title 11 of the
United States Code (or corresponding provisions of future laws) or any other
federal or state insolvency law, or the filing by a Partner of an answer
consenting to or acquiescing in any such petition, (ii) the making by a Partner
of any assignment for the benefit of his creditors or the admission by a Partner
in writing of his inability to pay his debts as they mature, (iii) the
expiration of 60 days after the filing of an involuntary petition under Title 11
of the United States Code (or corresponding provisions of future laws), seeking
an application for the appointment of a receiver for the assets of a Partner, or
an involuntary readjustment of his debts under any other federal or state
insolvency law, provided that the same
3
<PAGE>
shall not have been vacated, set aside or stayed within such 60-day period, or
(iv) the entry against a Partner of a final and nonappealable order for relief
under any bankruptcy, insolvency or similar law now or hereafter in effect.
Barclays: Barclays Bank PLC, New York Branch, except with respect to
171,281 Put/Call Units as to which Barclays shall mean Exeter. Notwithstanding
the foregoing, (a) in the event that Barclays Bank PLC, New York Branch shall
transfer its rights with respect to any or all of its Put/Call Units under the
Put and Call Option Agreement to Barclays Capital Corporation or any other
Affiliate of Barclays Bank PLC, New York Branch which is a permitted transferee
of Barclays Bank PLC, New York Branch under the Put and Call Option Agreement,
any reference in this Agreement with respect to Barclays Bank PLC, New York
Branch in its capacity as a party to the Put and Call Option Agreement shall,
with respect to such Units, thereafter mean such transferee, and (b) in the
event that Exeter shall transfer its rights with respect to any or all of its
Put/Call Units under the Exeter Option Agreement, dated as of the date hereof,
between the Partnership and Exeter (the "Exeter Option Agreement"), to any
Affiliate of Exeter which is a permitted transferee of Exeter under the Exeter
Option Agreement, any reference in this Agreement with respect to Exeter in its
capacity as a party to the Exeter Option Agreement shall, with respect to such
Units, thereafter mean such transferee.
Barclays Bank PLC: Barclays Bank PLC, New York Branch.
Barclays Letter Agreement: That certain letter agreement, dated as of
September 4, 1992, among Barclays Bank PLC, the Partnership, and the Managing
General Partner with respect to the registration rights and certain other
matters pertaining to the Put/Call Units, as such letter agreement may be
amended, supplemented or restated from time to time.
Book-Tax Disparity: Book-Tax Disparity shall mean the difference
between a Capital Account balance, as maintained pursuant to Section 5.02
hereof, and such balance had the Capital Account been maintained strictly in
accordance with tax accounting principles (such disparities reflecting the
differences between the Carrying Values of Contributed Properties, as adjusted
from time to time, and the adjusted basis thereof for federal income tax
purposes).
Capital Account: Capital Account shall have the meaning ascribed to
such term in Section 5.02 hereof.
4
<PAGE>
Capital Contribution: Capital Contribution, with respect to any
Partner, shall mean the cumulative amount of cash and cash equivalents and the
Net Agreed Value of any Contributed Property contributed to the Partnership with
respect to the interest held by such Partner in the Partnership. The aggregate
Capital Contribution of the Class C Limited Partners is the Net Agreed Value of
the Contributed Properties transferred to the Partnership by MLP Sales in
consideration for the receipt of the Class C Limited Partner Interests; and the
Capital Contribution of the Class C-1 Limited Partners is the Net Agreed Value
of the Contributed Properties transferred to the Partnership by such Limited
Partners in consideration for the receipt of the Class C-1 Limited Partner
Interests.
Carrying Value: The Carrying Value shall mean (a) in the case of any
Contributed Property, the Agreed Value of such Contributed Property, reduced
(but not below zero) by all deductions for depreciation, cost recovery or
amortization (in each case computed as set forth in clause (iv) of the
definition of "Net Income or Net Loss") that are reflected on the Partnership's
books with respect to such Contributed Property as of the time of determination,
and (b) in the case of any other property of the Partnership, the adjusted basis
of such property for federal income tax purposes as of the time of
determination.
Cause: Cause in connection with a termination of employment of a
Class B Limited Partner or Preferred Interest Limited Partner by the Partnership
shall mean, except as otherwise provided in any employment agreement between
such Class B Limited Partner or Preferred Interest Limited Partner and the
Partnership (in which case the term Cause as used herein with respect to such
Partner shall have the meaning ascribed to it therein), (i) the willful and
continued failure by such Partner to perform substantially his duties to the
Partnership (other than any such failure resulting from his Disability) within
thirty days after a written demand for substantial performance is delivered to
such Partner by the Partnership or the Managing General Partner, which demand
specifically identifies the manner in which the Partnership or the Managing
General Partner believes that such Partner has not substantially performed his
duties, (ii) the conviction by a court of competent jurisdiction of such Partner
of any offense, regardless of classification, related to such Partner's duties
and responsibilities to the Partnership, (iii) the negligent performance by such
Partner of his duties to the Partnership if such negligent performance is
reasonably determined by the Partnership or the Managing General Partner to have
had or to be reasonably likely to have a material adverse effect on the
business, assets, prospects or financial condition of the Partnership, or (iv)
the conviction of such Partner by a
5
<PAGE>
court of competent jurisdiction of a felony. It is expressly agreed and
understood that any participation by or involvement of a Class B Limited Partner
or Preferred Interest Limited Partner in the decision of the Administrative
General Partner to withhold its consent to the admission of a Substituted
Limited Partner shall not constitute any grounds for cause in connection with a
termination of employment of such Partner.
Certificate of Limited Partnership: The Certificate of Limited
Partnership and any and all amendments thereto and restatements thereof filed on
behalf of the Partnership with the office of the Secretary of State of the State
of Delaware, as required under the Delaware RULPA.
Class A Limited Partner Interests or Class A Limited Partner Interest:
The issued and outstanding Limited Partner Interests owned as of a given date by
the Class A Limited Partners.
Class A Limited Partners: The Limited Partners, as of a given date,
who are identified in the Partnership's books and records as Class A-1 and A-2
Limited Partners.
Class A Preferred Stock: Class A Preferred Stock shall have the
meaning set forth in Section 19.01 hereof.
Class A-1 Limited Partner Interests or Class A-1 Limited Partner
Interest: The issued and outstanding Limited Partner Interests owned as of a
given date by the Class A-1 Limited Partners.
Class A-1 Limited Partners: The Limited Partners, as of a given date,
who are identified in the Partnership's books and records as Class A-1 Limited
Partners.
Class A-2 Limited Partner Interests or Class A-2 Limited Partner
Interest: The issued and outstanding Limited Partner Interests owned as of a
given date by the Class A-2 Limited Partners.
Class A-2 Limited Partners: The Limited Partners, as of a given date,
who are identified in the Partnership's books and records as Class A-2 Limited
Partners.
Class B Conversion Units: Class B Conversion Units shall mean Units
of Class B Limited Partner Interest issued upon a conversion of Units of
Preferred Limited Partner Interest.
6
<PAGE>
Class B Limited Partner Interests or Class B Limited Partner Interest:
The issued and outstanding Limited Partner Interests owned as of a given date by
the Class B Limited Partners.
Class B Limited Partners: The Limited Partners, as of a given date,
who are identified in the Partnership's books and records as Class B Limited
Partners.
Class C Exchange Notes: Class C Exchange Notes shall have the meaning
set forth in Section 16.02(a).
Class C Exchange Note Subordination Agreement: The Exchange Note
Subordination Agreement, dated as of September 4, 1992, among the Partnership,
Barclays Bank PLC, UBS-NY and Muzak Limited Partnership (now known as MLP Sales
Limited Partnership), as such agreement may be amended, supplemented or restated
from time to time.
Class C Limited Partner Interests or Class C Limited Partner Interest:
The issued and outstanding Limited Partner Interests owned as of a given date by
the Class C Limited Partners.
Class C Limited Partners: The Limited Partners, as of a given date,
who are identified in the Partnership's books and records as Class C Limited
Partners.
Class C Liquidation Preference: Class C Liquidation Preference as at
any time shall mean an amount equal to the sum of (A) Eight Million Dollars
($8,000,000) and (B) the then accrued Class C Return. It is acknowledged that
the Class C Liquidation Preference is subject to setoff to the extent provided
in Article X of the Asset Purchase Agreement and the "Setoff Procedure" referred
to in the Asset Purchase Agreement. Class C Liquidation Preference per Unit at
any time shall mean an amount equal to the then Class C Liquidation Preference
divided by the number of outstanding Units of Class C Limited Partner Interest.
Class C Preferred Stock: Class C Preferred Stock shall have the
meaning set forth in Section 16.02(b).
Class C Return: Class C Return shall mean a return computed and
compounded annually (with appropriate daily proration in the event of
calculation in respect of partial years) at the annual rate of 7% on the then
Class C Liquidation Preference, provided that in the event that the Class C
Liquidation Preference shall not be paid at the required time, pursuant to the
7
<PAGE>
provisions of Section 16.02(c), then such annual rate shall thereafter be
increased to 9%. Notwithstanding anything herein to the contrary, the Class C
Return shall be computed and shall compound from and including August 31, 1992.
Class C-1 Accrual Event: Class C-1 Accrual Event shall have the
meaning set forth in Section 17.06(c) hereof.
Class C-1 Exchange Notes: Class C-1 Exchange Notes shall have the
meaning set forth in Section 17.02(a).
Class C-1 Exchange Note Subordination Agreement: The Exchange Note
Subordination Agreement, dated as of January 31, 1994, among the Partnership,
UBS-NY, Internationale Nederlanden (U.S.) Capital Corporation, Barclays Bank PLC
and the Contributing Parties, as such agreement may be amended, supplemented or
restated from time to time.
Class C-1 Limited Partners: The Limited Partners, as of a given
date, who are identified in the Partnership's books and records as Class C-1
Limited Partners.
Class C-1 Limited Partner Interests or Class C-1 Limited Partner
Interest: The issued and outstanding Limited Partner Interests owned as of a
given date by the Class C-1 Limited Partners.
Class C-1 Liquidation Preference: Class C-1 Liquidation Preference
as at any time shall mean an amount equal to the sum of (A) Five Million Dollars
($5,000,000) and (B) the then accrued Class C-1 Return; provided, however, that
at any time when the Capital Account balances of the Class C-1 Limited Partners
are less than Five Million Dollars ($5,000,000), the Class C-1 Liquidation
Preference shall mean an amount equal to the sum of (1) the Capital Account
balances of the Class C-1 Limited Partners at that time and (B) the then accrued
Class C-1 Return; provided further, however, that the Class C-1 Liquidation
Preference shall become zero and shall be eliminated (but this shall not affect
the Capital Account balances of the Class C-1 Limited Partners), and the portion
thereof consisting of the then accrued Class C-1 Return shall be cancelled,
extinguished and forfeited, in each case without any further action by the
Partnership or the Class C-1 Limited Partner, upon the occurrence of the Class
C-1 Participation Event. Class C-1 Liquidation Preference per Unit at any time
shall mean an amount equal to the then Class C-1 Liquidation Preference divided
by the number of outstanding Units of Class C-1 Limited Partner Interest.
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Class C-1 Participation Amount: Class C-1 Participation Amount
shall mean 1,429,933 Units of Class C-1 Limited Partner Interest (representing
the difference of (i) a fraction the numerator of which is 16,444,232
(representing the sum of the number of Units of Class A Partner Interests, Class
B Partner Interests and Put/Call Units outstanding as of the date of the Second
Restated Agreement and the number of Protected Units (as defined in the Second
Restated Agreement) issued as of the date hereof) and the denominator of which
is 0.92, and (ii) 16,444,232. If prior to the occurrence of a Class C-1
Participation Event there has been a distribution on Units of Partner Interest
payable in Units or a split-up or a recombination of Units of Partner Interest
or other similar transaction, the Class C-1 Participation Amount shall be
appropriately adjusted, in the same manner as the Units of Class A Limited
Partner Interest and Class B Limited Partner Interest, to give effect to such
transaction.
Class C-1 Participation Event: Class C-1 Participation Event shall
mean the Partnership not having received the Notice of Election from the Class
C-1 Limited Partner pursuant to Section 17.06(a) hereof on or before the Class
C-1 Preference Election Date following the Partnership giving its first notice
to the Class C-1 Limited Partners pursuant to Section 15.01(a)(i) hereof.
Class C-1 Participation Option: Class C-1 Participation Option shall
have the meaning set forth in Section 17.02(c)(iii).
Class C-1 Preference Election Date: Class C-1 Preference Election
Date shall mean the date which is thirty (30) days after the first time notice
is given by the Partnership to the Class C-1 Limited Partner pursuant to Section
15.01(a)(i) hereof.
Class C-1 Preferred Stock: Class C-1 Preferred Stock shall have the
meaning set forth in Section 17.02(b).
Class C-1 Return: Class C-1 Return shall mean a return computed and
compounded annually (with appropriate daily proration in the event of
calculation in respect of partial years) at the annual rate of 7% on the then
Class C-1 Liquidation Preference which, solely for this purpose, shall be
determined as the sum of (A) Five Million Dollars ($5,000,000) and (B) the then
accrued Class C-1 Return, irrespective of the then Capital Account balances of
the Class C-1 Limited Partners, provided that in the event that the Class C-1
Liquidation Preference shall not be paid at the required time pursuant to the
provisions of
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Section 17.02(c) hereof, then such annual rate shall thereafter be increased to
10%. Notwithstanding the preceding sentence, the Class C-1 Return shall cease
to accrue, and any amount theretofore added to the Class C-1 Liquidation
Preference in respect of the Class C-1 Return shall be cancelled, extinguished
and forfeited, in each case without any further action by the Partnership or the
Class C-1 Limited Partner, upon the occurrence of the Class C-1 Participation
Event.
Code: The Internal Revenue Code of 1986, as amended and in effect
from time to time, or the applicable corresponding provision or provisions of
any successor law.
Comcast Agreement: The Asset Purchase and Contribution Agreement
dated as of November 24, 1993 among the Partnership, Comcast Corporation,
Comcast Sound Communications, Inc., a Delaware corporation, Comcast Sound
Communications, Inc., a California corporation, Comcast Sound Communications,
Inc., a Connecticut corporation, Comcast Sound Communications, Inc., a Florida
corporation, Comcast Sound Communications, Inc., a Texas corporation, Comcast
Sound Communications, Inc., a Michigan corporation, Comcast Sound
Communications, Inc., a New York corporation, Comcast Sound Communications,
Inc., a Pennsylvania corporation, Comcast Sound Communications, Inc., an
Illinois corporation, Comcast Sound Communications, Inc., an Indiana
corporation, Comcast Sound Management, Inc., Comcast sound Communications, and
Comcast Real Estate Holdings, Inc., as it may be amended, supplemented or
restated from time to time.
Contributed Property: Contributed Property shall mean each Partner's
interest in each property or other consideration, in such forms as may be
permitted by the Delaware RULPA, including without limitation promissory notes
of the Partnership but excluding cash and cash equivalents, contributed to the
Partnership by such Partner (or deemed contributed to the Partnership in
connection with a revaluation of Partnership property for capital account
purposes pursuant to Section 5.02(c) hereof).
Conversion Units: shall mean up to 5,000,000 Units (subject to
adjustment as provided in the Guaranteed Note) of Class A-2 Partner Interest to
be issued to UBS-NY (or an Affiliate thereof to whom assignment of the
Guaranteed Note is permitted in accordance with the terms thereof (a "UBS
Holder")) if the Guaranteed Loan is converted pursuant to Section 8.1(a) of the
Guaranteed Note or Holdings if the Guaranteed Loan is converted pursuant to
Section 8.1(c) of the Guaranteed Note.
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Delaware RULPA: The Delaware Revised Uniform Limited Partnership Act,
6 Del. C. (S) 17-101, et seq., as amended and in effect from time to time, or
the applicable corresponding provision or provisions of any successor law.
Disability: Disability, with respect to a Class B Limited Partner,
shall mean, except as otherwise provided in any employment agreement between
such Class B Limited Partner and the Partnership (in which case the term
Disability as used herein with respect to such Class B Limited Partner shall
have the meaning ascribed to it therein), the inability of such Class B Limited
Partner to perform substantially his duties and responsibilities to the
Partnership by reason of a physical or mental disability or infirmity (i) for a
continuous period of four months or (ii) at such earlier time as such Class B
Limited Partner submits satisfactory medical evidence that such Class B Limited
Partner has a physical or mental disability or infirmity that will likely
prevent such Class B Limited Partner from substantially performing his duties
and responsibilities for four months or longer. The date of such Disability
shall be on the last day of such four-month period or the day on which such
Class B Limited Partner submits such evidence, as the case may be.
Earn-Out Note: Earn-Out Note shall have the meaning ascribed to such
term in the Field Agreement.
Earn-Out Payment: Earn-Out Payment shall have the meaning ascribed to
such term in the Field Agreement.
Encumbrances: Encumbrances shall mean any and all liens, claims,
charges, security interests, options or other legal or equitable encumbrances.
Exchange Act: The Securities Exchange Act of 1934, as amended and in
effect from time to time, or the applicable corresponding provision or
provisions of any successor law.
Exeter: Exeter Venture Lenders, L.P.
Fair Market Value: Fair Market Value shall mean, with respect to a
Partner Interest, (a) in the case of the Class C Limited Partner Interests, the
Class C Liquidation Preference, (b) in the case of the Class C-1 Limited Partner
Interests, the Class C-1 Liquidation Preference until the occurrence of the
Class C-1 Participation Event, (c) in the case of Preferred Limited Partner
Interests, the Preferred Interest Liquidation Preference, and (d) in the case of
any other Partner Interest (other than the Managing General Partner's Partner
Interest), including Class B Conversion Units and the Class C-1 Partner
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Interests after the occurrence of the Class C-1 Participation Event, the fair
market value thereof as determined in good faith by the Managing General
Partner; provided, however, that in the event any Partner disagrees with any
such valuation, such Partner shall, within twenty business days, submit to the
Managing General Partner his or its proposed valuation and the Managing General
Partner and such Partner shall in good faith attempt to agree upon a valuation
for the Partner Interest. In the event that the Managing General Partner and
such Partner shall be unable to agree within twenty business days, the Managing
General Partner and such Partner shall mutually agree upon the selection of an
investment banking or appraisal firm (which shall not be Lazard Freres & Co.)
that shall provide its valuation of the Partner Interest, which valuation shall
be final and binding upon such Partner and the Partnership. The fees and
expenses of any such investment banking or appraisal firm shall be borne (i) by
the Partnership, if the Partner's proposed valuation for the Partner Interest
was closer to the investment banking or appraisal firm's valuation thereof or
(ii) by the Partner, if the Managing General Partner's proposed valuation was
closer to the investment banking or appraisal firm's valuation. The Fair Market
Value of the Managing General Partner's Partner Interest shall be such fair
market value thereof as to which the Managing General Partner and Administrative
General Partner shall agree in good faith and in accordance with the provisions
of Sections 11.06(e) and 11.07(e) hereof; or if the Managing General Partner and
Administrative General Partner shall be unable to agree within twenty business
days, the Fair Market Value of the Managing General Partner's Partner Interest
shall be the valuation furnished by an investment banking or appraisal firm
jointly selected by the Managing General Partner and the Administrative General
Partner, which valuation shall be final and binding upon the Managing General
Partner and the Partnership, and the fees and expenses of such investment
banking or appraisal firm shall be borne by the Partnership.
Field Agreement: The Asset Purchase Agreement dated as of March 11,
1992, by and among the Partnership, MLP Sales, Field/Muzak, Inc. and The Field
Corporation, as amended pursuant to Section 6.08 thereof by MLP Sales' letters
dated April 22, 1992 and August 20, 1992, Amendment No. 1 thereto dated as of
June 26, 1992, Amendment No. 2 thereto dated July 31, 1992 and Amendment No. 3
thereto dated as of August 26, 1992, and as it may be further amended,
supplemented or restated from time to time.
Fiscal Period: Fiscal Period shall have the meaning set forth in
Section 6.01 hereof.
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Fiscal Year: Fiscal Year shall have the meaning set forth in Section
6.01 hereof.
General Partners: The Managing General Partner and Administrative
General Partner or any additional or successor general partner or general
partners of the Partnership in their capacity as general partners of the
Partnership.
General Partner Interests: The issued and outstanding General Partner
Interests owned as of a given date by the General Partners.
Group A Partners: The Managing General Partner and the Class A
Limited Partners.
Guaranteed Note: Guaranteed Note shall have the meaning ascribed to
such term in the Second Restated Agreement.
Indebtedness: Indebtedness, with respect to any Person, shall mean
all liabilities or obligations, direct and contingent, which in accordance with
Generally Accepted Accounting Principles would be included in determining total
liabilities as shown on the liability side of a balance sheet of such Person at
the date as of which Indebtedness is to be determined.
Indemnification Agreement: That certain indemnification agreement (as
it may be amended, supplemented or restated from time to time), dated as of
September 4, 1992, between the Partnership and Barclays Bank PLC with respect to
the Put/Call Units.
Initial Partners: The Managing General Partner and the Class A-1
Limited Partners.
Involuntary Termination: Involuntary Termination shall mean the
Partnership's termination of a Class B Limited Partner's employment with the
Partnership, which termination is not for Cause or the result of a Class B
Limited Partner's Voluntary Resignation, Retirement, death or Disability.
Limited Partner: Any Person who, as of a given date, is identified in
the Partnership's books and records as a limited partner, including without
limitation a Class A Limited Partner, Class B Limited Partner, Preferred
Interest Limited Partner, Class C Limited Partner or Class C-1 Limited Partner.
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Limited Partner Interests or Limited Partner Interest: The issued and
outstanding Limited Partner Interests owned as of a given date by the Limited
Partners.
Majority Vote: The written approval of, or affirmative vote by,
holders of a majority of the aggregate number of outstanding Units of General
Partner Interest and Limited Partner Interest (other than Units of Preferred
Limited Partner Interest, Units of the Class C Limited Partner Interest and
Units of the Class C-1 Limited Partnership Interests prior to the Class C-1
Participation Event), voting together and not as separate classes, with each
Unit of General Partner Interest and each Unit of Limited Partner Interest
(other than Units of Preferred Limited Partner Interest, Units of Class C
Limited Partner Interest and Units of Class C-1 Limited Partner Interest prior
to the Class C-1 Participation Event) having one vote, provided, that for
purposes of Section 11.02, Majority Vote shall mean the written approval of, or
affirmative vote by, a majority in interest of the remaining Partners, including
the Preferred Interest Limited Partners, Class C Limited Partners and the Class
C-1 Limited Partners, with such majority in interest being determined with
reference to the Units held by the remaining Partners, with each such Unit
having one vote; and provided, further, that Units of Class A-2 Limited Partner
Interest, Units of Preferred Limited Partner Interest and/or Class B Conversion
Units owned by Restricted Partners shall not, except as provided below and in
Section 13.03 hereof, be deemed to be outstanding for the purposes of
determining the aggregate number of outstanding Units of Partner Interests
required to constitute a Majority Vote and the Restricted Partners shall not,
except as provided below and in Section 13.03 and Section 13.05 hereof, have any
voting rights under this Agreement; and provided, further, that Units of Class
A-2 Limited Partner Interest, Units of Preferred Limited Partner Interest and/or
Class B Conversion Units owned by Restricted Partners shall be deemed to be
outstanding for the purposes of determining the aggregate number of outstanding
Units of Partner Interests required to constitute a Majority Vote, and the votes
of such Restricted Partners shall be included in determining (i) whether the
unanimous vote of the General Partners and the Limited Partners has been
obtained in accordance with Section 13.03 hereof and (ii) whether a Majority
Vote has been obtained, solely with respect to the following:
(a) any action referred to in Section 12.02(b) of this Agreement,
provided that no Restricted Partner shall be deemed to own more than
4.9% of the outstanding Units of Limited Partner Interest (and Units
owned by such Restricted Partner in excess thereof shall not be deemed
to be outstanding) for purposes of any action by
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the Partners pursuant to Section 12.02(b) of this Agreement; or
(b) the dissolution of the Partnership under Section 12.02(c) of this
Agreement.
Management Option Plan: The Management Option Plan of the
Partnership, dated as of September 4, 1992, as it may be amended, supplemented
or restated from time to time.
Minimum Gain: Minimum Gain shall refer to the amount determined by
first computing with respect to each Partnership Nonrecourse Liability and each
Partner Nonrecourse Liability, respectively, the excess from time to time of the
outstanding balance of such indebtedness over the adjusted income tax basis of
the Partnership's assets subject to such indebtedness. The Minimum Gain with
respect to Partnership Nonrecourse Liabilities and Partner Nonrecourse
Liabilities, respectively, shall be separately determined for each Partnership
Nonrecourse Liability and each Partner Nonrecourse Liability. In the case of
Contributed Property, Minimum Gain shall be determined by using the Carrying
Value of such Contributed Property rather than the adjusted income tax basis of
such Property.
Net Agreed Value: The Net Agreed Value shall mean (a) in the case of
the Contributed Properties transferred by MLP Sales to the Partnership pursuant
to the Field Agreement in consideration for the Class C Limited Partner
Interest, the aggregate sum of Eight Million Dollars ($8,000,000), (b) in the
case of the Contributed Properties transferred by the Class C-1 Limited Partners
to the Partnership pursuant to the Comcast Agreement, the aggregate sum of Five
Million Dollars ($5,000,000), and (c) thereafter, in the case of any Contributed
Property, the Agreed Value of such property reduced by any indebtedness that is
assumed by the transferee of such property or to which such property is subject.
Net Income or Net Loss: "Net Income" or "Net Loss" for any Fiscal
Year or Fiscal Period means an amount equal to the Partnership's taxable income
or loss for such year or period, determined in accordance with Section 703(a) of
the Code (for this purpose, all items of income, gain, loss or deduction
required to be stated separately pursuant to Section 703(a)(1) of the Code shall
be included in taxable income or loss), with the following adjustments:
(i) Any income of the Partnership that is exempt from federal income
tax and is not otherwise taken into account in computing Net Income or
Net Loss pursuant to
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this definition will be added to such taxable income or loss;
(ii) Any expenditures of the Partnership that are not deductible in
computing taxable income or loss, not properly chargeable to capital
accounts and not otherwise taken into account in computing Net Income
or Net Loss pursuant to this definition shall be subtracted from such
taxable income or loss;
(iii) Any income, gain or loss attributable to a taxable disposition
of any Contributed Property will be determined by the Partnership as
if the adjusted basis of such property as of the date of disposition
was equal in amount to the Carrying Value of such property as of such
date, notwithstanding that the adjusted tax basis of such property
differs from its Carrying Value;
(iv) Any deductions for depreciation, amortization or cost recovery
attributable to Contributed Property shall be an amount which bears
the same ratio to the Carrying Value of such property as of the
beginning of such Fiscal Year or Fiscal Period as the federal income
tax depreciation, amortization, or cost recovery deduction for such
period bears to the adjusted income tax basis of such property at the
beginning of such Fiscal Year or Fiscal Period; provided, however,
that if such property has an adjusted income tax basis equal to zero,
depreciation, amortization or cost recovery deductions, as the case
may be, shall be determined using any reasonable method that the
Managing General Partner has adopted;
(v) In the event the Agreed Values of the Partnership's assets are
adjusted pursuant to Section 5.02(c) hereof, the amount of such
adjustment shall be taken into account as gain or loss on disposition
of such assets in computing Net Income or Net Loss; and
(vi) Except as otherwise provided in Treasury Regulation Section
1.704-1(b)(2)(iv)(m), the computation of all items of income, gain,
loss, and deduction shall be made without regard to any election under
Section 754 of the Code which may be made by the Managing General
Partner on behalf of the Partnership.
1933 Act: The Securities Act of 1933, as amended and in effect from
time to time, or the applicable corresponding provision or provisions of any
successor law.
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Nonrecourse Deductions: The Nonrecourse Deductions of the Partnership
for any Fiscal Year shall equal the net increase in the Minimum Gain during such
Fiscal Year with respect to all Partnership Nonrecourse Liabilities, reduced
(but not below zero) by the aggregate distributions made by the Partnership
during such Fiscal Year out of the proceeds of a Partnership Nonrecourse
Liability.
Notice of Election: Notice of Election shall have the meaning set
forth in Section 17.06(a).
Option Exercise Price: Option Exercise Price shall have the meaning
set forth in Section 17.02(c)(iii).
Partner: Any Person who is a General Partner, Limited Partner or such
other partner admitted pursuant to the provisions of Section 11.11 hereof;
Partners means two or more of such Persons.
Partner Interests or Partner Interest: The issued and outstanding
interests in the Partnership owned as of a given date by the Partners, including
without limitation Units acquired upon the exercise of Performance Options.
References in this Agreement to a Partner in connection with a specified class
of Partner Interest are references to the Person solely in its capacity as the
holder of the specified class of Partner Interest and not in its capacity, if
applicable, as a Partner holding a class of Partner Interest other than the
specified class of Partner Interest.
Partner Nonrecourse Deductions: The Partner Nonrecourse Deductions of
the Partnership for any Fiscal Year shall be determined in the same manner as
the Partnership's Nonrecourse Deductions for such Fiscal Year, except that
Partner Nonrecourse Deductions shall be computed based on the increase in
Minimum Gain, less any related distributions, during such Fiscal Year with
respect to only Partner Nonrecourse Liabilities.
Partner Nonrecourse Liabilities: The Partner Nonrecourse Liabilities
of the Partnership for any Fiscal Year shall mean the aggregate outstanding
principal balance of those of the Partnership's nonrecourse liabilities with
respect to which a Partner (or related person, within the meaning of Treasury
Regulation Section 1.752-4(b)) bears the economic risk of loss under Treasury
Regulation Section 1.752-2.
Partnership Nonrecourse Liabilities: The Partnership Nonrecourse
Liabilities for any Fiscal Year shall mean the aggregate outstanding principal
balance of the Partnership's
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nonrecourse liabilities other than Partner Nonrecourse Liabilities.
Percentage Interest: The Percentage Interest of a General Partner or
Limited Partner (other than a Preferred Interest Limited Partner as to Units of
Preferred Limited Partner Interest held by such Limited Partner, a Class C
Limited Partner and, except as hereinafter provided, other than a Class C-1
Limited Partner) in the Partnership at a given time shall mean the percentage in
Partnership profits and losses represented by such Partner's Units of Partner
Interest expressed as a fraction, the numerator of which shall be the number of
such Partner's Units of Partner Interest and the denominator of which shall be
the total number of issued and outstanding Units of Partner Interest excluding
the Units of Preferred Limited Partner Interest, the Units of Class C Limited
Partner Interest and, prior to the occurrence of the Class C-1 Participation
Event, also excluding the Units of Class C-1 Limited Partner Interest.
Notwithstanding the foregoing, for purposes of Articles V and VI and Section
16.01 of this Agreement, prior to the admission of Barclays as a Class A-2
Limited Partner, the Percentage Interest represented by the Put/Call Units, and
the Percentage Interests of the Partners, shall be determined as if the Put/Call
Units were actually issued and outstanding. The Class C Limited Partners'
Percentage Interest shall be zero. The Percentage Interest of a Preferred
Interest Limited Partner as to Units of Preferred Limited Partner Interest held
by such Preferred Interest Limited Partner shall be zero until such Units are
converted, at which time the following adjustments to Percentage Interests shall
be made: (1) the Percentage Interests represented by all outstanding Units
(other than Units of Preferred Limited Partner Interest, Units of Class C
Limited Partner Interest and, prior to the Class C-1 Participation Event, Units
of Class C-1 Limited Partner Interest), including the Class B Conversion Units
issued in the conversion, shall be determined by including in the denominator
referred to in the first sentence of this definition, the Class B Conversion
Units so issued; and (2) the Percentage Interest of such Limited Partner shall
be increased by the Percentage Interest determined pursuant to clause (1) for
the Class B Conversion Units issued in the conversion. The Percentage Interest
of the Class C-1 Limited Partners shall be zero unless the Class C-1
Participation Event shall occur, in which event the Percentage Interest of the
Class C-1 Limited Partners shall automatically be increased to a percentage
determined as a fraction, the numerator of which is the Class C-1 Participation
Amount, and the denominator of which is the amount that is used to calculate the
Percentage Interest of a Partner (other than the Class C Limited Partners)
immediately after such increase. Upon the occurrence of the Class C-1
Participation Event, (a) the
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number of Units of Class C-1 Limited Partner Interest shall be adjusted to be
equal in number to the Class C-1 Participation Amount and (b) the Percentage
Interests of all Partners (other than the Class C Limited Partners), including
the Class C-1 Limited Partners, and the Percentage Interests represented by the
Put/Call Units, respectively, shall be redetermined by including in the
denominator referred to in the first sentence of this definition, the Units of
Class C-1 Limited Partner Interest held by the Class C-1 Limited Partners
immediately after the Class C-1 Participation Event.
Performance Option: Performance Option shall mean an option granted
pursuant to the Management Option Plan.
Permitted Securities: Permitted Securities shall have the meaning set
forth in Section 6.05(a)(ii).
Person: Any individual, corporation, association, partnership,
business trust, joint stock company, joint venture, trust, estate or other
entity or organization of whatever nature.
Preferential Return: Preferential Return shall mean a return computed
and compounded quarterly (with appropriate daily proration in the event of
calculation in respect of partial quarters) at the annual rate of 8% on the then
Preferred Interest Liquidation Preference.
Preferred Interest Liquidation Preference: Preferred Interest
Liquidation Preference per Unit at any time shall mean an amount equal to the
sum of (A) $1.75 and (B) the then accrued and unpaid Preferential Return on such
Unit. The aggregate Preferred Interest Liquidation Preference at any time shall
mean an amount equal to the then Preferred Interest Liquidation Preference per
Unit multiplied by the number of the then outstanding Units of Preferred Limited
Partner Interest.
Preferred Interest Limited Partners: The Limited Partners, as of a
given date, who are identified in the Partnership's books and records as
Preferred Interest Limited Partners.
Preferred Limited Partner Interests or Preferred Limited Partner
Interest: The issued and outstanding Limited Partner Interests owned as of a
given date by the Preferred Interest Limited Partners.
Pro Rata Share: Pro Rata Share shall mean the percentage of Transfer
Units, Class B Transfer Units or Treasury Units (as such terms are defined in
Article XI hereof) being offered by
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a Transferring Group A Partner or a Class B Transferring Partner or with respect
to the purchase of Termination Units from a Terminated Limited Partner (as such
terms are defined in this Article I or Article XI hereof) that each other
Partner (other than the Class C Limited Partners and, prior to the Class C-1
Participation Event, the Class C-1 Limited Partners) shall be entitled to
purchase, if any, upon any particular offer made pursuant to Article XI hereof.
Such percentages as to each other Partner shall be determined by dividing the
number of Units owned by such Partner by the aggregate number of Units owned by
all Partners (other than the Class C Limited Partners and, prior to the Class C-
1 Participation Event, the Class C-1 Limited Partners) entitled to participate
in the purchase of such Transfer Units, Class B Transfer Units or Treasury
Units.
Promissory Note: Promissory Note shall mean the promissory note(s),
if any, that a Class B Limited Partner or Preferred Interest Limited Partner
delivers to the Partnership pursuant to a Subscription Agreement.
Put and Call Option Agreement: The Option Agreement (as it may be
amended, supplemented or restated from time to time), dated as of September 4,
1992, between the Partnership and Barclays Bank PLC.
Put/Call Units: Put/Call Units shall have the meaning set forth in
Section 2.03(c).
Restricted Partner: Restricted Partner shall mean any Limited Partner
which is (i) subject to regulation as a bank holding company or a subsidiary of
a bank holding company under Regulation Y of the Board of Governors of the
Federal Reserve System (including, without limitation, by virtue of the
International Banking Act of 1978), (ii) otherwise prohibited under applicable
law relating to banks or bank holding companies from owning a Partner Interest
which has the voting rights granted to the holder of such Partner Interests
(without regard to any limitation applicable to Restricted Partners), or (iii)
any Person who has been admitted as a Substituted Limited Partner with respect
to a Restricted Partner's Limited Partner Interest and has not notified the
Partnership that it has elected to become a Limited Partner (without regard to
the limitations applicable to Restricted Partners).
Retirement: Retirement shall mean with respect to a Class B Limited
Partner or Preferred Interest Limited Partner, except as otherwise provided in
any employment agreement between such Partner and the Partnership (in which case
the term Retirement as used herein with respect to such Partner shall have
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the meaning ascribed to it therein), such Partner's termination of employment
after attainment of age 65 and after having been continuously employed by the
Partnership for at least one year.
Sale: Sale shall mean the sale of all or substantially all of the
Partnership's assets in one transaction or a series of related transactions.
Specified C-1 Event: Specified C-1 Event shall have the meaning set
forth in Section 6.05(f) hereof.
Specified Debt: The credit facility provided to the Partnership by
Union Bank of Switzerland, New York Branch ("UBS-NY") pursuant to the Credit
Agreement, dated September 4, 1992, among the Partnership, UBS-NY, other
Lenders, and UBS-NY, as agent, as amended and restated as of January 31, 1994
and as such agreement may be further amended, supplemented or restated from time
to time, and the loan made by Barclays Bank PLC to the Partnership, as of the
date of the First Restated Agreement, pursuant to the Subordinated Loan
Agreement between the Partnership and Barclays Bank PLC, as amended as of
January 31, 1994, as further amended as of the date hereof to provide for, among
other things, an additional loan made from Barclays Bank PLC to the Partnership
as of the date hereof, and as such agreement may be further amended,
supplemented or restated from time to time, and any refinancing of such credit
facility or loans.
Specified Debt Agreements: The agreements (as they may be amended,
supplemented or restated from time to time) governing the Specified Debt,
including without limitation the Earn-Out Note Subordination Agreement dated as
of September 4, 1992, among the Partnership, Barclays Bank PLC, UBS-NY and Muzak
Limited Partnership (now known as MLP Sales Limited Partnership) the Class C
Exchange Note Subordination Agreement, and the Class C-1 Exchange Note
Subordination Agreement, as such agreements may be amended, supplemented or
restated from time to time.
Specified Event: Specified Event shall have the meaning set forth in
Section 6.05(a)(ii) hereof.
Specified Partner: Specified Partner shall have the meaning set forth
in Section 11.04(a) hereof.
Subscription Agreement: The subscription agreement of a Limited
Partner with respect to its purchase of its Limited Partner Interest.
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Subsidiary: Subsidiary shall mean a Person in which the Partnership
has a direct or indirect ownership interest that either (i) entitles the
Partnership directly or indirectly to cast a majority of the votes, consents or
other approvals cast by holders of ownership interests in such Person generally
or (ii) entitles the Partnership directly or indirectly to exercise control over
the management or policies of such Person.
Substituted Limited Partner: A Person who is admitted to the
Partnership as a Limited Partner pursuant to Section 11.10 of this Agreement (i)
in place of a Limited Partner who has Transferred all of his Units of Limited
Partner Interest to such Person, (ii) in place of a Limited Partner who has
Transferred some of his Units of Limited Partner Interest to such Person and has
Transferred the remainder of his Units of Limited Partner Interest to other
Partners, in accordance with the terms of Article XI hereof, or (iii) in
addition to a Limited Partner who has Transferred a portion of his Units of
Limited Partner Interest to such Person, and who is listed as a Limited Partner
on the books and records of the Partnership. Such Person shall have all the
rights of a Limited Partner.
Third Party: Third Party shall mean any Person excluding each of the
following: (i) the Class B Limited Partners; (ii) the Partnership, the General
Partners and any officer, director, affiliate or associate (as such terms are
defined in the rules and regulations under the Exchange Act) of the Partnership
or any General Partner; (iii) the Class A-1 Limited Partners, any of Holdings'
affiliates or associates (as such terms are defined in the rules and regulations
under the Exchange Act), any of Holdings' partners and their officers',
directors', affiliates', associates' and partners' respective affiliates and
associates (as such terms are defined in the rules and regulations under the
Exchange Act); (iv) the Class A-2 Limited Partners and any affiliate or
associate (as such terms are defined in the rules and regulations under the
Exchange Act) of any Class A-2 Limited Partner; and (v) the Preferred Interest
Limited Partners.
Transfer: Transfer shall mean any transfer, assignment, sale, lease,
pledge, hypothecation or other disposition of the asset in question or of any
interest in such asset.
Transfer Event: Transfer Event shall mean (i) a Transfer of
substantially all of the assets of the Partnership, (ii) a change in control of
the board of directors of the general partner of the Managing General Partner
(or if the Partnership is incorporated, of the board of directors of the
successor corporation) pursuant to which any single Person other than an
Affiliate
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of the Partnership acquires control of such board of directors or (iii) the
Transfer of more than 50% of the voting equity interests in the Partnership (or
any parent of the Partnership) and with respect to a Class C-1 Limited Partner
only, the Transfer of more than 50% of the general partnership interests in the
Managing General Partner or more than 50% of the voting equity interests in the
general partner of the Managing General Partner, in each case other than to an
Affiliate of Holdings, the Managing General Partner or Centre Partners L.P., in
either case whether by sale, merger or consolidation to any single Person or two
or more Affiliated Persons (provided that such two or more Affiliated Persons
would be considered to be acting in concert as a "group" for purposes of Section
13(d) of the Exchange Act, for purposes hereof treating such voting equity
interests as if such voting equity interests were equity securities in respect
to which a Schedule 13D would be required to be filed with the Securities and
Exchange Commission as if the requisite percentage and other threshold
conditions to such filing were satisfied) (other than a pledge of such interests
to (x) the Partnership to secure the Promissory Notes and/or (y) the holders of
the Specified Debt); provided, however, that a "Transfer Event" shall not
include (i) a change of control of Holdings or Centre Partners L.P. or their
successors (unless at the time of such change of control, substantially all the
operating assets of Holdings or Centre Partners L.P. directly or indirectly,
consist of assets of the Partnership), (ii) any Transfer of the voting
partnership interests in the Partnership of Holdings or the Managing General
Partner to each other and/or to an Affiliate or one or more partners of
Holdings, the Managing General Partner or Centre Partners L.P., or (iii) a
Transfer of substantially all of the assets of the Partnership in connection
with an incorporation of the Partnership and its business and assets in
accordance with the provisions of this Agreement. For purposes of the foregoing
definition, Preferred Limited Partner Interests shall not be deemed to be voting
equity interests in the Partnership.
Treasury Regulations: Treasury Regulations promulgated in final,
temporary or proposed form under the Code, as such Treasury Regulations may be
amended from time to time. Any reference herein to a specific Treasury
Regulation provision shall be deemed to include a reference to the corresponding
provision of any successor provision.
UBS: UBS Holdings Inc.
UBS-NY: Union Bank of Switzerland, New York Branch.
UBS Entity: Any corporation or other entity of which at least 75% of
its outstanding securities (both by vote and by
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value) are directly or indirectly owned by Union Bank of Switzerland and in
which no Person (other than Union Bank of Switzerland or another UBS Entity) has
a controlling interest.
Unit: Unit shall mean the unit for measurement of the Partner
Interest of each Partner. Each General Partner's Partner Interest shall be
represented by Units of General Partner Interest. Each Limited Partner's
Partner Interest shall be represented by Units of Limited Partner Interest.
Notwithstanding the foregoing, for purposes of Articles V, VI and X and Sections
12.04(c), 16.01 and 18.02 of this Agreement, prior to the admission of Barclays
as a Class A-2 Limited Partner, the Put/Call Units shall be treated as if they
were actually issued and outstanding Units of Limited Partner Interest. All
Units of Limited Partner Interest and General Partner Interest shall be
evidenced by certificates substantially in the form of Exhibits A and B,
respectively. References in this Agreement to a specific Partner's Units of a
specified class of Partner Interest are references to the Units of the Person
solely of such class and not, if applicable, of any other class of Partner
Interest.
Unit Register: Unit Register shall have the meaning set forth in
Section 10.01(c).
Voluntary Resignation: Voluntary Resignation shall mean the
termination of a Class B Limited Partner's or Preferred Interest Limited
Partner's employment with the Partnership by such Partner, other than for
Retirement, death, Disability, Cause or Involuntary Termination.
ARTICLE II
ORGANIZATION
Section 2.01. Formation of the Partnership. The Managing General
Partner and Centre Capital Investors L.P. formed the Partnership on February 18,
1992, pursuant to the provisions of the Delaware RULPA, upon the filing of the
Certificate of Limited Partnership with the office of the Secretary of State of
the State of Delaware. If the laws of any jurisdiction in which the Partnership
transacts business so require, the Managing General Partner shall file with the
appropriate office in that jurisdiction any documents necessary for the
Partnership to qualify to transact business in such jurisdiction and shall use
its best efforts to file with the appropriate office in that jurisdiction any
documents necessary for the Partnership to qualify to transact business in such
jurisdiction and shall use its best efforts to file with the appropriate office
in that
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jurisdiction any documents necessary to establish and maintain the Limited
Partners' limited liability in such jurisdiction. The Partners further agree and
obligate themselves to execute, acknowledge and cause to be filed for record, in
the place or places and manner prescribed by law, any amendments and/or
restatements to the Certificate of Limited Partnership as may be required,
either by the Delaware RULPA, by the laws of a jurisdiction in which the
Partnership transacts business or by this Agreement, to reflect changes in the
information contained therein or otherwise to comply with the requirements of
law for the continuation, preservation and operation of the Partnership as a
limited partnership under the Delaware RULPA.
Section 2.02. Initial Contributions. On March 11, 1992, (i) the
Managing General Partner contributed $100 to the capital of the Partnership in
consideration for 100 Units of General Partner Interest and (ii) the Managing
General Partner acting on behalf of the Partnership accepted as a contribution
to the capital of the Partnership $9,900 from Centre Capital Investors L.P. in
consideration for 9,900 Units of Limited Partner Interest.
Section 2.03. Additional Capital Contributions.
(a) Concurrently with the execution of the First Restated Agreement,
the Managing General Partner made an additional Capital Contribution for such
number of Units, at a price of $1.00 per Unit, so that its total number of Units
and total Capital Contribution was as set forth opposite its name in Schedule I
to the First Restated Agreement.
(b) Concurrently with the execution of the First Restated Agreement,
each of the Persons listed in Schedule I to the First Restated Agreement who had
not theretofore been admitted as a partner of the Partnership made a Capital
Contribution or, in the case of the Class B Limited Partners, made a Capital
Contribution and, if applicable, delivered a Promissory Note for the number of
Units, at a price of $1.00 per Unit, as set forth opposite its respective name
in Schedule I to the First Restated Agreement. Each of such Persons who had not
theretofore been admitted as a partner of the Partnership was at such time
admitted as a partner of the Partnership with the status as set forth on
Schedule I to the First Restated Agreement.
(c) Pursuant to the Put and Call Option Agreement and the Exeter
Option Agreement, the Partnership has agreed to authorize the issuance of an
additional 1,529,898 Units (subject to adjustment as provided therein) of Class
A-2 Limited Partner
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Interests (the "Put/Call Units"), and to transfer ownership of the Put/Call
Units to Barclays under the circumstances described in the Put and Call Option
Agreement and/or the Exeter Option Agreement for a total subscription price of
$10.00. Upon the issuance of the Put/Call Units to Barclays under the
circumstances described in the Put and Call Option Agreement and the Exeter
Option Agreement, Barclays shall be admitted as a Class A-2 Limited Partner at
the time (i) this Agreement or a counterpart hereof is executed by or on behalf
of Barclays, and (ii) Barclays is listed as a Class A-2 Limited Partner of the
Partnership on the books and records of the Partnership. Upon the admission of
Barclays as a Class A-2 Limited Partner, the Capital Account of the Put/Call
Units shall be deemed to be the Capital Account of Barclays.
(d) Concurrently with the execution of the Second Restated Agreement,
the Class C-1 Limited Partners contributed to the capital of the Partnership
Contributed Properties with an aggregate Net Agreed Value of $5,000,000, and
received the number of Units of Class C-1 Limited Partner Interest set forth
opposite their respective names set forth in Schedule I to the Second Restated
Agreement.
(e) Concurrently with the execution of this Agreement, each Preferred
Interest Limited Partner made a Capital Contribution for the number of Units of
Preferred Limited Partner Interest, at a price of $1.75 per Unit, set forth
opposite each such Preferred Interest Limited Partner's name in Schedule I
hereto, and each such Person was admitted to the Partnership as a Preferred
Interest Limited Partner.
Section 2.04. Name. The name of the Partnership is Muzak Limited
Partnership. The Managing General Partner shall promptly execute, file and
record any assumed or fictitious name certificates required by the laws of any
state in which the Partnership transacts business. The words "Limited
Partnership" (or an abbreviation thereof) shall be included in the name to the
extent required to comply with the laws of any jurisdiction that so requires.
The Managing General Partner may change the name of the Partnership at any time
or from time to time. The Partnership's business may be conducted under any
other name or names deemed advisable by the Managing General Partner, including
the name of the Managing General Partner or any Affiliate thereof.
Section 2.05. Place of Business. The principal place of business of
the Partnership shall be at 400 North 34th Street, Seattle, Washington 98103.
The Managing General Partner may hereafter change the principal place of
business of the Partner-
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ship to such other place or places as the Managing General Partner may determine
from time to time upon prior notice to the other parties hereto.
Section 2.06. Registered Office and Registered Agent. The registered
office of the Partnership in the State of Delaware is c/o United Corporate
Services, Inc., 15 East North Street, Dover, Kent County, Delaware 19901, and
the name and address of the registered agent for service of process on the
Partnership in the State of Delaware is United Corporate Services, Inc., 15 East
North Street, Dover, Kent County, Delaware 19901.
ARTICLE III
PURPOSES
Section 3.01. Purposes and Business. The principal purposes and
business of the Partnership shall be to engage in the business of on-location
and broadcast business services, which include without limitation producing,
marketing and distributing programmed music, music video services, data
communications services, electronic publication and information distribution
services, video communications services, in-store advertising and promotion
services, related equipment and ancillary communications and other related
services, and in any activities which may lawfully be conducted by a limited
partnership formed pursuant to the Delaware RULPA.
Section 3.02. Powers.
(a) The Partnership shall have the power to do any and all acts
necessary, appropriate, proper, advisable, incidental or convenient to or for
the furtherance of the purposes and business described herein and for the
protection and benefit of the Partnership, and shall have, without limitation,
any or all of the powers that may be exercised on behalf of the Partnership by
the Managing General Partner pursuant to Article VII.
(b) Without limiting the provisions of Section 3.02(a) and without
limiting the power and authority of the Partnership or the Managing General
Partner on behalf of the Partnership to enter into other agreements on behalf of
the Partnership, the Partnership and the Managing General Partner on behalf of
the Partnership may, and hereby are authorized to, enter into and perform the
Specified Debt Agreements, the Put and Call Option Agreement, the Barclays
Letter Agreement and the Indemnification Agreement without any further act, vote
or approval of any
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Partner or any other Person notwithstanding any provision of this Agreement or
the Delaware RULPA.
Section 3.03. Changes in the Tax Laws.
(a) If, as a result of a change in the federal income tax laws or the
occurrence of any other event, the Managing General Partner reasonably believes
there is a substantial risk that the Partnership may be treated as an
association taxable as a corporation for federal income tax purposes, the
Managing General Partner shall have the right, but not the obligation, (i) to
incorporate the Partnership and its business and assets, subject to its
liabilities, in which event the Managing General Partner shall use reasonable
efforts to effectuate the incorporation of the Partnership in a manner that will
minimize the amount of taxes payable by the Partnership and the Partners in
connection therewith, or (ii) to attempt to qualify the Partnership for any
other pass-through treatment then available for federal income tax purposes. In
the event of a transfer of the Partnership's assets to a corporation pursuant to
(i) above, (A) each Partner (other than a Preferred Interest Limited Partner,
Class C Limited Partner and a Class C-1 Limited Partner prior to the occurrence
of Class C-1 Participation Event) shall receive, in exchange for its Units of
Partner Interest, such shares of common stock as are in accordance with its
Percentage Interest at the time of such transfer, provided, that Limited
Partners who are Restricted Partners shall receive shares of common stock in
such corporation which shall have such voting rights (in any event not more
extensive than those voting rights accorded to the other Limited Partners who
are not Restricted Partners) which shall, in the sole opinion of a majority in
interest of such Restricted Partners, not result in such common stock
constituting a "voting security" under Regulation Y of the Board of Governors of
the Federal Reserve System or otherwise result in the inability of any such
Restricted Partner to own such common stock, and provided, further, that if
Barclays shall not have been admitted as a Class A-2 Limited Partner prior to
the time of such transfer, Barclays shall receive, in exchange for its rights
with respect to the Put/Call Units under the Put and Call Option Agreement, the
Barclays Letter Agreement and the Indemnification Agreement, warrants to acquire
shares of common stock in such corporation which have the same or substantially
the same voting rights as the shares being issued to the Restricted Partners, as
is in accordance with its Percentage Interest for the Put/Call Units at the time
of such transfer, (B) the resulting corporate structure will reflect (to the
extent applicable and consistent with a corporate structure) substantially the
same rights and restrictions that the Partners have pursuant to this Agreement,
and (C) whether or not Barclays shall have been admitted as a
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Class A-2 Limited Partner prior to the time of such transfer, Barclays shall
have the same or substantially the same registration and other rights as are
contained in the Barclays Letter Agreement with respect to its warrants or
shares of common stock in such corporation.
(b) In the event of an incorporation of the Partnership pursuant to
(a)(i) above, each Class C Limited Partner shall receive, in exchange for its
Units of Class C Limited Partner Interest, such number of shares of Class C
Preferred Stock as would entitle the holder thereof to receive a liquidation
preference at the time of such exchange equal to the Class C Liquidation
Preference in respect of the Class C Limited Partner Interest of such Partner so
exchanged, subject to cash settlement (based on such then liquidation
preference) of fractional shares that would otherwise be required to be issued,
but shall not be entitled to participate in any other distributions which may be
made by such corporation with respect to shares of common stock.
(c) In the event of an incorporation of the Partnership pursuant to
(a)(i) above prior to the occurrence of a Class C-1 Participation Event, each
Class C-1 Limited Partner shall receive, in exchange for its Units of Class C-1
Limited Partner Interest, such number of shares of Class C-1 Preferred Stock as
would entitle the holder thereof to receive a liquidation preference at the time
of such exchange equal to the Class C-1 Liquidation Preference in respect of the
Class C-1 Limited Partner Interest of such Partner so exchanged, subject to cash
settlement (based on such then liquidation preference) of fractional shares that
would otherwise be required to be issued, but shall not be entitled to
participate in any other distributions which may be made by such corporation
with respect to shares of common stock.
(d) The Managing General Partner shall determine the number of shares
of Class C Preferred Stock to which the Class C Limited Partners are entitled,
and the number of shares of Class C-1 Preferred Stock to which the Class C-1
Limited Partners are entitled, and the amount of cash settlement as aforesaid,
in each case in its reasonable discretion exercised in good faith. The shares of
Class C Preferred Stock shall have the same economic terms as the Class C
Limited Partner Interests and the shares of Class C-1 Preferred Stock shall have
the same economic terms as the Class C-1 Limited Partner Interests (including
without limitation accretion of liquidation preference at the equivalent of the
Class C Return and the Class C-1 Return, respectively) and shall otherwise have,
in all material respects, the same rights, preferences, privileges, limitations
and restrictions as the
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Class C Limited Partner Interest and the Class C-1 Limited Partner Interests,
respectively (except that the distributions described in Section 6.05(a)(ii)(y)
shall not be permitted for any taxable year commencing after the incorporation
of the Partnership. Such terms shall be reflected in the certificate of
incorporation of the corporation and/or a certificate of designations.
(e) In the event of an incorporation of the Partnership pursuant to
(a)(i) above, each Preferred Interest Limited Partner shall receive, in exchange
for its Units of Preferred Limited Partner Interest, such number of shares of
Class A Preferred Stock as would entitle the holder thereof to receive a
liquidation preference at the time of such exchange equal to the Preferred
Interest Liquidation Preference in respect of the Preferred Limited Partner
Interests of such Partner so exchanged, subject to cash settlement (based on
such then liquidation preference) of fractional shares that would otherwise be
required to be issued, but shall not be entitled to participate in any other
distributions which may be made by such corporation with respect to shares of
common stock.
(f) The Managing General Partner shall determine the number of shares
of Class A Preferred Stock to which the Preferred Interest Limited Partners are
entitled, and the amount of cash settlement as aforesaid, in each case in its
reasonable discretion exercised in good faith. The shares of Class A Preferred
Stock shall have the same economic terms as the Preferred Limited Partner
Interests (including without limitation accrual of dividends at a rate
equivalent to the rate of the Preferential Return) and shall otherwise have, in
all material respects, the same rights, preferences, privileges, limitations and
restrictions as the Preferred Limited Partner Interests. Such terms shall be
reflected in the certificate of incorporation of the corporation and/or a
certificate of designations.
(g) Notwithstanding anything to the contrary set forth in this
Section 3.03, no action may be taken pursuant to subsection (a)(ii) above unless
the Partnership shall have received a written opinion of counsel to the
Partnership, addressed to the Partnership and each Limited Partner, to the
effect that the Limited Partners and Assignees would not be liable for the debts
and obligations of the entity in which the Limited Partners and Assignees have a
continuing equity interest to a greater extent than they would be under the
Delaware RULPA.
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ARTICLE IV
TERM OF THE PARTNERSHIP
The Partnership commenced on the date upon which the Certificate of
Limited Partnership was filed with the office of the Secretary of State of the
State of Delaware as described in Section 2.01 hereof and shall continue until
December 31, 2020, unless (i) dissolved and liquidated before such date in
accordance with the provisions of this Agreement, or (ii) extended beyond
December 31, 2020, pursuant to an amendment to this Agreement executed by all of
the General Partners and the Majority Vote of the Partners.
ARTICLE V
CAPITAL ACCOUNTS
Section 5.01. Capital Contributions.
(a) The initial capital of the Partnership was the sum of the cash
and cash equivalents, the aggregate principal amount of the Promissory Notes
delivered by the Class B Limited Partners and the Net Agreed Value of any
property contributed to the Partnership on or prior to the date of the First
Restated Agreement.
(b) Limited Partner Interests shall not be assessable, except as
required by law, and, except for a Class B Limited Partner's payment of his
Promissory Note (if any), no Limited Partner shall be required or entitled to
make any additional capital contributions to the Partnership.
(c) Except as otherwise provided herein, no Partner shall have the
right to withdraw from the Partnership or demand a return of all or any part of
his or its Capital Contributions during the term of the Partnership. Any return
of such Capital Contributions shall be made solely from the assets of the
Partnership and only in accordance with the terms of this Agreement. No
interest shall be paid on Capital Contributions. Each Partner, to the fullest
extent permitted by applicable law, waives any right it may have to cause a
partition of all or any part of the Partnership assets.
Section 5.02. Capital Accounts.
(a) A separate capital account (a "Capital Account") shall be
maintained on the books and records of the Partnership
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for the Units owned by each Partner or Assignee and for the Put/Call Units. For
these purposes, each of the Partners (other than the Class C Limited Partners
and the Class C-1 Limited Partners) had an initial Capital Account balance equal
to its Capital Contribution as set forth opposite its name in Schedule I hereto,
the Put/Call Units had an initial Capital Account balance of zero, the Class C
Limited Partners had an initial Capital Account balance of $8,000,000, and the
Class C-1 Limited Partners shall have an initial Capital Account balance of
$5,000,000. To each Capital Account there shall be credited (i) the amount of
cash and cash equivalents and the Net Agreed Value of any property contributed
to the Partnership after the date hereof with respect to the related Units, and
(ii) Net Income (and items thereof) allocated to such Units pursuant to Section
6.03 hereof, and from each Capital Account there shall be debited (i) the amount
of cash and cash equivalents and the Net Agreed Value of any property paid or
distributed in respect of the related Units pursuant to this Agreement and (ii)
Net Loss (and items thereof) allocated to such Units pursuant to Section 6.03
hereof. A Substituted Limited Partner or Assignee will succeed to the Capital
Account of his transferor relating to the Partner Interest transferred unless
the Partnership terminates under Section 708 of the Code as a result of such
transfer.
(b) For any Fiscal Year in which the Partnership has a Code Section
754 election in effect, Capital Accounts shall be maintained in accordance with
Section 1.704-1(b)(2)(iv)(m) of the Treasury Regulations.
(c) Pursuant to the provisions of Section 1.704-1(b)(2)(iv)(f)(5)(i)
of the Treasury Regulations, the Agreed Values of all the Partnership's assets
owned immediately prior to the issuance of the Units of Preferred Limited
Partner Interest were revised to equal their current fair market value, and the
gain or loss that would have been realized if, immediately prior to such
issuance, the Partnership's assets had been sold for their Agreed Values, as so
determined, was credited or charged to the Capital Accounts maintained for all
Units with a Percentage Interest greater than zero, as required by this Section
5.02(c) so that all such Capital Accounts were equal on a per Unit basis as of
the issuance of the Units of Preferred Limited Partner Interest. In the event of
(i) the issuance of additional Partner Interests after the date hereof for cash
or property, (ii) the distribution of cash or other Partnership assets in
exchange for Units or in liquidation of Units, including pursuant to Sections
17.02 or 19.04 hereof, (iii) an increase in the Percentage Interest represented
by the Units of Class C-1 Limited Partner Interest after the Class C-1
Participation Event, (iv) the liquidation of the Partnership (including in
connection with an
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incorporation of the Partnership pursuant to Section 3.03 or 16.01 hereof) or a
termination of the Partnership under Section 708(b) of the Code, (v) a
conversion of Units of Preferred Limited Partner Interest pursuant to Section
19.05 hereof, or (vi) a other change in the Percentage Interest represented by
the Units of any class, to the extent that the General Partners reasonably
determine that the following adjustments are necessary or appropriate in order
to avoid economic distortions among the Partners, the Agreed Values of the
Partnership's assets shall be determined as of such date, and the Capital
Accounts shall be adjusted in accordance with Sections 1.704-1(b)(2)(iv)(d), (e)
or (f) of the Treasury Regulations, as applicable, to reflect the manner in
which the unrealized gain or loss inherent in such assets (based on their
respective Carrying Values prior to any adjustments to Agreed Values made in
connection with such event) would be allocated among the Units if, immediately
before such event, the Partnership had sold all of its assets for their Agreed
Values, as so determined. It is contemplated that any adjustments to Capital
Accounts made in connection with the event described in the immediately
preceding clause (iii) of this Section 5.02(c) (sometimes hereinafter called
"clause (iii) adjustments") shall be in the nature of interim adjustments,
pending further adjustments to Capital Accounts pursuant to the immediately
preceding clause (iv) of this Section 5.02(c). As such, the Partners intend that
any clause (iii) adjustments, including any related revisions to the Agreed
Values of the Partnership's assets, shall be limited to those necessary to cause
the ratios of the balances in the Capital Accounts maintained for all Units
(other than Units of Preferred Limited Partner Interest and Units of Class C
Limited Partner Interest) to equal the ratios of the Percentage Interests
represented by such Units after the Class C-1 Participation Event. If Units of
Class C-1 Limited Partner Interest are subsequently issued upon exercise of the
Class C-1 Participation Option, the amount of the Option Exercise Price shall be
credited to the Capital Account established for the Units issued to the Class C-
1 Limited Partners upon such exercise, and the Capital Accounts maintained for
all other Units (other than Units of Preferred Limited Partner Interest and
Units of Class C Limited Partner Interest) shall be adjusted as necessary to
cause the ratios of the balances of the Capital Accounts maintained for all
Units (other than Units of Preferred Limited Partner Interest and Units of Class
C Limited Partner Interest) to equal the ratios of the Percentage Interests
represented by such Units after the exercise of the Class C-1 Participation
Option. Upon an issuance of Class B Conversion Units, the Capital Accounts
maintained for all Units (other than Units of Class C Limited Partner Interest
and, prior to the Class C-1 Participation Event, Units of Class C-1 Limited
Partner Interest) shall be adjusted upward or downward, pursuant
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to Section 5.02(c)(v) hereof, to reflect the allocation of Net Income or Net
Loss under Section 6.03 hereof for the Fiscal Period in which the conversion
occurs (such Net Income or Net Loss to be computed taking into account the
adjustments to the Agreed Values of the Partnership's assets made immediately
prior to such conversion) and otherwise as necessary to cause the ratios of the
balances of the Capital Accounts maintained for all Units (other than Units of
Class C Limited Partner Interest and, prior to the Class C-1 Participation
Event, Units of Class C-1 Limited Partner Interest), including the Class B
Conversion Units, to equal the ratios of the Percentage Interests represented by
such Units after the issuance of the Class B Conversion Units; provided,
however, that in the event any resultant adjustments made pursuant to this
Section 5.02(c) would cause the Capital Accounts established for the Class B
Conversion Units to be credited with a dollar amount that would exceed the
dollar amount, immediately prior to the conversion (after giving effect to the
allocations under Section 6.03 hereof for the Fiscal Period in which such
conversion occurs), of the Capital Accounts maintained for the Units of
Preferred Limited Partner Interest for which such Class B Conversion Units were
issued, the Capital Accounts maintained for all Units (other than Units of Class
C Limited Partner Interest and, prior to the Class C-1 Participation Event,
Units of Class C-1 Limited Partner Interest), including the Class B Conversion
Units, shall (after making the foregoing adjustments) be reduced to an amount
determined by multiplying the dollar amount of each such Capital Account by a
fraction, the numerator of which is the dollar amount of the Capital Accounts
maintained for the Units of Preferred Limited Partner Interest for which the
Class B Conversion Units were issued and the denominator of which is the
aggregate dollar amount of the Capital Accounts that would have been established
for the Class B Conversion Units as set forth in this sentence without regard to
the adjustments set forth in this proviso. Following any adjustments to Capital
Accounts pursuant to this Section 5.02(c), Capital Accounts shall be maintained
in accordance with Section 1.704-1(b)(2)(iv)(g) of the Treasury Regulations.
(d) Anything herein to the contrary notwithstanding, (i) the amount of the
Class C Return accruing in any Fiscal Period shall be treated by the Partnership
and the Partners as a guaranteed payment for the use of capital under Section
707(c) of the Code, and shall neither be credited to nor debited from the
Capital Account of any Class C Limited Partner, and (ii) no credits to or debits
from any Class C Limited Partner's Capital Account shall be made pursuant to
Section 5.02(b) or (c) hereof if and to the extent that such credits or debits
would cause any Class C Limited Partner's Capital Account balance to be
increased
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above or reduced below the then Class C Liquidation Preference for such Class C
Limited Partner.
(e) Any amount treated as a guaranteed payment under Section 17.06(c)
hereof shall neither be credited to nor debited from the Class C-1 Limited
Partners' Capital Accounts. In the case of a payment by the Partnership of the
Class C-1 Liquidation Preference, if any, the portion thereof representing
payment of the Class C-1 Return shall be treated (and, to the extent not
previously reported, shall be reported) by the Partnership and the Partners as a
guaranteed payment for the use of capital within the meaning of Section 707(c)
of the Code, and shall neither be credited to nor debited from the Class C-1
Limited Partners' Capital Accounts.
(f) No adjustments shall be made to the Capital Accounts of the Class C-1
Limited Partners with respect to any indemnity payments which the Partnership
receives pursuant to the Comcast Agreement.
Section 5.03. Negative Capital Accounts. Except as otherwise provided
in Article XII hereof with respect to the General Partners, at no time during
the term of the Partnership or upon dissolution and liquidation thereof shall a
Partner or Assignee with a negative balance in its Capital Account have any
obligation to the Partnership or the other Partners to restore such negative
balance, except (i) as may be required by law, (ii) in the case of a Class B
Limited Partner who has delivered a Promissory Note at the time of his admission
to the Partnership, such Class B Limited Partner shall be obligated to pay the
outstanding balance, if any, of such Promissory Note on the date of liquidation
of the Partnership, or (iii) in respect of any negative balance resulting solely
from a withdrawal of capital or distribution from the Partnership in
contravention of this Agreement.
Section 5.04. General Partners Not Liable for Return of Capital.
Notwithstanding anything to the contrary contained herein (but subject to the
provisions of Section 7.06), the General Partners shall not be liable for the
distribution or return of the Capital Contributions of the Limited Partners, or
any portion thereof, it being expressly agreed that any such distribution,
return or payment as may be made at any time or from time to time shall be made
solely from the assets of the Partnership.
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ARTICLE VI
PROFITS AND LOSSES; DISTRIBUTIONS
Section 6.01. Fiscal Year; Fiscal Period; Taxable Year. The fiscal
year (the "Fiscal Year") of the Partnership for Partnership accounting purposes
shall be the same as the taxable year of the Partnership for federal income tax
purposes. Except as otherwise required by the Code, the taxable year of the
Partnership shall end on December 31st. A fiscal period (a "Fiscal Period")
shall end on the last day of the third, sixth, ninth and twelfth month of such
Fiscal Year. The Managing General Partner shall have authority to change the
taxable year of the Partnership if the Managing General Partner, in its sole
discretion, subject to approval of the Internal Revenue Service (if required),
shall determine such change to be necessary or appropriate to the business of
the Partnership. The Managing General Partner shall give notice of any such
change to the other Partners in the first quarterly or annual report delivered
to the Partners after such change.
Section 6.02. Accounting Method. For Partnership accounting purposes
and federal income tax purposes, the Partnership shall use the accrual method of
accounting.
Section 6.03. Allocations for Capital Account
Purposes.
(a) (i) Except as otherwise provided in Section 6.03(b) or
Section 6.03(c) hereof, Net Income of the Partnership shall be
allocated, for each Fiscal Period, as follows: (A) first, if any Net
Loss was allocated to Units of Preferred Limited Partner Interest
under Section 6.03(a)(ii)(D) hereof, then Net Income shall be
allocated among such Units (treating any Class B Conversion Units that
were issued during such Fiscal Period as Units of Preferred Limited
Partner Interest for these purposes until the date on which they were
converted) to the extent of and in proportion to the amount of Net
Loss allocated to such Units; (B) next, among the Units of Preferred
Limited Partner Interest (treating any Class B Conversion Units that
were issued during such Fiscal Period as Units of Preferred Limited
Partner Interest for these purposes until the date on which they were
converted) to the extent of and in proportion to the sum of (x) the
Preferential Return on such Units for the Fiscal Period for which such
allocation of Net Income is being made, plus (y) the excess (if any)
of the cumulative Preferential Return
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on such Units for all prior Fiscal Periods over the cumulative Net
Income allocated to such Units for such Fiscal Periods pursuant to
Section 6.03(c)(ii) and this Section 6.03(a)(i)(B); (C) next, if any
Net Loss was allocated to Units of Class C-1 Limited Partner Interest
under Section 6.03(a)(ii)(C) hereof, then Net Income shall be
allocated to the Units of Class C-1 Limited Partner Interest to the
extent of and in proportion to the amount of Net Loss so allocated to
them; (D) next, among the Units, other than Units of Preferred Limited
Partner Interest, Units of Class C Limited Partner Interest and Units
of Class C-1 Limited Partner Interest, to the extent and in the
proportions necessary to cause the Capital Account maintained for each
Unit within each such Class to be equal and the ratios of the sum of
the Capital Accounts maintained for the Units of each such Class to be
or remain in the ratios of the sum of the Percentage Interests
represented by the Units of each such Class, such ratios to be
determined as if such Units were the only outstanding Units (provided
that, solely for purposes of making such allocations, the Capital
Accounts maintained for such Units shall be deemed to have been
increased by the amount of income or gain that would be allocated to
such Units pursuant to Sections 6.03(c)(iii) and 6.03(c)(iv) hereof if
the Partnership's assets were then sold for their aggregate fair
market value taking into account Section 7701(g) of the Code); (E)
next, if the Class C-1 Participation Event shall have occurred, among
the Units, other than Units of Class C Limited Partner Interest and
Units of Preferred Limited Partner Interest, to the extent and in the
proportions necessary to cause the ratios of the balances in the
respective Capital Accounts maintained for such Units to be or remain
in the ratios of the Percentage Interests represented by such Units
(provided that, solely for purposes of making such allocations, the
Capital Accounts maintained for such Units shall be deemed to have
been increased in the manner described in the parenthetical of the
immediately preceding clause (D)); and (F) thereafter, among the
Units, other than the Units of Class C Limited Partner Interest and
Units of Preferred Limited Partner Interest, in accordance with the
Percentage Interests represented thereby; and except as hereinafter
provided, Net Income of the Partnership shall not be allocated to the
Class C Limited Partners.
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(ii) Except as otherwise provided in Section 6.03(b) or Section
6.03(c) hereof, Net Loss of the Partnership shall be allocated, for
each Fiscal Period, among the Units, other than the Units of Class C
Limited Partner Interest, in accordance with the Percentage Interests
represented thereby, provided, however, in any such case, that no such
allocation of Net Loss shall be made to a Unit to the extent that such
allocation would cause such Unit to have an Adjusted Capital Account
Deficit or would increase the Adjusted Capital Account Deficit of such
Unit at the end of the Fiscal Period for which such allocation is
being made, and any remaining Net Loss shall instead be allocated as
follows: (A) first, among the other Units of the same Class, pro rata,
until the Capital Accounts maintained for such Units are reduced to
zero; (B) next, among all other Units (other than Units of Preferred
Limited Partner Interest, Units of Class C Limited Partner Interest
and, prior to a Class C-1 Participation Event, Units of Class C-1
Limited Partner Interest), pro rata, until the Capital Accounts
maintained for all such Units are reduced to zero; (C) next, among the
Units of Class C-1 Limited Partner Interest, until the Capital
Accounts of such Units are reduced to zero; (D) next, among the Units
of Preferred Limited Partner Interest, pro rata, until the Capital
Accounts of such Units are reduced to zero; and (E) thereafter, among
all Units (other than Units of Preferred Limited Partner Interest,
Units of Class C Limited Partner Interest and, prior to a Class C-1
Participation Event, Units of Class C-1 Limited Partner Interest), in
accordance with their Percentage Interests, subject to the limitation
imposed by this proviso; and except as hereinafter provided, Net Loss
of the Partnership shall not be allocated to the Class C Limited
Partners.
(iii) In no event shall the General Partners' aggregate share of
allocations pursuant to Section 6.03(a)(i) or Section 6.03(a)(ii) be
less than 1%.
(b) Except as otherwise provided in Section 6.03(c) hereof, the
following provisions shall override the other provisions of this Section 6.03:
(i) Except as otherwise required by Section 752 of the Code and
the Treasury Regulations promulgated thereunder, Nonrecourse
Deductions and Partnership Nonrecourse Liabilities for any Fiscal
Period shall be
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allocated among the Units, other than the Units of Class C Limited
Partner Interest, in accordance with the Percentage Interests
represented thereby. Any Partner Nonrecourse Deductions for any Fiscal
Period shall be allocated to the Units of any Person who bears the
risk of loss with respect to the Partner Nonrecourse Liabilities to
which such Partner Nonrecourse Deductions are attributable. For
purposes of this Section 6.03(b)(i), the Nonrecourse Deductions and
Partner Nonrecourse Deductions, respectively, for any Fiscal Period
shall be determined by comparing the amount of the Minimum Gain
attributable to the related nonrecourse liabilities as of the close of
such Fiscal Period with the amount of such Minimum Gain as of the
close of the immediately preceding Fiscal Period.
(ii) Except as otherwise provided herein, each Partner
shall be allocated Net Income and Net Loss in accordance with this
Section 6.03 from the date on which such Partner is admitted to the
Partnership in accordance with this Agreement, and the Put/Call Units
shall be allocated Net Income and Net Loss from the date hereof. For
purposes of determining the Net Income, Net Loss, or any other items
allocable to any period, such items shall be determined by the
Managing General Partner using any permissible method under Section
706 of the Code and the Treasury Regulations promulgated thereunder.
(iii) If, for any Fiscal Year, a Partner (the "Service
Partner") receives compensation from the Partnership in the form of
Units of Partner Interest, (i) the proportionate share of the
Partnership's assets represented by the Units transferred shall be
deemed to have been sold to the Service Partner for an amount equal to
the value of the Units transferred, (ii) the Service Partner shall be
deemed to have immediately made a Capital Contribution to the
Partnership of the assets deemed transferred (the Net Agreed Value of
which shall be the value of the Units transferred), (iii) any gain or
loss recognized by the Partnership and any deductions associated with
the Units transferred shall be allocated among the Units, other than
the Units of Class C Limited Partner Interest, in accordance with the
Percentage Interests represented thereby, calculated by excluding the
interest deemed transferred to the Service Partner, and (iv) Capital
Accounts will be adjusted to reflect the revaluation of
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the Partnership's assets in accordance with Section 5.02(c) hereof
(and subject to Section 5.02(d) hereof).
(iv) In the event that a Unit of Preferred Limited Partner
Interest is to be converted and there is insufficient Net Income to
allocate to such Unit the full amount prescribed by Sections
6.03(a)(i)(A) and 6.03(a)(i)(B) hereof, items of Partnership income
and gain shall be allocated to such Unit in order that, after giving
effect to such allocations and reasonably anticipated future
allocations of Net Income to such Unit under Sections 6.03(a)(i)(A)
and 6.03(a)(i)(B) up to the date of such conversion, the Capital
Account of such Unit immediately prior to the conversion of such Unit
shall be equal to the Preferred Interest Liquidation Preference of
such Unit; provided, however, that such allocation shall not be made
to the extent it would result in an allocation of Net Loss to Units of
Class C-1 Limited Partner Interest or Units of Preferred Limited
Partner Interest pursuant to Sections 6.03(a)(ii)(C) and
6.03(a)(ii)(D) hereof as a result of the limitation imposed by the
proviso in Section 6.03(a)(ii) (based on Capital Accounts immediately
prior to the date of such conversion, if the conversion occurs before
the close of the Fiscal Period for which such allocation would be
made).
(c) Notwithstanding any other provision of this Agreement:
(i) If in any Fiscal Year any Unit has an Adjusted Capital
Account Deficit resulting from unexpected adjustments, allocations or
distributions described in Treasury Regulations Sections 1.704-
1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) or 1.704-1(b)(2)(ii)(d)(6),
items of Partnership income and gain consisting of a pro rata portion
of each item of Partnership income (including without limitation items
of gross income) and gain for such Fiscal Year (and, if necessary,
subsequent years) shall be specially allocated to such Unit in an
amount and manner sufficient to eliminate such Adjusted Capital
Account Deficit as quickly as possible; provided that an allocation
pursuant to this Section 6.03(c)(i) shall only be made if and to the
extent that such Unit would have an Adjusted Capital Account Deficit
after all other allocations provided for in this Section 6.03 have
been tentatively made as if this Section 6.03(c)(i) were not in this
Agreement. This Section 6.03(c)(i) is intended
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to constitute a "qualified income offset" within the meaning of
Section 1.704-1(b)(2)(ii)(d)(3) of the Treasury Regulations.
(ii) If any Unit has an Adjusted Capital Account Deficit
as of the end of any Fiscal Year, items of Partnership income and gain
consisting of a pro rata portion of each item of Partnership income
(including without limitation items of gross income) and gain for such
Fiscal Year (and, if necessary, subsequent years) shall be specially
allocated to such Unit in an amount and manner sufficient to eliminate
such Adjusted Capital Account Deficit as quickly as possible, provided
that an allocation pursuant to this Section 6.03(c)(ii) shall only be
made if and to the extent that such Unit would have an Adjusted
Capital Account Deficit after all other allocations provided for in
this Section 6.03 have been tentatively made as if this Section
6.03(c)(ii) were not in this Agreement.
(iii) Notwithstanding any other provision of this Section
6.03, if there is a net decrease in Minimum Gain attributable to
Partnership Nonrecourse Liabilities during any Fiscal Year, each Unit
with respect to which there is allocable a share of the Minimum Gain
attributable to such Partnership Nonrecourse Liabilities at the
beginning of such Fiscal Year shall be specially allocated items of
Partnership income (including without limitation items of gross
income) and gain for such Fiscal Year (and, if necessary, subsequent
years), in an amount equal to such Unit's share of the net decrease in
such Minimum Gain; provided, however, that such allocations shall not
apply to a Unit to the extent that such Unit's share of such decrease
in Minimum Gain results under the circumstances described in whichever
is applicable of Sections 1.704-2(f)(2), 1.704-2(f)(3), 1.704-2(f)(4)
and 1.704-2(f)(5) of the Treasury Regulations. Allocations pursuant to
this Section 6.03(c)(iii) shall be made first, out of any cancellation
of indebtedness income realized (whether or not recognized) by the
Partnership for federal income tax purposes, and otherwise, in the
manner described in Section 1.704-2(j)(2)(i) of the Treasury
Regulations. This Section 6.03(c)(iii) is intended to constitute a
"minimum gain chargeback" within the meaning of Section 1.704-2(f) of
the Treasury Regulations.
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(iv) Notwithstanding any other provision of this Section
6.03, if there is a net decrease in the Minimum Gain attributable to
Partner Nonrecourse Liabilities during any Fiscal Year, each Unit with
respect to which there is allocable a share of the Minimum Gain
attributable to such Partner Nonrecourse Liabilities at the beginning
of such Fiscal Year shall be specially allocated items of Partnership
income (including without limitation items of gross income) and gain
for such Fiscal Year (and if necessary, subsequent years), in an
amount equal to such Unit's share of the net decrease in such Minimum
Gain; provided, however, that such allocations shall not apply to a
Unit to the extent that such Unit's share of such decrease in Minimum
Gain results under the circumstances identified as exceptions to the
charge-back rule in Section 1.704-2(i)(4) of the Treasury Regulations.
Allocations pursuant to this Section 6.03(c)(iv) shall be made first,
out of any cancellation of indebtedness income realized (whether or
not recognized) by the Partnership for federal income tax purposes,
and otherwise, in the manner described in Section 1.704-2(i)(4) of the
Treasury Regulations. This Section 6.03(c)(iv) is intended to
constitute a "partner nonrecourse debt minimum gain chargeback" within
the meaning of Section 1.704-2(i)(4) of the Treasury Regulations.
(d) The specially allocated items set forth in Sections 6.03(b)(i)
and 6.03(c) hereof are intended to comply with certain requirements of Section
1.704-1(b) of the Treasury Regulations. Notwithstanding any other provision of
this Section 6.03, the specially allocated items shall be taken into account in
allocating other items of Net Income and Net Loss among the Units so that, to
the extent permissible under applicable Treasury Regulations, the net amount of
such allocations of other items of Net Income and Net Loss and any items
specially allocated to each Unit shall be equal to the amount of Net Income or
Net Loss that would have been allocated to such Unit if the specially allocated
items had not occurred.
Section 6.04. Allocations for Tax Purposes.
(a) For federal income tax purposes, except as otherwise provided in
this Section 6.04, all items of income, gain, loss, deduction and credit
comprising Net Income and Net Loss or otherwise described in, and allocated
pursuant to, Section 6.03 shall be allocated among the Units, other than the
Units of Class C Limited Partner Interest, in the same proportions as the
related portions of the Partnership's Net Income or Net Loss, as
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the case may be, are allocated pursuant to Section 6.03, and any additional
items of income, gain, loss, deduction and credit recognized by the Partnership
for federal income tax purposes shall be allocated among the Units, other than
the Units of Class C Limited Partner Interest, in accordance with the Percentage
Interests represented thereby.
(b) In the case of a Contributed Property, items of income, gain, loss,
amortization, depreciation and cost recovery deductions attributable thereto
shall be allocated for federal income tax purposes among the Units in a manner
that takes into account the variation between the Carrying Value of such
property and its adjusted income tax basis in attempting to eliminate all
related Book-Tax Disparities. Any elections or decisions relating to such
allocations shall be made by the Managing General Partner in a manner that
reasonably reflects the purpose and intention of this Agreement, and may include
a decision to use the "traditional method" of allocation described in Section
1.704-1(c)(2) of the existing Treasury Regulations and in Section 1.704-3(b)(1)
of the proposed Treasury Regulations. The Managing General Partner has
determined that the Partnership shall use, and the Partnership agrees to use,
the traditional method in the case of the Contributed Properties contributed to
the Partnership by the Class C-1 Limited Partners on the date hereof.
(c) To the extent any gain resulting from the sale or other taxable
disposition of a Partnership asset is "recaptured" as ordinary income by reason
of Section 1245 or 1250 of the Code (or equivalent state or local revenue
statutes), the amount of recapture income so recognized shall be allocated among
the Units in the same manner as the amortization, depreciation or cost recovery
deductions giving rise to such recapture income were allocated among the Units
(but not to exceed the amount of gain allocated to such Units).
(d) To the extent provided in Section 1.704-1(b)(4)(iii) of the Treasury
Regulations, any recapture of tax credits shall be allocated to the Units to
which were allocated the tax credits giving rise to the recapture.
(e) (i) An amount equal to the Class C Return accruing in each Fiscal
Period shall be reported by the Partnership and the Partners as a guaranteed
payment for the use of capital under Section 707(c) of the Code, and not as an
allocation of Net Income or Net Loss.
(ii) In the case of any payment made by the Partnership to retire
or liquidate Units of the Class C Limited Partner Interest, the portion of the
Class C Liquidation Preference
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representing payment of the Class C Return shall be treated as a guaranteed
payment for the use of capital within the meaning of Section 707(c) of the Code.
The balance of the Class C Liquidation Preference shall be considered to
represent the agreed-upon value of such Class C Limited Partners' interest in
all tangible and intangible Partnership property, including goodwill and going-
concern value, within the meaning of Section 736(b) of the Code, and, as such,
shall not be treated as a payment described in Section 707(c) of the Code.
(iii) The amount, if any, treated and reported by the Partnership
and the Partners under Section 17.06(c) as a guaranteed payment for the use of
capital within the meaning of Section 707(c) of the Code shall be so treated and
reported by the Partnership and the Partners for income tax purposes. In the
case of a payment by the Partnership of the Class C-1 Liquidation Preference, if
any, the portion thereof that does not represent a payment of the Class C-1
Return shall be considered to represent the agreed-upon value of the Class C-1
Limited Partners' interest in all tangible and intangible Partnership property,
including goodwill and going-concern value, within the meaning of Section 736(b)
of the Code, and, as such, shall not be treated as a payment described in
Section 707(c) of the Code.
(f) Allocations under this Section 6.04 are made solely for federal, state
or local income tax purposes and shall not impact any Capital Account balance or
share of distributions.
Section 6.05. Distributions.
(a) (i) Subject to the provisions of Section 6.05(a)(ii) and Section
6.05(f), from time to time, (1) the Managing General Partner shall cause the
Partnership to distribute to the General Partners, the Limited Partners (other
than the Class C Limited Partners) and the Assignees, as the case may be, the
cash distributions described in said Section 6.05(a)(ii)(y), and (2) in the
discretion of the Managing General Partner, the Partnership may distribute to
the General Partners, the Limited Partners (other than the Class C Limited
Partners) and the Assignees, as the case may be, additional sums in an amount
not to exceed the excess of (x) cash on hand of the Partnership on the date
thereof over (y) the cash requirements of the Partnership, including, but not
limited to, (A) any costs and expenses described in Section 9.02, including such
reserves for such costs and expenses as the Managing General Partner may
reasonably deem appropriate, (B) any costs and expenses required for the
servicing and repayment of indebtedness, (C) any general and administrative
charges, including amounts payable to the Managing General Partner and/or the
Administrative General Partner, (D)
<PAGE>
any property and operating taxes, and (E) such reserves for anticipated costs or
expenses as the Managing General Partner may reasonably deem advisable;
provided, however, that the Partnership shall not make any distribution to any
Partner or any Assignee if and to the extent that such distribution is
prohibited by Delaware RULPA Section 17-607(a) or other applicable law; and
provided, further, however, that the Partnership shall not make any such
distribution to the extent that the terms of the Field Agreement or any
agreement or instrument under which there is any outstanding indebtedness of the
Partnership would then prohibit such a distribution, including, without
limitation, the Specified Debt Agreements. In the event that the Partnership
makes a distribution pursuant to this Section 6.05(a)(i) prior to the admission
of Barclays as a Class A-2 Limited Partner, it shall, subject to the provisions
of Section 6.05(a)(ii), make a payment to Barclays, pari passu with such
distribution to the Partners, in an amount equal to the product of (A) the total
amount that the Managing General Partner has designated for distribution
pursuant to this Section 6.05(a)(i) and (B) the Percentage Interest represented
by the Put/Call Units, and the amount to be paid to Barclays shall be subtracted
from the cash available for distribution to the Partners.
(ii) For so long as there are any outstanding Units of Class C
Limited Partner Interest or the Class C Exchange Notes (as defined in Section
16.02 hereof) shall be outstanding, unless all the Class C Limited Partners or
the holders of all the Class C Exchange Notes otherwise consent thereto, the
Partnership shall not, and shall not permit any Subsidiary to, directly or
indirectly, make any distributions of cash, securities or other assets in
respect of, or purchase or retire, any equity interests in the Partnership
(which for purposes of this sentence only shall include the Put/Call Units) or
options or warrants to purchase such interests, in each case outstanding on the
date of the First Restated Agreement (or equity interests, options or warrants
issued in respect of or upon Transfer of equity interests, options or warrants
outstanding on the date of the First Restated Agreement, including for these
purposes options issuable under the Management Option Plan), without the prior
consent of the Class C Limited Partners or the holders of the Class C Exchange
Notes, as applicable, except: (x) in connection with the termination of
employment of an employee of the Partnership, the repurchase of such employee's
equity interest and options under the Management Option Plan, provided that (1)
if the Class C Limited Partner Interests shall not be retired when required
pursuant to the provisions of Section 16.02(c) (or at the time at which such
retirement would be required but for the operation of Section 16.05(a) hereof or
the provisions of any Specified Debt Agreement) or (2) if the Class C Exchange
Notes shall not be paid
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upon their "Maturity Date", then in each case, the Partnership may only effect
such repurchase by delivering to such employees Permitted Securities (as defined
below); (y) cash distributions (but only for such periods as the Partnership
exists in the form of a partnership) to the holders of equity interests in the
Partnership (other than the Class C Limited Partners) in an amount equal to the
lower of (A) the product of (i) the taxable income of the Partnership for any
fiscal year for which the Partnership reports taxable income for Federal income
tax purposes determined as if the Partnership were a separately taxable entity
and (ii) a percentage equal to the sum of (1) the highest marginal Federal
income tax rate applicable to individuals in effect for such year and (2) ten
percentage points or (B) the maximum amount of distributions for taxes the
Partnership is permitted to make under the Specified Debt Agreements; provided,
that, (1) if the Class C Limited Partner Interests shall not be retired when
required pursuant to the provisions of Section 16.02(c) (or at the time at which
such retirement would be required but for the operation of Section 16.05(a)
hereof or the provisions of any Specified Debt Agreement), (2) if the Class C
Exchange Notes or the Earn-Out Notes shall not be paid upon their "Maturity
Date", or (3) if the Earn-Out Payment shall not be paid when required (each
event specified in the preceding clause (1), (2) or (3), a "Specified Event"),
then in each case, the Partnership may not make the cash distributions described
in this clause (y); and (z) distributions by any Subsidiary to the Partnership.
For purposes of the preceding sentence and the subsequent sentence,
(1) the Partnership shall not be prohibited from delivering (A) securities
issued or issuable to employees pursuant to the Management Option Plan, (B) cash
payments in connection with the cash settlement of such securities pursuant to
the Management Option Plan, unless a Specified Event has occurred with respect
to the Class C Limited Partner Interests or the Class C Exchange Notes or unless
the Specified Debt Agreements otherwise prohibit such cash payments, in which
case the Partnership may effect such cash settlement only by delivering to such
employees Permitted Securities, or (C) securities issued or issuable pursuant to
the exercise of warrants or options issued to the holders of the Specified Debt
(or their Affiliates), including without limitation the Put/Call Units, and/or
securities contemplated by Section 11.08(f) pursuant to the provisions thereof,
and (2) the retirement date of the Class C Limited Partner Interests shall be
deemed to be such time specified in Section 16.02(c), provided that in no such
event shall such retirement date be deemed to be later than August 31, 2002.
"Permitted Securities" means (i) if a Specified Event or Specified C-1 Event has
occurred with respect to the Class C Limited Partner Interests or the Class C
Exchange Notes, or Class
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C-1 Partnership Interests or the Class C-1 Exchange Notes, respectively, notes
of the Partnership having a ranking chosen by the Partnership (which ranking
shall be senior to the Class C Exchange Notes or Class C-1 Exchange Notes, as
the case may be) and (ii) if a Specified Event has occurred with respect to the
Earn-Out Notes or the Earn-Out Payment, notes of the Partnership pari passu with
the Earn-Out Notes (whether or not then issued) in terms of ranking and
restrictions on the terms of payments. To the extent permitted under the
Specified Debt Agreements, the Partnership shall make such cash distributions
pursuant to (y) above on a quarterly basis, on or before the 15th day of
January, April, June and September in each Fiscal Year. As soon as practicable
following the end of each Fiscal Year, the Managing General Partner shall
determine whether any adjustments with respect to such distributions pursuant to
(y) above are appropriate to reflect the actual taxable income, if any, of the
Partnership for such Fiscal Year, and shall notify the Partners and the taxpayer
with respect to the Put/Call Units accordingly if it determines that any excess
cash distributed should be restored to the Partnership.
(iii) All determinations by the Managing General Partner
regarding distributions shall be made reasonably and in good faith with due
regard to the criteria for distributions set forth above.
(b) Distributions (other than redemptions and distributions in liquidation
or dissolution) shall not be made to the Class C Limited Partners or their
Assignees. Except as otherwise provided in Section 19.02 hereof, distributions
under Section 6.05(a)(i) hereof shall be made in accordance with Percentage
Interests, except that, notwithstanding anything to the contrary in Section
6.05(a)(i) hereof, distributions described in Section 6.05(a)(ii)(y) hereof
shall be apportioned among the Units entitled to participate in distributions
under Section 6.05(a)(i)(1) hereof (i) first, so as to provide the holder of
each such Unit with tax distributions equal to (1) the applicable income tax
rate determined under said Section 6.05(a)(ii)(y) multiplied by the excess of
the cumulative Net Income allocated to such Unit for all Fiscal Periods
preceding the Fiscal Period for which the applicable tax distributions are being
made, over the cumulative Net Loss allocated to such Unit for such prior Fiscal
Periods, reduced by (2) all prior distributions made in respect of such Unit
under Section 6.05(a)(i)(1) for all Fiscal Periods preceding the Fiscal Period
for which the applicable tax distributions are being made; provided that no Unit
shall be entitled to receive such distributions on account of Net Income or
taxable income allocated to such Unit for Fiscal Periods (or portions thereof)
before the earliest date on which such Unit was
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otherwise entitled to participate in distributions under Section 6.05(a)(i)(1)
hereof; provided, further, that a Class B Conversion Unit shall be entitled to
receive the portion (if any) of such distributions that would have been made to
the Unit of Preferred Limited Partner Interest for which it was issued for
periods after the conversion (based on the allocations and tax distributions
actually made to such Unit of Preferred Limited Partner Interest for periods up
to the conversion) had such Unit of Preferred Limited Partner Interest not been
converted; and (ii) as to the balance, in the ratio that such Units were
allocated the taxable income reported by the Partnership for the Fiscal Period
for which the applicable tax distributions are being made. In the event that
the Partnership shall make a distribution which consists of both non-cash
property and cash, the Partnership shall distribute, to the extent reasonably
practicable in the Managing General Partner's judgment, such property and cash
in such a manner that each of the Persons entitled to receive such distribution
shall receive approximately the same proportion of cash to such property.
(c) The Managing General Partner is authorized to take any action
that it determines in its sole discretion to be necessary or appropriate to
cause the Partnership to comply with any requirement relating to the withholding
of taxes, and may withhold taxes from any payment or distribution to the extent
required by the Code or any other applicable federal, state, local or foreign
law, including, without limitation, Sections 1441, 1442, 1445, 1446 and 3406 of
the Code. For purposes of this Agreement, any taxes so withheld by the
Partnership from any amount paid or distributed with respect to any Units shall
be deemed to be a distribution or payment with respect thereto, shall reduce the
amount that otherwise would be paid or distributed with respect to such Units
pursuant to this Agreement and shall reduce the Capital Account of such Units.
(d) If the Partnership is required by applicable law to pay any
federal, state or local income tax on behalf of any Person who is a taxpayer
with respect to Units, including, without limitation, any taxes required to be
withheld and paid over by the Partnership under Section 1446 of the Code in
respect of Net Income or items thereof allocated to such Units, then (i) to the
extent that the Partnership is then able to make a cash payment or distribution
to such taxpayer in accordance with the provisions of Section 6.05(a) of this
Agreement, the Managing General Partner shall be authorized, notwithstanding any
provision in this Agreement to the contrary, to offset the amount of tax to be
so paid on behalf of such taxpayer against such payment or distribution, and
(ii) to the extent that the amount of tax required to be so paid on behalf of
such taxpayer exceeds the
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amount of the cash payment or distribution that the Partnership is able to so
make to such taxpayer, then (x) the Managing General Partner, notwithstanding
any provision in this Agreement to the contrary, shall send written notice to
such taxpayer, not more than 15 days before the due date of the relevant tax
payment, specifying the amount that such taxpayer must pay to the Partnership to
enable the Partnership to make the payment required to be so made on behalf of
such taxpayer, and (y) such taxpayer shall be obligated to pay to the
Partnership the amount set forth in such notice within 3 days of receiving such
notice and, if such amount is not so paid by such date (the "due date"), shall
also be liable to the Partnership for interest on such unpaid amount from the
due date to the date of payment at a rate equal to the Partnership's actual cost
of funds, together with any penalties imposed on the Partnership with respect to
such unpaid amount. The amount of any such taxes paid by the Partnership on
behalf of any such taxpayer (whether or not offset against the amount of any
payment or distribution to which such taxpayer would otherwise be entitled under
this Agreement) shall be treated as an actual distribution to such taxpayer for
all purposes of this Agreement. The Managing General Partner shall (1) upon the
making of a quarterly tax payment under Section 1446 of the Code on behalf of
any such taxpayer, advise such taxpayer of the Partnership's payment by
providing notice to such taxpayer in the form and manner specified in Revenue
Procedure 89-31, 1989-1 C.B. 895, as the same may be amended or modified from
time to time (or in the form and manner set forth in any Treasury Regulations
promulgated under Section 1446 of the Code), and (2) otherwise comply with all
reporting requirements under Section 1446 of the Code. If the Partnership is
permitted (but not required) by applicable law to pay any such tax on behalf of
any taxpayer, including any taxpayer who is a former Partner or Assignee, the
Managing General Partner shall be authorized (but not required) to pay such tax
from the funds of the Partnership and to take any action consistent with this
Section 6.05(d). The Managing General Partner shall be authorized (but not
required) to take all necessary or appropriate actions to collect all or any
portion of a deficiency in the payment of any such tax, which relates to prior
periods and which is attributable to Persons who were taxpayers with respect to
Units when such deficiencies arose, from such Persons.
(e) Notwithstanding anything to the contrary contained in this
Agreement, until a Class C-1 Participation Event occurs, a Class C-1 Limited
Partner shall not share in any Partnership distributions (other than
distributions in liquidation of such Limited Partner's Units and other than in
liquidation and dissolution of the Partnership). Following the occurrence of a
Class C-1 Participation Event, a Class C-1 Limited Partner shall
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participate in Partnership distributions made pursuant to Section 6.05(a)
hereof, in accordance with the Percentage Interest represented by its Units,
except that such Limited Partner shall not participate in distributions
described in Section 6.05(f)(i)(y) hereof to the extent such distributions
relate to taxable income allocated to the Partners for any of the preceding
Fiscal Periods.
(f) (i) Prior to the Class C-1 Participation Event, unless all
the Class C-1 Limited Partners or the holders of all the outstanding Class C-1
Exchange Notes otherwise consent thereto, the Partnership shall not, and shall
not permit any Subsidiary to, directly or indirectly, make any distributions of
cash, securities or other assets in respect of, or purchase or retire, any
equity interests in the Partnership (which for the purposes of this sentence
only shall include the Put/Call Units) or options or warrants to purchase such
interests, in each case outstanding on the date of the First Restated Agreement
(or equity interests, options or warrants issued in respect of or upon Transfer
of equity interests, options or warrants outstanding on the date of the First
Restated Agreement, including for these purposes options issuable under the
Management Option Plan), except: (x) in connection with the termination of
employment of an employee of the Partnership, the repurchase of such employee's
equity interest and options under the Management Option Plan, provided that (1)
if the Class C-1 Limited Partner Interests shall not be retired when required
pursuant to the provisions of Section 17.02(c) (or at the time at which such
retirement would be required but for the operation of Section 17.05(a) hereof or
the provisions of any Specified Debt Agreement or any other agreements governing
the Indebtedness of the Partnership) or (2) if the Class C-1 Exchange Notes
shall not be paid upon their "Maturity Date", then in each case, the Partnership
may only effect such repurchase by delivering to such employees Permitted
Securities; (y) cash distributions (but only for such periods as the Partnership
exists in the form of a partnership) to the holders of equity interests in the
Partnership (other than the Class C-1 Limited Partners prior to the Class C-1
Participation Event) in an amount equal to the lower of (A) the product of (i)
the taxable income of the Partnership for any fiscal year for which the
Partnership reports taxable income for Federal income tax purposes determined as
if the Partnership were a separately taxable entity and (ii) a percentage equal
to the sum of (1) the highest marginal Federal income tax rate applicable to
individuals in effect for such year and (2) ten percentage points or (B) the
maximum amount of distributions for taxes the Partnership is permitted to make
under the Specified Debt Agreements or any other agreements governing
Indebtedness of the Partnership; provided, that, (1) if
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the Class C-1 Limited Partner Interests shall not be retired when required
pursuant to the provisions of Section 17.02(c) (or at the time at which such
retirement would be required but for the operation of Section 17.05(a) hereof or
the provisions of any Specified Debt Agreement or any other agreements governing
Indebtedness of the Partnership), or (2) if the Class C-1 Exchange Notes shall
not be paid upon their "Maturity Date", (each event specified in the preceding
clause (1) or (2), a "Specified C-1 Event"), then in each case, the Partnership
may not make the cash distributions described in this clause (y); and (z)
distributions by any Subsidiary to the Partnership.
For purposes of the preceding sentence and the subsequent sentence, (1) the
Partnership shall not be prohibited from delivering (A) securities issued or
issuable to employees pursuant to the Management Option Plan, (B) cash payments
in connection with the cash settlement of such securities pursuant to the
Management Option Plan, unless a Specified C-1 Event has occurred with respect
to the Class C-1 Limited Partner Interests or the Class C-1 Exchange Notes or
unless the Specified Debt Agreements or other agreements governing Indebtedness
of the Partnership otherwise prohibit such cash payments, in which case the
Partnership may effect such cash settlement only by delivering to such employees
Permitted Securities, (C) securities issued or issuable pursuant to the exercise
of warrants or options issued to the holders of the Specified Debt or other
agreements governing Indebtedness of the Partnership (or their Affiliates),
including without limitation the Put/Call Units, and/or securities contemplated
by Section 11.08(f) pursuant to the provisions thereof, or (D) and issuing the
Conversion Units and/or the Special Subordinated Note (as defined in the
Guaranteed Note) (or Units of Class A-1 Partner Interest issued in exchange for
Conversion Units pursuant to Section 11.11(a)(ii)(b) of this Agreement), and (2)
the retirement date of the Class C-1 Limited Partner Interests shall be deemed
to be such time specified in Section 17.02(c), provided that in no such event
shall such retirement date be deemed to be later than the tenth anniversary of
the date hereof. To the extent permitted under the Specified Debt Agreements
and the other agreements governing Indebtedness of the Partnership, the
Partnership shall make such cash distributions pursuant to (y) above on a
quarterly basis, on or before the 15th day of January, April, June and September
in each Fiscal Year. As soon as practicable following the end of each Fiscal
Year, the Managing General Partner shall determine whether any adjustments with
respect to such distributions pursuant to (y) above are appropriate to reflect
the actual taxable income, if any, of the Partnership for such fiscal Year, and
shall notify the Partners and the taxpayer with respect to the Put/Call Units
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accordingly if it determines that any excess cash distributed should be restored
to the Partnership.
(ii) All determinations by the Managing General Partner
regarding distributions shall be made reasonably and in good faith with due
regard to the criteria for distributions set forth above.
ARTICLE VII
MANAGEMENT
Section 7.01. Management and Control of the Partnership.
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(a) Except as otherwise provided herein, the Managing General Partner
shall have full, exclusive and complete discretion to manage and control the
business and affairs of the Partnership, to make all decisions affecting the
business and affairs of the Partnership and to take all such actions as it deems
necessary, appropriate, incidental or convenient to accomplish the purposes of
the Partnership as set forth herein. The Managing General Partner shall be
responsible for the day-to-day management of the Partnership and, except as
otherwise provided herein or as otherwise agreed in writing by all the General
Partners, shall have the sole right to manage and control the Partnership, with
no obligation to consult with or obtain the consent of the Administrative
General Partner or any additional General Partner.
(b) Except as otherwise provided herein, no General Partner other
than the Managing General Partner and no Limited Partner, as such, shall have
any authority, right or power to bind the Partnership, or to manage or control,
or to participate in the management or control of, the business and affairs of
the Partnership in any manner whatsoever.
(c) On any matter requiring the consent or agreement of the General
Partners, other than with respect to the dissolution of the Partnership pursuant
to Section 12.02(c) or the substitution of Limited Partners, in which event
(except as otherwise provided in Section 11.10(g)) the consent of each General
Partner shall be required, and except as otherwise provided in this Agreement
(e.g. where consent of each of or all of the General Partners or the consent of
each or all of the Partners is provided for), consent or agreement shall be
deemed to have been obtained if holders of the Units of General Partner Interest
rep-
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resenting a majority of the outstanding Units of General Partner Interest shall
have consented or agreed.
Section 7.02. Powers of the Managing General Partner. Except as
otherwise expressly provided herein, the Managing General Partner (acting on
behalf of the Partnership) shall have the right, power and authority, in the
management of the business and affairs of the Partnership, to do or cause to be
done any and all acts, at the expense of the Partnership, deemed by the Managing
General Partner to be necessary, appropriate, incidental or convenient to
effectuate the business, purposes and objectives of the Partnership. Such
right, power and authority of the Managing General Partner shall include,
without limitation, the power and authority:
(a) to acquire, own, lease, sublease, manage, finance, hold, deal in,
control or dispose of any interests or rights in personal property or real
property;
(b) to negotiate, enter into, renegotiate, extend, renew, terminate,
modify, amend, waive, execute, acknowledge or take any other action with respect
to any lease, contract or security agreement in respect of any assets of the
Partnership;
(c) to pay, collect, compromise, litigate, arbitrate or otherwise
adjust or settle any and all other claims or demands of or against the
Partnership or to hold such proceeds against the payment of contingent
liabilities;
(d) to borrow money or to obtain credit in such amounts, at such rate
of interest and upon such other terms and conditions as the Managing General
Partner deems appropriate, recourse or nonrecourse, from banks, other lending
institutions or any other Person, including the Partners, and pursuant to
indentures, loan agreements or any other type of instrument, for any purpose of
the Partnership and to secure payment of the principal of any such indebtedness
and the interest thereon by mortgage, pledge, conveyance or assignment in trust
of or grant of security interests in the whole or any part of any or all of the
property and assets of the Partnership;
(e) to make, execute, deliver, perform, assign, acknowledge and file
on behalf of the Partnership any and all documents or instruments of any kind
which the Managing General Partner may deem necessary, appropriate, incidental
or convenient in carrying out the purposes and business of the Partnership; and
any Person dealing with the Managing General Partner shall not be required to
determine or inquire into its authority or power to
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bind the Partnership or to execute, acknowledge or deliver any and all documents
in connection therewith;
(f) to assume obligations, enter into contracts, including contracts
of guaranty or suretyship, incur liabilities, lend money and otherwise use the
credit of the Partnership, and to secure any of the obligations, contracts or
liabilities of the Partnership, by mortgage, pledge or other encumbrance of all
or any part of the property and income of the Partnership;
(g) to invest funds of the Partnership;
(h) to employ and engage suitable agents, employees, advisers,
consultants and counsel (including any custodian, investment adviser,
accountant, attorney, corporate fiduciary, bank or other reputable financial
institution, or any other agents, employees or Persons who may serve in such
capacity for the Managing General Partner or any Affiliate of the Managing
General Partner and to designate employees or agents of the Partnership, who may
be employees or agents of a General Partner, as officers with titles including
but not limited to "president," "senior vice president," "vice president,"
"treasurer," "secretary," "assistant treasurer," and "assistant secretary," and
who in such capacity may act for and on behalf of the Partnership, as and to the
extent authorized by the Managing General Partner, at all times subject to the
supervision of the Managing General Partner) to carry out any activities that
the Managing General Partner is authorized or required to carry out under this
Agreement, including, without limitation, a Person who may be engaged to
undertake some or all of the general management, property management, financial
accounting and record keeping or other duties of the Managing General Partner
and to indemnify such Persons against liabilities incurred by them in acting in
such capacities on behalf of the Partnership;
(i) to qualify the Partnership to do business in any state,
territory, dependency or foreign country;
(j) subject to the terms of Section 11.07, to sell or dispose of all
or a portion of the Partnership's assets for the benefit of the Partners at the
times and on terms determined by the Managing General Partner, in its sole
discretion;
(k) to form or cause to be formed, and to own the stock of, one or
more corporations, and to form or cause to be formed and to participate in
partnerships, joint ventures, trusts or other entities;
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(l) to establish, approve, adopt, amend, terminate or qualify any
management incentive plan or other employee benefit plan, in accordance with the
terms of any such plan;
(m) subject to the provisions of Section 11.11, to cause the
Partnership to issue and sell at any time or from time to time any and all types
of securities of, or interests in, the Partnership (including without limitation
securities or interests of an equity nature and warrants, options or other
rights with respect to the acquisition thereof), whether or not such securities
or interests are senior or junior to, or of the same or substantially the same
priority as, any then outstanding securities or interests (including without
limitation any Class of Limited Partner Interests); and
(n) to possess and exercise any additional rights and powers of a
general partner under the partnership laws of Delaware (including, without
limitation, the Delaware RULPA) and any other applicable laws, to the extent not
expressly prohibited by this Agreement.
The expression of any right, power or authority of the Managing
General Partner in this Agreement shall not in any way (i) limit or exclude any
other power or authority which is not specifically or expressly set forth in
this Agreement or (ii) limit any fiduciary duty of the Managing General Partner
to the Partnership or the Partners. Notwithstanding any of the foregoing (but
subject to the provisions of the preceding sentence), the Partnership will
operate in such a manner as the Managing General Partner reasonably deems
necessary or appropriate to preserve the limited liability of the Limited
Partners.
Section 7.03. Title to Assets of the Partnership. Title to assets of
the Partnership, whether real, personal or mixed or tangible or intangible,
shall be deemed to be owned by the Partnership as an entity, and no Partner,
individually or collectively, shall have any ownership interest in such assets
of the Partnership or any portion thereof. Title to any or all of the assets of
the Partnership may be held in the name of the Partnership, of one or more of
the General Partners or of one or more nominees, as the Managing General Partner
may determine. The General Partners declare and warrant that any assets of the
Partnership for which legal title is held in the name of a General Partner shall
be held in trust by such General Partner for the use and benefit of the
Partnership in accordance with the terms and provisions of this Agreement. All
assets of the Partnership shall be recorded as the property of the Partnership
on its books and records, irrespective of the name in which legal title to such
assets of the Partnership is held.
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Section 7.04. Other Business Activities of Partners. Except as
otherwise agreed in writing by any of the parties hereto, any General Partner
(other than the Administrative General Partner) or Affiliate thereof may have
business interests or may engage in other business ventures of any nature or
description whatsoever in addition to those relating to the Partnership, whether
presently existing or hereafter created, and may compete, directly or
indirectly, with the business of the Partnership and such activities shall not
be deemed wrongful or improper. No General Partner (other than the
Administrative General Partner) or Affiliate thereof shall incur any liability
to the Partnership or any other Partner as the result of such Partner's pursuit
of such other business interests and ventures and competitive activity, and
neither the Partnership nor any of the other Partners shall have any right to
participate in such other business interests or ventures or to receive or share
in any income or profits derived therefrom.
Section 7.05. Transactions with the General Partners or Affiliates.
Except as otherwise expressly provided herein, the Partnership is expressly
permitted to enter into transactions with the General Partners or any Affiliate
thereof, provided that the terms of such transaction are at least as favorable
to the Partnership as those that the Partnership would have obtained in a
transaction on an arm's-length basis with a Person not a General Partner or an
Affiliate thereof.
Section 7.06. Exculpation; Indemnification.
----------------------------
(a) The General Partners, their respective Affiliates and all
officers, partners, directors, employees, stockholders and agents of the General
Partners and their respective Affiliates and all officers, agents and employees
of the Partnership who are Partners shall not be liable to the Partnership, to
Limited Partners or to any Person who has acquired an interest in the
Partnership for any losses sustained or liabilities incurred, including monetary
damages, as a result of any act or omission of the General Partners or any such
other Person if the conduct of the General Partners or such other Person did not
constitute fraud, willful misconduct or criminal conduct.
(b) To the fullest extent permitted by law, the Partnership shall
indemnify and hold harmless the General Partners, their respective Affiliates
and all officers, partners, directors, employees, stockholders and agents of the
General Partners and their respective Affiliates and all officers, agents and
employees of the Partnership who are Partners (for purposes of this Article VII,
individually, an "Indemnitee") from and against any and all losses, claims,
damages, liabilities, expenses
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(including legal fees and expenses), judgments, fines, settlements and other
amounts arising from any and all claims, demands, actions, suits or proceedings,
civil, criminal, administrative or investigative, in which the Indemnitee may be
involved, or threatened to be involved, as a party or otherwise, by reason of
his, her or its management of the affairs of the Partnership or a General
Partner or status as a General Partner, an Affiliate thereof, or a partner,
director, officer, employee, stockholder or agent thereof or an officer, agent
or employee of the Partnership or a Person serving at the request of the
Partnership, a General Partner or any Affiliate thereof in another entity in a
similar capacity, which relates to or arises out of the Partnership, its
property, business or affairs or one of the General Partners, its properties,
businesses or affairs or any document filed with or submitted to the Securities
and Exchange Commission by the Partnership or any indemnification of
underwriters given in connection therewith, regardless of whether the Indemnitee
continues to be a General Partner, an Affiliate thereof or an officer, partner,
director, employee, stockholder or agent thereof or an officer, agent or
employee of the Partnership at the time any such liability or expense is paid or
incurred, and regardless of whether the liability or expense accrued at or
relates to, in whole or in part, any time before, on or after the date hereof;
provided, however, that this indemnification shall not apply to any liability or
expense that results from fraud, willful misconduct or criminal conduct of the
Indemnitee. The negative disposition of any action, suit or proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere, or
its equivalent, shall not, of itself, create a presumption that the Indemnitee
acted in a manner contrary to the standard set forth in Section 7.06(c) below.
Any indemnification pursuant to this Section 7.06 shall be made only out of the
assets of the Partnership or from any insurance proceeds which the Partnership
may receive with respect to such indemnification (it being understood that the
Partnership may, but shall not be required to, obtain or maintain insurance with
respect to such indemnification).
(c) An Indemnitee shall not be entitled to indemnification under this
Section 7.06 with respect to any claim, issue or matter in which it has been
adjudged liable for fraud, willful misconduct or criminal conduct unless and
only to the extent that the court in which such action was brought, or another
court of competent jurisdiction, determines upon application that, despite the
adjudication of liability, but in view of all of the circumstances of the case,
the Indemnitee is fairly and reasonably entitled to indemnification for such
liabilities and expenses as the court may deem proper.
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(d) To the fullest extent permitted by law, expenses (including legal
fees) incurred by an Indemnitee in defending any claim, demand, action, suit or
proceeding shall, from time to time, be advanced by the Partnership prior to the
final disposition of such claim, demand, action, suit or proceeding upon receipt
by the Partnership of an undertaking by or on behalf of the Indemnitee to repay
such amount if it shall be determined that the Indemnitee is not entitled to be
indemnified as authorized in this Section 7.06.
(e) The indemnification provided by this Section 7.06 shall be in
addition to the provisions of Section 15.05 hereof and any other rights not
inconsistent with this Section 7.06 to which an Indemnitee may be entitled under
any agreement, bylaw or vote of the Partners or as a matter of law or otherwise,
both as to action in the Indemnitee's capacity as a General Partner, an
Affiliate thereof or a partner, director, officer, employee, stockholder or
agent thereof or the Partnership and as to action in any other capacity which
relates to or arises out of the Partnership or the property, business or affairs
of the Partnership or a General Partner, shall continue as to an Indemnitee who
has ceased to serve in such capacity and shall inure to the benefit of the
heirs, successors, assigns and administrators of an Indemnitee.
(f) The General Partners and the Partnership may purchase and
maintain insurance, to the extent and in such amounts as the General Partners
shall, in their sole discretion, deem reasonable, on behalf of Indemnitees and
such other Persons as the General Partners shall determine against any liability
that may be asserted against or expense that may be incurred by such Person in
connection with activities of the Partnership or such Indemnitees, regardless of
whether the Partnership would have the power to indemnify such Person against
such liability under the provisions of this Agreement. The General Partners and
the Partnership may enter into indemnity contracts with Indemnitees and adopt
written procedures pursuant to which arrangements are made for the advancement
of expenses and the funding of obligations under this Section 7.06 and
containing such other procedures regarding indemnification as are appropriate,
provided that such arrangements, contracts or procedures are not inconsistent
with the provisions of this Section 7.06.
(g) In no event may an Indemnitee subject the Limited Partners or
Assignees to personal liability by reason of these indemnification provisions.
(h) An Indemnitee shall not be denied indemnification in whole or in
part under this Section 7.06 solely because the
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Indemnitee had an interest in the transaction with respect to which the
indemnification applies if the transaction was otherwise permitted by the terms
of this Agreement.
(i) The provisions of this Section 7.06 are for the benefit of the
Indemnitees and their heirs, successors, assigns, administrators and personal
representatives and shall not be deemed to create any rights for the benefit of
any other Persons. The provisions of this Section 7.06 shall not be amended in
any way that would adversely affect the Indemnitees who are Partners without the
consent of the Partner that is adversely affected.
(j) In the event that any General Partner other than the Managing
General Partner shall attempt to exercise any right to bind the Partnership, or
to manage or control, or to participate in the management or control of, the
business and affairs of the Partnership in any manner whatsoever, other than as
expressly set forth in this Agreement, such General Partner shall indemnify and
hold harmless the Partnership, the Partners and their respective Affiliates,
from and against any and all losses, claims, damages, liabilities, expenses
(including legal fees and expenses), judgments, fines, settlements and other
amounts arising out of any and all claims, demands, actions, suits or
proceedings, civil, criminal, administrative, or investigative, which may arise
out of such actions.
(k) Notwithstanding any other provision of this Section 7.06, no
provision of this Section 7.06 shall limit (i) any fiduciary duty of a General
Partner to the Partnership or the Limited Partners or (ii) any liability of a
General Partner for any breach of such fiduciary duty or any material breach of
its other obligations to other Partners or the Partnership under this Agreement
nor shall it provide indemnification to a General Partner with respect to any
breach of such fiduciary duty or any such material breach.
Section 7.07. Other Matters Concerning the General Partners.
(a) The General Partners may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture or other paper
or document believed in good faith by such General Partner to be genuine and to
have been signed or presented by the proper party or parties.
(b) The General Partners may consult with legal counsel, accountants,
appraisers, management consultants, investment
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bankers and other consultants and advisers selected by them, and any opinion of
any such Person as to matters that such General Partner reasonably believes to
be within its professional or expert competence (including, without limitation,
any opinion of legal counsel to the effect that the Partnership would "more
likely than not" prevail with respect to any matter) shall be full and complete
authorization and protection with respect to any action taken or suffered or
omitted by such General Partner hereunder in good faith and in accordance with
such opinion.
(c) Notwithstanding any other provision of this Agreement, no General
Partner nor any partner or shareholder in a General Partner nor any legal
representative, heir, estate, successor or assign of any such partner or any
officer, director, shareholder or partner in any General Partner, whether
disclosed or undisclosed, shall have any personal liability to the Partnership
or the Partners for the performance or discharge of any covenants or
undertakings of the Partnership, provided that this Section 7.07(c) shall not
limit any liability which any such Person may have under Section 7.06 of this
Agreement for an act or omission or conduct that constitutes fraud, willful
misconduct or criminal conduct of such Person.
Section 7.08. Resolution of Conflicts of Interest. Unless otherwise
expressly provided herein, whenever a conflict of interest exists or arises
between a General Partner or any of its Affiliates, on the one hand, and the
Partnership or any other Partner on the other hand, the Managing General Partner
shall resolve such conflict of interest in a way that is fair and reasonable to
all parties (including itself) taking into account the relative benefits and
burdens on such parties, any customary or accepted industry practices and any
applicable generally accepted accounting practices or principles. In the event
that one Partner disputes the fairness and reasonableness of any such
resolution, such Partner shall notify the Managing General Partner and if the
parties are unable to agree after good faith efforts as to a resolution that is
acceptable to the disputing Partner, the dispute shall be settled by arbitration
in accordance with and to the extent permitted by the Uniform Arbitration Act of
the State of Delaware and, to the extent not inconsistent therewith, the
Commercial Arbitration Rules of the American Arbitration Association ("AAA"), as
amended and in effect on the date a demand for arbitration is filed with the
AAA. The arbitration shall be conducted (as determined by mutual consent of the
parties to the dispute) in (i) the City of New York, State of New York, (ii) the
City of Seattle, State of Washington, (iii) the City of Wilmington, State of
Delaware or (iv) such other place as the parties to the dispute shall agree.
The finding and deci-
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sions of a majority of the arbitrators shall be final and binding upon the
parties.
ARTICLE VIII
LIMITED PARTNERS
Section 8.01. Liability of Limited Partners. No Limited Partner or
Assignee as such shall have any personal liability whatsoever, whether to the
Partnership, to any of the Partners or Assignees, to the creditors of the
Partnership or to any other Person, for the debts or obligations of the
Partnership. Except as otherwise expressly required by law, a Limited Partner or
Assignee as such shall have no liability in excess of (i) the amount of its
Capital Contribution, (ii) its share, if any, of any undistributed profits and
assets of the Partnership, (iii) its obligation to make other payments expressly
provided for in this Agreement and (iv) the amount of any distributions
wrongfully distributed to it. For purposes of Delaware RULPA Section 17-607(b),
no Limited Partner or Assignee that receives a distribution in violation of
Delaware RULPA Section 17-607(a) shall be deemed to know at the time of the
distribution that the distribution violated Delaware RULPA Section 17-607(a)
without actual knowledge thereof. The payment of any such money or distribution
of any such property to a Limited Partner or Assignee, whether or not deemed to
be a return of capital, shall be deemed to be a compromise within the meaning of
Section 17-502(b) of the Delaware RULPA, and the Limited Partner or Assignee
receiving any such money or property shall not be required to return any such
money or property to any Person, the Partnership or any creditor of the
Partnership. However, if any court of competent jurisdiction holds that,
notwithstanding the provisions of this Agreement, any distribution made by the
Partnership in violation of Delaware RULPA Section 17-607(a) was with the
knowledge of a Limited Partner or Assignee, any obligation under applicable law
to return the same or any portion thereof to or for the account of any Person,
the Partnership or its creditors shall be the obligation of such Limited Partner
or Assignee and not of the General Partners.
Section 8.02. No Management by Limited Partners. No Limited Partner,
in its capacity as such, shall take part in the day-to-day management, operation
or control of the business and affairs of the Partnership. No Limited Partner,
in its capacity as such, shall have any right, power or authority to transact
any business in the name of the Partnership or to act for or on behalf of or to
bind the Partnership. The Limited Partners shall
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have no rights other than those specifically provided herein or granted by law
where consistent with a valid provision hereof.
Section 8.03. No Mention of Limited Partners. Subject to applicable
law, the Managing General Partner may (and, subject to applicable law, with
respect to the Class A-2 Limited Partners, Preferred Interest Limited Partners
who are also Class A-2 Limited Partners, and the Class C Limited Partners, shall
use its best efforts to) omit from the Certificate of Limited Partnership and
from any other certificates and documents filed in any state or other
jurisdiction in order to qualify the Partnership to do business therein, and
from all amendments thereto, the names and addresses of the Limited Partners and
Assignees and information relating to the Capital Contributions and share of
profits and losses of the Limited Partners and Assignees or state such
information in the aggregate rather than with respect to each individual Limited
Partner and Assignee.
Section 8.04. Employees, Agents or Officers of the Partnership or a
General Partner. A Limited Partner or an employee, agent or officer of a Limited
Partner may also be an employee, agent or officer of the Partnership or a
General Partner. The existence of these relationships and acting in such
capacities will not result in a Limited Partner being deemed to be participating
in the conduct or control of the business of the Partnership.
ARTICLE IX
COMPENSATION AND EXPENSES
Section 9.01. Compensation to the General Partners. The General
Partners will receive no compensation for the performance of their services
hereunder.
Section 9.02. Direct and Indirect Expenses; Expenses in Connection
with the Organization and Operation of Partnership. The Partnership shall be
responsible for its own expenses and all expenses incurred on its behalf and
shall reimburse the Managing General Partner and its Affiliates for any amounts
paid in connection with such expenses, including all out-of-pocket fees, costs
and expenses actually incurred by the Partnership, the Managing General Partner
and its Affiliates in connection with (a) the formation and organization of the
Partnership and the General Partners and (b) the qualification of the
Partnership to do business in any state in which the Managing General Partner
determines that such qualification is advisable. The Partnership shall also
reimburse the Managing General Partner for the
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reasonable out-of-pocket expenses and annual fees of the directors of the
Managing General Partner or, if the Managing General Partner is a partnership,
the reasonable out-of-pocket expenses and annual fees of the directors of the
corporation which is the managing general partner of the Managing General
Partner, provided that the aggregate annual fees of all such directors shall not
exceed $100,000 (subject to reasonable cost of living adjustments based on
published sources and not to exceed 5% per annum). Any reimbursements or
payments to the Managing General Partner or its Affiliates shall be in addition
to any reimbursement to such Partner or Affiliate as a result of indemnification
pursuant to Section 7.06 or 15.05 of this Agreement.
ARTICLE X
FINANCIAL MATTERS
Section 10.01. Books and Records.
(a) The Managing General Partner shall keep, or cause to be kept,
books and records with respect to the Partnership, showing assets, liabilities,
income, operations, transactions and the financial condition of the Partnership
and a current register of the names and last known addresses of, and number and
type of Units of Partner Interest owned by, each Partner. The Managing General
Partner shall maintain and preserve all Partnership books and records for such
period as the Managing General Partner, in its reasonable discretion, shall
determine necessary or appropriate, subject to any requirement of federal or
state law.
(b) Each Partner, and each Partner's duly authorized representatives,
shall have the right, at reasonable times and at such Partner's own expense, to
inspect and copy the books of the Partnership and other reasonably available
records and information concerning the operations of the Partnership, including
copies of any appraisal reports and copies of the federal, state and local
income tax returns of the Partnership.
(c) The Managing General Partner shall keep, or cause to be kept, a
register of Units of Partner Interests (the "Unit Register") which shall provide
for the registration and Transfer of Units of Partner Interests in substantially
the form of Exhibit C attached hereto and the completed Unit Register shall be
attached as Schedule I hereto and made part hereof. Any and all Units of Partner
Interests and Transfers (including, without limitation, any pledges or
hypothecation to any Permitted Pledgee to secure any borrowing made by the
Partnership from such Per-
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mitted Pledgee) of the Units of Partner Interests shall be registered and
recorded in the Unit Register. Any requirement in this Agreement that a Transfer
or the admission of a Partner be listed on the books and records of the
Partnership shall be satisfied upon such registration and recording in the Unit
Register, provided that such Transfer or admission is otherwise in accordance
with the provisions of this Agreement.
Section 10.02. Financial Statements and Information.
(a) All Partnership financial statements shall be accurate and
complete in all material respects and shall present fairly the financial
positions, operating results and cash flows of the Partnership.
(b) As soon as practicable, but in no event later than 120 days after
the close of each Fiscal Year, the Managing General Partner shall cause to be
mailed to each Partner as of the last day of such Fiscal Year reports containing
financial statements of the Partnership for such Fiscal Year, presented in
accordance with generally accepted accounting principles, including a balance
sheet, a statement of income, a statement of Partners' equity and a statement of
cash flows, such statements to be audited by a firm of independent accountants
selected by the Managing General Partner.
(c) As soon as practicable, but in no event later than 75 days after
the close of each Fiscal Period, except the last Fiscal Period of each Fiscal
Year, the Managing General Partner shall cause to be mailed to each Partner as
of the last day of that Fiscal Period a report containing such financial
information for that Fiscal Period as the Managing General Partner deems
appropriate.
(d) The Managing General Partner shall provide to each Partner such
other reports and information concerning the business and affairs of the
Partnership (i) as the Managing General Partner, in its sole and absolute
discretion, may deem necessary or appropriate, (ii) to the extent not provided
for in Section 10.02(b) or (c) as a Limited Partner requests for a purpose
reasonably related to such Limited Partner's interest in the Partnership as a
Limited Partner, and (iii) as may be specifically required by the Delaware RULPA
or by any other law or any regulation of any regulatory body applicable to the
Partnership.
(e) The Managing General Partner shall provide any of the reports or
other information referred to in this Section 10.02 to such federal, state or
local governments, governmental agencies, other regulatory entities or
securities exchanges as
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shall be required or as the Managing General Partner, in its sole and absolute
discretion, may deem necessary or appropriate.
Section 10.03. Accounting Decisions. All decisions as to accounting
matters, except as specifically provided to the contrary herein, shall be made
by the Managing General Partner, subject to review and advice as to major
accounting matters by the Partnership's independent certified public
accountants.
Section 10.04. Place Maintained. The books, accounts and records of
the Partnership at all times shall be maintained at the Partnership's principal
office or, at the option of the Managing General Partner, at the principal place
of business of the Managing General Partner.
Section 10.05. Preparation of Tax Returns. The Managing General
Partner shall arrange for the preparation and timely filing of all returns of
the Partnership showing all income, gains, deductions and losses necessary for
federal, state or local income tax purposes, as the case may be, and shall use
all reasonable efforts to furnish to the Limited Partners, any Assignees and the
taxpayer with respect to the Put/Call Units within ninety (90) days after the
close of each taxable year of the Partnership the tax information reasonably
required by the Limited Partners and Assignees for federal, state and local
income tax reporting purposes. In this regard, the Class C-1 Limited Partners
agree to provide promptly on request any information with respect to the Class
C-1 Limited Partners' adjusted tax basis, holding period, and depreciation or
amortization methods with respect to the Contributed Properties contributed to
the Partnership by such Class C-1 Limited Partners, as the Managing General
Partner shall reasonably request to enable the Partnership to prepare and file
its tax returns.
Section 10.06. Tax Elections.
(a) Except as otherwise specifically provided herein, the Managing
General Partner shall, in its sole discretion, determine whether to make any
available election under the Code or any applicable state or local tax law on
behalf of the Partnership.
(b) The Managing General Partner, if so requested by a Partner in
connection with a distribution of property or a Transfer of Units, shall cause
the Partnership to make the election described in Section 754 of the Code, but
only if the requesting Partner also agrees in writing to pay or reimburse the
Partnership on demand for all related costs and expenses. The
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Managing General Partner may seek to revoke such election, if made, only with
the consent of all the General Partners.
(c) The Managing General Partner shall cause the Partnership to elect
to amortize and deduct expenses incurred in organizing the Partnership over a
60-month period as provided in Section 709 of the Code.
(d) No election shall be made by the Partnership or any Partner for
the Partnership to be excluded from the application of any of the provisions of
Subchapter K, Chapter 1 of Subtitle A of the Code or from any similar provisions
of any state or local tax laws.
Section 10.07. Tax Matters Partner. The Managing General Partner
shall be the "tax matters partner" of the Partnership within the meaning of
Section 6231(a)(7) of the Code and is authorized to represent the Partnership in
connection with all examinations of the affairs of the Partnership by any
federal, state or local tax authorities, including any resulting administrative
and judicial proceedings, and to expend funds of the Partnership for
professional services and costs associated therewith. Each Person who is a
taxpayer with respect to any Units consents to have the Managing General Partner
be the tax matters partner and agrees to cooperate with the Managing General
Partner in connection with the conduct of all such proceedings.
Section 10.08. Confidentiality. In consideration of the Partnership's
issuance and sale of Units to each Partner and the rights granted to each
Partner under this Agreement, each Partner (and Assignee) agrees that, during
the period he or it is a Partner (or Assignee) and thereafter, (i) he or it will
keep confidential all financial statements, financial information, reports,
records, communications, notices and other information relating to the business,
operations, prospects, financial statements, projections, financial condition,
customers, customer lists, intellectual property, trade secrets, know-how,
business plans, or employees of Partnership (the "Partnership Information")
which he or it may receive, inspect, review or otherwise have access to pursuant
to this Agreement or as a result of his relationship with the Partnership and
(ii) he or it will not use the Partnership Information for his or its own
benefit or disclose it to any Third Party, except (w) as the Managing General
Partner may authorize with respect to a Class B Limited Partner who is an
employee of the Partnership, to the extent necessary for such Class B Limited
Partner to perform his duties as an employee of the Partnership, (x) as may be
otherwise expressly authorized in writing by the Managing General Partner, (y)
as permitted pursuant to Section 16.03 hereof, or
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(z) as may be required by applicable law or regulation or judicial or
regulatory process. The provisions of this Section 10.08 shall not apply to (i)
Partnership Information that is in the public domain unless such Partner's (or
Assignee's) breach of this Agreement caused such Partnership Information to be
in the public domain, or (ii) a Limited Partner's use of the Partnership
Information for his or its internal purposes relating to the evaluation and
monitoring of, and enforcement of rights relating to, his or its investments,
tax and estate planning and other similar internal uses relating to passive
investments of such Limited Partner. The provisions of this Section 10.08 are in
addition to, and not in limitation of, any other confidentiality agreements
between the Partnership and any Partner or Assignee or any other confidentiality
obligations pursuant to applicable law or regulation or any employment
agreements or employment relationships between the Partnership and any Partner
or Assignee (except that with respect to disclosures governed by the
confidentiality agreement referred to in Section 16.03, the provisions of such
confidentiality agreement shall control).
ARTICLE XI
TRANSFER OF UNITS OF GENERAL PARTNER INTEREST AND
LIMITED PARTNER INTEREST; ADMISSION OF NEW PARTNERS
Section 11.01. Transfer of Units of General Partner Interest.
(a) Except as otherwise expressly provided in this Article XI, no
General Partner shall have any right to Transfer any or all of its Units of
General Partner Interest (or any interest therein) to any Person. If a General
Partner shall Transfer any Units of General Partner Interest (or any interest
therein) in contravention of any provision of this Article XI, such Transfer
shall be void and deemed ineffectual, and shall not bind or be recognized by the
Partnership.
(b) The Managing General Partner shall have the right to Transfer any
or all of its Units of General Partner Interest (or any interest therein) to the
extent provided in Section 11.01(e), 11.01(g), 11.04, 11.06 or 11.07 or Article
XV hereof.
(c) The Administrative General Partner shall have the right to
Transfer any or all of its Units of General Partner Interest (or any interest
therein) pursuant to Section 11.01(e) and on or after the fifth anniversary of
the date hereof pursuant to Section 11.05 or 11.06 or Article XV hereof.
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(d) If a General Partner desires to Transfer any or all of its Units
of General Partner Interest (or any interest therein) pursuant to this Article
XI, notwithstanding any other provision of this Article XI, such Transfer shall
be permitted if (and only if) the Managing General Partner reasonably determines
that the transaction would not cause the Partnership (if its existence would not
otherwise have been terminated as a result of such Transfer and any other
related Transfers in connection therewith) to be treated as an association
taxable as a corporation for federal income tax purposes and reasonably
determines that such Transfer would not result in the loss of limited liability
of the Limited Partners under the Delaware RULPA; provided, however, that each
of such determinations shall be based upon the opinion of one or more
independent counsels if such transaction would result in the then remaining
General Partners in the aggregate having a General Partner Interest in the
Partnership of less than 1%.
(e) The Partnership and Partners acknowledge that a General Partner
may Transfer its Units of General Partner Interest to a bank or other lending
institution to secure any borrowings made by the Partnership from such bank or
other lending institution. Any such bank or other lending institution to which
Units of Partner Interest may be Transferred by a General Partner pursuant to
this Section 11.01(e) or a Limited Partner pursuant to Section 11.03(h) is
hereinafter sometimes referred to as a "Permitted Pledgee".
(f) [Intentionally Omitted]
(g) The Partnership and Partners acknowledge that, subject to the
provisions of Section 11.01(d), the Managing General Partner may Transfer its
Units of Partner Interest to Centre Partners L.P. or Holdings or their
respective partners or Affiliates.
Section 11.02. Admission of an Additional or Successor General
Partner.
(a) Upon a Transfer by a General Partner of any or all of its Units
of General Partner Interest in accordance with this Article XI, the transferor
shall be deemed to have given the transferee the right to seek admission to the
Partnership as an additional or successor General Partner. In the event that a
General Partner Transfers all of its Units of General Partner Interest in
accordance with this Article XI, and upon satisfaction of the conditions set
forth in Section 11.02(b), the admission of the transferee to the Partnership as
a successor General Partner shall occur, and for all purposes shall be deemed to
have
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occurred, immediately prior to the Transfer of the Units of General Partner
Interest by the transferor, and such transferee shall be authorized to continue
the business and operations of the Partnership without dissolution. Upon the
Transfer by a General Partner of its entire General Partner Interest in
accordance with this Article XI, such transferor shall cease to be a General
Partner (notwithstanding any failure or refusal by the remaining General
Partners or a Majority Vote of the Partners to approve the admission of the
transferee as a successor General Partner), and the Certificate of Limited
Partnership shall be amended to reflect such withdrawal. In the event that a
General Partner Transfers a portion of its General Partner Interest in
accordance with this Article XI, upon the satisfaction of the conditions set
forth in Section 11.02(b), the transferee shall be admitted to the Partnership
as an additional General Partner and, together with the transferor, which shall
remain a General Partner, shall continue the business of the Partnership without
dissolution. Within ninety (90) days after the admission to the Partnership of
an additional or successor General Partner, the Certificate of Limited
Partnership shall be amended in accordance with the Delaware RULPA to reflect
such admission.
(b) Notwithstanding anything in this Article XI to the contrary (but
subject to the provisions of paragraphs (d) and (e) of this Section 11.02), the
admission to the Partnership of an additional or successor General Partner
(including, without limitation, (i) the admission of a Permitted Pledgee
pursuant to Section 11.01(e) or (ii) the admission of a Person who is not then a
Partner pursuant to Section 11.04 or 11.05) shall be subject to either (A) the
prior written consent of each of the then remaining General Partners (which may
be given or withheld in their sole discretion) or (B) a Majority Vote of the
Partners, and the admission as an additional or successor General Partner of a
transferee of all or any portion of a General Partner's General Partner Interest
shall be further conditioned upon the receipt by the transferor or former
General Partner of all the following immediately prior to the Transfer:
(i) the additional or successor General Partner's
acceptance of, and agreement to be bound by, all the terms and
provisions of this Agreement, in form and substance satisfactory to
each of the remaining General Partners or, if none, the transferor or
former General Partner;
(ii) the additional or successor General Partner's being
listed as a partner of the Partnership on the books and records of the
Partnership;
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(iii) evidence of the authority of such additional or
successor General Partner to become a General Partner and to be bound
by all the terms and conditions of this Agreement;
(iv) the written agreement of the additional or successor
General Partner to continue the business of the Partnership in
accordance with the terms and provisions of this Agreement (if the
Partnership would be dissolved as a result of such Transfer and any
other related Transfers in connection therewith); and
(v) such other documents or instruments as may be required
in order to effect the admission of the additional or successor
General Partner as a general partner of the Partnership under this
Agreement.
(c) If the approval of the admission of a transferee as an additional
or successor General Partner is required pursuant to Section 11.02(b) but such
approval is not given, such transferee shall be deemed an Assignee, but may
become a Substituted Limited Partner with respect to the Units so acquired
pursuant to Section 11.10. If such Assignee is not so admitted, it shall have
an interest in the Partnership that is equivalent to that of a Limited Partner
solely with respect to allocations and distributions, including liquidating
distributions of the Partnership, but shall have no other rights of a Partner.
(d) The Partners hereby consent to the admission as a successor
General Partner of a Permitted Pledgee (or its assigns or transferees) of a
General Partner's General Partner Interest, in the event that pursuant to the
pledge agreement in favor of UBS-NY, as agent, with respect to such Interest,
there is an Event of Default (as defined in such pledge agreement) and such
agent exercises its rights and remedies thereunder with respect to such Interest
and the admission of a successor General Partner, such admission to occur
immediately prior to the time of such exercise upon the execution by such
Permitted Pledgee (or its assigns or transferees) of this Agreement or a
counterpart hereof.
(e) The Partners hereby consent to the admission as a successor
General Partner of the transferee of the Managing General Partner's General
Partner Interest pursuant to a Transfer in accordance with the provisions of
Sections 11.04 and 11.06 hereof, if such Transfer constitutes a Transfer Event
and such transferee has satisfied the requirements of clauses (i) through (v) of
Section 11.02(b).
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Section 11.03. Transfer of Units of Limited Partner Interest.
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(a) Except as otherwise expressly provided in this Article XI, no
Limited Partner shall have any right to Transfer any or all of its Units of
Limited Partner Interest (or any interest therein) to any Person. If a Limited
Partner or Assignee shall Transfer any Units of Limited Partner Interest (or any
interest therein) in contravention of any provision of this Article XI, such
Transfer shall be void and deemed ineffectual, and shall not bind or be
recognized by the Partnership.
(b) A Class A Limited Partner shall have the right to Transfer any or
all of its Units of Class A Limited Partner Interest (or any interest therein)
pursuant to Section 11.04, 11.06 or 11.07 or Article XV hereof.
(c) A Class B Limited Partner shall have the right to Transfer any or
all of its Units of Class B Limited Partner Interest (or any interest therein),
in the case of Class B Limited Partner Interests which are Class B Conversion
Units, at any time pursuant to Section 11.04 or 11.06 or Article XV hereof, and
in the case of Class B Limited Partner Interests which are not Class B
Conversion Units, at any time on or after the fifth anniversary of the date of
the First Restated Agreement pursuant to Section 11.05 or 11.06 or Article XV
hereof.
(d) (i) A Class C Limited Partner shall have the right to Transfer
any or all of its Units of Limited Partner Interest (or any interest therein)
pursuant to and subject to Sections 11.03(f) and 11.06 hereof or if all the
General Partners consent to the proposed Transfer, which consent may be given or
withheld in their sole discretion.
(ii) Prior to the occurrence of the Class C-1 Participation Event, a
Class C-1 Limited Partner shall have the right to Transfer all (but not
part) of its Units of Limited Partner Interest pursuant to and subject to
Section 11.03(j) and 11.06 hereof. After the Class C-1 Participation Event
a Class C-1 Limited Partner shall have the right to Transfer any or all of
its Units of Limited Partner Interests (or any interest therein) pursuant
to and subject to Section 11.03(j), 11.04, 11.06 and Article XV hereof. In
addition, a Class C-1 Limited Partner shall have the right to Transfer its
Units of Limited Partner Interests if all the General Partners consent to
the proposed Transfer, which consent may be given or withheld in their sole
discretion.
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(e) The Partnership and Partners acknowledge that any of the
following Transfers of Units of Limited Partner Interest (other than Class C
Limited Partner Interests or Class C-1 Limited Partner Interests) are deemed to
be permitted pursuant to this Article XI:
(i) a Transfer of Units upon the death of a Limited Partner to
his executors, legal heirs, administrators, testamentary trustees and
beneficiaries (the "Estate");
(ii) a Transfer of Units by a Limited Partner who is a natural
person made for nominal consideration or as a gift to the Limited Partner's
spouse, parents or issue, or to a trust, the beneficiaries of which, or to
a corporation or partnership, the stockholders or limited and general
partners of which, include only the Limited Partner and such Limited
Partner's spouse, parents or issue; provided, however, that a Transfer of
Units to such a trust shall be permitted only if (A) the provisions of the
governing trust instrument expressly provide that the trust shall be
subject to and bound by all the terms and conditions of this Agreement,
including without limitation the provisions of this Article XI, and (B)
such Limited Partner shall furnish the Partnership with an opinion of
counsel to the effect that such trust shall be subject to and bound by all
the terms and conditions of this Agreement, including without limitation
the provisions of this Article XI, which counsel and form and content of
opinion shall be acceptable to all the General Partners, in their
reasonable judgment; and
(iii) a Transfer of Units to the Partnership by a Class B Limited
Partner or a Preferred Interest Limited Partner who is also a Class B
Limited Partner to secure any borrowings from the Partnership made by such
Partner to purchase Units of Class B Limited Partner Interest and/or Units
of Preferred Limited Partner Interest.
The Estate of a Limited Partner (other than a Class C Limited Partner or a Class
C-1 Limited Partner) and each other Person to whom Units may be Transferred by a
Limited Partner (other than a Class C Limited Partner or a Class C-1 Limited
Partner) pursuant to this Section 11.03(e) is hereinafter sometimes referred to
as a "Permitted Transferee."
(f) The Partnership and Partners acknowledge that (i) MLP Sales may
Transfer its Units of Class C Limited Partner Interest to its partners (in
connection with a liquidation or dissolution of MLP Sales not in contravention
of the terms of the Field Agreement), (ii) a partner of MLP Sales which has
received
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Units of Class C Limited Partner Interest pursuant to the foregoing clause (i)
may Transfer such Units of Class C Limited Partner Interest to its partners or
shareholders in connection with a liquidation or dissolution of such partner of
MLP Sales, (iii) a Class C Limited Partner which is a trust may Transfer its
Units of Class C Limited Partner Interest to its beneficiaries in connection
with a termination of such trust, and (iv) a Class C Limited Partner which is a
natural Person may Transfer his Units of Class C Limited Partner Interest upon
his death to his executors, legal heirs, administrators, testamentary trustees
and beneficiaries (the "Class C Estate"), in any such case subject to the
provisions of Sections 11.10 and 16.03. Each partner of Seller to whom Units may
be Transferred by MLP Sales and a Class C Estate or other Person to whom Units
may be Transferred pursuant to this Section 11.03(f) is hereinafter sometimes
referred to as a "Permitted Trust Transferee."
(g) The Partnership and Partners acknowledge that Holdings, the
Managing General Partner or a Partner which is an Affiliate of Holdings or
Centre Partners L.P. may Transfer any or all of its Units of Partner Interest to
Centre Partners L.P. or Holdings or their respective partners or Affiliates,
provided that no such Transfer may be made to a Person who is subject to backup
withholding under Section 3406 of the Code. Each such Person to whom Units may
be Transferred pursuant to this Section 11.03(g) is hereinafter sometimes
referred to as a "Permitted Holdings Transferee."
(h) The Partnership and Partners acknowledge that (i) a Class A-1
Limited Partner may Transfer its Units of Class A-1 Limited Partner Interest,
(ii) a Class B Limited Partner may Transfer its Units of Class B Limited Partner
Interest, and (iii) a Preferred Interest Limited Partner may Transfer its Units
of Preferred Limited Partner Interest, in each case to a bank or other lending
institution to secure any borrowings made by the Partnership from such bank or
other lending institution.
(i) The Partnership and Partners acknowledge that a Class A-2 Limited
Partner (in its capacity as such and, if such Class A-2 Limited Partner also
owns Units of Preferred Limited Partner Interest and/or Class B Conversion
Units, then in its capacity as the holder of such Units) and Exeter may Transfer
any or all of its Units of Limited Partner Interest to its respective Affiliates
(other than (x) Affiliates who are officers, directors or employees of such
Class A-2 Limited Partner or Exeter, as applicable, or (y) other individuals who
are Affiliates of such Class A-2 Limited Partner or Exeter, as applicable),
provided that no such Transfer may be made to a Person who is subject to backup
withholding under Section 3406 of the Code. Each
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Affiliate of a Class A-2 Limited Partner or Exeter to whom Units may be
transferred pursuant to the preceding sentence of this Section 11.03(i) is
hereinafter sometimes referred to as a "Permitted A-2 Transferee." The Partners
also acknowledge that UBS may Transfer its entire Limited Partner Interest to a
UBS Entity and that any such UBS Entity may Transfer its entire Limited Partner
Interest (regardless of the class thereof) to any other UBS Entity, provided
that not more than two such Transfers may be made during any Fiscal Year and no
such Transfer may be made to a UBS Entity which is subject to backup withholding
under Section 3406 of the Code. Any such UBS Entity to which UBS' entire Limited
Partner Interest may be transferred pursuant to the preceding sentence of this
Section 11.03(i) is hereinafter sometimes referred to as a "UBS Entity
Transferee".
(j) The Partnership and the Partners acknowledge that the Class C-1
Limited Partners may Transfer their Units of Class C-1 Limited Partner Interest
or the Class C-1 Participation Option to Comcast Corporation or any wholly-owned
direct or indirect subsidiary of Comcast Corporation, and that a change of
control of Comcast Corporation shall not be deemed a Transfer of Units of Class
C-1 Limited Partner Interest or the Class C-1 Participation Option for purposes
of Section 11.03(a) and 17.02(c)(ii), respectively.
(k) The Partnership and the Partners acknowledge that a Preferred
Interest Limited Partner shall have the right to Transfer any or all of its
Units of Preferred Limited Partner Interest (or any interest therein) pursuant
to Section 11.04, 11.06 or Section 19.03 hereof.
(l) Notwithstanding any other provision of this Article XI, no
Transfer of any Units of Limited Partner Interest (or any interest therein)
shall be made if such Transfer (i) would violate the then applicable federal and
state securities laws or rules and regulations of the Securities and Exchange
Commission, any state securities commission or any other governmental authority
with jurisdiction over such Transfer, (ii) would affect the Partnership's
existence or qualification as a limited partnership under the Delaware RULPA or
(iii) would cause the Partnership to be treated as an association taxable as a
corporation for federal income tax purposes.
(m) Except as provided in Section 11.10(a) and subject to the
obligation to keep the Unit Register pursuant to Section 10.01(c), the
Partnership shall not recognize for any purpose any purported Transfer by a
Limited Partner or Assignee of any or all of its Units of Limited Partner
Interest (or any interest
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therein) held by such Limited Partner or Assignee until such Transfer is shown
on the books and records of the Partnership.
Section 11.04. Rights of First Refusal for Units of Partner Interest
Owned by Class A Limited Partners, the Managing General Partner, Preferred
Interest Limited Partners, holders of Class B Conversion Units or Class C-1
Limited Partners.
(a) If a Group A Partner, Preferred Interest Limited Partner, a
holder of Class B Conversion Units or, after the Class C-1 Participation Event,
a Class C-1 Limited Partner (for purposes of this Article XI, collectively the
"Specified Partners" and each a "Specified Partner") wishes to Transfer any or
all of its Units of Partner Interest then owned by it, then, except as otherwise
permitted by Sections 11.01, 11.03, 11.06, 11.07 and 19.03 and Article XV
hereof, such Specified Partner shall first give a written notice (the "Transfer
Notice") to the Partnership specifying the number of Units of Partner Interest
it wishes to Transfer (the "Transfer Units") and the identity of the proposed
transferee, containing an irrevocable offer (open to acceptance for a period of
thirty days after the date such Transfer Notice is given) to sell the Transfer
Units to the Transfer Offerees (as defined below) at the price per Unit stated
in the Transfer Notice, which price shall be equal to the price per Unit offered
to such Partner by a bona fide Third Party offeror (the "Transfer Price"), and
stating whether such offer is conditioned upon purchase of all the Transfer
Units by the Transfer Offerees (a Specified Partner who has delivered a Transfer
Notice for purposes of this Section 11.04, the "Notifying Partner").
(b) The Partnership shall have the right to purchase any or all of
the Transfer Units; provided, however, that the Partnership must determine the
number of Transfer Units it will purchase within fifteen days after its receipt
of the Transfer Notice. If the Partnership elects to purchase less than all of
the Transfer Units, it shall, within fifteen days after its receipt of the
Transfer Notice, deliver a copy of the Transfer Notice and a written statement
of the number of Transfer Units it has elected not to purchase (the "Remaining
Transfer Units") to each Specified Partner (other than the Notifying Partner)
and the Administrative General Partner and each Class B Limited Partner who is
then employed by the Partnership (collectively, the "Partner Transfer Offerees"
and, together with the Partnership, the "Transfer Offerees"). A Partner Transfer
Offeree who wishes to purchase any of the Remaining Transfer Units shall provide
the Partnership with written notice specifying the number of Remaining Transfer
Units (up to such Partner Transfer Offeree's Pro Rata Share) as to which such
Partner Transfer Offeree desires to accept the offer within seven days of the
giving of such notice
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by the Partnership and may, at the Partner Transfer Offeree's option, indicate
the maximum number of Remaining Transfer Units such Partner Transfer Offeree
would purchase in excess of such Partner Transfer Offeree's Pro Rata Share (the
"Excess Amount"). If one or more Partner Transfer Offerees declines to
participate in such purchase or elects to purchase less than such Partner
Transfer Offeree's Pro Rata Share, then the Remaining Transfer Units shall
automatically be deemed to be accepted by Partner Transfer Offerees who
specified an Excess Amount in their respective notices of acceptance, allocated
among such Partner Transfer Offerees (with rounding to avoid fractional Units)
in proportion to their respective Pro Rata Share but in no event shall an amount
greater than a Partner Transfer Offeree's Excess Amount be allocated to such
Partner Transfer Offeree. Any excess number of Remaining Transfer Units shall be
allocated among the remaining Partner Transfer Offerees whose specified Excess
Amount has not been satisfied (with rounding to avoid fractional Units) in
proportion to their respective Pro Rata Share, and such procedure shall be
employed until the entire Excess Amount of each Partner Transfer Offeree has
been satisfied or all Remaining Transfer Units have been allocated. The
Partnership shall have the right, but not the obligation, to purchase any
Remaining Transfer Units remaining thereafter. Notwithstanding the provisions of
this Section 11.04(b), none of the Persons who are Class A-2 Limited Partners
(including Barclays and Exeter if either of such Persons is then a Class A-2
Limited Partner) or Exeter (in its capacity as a Preferred Interest Limited
Partner) shall be entitled to purchase Units of Partner Interest pursuant to
this Section 11.04 to the extent that the purchase of such Units would cause the
aggregate interests of such Person (inclusive of each class of Partner Interest
held by such Person) and each other Limited Partner, if any, which is a "related
person" (within the meaning of Regulations Section 1.752-2(d)) as to such Person
in any item of Partnership income, gain, loss, deduction or credit for that
taxable year or any taxable year thereafter during the term of this Agreement to
be 10 percent or more; provided, however, that this sentence shall not apply to
a Limited Partner unless such Limited Partner or a "related person" to such
Limited Partner is a lender to the Partnership or a participant in an
outstanding loan to the Partnership at any time during the taxable year in which
the purchase is to occur.
(c) If the offer is accepted by any Transfer Offerees and, if the
offer is conditioned on the purchase of all Transfer Units covered by the
Transfer Notice, all such Transfer Units have been accepted for purchase, the
Partnership, on behalf of all purchasing Transfer Offerees, shall provide the
Notifying Partner with written notice of such acceptance specifying the number
of the Transfer Units as to which each Transfer Offeree is
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accepting the offer (a "Notice of Acceptance") within thirty days after the date
the Transfer Notice is given.
(d) The closing of the purchase by the Transfer Offerees of the
Transfer Units pursuant to this Section 11.04 shall take place at the principal
offices of the Partnership on the fifteenth business day after the Notice of
Acceptance is given. At such closing, each of the Transfer Offerees who has
elected to purchase the Transfer Units shall deliver a certified check or checks
in the appropriate amount to the Notifying Partner against delivery of a duly
executed instrument of assignment, representing the Transfer Units to be
purchased. The Transfer Units shall be delivered free and clear of all
Encumbrances.
(e) If any Transfer Units allocated to a Transfer Offeree are not
purchased by such Transfer Offeree (the "Transfer Default Units"), such Transfer
Default Units may be purchased by the Partnership. Nothing contained herein
shall prejudice any person's right to maintain any cause of action or pursue any
other remedies available to it as a result of such default.
(f) If, at the end of the thirtieth day after the Transfer Notice is
given, the Partnership has not delivered a Notice of Acceptance of the offer
contained in such Transfer Notice (or if the offer is conditioned on the
purchase of all the Transfer Units, the Notice of Acceptance does not cover all
the Transfer Units), or if it has delivered a Notice of Acceptance covering less
than all of the Transfer Units regarding an offer not conditioned on the
purchase of all Transfer Units, then the Notifying Partner shall have ninety
days in which to Transfer any or all of the Transfer Units not accepted for
purchase by the Transfer Offerees, at a price not lower than the Transfer Price
and on terms no more favorable to the transferee than those contained in the
Transfer Notice, to the proposed transferee identified in the Transfer Notice.
In the event that a Third Party shall acquire any or all of the Transfer Units,
it shall have no right to Transfer such Units (or any interest therein) unless
and until such Third Party is admitted as a Substituted Limited Partner pursuant
to Section 11.10 hereof or an additional or successor General Partner pursuant
to Section 11.02, as applicable. Promptly after any Transfer pursuant to this
Section 11.04, the Notifying Partner shall notify the Partnership of the
consummation thereof and shall furnish such evidence of the completion and time
of completion of such Transfer and of the terms thereof as the Partnership may
request. If, at the end of such ninety-day period, the Notifying Partner has not
completed the Transfer of all of the Transfer Units (provided that if there are
any Transfer Default Units which have not been purchased at
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the end of such ninety-day period, the Notifying Partner shall have an
additional fifteen days to find purchasers for such Transfer Default Units), the
Notifying Partner shall no longer be permitted to Transfer such Units pursuant
to this Section 11.04 without again complying with Section 11.04 in its
entirety. If the Notifying Partner determines at any time within such ninety-day
period that the Transfer of any or all of such Transfer Units at a price not
lower than the Transfer Price and on terms no more favorable to the transferee
than those contained in the Transfer Notice is impractical, the Notifying
Partner may terminate all attempts to Transfer such Transfer Units and
recommence the procedures of Section 11.04 in their entirety without waiting for
the expiration of such ninety-day period by delivering written notice of such
decision to the Partnership.
(g) In the event that (i) federal or state banking laws, in the
reasonable judgment of a Class A-2 Limited Partner (in its capacity as such and,
if such Class A-2 Limited Partner also owns Units of Preferred Limited Partner
Interest and/or Class B Conversion Units, then in its capacity as the holder of
such Units), require such Class A-2 Limited Partner to Transfer its Units of
Class A-2 Limited Partner Interest, Units of Preferred Limited Partner Interest
and/or Class B Conversion Units and (ii) such Class A-2 Limited Partner
reasonably determines that such banking laws will not permit it to Transfer such
Units to a Permitted A-2 Transferee pursuant to Section 11.03(i), then such
Class A-2 Limited Partner may transfer such Units pursuant to and subject to all
of the provisions of this Agreement (including without limitation this Section
11.04 and Section 19.03 hereof), provided that (i) no such Transfer may be made
to a Person who is subject to backup withholding under Section 3406 of the Code,
and (ii) such transferee executes and delivers a counterpart of this Agreement.
The Third Party purchaser of such Class A-2 Limited Partner's Limited Partner
Interest pursuant to the preceding sentence of this Section 11.04(g) is
hereinafter sometimes referred to as a "Third Party A-2 Transferee."
(h) Transfers of Units of Partner Interest for property other than
cash are not permitted pursuant to this Section 11.04.
Section 11.05. Rights of First Refusal for Units of Partner Interest
(other than Class B Conversion Units) Owned by Class B Limited Partners or the
Administrative General Partner.
(a) If any Class B Limited Partner or the Administrative General
Partner (for purposes of this Section 11.05, a "Class B Transferring Partner")
wishes to Transfer any or all of
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the Units of Partner Interest (other than Class B Conversion Units) then owned
by such Class B Transferring Partner on or after September 4, 1997, other than
as otherwise permitted by Sections 11.01, 11.03 and 11.06 and Article XV hereof,
then such Class B Transferring Partner shall first give a written notice (the
"Class B Transfer Notice") to the Partnership specifying the number of Units of
Partner Interest such Class B Transferring Partner wishes to Transfer (the
"Class B Transfer Units") and the identity of the proposed transferee,
containing an irrevocable offer (open to acceptance for a period of thirty days
after the date such Class B Transfer Notice is given) to sell the Class B
Transfer Units to the Class B Transfer Offerees (as defined below) at the price
per Unit stated in the Class B Transfer Notice, which price shall be equal to
the price per Unit offered to such Class B Transferring Partner by a bona fide
Third Party offeror (the "Class B Transfer Price"), and stating whether such
offer is conditioned upon purchase of all the Class B Transfer Units by the
Class B Transfer Offerees.
(b) The Partnership shall, within five days of its receipt of the
Class B Transfer Notice, provide notice of receipt of the Class B Transfer
Notice to the Administrative General Partner, all Class B Limited Partners and
all Preferred Interest Limited Partners then employed by the Partnership, other
than (i) the Class B Transferring Partner, (ii) the proposed transferee (if the
proposed transferee is a Class B Limited Partner or Preferred Interest Limited
Partner then employed by the Partnership), and (iii) Class B Limited Partners
who are no longer employed by the Partnership and their Permitted Transferees
(each such Person to whom a Class B Transfer Notice is required to be delivered
to being referred to herein as a "Class B Partner Offeree"), and to the
Specified Partners (the Specified Partners, the Partnership and the Class B
Partner Offerees being collectively referred to herein as the "Class B Transfer
Offerees"). A Class B Partner Offeree who wishes to purchase any Class B
Transfer Units shall provide the Partnership with written notice specifying the
number of Class B Transfer Units (up to such Class B Partner Offeree's Pro Rata
Share) as to which such Class B Partner Offeree desires to accept the offer
within fifteen days of the giving of such notice by the Partnership, and may, at
the Class B Partner Offeree's option, indicate the maximum number of Class B
Transfer Units such Class B Partner Offeree would purchase in excess of such
Class B Partner Offeree's Pro Rata Share (the "Excess Amount"). If one or more
Class B Partner Offerees declines to participate in such purchase or elects to
purchase less than such Class B Partner Offeree's Pro Rata Share, then the
remaining Class B Transfer Units shall automatically be deemed to be accepted by
Class B Partner Offerees who specified an Excess Amount in their respective
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notices of acceptance, allocated among such Class B Partner Offerees (with
rounding to avoid fractional Units) in proportion to their respective Pro Rata
Share but in no event shall an amount greater than a Class B Partner Offeree's
Excess Amount be allocated to such Partner Offeree. Any excess number of Class B
Transfer Units shall be allocated among the remaining Class B Partner Offerees
whose specified Excess Amount has not been satisfied (with rounding to avoid
fractional Units) in proportion to their respective Pro Rata Share, and such
procedure shall be employed until the entire Excess Amount of each Class B
Partner Offeree has been satisfied or all of the Class B Transfer Units have
been allocated.
(c) If any Specified Partner wishes to purchase any Class B Transfer
Units which the Class B Partner Offerees or the Partnership have not elected to
purchase (the "Remaining Class B Transfer Units"), it shall provide the
Partnership with written notice specifying the number of Remaining Class B
Transfer Units as to which such Specified Partner desires to accept the offer
within twenty days of the giving of the notice of receipt of a Class B Transfer
Notice by the Partnership. To the extent the Class B Partner Offerees do not
purchase all of the Class B Transfer Units, the Partnership shall have the right
to purchase all such Remaining Class B Transfer Units; provided, that the
Partnership must determine the number of Remaining Class B Transfer Units it
will purchase within five days after the termination of all offers pursuant to
Section 11.05(b). If the Partnership elects to purchase less than all of the
Remaining Class B Transfer Units, it shall, within such five days, allocate to
each Specified Partner, to the extent each such Specified Partner elects to
purchase any of such Units, all Remaining Class B Transfer Units which the
Partnership has not elected to purchase. In the event the aggregate number of
Remaining Class B Transfer Units available for purchase by Specified Partners is
less than the number of such Units which such Specified Partners have indicated
a desire to purchase, such Remaining Class B Transfer Units shall be allocated
among the Specified Partners desiring to purchase such Units in proportion to
their respective Pro Rata Share (with rounding to avoid fractional Units). The
Partnership shall have the right but not the obligation to purchase any
Remaining Class B Transfer Units not accepted for purchase by the Class B
Partner Offerees or the Specified Partners. Notwithstanding the provisions of
Section 11.05(b) and this Section 11.05(c), none of the Persons who are Class
A-2 Limited Partners (including Barclays and Exeter if either of such Persons is
then a Class A-2 Limited Partner) or Exeter (in its capacity as a Preferred
Interest Limited Partner) shall be entitled to purchase Units of Partner
Interest pursuant to this Section 11.05 to the extent that the purchase of such
Units would
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cause the aggregate interests of such Person (inclusive of each class of Partner
Interest held by such Person) and each other Limited Partner, if any, which is a
"related person" (within the meaning of Regulations Section 1.752-2(d)) as to
such Person in any item of Partnership income, gain, loss, deduction or credit
for that taxable year or any taxable year thereafter during the term of this
Agreement to be 10 percent or more; provided, however, that this sentence shall
not apply to a Limited Partner unless such Limited Partner or a "related person"
to such Limited Partner is a lender to the Partnership or a participant in an
outstanding loan to the Partnership at any time during the taxable year in which
the purchase is to occur.
(d) If the offer is accepted by any Class B Partner Offeree, the
Partnership or any Specified Partner, and, if the offer is conditioned on the
purchase of all Class B Transfer Units covered by the Class B Transfer Notice,
all such Class B Transfer Units have been accepted for purchase, the
Partnership, on behalf of all such Persons, shall provide the Class B
Transferring Partner with written notice of such acceptance specifying the
number of the Class B Transfer Units as to which each such Person is accepting
the offer (a "Notice of Acceptance") within thirty days after the date the
Transfer Notice is given.
(e) The closing of the purchase by the Class B Transfer Offerees of
the Class B Transfer Units pursuant to this Section 11.05 shall take place at
the principal offices of the Partnership on the fifteenth business day after the
Notice of Acceptance is given. At such closing, each of the Class B Transfer
Offerees who has elected to purchase the Class B Transfer Units shall deliver a
certified check or checks in the appropriate amount to the Class B Transferring
Partner against delivery of a duly executed instrument of assignment,
representing the Class B Transfer Units to be purchased. The Class B Transfer
Units shall be delivered free and clear of all Encumbrances.
(f) If any Class B Transfer Units allocated to a Class B Transfer
Offeree are not purchased by such Class B Transfer Offeree (the "Class B
Transfer Default Units"), such Class B Transfer Default Units may be purchased
by the Class B Partner Offerees, up to each such Class B Partner Offeree's Pro
Rata Share (with any Class B Transfer Default Units any such Person elects not
to purchase being reallocated among the remaining Class B Partner Offerees in
accordance with his Pro Rata Share until no such Person wishes to purchase any
more Class B Transfer Default Units or all such Class B Transfer Default Units
shall have been allocated), and if the Class B Partner Offerees do not purchase
all such Class B Transfer Default Units, such Units may
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be purchased by the Partnership and, if the Partnership elects not to purchase
them, such Units may be purchased by the Specified Partners up to each such
Specified Partners' Pro Rata Share (with any Class B Transfer Default Units any
such Person elects not to purchase being reallocated among the remaining
Specified Partners in accordance with their respective Pro Rata Share until no
such Person wishes to purchase any more Class B Transfer Default Units or all
such Class B Transfer Default Units shall have been allocated), and if the
Specified Partners do not purchase all such Units, the Third Party purchaser may
purchase such Units. Nothing contained herein shall prejudice any person's right
to maintain any cause of action or pursue any other remedies available to it as
a result of such default.
(g) If, at the end of the thirtieth day after the Class B Transfer
Notice is given, the Partnership has not delivered a Notice of Acceptance of the
offer contained in such Class B Transfer Notice (or if the offer is conditioned
on the purchase of all the Class B Transfer Units, the Notice of Acceptance does
not cover all the Class B Transfer Units), or if it has delivered a Notice of
Acceptance covering less than all of the Class B Transfer Units regarding an
offer not conditioned on the purchase of all Class B Transfer Units, then the
Class B Transferring Partner shall have ninety days in which to Transfer any or
all of the Class B Transfer Units not accepted for purchase by the Class B
Transfer Offerees at a price not lower than the Class B Transfer Price and on
terms no more favorable to the transferee than those contained in the Class B
Transfer Notice, to the proposed transferee identified in the Class B Transfer
Notice. In the event that a Third Party shall acquire any or all of the Class B
Transfer Units, it shall have no right to Transfer such Units (or any interest
therein) unless and until such Third Party is admitted as a Substituted Limited
Partner pursuant to Section 11.10 hereof or an additional or successor General
Partner pursuant to Section 11.02, as applicable. Promptly after any Transfer
pursuant to this Section 11.05, the Class B Transferring Partner shall notify
the Partnership of the consummation thereof and shall furnish such evidence of
the completion and time of completion of such Transfer and of the terms thereof
as the Partnership may request. If, at the end of such ninety-day period, the
Class B Transferring Partner has not completed the Transfer of all of the Class
B Transfer Units (provided that if there are any Class B Transfer Default Units
which have not been purchased at the end of such ninety-day period, the Class B
Transferring Partner shall have an additional fifteen days to find purchasers
for such Class B Transfer Default Units), the Class B Transferring Partner shall
no longer be permitted to Transfer such Units of Partner Interest pursuant to
this Section 11.05 without again complying with Section 11.05 in its
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entirety. If the Class B Transferring Partner determines at any time within such
ninety-day period that the Transfer of all or any of such Class B Transfer Units
at a price not lower than the Class B Transfer Price and on terms no more
favorable to the transferee than those contained in the Class B Transfer Notice
is impractical, such Class B Transferring Partner may terminate all attempts to
Transfer such Class B Transfer Units and recommence the procedures of Section
11.05 in their entirety without waiting for the expiration of such ninety-day
period by delivering written notice of such decision to the Partnership.
(h) Transfers of Units of Partner Interest for property other than
cash are not permitted pursuant to this Section 11.05.
Section 11.06. Bring Along.
(a) If, after complying with the right of first refusal procedures
contained in Section 11.04 or 11.05 hereof, as applicable, a Partner (other than
a Preferred Interest Limited Partner) wishes to Transfer Units of its Partner
Interest to any Third Party (other than through a sale in a registered public
offering or Transfers permitted by Section 11.01(e), 11.01(g), 11.03(e),
11.03(f), 11.03(g), 11.03(h), 11.03(i) or 11.04(g) hereof, which Transfers shall
not be subject to this Section 11.06), then such Partner must, as a condition to
such Transfer, permit each other Partner and any holder of a Class C Exchange
Note or Class C-1 Exchange Note (as such terms are defined in Sections 16.02 and
17.02, respectively) (for the purposes of this Section 11.06, individually a
"Remaining Partner" and collectively the "Remaining Partners") (or cause it or
him to be permitted) to sell (to either the prospective purchaser of the selling
Partner's Units of Partner Interest, or another financially reputable purchaser
reasonably acceptable to such Remaining Partners or, in the case of the sale of
Units of Class C Limited Partner Interest or Class C-1 Limited Partner Interest
or any outstanding Class C Exchange Note or Class C-1 Exchange Note, to the
Partnership) the same proportion of Units of the Partner Interest then owned by
such Remaining Partner as the proportion that the number of Units (if any) of
Partner Interest the selling Partner has previously sold and proposes to sell
bears to the aggregate number of Units of Partner Interest (other than Preferred
Limited Partner Interests) acquired by such Partner pursuant to a Subscription
Agreement, or the exercise of Performance Options or otherwise as contemplated
by this Agreement, on the same terms and at the same price per Unit offered to
such selling Partner by the Third Party offeror, except that (i) in the case of
Units of Class C Limited Partner Interest, and, prior to the Class C-1
Participation Event, Units of Class C-1 Limited
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Partner Interest held by a Remaining Partner, the price per Unit that such
Remaining Partner shall be entitled to receive for such Units shall equal the
then Class C Liquidation Preference or Class C-1 Liquidation Preference,
respectively, per Unit, (ii) in the case of Units of Preferred Limited Partner
Interest held by a Remaining Partner, such Remaining Partner shall be entitled
to receive for such Units, at the option of such Remaining Partner, either (a)
the then Preferred Interest Liquidation Preference per Unit or (b) the price per
Unit offered to such selling Partner by the Third Party offeror for each Unit
held by such Remaining Partner, assuming conversion of such Units in accordance
with the provisions of Section 19.05 hereof (including the manner of determining
the number of Units of Class B Partner Interest issuable upon such a conversion
set forth in said Section 19.05), and (iii) in the case of any outstanding Class
C Exchange Note or Class C-1 Exchange Note, the holder thereof shall be entitled
to receive a proportionate payment (after giving effect to any previous sales of
Units of Class C Limited Partner Interest or Class C-1 Limited Partner Interest
or partial payments on such Class C Exchange Note or Class C-1 Exchange Note) of
the outstanding principal and accrued interest on such Exchange Note, and
provided that in the event that a Class B Limited Partner or Preferred Interest
Limited Partner who is then employed by the Partnership wishes to Transfer Units
of his Limited Partner Interest (other than a Transfer pursuant to Section
11.08) and such Transfer would reduce such Partner's ownership of Units in the
aggregate, regardless of the class thereof, to below 50% of the aggregate number
of Units, regardless of class thereof, previously acquired by him pursuant to a
Subscription Agreement, or the exercise of Performance Options or otherwise as
contemplated by this Agreement, then the Managing General Partner and each Class
A Limited Partner shall be permitted to sell (either to the prospective
purchaser of the selling Partner's Units of Partner Interest or to another
financially reputable purchaser reasonably acceptable to the Managing General
Partner) all of their Units of General Partner Interest and Class A Limited
Partner Interest, respectively. In the event that the prospective purchaser of
the selling Partner's Units of Partner Interests and/or such other financially
reputable purchaser does not purchase for whatever reason (including without
limitation the financially reputable purchaser not being reasonably acceptable
as aforesaid) the requisite portion of Units of Partner Interest owned by the
Remaining Partners pursuant to the preceding sentence, the selling Partner shall
not be permitted to Transfer its Units of its Partner Interest to a Third Party.
The Partners agree that the Managing General Partner shall have the sole right
(in its discretion) to determine whether to admit as Substituted Limited
Partners the purchasers of the Units of Partner Interest being sold by the
selling Partner and the
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Remaining Partners pursuant to this Section 11.06(a), provided that if there is
more than one prospective purchaser pursuant to this Section 11.06(a) at any one
time, then if any purchaser is admitted as a Substituted Limited Partner at such
time, all the purchasers at such time shall be so admitted as Substituted
Limited Partners. In the event that there has previously been a distribution on
Units of Partner Interest payable in Units or a split-up or a recombination of
Units of Partner Interest or other similar transaction (other than pursuant to
the exercise of a Performance Option), the number of Units of Preferred Limited
Partner Interest, Units of Class C Limited Partner Interest and Class C-1
Limited Partner Interest and the Preferred Interest Liquidation Preference,
Class C Liquidation Preference and Class C-1 Liquidation Preference per Unit to
which the rights of the Preferred Interest Limited Partners, Class C Limited
Partners and Class C-1 Limited Partners under this Section 11.06 shall apply
shall be appropriately adjusted to give effect to such transaction.
(b) Each Partner's obligation under this Section 11.06 to afford each of
the Remaining Partners (or to cause each of them to be afforded) the rights
referred to herein will be discharged if (i) the Remaining Partners are given
written notice thereof simultaneously with the giving of the Transfer Notice
required by Section 11.04 hereof or the giving of the Class B Transfer Notice
pursuant to Section 11.05 hereof, as applicable, and (ii) such notice provides
that each of the Remaining Partners may elect to avail itself or himself of such
rights by a written reply given on or before the expiration of the 20-day period
following the giving of the Transfer Notice or the Class B Transfer Notice, as
the case may be, addressed to such Person as may be designated in the notice
and, if requested in such notice, sent by registered mail, return receipt
requested.
(c) The "bring along" rights contained in this Section 11.06 may be
exercised or waived solely at the option of the party entitled thereto and are
in addition to the rights of the respective Partners set forth in Section 11.04
or 11.05, as applicable. The procedures set forth in Section 11.04 or 11.05, as
applicable, shall be satisfied prior to giving effect to the "bring along"
provisions of this Section 11.06.
(d) Anything contained herein to the contrary notwithstanding, the rights
of Partners under this Section 11.06 shall not be assignable, except to a
transferee of Units of Partner Interest pursuant to any Transfer of Units
otherwise permissible pursuant hereto and except to the extent that the Managing
General Partner or a Class A-1 Limited Partner may transfer its rights under
this Section 11.06 to a Partner that is an Affiliate
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of the Managing General Partner, Centre Partners, L.P., Holdings or another
Class A-1 Limited Partner.
(e) Anything contained herein to the contrary notwithstanding, in the
event the Managing General Partner approves a transaction pursuant to which a
Person will acquire all of the Units of Partner Interest, each of the Partners
agrees to offer to sell all of their Units of Partner Interest, and to sell all
of their Units of Partner Interest, to such Person, upon the terms and
conditions for the transaction approved by the Managing General Partner,
provided that upon the request of either (i) the Administrative General Partner
or (ii) the Limited Partners owning a majority of the aggregate number of Units
of Class A-2 Limited Partner Interest, the Administrative General Partner and/or
the Class A-2 Limited Partners so requesting and the Managing General Partner
shall jointly select an investment banking or appraisal firm (which shall not be
Lazard Freres & Co.) to render a "fairness opinion" to the Partnership with
respect to the fairness of the consideration to be received by each class of
Partners in such transaction. If the selection of an investment banking or
appraisal firm is so requested, (i) no Partner shall be required to sell its
Units of Partner Interest until a fairness opinion is rendered, confirming the
fairness of the consideration to be received by such Partners, and (ii) the fees
and expenses of such investment banking or appraisal firm shall be borne by the
Partnership. In the event of a sale of Units of Partner Interest pursuant to
this Section 11.06(e), (i) the terms of the purchase and the consideration
received by each Class A-2 Limited Partner for its Units of Class A-2 Limited
Partner Interest shall be equal on a per Unit basis to the terms of the purchase
and the consideration received by the Initial Partners, as a group, for their
Units of Class A-1 Limited Partner Interest and Units of General Partner
Interest and (ii) in no event shall the consideration to be received by the
Class C-1 Limited Partners prior to the Class C-1 Participation Event be greater
than the Class C-1 Liquidation Preference. For purposes of the preceding
sentence, the consideration for the Units of Class A-1 Limited Partner Interest
and Units of General Partner Interest sold by the Initial Partners on a per Unit
basis shall be an amount equal to the aggregate consideration received by the
Initial Partners for all such Units of Partner Interest, divided by the number
of such Units of Partner Interest sold by the Initial Partners.
Section 11.07. Put Option.
(a) (i) At any time and from time to time after September 4, 1998, an
Initial Partner shall have the right to require the Partnership to purchase such
number of Units of Class
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A-1 Limited Partner Interest or Units of General Partner Interest owned of
record by such Initial Partner as such Initial Partner may designate at the Fair
Market Value thereof.
(ii) In the event that an Initial Partner shall exercise
such right, such Initial Partner shall so notify the other Group A
Partners, and each Class A-2 Limited Partner shall have the right to
give notice to the Partnership, within ten days of the giving of such
notice by such Initial Partner, to require the Partnership to
purchase, at the Fair Market Value thereof (but subject to the
provisions of Section 11.07(e)), such number of Units of Class A-2
Limited Partner Interest owned of record by such Class A-2 Limited
Partner, provided that in no event shall a Class A-2 Limited Partner
have the right to require the Partnership to purchase a percentage of
such Class A-2 Limited Partner's total number of Units of Class A-2
Limited Partner Interest which is in excess of the percentage of the
total number of Units of Class A-2 Limited Partner Interest owned by
such Initial Partner which such Initial Partner has so designated for
purchase by the Partnership pursuant to Section 11.07(a)(i). In the
event that both Holdings and the Managing General Partner shall
exercise their rights under Section 11.07(a)(i), each Class A-2
Limited Partner shall have the right to so require the Partnership to
purchase a percentage of the total number of Units of Class A-2
Limited Partner Interest owned of record by such Class A-2 Limited
Partner which is not more than the percentage of the total number of
Units of Partner Interest owned by Holdings and the Managing General
Partner which they have so designated for purchase by the Partnership
pursuant to Section 11.07(a)(i). The Partners acknowledge that no
Group A Partner other than a Initial Partner shall have any right to
initiate the exercise of the right under Section 11.07(a)(i).
(b) The Partnership shall not be required to purchase any Units of
Partner Interest held by a Group A Partner pursuant to any exercise by a Group A
Partner of its rights under Section 11.07(a) to the extent that (i) the purchase
of such Units of Partner Interest (including the incurrence of any indebtedness
required to enable it to purchase such Units of Partner Interest) and any
related transactions pursuant to Section 11.07(d) would cause or constitute a
material adverse change in the business of the Partnership or a breach or
default (immediately or with notice or lapse of time or both) of any agreement
or instrument
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to which the Partnership is a party or by which the Partnership or any of its
assets is bound, which agreement or instrument is in existence prior to such
exercise and as to which a consent or waiver thereunder for such purchase (or
incurrence of indebtedness) has not been obtained after all best efforts by the
Partnership (which best efforts shall include the consideration of all options
with respect to enabling the Partnership to purchase such Units of Partner
Interest, including, without limitation, a Sale), and (ii) the Partnership gives
written notice to such Group A Partner, within 30 business days after the date
of the notice of exercise of such right by such Group A Partner, that it is not
required to purchase the number of Units of Partner Interest set forth in such
notice by reason of clause (i) above and setting forth the facts relating
thereto. Any purchase of Units of Partner Interest by the Partnership pursuant
to any exercise by a Group A Partner of its rights under Section 11.07(a) shall
also be subject to the requirement that in the event that the Administrative
General Partner so requests, the Managing General Partner and the Administrative
General Partner shall jointly select an investment banking or appraisal firm
(which shall not be Lazard Freres & Co.) to render a "fairness opinion" to the
Partnership with respect to the fairness of the consideration to be received by
the Group A Partners and the fairness of the consideration to be received by the
Partnership in the event of a Sale. If the selection of an investment banking or
appraisal firm is so requested, (i) the Partnership shall not be required to
purchase any Units of Partner Interest pursuant to any exercise by a Group A
Partner of its rights under Section 11.07(a) until a fairness opinion is
rendered, confirming the fairness of the consideration to be received by the
Group A Partners and the fairness of the consideration to be received by the
Partnership in the event of a Sale, and (ii) the fees and expenses of such
investment banking or appraisal firm shall be borne by the Partnership.
(c) The giving of notice by a Group A Partner of the exercise of its
rights pursuant to Section 11.07(a) and the receipt by the Partnership of such
notice as provided in Article XVII shall constitute an irrevocable commitment by
such Group A Partner and the Partnership to sell and purchase, as the case may
be, the Units of Partner Interest referred to in such notice unless a notice is
given by the Partnership as provided in Section 11.07(b). If the Partnership is
permitted pursuant to Section 11.07(b) to purchase some but not all of the Units
of Partner Interest as to which a Group A Partner has exercised its rights under
Section 11.07, such Group A Partner may, in its sole discretion, by written
notice (a "Withdrawal Notice") given to the Partnership within 10 business days
of its receipt of the notice from the Partnership (the "Withdrawal Period")
withdraw
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the exercise of such right, in which event it shall not be required to sell any
Units of Partner Interest to the Partnership. If such Group A Partner does not
give a Withdrawal Notice within the Withdrawal Period, such Group A Partner
shall be obligated to sell, and the Partnership shall be obligated to purchase,
all Units of Partner Interest that the Partnership is not prohibited from
purchasing pursuant to Section 11.07(b). The closing of any sale and purchase of
Units of Partner Interest pursuant to this Section 11.07 shall take place at
10:00 A.M. at the principal offices of the Partnership on a business day
designated by the Partnership on five days' prior notice to the Group A Partner
which day shall not be prior to the expiration of the Withdrawal Period nor
later than 150 days after such Group A Partner's notice of exercise of its right
to require the Partnership to purchase the Units of Partner Interest. At the
closing, the Group A Partner shall deliver a duly executed instrument of
assignment, representing the Units of Partner Interest to be purchased, against
receipt of the purchase price therefor in immediately available funds. Such
Units shall be delivered free and clear of all Encumbrances.
(d) Prior to any closing pursuant to Section 11.07(c), the
Partnership shall be required to retire all of the outstanding Units of
Preferred Limited Partner Interest, Units of the Class C Limited Partner
Interest and, prior to the Class C-1 Participation Event, all of the outstanding
Units of Class C-1 Limited Partner Interest or redeem all of the Class C
Exchange Notes and Class C-1 Exchange Notes (as such terms are defined in
Section 16.02 and 17.02, respectively), as provided in Section 16.02 and Section
17.02, respectively. At the closing of such retirement or redemption, as the
case may be, each Preferred Interest Limited Partner, Class C Limited Partner
and Class C-1 Limited Partner shall deliver to the Partnership a duly executed
instrument of assignment, representing its Units of Preferred Limited Partner
Interest, Class C Limited Partner Interest and Class C-1 Limited Partner
Interest, respectively, to be purchased, or each holder of a Class C Exchange
Note or Class C-1 Exchange Note shall deliver to the Partnership its Exchange
Note, against receipt of the Preferred Interest Liquidation Preference, Class C
Liquidation Preference and Class C-1 Liquidation Preference, respectively, or
payment of the Class C Exchange Note and Class C-1 Exchange Note, respectively,
therefor, as the case may be, in immediately available funds.
(e) In the event that the Partnership purchases (i) Units of Partner
Interest owned by one or more Initial Partners pursuant to this Section 11.07
(the "Initial Partners Put Units") and (ii) Units of Partner Interest owned by
one or more Class A-2 Limited Partners pursuant to this Section 11.07 (the "A-2
Put
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Units"), then the terms of the purchase and the consideration received by each
Class A-2 Limited Partner for its A-2 Put Units shall be equal on a per Unit
basis to the terms of the purchase and the consideration received by the Initial
Partners, as a group, for the Initial Partners Put Units. For purposes of the
preceding sentence, the consideration for the Initial Partners Put Units on a
per Unit basis shall be an amount equal to the aggregate consideration received
by the Initial Partners for all their Initial Partners Put Units, divided by the
number of Initial Partners Put Units so purchased by the Partnership.
Section 11.08. Right to Purchase on Termination of Employment.
(a) In the event that a Class B Limited Partner or Preferred Interest
Limited Partner is employed by the Partnership, upon such Class B Limited
Partner's or Preferred Interest Limited Partner's (for purposes of this Section
11.08, in each case a "Terminated Limited Partner") ceasing to be employed by
the Partnership for any reason whatsoever (whether due to such Terminated
Limited Partner's death, disability, termination, resignation or retirement) (a
"Termination Event"), the Terminated Limited Partner and such Terminated Limited
Partner's Permitted Transferees shall be deemed to have irrevocably offered
(open to acceptance for a period of sixty days) to sell all of the Units of
Partner Interest then owned by such Terminated Limited Partner and such
Terminated Limited Partner's Permitted Transferees, including without limitation
Units acquired pursuant to any Performance Options (the "Termination Units") to
the Partnership at a price per Termination Unit equal to the Termination Price.
For the purposes of this Section 11.08, the term "Termination Price" shall mean
(i) in the event of a Terminated Limited Partner's death, Disability or
Retirement, the Fair Market Value of the Termination Units on the date of the
Termination Event, (ii) in the event of a Terminated Limited Partner's Voluntary
Resignation or Involuntary Termination, (a) the Fair Market Value of the
Termination Units that are "Protected Units" on the date of the occurrence of
the Termination Event (with 20% of the Units purchased pursuant to such
Terminated Limited Partner's Subscription Agreement for Class B Limited Partner
Interests becoming "Protected Units", and 20% of the Units purchased (or issued
in respect of a conversion of such Units purchased (i.e., Class B Conversion
Units) pursuant to such Terminated Limited Partner's Subscription Agreement for
Preferred Limited Partner Interests becoming "Protected Units", in each case on
each of the first through the fifth anniversaries of the date of purchase of
such Units, and all of the Units acquired pursuant to the exercise of
Performance Options in accordance with the terms of the Management Option Plan
being deemed "Protected Units") and (b)
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the lower of the original purchase price and the Fair Market Value of the
Termination Units that are not Protected Units on the date of the occurrence of
the Termination Event, and (iii) in the event of a Terminated Limited Partner's
termination for Cause, the lower of the original purchase price and the Fair
Market Value of the Termination Units on the date of the occurrence of the
Termination Event. Notwithstanding the foregoing, all Termination Units will be
Protected Units in the event that the Termination Event is the result of a
Transfer Event.
(b) If and to the extent the offer is accepted by the Partnership, the
Partnership shall provide the Terminated Limited Partner and such Terminated
Limited Partner's Permitted Transferees with written notice of such acceptance
specifying the number of Termination Units as to which the Partnership is
accepting the offer (a "Notice of Acceptance") within sixty days after the date
of the occurrence of the Termination Event.
(c) The closing of the purchase of the Termination Units pursuant to
this Section 11.08 shall take place at the principal offices of the Partnership
on a date chosen by the Partnership, which date shall in no event be more than
sixty days after the Notice of Acceptance is given. At such closing, the
Partnership shall deliver a certified check or checks in the appropriate amount
(which shall be reduced by any amounts due to the Partnership pursuant to such
Terminated Limited Partner's Promissory Note, if any) to the Terminated Limited
Partner and such Terminated Limited Partner's Permitted Transferees against
delivery of a duly executed instrument of assignment, representing the
Termination Units to be purchased. The Termination Units shall be delivered free
and clear of all Encumbrances. Notwithstanding anything to the contrary
contained in this Section 11.08(c), to the extent that any payment by the
Partnership for Termination Units with cash would cause or constitute a material
breach or default (immediately or with notice or lapse of time or both) of any
financing agreement or instrument (whether for equity or debt) to which the
Partnership is a party or by which the Partnership or any of its assets is bound
(or there then exists any breach or default) or would be prohibited under the
Delaware RULPA or other applicable law, the Partnership shall be permitted to
pay (which payment shall be reduced by any amounts due to the Partnership
pursuant to such Terminated Limited Partner's Promissory Note, if any) for the
Termination Units in such proportion of cash and a Permitted Security (as
defined in Section 6.05), as applicable, of the Partnership, bearing interest at
an annual rate equal to the prime rate (or, if more than one rate is reported,
the mean of those reported) on the date of issuance, as reported under "Money
Rates" in The Wall Street Journal on such date, as would not
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cause a breach or default or be so prohibited, provided that if a Specified
Event has occurred with respect to the Class C Limited Partner Interests or
Class C Exchange Notes or a Class C-1 Specified Event has occurred with respect
to the Class C-1 Limited Partnership Interest or Class C-1 Exchange Notes the
Partnership shall pay for such Termination Units which are not Preferred Limited
Partner Interests or Class B Conversion Units solely with Permitted Securities.
The principal amount of any such Permitted Security and the interest thereon
shall be payable at such time as would be permissible under the Specified Debt
Agreements, or other financing agreement or instrument or applicable law.
(d) In the event that a Terminated Limited Partner acquires any Units
of Partner Interest pursuant to the exercise of vested Performance Options (or
if Performance Options have become exercisable, whether or not vested, as a
result of the consummation of a Transfer Event, and such Terminated Limited
Partner acquires any Units of Partner Interest pursuant to the exercise of such
Performance Options) held by such Terminated Limited Partner after the date of
the occurrence of a Termination Event (a "Post Termination Acquisition"), such
Units of Partner Interest shall be deemed Termination Units for purposes of this
Section 11.08 as of the date they are so acquired, and the Partnership shall
have the right to acquire all such Termination Units in accordance with the
procedures set forth in this Section 11.08 at the Fair Market Value of such
Termination Units as of the date of the Termination Event.
(e) Any Termination Units not acquired by the Partnership pursuant to
this Section 11.08 shall continue to be held by the Terminated Limited Partners
and such Terminated Limited Partner's Permitted Transferees subject to all of
the terms and conditions of this Agreement.
(f) Within thirty days after a closing pursuant to Section 11.08(c),
the Partnership shall provide notice (the "Treasury Unit Notice") of an offer by
the Partnership to issue and sell to the Class B Limited Partners and Preferred
Interest Limited Partners then employed by the Partnership (the "Class B
Offerees") an aggregate number of Units of Class B Limited Partner Interest (the
"Treasury Units") equal to the number of Termination Units purchased by the
Partnership at such closing which are not Preferred Limited Partner Units, at a
price per Unit equal to the Fair Market Value on the date of the Treasury Unit
Notice. A Class B Offeree who wishes to purchase any Treasury Units shall
provide the Partnership with written notice specifying the number of Treasury
Units (up to such Class B Offeree's Pro Rata Share) as to which such Class B
Offeree
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desires to accept the offer within twenty days of the giving of the Treasury
Unit Notice by the Partnership, and may, at the Class B Offeree's option,
indicate the maximum number of Treasury Units such Class B Offeree would
purchase in excess of such Class B Offeree's Pro Rata Share (the "Excess
Amount"). If one or more Class B Offerees declines to participate in such
purchase or elects to purchase less than such Class B Offeree's Pro Rata Share,
then the remaining Treasury Units shall automatically be deemed to be accepted
by Class B Offerees who specified an Excess Amount in their respective notices
of acceptance, allocated among such Class B Offerees (with rounding to avoid
fractional Units) in proportion to their respective Pro Rata Share but in no
event shall an amount greater than a Class B Offeree's Excess Amount be
allocated to such Class B Offeree. Any excess Treasury Units shall be allocated
among the remaining Class B Offerees whose specified Excess Amount has not been
satisfied (with rounding to avoid fractional Units) in proportion to their
respective Pro Rata Share, and such procedure shall be employed until the entire
Excess Amount of each Class B Offeree has been satisfied or all Treasury Units
have been allocated.
(g) The closing of the purchase of the Treasury Units pursuant to
Section 11.08(f) shall take place at the principal offices of the Partnership on
a date chosen by the Partnership, which date shall in no event be more than
forty-five days after the Treasury Unit Notice is given. At such closing, each
of the Class B Offerees who has elected to purchase Treasury Units shall deliver
a certified check or checks in the appropriate amount to the Partnership for the
Treasury Units to be purchased by such Class B Offeree. In the event that the
Partnership shall thereafter purchase any Termination Units pursuant to a Post
Termination Acquisition, as provided in Section 11.08(d), the Class B Offerees
shall have the right, pursuant to Section 11.08(f), to acquire additional
Treasury Units in an aggregate amount equal to the number of such Termination
Units thereafter purchased by the Partnership.
Section 11.09. Allocations and Distributions Subsequent to
Assignment.
(a) All profits and losses of the Partnership attributable to any
Units of Partner Interest acquired by reason of an assignment permitted by this
Agreement shall be allocated, as provided in Section 11.09(b), among, and all
distributions shall be made by the Partnership directly to, the Partner or
Assignee who acquired such Units, beginning with the calendar month in which the
effective date of the assignment occurs.
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(b) The "effective date" of an assignment of an interest in the
Partnership for purposes of this Section 11.09 shall be the first day of the
calendar month in which such transferee is listed as such on the books and
records of the Partnership. The Managing General Partner, in its sole and
absolute discretion, may adopt or change the Partnership's method and convention
for allocating income, gain, loss, deduction, and credit for each Fiscal Year
among transferors and transferees of transferred Partner Interests to the extent
permitted or required by Section 706 of the Code. No such adoption, revision or
modification shall be treated as an amendment to this Agreement requiring the
consent of any Partner.
Section 11.10. Admission of Substituted Limited Partners; Assignees.
(a) Upon a Transfer by a Limited Partner of any or all of its Units of
Limited Partner Interest in accordance with this Article XI, the transferor
shall be deemed to have given the transferee the right to seek admission to the
Partnership as a Limited Partner. Such transferee shall become a Substituted
Limited Partner only upon the satisfaction of the following conditions: (i) the
execution and delivery by the transferee of a counterpart of this Agreement,
(ii) such transferee's being listed as a partner of the Partnership on the books
and records of the Partnership, and (iii) except as otherwise provided in
Sections 11.06(a), 19.03, and 11.10(g), the prior written consent of each of the
General Partners to the admission of such transferee to the Partnership as a
Substituted Limited Partner. Notwithstanding anything in this Article XI to the
contrary (but subject to the provisions of Sections 11.06(a), 19.03, Section
11.10(f) and Section 11.10(g)), the General Partners may give or withhold
consent to such admission (including without limitation the admission of a
Person who is not then a Partner pursuant to Section 11.04 or 11.05, the
admission of a Permitted Transferee or other transferee pursuant to Section
11.03(e)(ii) or (iii), the admission of a Permitted Trust Transferee pursuant to
Section 11.03(f), the admission of a Permitted Holdings Transferee pursuant to
Section 11.03(g), the admission of a Permitted Pledgee pursuant to Section
11.03(h), the admission of a Permitted A-2 Transferee pursuant to Section
11.03(i) or the admission of Comcast Corporation or any wholly-owned direct or
indirect subsidiary of Comcast Corporation pursuant to Section 11.03(j)) in
their sole discretion. If the consent of any of the General Partners is
withheld, such transferee shall be deemed an Assignee, and shall not be admitted
to the Partnership as a Substituted Limited Partner. Such Assignee shall have
an interest in the Partnership that is equivalent to that of a Limited Partner
solely with respect to allocations and distributions, includ-
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ing liquidating distributions of the Partnership, but shall have no other rights
of a Limited Partner. If the transferee(s) of all of the Units of Limited
Partner Interest of a Limited Partner is admitted to the Partnership as a
Substituted Limited Partner, or as Substituted Limited Partners, the transferor
shall cease to be a Limited Partner upon such admission. The admission of a
transferee as a Substituted Limited Partner shall be effective when such
transferee is listed as a Limited Partner on the books and records of the
Partnership.
(b) The admission of a Substituted Limited Partner shall be effected
without the approval of any Limited Partner or Assignee.
(c) Except as provided in Section 11.10(a), no Limited Partner may
withdraw from the Partnership without the written consent of each of the General
Partners, which consent may be granted or withheld in their sole discretion.
(d) With respect to any matter to be submitted to the vote of the
Partners pursuant to this Agreement, if a Limited Partner has assigned all of
its Units of Limited Partner Interest to a Person who is not then a Partner and
such Person shall not have become a Substituted Limited Partner because one or
more of the General Partners shall have refused to consent to the admission of
such Person as a Limited Partner of the Partnership, the transferring Limited
Partner shall be deemed to remain as a Limited Partner of the Partnership solely
for the purpose of exercising all rights other than any rights with respect to
allocations and distributions, including liquidating distributions of the
Partnership. Among other things, such transferring Limited Partner shall have
the right to vote on all matters submitted to a vote of the Partners, and shall
have the right to receive notice of meetings of the Partners. Such Units of
Limited Partner Interest shall be deemed to be outstanding for the purposes of
determining whether a Majority Vote has been obtained. Notwithstanding any
other provision of this Section 11.10(d), no Class C Limited Partner and, prior
to the occurrence of the Class C-1 Participation Event, no Class C-1 Limited
Partner shall have any rights with respect to matters submitted to a vote of the
Partners, except as provided in Section 13.04.
(e) Notwithstanding any other provision of this Article XI, no
Transfer of any Units of Class C Limited Partner Interest or Class C-1 Limited
Partner Interest (or any interest therein) shall be made (i) if such Transfer
(A) would violate the then applicable federal and state securities laws or rules
and regulations of the Securities and Exchange Commission, any state securities
commission or any other governmental authority with
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jurisdiction over such transfer, (B) would affect the Partnership's existence or
qualification as a limited partnership under the Delaware RULPA, (C) would cause
the Partnership to be treated as an association taxable as a corporation for
federal income tax purposes, (D) would be to a Person who is not a "United
States person" (within the meaning of Section 7701(a)(30) of the Code), or a
Person who is subject to backup withholding under Section 3406 of the Code, or
(E) would cause the Partnership to be obligated to issue a Schedule K-1 (or
other "Tax Return" (as defined in the Field Agreement and Comcast Agreement)) to
more than three Persons in respect of the Units of Class C Limited Partner
Interest or to more than three Persons in respect of the Units of Class C-1
Limited Partner Interest, provided that the provisions of this clause (E) of
this Section 11.10(e) shall be waived by the Managing General Partner in its
reasonable discretion (which discretion may include the imposition of the fees
and expenses required to issue such additional Schedule K-1's or Tax Returns),
and (ii) unless, as a prior condition to such Transfer, the transferor or
transferee shall furnish the Partnership with an opinion of counsel with respect
to compliance with the conditions of clause (i) above, which counsel and form
and content of opinion shall be acceptable to the General Partners, in their
reasonable judgment.
(f) The General Partners hereby consent to the admission as a
Substituted Limited Partner of (i) a UBS Entity Transferee (as defined in
Section 11.03(i)) and (ii) a Third Party A-2 Transferee (as defined in Section
11.04(g)).
(g) If a Class A-2 Limited Partner Transfers any or all of its Units
of Limited Partner Interest to a Person in accordance with this Article XI and
such transferee is not a UBS A-2 Transferee, UBS Entity Transferee or a Third
Party A-2 Transferee, then the admission of such transferee as a Substituted
Limited Partner shall be subject to the prior written consent of only the
Managing General Partner (which consent may be given or withheld in its sole
discretion) and the other requirements of Section 11.10 (other than the
requirements of clause (iii) of the first sentence of Section 11.10(a)).
Section 11.11. Admission of Additional Partners.
(a) The Managing General Partner may, at any time or from time to
time, cause the Partnership to issue and sell any and all types of securities
of, or interests in, the Partnership (including without limitation securities or
interests of an equity nature and warrants, options or other rights with respect
to the acquisition thereof), whether or not such securities or interests are
senior or junior to, or of the same or substan-
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tially the same priority as, any then outstanding securities or interests
(including without limitation any Class of Limited Partner Interests) and to
cause the Partnership to admit such additional Partners in connection therewith
for such reasonable purpose and consideration as the Managing General Partner
may determine in its reasonable discretion, exercised in good faith, provided
that in the event that such securities or interests are senior to the Class B
Limited Partner Interests and the issuance and sale of such securities or
interests would not have substantially the same economic effect on the Class A
Limited Partners, the Class B Limited Partners and, after the Class C-1
Participation Event, the Class C-1 Limited Partners, then such issuance and sale
shall also require the consent of the Administrative General Partner. Without
limiting the generality of the foregoing (including the proviso), the Managing
General Partner (i) may, at any time or from time to time, establish one or more
additional classes or groups of partners or partner interests in the Partnership
(including without limitation limited or general partners or partner interests
in the Partnership), having such relative rights, powers and duties (including
without limitation rights, powers and duties senior to existing classes and
groups of partners) as the Managing General Partner may so determine, (ii) may
convert (a) Units of General Partner Interest to Units of Limited Partner
Interest in order that the General Partners may Transfer Units of their Partner
Interest pursuant to, and subject to, the applicable provisions of this Article
XI, and (b) the Conversion Units into Units of Class A-1 Partnership Units at
any time when the Managing General Partner, Holdings or any Affiliate thereof
holds such Conversion Units and (iii) may cause the Partnership to issue
Treasury Units or New Units to Class B Limited Partners pursuant to Section
11.08 or Section 11.12, as the case may be. In the event that the Partnership
shall issue and sell any securities or interests to the Managing General Partner
or Holdings or any Affiliate thereof, the terms of such issuance and sale (i)
shall be at least as favorable to the Partnership as those that the Partnership
would have obtained from the issuance and sale of such securities or interests
in a transaction on an arm's-length basis with a Person not the Managing General
Partner or Holdings or an Affiliate thereof, and (ii) shall be subject to the
provisions of Section 11.11(g). Each of the Class A Limited Partners, Class B
Limited Partners and Class C-1 Limited Partners hereby agrees that the issuance
of the Conversion Units to Holdings pursuant to Section 8.1(c) of the Guaranteed
Note and this Agreement satisfy the provisions of the foregoing sentence.
(b) Any such Person who acquires an interest in the Partnership
pursuant to Section 11.11(a) shall be required, as a prior condition of his or
its admission to the Partnership as a
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Partner, to execute and deliver a counterpart of this Agreement. The admission
of such a Person as a Partner shall be effective when such Person is listed as a
Partner on the books and records of the Partnership and shall be effected
without the approval of any other Partner or Assignee.
(c) Pursuant to the Managing General Partner's authority pursuant to
this Section 11.11 (but subject to the provisions of Section 11.11(a) and
Article XIII), the Managing General Partner is authorized to make any and all
such amendments to this Agreement (including without limitation amendments with
respect to the provisions with respect to the allocation of distributions and
profits and losses to Partners or Assignees) that the Managing General Partner
determines, in its sole discretion, to be necessary, appropriate or desirable in
connection with effecting the issuance and sale of securities and interests
pursuant to the provisions of this Section 11.11, provided that no such
amendment shall (i) reduce, or change the method of determining, the Class C
Liquidation Preference or Class C Return or Class C-1 Liquidation Preference or
Class C-1 Return, (ii) amend the provisions of Section 6.05(a) or 6.05(f), (iii)
amend the provisions of Article XVI in such a manner that it would have a
material adverse effect on the Class C Limited Partners, including without
limitation the former Class C Limited Partners who are holders of, and with
respect to their interests in and rights with respect to, the Class C Exchange
Notes or (iv) amend the provisions of Article XVII in such a manner that it
would have a material adverse effect on the Class C-1 Limited Partners,
including without limitation the former Class C-1 Limited Partners who are
holders of and with respect to their interests in and rights with respect to the
Class C-1 Exchange Notes.
(d) The provisions of this Section 11.11 are in addition to the
Managing General Partner's authority with respect to the issuance of options,
rights or Units of Limited Partner Interest under any management incentive plan
or other employee benefit plan, as provided in Section 7.02(l).
(e) Except as otherwise expressly provided in Sections 11.11(a) and
(c) and 13.01(e), the provisions of this Section 11.11 are intended to grant the
Managing General Partner, and all the Partners hereby grant the Managing General
Partner, the maximum authority granted by the Delaware RULPA, including without
limitation the provisions of Sections 17-302 and 17-405 of the Delaware RULPA,
with respect to the creation of additional classes or groups of partners and
partnership interests (including without limitation a class or group of
partnership interests in the Partnership that was not previously outstanding)
without the vote or approval of any other Partner or class or group of
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Partners, and the provisions of this Section 11.11 shall be construed in
accordance with such intent.
(f) Notwithstanding any provision in this Section 11.11 to the
contrary, the admission of an additional or successor General Partner or the
admission of an additional Limited Partner shall comply with the provisions of
Section 11.02 or Section 11.10, as the case may be, if such admission would have
the effect of constituting the Transfer of a Partner's Partner Interest.
(g) In the event that the Partnership proposes to issue and sell any
securities or interests to the Managing General Partner or Holdings or any
Affiliate of either such Person pursuant to this Section 11.11, the Partnership
shall notify UBS, each Class A-2 Limited Partner which has acquired Units of
Limited Partner Interest initially held by UBS, each Class B Limited Partner
then employed by the Partnership, each Preferred Interest Limited Partner and,
after the Class C-1 Participation Event, each Class C-1 Limited Partner (for the
purposes of this Section 11.11(g) individually, a "Participating Partner" and
collectively the "Participating Partners"), and each Participating Partner shall
have the right to purchase, upon the same terms of issuance and sale, an amount
of securities or interests which is equal to the product of (i) the aggregate
amount of securities or interests proposed to be issued and sold by the
Partnership to the Managing General Partner, Holdings and/or any Affiliate of
either such Person and (ii) a fraction, the numerator of which shall equal the
Units of Partner Interest then owned by such Participating Partner, and the
denominator of which shall equal the aggregate number of Units of Partner
Interest then outstanding (which, for purposes of this Section 11.11(g), shall
include the Put/Call Units and all Units issuable upon the exercise of
Performance Options, whether or not such Performance Options are then
exercisable). Such Participating Partner shall have the right to so purchase
such securities or interests, if it gives written notice to the Partnership
specifying the amount of such securities or interests as to which it desires to
purchase within ten days after the Partnership's notice pursuant to the
preceding sentence, and the closing of such purchase shall take place at the
principal office of the Partnership on a date chosen by the Partnership) which
date shall (except if the Partnership otherwise determines) be no later than the
later of (i) fifteen days after the Partnership's notice pursuant to the first
sentence of this Section 11.11(g) or (ii) the date of the purchase of such
securities or interests by the Managing General Partner or Holdings or any
Affiliate of either such Person.
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Section 11.12. Purchase of Additional Units Upon the Cash Settlement
of Performance Options.
(a) In the event that the Partnership elects to settle in cash (other
than pursuant to Section 11.08), or if there is a settlement by delivering
Permitted Securities, in accordance with the terms of the Management Option Plan
and as required by any other provision of this Agreement, with respect to, any
Performance Option exercisable by a Class B Limited Partner (the "Settling Class
B Limited Partner"), the Settling Class B Limited Partner shall have the right
to purchase from the Partnership, and the Partnership shall issue and sell to
the Settling Class B Limited Partner for cash, an aggregate number of Units of
Class B Limited Partner Interest (the "New Units") equal to the number of Units
with respect to which such Performance Option was settled in cash or Permitted
Securities, at a price per Unit equal to the Fair Market Value on the date of
such settlement (the "Settlement Date"). In the event that the Settling Class B
Limited Partner wishes to purchase any or all of the New Units, he shall provide
the Partnership with written notice specifying the number of New Units as to
which he desires to purchase within twenty days after the Settlement Date, and
the closing of the purchase of the New Units shall take place at the principal
office of the Partnership on a date chosen by the Partnership, which date shall
in no event be more than thirty days after the Settlement Date.
(b) The provisions of this Section 11.12 are in addition to (i) the
Managing General Partner's authority pursuant to Sections 7.02(l) and 11.11 and
(ii) the rights of the Class B Limited Partners to purchase Treasury Units
pursuant to Section 11.08(f).
Section 11.13. Participation by Barclays with respect to Put/Call
Units.
It is acknowledged that Barclays will be given notice of any offer
pursuant to Article XI hereof (other than Section 11.11(g)) to the same extent
that a Class A-2 Limited Partner would be entitled to receive such notice, and
that Barclays shall be permitted to participate in any such offer so long as it
shall notify the Partnership and the Managing General Partner, within seven days
of the Partnership's giving the notice of such offer pursuant to Article XI
hereof, of its intention to exercise its option pursuant to Section 1 of the Put
and Call Option Agreement and of its desire to participate in such offer. In the
event that Barclays so exercises its option pursuant to Section 1 of the Put and
Call Option Agreement and purchases the Put/Call Units at or prior to the
closing relating to such offer, the Pro
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Rata Shares of the Partners shall be adjusted accordingly to give effect to the
issued and outstanding Put/Call Units.
Section 11.14. Ownership of the Administrative General Partner.
(a) The Administrative General Partner represents and warrants to the
Partnership and the Partners that each stockholder of the Administrative General
Partner is a Class B Limited Partner.
(b) The Administrative General Partner agrees that in the event that
(i) a Class B Limited Partner shall Transfer all of its Units of Class B Limited
Partner Interest to the Partnership, any Partner or Partners or to any Person
(other than a "Permitted Transferee" which is not an "Estate" (as such terms are
defined in Section 11.03(e)) or (ii) a Class B Limited Partner ceases to be
employed by the Partnership for any reason whatsoever (whether due to such Class
B Limited Partner's death, disability, termination, resignation or retirement)
and such Class B Limited Partner's Units of Class B Limited Partner Interest are
purchased pursuant to Section 11.08, then at the request of the Partnership, the
Administrative General Partner shall exercise its rights under Section 3 of the
Administrative General Partner's Shareholders Agreement, dated as of September
4, 1992 and shall promptly repurchase all of such Class B Limited Partner's
shares of stock in the Administrative General Partner (except to the extent that
such shares are purchased by other stockholders of the Administrative General
Partner who are then employed by the Partnership).
(c) The Administrative General Partner agrees that the Shareholders
Agreement of the Administrative General Partner will at all times contain such
provisions as are necessary to comply with the Administrative General Partner's
obligations under Section 11.14(b) and that such Shareholders Agreement will not
be amended without the prior consent of the Partnership, if such amendment would
have the effect of eliminating or modifying (i) the Administrative General
Partner's obligations under Section 11.14(b) or (ii) a Class B Limited Partner's
obligation to offer his shares in the Administrative General Partner to the
other stockholders and the Administrative General Partner under the terms and
conditions specified in and pursuant to Section 3 of such Shareholders
Agreement.
(d) The Partnership agrees to lend the Administrative General Partner
such funds (upon such terms and conditions as may be reasonably agreed between
the Partnership and the Administrative General Partner) as the Administrative
General
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Partner may reasonably require to perform its obligations under Section
11.14(b).
Section 11.15. Certain Adjustments. In the event of a distribution
on Units of Partner Interest payable in Units or a split-up or a recombination
of Units of Partner Interest or other similar transaction, each Unit of Partner
Interest shall be appropriately adjusted in the same manner to give effect to
such transaction.
ARTICLE XII
DISSOLUTION AND LIQUIDATION
Section 12.01. No Dissolution. The Partnership shall not be
dissolved by the admission of (i) a Substituted Limited Partner, (ii) additional
Partners in accordance with the terms of this Agreement, or (iii) successor
General Partners. The death, Bankruptcy or adjudicated incompetency of any
Limited Partner shall not in and of itself cause a dissolution of the
Partnership.
Section 12.02. Events Causing Dissolution. The Partnership shall be
dissolved and its affairs wound up upon the occurrence of any of the following
events:
(a) the expiration of the term of the Partnership, as provided in
Article IV;
(b) the withdrawal or Bankruptcy of a General Partner or a Transfer by
a General Partner of its entire interest in the Partnership or the occurrence of
any other event that results in a General Partner ceasing to be a general
partner of the Partnership under the Delaware RULPA unless, in any such case,
(i) at the time there is at least one remaining general partner of the
Partnership, who is hereby authorized to continue the business of the
Partnership without dissolution, and at least one such remaining general partner
does continue the business of the Partnership, or (ii) within ninety (90) days
after such event, all Partners agree in writing to continue the business of the
Partnership and to the appointment effective as of the date of such event of one
or more additional or successor general partners;
(c) the consent of the General Partners and the Majority Vote of the
Partners to dissolve the Partnership;
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(d) an incorporation of the Partnership pursuant to Section 3.03(a) or
Section 16.01;
(e) a Sale; or
(f) the entry of a decree of judicial dissolution under Section 17-802
of the Delaware RULPA.
Nothing contained in this Section 12.02 shall constitute or imply consent (where
consent would be necessary) to any voluntary action by any General Partner in
contravention of this Agreement which works a dissolution of the Partnership
under Section 12.02(b) or Section 12.02(f).
Section 12.03. Dissolution. Upon the dissolution of the Partnership,
the Liquidator (as defined in Section 12.04) or the Managing General Partner, as
the case may be, shall promptly notify the Partners of such dissolution.
Section 12.04. Liquidation. Upon the dissolution of the Partnership,
the Managing General Partner, or, in the event the dissolution is caused by an
event described in Section 12.02(b) and there is no other General Partner that
can be appointed Managing General Partner, a liquidating trustee approved by a
Majority Vote of the Partners (the "Liquidator"), shall wind up the affairs of
and liquidate the Partnership. The Liquidator or the Managing General Partner,
as the case may be, shall take all necessary or appropriate steps as it may
determine to collect all amounts then outstanding under any then outstanding
Promissory Notes of the Class B Limited Partners. The Liquidator or the
Managing General Partner, as the case may be, shall:
(a) first, pay (or make reasonable provision for the payment of) all
creditors of the Partnership, including Partners or Assignees who are creditors
but solely in their capacity as creditors, to the extent otherwise permitted by
law, in satisfaction of liabilities of the Partnership (other than liabilities
for distributions to Partners or Assignees) in the order of priority provided by
law;
(b) second, distribute to the Preferred Interest Limited Partners an
amount equal to the product of the then unpaid Preferred Interest Liquidation
Preference per Unit multiplied by the number of Units of Preferred Limited
Partner Interest owned by each such Partner;
(c) third, distribute, pari passu, (i) to the Class C Limited
Partners, an amount equal to the then unpaid Class C
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Liquidation Preference and, (ii) if the Class C-1 Participation Event shall not
have occurred, to the Class C-1 Limited Partners, an amount equal to the unpaid
Class C-1 Liquidation Preference; and
(d) fourth, distribute any remaining balance of the proceeds of
liquidation of the Partnership to the Partners (excluding the Preferred Interest
Limited Partners, the Class C Limited Partners, and, prior to the occurrence of
the Class C-1 Participation Event, excluding the Class C-1 Limited Partner) in
accordance with their respective positive Capital Accounts as determined after
all gains, profits, losses, deduction and credits shall have been allocated
pursuant to Sections 6.03 and 6.04 hereof, provided that any amount
distributable to a Class B Limited Partner shall be reduced by any unpaid
amounts due to the Partnership pursuant to such Class B Limited Partner's
Promissory Note. For purposes of this Section 12.04(d) only, in the event that
the Put/Call Units shall not previously have been issued and the Put and Call
Option Agreement shall still be in effect, Barclays shall receive distributions
pari passu with the distributions to the Partners in accordance with the Capital
Account of the Put/Call Units. In the event that the Partnership shall make a
distribution which consists of both non-cash property and cash, the Partnership
shall distribute, to the extent reasonably practicable in the Managing General
Partner's judgment, such property and cash in such a manner that each of the
Persons entitled to receive such distribution shall receive approximately the
same proportion of cash to such property.
In the event that, immediately prior to the liquidation and
dissolution of the Partnership, the General Partners have a deficit balance in
their Capital Accounts, the General Partners shall immediately contribute to the
capital of the Partnership an amount equal to the lesser of (i) such deficit
balance or (ii) the excess of 1.01% of the aggregate Capital Contributions of
the Limited Partners over the Capital Contributions previously made by the
General Partners.
A Liquidator, if one is approved by Majority Vote of the Partners,
shall be entitled to receive such compensation for its services as may be
approved by a Majority Vote of the Partners. The Liquidator shall agree not to
resign at any time without sixty (60) days prior written notice and may be
removed at any time, with or without cause, by written notice of removal
approved by a Majority Vote of the Partners. Upon dissolution, removal or
resignation of the Liquidator, a successor and substitute Liquidator (who shall
have and succeed to all rights, powers and duties of the original Liquidator)
shall be approved within ninety (90) days thereafter by a Majority Vote of the
Partners.
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The right to approve of a successor or substitute Liquidator in the manner
provided herein shall be recurring and continuing for so long as the functions
and services of the Liquidator are authorized to continue under the provisions
hereof, and every reference herein to the Liquidator will be deemed to refer
also to any such successor or substitute Liquidator approved in the manner
herein provided. Except as expressly provided in this Article XII, the
Liquidator approved in the manner provided herein shall have and may exercise,
without further authorization or approval of any of the parties hereto, all the
powers conferred upon the Managing General Partner under the terms of this
Agreement (but subject to all the applicable limitations, contractual and
otherwise, upon the exercise of such powers) to the extent necessary or
desirable in the good faith judgment of the Liquidator to carry out his or its
duties and functions hereunder (including the establishment of reasonable
reserves for liabilities that are contingent or uncertain in amount) for and
during such period of time as shall be reasonably required in the good faith
judgment of the Liquidator to complete the winding up and the liquidation of the
Partnership as provided for herein. In the event that no Person is selected to
be the Liquidator as herein provided within one hundred twenty (120) days
following the event of dissolution, or in the event that the Partners fail to
approve a successor or substitute Liquidator within the time periods set forth
above, any Limited Partner may make application to the Court of Chancery of the
State of Delaware to wind up the affairs of the Partnership and, if deemed
appropriate, to appoint a Liquidator and to establish its compensation.
Section 12.05. Termination of Partnership. Except as otherwise
provided in this Agreement, the Partnership shall terminate when all of the
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 and Assignees as provided for in this Article XII, and the
Certificate of Limited Partnership shall have been cancelled in the manner
required by the Delaware RULPA.
ARTICLE XIII
AMENDMENTS
Section 13.01. Amendments To Be Adopted Solely by the Managing
General Partner. The Managing General Partner (pursuant to the Managing General
Partner's powers of attorney from the Partners and Assignees described in
Article XIV), without the approval of any other Partner or Assignee may amend
any provision of this Agreement, and execute, swear to, acknowledge, deliver,
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file and record all documents required or desirable in connection therewith, to
reflect only the following matters:
(a) a permitted change in the name of the Partnership or the location
of the principal place of business of the Partnership;
(b) the permitted admission, substitution, termination or withdrawal
of Partners in accordance with this Agreement;
(c) a change that is necessary or, in the reasonable opinion of the
Managing General Partner, advisable to (i) qualify the Partnership as a limited
partnership or a partnership in which the Limited Partners have limited
liability under the laws of any state or (ii) ensure that the Partnership will
not be treated as an association taxable as a corporation for federal income tax
purposes, provided that if such change would have a material adverse effect on
the Class C Limited Partners or, prior to the occurrence of a Class C-1
Participation Event, on the Class C-1 Limited Partners, no such change may be
made without the prior consent of the Class C Limited Partners or Class C-1
Limited Partners, as applicable;
(d) a change that is (i) of an inconsequential nature and does not
adversely affect the Administrative General Partner or any Limited Partner or
Assignee in any material respect; (ii) necessary or desirable to cure any
ambiguity, to correct or supplement any provision herein that would be
inconsistent with any other provision herein, or to make any other provision
with respect to matters or questions arising under this Agreement that will not
be inconsistent with the provisions of this Agreement, in each case so long as
such change does not adversely affect the Administrative General Partner or any
Limited Partner or Assignee; or (iii) necessary or desirable to satisfy any
requirements, conditions or guidelines contained in any opinion, directive,
order, ruling or regulation of any federal or state statute, so long as such
change does not adversely affect the Administrative General Partner or any
Limited Partner or Assignee; and
(e) a change that is necessary to implement the provisions of Section
3.03, 6.05 or 11.11, provided that no such amendment shall, (A) without the
consent of the Class C Limited Partners or the holders of the Class C Exchange
Notes, (i) reduce, or change the method of determining, the Class C Liquidation
Preference or Class C Return, (ii) amend the provisions of Section 6.05(a),
(iii) amend the provisions of Section 11.11(a) or (c), or (iv) amend the
provisions of Article XVI in such a manner that it would have a material adverse
effect
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on the Class C Limited Partners including without limitation their interests in
and rights with respect to the Class C Exchange Notes, (B) without the prior
written consent of the Class C-1 Limited Partner (which consent shall only be
required prior to the Class C-1 Participation Event) or the holders of the Class
C-1 Exchange Notes, (i) reduce, or change the method of determining, the Class
C-1 Liquidation Preference or Class C-1 Return, (ii) amend the provisions of
Section 6.05(f), (iii) amend the provisions of Section 11.11(a) or (c), or (iv)
amend the provisions of Article XVII in such a manner that it would have a
material adverse effect on the Class C-1 Limited Partners including without
limitation their interests in and rights with respect to the Class C-1 Exchange
Notes, and provided, further, that without the consent of the Administrative
General Partner, no such amendment shall be made if it would amend the
provisions of Section 3.03, Section 6.03 (except as permitted by Section 11.11),
Section 6.04 or 6.05 (if in any such case such amendment is occasioned by the
issuance of a new class of securities or interests under Section 11.11 and would
not have substantially the same economic effect on the Initial Partners, the
Class A-2 Limited Partners and the Class B Limited Partners), the last paragraph
of Section 7.02, Section 7.03, Section 7.05, Section 7.06, Section 7.08, Section
8.04, Section 9.01, Section 9.02, Section 10.01, Section 10.02, Section
11.03(c), (e) and (h), Section 11.04, Section 11.05, Section 11.06, Section
11.07(b), Section 11.08, Section 11.11(a), (c) and (e), Section 11.12, this
Section 13.01, Section 13.02, Section 13.03, Article XIV, Article XV (with
respect to the registration rights of the Class B Limited Partners) and Section
16.01, in each case (other than with respect to Section 6.03, 6.04 or 6.05) if
such amendment would have a material adverse effect on the Class B Limited
Partners.
Section 13.02. Amendment Procedures. Except as specifically provided
in Sections 13.01 and 13.03, all amendments to this Agreement shall be made
solely in accordance with the following requirements:
(a) If an amendment of this Agreement is proposed, the Managing
General Partner shall seek the written approval of the holders of the requisite
number of Partner Interests or call a meeting of the General and Limited
Partners (other than (i) the Class C Limited Partners or the holders of the
Class C Exchange Notes unless their consent is required, in which case it shall
be evidenced in writing and delivered to the Managing General Partner, (ii) the
Class C-1 Limited Partners prior to the Class C-1 Participation Event or the
Class C-1 Exchange Notes unless their consent is required, in which case it
shall be evidenced in writing and delivered to the Managing Partner or (iii) the
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Restricted Partners, if such voting rights would be limited or otherwise
restricted as set forth in the definition of "Majority Vote" contained herein).
A proposed amendment shall be effective upon its approval by the Majority Vote
of the Partners, provided that the consent of the Administrative General Partner
shall also be required to approve amendments described in the last proviso of
Section 13.01(e); and
(b) The Managing General Partner shall notify all Partners upon final
adoption of any proposed amendment. The Managing General Partner is hereby
authorized to execute such adopted amendment on behalf of the Limited Partners
and Assignees.
Section 13.03. Amendment Restrictions. Except as otherwise expressly
provided in Sections 3.03, 6.05 and 11.11 (notwithstanding the provisions of
Sections 13.01 and 13.02), no amendment to this Agreement shall be valid without
a unanimous vote of the General Partners and Limited Partners if such amendment
would (a) adversely affect the liability of any Limited Partner, (b) have an
effect on the provisions that allocate distributions and profits and losses to
any Partner or Assignee or on the voting rights of the Partners that is
materially adverse to any Limited Partner or General Partner unless each such
materially and adversely affected Partner consents in writing to such amendment,
(c) cause the Partnership to be treated as an association taxable as a
corporation for federal income tax purposes or (d) permit the substitution of a
Limited Partner without the consent of the General Partners or place limitations
on the General Partners' ability to grant or withhold their consent in their
sole discretion.
Section 13.04. Limitations on Voting Rights of Preferred Interest
Limited Partners, Class C Limited Partners and Class C-1 Limited Partners.
Subject to the provisions of Sections 11.02(b) and (c), 11.11(c) and the second
sentence of this Section 13.04, and except as expressly required by the Delaware
RULPA, no Preferred Interest Limited Partner, Class C Limited Partner or, prior
to the Class C-1 Participation Event, Class C-1 Limited Partner, shall have any
right to approve, consent to or vote on (i) any proposed amendment to this
Agreement, or (ii) any other action (including without limitation an
incorporation of the Partnership pursuant to Article XVI hereof) which may
require the approval, consent or vote of the Limited Partners. Notwithstanding
any other provision of this Agreement, to the extent that (i) the Delaware RULPA
expressly requires that any amendment to this Agreement be approved, consented
to or voted upon by the Preferred Interest Limited Partners, Class C Limited
Partners or Class C-1 Limited Partners, (ii) any
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provision of this Agreement expressly requires or expressly provides for the
approval or consent of the Preferred Interest Limited Partners, Class C Limited
Partners or Class C-1 Limited Partners, or (iii) any provision of this Agreement
requires that any Partner or the Partnership take or refrain from taking any
action so long as any Class C Exchange Notes or Class C-1 Exchange Notes are
outstanding or so long as a Class C Limited Partner or Class C-1 Limited Partner
has or holds a specified interest in the Partnership, including without
limitation as a holder of Units of such Limited Partner Interests or such
Exchange Notes, then, in each such case, the written consent of such Limited
Partners or the holders of such Exchange Notes, as the case may be, shall be
required prior to any such amendment, approval or consent or any amendment,
waiver or modification affecting the provisions referred to in clause (ii) and
(iii) hereof, if such amendment, waiver or modification would (i) reduce, or
change the method of determining, the Preferred Interest Liquidation Preference
or Preferential Return, (ii) reduce, or change the method of determining, the
Class C Liquidation Preference or Class C Return, Class C-1 Liquidation
Preference or Class C-1 Return, (iii) amend the provisions of Section 6.05(a) or
6.05(f), (iv) amend the provisions of Article XVI in such a manner that it would
have a material adverse effect on the Class C Limited Partners, including
without limitation their interests in and rights with respect to the Class C
Exchange Notes, (v) amend the provisions of Article XVII in such a manner that
it would have a material adverse effect on the Class C-1 Limited Partners,
including without limitation their interests in and rights with respect to the
Class C-1 Exchange Notes, or (vi) amend the provisions of Article XIX in such a
manner that it would have a material adverse effect on the Preferred Interest
Limited Partners. The Preferred Interest Limited Partners, Class C Limited
Partners and Class C-1 Limited Partners, as applicable, will be deemed to have
so approved or consented to such amendment, action, waiver or modification, upon
the written approval by or consent of a majority of the outstanding Units of the
Preferred Limited Partner Interest, Class C Limited Partner Interest or Class
C-1 Limited Partner Interest, as applicable. The holders of the Class C Exchange
Notes and Class C-1 Exchange Notes will be deemed to have so approved or
consented upon the written approval by or consent of the holders of the Class C
Exchange Notes and Class C-1 Exchange Notes representing a majority of the
outstanding aggregate principal amount of the Class C Exchange Notes and Class
C-1 Exchange Notes, as applicable. In addition, if the Partnership shall have
failed to retire the Class C-1 Limited Partner Interests at the time required
pursuant to Section 17.02(c) or shall have failed to pay the Class C-1 Exchange
Notes on their "Maturity Date" then, so long as such default shall continue, the
holders of
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Class C-1 Partnership Units or Class C-1 Exchange Notes, as the case may be,
shall have such voting rights as such holders would have had if the Class C-1
Participation Event had occurred immediately prior to such default.
Section 13.05. Further Amendment Restrictions.
(a) Any amendment to this Agreement (i) with respect to the provisions
of Section 3.03, Article V, Article VI, Section 8.01, Section 11.06(e), Section
11.10(g), Section 11.11(g), Section 12.04, Article XIII, Section 15.01(c),
Section 16.01, Section 16.05, Section 17.05, Section 18.09 or the definitions
set forth in Article I of Fair Market Value, Majority Vote, Restricted Partner
or Transfer Event, (ii) affecting the rights of the holders of Class A-2 Limited
Partner Interests to transfer, sell or otherwise dispose of Units of Partner
Interest (including, without limitation, rights to participate with others in
sales or transfers initiated by others and rights of any transferee of a Unit of
Class A-2 Limited Partner Interest to be admitted to the Partnership as a
Limited Partner) or create additional requirements in connection with or
restrictions on any such transfer or adversely affect any rights of a holder of
Units of Class A-2 Limited Partner Interest with respect to transfers by others
of Partner Interests, (iii) with respect to the dissolution of the Partnership
under Section 12.02(c) of this Agreement, or (iv) affecting the rights or
privileges of the Class A-2 Limited Partners without having a corresponding and
at least equal adverse effect on the other Class A Limited Partners, shall not
be effective if such amendment would significantly and adversely affect the
Class A-2 Limited Partners, unless the holders of a majority of the outstanding
Units of Class A-2 Limited Partner Interest consent thereto.
(b) The consent of Barclays shall be required for any amendment to (i)
the provisions of the last sentence of Section 11.11(a), (ii) the provisions of
Section 11.13, (iii) the provisions of the last sentence of Section 17.02, (iv)
the provisions of the first three sentences of Section 17.09, or (v) the
definitions set forth in Article I of Specified Debt or Specified Debt
Agreements.
(c) Without the consent of all the Class C Limited Partners or the
holders of all the Class C Exchange Notes, for so long as any Units of Class C
Limited Partner Interest or any Class C Exchange Note shall be outstanding, the
Partnership shall not enter into any amendment, modification or restatement of
or supplement to the Barclays Letter Agreement, the Put and Call Option
Agreement or the Indemnification Agreement if the effect thereof would be to (i)
reduce, or change the method of deter-
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mining, the Class C Liquidation Preference or Class C Return, (ii) amend the
provisions of Section 6.05(a), (iii) amend the provisions of Section 11.11(a) or
(c), (iv) amend the provisions of this Section 13.05(c), (v) amend the
provisions of Article XVI, (vi) amend the provisions of the first three
sentences of Section 18.09, in such a manner that it would have a material
adverse effect on the Class C Limited Partners, including without limitation
their interests in and rights with respect to the Class C Exchange Notes, or
(vii) amend the definitions set forth in Article I of Specified Debt or
Specified Debt Agreements.
(d) Prior to the occurrence of the Class C-1 Participation Event,
without the consent of all the Class C-1 Limited Partners or the holders of all
the Class C-1 Exchange Notes, for so long as any Units of Class C-1 Limited
Partner Interest or any Class C-1 Exchange Note shall be outstanding, the
Partnership shall not enter into any amendment, modification or restatement of
or supplement to the Barclays Letter Agreement, the Put and Call Option
Agreement or the Indemnification Agreement if the effect thereof would be to (i)
reduce, or change the method of determining, the Class C-1 Liquidation
Preference or Class C-1 Return, (ii) amend the provisions of Section 6.05(f),
(iii) amend the provisions of Section 11.11(a) or (c), (iv) amend the provisions
of this Section 13.05(d), (v) amend the provisions of Article XVII, (vi) amend
the provisions of the first three sentences of Section 18.09, in such a manner
that it would have a material adverse effect on the Class C-1 Limited Partners,
including without limitation their interests in and rights with respect to the
Class C-1 Exchange Notes, or (vii) amend the definitions set forth in Article I
of Specified Debt or Specified Debt Agreements.
ARTICLE XIV
POWER OF ATTORNEY
Subject to the provisions of the second paragraph of this Article XIV,
each Partner and each Assignee as provided herein (including any additional or
Substituted Limited Partners) hereby irrevocably constitutes, appoints and
empowers the Managing General Partner (and any successor by merger, transfer,
election or otherwise) and any Liquidator, as the true and lawful agent and
attorney-in-fact, with full power and authority in his name, place and stead to
make, execute, verify, consent to, swear to, acknowledge, make oath as to,
publish, deliver, file and/or record in the appropriate public offices solely in
such Partner's capacity as a partner of the Partnership and not in any
individual capacity of such Partner (i) all certificates and other
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instruments including, at the option of the Managing General Partner, this
Agreement and the Certificate of Limited Partnership and all amendments and
restatements thereof, that the Managing General Partner reasonably deems
appropriate or necessary to form and qualify, or continue the qualification of,
the Partnership as a limited partnership (or a partnership in which the Limited
Partners have limited liability) in the State of Delaware and all jurisdictions
in which the Partnership may or may intend to conduct business or own property;
(ii) all other certificates, instruments and documents as may be requested by,
or may be appropriate under the laws of, any state or other jurisdiction in
which the Partnership may or may intend to conduct business or own property;
(iii) all instruments that the Managing General Partner (or the Liquidator, as
the case may be) reasonably deems appropriate or necessary to reflect any
conveyances and other instruments or documents, including a Certificate of
Cancellation, that the Managing General Partner (or the Liquidator, as the case
may be) reasonably deems appropriate or necessary to reflect any amendment,
change or modification of this Agreement in accordance with the terms hereof;
(iv) all conveyances and other instruments or documents that the Managing
General Partner (or the Liquidator, as the case may be) reasonably deems
appropriate or necessary to effectuate or reflect the dissolution, winding up of
affairs, liquidation and termination of the Partnership pursuant to the terms of
this Agreement; (v) any and all financing statements, continuation statements,
mortgages or other documents necessary to grant to or perfect for secured
creditors of the Partnership, including the Managing General Partner and its
Affiliates, a security interest, mortgage, pledge or lien on all or any of the
assets of the Partnership; (vi) all instruments or papers required to continue
the business of the Partnership pursuant to Article XII; (vii) all instruments
(including this Agreement and the Certificate of Limited Partnership and
amendments and restatements thereof) relating to the admission of any Partner
pursuant to Article XI, and relating to any duly adopted amendment; (viii) any
conveyances, instruments, papers or other documents that the Managing General
Partner reasonably deems appropriate or necessary to effectuate or reflect the
incorporation of the Partnership pursuant to the terms of this Agreement; and
(ix) all other instruments as the attorneys-in-fact or any one of them may
reasonably deem necessary or advisable to carry out fully the provisions of this
Agreement in accordance with its terms.
Nothing herein contained shall be construed as authorizing any Person
acting as attorney-in-fact pursuant to this Article XIV to take action as an
attorney-in-fact for any Partner, to increase in any way the liability of such
Partner beyond the liability expressly set forth in this Agreement or to
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take any action for such Partner that would require such Partner's express
approval or consent under the terms of this Agreement or that is not consistent
with the terms of this Agreement.
The appointment by each Partner and each Assignee of the Persons
designated in this Article XIV as attorneys-in-fact is a power of attorney
coupled with an interest in recognition of the fact that each of said Persons
will be relying upon the power to act pursuant to this power of attorney for the
orderly administration of the affairs of the Partnership. The foregoing power
of attorney is hereby declared to be irrevocable, and it shall survive, and
shall not be affected by, the subsequent death, incompetency, dissolution,
disability, incapacity, Bankruptcy or termination of any Partner or Assignee and
it shall extend to such Person's heirs, successors and assigns. Each Partner or
Assignee hereby waives any and all defenses that may be available to contest,
negate or disaffirm the action taken as attorney-in-fact under this power of
attorney in accordance with this Agreement. Each Partner or Assignee shall
execute and deliver to the Managing General Partner, within fifteen (15) days
after receipt of the Managing General Partner's request therefor, all such
further designations, powers of attorney and other instruments as the Managing
General Partner reasonably deems necessary to effectuate this Agreement and the
purposes of the Partnership, subject to the terms hereof.
ARTICLE XV
REGISTRATION RIGHTS
Section 15.01. Required Registration by Holdings; Partnership
Registration.
(a) Upon the written request of Holdings or the Managing General
Partner that the Partnership effect registration of any or all of the Units of
Partner Interest owned by the Managing General Partner or the Class A-1 Limited
Partners, which request complies with the requirements of this Article XV (a
"Holdings Registration Request"), the Partnership will use its best efforts to
effect, as promptly as practicable (but in no event later than 120 days after
the Partnership receives such request), the registration under the 1933 Act of
such Units of Partner Interest that may be included therein pursuant to this
Article XV, all to the extent necessary to permit disposition of such Units of
Partner Interest pursuant to a registered public offering. If the Partnership
shall receive a Holdings Registration Request or shall determine to effect any
regis-
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tration of equity securities under the 1933 Act pursuant to a registration
statement on Form S-1 (or its equivalent if such form is not in effect or on an
alternative form if such alternative form is then authorized for the sale to the
public of the Partnership's securities in an unlimited amount and such form
would permit registration of securities for sale by or on behalf of Partners),
the Partnership will, at its expense (which shall include, without limitation,
all registration and filing fees, printing and mailing expenses, fees and
disbursements of counsel and independent accountants for the Partnership, fees
and expenses incident to compliance with state securities laws, fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities, and fees and expenses of any special experts retained in connection
with the requested registration, but shall exclude fees and disbursements of
counsel to any Partner, underwriting discounts and commissions and transfer
taxes, if any, properly allocable to securities included in such registration
statement by any person other than the Partnership):
(i) promptly give written notice thereof to each Class A
Limited Partner, Class B Limited Partner and Class C-1 Limited Partner, who
is an owner of record (for purposes of this Article XV only, a "Holder") of
Limited Partner Interests and to the holders of the Class C-1 Participation
Option and each Preferred Interest Limited Partner;
(ii) subject to Section 15.02, include in the registration (in
addition to those Units of Partner Interest included by the Partnership,
Holdings or the Managing General Partner) such portion of the Partner
Interests held by the Holders as shall be specified in a written request or
requests received by the Partnership from such Holders within 15 days after
the date upon which the Partnership gave the aforementioned notice and,
upon receipt of any such written request and in respect of Partner
Interests in such request, take the actions specified in clauses (iii)
through (xii) below (the Partner Interests as to which registration is so
requested, including those as to which Holdings or the Managing General
Partner requests registration, if applicable, being referred to herein as
"Securities");
(iii) use its best efforts to effect registration, qualification
or compliance under the 1933 Act and under any other applicable federal law
and any applicable securities or blue sky laws of such jurisdictions within
the United States (such action being
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herein called a "Filing" or the "Filings") of the Securities as the
Holders of at least 10% thereof may request and to obtain all such
licenses or permits or amendments to such existing licenses and
permits as shall be necessary to enable the Partnership to continue
the production, distribution and marketing of its products following
any public offering of Securities pursuant to such Filings; provided,
however, that in no event shall the Partnership be obligated to
qualify to do business in any jurisdiction where it is not so
qualified or to take any action that would subject it to tax or the
service of process (other than process in connection with such
registration) in any state where it is not subject thereto;
(iv) furnish to each Holder of Securities such number of copies
of such registration statement and of each amendment and supplement
thereto (in each case including all exhibits), the prospectus in the
registration statement filed under the 1933 Act (including each
preliminary and summary prospectus) in conformity with the
requirements of the 1933 Act and such other documents as such Holder
may reasonably request in order to facilitate the disposition of the
Securities covered by the registration statement;
(v) notify each Holder of Securities, at any time when a
prospectus relating to the Securities covered by such registration
statement is required to be delivered under the 1933 Act, of the
Partnership's becoming aware that the prospectus in such registration
statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading, and at the request of any Holder of Securities, prepare
and furnish to such Holder any reasonable number of copies of any
supplement to or amendment of such prospectus necessary so that, as
thereafter delivered to any purchaser of the Securities, such
prospectus, as so amended, shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading;
(vi) prepare and file with the Securities and Exchange
Commission (the "SEC") such amendments and supplements to such
registration statement and the prospectus used in connection therewith
as may be neces-
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sary to keep such registration statement effective for such period not to
exceed 120 days as any Holder of Securities shall request and to comply
with the provisions of the 1933 Act with respect to the sale or other
disposition of all Securities covered by such registration statement during
such period;
(vii) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC, and make available to its security
holders, as soon as reasonably practicable, an earning statement covering
the period of twelve months beginning not later than the first day of the
Partnership's first calendar quarter after the effective date of the
registration statement, which earning statement shall satisfy the
provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder;
(viii) use its best efforts to cause all Securities covered by such
registration statement to be listed on the principal securities exchange on
which similar equity securities issued by the Partnership are then listed
or eligible for listing, if the listing of such Securities is then
permitted under the rules of such exchange;
(ix) provide a transfer agent and registrar for all Securities covered
by such registration statement not later than the effective date of such
registration statement;
(x) in connection with any underwritten offering, enter into an
underwriting agreement with the underwriter of such offering in the form
customary for such underwriter for similar offerings, including such
representations and warranties by the Partnership, provisions regarding the
delivery of opinions of counsel for the Partnership and accountants'
letters, provisions regarding indemnification and contribution, and such
other terms and conditions as are at the time customarily contained in such
underwriter's underwriting agreements for similar offerings (and, at the
request of any Holder of Securities that are to be distributed by such
underwriter(s), any or all (as requested by such Holder) of the
representations and warranties by, and the other agreements on the part of,
the Partnership to and for the benefit of such underwriter(s) shall also be
made to and for the benefit of such Holder);
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(xi) upon receipt of such confidentiality agreements as the
Partnership may reasonably request, make available for inspection by any
Holder of Securities and by any attorney, accountant or other agent
retained by any such Holder, all pertinent financial and other records,
pertinent partnership or corporate documents and properties of the
Partnership and its Subsidiaries, and cause all of the Partnership's and
its Subsidiaries' general partners, officers, directors and employees to
supply all information reasonably requested by any such Holder, attorney,
accountant or agent in connection with such registration statement; and
(xii) permit any Holder of Securities, any other Partner or any
holder of Class C Exchange Notes or Class C-1 Exchange Notes who, in the
sole judgment, exercised in good faith, of the Managing General Partner,
might be deemed to be a controlling person of the Partnership, to
participate in the preparation of such registration or comparable statement
and to require the insertion therein of material, furnished to the
Partnership in writing, that in the judgment of the Managing General
Partner, as aforesaid, should be included.
Except in connection with a registration to be effected pursuant to a
Holdings Registration Request, the Partnership may, at its election at any time
after giving written notice of its intention to effect a registration of
Securities and prior to the effective date of the registration statement filed
in connection with such registration, if it shall determine for any reason not
to register such Securities, give written notice of such determination to each
Holder of Securities and thereupon it shall be relieved of its obligation to
register any Securities (but not of its obligation to pay registration
expenses).
(b) Anything to the contrary contained herein notwithstanding, (i) the
Partnership shall not be obligated to file a registration statement pursuant to
a Holdings Registration Request within a period of six months after the
effective date of any other registration statement of the Partnership (other
than registration statements on Form S-4 or Form S-8, or any successor or
similar forms), (ii) the Partnership may postpone filing a registration
statement pursuant to a Holdings Registration Request for a reasonable period
(not in excess of 90 days) if in its judgment such filing would require the
disclosure of material information that the Partnership has a bona fide business
purpose for preserving as confidential, (iii) the Partnership shall not be
required to register any Class C-1 Partnership Interest prior
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to the Class C-1 Participation Event, (iv) the Partnership shall not be required
to give notice under Section 15.01(a)(i) to the Class C-1 Limited Partners after
the first such notice if such first notice is followed by delivery of the Notice
of Election pursuant to Section 17.06(a) prior to the Class C-1 Preference
Election Date (and from and after the timely delivery of such Notice of
Election, the Class C-1 Limited Partners shall not be "Holders" for purposes of
this Article XV and shall have no further rights under Section 15.01(a)), and
(v) each Class A Limited Partner and Class B Limited Partner shall only have
rights as a "Holder" under this Article XV with respect to the Class A Limited
Partner Interests and Class B Limited Partner Interests, respectively, owned by
such Limited Partner, and shall not have any rights whatsoever under this
Article XV with respect to any other Units of Partner Interest owned by such
Limited Partner.
(c) The Partners acknowledge that (i) the Managing General Partner
shall be entitled to participate in any registration pursuant to this Article XV
on substantially the same terms, and be entitled to substantially the same
registration rights, as the Class A-1 Limited Partners and (ii) the
Administrative General Partner shall be entitled to participate in any
registration pursuant to this Article XV on substantially the same terms, and be
entitled to substantially the same registration rights, as the Class B Limited
Partners, and the Partners hereby authorize the Managing General Partner to take
such action as may be reasonably required, in the judgment of the Managing
General Partner, to effectuate the provisions of this Section 15.01(c),
including, without limitation, the conversion of Units of General Partner
Interest to Units of Limited Partner Interest. The Partners also acknowledge
that only the Managing General Partner or Holdings shall have the right to make
a Holdings Registration Request, but upon a Holdings Registration Request being
made, a Class A-2 Limited Partner shall be entitled to participate in a Holdings
Registration Request on the same terms as the Class A-1 Limited Partners.
(d) Unless otherwise required by applicable securities laws and
disclosure requirements, any registration statement or prospectus of the
Partnership pursuant to this Article XV shall not disclose the identity of the
Class C Limited Partners or the holders of the Class C Exchange Notes. To the
extent that, in the reasonable judgment of the Partnership or the Managing
General Partner, such disclosure is required, the Class C Limited Partners or
the holders of the Class C Exchange Notes shall have the right to review and
approve such disclosure with respect to the Class C Limited Partners or the
holders of the Class C Exchange Notes, which approval shall not be unreasonably
withheld
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by the Class C Limited Partners or the holders of the Class C Exchange Notes.
Section 15.02. Limitation on Registration. If the Partnership's
offering is underwritten, Holders of Securities shall sell such Securities to or
through the underwriter or underwriters of the Securities being registered for
the account of the Partnership and/or the Class A Limited Partners or the
Managing General Partner upon terms generally comparable to the terms applicable
to the Partnership and/or the Class A Limited Partners or the Managing General
Partner, and if any lead underwriter reasonably determines that the number of
Securities included in the registration statement exceeds the number (the
"Saleable Number") that can be sold in an orderly fashion within a price range
acceptable to the Partnership, if such registration is being effected at the
Partnership's determination, or all of the Securities of the Class A Limited
Partners and the Managing General Partner, if such registration is being
effected pursuant to a Holdings Registration Request, then the number of
Securities that the Partnership and the Holders of Securities will be permitted
to include in such registration statement will be allocated as follows: (i)
first, all the securities of the Partnership, if such registration is being
effected at the Partnership's determination, or all of the Securities of the
Class A Limited Partners and the Managing General Partner, if such registration
is being effected pursuant to a Holdings Registration Request (provided that if
such registration is the initial public offering with respect to securities of
the Partnership, then the allocation with respect to the Securities of the Class
A Limited Partners and the Managing General Partner shall be governed by clause
(ii) below), and (ii) second, the difference between the Saleable Number and the
number, if any, to be included pursuant to clause (i) hereof, allocated among
all Holders of Securities pro rata on the basis of the relative number of
Securities held by each such Holder not included pursuant to clause (i) hereof.
If as a result of the proration provisions of this Section 15.02, any Holder of
Securities is not entitled to include all such Securities in such registration,
such Holder may elect to withdraw his request to include any Securities in such
registration (a "Withdrawal Election"); provided, however, that a Withdrawal
Election shall be irrevocable and a Holder of Securities who has made a
Withdrawal Election shall no longer have any right to include any Securities in
the registration as to which such Withdrawal Election was made. The number of
Securities required to satisfy any underwriters' overallotment option shall be
allocated pro rata among the Partnership and all Holders of Securities on the
basis of the relative number of Securities otherwise to be included by each of
them in the registration.
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It is acknowledged that to the extent any of the terms of this Article
XV (including without limitation this Section 15.02) are inconsistent with the
terms of the Barclays Letter Agreement, the terms of the Barclays Letter
Agreement shall, as to the rights and obligations of Barclays, control.
It is also acknowledged that, subject to the terms of the Barclays
Letter Agreement (including without limitation the provisions of Section 2
thereof), Holders of Securities shall be entitled to participate in any
registrations requested by Barclays pursuant to the Barclays Letter Agreement,
but the provisions of Sections 15.03, 15.04 and 15.05 shall otherwise govern the
rights and obligations of the Holders of Securities other than Barclays (the
"Non-Barclays Holders") with respect to any such registration. For purposes of
determining the allocation of Securities among the Non-Barclays Holders in any
registration which is the subject of the Barclays Letter Agreement, the
provisions of Section 2 of the Barclays Letter Agreement shall first govern, and
the remaining Securities shall be allocated as the Non-Barclays Holders shall
reasonably agree to give effect to the provisions of this Section 15.02,
provided that any such allocation among the Initial Partners and UBS (or such
other UBS Entity which shall then be a Class A-2 Limited Partner) shall be pro
rata on the basis of the relative number of Securities held by such Initial
Partners and UBS (or such other UBS Entity which shall then be a Class A-2
Limited Partner).
Section 15.03. Limitations on Sales Before or After Registration. If
requested in writing by the Partnership or the lead underwriter, if any, of any
offering effected pursuant to this Article XV, the Partnership and each Partner
owning of record more than 1% of the Partner Interests then outstanding
(including Partner Interests that a Partner has the right to acquire upon
exercise of Performance Options or otherwise) agrees not to effect any public
sale or distribution, including any sale pursuant to Rule 144 under the 1933
Act, of any Partner Interests (other than as part of such underwritten public
offering) within 7 days before or 120 days after the effective date of a
registration statement filed pursuant to this Article XV.
Section 15.04. Cooperation by Holders.
(a) As a condition to including any Holder's Securities in a
registration, the Partnership may require (i) that such Holder furnish to the
Partnership such information regarding such Holder and the contemplated
distribution of such Holder's Securities as is required to be included in the
registration statement, and (ii) that such information be furnished to the
Partnership in writing and signed by such Holder and stated to be specifically
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for use in the related registration statement, prospectus, offering circular or
other document incident thereto. Except for the foregoing and as otherwise
provided by Section 15.05, Holders of Securities shall not be required to make
any representations or warranties to or agreements with the Partnership or the
underwriters as a condition to the inclusion of such Securities in a
registration.
(b) Each Holder of Securities shall, upon receipt of any notice from
the Partnership pursuant to Section 15.01(a)(v), forthwith discontinue
disposition of Securities pursuant to the registration statement covering such
Securities until such Holder's receipt of copies of the supplemented or amended
prospectus contemplated by Section 15.01(a)(v) and, if so directed by the
Partnership, such Holder shall deliver to the Partnership (at the Partnership's
expense) all copies other than permanent file copies then in such Holder's
possession, of the prospectus covering such Securities that was in effect prior
to such amendment or supplement. In the event the Partnership shall give any
such notice, the period set forth in Section 15.01(a)(vi) shall be extended by
the number of days elapsed from and including the date of the giving of such
notice pursuant to Section 15.01(a)(v) to and including the date on which each
Holder of Securities covered by such registration statement shall have received
the copies of the supplemented or amended prospectus contemplated by Section
15.01(a)(v).
Section 15.05. Indemnification.
(a) In the event of the filing of any registration statement
under the 1933 Act with respect to the Securities pursuant to this Article XV,
the Partnership will indemnify and hold each Holder of Securities participating
in such registration and the directors, officers, partners and controlling
persons (within the meaning of the 1933 Act ("Controlling Persons")) of each
such Holder, the Class C Limited Partners and the holders of the Class C
Exchange Notes, the Class C-1 Limited Partners and the holders of the Class C-1
Exchange Notes (each, a "Partner Indemnitee") harmless from and against any
losses, claims, damages or liabilities, joint or several, to which each such
Partner Indemnitee may become subject under the 1933 Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained, on the effective date thereof, in any
registration statement under which the Securities were registered under the 1933
Act, any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material
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fact required to be stated therein or necessary to make the statements therein
not misleading, or arise out of or are based upon the failure by the Partnership
to file any amendment or supplement thereto that was required to be filed under
the 1933 Act, and will reimburse each such Partner Indemnitee for any legal or
any other expenses reasonably incurred by such Partner Indemnitee in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Partnership will not be liable to any
Partner Indemnitee in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made (i) in such
registration statement, preliminary prospectus, final prospectus or amendment or
supplement in reliance upon and in conformity with written information furnished
to the Partnership through an instrument duly executed by such Partner
Indemnitee specifically for use in the preparation thereof or (ii) in any
preliminary prospectus or any final prospectus later amended or supplemented if
(A) such Partner Indemnitee failed to deliver a copy of the final prospectus or
the final prospectus as then amended or supplemented, as the case may be, to the
Person asserting such loss, claim, damage or liability at or prior to the
written confirmation of such sale, (B) such delivery was required by the 1933
Act and (C) the untrue statement or alleged untrue statement or omission or
alleged omission in such preliminary prospectus or final prospectus was
corrected in the final prospectus or the final prospectus as then amended or
supplemented, respectively. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of any such Partner
Indemnitee and shall survive the transfer of such Securities.
Each Holder of Securities agrees that if such Holder requests the
inclusion of Securities in a registration, such Holder will execute, and the
Partnership's obligation to take any action pursuant to Section 15.01(a) hereof
is specifically conditioned on the Partnership's receipt of, an undertaking
satisfactory to the Partnership to indemnify and hold harmless (in the same
manner and to the same extent as set forth in the preceding paragraph of this
Section 15.05), the Partnership, all other Holders of Securities and any
underwriter of such offering, and their respective directors, officers, partners
and Controlling Persons (for purposes of this Article XV, each an "Indemnitee"),
with respect to any untrue statement or alleged untrue statement of any material
fact contained, on the effective date thereof, in any registration statement
under the 1933 Act, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereto or any omission or alleged
omission to state therein a material fact required to be stated therein or
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necessary to make the statements therein not misleading if such statement or
omission was made in reliance upon and in conformity with written information
furnished to the Partnership through an instrument duly executed by such Holder
of Securities specifically for use in the preparation of such registration
statement, preliminary prospectus or final prospectus or amendment or
supplement; provided, however, that such Holder will not be liable in any such
case to any Indemnitee to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission in any preliminary prospectus or any
final prospectus later amended or supplemented if (i) such Indemnitee failed to
deliver a copy of the final prospectus or the final prospectus as then amended
or supplemented, as the case may be, to the Person asserting such loss, claim,
damage or liability at or prior to the written confirmation of such sale, (ii)
such delivery was required by the 1933 Act and (iii) the untrue statement or
alleged untrue statement or omission or alleged omission in such preliminary
prospectus or final prospectus was corrected in the final prospectus or the
final prospectus as then amended or supplemented, respectively. Such indemnity
shall remain in full force and effect regardless of any investigation made by or
on behalf of any such Indemnitee and shall survive the transfer of such
Securities.
As soon as possible after receipt by an indemnified party hereunder of
written notice of the commencement of any action or proceeding with respect to
which a claim for indemnification may be made pursuant to this Section 15.05,
such indemnified party will, if a claim in respect thereof is to be made against
an indemnifying party, give written notice to the latter of the commencement of
such action; provided that the failure of any indemnified party to give notice
as provided herein shall not relieve the indemnifying party of its obligations
under the preceding paragraphs of this Section 15.05, except to the extent that
the indemnifying party is actually prejudiced by such failure to give notice. If
any such claim or action shall be brought against an indemnified party, and it
shall notify the indemnifying party thereof, the indemnifying party shall be
entitled to participate therein, and, to the extent that it wishes, jointly with
any other similarly notified indemnifying party, to assume the defense thereof
with counsel reasonably satisfactory to the indemnified party; provided that the
indemnifying party shall not be entitled to so participate or so assume the
defense if, in the indemnified party's reasonable judgment, a conflict of
interest between the indemnified party and the indemnifying party exists in
respect of such claim. After notice from the indemnifying party to such
indemnified party of its election to assume the defense of such claim or action,
the indemnifying party shall not
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be liable to the indemnified party under this Section 15.05 for any legal or
other expenses subsequently incurred by the indemnified party in connection with
the defense thereof; provided, however, that an indemnified party shall have the
right to employ one counsel to represent such indemnified party and its
officers, directors, partners and Controlling Persons if, in such indemnified
party's reasonable judgment, a conflict of interest between such indemnified
parties and the indemnifying parties exists in respect of such claim, and in
that event the fees and expenses of such separate counsel shall be paid by the
indemnifying party; and provided, further, that if, in the reasonable judgment
of any indemnified party, a conflict of interest between such indemnified party
and any other indemnified parties exists in respect of such claim, such
indemnified party shall be entitled to additional counsel or counsels and the
indemnifying party shall be obligated to pay the fees and expenses of such
additional counsel or counsels. No indemnifying party will consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to all
indemnified parties of a release from all liability in respect of such claim or
litigation.
Indemnification similar to that specified in the preceding paragraphs
of this Section 15.05 (with appropriate modifications) shall be given by the
Partnership and, at the Partnership's request, by each Holder of Securities with
respect to any required registration or other qualification of securities under
any state securities and "blue sky" laws.
If the indemnification provided for in this Section 15.05 is
unavailable or insufficient to hold harmless an indemnified party, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of the losses, claims, damages or liabilities
referred to in the first two paragraphs of this Section 15.05 in such proportion
as is appropriate to reflect the relative fault of the indemnifying party on the
one hand and the indemnified party on the other hand in connection with
statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
indemnifying party or the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statements or omission. The parties hereto agree that it would not be
just and equitable if contributions pursuant to this paragraph were to be
determined by pro rata allocation or by any
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other method of allocation which does not take account of the equitable
considerations referred to in the first sentence of this paragraph. The amount
paid by an indemnified party as a result of the losses, claims, damages or
liabilities referred to in the first sentence of this paragraph shall be deemed
to include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any action or claim (which
shall be limited as provided in the third paragraph of this Section 15.05 if the
indemnifying party has assumed the defense of any such action in accordance with
the provisions thereof) which is the subject of this paragraph. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. Promptly after receipt by an indemnified
party under this paragraph of notice of the commencement of any action against
such party in respect of which a claim for contribution may be made against an
indemnifying party under this paragraph, such indemnified party shall notify the
indemnifying party in writing of the commencement thereof if the notice
specified with respect to indemnification has not been given with respect to
such action; provided that the omission so to notify the indemnifying party
shall not relieve the indemnifying party from any liability which it may have to
any indemnified party otherwise under this paragraph, except to the extent that
the indemnifying party is actually prejudiced by such failure to give notice.
Notwithstanding anything in this paragraph to the contrary, no indemnifying
party (other than the Partnership) shall be required pursuant to this paragraph
to contribute any amount in excess of the proceeds received by such indemnifying
party from the sale of Securities in the offering to which the losses, claims,
damages or liabilities of the indemnified parties relate.
Section 15.06. Registration Rights upon Incorporation of the
Partnership. In the event that the Partnership and its business and assets shall
at any time be incorporated, the Partners agree that the Holders shall have
substantially the same rights as are set forth in this Article XV (and Barclays
shall have substantially the same rights as are set forth in the Put and Call
Option Agreement and the Barclays Letter Agreement) with respect to the shares
of such corporation and the Partner Indemnitees shall have substantially the
same rights as are set forth in Section 15.05 with respect to indemnification in
connection therewith, and the Partners agree to execute any and all such
documents or agreements as may be reasonably required, in the judgment of the
Managing General Partner, to effectuate the provisions of this Article XV and,
to the extent applicable, Section 16.02 and Section 17.02 with respect to the
shares of such corporation.
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ARTICLE XVI
INCORPORATION OF THE PARTNERSHIP;
THE CLASS C LIMITED PARTNER INTEREST
Section 16.01. Incorporation of the Partnership. The Partners
recognize that it may be advisable or appropriate to incorporate the Partnership
and its business and assets in the future and hereby authorize the Managing
General Partner to take such action at such time as, in the Managing General
Partner's sole discretion, may be necessary, appropriate, proper or advisable to
present to the Limited Partners, for their consideration, any proposal by the
Managing General Partner with respect to such incorporation. In formulating such
proposal, the Managing General Partner shall consider the tax consequences
thereof to the Partners, and shall use reasonable efforts to effectuate the
incorporation of the Partnership in a manner that will minimize the amount of
taxes payable by the Partnership and the Partners. Subject to the provisions of
Section 13.04, any such proposal in connection therewith will be deemed to have
been approved upon the written approval of the Managing General Partner and the
Majority Vote of the Partners, as provided in Section 13.02(a) hereof. In the
event of an incorporation pursuant to this Section 16.01, each Class C Limited
Partner shall receive, in exchange for its Units of Class C Limited Partner
Interest, such number of shares of Class C Preferred Stock as would entitle the
holder thereof to receive a liquidation preference at the time of such exchange
equal to the Class C Liquidation Preference in respect of the Class C Limited
Partner Interest of such Partner so exchanged, subject to cash settlement (based
on such then liquidation preference) of fractional shares that would otherwise
be required to be issued, but shall not be entitled to participate in any other
distributions which may be made by such corporation with respect to shares of
common stock. In the event of an incorporation pursuant to this Section 16.01,
each Partner (other than a Preferred Interest Limited Partner as such, a Class C
Limited Partner as such and, prior to the Class C-1 Participation Event, a Class
C-1 Limited Partner as such) shall receive, in exchange for its Units of Partner
Interest, such shares of common stock as is in accordance with its Percentage
Interest at the time of such incorporation, provided that the Limited Partners
who are Restricted Partners shall receive shares of common stock in such
corporation which shall have such voting rights (in any event not more extensive
than those voting rights accorded to the other Limited Partners) which shall, in
the sole opinion of a majority in interest of such Restricted Partners, not
result in such common stock constituting a "voting security" under Regulation Y
of the Board of Governors of the Federal
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Reserve System or otherwise result in the inability of any such Restricted
Partner to own such common stock. In the event of an incorporation pursuant to
this Section 16.01 prior to the admission of Barclays as a Class A-2 Limited
Partner, Barclays shall receive, in exchange for its rights with respect to the
Put/Call Units under the Put and Call Option Agreement, the Barclays Letter
Agreement and the Indemnification Agreement, warrants to acquire shares of
common stock in such corporation which have the same or substantially the same
voting rights as the shares being issued to the Restricted Partners, as is in
accordance with its Percentage Interest for the Put/Call Units at the time of
such incorporation. In the event of an incorporation pursuant to this Section
16.01 (whether prior or subsequent to the admission of Barclays as a Class A-2
Limited Partner), Barclays shall have the same or substantially the same
registration and other rights as are contained in the Barclays Letter Agreement
with respect to its warrants or shares of common stock in such corporation. The
Partners also acknowledge that, in the event such a proposal is presented or in
connection with an incorporation pursuant to Section 3.03(a)(i), to the extent
applicable and consistent with a corporate structure, they will negotiate in
good faith such arrangements as are reasonably required to reflect substantially
the same rights and restrictions that the Partners have pursuant to this
Agreement, including without limitation, the provisions of Sections 11.04,
11.05, 11.06, 11.07 and 11.08 hereof. Subject to the provisions of the preceding
sentence, the provisions of this Article XVI are in addition to, and not in
limitation of, the authority granted to the Managing General Partner pursuant to
Section 3.03 hereof. The Managing General Partner shall give the Class C Limited
Partners or the holders of the Class C Exchange Notes (or their Class C Designee
pursuant to Section 16.03) not less than 10 days' notice prior to any
incorporation of the Partnership and its business and assets and concurrently
deliver to such Persons copies of the constituent documents of such corporation,
including any certificate of incorporation, certificate of designations, any
authorizing resolutions relating to the incorporating of such corporation, the
by-laws of such corporation and any other documents of such corporation which
are to be filed with the secretary of state or similar officer of the state of
its incorporation, it being understood, however, that, without derogating from
any other rights such Person may have pursuant to this Agreement, such Person
shall have no right to request any changes or modifications in any such
documents and all such documents may be executed and filed without the approval
of any such Person.
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Section 16.02. Exchange or Retirement of the Class C Limited Partner
Interests.
(a) At the Managing General Partner's option at any time, in its sole
discretion, the Managing General Partner may require each of the Class C Limited
Partners to exchange its Units of Class C Limited Partner Interest for an
exchange note in a principal amount equal to (i) the number of Units then owned
by such Class C Limited Partner, times (ii) the then amount of the Class C
Liquidation Preference per Unit, such exchange note to be substantially in the
form attached hereto as Exhibit D (the " Class C Exchange Note").
(b) In the event of an incorporation of the Partnership and its
business and assets, the Managing General Partner shall have the right in its
sole discretion to:
(i) cause the exchange referred to in Section 16.02(a); or
(ii) cause the Class C Limited Partners to exchange all their
Units of Class C Limited Partner Interest for such number of shares of
preferred stock ("Class C Preferred Stock") (having, in all material
respects, substantially the same rights, preferences, privileges,
limitations and restrictions as the Class C Limited Partner Interest) of
the resulting corporation to which it would be entitled on the basis of the
Class C Liquidation Preference of the Class C Limited Partner Interest at
such time, such determination to be made by the Managing General Partner in
its reasonable discretion, exercised in good faith.
(c) In the event that (i) there shall have been no exchange of the
Units of Class C Limited Partner Interest pursuant to Section 16.02(a) or (b)
prior to the ninety-first day after August 31, 2002 or (ii) if earlier, a
Transfer Event shall occur, or the closing of a sale of Units of Partner
Interest shall occur pursuant to Section 11.07(c), the Partnership shall retire
all of such Units on the ninety-first day after August 31, 2002 or on or before
the date of such Transfer Event or such closing, as applicable, for an amount
equal to the then Class C Liquidation Preference. MLP Sales, for so long as it
is a Limited Partner or holder of a Class C Exchange Note, or the Class C
Designee (as defined in Section 16.03), on behalf of the Class C Limited
Partners or the holders of the Class C Exchange Notes, shall each have the sole
and exclusive right, to the extent not otherwise limited by law, to bring an
action at law or in equity to enforce the terms of this Section 16.02(c). It is
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acknowledged that the provisions of this Section 16.02(c) shall be subject to
the provisions of Section 16.05.
(d) In the event that any Units of Class C Limited Partner Interest or
any Class C Exchange Note shall be outstanding at the time of a registered
public offering of the securities of the Partnership or its successor
corporation pursuant to the provisions of Article XV and such registration
relates to securities owned by the Class A-1 Limited Partners and/or the
Managing General Partner, the outstanding Units of Class C Limited Partner
Interest or Class C Exchange Notes shall be partially retired or a principal
payment shall be made thereon, as applicable, on or prior to the closing date of
such registered public offering in the same proportion as the amount of
securities sold in such registered public offering by the Class A-1 Limited
Partners and the Managing General Partner bears to the total number of
securities owned by the Class A-1 Limited Partners and the Managing General
Partner immediately prior to such registered public offering.
Section 16.03. Designation by Class C Limited Partners.
Notwithstanding any other provision of this Agreement (including, without
limitation, the provisions of Articles XI and XIII and Section 6.05(a)(ii) and
Section 16.04), there shall always be, to the extent permitted by law, one
Person (the "Class C Designee", which Person shall initially be MLP Sales) from
time to time designated by the holders of all interests in the Class C Limited
Partner Interests and the Class C Exchange Notes (collectively, for purposes of
this Section 16.03 only, the "Holders") (i) to make all decisions, (ii) to
receive all notices and other communications, (iii) to receive and disburse all
payments and (iv) otherwise generally to act for and on behalf of the Holders in
respect of their interests in the Class C Limited Partner Interests or the Class
C Exchange Notes, as applicable (collectively, for purposes of this Section
16.03 only, the "Class C Interests"), including the resolution of all disputes
with respect thereto. Each Holder shall, by holding a Class C Interest,
automatically have consented to the appointment of the Class C Designee and the
Class C Designee's authority as described above, including without limitation,
the Partnership's right to treat the Class C Designee as the owner and holder of
the Class C Limited Partner Interests or the Class C Exchange Notes for all
purposes as contemplated by this Section 16.03. Such authority shall be
exercised so that (i) such decisions shall be made within the period required by
the relevant documents governing the Class C Interests (and in that connection
the Class C Designee may act upon the instructions of the Holders, in such
numbers as they may agree, provided that the Class C Designee shall have full
authority to act in the absence of
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receipt of timely instructions), (ii) such notices and other communications need
not be sent to the Holders (and such notices and other communications shall not
be forwarded by the Class C Designee to the Holders unless the Holders have
executed confidentiality agreements in the form of Exhibit E hereto), (iii) such
payments shall be made directly to the Class C Designee (and in that connection,
the Partnership shall have no duty to see that such payments are delivered to
and/or properly applied as among the Holders, and any such payment properly made
to the Class C Designee shall release and discharge the Partnership of its
obligation otherwise to make such payment and/or application to the Holders) and
(iv) such Holders shall not otherwise attempt to exercise authority in lieu of
the Class C Designee. Any certificates evidencing Class C Interests shall, if
desired by the Partnership, be appropriately legended to reflect the foregoing
provisions relating to the Class C Designee. The Class C Designee shall provide
the Partnership with evidence of its authority to exercise such authority.
Section 16.04. Covenants. Without the consent of all the Class C
Limited Partners or the holders of all the Class C Exchange Notes, for so long
as any Units of Class C Limited Partner Interest or any Class C Exchange Note
shall be outstanding, until the earlier of (i) the expiration of the Base Period
(as defined in the Asset Purchase Agreement) or (ii) the occurrence of a
Transfer Event, and, in the case of paragraph (e) below, at all times until the
Earn-Out Payment is made unless following the Determination Date (as defined in
the Asset Purchase Agreement) the Earn-Out Payment shall not be payable in
accordance with the terms of the Asset Purchase Agreement:
(a) The Partnership shall not, and shall not permit any Subsidiary to,
Transfer any of its assets, other than in the ordinary course of business or to
secure the Specified Debt, for aggregate consideration having a value of less
than the then fair market value of the assets Transferred.
(b) The Partnership shall not, and shall not permit any Subsidiary to,
enter into any transaction with any Affiliate of the Partnership unless the
Partnership or such Subsidiary would have entered into such transaction with a
Person not an Affiliate of the Partnership and the terms thereof are at least as
favorable to the Partnership or such Subsidiary as those that the Partnership or
such Subsidiary would have obtained in a transaction on an arm's-length basis
with a Person not an Affiliate of the Partnership, except that the foregoing
shall not restrict the ability of the Partnership to (i) adopt and comply with
any management bonus plan and/or the Management Option Plan, (ii) reimburse
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the Administrative General Partner and the Managing General Partner (or its
successor) for reasonable out-of-pocket expenses and the Managing General
Partner for directors' fees paid to the members of the board of directors of its
managing general partner, provided, that, such payments for directors' fees
shall not exceed $100,000 annually in the aggregate (subject to reasonable cost
of living adjustments based on published sources and not to exceed 5% per
annum), or (iii) enter into and comply with any employment agreements with
members of the Partnership's management.
(c) The Partnership and the Subsidiaries collectively shall continue
to engage in the business of the same general type as the Business (as defined
in the Field Agreement).
(d) The Partnership shall give MLP Sales notice of a Transfer Event
and any Significant Asset Sale (as defined in the Field Agreement) or any
Significant Asset Purchase (as defined in the Field Agreement) ("Event") upon
the earlier of (i) entering into a binding agreement providing for such Event or
(ii) the giving of notice of such Event to the Limited Partners; provided, that,
such notice to MLP Sales shall not in any event be given less than ten (10) days
prior to such Event.
(e) The Partnership shall not, and shall not permit any Subsidiary to,
directly or indirectly, make any distribution of cash, securities or other
assets in respect of, or purchase or retire, any equity interests in the
Partnership (which for purposes of this sentence only shall include the Put/Call
Units) or options or warrants to purchase such interests, in each case
outstanding on the date of the First Restated Agreement (or equity interests,
options or warrants issued in respect of or upon Transfer of equity interests,
options or warrants outstanding on the date of the First Restated Agreement,
including for these purposes options issuable under the Management Option Plan),
except: (a) in connection with the termination of employment of an employee of
the Partnership, the repurchase of such employee's equity interest and options
under the Management Option Plan, provided that if a Specified Event has
occurred with respect to the Class C Limited Partner Interests or the Class C
Exchange Notes, the Partnership may only effect such repurchase by delivering to
such employees Permitted Securities (as defined in Section 6.05); (b) cash
distributions (but only for such periods as the Partnership exists in the form
of a partnership) to the holders of equity interests in the Partnership (other
than the Class C Limited Partners) in an amount equal to the lower of (A) the
product of (i) the
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taxable income of the Partnership for any fiscal year for which the Partnership
reports taxable income for Federal income tax purposes determined as if the
Partnership were a separately taxable entity and (ii) a percentage equal to the
sum of (1) the highest marginal Federal income tax rate applicable to
individuals in effect for such year and (2) ten percentage points or (B) the
maximum amount of distributions for taxes the Partnership is permitted to make
under the Specified Debt Agreements; provided, that, if a Specified Event has
occurred with respect to the Class C Limited Partner Interests, the Class C
Exchange Notes, the Earn-Out Notes or the Earn-Out Payment, the Partnership may
not make the cash distributions described in this clause (b); and (c)
distributions by any Subsidiary to the Partnership. For purposes of the
preceding sentence, (1) the Partnership shall not be prohibited from delivering
(x) securities issued or issuable to employees pursuant to the Management Option
Plan, (y) cash payments in connection with the cash settlement of such
securities pursuant to the Management Option Plan, unless a Specified Event has
occurred with respect to the Class C Limited Partner Interests or the Class C
Exchange Notes or unless the Specified Debt Agreements otherwise prohibit such
cash payments, in which case, the Partnership may effect such cash settlement
only by delivering to such employees Permitted Securities, or (z) securities
issued or issuable pursuant to the exercise of warrants or options issued to the
holders of the Specified Debt (or their Affiliates), including without
limitation the Put/Call Units, and/or securities contemplated by Section
11.08(f) pursuant to the provisions thereof, and (2) the retirement date of the
Class C Limited Partner Interests shall be deemed to be such time specified in
Section 16.02(c), provided that in no such event shall such retirement date be
deemed to be later than August 31, 2002.
(f) The Partnership shall provide to MLP Sales or the Class C
Designee, as applicable, (i) as soon as available after the end of the first
three quarters of each fiscal year of the Partnership the unaudited quarterly
financial statements of the Partnership for such fiscal quarter, (ii) as soon as
available after the end of each fiscal year of the Partnership, the audited
annual financial statements of the Partnership for such fiscal year and (iii)
any notice of an occurrence of an event of default (or of an event that, with
notice or lapse of time or both would constitute an event of default) received
by the Partnership from its lenders or delivered to such lenders by the
Partnership and any amendments to the financing documents among the Partner-
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ship and its lenders. If the Partnership has any consolidated subsidiaries, the
financial statements referred to in clauses (i) and (ii) shall be consolidated
and consolidating financial statements in any case, such financial statements
shall be prepared in accordance with United States generally accepted accounting
principles on a consistent basis and shall fairly present the financial
condition, results of operation and cash flows of the Partnership for the dates
and periods covered thereby, subject, in the case of interim financial
statements, to normal year-end adjustments and to the absence of footnotes.
(g) The Partnership (i) shall not permit any member of its operating
management to be employed by Centre Partners L.P. or Holdings, directly or
indirectly, other than through employment by the Partnership and (ii) shall
require that each member of its operating management devote substantially all of
his or her business time to the Business.
Section 16.05. Debt Financing Agreements.
(a) (i) Payment of the Class C Liquidation Preference upon the
retirement of the Class C Limited Partner Interests shall not be made at
any time at which the provisions of the Specified Debt Agreements prohibit
such payment or if such payment would constitute a default thereunder (the
"Prohibitions").
(ii) The holders of the Class C Limited Partner Interests shall
not assert, participate in or bring any action, suit or proceeding
(including, without limitation, any bankruptcy or insolvency proceedings)
either at law or in equity against the Partnership, the Partners or any of
their respective properties or assets, for the enforcement, collection or
realization of the retirement of the Class C Limited Partner Interests,
including without limitation the payment of all or any part of the Class C
Liquidation Preference so long as, and solely to the extent to which, the
failure to make payment thereof is prohibited by a Prohibition.
(b) Notwithstanding any other provision of this Agreement, no General
Partner nor any partner or shareholder in a General Partner nor any legal
representative, heir, estate, successor or assign of any such partner or any
officer, director, shareholder or partner in any General Partner, whether
disclosed or undisclosed, shall have any personal liability for the retirement
of the Class C Limited Partner Interests, including, but not limited to, any
payment of the Class C Liquidation Preference. In the event that any Units of
the Class C Limited Partner Interest shall not be retired, or the Class C
Liquidation
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Preference shall not be paid, in accordance with the provisions of this
Agreement, the Class C Limited Partners shall proceed solely against the
properties and assets of the Partnership for such retirement of the Class C
Limited Partner Interest or payment of the Class C Liquidation Preference. The
Class C Limited Partners shall not seek or claim recourse against any other
person or party named above in this Section 16.05(b) or referred to as being
exculpated from personal liability for any such retirement or payment.
ARTICLE XVII
THE CLASS C-1 LIMITED PARTNER INTEREST
Section 17.01. Incorporation of the Partnership. In the event of an
incorporation pursuant to Section 16.01 prior to the Class C-1 Participation
Event, each Class C-1 Limited Partner shall receive, in exchange for its Units
of Class C-1 Limited Partner Interest, such number of shares of Class C-1
Preferred Stock as would entitle the holder thereof to receive a liquidation
preference at the time of such exchange equal to the Class C-1 Liquidation
Preference in respect of the Class C-1 Limited Partner Interest of such Partner
so exchanged, subject to cash settlement (based on such then liquidation
preference) of fractional shares that would otherwise be required to be issued,
but shall not be entitled to participate in any other distributions which may be
made by such corporation with respect to shares of common stock, which shares of
Class C-1 Preferred Stock shall, unless the Class C-1 Limited Partner shall have
given the Notice of Election under 17.06(a), be convertible into the number of
shares of common stock equivalent to the Class C-1 Participation Amount upon the
occurrence of a Class C-1 Participation Event. The Managing General Partner
shall give the Class C-1 Limited Partners or the holders of the Class C-1
Exchange Notes not less than 10 days' notice prior to any incorporation of the
Partnership and its business and assets and concurrently deliver to such Persons
copies of the constituent documents of such corporation, including any
certificate of incorporation, certificate of designations, any authorizing
resolutions relating to the incorporating of such corporation, the by-laws of
such corporation and any other documents of such corporation which are to be
filed with the secretary of state or similar officer of the state of its
incorporation, it being understood, however, that, without derogating from any
other rights such Person may have pursuant to this Agreement, such Person shall
have no right to request any changes or modifications in any such documents and
all such documents may be executed and filed without the approval of any such
Person.
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Section 17.02. Exchange or Retirement of the Class C-1 Limited
Partner Interests.
(a) At the Managing General Partner's option at any time prior to the
Class C-1 Participation Event, in its sole discretion, the Managing General
Partner may require each of the Class C-1 Limited Partners to exchange its Units
of Class C-1 Limited Partner Interest (or Class C-1 Preferred Stock if the
exchange referred to in Section 17.02(b)(ii) hereof shall have occurred prior to
such time) for a convertible exchange note in a principal amount equal to (i)
the number of Units (or shares of Class C-1 Preferred Stock, as the case may be)
then owned by such Class C-1 Limited Partner, times (ii) the then amount of the
Class C-1 Liquidation Preference per Unit (or share of Class C-1 Preferred
Stock, as the case may be), such exchange note to be substantially in the form
attached hereto as Exhibit F (the "Class C-1 Exchange Note") provided that the
Partnership shall be obligated to pay, in cash, subject to any right of set-off
by the Partnership pursuant to Article X of the Comcast Agreement (1) at the
time of the exchange, an amount equal to 40% of the then accrued Class C-1
Return, and (2) on each anniversary of the date of issuance of the Class C-1
Exchange Note, interest accrued on the outstanding principal balance thereof at
the rate of 2.8% per annum for the 12-month period then ended. Upon their
issuance, the Class C-1 Exchange Notes will have been duly authorized and will
be a valid and binding obligation of the Partnership enforceable (subject to
bankruptcy, insolvency, reorganization, moratorium and similar laws of general
application relating to or affecting creditors' rights and to general equity
principles) in accordance with their terms.
(b) In the event of an incorporation of the Partnership and its
business and assets prior to the Class C-1 Participation Event, the Managing
General Partner shall have the right in its sole discretion to:
(i) cause the exchange referred to in Section 17.02(a); or
(ii) cause the Class C-1 Limited Partners to exchange all their
Units of Class C-1 Limited Partner Interest for such number of shares of
convertible preferred stock ("Class C-1 Preferred Stock") (having, in all
material respects, substantially the same rights, preferences, privileges,
limitations and restrictions as the Class C-1 Limited Partner Interest has
prior to the Class C-1 Participation Event and automatically converted into
the number of shares of common stock equivalent to the Class C-1
Participation
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Amount upon the occurrence of the Class C-1 Participation Event) of
the resulting corporation to which it would be entitled on the basis
of the Class C-1 Liquidation Preference of the Class C-1 Limited
Partner Interest at such time, such determination to be made by the
Managing General Partner in its reasonable discretion, exercised in
good faith.
(c) (i) Prior to the Class C-1 Participation Event, in the event that
(x) there shall have been no exchange of the Units of Class C-1 Limited Partner
Interest (or Class C-1 Preferred Stock, as the case may be) pursuant to Section
17.02(a) or (b) prior to the tenth anniversary of the date of this Agreement or
(y) if earlier, a Transfer Event shall occur, or the closing of a sale of Units
of Partner Interest shall occur pursuant to Section 11.07(c), the Partnership
shall retire all of such Units on the tenth anniversary of the date of this
Agreement or on or before the date of such Transfer Event or such closing, as
applicable, for an amount equal to the then Class C-1 Liquidation Preference.
The Contributing Parties, for so long as they are a Limited Partner or holder of
a Class C-1 Exchange Note, shall each have the sole and exclusive right, to the
extent not otherwise limited by law, to bring an action at law or in equity to
enforce the terms of this Section 17.02(c). It is acknowledged that the
provisions of this Section 17.02(c)(i) shall be subject to the provisions of
Section 17.05.
(ii) Prior to the Partnership giving its first notice to the Class
C-1 Limited Partners pursuant to Section 15.01(a)(i) hereof, the Managing
General Partner, in its sole discretion, may cause the Partnership to retire all
(but not less than all) of the outstanding Units of Class C-1 Limited Partner
Interest for an amount equal to the then Class C-1 Liquidation Preference. In
addition, after receipt by the Partnership of the Notice of Election, the
Managing General Partner, in its sole discretion, may from time to time cause
the Partnership to retire all or less than all of the outstanding Units of Class
C-1 Limited Partner Interest for an amount equal to the then Class C-1
Liquidation Preference, in the case of retirement of all of such Units, or an
amount equal to the then Class C-1 Liquidation Preference per Unit times the
number of Units of Class C-1 Limited Partner Interest retired, in the case of
retirement of less than all of such Units. Units of Class C-1 Limited Partner
Interest may not be retired pursuant to this Section 17.02(c)(ii) from the date
the Partnership gives its first notice pursuant to Section 15.01(a)(i) hereof
through and including the Class C-1 Preference Election Date (unless the Notice
of Election is received by the Partnership during such period). It is
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acknowledged that the provisions of this Section 17.02(c)(ii) shall be subject
to the provisions of Section 17.05.
(iii) In the event that the Partnership retires all of the Units of
Class C-1 Limited Partner Interest prior to the Partnership giving its first
notice to the Class C-1 Limited Partners pursuant to Section 15.01(a)(i) hereof
(other than a retirement pursuant to Section 17.02(c)(i) hereof), the Class C-1
Limited Partners shall, in addition to receiving the then Class C-1 Liquidation
Preference, automatically be granted the option (the "Class C-1 Participation
Option") to acquire the number of Units of Class C-1 Limited Partner Interest
equal to the Class C-1 Participation Amount for an exercise price (the "Option
Exercise Price") equal to the amount that the Class C-1 Liquidation Preference
would have been at the time of exercise but for the earlier retirement of the
Units of Class C-1 Limited Partner Interest pursuant to Section 17.02(c)(ii).
The Class C-1 Participation Option shall only be exercisable by Comcast from the
date the Partnership gives its first notice pursuant to Section 15.01(a)(i)
hereof through and including the Class C-1 Preference Election Date (the "Class
C-1 Option Period"). To exercise the Class C-1 Participation Option, Comcast
shall deliver to the Partnership an irrevocable written notice of such exercise
and, at the time of such notice, pay to the Partnership, by wire transfer or
official or certified bank check in immediately available funds, the Option
Exercise Price, which notice and payment, to be effective, must be received by
the Partnership prior to expiration of the Class C-1 Option Period. The Units of
Class C-1 Limited Partner Interest issued upon exercise of the Class C-1
Participation Option shall have the same rights, preferences, privileges,
limitations and restrictions as if a Class C-1 Participation Event shall have
occurred. The Class C-1 Participation Option shall not be Transferable by the
holders thereof except as provided in Section 11.03(j) hereof. Upon the earliest
of (i) 12:01 a.m. (New York time) on the date immediately following the Class C-
1 Preference Election Date, (ii) the occurrence of a Transfer Event, (iii) the
giving of notice by an Initial Partner pursuant to Section 11.07(a) hereof, (iv)
the commencement of the liquidation of the Partnership, and (v) the eleventh
anniversary of the date hereof, the Class C-1 Participation Option shall, if not
theretofore exercised, expire and terminate and be of no further effect.
(iv) At the time the Class C-1 Participation Option is granted,
Comcast and the Partnership shall enter into an option agreement providing for
terms effectuating the provisions of Section 17.02(c)(ii) and (iii).
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Section 17.03. Designation by Class C-1 Limited Partners.
Notwithstanding any other provision of this Agreement (including, without
limitation, the provisions of Articles XI and XIII and Section 17.04), Comcast
shall be, to the extent permitted by law, the irrevocable designee (the "Class
C-1 Designee") of the holders of all interests in the Class C-1 Limited Partner
Interests, the Class C-1 Exchange Notes and the Class C-1 Participation Option
(collectively, for purposes of this Section 17.03 only, the "Class C-1 Holders")
(i) to make all decisions, (ii) to receive all notices and other communications,
(iii) to receive and disburse all payments and (iv) otherwise generally to act
for and on behalf of the Class C-1 Holders in respect of their interests in the
Class C-1 Limited Partner Interests, the Class C-1 Exchange Notes and the holder
of the Class C-1 Participation Option, as applicable (collectively, for purposes
of this Section 17.03 only, the "Class C-1 Interests"), including the resolution
of all disputes with respect thereto. Each Class C-1 Holder shall, by holding a
Class C-1 Interest, automatically have consented to the appointment of the Class
C-1 Designee and the Class C-1 Designee's authority as described above,
including without limitation, the Partnership's right to treat the Class C-1
Designee as the owner and holder of the Class C-1 Limited Partner Interest, the
Class C-1 Exchange Notes and the Class C-1 Participation Option for all purposes
as contemplated by this Section 17.03. Such authority shall be exercised so
that (i) such decisions shall be made within the period required by the relevant
documents governing the Class C-1 Interests, (ii) such notices and other
communications need not be sent to the Class C-1 Holders, (iii) such payments
shall be made directly to the Class C-1 Designee (and in that connection, the
Partnership shall have no duty to see that such payments are delivered to and/or
properly applied as among the Class C-1 Holders, and any such payment properly
made to the Class C-1 Designee shall release and discharge the Partnership of
its obligation otherwise to make such payment and/or application to the Class C-
1 Holders) and (iv) such Class C-1 Holders shall not otherwise attempt to
exercise authority in lieu of the Class C-1 Designee. Any certificates
evidencing Class C-1 Interests shall, if desired by the Partnership, be
appropriately legended to reflect the foregoing provisions relating to the Class
C-1 Designee.
Section 17.04. Covenants. Prior to the Class C-1 Participation
Event, without the consent of all the Class C-1 Limited Partners or the holders
of all the Class C-1 Exchange Notes, for so long as any Units of Class C-1
Limited Partner Interest or any Class C-1 Exchange Note shall be outstanding,
until the occurrence of a Transfer Event:
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(a) The Partnership shall not, and shall not permit any Subsidiary to,
Transfer any of its assets, other than in the ordinary course of business
or to secure the Specified Debt, for aggregate consideration having a value
of less than the then fair market value of the assets Transferred.
(b) The Partnership shall not, and shall not permit any Subsidiary to,
enter into any transaction with any Affiliate of the Partnership unless the
Partnership or such Subsidiary would have entered into such transaction
with a Person not an Affiliate of the Partnership and the terms thereof are
at least as favorable to the Partnership or such Subsidiary as those that
the Partnership or such Subsidiary would have obtained in a transaction on
an arm's-length basis with a Person not an Affiliate of the Partnership,
except that the foregoing shall not restrict the ability of the Partnership
to (i) adopt and comply with any management bonus plan and/or the
Management Option Plan, (ii) reimburse the Administrative General Partner
and the Managing General Partner (or its successor) for reasonable out-of-
pocket expenses and the Managing General Partner for directors' fees paid
to the members of the board of directors of its managing general partner,
provided, that, such payments for directors' fees shall not exceed $100,000
annually in the aggregate (subject to reasonable cost of living adjustments
based on published sources and not to exceed 5% per annum), or (iii) enter
into and comply with any employment agreements with members of the
Partnership's management.
(c) The Partnership and the Subsidiaries collectively shall
continue to engage in the business of the same general type as the Business
(as defined in the Field Agreement).
(d) The Partnership shall give the Class C-1 Limited Partners notice
of a Transfer Event upon the earlier of (i) entering into a binding
agreement providing for such Transfer Event or (ii) the giving of notice of
such Transfer Event to the Limited Partners; provided, that, such notice to
the Contributing Parties shall not in any event be given less than ten (10)
days prior to such Transfer Event.
(e) The Partnership shall not, and shall not permit any Subsidiary to,
directly or indirectly, make any distribution of cash, securities or other
assets in respect of, or purchase or retire, any equity interests in the
Partnership (which for purposes of this sentence only shall include the
Put/Call Units) or options or warrants to purchase such interests, in each
case outstanding on the date of the First Restated Agreement (or equity
interests, options or warrants
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issued in respect of or upon Transfer of equity interests, options or
warrants outstanding on the date of the First Restated Agreement, including
for these purposes options issuable under the Management Option Plan),
except: (a) in connection with the termination of employment of an employee
of the Partnership, the repurchase of such employee's equity interest and
options under the Management Option Plan, provided that if a Specified C-1
Event shall have occurred with respect to the Class C-1 Limited Partners or
the Class C-1 Exchange Notes, the Partnership may only effect such
repurchase by delivering to such employees Permitted Securities (as defined
in Section 6.05); (b) cash distributions (but only for such periods as the
Partnership exists in the form of a partnership) to the holders of equity
interests in the Partnership (other than the Class C-1 Limited Partners
prior to the Class C-1 Participation Event) in an amount equal to the lower
of (A) the product of (i) the taxable income of the Partnership for any
fiscal year for which the Partnership reports taxable income for Federal
income tax purposes determined as if the Partnership were a separately
taxable entity and (ii) a percentage equal to the sum of (1) the highest
marginal Federal income tax rate applicable to individuals in effect for
such year and (2) ten percentage points or (B) the maximum amount of
distributions for taxes the Partnership is permitted to make under the
Specified Debt Agreements; provided, that, if a Specified C-1 Event has
occurred with respect to the Class C-1 Limited Partner Interests or the
Class C-1 Exchange Notes, the Partnership may not make the cash
distributions described in this clause (b); and (c) distributions by any
Subsidiary to the Partnership. For purposes of the preceding sentence, (1)
the Partnership shall not be prohibited from delivering (x) securities
issued or issuable to employees pursuant to the Management Option Plan, (y)
cash payments in connection with the cash settlement of such securities
pursuant to the Management Option Plan, unless a Specified C-1 Event has
occurred with respect to the Class C-1 Limited Partner Interests or the
Class C-1 Exchange Notes or unless the Specified Debt Agreements otherwise
prohibit such cash payments, in which case, the Partnership may effect such
cash settlement only by delivering to such employees Permitted Securities,
or (z) securities issued or issuable pursuant to the exercise of warrants
or options issued to the holders of the Specified Debt (or their
Affiliates), including without limitation the Put/Call Units, and/or
securities contemplated by Section 11.08(f) pursuant to the provisions
thereof, and (2) the retirement date of the Class C-1 Limited Partner
Interests shall be deemed to be such time specified in Section 17.02(c),
provided that in no such
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event shall such retirement date be deemed to be later than the tenth
anniversary of the date of this Agreement.
(f) The Partnership shall provide to the Contributing Parties or the
Class C-1 Designee, as applicable, (i) as soon as available after the end
of the first three quarters of each fiscal year of the Partnership the
unaudited quarterly financial statements of the Partnership for such fiscal
quarter, (ii) as soon as available after the end of each fiscal year of the
Partnership, the audited annual financial statements of the Partnership for
such fiscal year and (iii) any notice of an occurrence of an event of
default (or of an event that, with notice or lapse of time or both would
constitute an event of default) received by the Partnership from its
lenders or delivered to such lenders by the Partnership and any amendments
to the financing documents among the Partnership and its lenders. If the
Partnership has any consolidated subsidiaries, the financial statements
referred to in clauses (i) and (ii) shall be consolidated and consolidating
financial statements in any case, such financial statements shall be
prepared in accordance with United States generally accepted accounting
principles on a consistent basis and shall fairly present the financial
condition, results of operation and cash flows of the Partnership for the
dates and periods covered thereby, subject, in the case of interim
financial statements, to normal year-end adjustments and to the absence of
footnotes.
(g) The Partnership (i) shall not permit any member of its operating
management to be employed by Centre Partners L.P. or Holdings, directly or
indirectly, other than through employment by the Partnership and (ii) shall
require that each member of its operating management devote substantially
all of his or her business time to the Business.
Section 17.05. Debt Financing Agreements.
(a) (i) Payment of the Class C-1 Liquidation Preference upon the
retirement of the Class C-1 Limited Partner Interests shall not be made at any
time at which the provisions of the Specified Debt Agreements or any other
agreements governing Indebtedness of the Partnership prohibit such payment or if
such payment would constitute a default thereunder (the "Indebtedness
Prohibitions"); provided, that regardless of any Indebtedness Prohibitions,
payment of the Class C-1 Liquidation Preference upon the retirement of the Class
C-1 Limited Partner Interests shall be made in any event no later than the
eleventh anniversary of the date of this Agreement.
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(ii) The holders of the Class C-1 Limited Partner Interests
shall not assert, participate in or bring any action, suit or proceeding
(including, without limitation, any bankruptcy or insolvency proceedings)
either at law or in equity against the Partnership, the Partners or any of
their respective properties or assets, for the enforcement, collection or
realization of the retirement of the Class C-1 Limited Partner Interests,
including without limitation the payment of all or any part of the Class C-
1 Liquidation Preference so long as, and solely to the extent to which, the
failure to make payment thereof is prohibited by an Indebtedness
Prohibition, and provided that such restriction shall in no event continue
later than the eleventh anniversary of the date of this Agreement.
(b) Notwithstanding any other provision of this Agreement, no General
Partner nor any partner or shareholder in a General Partner nor any legal
representative, heir, estate, successor or assign of any such partner or any
officer, director, shareholder or partner in any General Partner, whether
disclosed or undisclosed, shall have any personal liability for the retirement
of the Class C-1 Limited Partner Interests, including, but not limited to, any
payment of the Class C-1 Liquidation Preference. In the event that any Units of
the Class C-1 Limited Partner Interest shall not be retired, or the Class C-1
Liquidation Preference shall not be paid, in accordance with the provisions of
this Agreement, the Class C-1 Limited Partners shall proceed solely against the
properties and assets of the Partnership for such retirement of the Class C-1
Limited Partner Interest or payment of the Class C-1 Liquidation Preference.
The Class C-1 Limited Partners shall not seek or claim recourse against any
other person or party named above in this Section 17.05(b) or referred to as
being exculpated from personal liability for any such retirement or payment.
Section 17.06. Notice of Election; Class C-1 Participation Event;
Class C-1 Accrual Event.
(a) Following receipt of the first notice delivered to the Class C-1
Limited Partners pursuant to Section 15.01(a)(i) and prior to the Class C-1
Preference Election Date, the Class C-1 Limited Partners together shall have the
option to deliver a written notice (the "Notice of Election") to the Partnership
stating that the Class C-1 Limited Partners desire to retain the Class C-1
Liquidation Preference with respect to all of the Units of Class C-1 Limited
Partner Interest. If the Class C-1 Limited Partners deliver the Notice of
Election on or prior to the Class C-1 Preference Election Date, the Class C-1
Limited Partners (i) shall not be entitled to additional notices under Section
15.01(a)(i) or any other rights under Article XV, and (ii) shall
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otherwise be entitled to the rights and benefits, and be subject to the
obligations, restrictions and limitations, set forth in this Agreement
pertaining to the Class C-1 Limited Partners prior to the Class C-1
Participation Event.
(b) If the Class C-1 Limited Partners shall not have delivered the
Notice of Election prior to the Class C-1 Preference Election Date (i.e., the
Class C-1 Participation Event shall have occurred):
(i) the number of Class C-1 Limited Partner Units held by
the Class C-1 Limited Partners shall be adjusted to be equal in number to
the Class C-1 Participation Amount and the Percentage Interest of the Class
C-1 Limited Partners and the other Partners, respectively, shall be
adjusted as provided in the definition of "Percentage Interest";
(ii) the Class C-1 Liquidation Preference shall become
zero and shall be eliminated (but this shall not affect the Capital Account
balances of the Class C-1 Limited Partners), and the portion thereof
consisting of the then accrued Class C-1 Return shall be cancelled,
extinguished and forfeited, in each case without any further action by the
Partnership or the Class C-1 Limited Partner, and the Partnership shall no
longer be required to pay the Class C-1 Liquidation Preference and retire
the Class C-1 Limited Partner Interest pursuant to Section 17.02(c); and
(iii) the Class C-1 Limited Partner shall otherwise be
entitled to the rights and benefits, and be subject to the obligations,
restrictions and limitations, set forth in this Agreement pertaining to the
Class C-1 Limited Partners after the Class C-1 Participation Event has
occurred.
(c) With respect to the Units of Class C-1 Limited Partner Interest,
if a Class C-1 Accrual Event shall occur (but, unless the Partnership reasonably
determines that it is otherwise required to do so under applicable tax laws, not
prior thereto), then there shall be treated and reported by the Partnership and
the Partners (other than the Class C Limited Partner) as a guaranteed payment
for the use of capital under Section 707(c) of the Code (and not as an
allocation of Net Income or Net Loss), (1) an amount equal to the cumulative
Class C-1 Return determined for the Fiscal Years preceding the Fiscal Year in
which such event occurs, which amount shall be so treated and reported in the
Fiscal Year in which such Class C-1 Accrual Event occurs, and
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(2) an amount equal to the Class C-1 Return (if any) accruing in the Fiscal Year
in which the Class C-1 Accrual Event occurs and each Fiscal Year thereafter,
which amount shall be so treated and reported in such Fiscal Years as accrued.
A Class C-1 Accrual Event shall mean the earliest to occur of the following:
(i) the date (not later than the Class C-1 Preference Election Date) on which
the Class C-1 Limited Partner gives the Notice of Election to the Partnership
under Section 17.06(a) hereof; (ii) the date on which the Class C-1 Liquidation
Preference is required to be paid under Section 17.02(c)(i) hereof; (iii) the
date on which Units of Class C-1 Partner Interest are retired under Section
17.02(c)(ii) hereof or are retired and exchanged pursuant to Section 17.02(a)
hereof, or are liquidated pursuant to Section 12.04(b) hereof; and (iv) the date
on which any event not described in the preceding clauses (i) through (iii)
occurs that fixes the right of the Class C-1 Limited Partner to receive the
Class C-1 Liquidation Preference.
ARTICLE XVIII
MISCELLANEOUS PROVISIONS
Section 18.01. Additional Actions and Documents. Each of the
Partners hereby agrees to take or cause to be taken such further actions, to
execute, acknowledge, deliver and file or cause to be executed, acknowledged,
delivered and filed such further documents and instruments and to use reasonable
efforts to obtain such consents, as may be necessary or as may be reasonably
requested in order to fully effectuate the purposes, terms and conditions of
this Agreement, whether before, at or after the closing of the transactions
contemplated by this Agreement.
Section 18.02. Notices. All notices, demands, requests or other
communications which may be or are required to be given, served or sent by a
Limited Partner or Assignee to the Partnership pursuant to this Agreement shall
be deemed given or delivered (i) when delivered personally or by private
courier, (ii) when actually delivered by registered or certified United States
mail or (iii) when sent by telecopy, and all notices, demands, requests or other
communications which may be or are required to be given, served or sent by the
Partnership to any Limited Partner or Assignee pursuant to this Agreement shall
be deemed given or delivered (i) when delivered personally or by private
courier, (ii) when actually delivered by registered or certified United States
mail or (iii) when sent by telecopy, addressed to such Partner or Assignee at
the address set forth in Schedule I hereto or as otherwise reflected in the
books and records of the Partnership from time to time. Each Partner, each
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Assignee and the Partnership may designate by notice in writing a new address to
which any notice, demand or communication may thereafter be so given, served or
sent. Each Partner, Assignee or taxpayer with respect to Units or Put/Call
Units that is not a "United States person" (within the meaning of Section
7701(a)(30) of the Code) shall be required, at the time it becomes a Partner,
Assignee or taxpayer with respect to such Units or Put/Call Units, to designate
an address in New York City to which the Partnership shall be entitled to send
any notice, demand, request or other communication and any payment to or for the
benefit of such Person. Barclays shall be entitled to receive a copy of any
notice, demand, request or other communication which may be or is required to be
given, served or sent by the Partnership to a Class A-2 Limited Partner with
respect to any matter which is the subject of Article XI (other than Section
11.11(g)), or Article XIII or XV of this Agreement, and any such notice, demand,
request or other communication shall be given or delivered in the manner set
forth in the first sentence of this Section 18.02, provided that Barclays shall
have no right to participate in any such matter prior to its admission as a
Class A-2 Limited Partner.
Section 18.03. Severability. The invalidity of any one or more
provisions hereof or of any other agreement or instrument given pursuant to or
in connection with this Agreement shall not affect the remaining portions of
this Agreement or any such other agreement or instrument or any part thereof;
and in the event that one or more of the provisions contained herein or therein
should be invalid, or should operate to render this Agreement or any such other
agreement or instrument invalid, this Agreement and such other agreements and
instruments shall be construed as if such invalid provisions had not been
inserted.
Section 18.04. Survival. It is the express intention and agreement
of the Partners that all covenants, agreements, statements, representations,
warranties and indemnities made in this Agreement shall survive the execution
and delivery of this Agreement.
Section 18.05. Waivers. Neither the waiver by a Partner of a breach
of or a default under any of the provisions of this Agreement, nor the failure
of a Partner, on one or more occasions, to enforce any of the provisions of this
Agreement or to exercise any right, remedy or privilege hereunder, shall
thereafter be construed as a waiver of any subsequent breach or default of a
similar nature, or as a waiver of any such provisions, rights, remedies or
privileges hereunder. To the fullest extent permitted under applicable law, the
Partners hereby waive any right of partition and any right to take any
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other action which otherwise might be available to them for the purpose of
severing their relationship with the Partnership or their interest in the
Partnership's assets from the interests of the other Partners.
Section 18.06. Exercise of Rights. No failure or delay on the part
of a Partner or the Partnership in exercising any right, power or privilege
hereunder and no course of dealing between the Partners or between a Partner and
the Partnership shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein expressly provided are cumulative and
not exclusive of any other rights or remedies which a Partner or the Partnership
would otherwise have at law or in equity or otherwise.
Section 18.07. Binding Effect. Subject to any provisions hereof
restricting assignment, this Agreement shall be binding upon and shall inure to
the benefit of the Partners and their respective heirs, devisees, executors,
administrators, legal representatives, permitted successors and assigns. None
of the provisions of this Agreement shall be for the benefit of or enforceable
by any Persons other than the Partners in their capacity as Partners.
Section 18.08. Consent of Limited Partners. By acceptance of a
Limited Partner Interest, each Limited Partner expressly approves and agrees
that, whenever in this Agreement it is specified that an action may be taken
upon the affirmative vote of less than all the Limited Partners, such action may
be so taken and each such Limited Partner shall be bound by the results of such
action.
Section 18.09. Entire Agreement. The Put and Call Option Agreement,
the Barclays Letter Agreement and the Indemnification Agreement is each
incorporated by reference in, and deemed to be part of, this Agreement. The
terms of the Barclays Letter Agreement (as originally in effect) with respect to
registration and other rights shall control if any such terms thereof are
inconsistent or conflict with the terms of this Agreement. This Agreement, the
Put and Call Option Agreement, the Barclays Letter Agreement and the
Indemnification Agreement contain the entire agreement among the Partners with
respect to the subject matter hereof or thereof, and supersede all prior oral or
written agreements, commitments or understandings with respect to the matters
provided for herein and therein, including, without limitation, the Original
Agreement. It is acknowledged that the Class C Liquidation Preference is
subject to setoff to the extent
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provided in Article X of the Field Agreement and the "Setoff Procedure" referred
to in the Field Agreement, and that the Class C-1 Liquidation Preference and
Class C-1 Exchange Notes are subject to set-off to the extent provided in
Article X of the Comcast Agreement. It is also acknowledged that the Specified
Debt Agreements place certain limitations and/or restrictions on the exercise of
the rights, powers and privileges set forth in this Agreement, and by acceptance
of a Partner Interest, each Partner expressly agrees that, notwithstanding any
other provision in this Agreement, any right, power, privilege, or provision set
forth herein shall be subject to such limitations and/or restrictions set forth
in the Specified Debt Agreements and that the payment of obligations hereunder
shall not be made at any time at which the provisions of the Specified Debt
Agreements prohibit such payment or if such payment would constitute a default
thereunder. No Partner (in its capacity as such) shall assert, participate in
or bring any action, suit or proceeding (including, without limitation, any
bankruptcy or insolvency proceedings) either at law or in equity against the
Partnership, any other Partner or any of their respective properties or assets,
for the enforcement, collection or realization of any of such obligations.
Section 18.10. Pronouns. All pronouns and any variations thereof
shall be deemed to refer to the masculine, feminine, neuter, singular or plural,
as the identity of the Person may require.
Section 18.11. Headings. Article, Section and subsection headings
contained in this Agreement are inserted for convenience of reference only,
shall not be deemed to be part of this Agreement for any purpose and shall not
in any way define or affect the meaning, construction or scope of any of the
provisions hereof. All references herein to Articles, Sections and subsections
are to Articles, Sections and subsections of this Agreement unless otherwise
specifically stated.
Section 18.12. Governing Law. This Agreement, the rights and
obligations of the parties hereto and any claims or disputes relating thereto,
shall be governed by and construed in accordance with the laws of the State of
Delaware, without giving effect to principles thereof relating to conflicts of
laws.
Section 18.13. Execution in Counterparts. To facilitate execution,
this Agreement may be executed in as many counterparts as may be required; and
it shall not be necessary that the signatures of, or on behalf of, each party,
or that the signatures of all Persons required to bind any party, appear on each
counterpart; but it shall be sufficient that the signature of, or
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on behalf of, each party, or that the signatures of the Persons required to bind
any party, appear on one or more of the counterparts. All counterparts shall
collectively constitute a single agreement. It shall not be necessary in making
proof of this Agreement to produce or account for more than such number of
counterparts as contain one signature of, or on behalf of, each of the parties
hereto.
ARTICLE XIX
PREFERRED LIMITED PARTNER INTERESTS
Section 19.01. Incorporation of the Partnership. In the event of an
incorporation pursuant to Section 16.01, each Preferred Interest Limited Partner
shall receive, in exchange for its Units of Preferred Limited Partner Interest,
such number of shares of preferred stock ("Class A Preferred Stock") as would
entitle the holder thereof to receive a liquidation preference at the time of
such exchange equal to the Preferred Interest Liquidation Preference in respect
of the Preferred Limited Partner Interest of such Partner so exchanged, subject
to cash settlement (based on such then liquidation preference) of fractional
shares that would otherwise be required to be issued, but shall not be entitled
to participate in any other distributions which may be made by such corporation
with respect to shares of common stock. Such shares of Class A Preferred Stock
shall have the same rights, or similar rights, to the extent applicable to and
consistent with corporate structure (including, without limitation, the right to
receive a return equivalent to the Preferential Return, the rights set forth in
Section 19.02 hereof and the conversion rights set forth in Section 19.05
hereof) and be subject to the same restrictions and limitations, or similar
restrictions and limitations, to the extent applicable and consistent with
corporate structure (including, without limitation, the restrictions and/or
limitations set forth in Sections 19.03 and 19.04 hereof), as are accorded the
Preferred Limited Partner Interests pursuant to this Agreement.
Section 19.02. Priority to Distributions. Notwithstanding any other
provision of this Agreement, (i) any distribution pursuant to clause (2) of
Section 6.05(a)(i) shall first be applied to pay any then accrued and unpaid
Preferential Return (determined by reducing the accrued and unpaid Preferential
Return of the Preferred Interest Limited Partners by all amounts distributed to
the Preferred Interest Limited Partners pursuant to clause (1) of Section
6.05(a)(i)) before being distributed to the other Partners, and (ii) the
Partnership shall not be subject to the provisions of the last sentence of
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Section 6.05(a)(i) with respect to distributions to the Preferred Interest
Limited Partners on account of the accrued and unpaid Preferential Return.
Section 19.03. Bring Along. (a) If, after complying with the right
of first refusal procedures contained in Section 11.04 hereof, a Preferred
Interest Limited Partner wishes to Transfer Units of Preferred Limited Partner
Interest to any Third Party (other than through a sale in a registered public
offering or Transfers permitted by Section 11.01(g), 11.03(e), 11.03(g),
11.03(h), 11.03(i) or 11.04(g) hereof, which Transfers shall not be subject to
this Section 19.03), then such Partner must, as a condition to such Transfer,
permit each other Preferred Interest Limited Partner (for the purposes of this
Section 19.03, individually a "Remaining Preferred Partner" and collectively the
"Remaining Preferred Partners") (or cause it or him to be permitted) to sell (to
either the prospective purchaser of the selling Partner's Units of Limited
Partner Interest, or another financially reputable purchaser reasonably
acceptable to such Remaining Preferred Partners) the same proportion of Units of
Limited Partner Interest then owned by such Remaining Preferred Partner as the
proportion that the number of Units of Preferred Limited Partner Interest (if
any) the selling Partner has previously sold and proposes to sell bears to the
aggregate number of Units of Preferred Limited Partner Interest acquired by such
Partner pursuant to the Subscription Agreement for such Units, on the same terms
and at the same price per Unit offered to such selling Partner by the Third
Party offeror. In the event that the prospective purchaser of the selling
Partner's Units of Preferred Limited Partner Interest and/or such other
financially reputable purchaser does not purchase for whatever reason (including
without limitation the financially reputable purchaser not being reasonably
acceptable as aforesaid) the requisite portion of Units of Preferred Limited
Partner Interest owned by the Remaining Preferred Partners pursuant to the
preceding sentence, the selling Partner shall not be permitted to Transfer its
Units of Preferred Limited Partner Interest to a Third Party. The Partners
agree that the Managing General Partner shall have the sole right (in its
discretion) to determine whether to admit as Substituted Limited Partners the
purchasers of the Units of Preferred Limited Partner Interest being sold by the
selling Partner and the Remaining Preferred Partners pursuant to this Section
19.03(a), provided that if there is more than one prospective purchaser pursuant
to this Section 19.03(a) at any one time, then if any purchaser is admitted as a
Substituted Limited Partner at such time, all the purchasers at such time shall
be so admitted as Substituted Limited Partners.
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(b) Each Preferred Limited Partner's obligation under this Section
19.03 to afford each of the Remaining Preferred Partners (or to cause each of
them to be afforded) the rights referred to herein will be discharged if (i) the
Remaining Preferred Partners are given written notice thereof simultaneously
with the giving of the Transfer Notice required by Section 11.04, hereof and
(ii) such notice provides that each of the Remaining Preferred Partners may
elect to avail itself or himself of such rights by a written reply given on or
before the expiration of the 20-day period following the giving of the Transfer
Notice addressed to such Person as may be designated in the notice and, if
requested in such notice, sent by registered mail, return receipt requested.
(c) The "bring along" rights contained in this Section 19.03 may be
exercised or waived solely at the option of the party entitled thereto and are
in addition to the rights of the respective Partners set forth in Section 11.04.
The procedures set forth in Section 11.04 shall be satisfied prior to giving
effect to the "bring along" provisions of this Section 19.03.
(d) Anything contained herein to the contrary notwithstanding, the
rights of Partners under this Section 19.03 shall not be assignable, except to a
transferee of Units of Preferred Limited Partner Interest pursuant to any
Transfer otherwise permissible pursuant hereto and except to the extent that
Holdings as a Preferred Interest Limited Partner (and its permitted transferees)
may transfer its rights under this Section 19.03 to a Partner that is an
Affiliate of Holdings.
(e) Anything contained herein to the contrary notwithstanding, in the
event the Managing General Partner approves a transaction pursuant to which a
Person will acquire all of the Units of Partner Interest, each of the Preferred
Interest Limited Partners agrees to offer to sell all of their Units of
Preferred Limited Partner Interest, and to sell all of their Units of Preferred
Limited Partner Interest, to such Person, upon the terms and conditions for the
transaction approved by the Managing General Partner.
Section 19.04. Redemption. (a) At any time and from time to time
after delivery by the Partnership of its first notice to the Preferred Interest
Limited Partners pursuant to Section 15.01(a)(i) hereof, the Partnership shall
have the right, but not the obligation, to redeem any or all of the outstanding
Units of Preferred Limited Partner Interest at a redemption price per Unit equal
to the then Preferred Interest Liquidation Preference per Unit (the "Redemption
Price"); provided, however, in the event of a redemption by the Partnership of
less than all
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of the outstanding Preferred Limited Partner Interests, the Partnership shall
redeem Units of Preferred Limited Partner Interest on a pro-rata basis.
(b) In the event of any redemption of Units of Preferred Limited
Partner Interest pursuant to Section 19.04(a), the Partnership shall deliver
written notice of such redemption (a "Redemption Notice") to the Preferred
Interest Limited Partners. Such Redemption Notice shall state (i) the proposed
date on which such redemption shall take place (the "Redemption Date"), which
date shall be at least 10, but not more than 30, days after the date of the
Redemption Notice, (ii) the number of Units of Preferred Limited Partner
Interest owned by the addressee of the Redemption Notice which are being
redeemed, and (iii) the Redemption Price for such Units being redeemed.
(c) Except with respect to Units which are the subject of a Conversion
Notice received by the Partnership prior to the Redemption Date, the effective
date of a redemption, and the date on which the Redemption Price shall be paid
by the Partnership, shall be the Redemption Date specified in the Redemption
Notice applicable to such Units. Units which are the subject of a Conversion
Notice received by the Partnership prior to the Redemption Date shall not be
redeemed (and the Redemption Notice applicable to such Units shall be null and
void and of no further force and effect as to such Units), but shall be
converted pursuant to Section 19.05 hereof; provided, that if the Partnership
shall have received a timely Withdrawal Notice with respect to any or all of the
Units which are the subject of such Conversion Notice, such Units which are the
subject of such Withdrawal Notice shall not be converted (and the Conversion
Notice applicable to such Units shall be null and void and of no further force
and effect as to such Units), but shall be redeemed pursuant to the Redemption
Notice covering such Units, and the effective date of the redemption of such
Units, and the date on which the Redemption Price for such Units shall be paid
by the Partnership, shall be the later of the next business day following the
day on which such Withdrawal Notice is received by the Partnership and the
Redemption Date specified in the Redemption Notice.
(d) From and after the Redemption Date all rights of a Preferred
Limited Partner in respect of the redeemed Units shall cease and terminate;
provided, however, that if the Partnership fails to pay or tender for payment
the Redemption Price for any such Units, such rights shall continue until the
payment or tender for payment thereof.
151
<PAGE>
Section 19.05. Conversion. (a) At any time and from time to time,
each Preferred Interest Limited Partner shall be entitled, but shall not be
obligated, to convert any or all Units of Preferred Limited Partner Interest
owned by such Partner into the number of Units of Class B Limited Partner
Interest which has a then Fair Market Value equal to the then Preferred Interest
Liquidation Preference of the Units of Preferred Limited Partner Interest being
converted; provided, however, that no Preferred Interest Limited Partner who is
also a Class A-2 Limited Partner shall be entitled to convert his Units of
Preferred Limited Partner Interest to the extent that such conversion would
cause the aggregate interests of such Person (inclusive of each class of Partner
Interest held by such Person) and each other Limited Partner, if any, which is a
"related person" (within the meaning of Regulations Section 1.752-2(d)) as to
such Person in any item of Partnership income, gain, loss, deduction or credit
for that taxable year or any taxable year thereafter during the term of this
Agreement to be 10 percent or more; provided, further, however, that the
limitation contained in the foregoing proviso shall not apply to a Limited
Partner unless such Limited Partner or a "related person" to such Limited
Partner is a lender to the Partnership or a participant in an outstanding loan
to the Partnership at any time during the taxable year in which the conversion
is to occur.
(b) In the event a Preferred Interest Limited Partner desires to
convert Units of Preferred Limited Partner Interest pursuant to Section 19.05(a)
hereof, such Preferred Limited Partner shall deliver written notice (a
"Conversion Notice") thereof to the Partnership. Such Conversion Notice shall
state (i) the number of Units of Preferred Limited Partner Interest to be
converted, and (ii) the proposed date of such conversion (the "Conversion
Date"), which date shall be at least 5, but not more than 30, days after the
date of the Conversion Notice. The Partnership shall, prior to the Conversion
Date specified in a Conversion Notice, provide written notice to the Partner who
delivered such Conversion Notice, which notice shall state the Fair Market Value
of a Unit of Class B Limited Partner Interest as of the applicable Conversion
Date and the corresponding number of Class B Conversion Units into which the
Preferred Limited Partner Interests specified in the Conversion Notice shall be
converted. Such conversion shall be effective as of the close of business on
the Conversion Date unless, prior to such time, the Preferred Interest Limited
Partner who delivered the Conversion Notice notifies the Partnership in writing
(a "Withdrawal Notice") of the withdrawal of such Conversion Notice as to all or
a portion of the Preferred Limited Partner Units covered thereby. Upon receipt
by the Partnership of a Withdrawal Notice, the Conversion Notice to which such
Withdrawal Notice relates shall
152
<PAGE>
be null and void and of no further force and effect with respect to the Units
covered by such Withdrawal Notice.
(c) In the case of, and as a condition to, any capital reorganization
of, or any reclassification of the equity interests of, the Partnership or in
the case of, and as a condition to, the consolidation or merger of the
Partnership with or into another partnership or with or into a corporation
(other than a merger in which the Partnership is the surviving partnership and
which does not result in any reclassification of outstanding equity interests of
the Partnership), each Unit of Preferred Limited Partner Interest shall be
convertible into the number of units of partnership interest or shares of stock
or other securities or property receivable upon such reorganization,
reclassification, consolidation or merger by a holder of the number of Units of
Class B Limited Partner Interest into which such Unit of Preferred Limited
Partner Interest was convertible immediately prior to such reorganization,
reclassification, consolidation or merger; and, in any such case, appropriate
adjustment shall be made in the application of the provisions set forth in this
Section 19.05 with respect to the rights and interests thereafter of the
Preferred Interest Limited Partners to the end that the provisions set forth in
this Section 19.05 shall thereafter be applicable, as nearly as reasonably may
be, in relation to any units of partnership interest or shares of stock or other
securities or property thereafter deliverable upon the conversion of Units of
Preferred Limited Partner Interest.
153
<PAGE>
ARTICLE XX
EXECUTION
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement,
or have caused this Agreement to be duly executed on their behalf, as of the day
and year first hereinabove set forth.
Attest: MLP ACQUISITION, L.P.
By: Music Holdings Corp.,
General Partner
By: [Signature Illegible]
---------------------------
Title: Vice President
Attest: MLP ADMINISTRATION CORP. pursuant
to power of attorney executed in
favor of, and granted and delivered to,
the Managing General Partner
By: MLP Acquisition, L.P.
By: Music Holdings Corp.,
General Partner
By: [Signature Illegible]
---------------------------
Title: Vice President
Attest: MLP HOLDINGS L.P. pursuant to power
of attorney executed in favor of, and
granted and delivered to, the
Managing General Partner
By: MLP Acquisition, L.P.
By: Music Holdings Corp.,
General Partner
By: [Signature Illegible]
---------------------------
Title: Vice President
154
<PAGE>
Attest: MLP SALES LIMITED PARTNERSHIP pursuant to power of
attorney executed in favor of, and granted and
delivered to, the Managing General Partner
By: MLP Acquisition, L.P.
By: Music Holdings Corp.,
General Partner
By: [Signature Illegible]
---------------------------
Title: Vice President
Attest: COMCAST SOUND COMMUNICATIONS, INC.,
an Illinois corporation, pursuant
to power of attorney executed in
favor of, and granted and delivered
to, the Managing General Partner
By: MLP Acquisition, L.P.
By: Music Holdings Corp.,
General Partner
By: [Signature Illegible]
---------------------------
Title: Vice President
Attest: COMCAST SOUND COMMUNICATIONS, INC.,
a Colorado corporation, pursuant
to power of attorney executed in favor
of, and granted and delivered to, the
Managing General Partner
By: MLP Acquisition, L.P.
By: Music Holdings Corp.,
General Partner
By: [Signature Illegible]
---------------------------
Title: Vice President
155
<PAGE>
Attest: UBS CAPITAL CORPORATION
By: /s/ Michael Green
---------------------------
Title:
By: /s/ Jeffrey Wald
---------------------------
Title:
Attest: INTERNATIONALE NEDERLANDEN (U.S.)
FINANCE CORPORATION
By: [Signature Illegible]
---------------------------
Title: Vice President
Attest: The Class B Limited Partners listed in
Schedule I hereto pursuant to powers of
attorney executed in favor of, and granted
and delivered to, the Managing General Partner
By: MLP Acquisition, L.P.
By: Music Holdings Corp.,
General Partner
By: [Signature Illegible]
---------------------------
Title: Vice President
Attest: JOHN HAWKINS pursuant to power of attorney
executed in favor of, and granted and delivered
to, the Managing General Partner
By: MLP Acquisition, L.P.
By: Music Holdings Corp.,
General Partner
By: [Signature Illegible]
---------------------------
Title: Vice President
156
<PAGE>
Attest: The Preferred Interest Limited
Partners listed in Schedule 1
hereto pursuant to power of attorney
executed in favor of, and granted and
delivered to, the Managing General Partner
By: MLP Acquisition, L.P.
By: Music Holdings Corp.,
General Partner
By: [Signature Illegible]
---------------------------
Title: Vice President
157
<PAGE>
Exhibit 3.5
AMENDMENT TO THIRD AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
MUZAK LIMITED PARTNERSHIP
Reference is made to the Third Amended and Restated Agreement of
Limited Partnership of Muzak Limited Partnership dated as of November 4, 1994
(the "Partnership Agreement") among MLP Acquisition, L.P., as managing general
partner, MLP Administration Corp., as administrative general partner, and each
of the Limited Partners party thereto. Capitalized terms used but not defined
herein shall have the respective meanings provided in the Partnership Agreement.
The undersigned Managing General Partner and Limited Partners
constituting the Majority Vote of the Partners hereby amend the Partnership
Agreement to (i) delete the reference in the definition of "Class C-1
Participation Amount" in Article I to the sum "1,429,933" and insert in lieu
thereof the sum "1,420,368" and (ii) delete the reference in Section 19.05(a) to
the phrase "which has a then Fair Market Value equal to the then Preferred
Interest Liquidation Preference" and insert in lieu thereof the phrase "equal to
the then Preferred Interest Liquidation Preference divided by $1.75."
Except as expressly provided herein, the Partnership Agreement shall
remain in full force and effect in accordance with its terms. This Amendment may
be executed in one or more counterparts, each of which shall be an original
hereof and which together shall constitute one and the same Amendment.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the 13th day of April, 1996.
MLP ACQUISITION, L.P.
By: Music Holdings Corp.,
as general partner
By: /s/ Kirk A. Collamer
--------------------
Name: Kirk A. Collamer
Title: Vice President
MLP ADMINISTRATION CORP.
By: /s/ Kirk A. Collamer
--------------------
Name: Kirk A. Collamer
Title: Vice President
2
<PAGE>
L&W DRAFT 9/11/96
================================================================================
Muzak Limited Partnership
Muzak Capital Corporation
$100,000,000
Aggregate Principal Amount
of ___% Senior Notes due 2003
INDENTURE
Dated as of _____________, 1996
________________________
Trustee
================================================================================
<PAGE>
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Trust Indenture
Act Section Indenture Section
<S> <C>
310 (a)(1).............................................................. 7.10
(a)(2).............................................................. 7.10
(a)(3) ............................................................. N.A.
(a)(4).............................................................. N.A.
(a)(5).............................................................. 7.10
(b) ................................................................ 7.10
(c) ................................................................ N.A.
311 (a) ................................................................ 7.11
(b) ................................................................ 7.11
(c) ................................................................ N.A.
312 (a)................................................................. 2.05
(b)................................................................. 11.03
(c) ................................................................ 11.03
313 (a) ................................................................ 7.06
(b)(1) ............................................................. N.A.
(b)(2) ............................................................. 7.06
(c) ................................................................ 7.06;11.02
(d)................................................................. 7.06
314 (a) ................................................................ 4.03;11.05
(b) ................................................................ N.A.
(c)(1) ............................................................. 11.04
(c)(2) ............................................................. 11.04
(c)(3) ............................................................. N.A.
(d)................................................................. N.A.
(e) ............................................................... 11.05
(f)................................................................. N.A.
315 (a)................................................................. 7.01
(b)................................................................. 7.05,11.02
(c) ............................................................... 7.01
(d)................................................................. 7.01
(e)................................................................. 6.11
316 (a)(last sentence) ................................................. N.A.
(a)(1)(A)........................................................... 6.05
(a)(1)(B) .......................................................... 6.04
(a)(2) ............................................................. N.A.
(b) ................................................................ 6.07
(c) ................................................................ 2.13
317 (a)(1) ............................................................. 6.08
(a)(2).............................................................. 6.09
(b) ................................................................ 2.04
318 (a)................................................................. 11.01
(b)................................................................. N.A.
(c)................................................................. 11.01
</TABLE>
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
<S> <C> <C>
Section 1.01. Definitions.......................................................... 1
Section 1.02. Other Definitions.................................................... 13
Section 1.03. Incorporation by Reference of Trust Indenture Act.................... 14
Section 1.04. Rules of Construction................................................ 14
ARTICLE 2
THE SENIOR NOTES
Section 2.01. Form and Dating...................................................... 14
Section 2.02. Execution and Authentication......................................... 15
Section 2.03. Registrar and Paying Agent........................................... 15
Section 2.05. Paying Agent to Hold Money in Trust.................................. 16
Section 2.05. Lists of Holders of the Senior Notes................................. 16
Section 2.06. Transfer and Exchange................................................ 16
Section 2.07. Replacement Senior Notes............................................. 17
Section 2.08. Outstanding Senior Notes............................................. 17
Section 2.09. Treasury Senior Notes................................................ 17
Section 2.10. Temporary Senior Notes............................................... 18
Section 2.11. Cancellation......................................................... 18
Section 2.12. Defaulted Interest................................................... 18
Section 2.13. Record Date.......................................................... 18
Section 2.14. CUSIP Number......................................................... 18
ARTICLE 3
REDEMPTION
Section 3.01. Notices to Trustee................................................... 19
Section 3.02. Selection of Senior Notes to Be Redeemed............................. 19
Section 3.03. Notice of Redemption................................................. 19
Section 3.04. Effect of Notice of Redemption....................................... 20
Section 3.05. Deposit of Redemption Price.......................................... 20
Section 3.06. Senior Notes Redeemed in Part........................................ 21
Section 3.07. Optional Redemption.................................................. 21
Section 3.08. Mandatory Redemption................................................. 21
Section 3.09. Offer to Purchase by Application of Excess Proceeds.................. 21
ARTICLE 4
COVENANTS
Section 4.01. Payment of Senior Notes.............................................. 23
Section 4.02. Maintenance of Office or Agency...................................... 23
Section 4.03. Reports.............................................................. 24
Section 4.04. Compliance Certificate............................................... 24
Section 4.05. Taxes................................................................ 25
Section 4.06. Stay, Extension and Usury Laws....................................... 25
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
Section 4.07. Restricted Payments.................................................. 25
Section 4.08. Dividend and Other Payment Restrictions
Affecting Subsidiaries............................................... 28
Section 4.09. Incurrence of Indebtedness and Issuance
of Preferred Equity Interests........................................ 28
Section 4.10. Asset Sales.......................................................... 30
Section 4.11. Transactions with Affiliates......................................... 31
Section 4.12. Liens................................................................ 31
Section 4.13. Sale and Leaseback Transactions...................................... 31
Section 4.14. Limitation on Issuances and Sales of Capital
Interests of Wholly Owned Subsidiaries................................32
Section 4.15. Limitations on Issuances of Guarantees of Indebtedness............... 32
Section 4.16. Subsidiary Guarantees................................................ 32
Section 4.17. Line of Business..................................................... 33
Section 4.18. Offer to Repurchase Upon Change of Control........................... 33
Section 4.19. Corporate Existence.................................................. 33
Section 4.20. Reorganization of the Company as a Partnership....................... 34
Section 4.21. Limitation on Activities of Capital Corp............................. 34
ARTICLE 5
SUCCESSORS
Section 5.01. Merger, Consolidation, or Sale of Assets............................. 35
Section 5.02. Successor Corporation Substituted.................................... 35
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default.................................................... 36
Section 6.02. Acceleration......................................................... 37
Section 6.03. Other Remedies....................................................... 38
Section 6.04. Waiver of Past Defaults.............................................. 38
Section 6.05. Control by Majority.................................................. 39
Section 6.06. Limitation on Suits.................................................. 39
Section 6.07. Rights of Holders of Senior Notes to Receive Payment................. 39
Section 6.08. Collection Suit by Trustee........................................... 39
Section 6.09. Trustee May File Proofs of Claim..................................... 40
Section 6.10. Priorities........................................................... 40
Section 6.11. Undertaking for Costs................................................ 40
ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee.................................................... 41
Section 7.02. Rights of Trustee.................................................... 42
Section 7.03. Individual Rights of Trustee......................................... 42
Section 7.04. Trustee's Disclaimer................................................. 42
Section 7.05. Notice of Defaults................................................... 43
Section 7.06. Reports by Trustee to Holders of the Senior Notes.................... 43
Section 7.07. Compensation and Indemnity........................................... 43
Section 7.08. Replacement of Trustee............................................... 44
Section 7.09. Successor Trustee by Merger, etc..................................... 45
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
Section 7.10. Eligibility; Disqualification........................................ 45
Section 7.11. Preferential Collection of Claims Against Company.................... 45
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance............. 45
Section 8.02. Legal Defeasance and Discharge....................................... 45
Section 8.03. Covenant Defeasance.................................................. 46
Section 8.04. Conditions to Legal or Covenant Defeasance........................... 46
Section 8.05. Deposited Money and Government Securities to be Held in Trust;
Other Miscellaneous Provisions....................................... 48
Section 8.06. Repayment to Issuers ................................................ 48
Section 8.07. Reinstatement........................................................ 48
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of Senior Notes........................... 49
Section 9.02. With Consent of Holders of Senior Notes.............................. 49
Section 9.03. Compliance with Trust Indenture Act.................................. 51
Section 9.04. Revocation and Effect of Consents.................................... 51
Section 9.05. Notation on or Exchange of Senior Notes.............................. 51
Section 9.06. Trustee to Sign Amendments, etc...................................... 51
ARTICLE 10
GUARANTEE OF SENIOR NOTES
Section 10.01. Guarantee............................................................ 52
Section 10.02. Limitation of the Guarantors' Liability.............................. 53
Section 10.03. Release of the Guarantors............................................ 53
Section 10.04. Merger, Consolidation or Sale of Assets.............................. 53
Section 10.05. Execution and Delivery of Guarantees................................. 53
ARTICLE 11
MISCELLANEOUS
Section 11.01. Trust Indenture Act Controls......................................... 54
Section 11.02. Notices.............................................................. 54
Section 11.03. Communication by Holders of Senior Notes with
Other Holders of Senior Notes........................................ 55
Section 11.04. Certificate and Opinion as to Conditions Precedent................... 55
Section 11.05. Statements Required in Certificate or Opinion........................ 56
Section 11.06. Rules by Trustee and Agents.......................................... 56
Section 11.07. No Personal Liability of Directors, Officers,
Employees and Stockholders........................................... 56
Section 11.08. Governing Law........................................................ 56
Section 11.09. No Adverse Interpretation of Other Agreements........................ 56
Section 11.10. Successors........................................................... 57
Section 11.11. Severability......................................................... 57
Section 11.12. Counterpart Originals................................................ 57
Section 11.13. Table of Contents, Headings, etc..................................... 57
</TABLE>
iii
<PAGE>
EXHIBITS
Exhibit A Form of Senior Note
Exhibit B Form of Guarantee
Exhibit C Form of Supplemental Indenture
iv
<PAGE>
EXHIBIT 4.1
INDENTURE dated as of ___________, 1996 among Muzak Limited Partnership, a
Delaware limited partnership (the "Company"), and Muzak Capital Corporation, a
Delaware corporation ("Capital Corp." and, together with the Company, the
"Issuers"), as joint and several obligors and ______________, as trustee (the
"Trustee").
The Issuers and the Trustee agree as follows for the benefit of each other
and for the equal and ratable benefit of the Holders of the ___% Senior Notes
due 2003 (the "Senior Notes"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01. Definitions.
"Acquired Debt" means, with respect to any specified Person, (i) Indebtedness
of any other Person existing at the time such other Person is merged with or
into or became a Subsidiary of such specified Person, including, without
limitation, Indebtedness incurred in connection with, or in contemplation of,
such other Person merging with or into or becoming a Subsidiary of such
specified Person, and (ii) Indebtedness secured by a Lien encumbering any asset
acquired by such specified Person.
"Administrative Expenses" means, with respect to the General Partner, any
general partner of the Company or the parent of the Company (in the event that
the Company is reorganized as a corporation), ordinary operating expenses
(including reasonable professional fees and expenses) in connection with (a)
complying with reporting obligations pursuant to the federal securities laws and
obligations to prepare and distribute business records in the ordinary course of
business, (b) maintaining such Person's corporate or partnership existence and
franchise (including annual franchise taxes) and (c) the payment of reasonable
fees and expense reimbursements to directors thereof.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Asset Sale" means (a) the sale, lease, conveyance or other disposition of
any assets (including, without limitation, by way of a sale and leaseback) other
than sales of inventory in the ordinary course of business consistent with past
practices (provided that the sale, lease, conveyance or other disposition of all
or substantially all of the assets of the Company and its Restricted
Subsidiaries taken as a whole shall be governed by the provisions of Section
4.18 and/or Section 5.01 hereof and not by the provisions of Section 4.10
hereof), (b) the issuance by any Restricted Subsidiary of Equity Interests of
such Restricted Subsidiary and (c) the disposition by the Company or any of its
Restricted Subsidiaries of Equity Interests of any of the Company's
Subsidiaries, in the case of either clause (a), (b) or (c), whether in a single
transaction or a series of related transactions, (i) that have a fair market
value in excess of $2.0 million or (ii) for net proceeds in excess of $2.0
million. Notwithstanding the foregoing, (a) a transfer of assets by the Company
to a Wholly Owned Restricted Subsidiary or by a Wholly Owned Restricted
Subsidiary to the Company or to another Wholly Owned Restricted Subsidiary, (b)
an issuance of Equity Interests by a Wholly Owned
<PAGE>
Restricted Subsidiary to the Company or to another Wholly Owned Restricted
Subsidiary, (c) a Restricted Payment that is permitted by the Section 4.07
hereof and (d) any sale and leaseback transaction otherwise permitted pursuant
to Section 4.13 hereof shall not be deemed to be Asset Sales.
"Attributable Debt" in respect of a sale and leaseback transaction means, at
the time of determination, the present value (discounted at the rate of interest
implicit in such transaction, determined in accordance with GAAP) of the
obligation of the lessee for net rental payments during the remaining term of
the lease included in such sale and leaseback transaction (including any period
for which such lease has been extended or may, at the option of the lessor, be
extended).
"Board of Directors" means the Board of Directors of the General Partner, on
behalf of the Company (or the Company, if the Company is reorganized as a
corporation), or of Capital Corp. or any authorized committee of the Board of
Directors.
"Borrowing Base" means, as of any date, an amount equal to (a) 80.0% of the
face amount of all accounts receivable owned by the Company and its Restricted
Subsidiaries as of such date that are not more than 90 days past due, plus (b)
60.0% of the book value (calculated on an average cost basis) of all inventory
owned by the Company and its Restricted Subsidiaries as of such date, minus (c)
any amount applied pursuant to Section 4.10(b) hereof to permanently reduce
Indebtedness permitted to be incurred pursuant to Section 4.09(b)(i) hereof, all
calculated on a consolidated basis and in accordance with GAAP. To the extent
that information is not available as to the amount of accounts receivable or
inventory as of a specific date, the Company may utilize the most recent
available information for purposes of calculating the Borrowing Base.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination thereof is to
be made, the amount of the liability in respect of a capital lease that would at
such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Interests" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued or
directly and fully guaranteed or insured by the United States government or any
agency or instrumentality thereof having maturities of not more than six months
from the date of acquisition, (iii) certificates of deposit and eurodollar time
deposits with maturities of six months or less from the date of acquisition,
bankers' acceptances with maturities not exceeding six months and overnight bank
deposits or demand deposits, in each case with any lender party to any Credit
Facility or with any domestic commercial bank having capital and surplus in
excess of $1.0 billion, (iv) repurchase obligations with a term of not more than
seven days for underlying securities of the types described in clauses (ii) and
(iii) above entered into with any financial institution meeting the
qualifications specified in clause (iii) above, (v) commercial paper having the
highest rating obtainable from Moody's Investors Service, Inc. or Standard &
Poor's Ratings Service, a division of The McGraw-Hill Companies, Inc., and in
each case maturing within six months after the date of acquisition and (vi)
investments in money market funds all of whose assets comprise securities of the
types described in clauses (i), (ii) and (iii) above.
2
<PAGE>
"Centre Partners" means Centre Partners L.P., a Delaware limited partnership.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Restricted Subsidiaries
taken as a whole to any "person" (as such term is used in Section 13(d)(3) of
the Exchange Act) other than the Principals or their Related Parties (as defined
below), (ii) the adoption of a plan relating to the liquidation or dissolution
of the Company (other than as part of the reorganization of the Company as a
corporation), (iii) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" (as defined above), other than the Principals and their Related
Parties, becomes the "beneficial owner" (as such term is defined in Rule 13d-3
and Rule 13d-5 under the Exchange Act), directly or indirectly, of more than a
majority of the voting Capital Interests of the Company, (iv) the first day on
which a majority of the members of the Board of Directors are not Continuing
Directors or (v) prior to the reorganization of the Company as a corporation,
the first day on which the Company ceases to own 100% of the outstanding Equity
Interests of Capital Corp. For purposes of this definition, any transfer of an
equity interest of an entity that was formed for the purpose of acquiring voting
Capital Interests of the Company shall be deemed to be a transfer of such
portion of such voting Capital Interests as corresponds to the portion of the
equity of such entity that has been so transferred. Notwithstanding the
foregoing, the reorganization of the Company as a corporation shall not be
deemed to constitute a Change of Control, so long as such reorganization does
not result in any of the occurrences described above under clauses (i) through
(v).
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person and its Restricted Subsidiaries for
such period plus (i) an amount equal to any extraordinary loss plus any net loss
realized in connection with an Asset Sale (to the extent such losses were
deducted in computing such Consolidated Net Income), plus (ii) provision for
taxes based on income or profits of such Person and its Restricted Subsidiaries
for such period, to the extent that such provision for taxes was included in
computing such Consolidated Net Income, plus (iii) consolidated interest expense
of such Person and its Restricted Subsidiaries for such period, whether paid or
accrued and whether or not capitalized (including, without limitation,
amortization of original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, imputed interest with
respect to Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations), to the extent that any
such expense was deducted in computing such Consolidated Net Income, plus (iv)
all items classified as "depreciation" or "amortization" on such Person's
statement of operations and other non-cash charges (including non-cash, equity-
based compensation charges, but excluding any non-cash charge to the extent that
it represents an accrual of or reserve for cash charges in any future period or
amortization of a prepaid cash expense that was paid in a prior period) of such
Person and its Restricted Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash charges were deducted in
computing such Consolidated Net Income, plus (v) in the case of calculations
with respect to the Company, the amount of any Tax Distributions by the Company
to its partners, or, following the reorganization of the Company as a
corporation, any tax sharing payment made pursuant to a tax sharing agreement
executed in connection therewith, in each case, on a consolidated basis and
determined in accordance with GAAP. Notwithstanding the foregoing, the
provision for taxes on the income or profits of, and the depreciation
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and amortization and other non-cash charges of, a Restricted Subsidiary of the
referent Person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent (and in same proportion) that the Net
Income of such Restricted Subsidiary was included in calculating the
Consolidated Net Income of such Person and only if a corresponding amount would
be permitted at the date of determination to be dividended to the Company by
such Restricted Subsidiary without prior approval (that has not been obtained),
pursuant to the terms of its charter and all agreements, instruments, judgments,
decrees, orders, statutes, rules and governmental regulations applicable to that
Restricted Subsidiary or its stockholders or partners. Notwithstanding the
foregoing, the provision for taxes based on the income or profits of, and the
depreciation and amortization and other non-cash charges of, a Subsidiary of a
Person shall be added to Consolidated Net Income to compute Consolidated Cash
Flow only to the extent (and in the same proportion) that the Net Income of such
Subsidiary was included in calculating the Consolidated Net Income of such
Person and only if a corresponding amount would be permitted at the date of
determination to be dividended or distributed to the Company by such Subsidiary
without prior approval (that has not been obtained), pursuant to the terms of
its organizational documents and all agreements, instruments, judgments,
decrees, orders, statutes, rules and governmental regulations applicable to that
Restricted Subsidiary or its stockholders or partners.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned Restricted
Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at the
date of determination permitted without any prior governmental approval (which
has not been obtained) or, directly or indirectly, by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to that Restricted Subsidiary or its
stockholders or partners, (iii) the Net Income of any Person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition shall be excluded, (iv) in the case of calculations with respect to
the Company, Consolidated Net Income of the Company shall be reduced by the
amount of any Tax Distributions by the Company to its partners, (v) the
cumulative effect of a change in accounting principles shall be excluded, (vi)
Consolidated Net Income shall not include any gain (but not loss), together with
any related provision for taxes on such gain (but not loss), realized in
connection with (A) any Asset Sale (including, without limitation, dispositions
pursuant to sale and leaseback transactions) or (B) the disposition of any
securities by such Person or any of its Restricted Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Restricted
Subsidiaries, (vii) Consolidated Net Income shall not include any extraordinary
or nonrecurring gain (but not loss), together with any related provision for
taxes on such extraordinary or nonrecurring gain (but not loss) and (viii) the
Net Income of any Unrestricted Subsidiary shall be excluded, whether or not
distributed to the Company or one of its Subsidiaries.
"Consolidated Net Worth" means, (a) with respect to a partnership, the common
and preferred partnership interests of such partnership and its consolidated
Subsidiaries, as determined on a consolidated basis in accordance with GAAP, and
(b) with respect to any other Person, the sum of (i) the consolidated equity of
the common stockholders of such Person and its consolidated Subsidiaries plus
(ii) the respective amounts reported on such Person's most recent balance sheet
with respect to any series of preferred stock; provided that the preferred
partnership interests or the preferred stock, as the case may be, shall be
included in Consolidated Net Worth only if such preferred partnership interests
or preferred stock (A) is not a Disqualified Interest and (B) is not by its
terms entitled to the payment of dividends or distributions,
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unless such dividends or distributions may be declared and paid only out of net
earnings in respect of the year of such declaration and payment, but only to the
extent of any cash received by such Person upon issuance of such preferred
partnership interests or preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within twelve months after the
acquisition of such business) subsequent to the date of the most recently
completed fiscal quarter in the book value of any asset owned by such Person or
a consolidated Subsidiary of such Person, (y) all investments in unconsolidated
Subsidiaries and in Persons that are not Subsidiaries (except, in each case,
investments in marketable securities), and (z) all unamortized debt discount and
expense and unamortized deferred financing charges, all of the foregoing
determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors who (i) was a member of such Board of Directors on the
date hereof or (ii) was nominated for election or elected to such Board of
Directors with the approval of the Principals and their Related Parties or a
majority of the Continuing Directors who were members of such Board at the time
of such nomination or election.
"Credit Facility" means any credit facility entered into by and among the
Company, any of its Subsidiaries that is a Guarantor and the lending
institutions party thereto, including any credit agreement, related notes,
Guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, modified, renewed, refunded,
replaced or refinanced from time to time.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Interests" means any Equity Interest which, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
91st day after the date on which the Senior Notes mature.
"Domestic Subsidiary" of a Person means any direct or indirect Subsidiary of
such Person that is not a Foreign Subsidiary.
"Equity Interests" means Capital Interests and all warrants, options or other
rights to acquire Capital Interests (but excluding any debt security that is
convertible into, or exchangeable for, Capital Interests).
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and the
rules and regulations of the Commission promulgated thereunder.
"Existing Indebtedness" means the aggregate principal amount of Indebtedness
of the Company and its Subsidiaries in existence on the date hereof, until such
amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum of
(i) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued (including, without
limitation, amortization of original issue discount, non-cash interest payments,
the interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations, imputed
interest with respect to Attributable Debt, commissions, discounts
5
<PAGE>
and other fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Hedging Obligations
but excluding amortization of deferred financing fees), (ii) the consolidated
interest expense of such Person and its Restricted Subsidiaries that was
capitalized during such period, (iii) any interest expense on Indebtedness of
another Person that is Guaranteed by such Person or one of its Restricted
Subsidiaries or secured by a Lien on assets of such Person or one of its
Restricted Subsidiaries (whether or not such Guarantee or Lien is called upon)
and (iv) the amount of dividends or distributions paid in respect of preferred
stock or preferred partnership interests of such Person, in each case, on a
consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that the Company or
any of its Restricted Subsidiaries incurs, assumes, Guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues preferred stock
or preferred partnership interests subsequent to the commencement of the period
for which the Fixed Charge Coverage Ratio is being calculated but prior to the
date on which the event for which the calculation of the Fixed Charge Coverage
Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio
shall be calculated giving pro forma effect to such incurrence, assumption,
Guarantee or redemption of Indebtedness, or such issuance or redemption of
preferred stock or preferred partnership interests, as if the same had occurred
at the beginning of the applicable four-quarter reference period. For purposes
of making the computation referred to above, (i) acquisitions that have been
made by the Company or any of its Restricted Subsidiaries, including through
mergers or consolidations and including any related financing transactions,
during the four-quarter reference period or subsequent to such reference period
and on or prior to the Calculation Date shall be deemed to have occurred on the
first day of the four-quarter reference period, (ii) the Consolidated Cash Flow
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall be
excluded, and (iii) the Fixed Charges attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded, but only to the extent that
the obligations giving rise to such Fixed Charges shall not be obligations of
the referent Person or any of its Restricted Subsidiaries following the
Calculation Date.
"Foreign Credit Facility" means any credit facility entered into by and among
the any Foreign Subsidiary of the Company and the lending institutions party
thereto, including any credit agreement, related notes, Guarantees, collateral
documents, instruments and agreements executed in connection therewith, and in
each case as amended, modified, renewed, refunded, replaced or refinanced from
time to time.
"Foreign Restricted Subsidiary" of a Person means any Restricted Subsidiary
of such Person that is also a Foreign Subsidiary.
"Foreign Subsidiary" of a Person means any direct or indirect Subsidiary of
such Person that is organized under the laws of any jurisdiction outside the
United States, any district or territoriality thereof and The Commonwealth of
Puerto Rico.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date hereof.
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"General Partner" means Music Holdings, as general partner of MLP
Acquisition, the general partner of the Company.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States of America is
pledged.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantor" means any Domestic Subsidiary of the Company (other than Capital
Corp.) that executes a Subsidiary Guarantee in accordance with the provisions
hereof, and their respective successors and assigns.
"Guarantor Senior Indebtedness" means any Indebtedness permitted to be
incurred by any Guarantor under the terms hereof, unless the instrument under
which such Indebtedness is incurred expressly provides that it is subordinated
in right of payment to such Guarantor's Subsidiary Guarantee. Notwithstanding
the foregoing, Guarantor Senior Indebtedness shall not include (i) any
Obligation of such Guarantor to any Subsidiary of such Guarantor, (ii) any
liability for federal, state, local or other taxes owed or owing by such
Guarantor, (iii) any accounts payable or other liability to trade creditors
arising in the ordinary course of business (including Guarantees thereof or
instruments evidencing such liabilities), (iv) any Indebtedness, Guarantee or
Obligation of the Guarantor that is contractually subordinated or junior in any
respect to any other Indebtedness, Guarantee or Obligation of such Guarantor or
(v) any Indebtedness incurred in violation hereof.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed solely to protect such Person against fluctuations in
interest rates.
"Holder" means a Person in whose name a Senior Note is registered.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such indebtedness
is assumed by such Person) and, to the extent not otherwise included, the
Guarantee by such Person of any indebtedness of any other Person.
"Indenture" means this Indenture, as amended or supplemented from time to
time.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations but
excluding advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of such Person or its
Subsidiaries in accordance with GAAP),
7
<PAGE>
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities and all other items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP;
provided that an acquisition of assets, Equity Interests or other securities by
the Company for consideration consisting of common equity securities of the
Company shall not be deemed to be an Investment.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York, in the city of the principal corporate
trust office of the Trustee or at a place of payment are authorized by law,
regulation or executive order to remain closed. If a payment date is a Legal
Holiday, payment may be made on the next succeeding day that is not a Legal
Holiday, and no interest shall accrue for the intervening period.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction).
"MLP Acquisition" means MLP Acquisition L.P., a Delaware limited partnership
and the general partner of the Company.
"MLP Holdings" means MLP Holdings L.P., a Delaware limited partnership and a
limited partner of MLP Acquisition.
"Music Holdings" means Music Holdings Corp., a Delaware corporation, a
wholly-owned Subsidiary of Centre Partners and the general partner of MLP
Acquisition.
"Net Income" means, with respect to any Person, the net income (loss) of such
Person, determined in accordance with GAAP.
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
(other than Senior Revolving Debt) secured by a Lien on the asset or assets that
were the subject of such Asset Sale and any reserve for adjustment in respect of
the sale price of such asset or assets established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness (a) as to which neither the Company
nor any of its Restricted Subsidiaries (i) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness or any agreement to maintain specified levels of financial or
operational performance), (ii) is directly or indirectly liable (as a guarantor
or otherwise), or (iii) constitutes the lender; (b) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare
8
<PAGE>
a default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity; and (c) as to which the
lenders have been notified in writing that they shall not have any recourse to
the stock or assets of the Company or any of its Restricted Subsidiaries.
"Notes" means the Senior Notes described above and issued under this
Indenture, as amended or supplemented from time to time pursuant to the terms
hereof.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Officer" means, with respect to any Person, the Chairman of the Board, the
Chief Executive Officer, the President, the Chief Operating Officer, the Chief
Financial Officer, the Treasurer, any Assistant Treasurer, Controller, Secretary
or any Vice-President of such Person, or, if such Person is a partnership, any
such officer of the general partner or the general partner of the general
partner of such Person.
"Officers' Certificate" means a certificate signed on behalf of the Company
by two Officers of the Company, one of whom must be the principal executive
officer, principal financial officer, treasurer or principal accounting officer
of the Company.
"Opinion of Counsel" means an opinion from legal counsel who is reasonably
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company, any Subsidiary of the Company or the Trustee.
"Pari Passu Indebtedness" means any Indebtedness which ranks pari passu in
right of payment with, and which is not expressly by its terms subordinated in
right of payment of principal, interest or premium, if any, to, the Senior
Notes.
"Park Road" means Park Road Corporation, a Delaware corporation and the
managing general partner of Centre Partners.
"Partnership Agreement" means the Third Amended and Restated Agreement of
Limited Partnership of the Company, as amended, supplemented or otherwise
modified and as in effect from time to time.
"Permitted Investments" means (a) any Investments in the Company or in a
Wholly Owned Restricted Subsidiary of the Company that is engaged in the same or
a similar or related line of business as the Company and its Restricted
Subsidiaries were engaged in on the date hereof; (b) any Investments in Cash
Equivalents; (c) Investments by the Company or any Subsidiary of the Company in
a Person, if as a result of such Investment (i) such Person becomes a Wholly
Owned Restricted Subsidiary of the Company that is engaged in the same or a
similar or related line of business as the Company and its Subsidiaries were
engaged in on the date hereof or (ii) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Wholly Owned Restricted
Subsidiary of the Company that is engaged in the same or a similar or related
line of business as the Company and its Subsidiaries were engaged in on the date
hereof; (d) Restricted Investments made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in compliance
with Section 4.10 hereof; (e) Investments in endorsements of negotiable
instruments and similar negotiable documents in the ordinary course of business;
(f) Investments existing on the date hereof; (g) Investments in obligations of
account debtors to the Company or any of its Restricted Subsidiaries and stock
or obligations issued to the Company or any such Restricted Subsidiary by any
Person, in each case, in connection with the insolvency, bankruptcy,
receivership or reorganization of such Person or a composition
9
<PAGE>
or readjustment of such Person's Indebtedness and (h) other Investments in any
one or more Persons that do not exceed $5.0 million in the aggregate at any time
outstanding.
"Permitted Liens" means (i) Liens on accounts receivable and inventory
securing Indebtedness permitted to be incurred under Section 4.09(b)(i) hereof;
(ii) Liens in favor of the Company; (iii) Liens on property of a Person existing
at the time such Person is merged into, consolidated with or acquired by the
Company or any Restricted Subsidiary of the Company; provided that such Liens
were not incurred in contemplation of such merger or consolidation and do not
extend to any assets other than those of the Person merged into or consolidated
with the Company; (iv) Liens on property existing at the time of acquisition
thereof by the Company or any Subsidiary of the Company, provided that such
Liens were in existence prior to the contemplation of such acquisition; (v)
Liens to secure the performance of statutory obligations, surety or appeal
bonds, performance bonds or other obligations of a like nature incurred in the
ordinary course of business; (vi) Liens to secure Indebtedness permitted by
Section 4.09(b)(vi) hereof covering only the assets acquired with such
Indebtedness; (vii) Liens existing on the date hereof; (viii) Liens for taxes,
assessments or governmental charges or claims that are not yet delinquent or
that are being contested in good faith by appropriate proceedings promptly
instituted and diligently concluded, provided that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall have
been made therefor; (ix) Liens securing Permitted Refinancing Indebtedness,
provided that such Liens do not extend to or cover any assets or property other
than the collateral securing the Indebtedness to be refinanced; (x) Liens
arising by operation of law in connection with judgments, for a period not
resulting in an Event of Default with respect thereto; (xi) easements, rights of
way, zoning restrictions and other similar encumbrances or title defects which
do not materially detract from the value of the property or the assets subject
thereto or interfere with the ordinary conduct of the business of the Company
and its Restricted Subsidiaries, taken as a whole; (xii) Liens securing
Attributable Debt with respect to any sale and leaseback transaction in an
aggregate amount not to exceed the aggregate principal amount of Attributable
Debt permitted to be incurred pursuant to Section 4.09 hereof, provided that
such Liens do not extend to or cover any assets or property other than the
collateral securing such Attributable Debt; (xiii) Liens on assets of any
Foreign Restricted Subsidiary securing Indebtedness of such Foreign Restricted
Subsidiary incurred pursuant to Section 4.09(b)(ix) hereof; (xiv) Liens incurred
in the ordinary course of business of the Company or any Restricted Subsidiary
of the Company with respect to obligations that (A) are not incurred in
connection with the borrowing of money or the obtaining of advances or credit
(other than trade credit in the ordinary course of business) and (B) do not in
the aggregate materially detract from the value of the property or materially
impair the use thereof in the operation of business by the Company or such
Restricted Subsidiary; (xv) Liens on accounts receivable and inventory securing
Hedging Obligations; and (xvi) Liens on assets of Unrestricted Subsidiaries that
secure Non-Recourse Debt of Unrestricted Subsidiaries.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company or
any of its Restricted Subsidiaries issued in exchange for, or the net proceeds
of which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any of its Restricted Subsidiaries; provided that
(i) the principal amount of such Permitted Refinancing Indebtedness does not
exceed the principal amount of the Indebtedness so extended, refinanced,
renewed, replaced, defeased or refunded (plus the amount of reasonable expenses
incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness
has a final maturity date later than the final maturity date of, and has a
Weighted Average Life to Maturity equal to or greater than the Weighted Average
Life to Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; (iii) if the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded is subordinated in right of
payment to the Senior Notes, such Permitted Refinancing Indebtedness has a final
maturity date later than the final maturity date of, and is subordinated in
right of payment to, the Senior Notes on terms at least as favorable to the
holders
10
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of Senior Notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; and (iv) such Indebtedness is incurred either by the Company or by the
Restricted Subsidiary who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust or unincorporated organization
(including any subdivision or ongoing business of any such entity or
substantially all of the assets of any such entity, subdivision or business).
"Principals" means MLP Acquisition, MLP Holdings, Music Holdings, Centre
Partners and Park Road.
"Related Party" with respect to any Principal means (a) any controlling
stockholder or general partner, 80% (or more) owned Subsidiary, or spouse or
immediate family member (in the case of an individual) of such Principal or (b)
any trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding an 80% or more
controlling interest of which consist of such Principal and/or such other
Persons referred to in the immediately preceding clause (a), or (c) any Person
employed by the Company in a management capacity as of the date hereof.
"Responsible Officer," when used with respect to the Trustee, means any
officer within the Corporate Trust Administration of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Commission" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the rules
and regulations of the Commission promulgated thereunder.
"Senior Revolving Debt" means revolving credit borrowings under any Credit
Facility.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date
hereof; provided that Capital Corp. and each Guarantor shall be deemed a
Significant Subsidiary.
"Subordinated Indebtedness" means any Indebtedness which is expressly by its
terms subordinated in right of payment of principal, interest or premium, if
any, to the Senior Notes.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of Capital Interests entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by such Person or
one or more of the other Subsidiaries
11
<PAGE>
of that Person (or a combination thereof) and (ii) any partnership (A) the sole
general partner or the managing general partner of which is such Person or a
Subsidiary of such Person or (B) the only general partners of which are such
Person or one or more Subsidiaries of such Person (or any combination thereof).
"Tax Amount" means, with respect to any Person for any period, the aggregate
amount of tax distributions required to be made by the Company to its partners
under the Partnership Agreement as in effect on the date hereof.
Notwithstanding anything to the contrary, Tax Amount shall not include taxes
resulting from such Person's reorganization as or change in the status to a
corporation.
"Tax Distribution" means a distribution in respect of taxes to the partners
of the Company pursuant to Section 4.07(b)(iv) hereof.
"Taxable Income" means, with respect to any Person for any period, the
taxable income or loss of such Person for such period for federal income tax
purposes; provided that (i) all items of income, gain, loss or deduction
required to be stated separately pursuant to Section 703(a)(1) of the Code shall
be included in taxable income or loss, (ii) any basis adjustment made in
connection with an election under Section 754 of the Code shall be disregarded
and (iii) such taxable income shall be increased or such taxable loss shall be
decreased by the amount of any interest expense incurred by such Person that is
not treated as deductible for federal income tax purposes by a partner or member
of such Person.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-77bbbb)
as in effect on the date on which this Indenture is qualified under the TIA.
"Trustee" means the party named as such above until a successor replaces it
in accordance with the applicable provisions of this Indenture and thereafter
means the successor serving hereunder.
"Unrestricted Subsidiary" means any Subsidiary (other than Capital Corp.)
that is designated by the Board of Directors as an Unrestricted Subsidiary
pursuant to a board resolution; but only to the extent that such Subsidiary (i)
has no Indebtedness other than Non-Recourse Debt; (ii) is not party to any
agreement, contract, arrangement or understanding with the Company or any
Restricted Subsidiary of the Company unless the terms of any such agreement,
contract, arrangement or understanding are no less favorable to the Company or
such Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Company; (iii) is a Person with respect to
which neither the Company nor any of its Restricted Subsidiaries has any direct
or indirect obligation (A) to subscribe for additional Equity Interests or (B)
to maintain or preserve such Person's financial condition or to cause such
Person to achieve any specified levels of operating results; (iv) has not
guaranteed or otherwise directly or indirectly provided credit support for any
Indebtedness of the Company or any of its Restricted Subsidiaries; and (v) has
at least one director on its board of directors that is not a director or
executive officer of the Company or any of its Restricted Subsidiaries and has
at least one executive officer that is not a director or executive officer of
the Company or any of its Restricted Subsidiaries. Any such designation by the
Board of Directors shall be evidenced to the Trustee by filing with the Trustee
a certified copy of the board resolution giving effect to such designation and
an Officers' Certificate certifying that such designation complied with the
foregoing conditions and was permitted by Section 4.07 hereof. If, at any time,
any Unrestricted Subsidiary would fail to meet the foregoing requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of this Indenture and any Indebtedness of such
Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the
Company as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under Section 4.09 hereof, the Company shall be in
default of such covenant). The Board of Directors of the Company may at any time
designate any
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<PAGE>
Unrestricted Subsidiary to be a Restricted Subsidiary;
provided that such designation shall be deemed to be an incurrence of
Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (a) such Indebtedness is permitted under Section 4.09 hereof, and
(b) no Default or Event of Default would be in existence following such
designation; and provided, further, that, to the extent applicable, the Company
shall cause such Subsidiary to comply with Section 4.16 hereof.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the sum of the
products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) that shall elapse
between such date and the making of such payment, by (b) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Interests or other
ownership interests of which (other than directors' qualifying shares or
interests) shall at the time be owned by such Person or by one or more Wholly
Owned Restricted Subsidiaries of such Person and one or more Wholly Owned
Restricted Subsidiaries of such Person.
<TABLE>
<CAPTION>
Section 1.02. Other Definitions.
<S> <C>
Defined in
Term Section
"Affiliate Transaction"........... 4.11
"Asset Sale Offer"................ 4.10
"Asset Sale Offer Price".......... 4.10
"Bankruptcy Law".................. 6.01
"Change of Control Offer"......... 4.18
"Change of Control Payment"....... 4.18
"Change of Control Payment Date".. 4.18
"Covenant Defeasance"............. 8.03
"Custodian"....................... 6.01
"Event of Default"................ 6.01
"Excess Proceeds"................. 4.10
"incur"........................... 4.09
"Legal Defeasance"................ 8.02
"Offer Amount".................... 4.10
"Offer Period".................... 3.09
"Paying Agent".................... 2.03
"Payment Default"................. 6.01
"Purchase Date"................... 3.09
"Registrar"....................... 2.03
"Restricted Payments"............. 4.07
"Subsidiary Guarantee"............ 4.16
</TABLE>
Section 1.03. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture.
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<PAGE>
The following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Senior Notes;
"indenture security holder" means a Holder of a Senior Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Senior Notes means the Issuers, as joint and several
obligors, and any successor obligor upon the Senior Notes.
All other terms used in this Indenture that are defined by the TIA, defined
by TIA reference to another statute or defined by Commission rule under the TIA
have the meanings so assigned to them.
Section 1.04. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural include
the singular; and
(5) provisions apply to successive events and transactions.
ARTICLE 2
THE SENIOR NOTES
Section 2.01. Form and Dating.
The Senior Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A hereto, the terms of which are
incorporated in and made a part of this Indenture. The Senior Notes may have
notations, legends or endorsements approved as to form by the Issuers and
required by law, stock exchange rule, agreements to which the Issuers are
subject or usage. Each Senior Note shall be dated the date of its
authentication. The Senior Notes shall be issuable only in denominations of
$1,000 and integral multiples thereof.
Section 2.02. Execution and Authentication.
An Officer of the General Partner, on behalf of the Company (or the Company,
if the Company is a corporation), and Capital Corp. shall sign the Senior Notes
for each of the Company and Capital Corp.
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<PAGE>
by manual or facsimile signature. The Company's seal shall be reproduced on the
Senior Notes and may be in facsimile form.
If an Officer whose signature is on a Senior Note no longer holds that office
at the time the Senior Note is authenticated, the Senior Note shall nevertheless
be valid.
A Senior Note shall not be valid until authenticated by the manual signature
of the Trustee. The signature of the Trustee shall be conclusive evidence that
the Senior Note has been authenticated under this Indenture. The form of
Trustee's certificate of authentication to be borne by the Senior Notes shall be
substantially as set forth in Exhibit A hereto.
The Trustee shall, upon a written order of the Issuers signed by an Officer
of each of the General Partner, on behalf of the Company (or the Company, if the
Company is a corporation), and Capital Corp., authenticate Senior Notes for
original issue up to an aggregate principal amount stated in paragraph 4 of the
Senior Notes. The aggregate principal amount of Senior Notes outstanding at any
time shall not exceed the amount set forth herein except as provided in Section
2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to the Issuers to
authenticate Senior Notes. Unless limited by the terms of such appointment, an
authenticating agent may authenticate Senior Notes whenever the Trustee may do
so. Each reference in this Indenture to authentication by the Trustee includes
authentication by such agent. An authenticating agent has the same rights as an
Agent to deal with the Issuers or an Affiliate of the Issuers.
Section 2.03. Registrar and Paying Agent.
The Issuers shall maintain (i) an office or agency where Senior Notes may be
presented for registration of transfer or for exchange (including any co-
registrar, the "Registrar") and (ii) an office or agency where Senior Notes may
be presented for payment ("Paying Agent"). The Registrar shall keep a register
of the Senior Notes and of their transfer and exchange. The Issuers may appoint
one or more co-registrars and one or more additional paying agents. The term
"Paying Agent" includes any additional paying agent. The Issuers may change any
Paying Agent, Registrar or co-registrar without prior notice to any Holder of a
Senior Note. The Issuers shall notify the Trustee, and the Trustee shall notify
the Holders of the Senior Notes, of the name and address of any Agent not a
party to this Indenture. The Issuers or any Subsidiary of the Company may act as
Paying Agent, Registrar or co-registrar. The Company shall enter into an
appropriate agency agreement with any Agent not a party to this Indenture, which
shall incorporate the provisions of the TIA. The agreement shall implement the
provisions of this Indenture that relate to such Agent. The Issuers shall notify
the Trustee of the name and address of any such Agent. If the Issuers fail to
maintain a Registrar or Paying Agent, or fail to give the foregoing notice, the
Trustee shall act as such, and shall be entitled to appropriate compensation in
accordance with Section 7.07 hereof.
The Issuers initially appoint the Trustee as Registrar, Paying Agent and
agent for service of notices and demands in connection with the Senior Notes.
Section 2.05. Paying Agent to Hold Money in Trust.
The Issuers shall require each Paying Agent other than the Trustee to agree
in writing that the Paying Agent shall hold in trust for the benefit of the
Holders of the Senior Notes or the Trustee all money held by the Paying Agent
for the payment of principal of, premium, if any, and interest on the Senior
Notes, and shall notify the Trustee of any Default by the Issuers in making any
such payment. While any such
15
<PAGE>
Default continues, the Trustee may require a Paying Agent to pay all money held
by it to the Trustee. The Issuers at any time may require a Paying Agent to pay
all money held by it to the Trustee. Upon payment over to the Trustee, the
Paying Agent (if other than the Issuers or any of their Subsidiaries) shall have
no further liability for the money delivered to the Trustee. If either Issuer or
any of their Subsidiaries acts as Paying Agent, it shall segregate and hold in a
separate trust fund for the benefit of the Holders of the Senior Notes all money
held by it as Paying Agent.
Section 2.05. Lists of Holders of the Senior Notes.
The Trustee shall preserve in as current a form as is reasonably practicable
the most recent list available to it of the names and addresses of Holders of
the Senior Notes and shall otherwise comply with TIA (S) 312(a). If the Trustee
is not the Registrar, the Issuers shall furnish to the Trustee at least seven
Business Days before each interest payment date and at such other times as the
Trustee may request in writing a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of Holders of the
Senior Notes, including the aggregate principal amount of the Senior Notes held
by each thereof, and the Company shall otherwise comply with TIA (S) 312(a).
Section 2.06. Transfer and Exchange.
When Senior Notes are presented to the Registrar with a request to register
the transfer or to ex change them for an equal principal amount of Senior Notes
of other denominations, the Registrar shall register the transfer or make the
exchange if its requirements for such transactions are met; provided that any
Senior Note presented or surrendered for registration of transfer or exchange
shall be duly endorsed or accompanied by a written instruction of transfer in
form satisfactory to the Registrar and the Trustee duly executed by the Holder
thereof or by his attorney duly authorized in writing. To permit registrations
of transfer and exchanges, the Issuers shall issue and the Trustee shall
authenticate Senior Notes at the Registrar's request, subject to such rules as
the Trustee may reasonably require.
Neither the Issuers nor the Registrar shall be required to (i) issue,
register the transfer of or exchange Senior Notes during a period beginning at
the opening of business on a Business Day 15 days before the day of any
selection of Senior Notes for redemption under Section 3.02 or (ii) register the
transfer of or exchange any Senior Note so selected for redemption in whole or
in part, except the unredeemed portion of any Senior Note being redeemed in
part.
No service charge shall be made to any Holder of a Senior Note for any
registration of transfer or exchange (except as otherwise expressly permitted
herein), but the Issuers may require payment of a sum sufficient to cover any
transfer tax or similar governmental charge payable in connection therewith
(other than such transfer tax or similar governmental charge payable upon
exchanges pursuant to Sections 2.10, 3.06 or 9.05 hereof, which shall be paid by
the Issuers).
Prior to due presentment to the Trustee for registration of the transfer of
any Senior Note, the Trustee, any Agent and the Issuers may deem and treat the
Person in whose name any Senior Note is registered as the absolute owner of such
Senior Note for the purpose of receiving payment of principal of, premium, if
any, and interest on such Senior Note and for all other purposes whatsoever,
whether or not such Senior Note is overdue, and neither the Trustee, any Agent
nor the Company shall be affected by notice to the contrary. The registered
Holder of a Senior Note shall be treated as its owner for all purposes.
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<PAGE>
Section 2.07. Replacement Senior Notes.
If any mutilated Senior Note is surrendered to the Trustee, or the Issuers
and the Trustee receive evidence to their satisfaction of the destruction, loss
or theft of any Senior Note, the Issuers shall issue and the Trustee, upon the
written order of the Issuers signed by an Officer of each of the General
Partner, on behalf of the Company (or the Company, if the Company is a
corporation), and Capital Corp. shall authenticate a replacement Senior Note if
the Trustee's requirements for replacements of Senior Notes are met. If
required by the Trustee or the Issuers, an indemnity bond must be supplied by
the Holder that is sufficient in the judgment of the Trustee and the Issuers to
protect the Issuers, the Trustee, any Agent or any authenticating agent from any
loss which any of them may suffer if a Senior Note is replaced. The Issuers and
the Trustee may charge for its expenses in replacing a Senior Note.
Every replacement Senior Note is an additional obligation of the Issuers, and
shall be entitled to all of the benefits of this Indenture equally and ratably
with all other Senior Notes duly issued hereunder.
Section 2.08. Outstanding Senior Notes.
The Senior Notes outstanding at any time are all the Senior Notes
authenticated by the Trustee except for those cancelled by it, those delivered
to it for cancellation and those described in this Section as not outstanding.
If a Senior Note is replaced pursuant to Section 2.07 hereof, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Senior Note is held by a bona fide purchaser. If the principal amount
of any Senior Note is considered paid under Section 4.01 hereof, it ceases to be
outstanding and interest on it ceases to accrue. Subject to Section 2.09
hereof, a Senior Note does not cease to be outstanding because any Issuer, a
Subsidiary of any Issuer or an Affiliate of any Issuer holds the Senior Note.
Section 2.09. Treasury Senior Notes.
In determining whether the Holders of the required principal amount of Senior
Notes have concurred in any direction, waiver or consent, Senior Notes owned by
any Issuer, any Subsidiary of any Issuer or any Affiliate of any Issuer shall be
considered as though not outstanding, except that for purposes of determining
whether the Trustee shall be protected in relying on any such direction, waiver
or consent, only Senior Notes which a Responsible Officer knows to be so owned
shall be so considered. Notwithstanding the foregoing, Senior Notes that are to
be acquired by any Issuer, any Subsidiary of any Issuer or an Affiliate of any
Issuer pursuant to an exchange offer, tender offer or other agreement shall not
be deemed to be owned by such Issuer, such Subsidiary of such Issuer or an
Affiliate of such Issuer until legal title to such Senior Notes passes to such
Issuer, such Subsidiary or Affiliate, as the case may be.
Section 2.10. Temporary Senior Notes.
Until definitive Senior Notes are ready for delivery, the Issuers may prepare
and the Trustee shall authenticate temporary Senior Notes. Temporary Senior
Notes shall be substantially in the form of definitive Senior Notes but may have
variations that the Company and the Trustee consider appropriate for temporary
Senior Notes. Without unreasonable delay, the Issuers shall prepare and the
Trustee, upon receipt of the written order of the Company signed by an Officer
of each of the General Partner, on behalf of the Company (or the Company, if the
Company is a corporation), and Capital Corp., shall authenticate definitive
Senior Notes in exchange for temporary Senior Notes. Until such exchange,
temporary Senior Notes shall be entitled to the same rights, benefits and
privileges as definitive Senior Notes.
17
<PAGE>
Section 2.11. Cancellation.
The Issuers at any time may deliver Senior Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Senior Notes surrendered to them for registration of transfer, exchange or
payment. The Trustee shall cancel all Senior Notes surrendered for registration
of transfer, exchange, payment, replacement or cancellation and shall destroy
cancelled Senior Notes (subject to the record retention requirement of the
Exchange Act), unless the Company directs that cancelled Senior Notes be
returned to it. The Issuers may not issue new Senior Notes to replace Senior
Notes that it has redeemed or paid or that have been delivered to the Trustee
for cancellation. All cancelled Senior Notes held by the Trustee shall be
destroyed and certification of their destruction delivered to the Issuers,
unless by a written order, signed by an Officer of each of the General Partner,
on behalf of the Company (or the Company, if the Company is a corporation), and
Capital Corp., the Issuers shall direct that cancelled Senior Notes be returned
to it.
Section 2.12. Defaulted Interest.
If the Issuers default in a payment of interest on the Senior Notes, they
shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders of the Senior Notes on a subsequent special record date, which date
shall be at the earliest practicable date but in all events at least five
Business Days prior to the payment date, in each case at the rate provided in
the Senior Notes and in Section 4.01 hereof. The Issuers shall, with the
consent of the Trustee, fix or cause to be fixed each such special record date
and payment date. At least 15 days before the special record date, the Issuers
(or the Trustee, in the name of and at the expense of the Issuers) shall mail to
Holders of the Senior Notes a notice that states the special record date, the
related payment date and the amount of such interest to be paid.
Section 2.13. Record Date.
The record date for purposes of determining the identity of Holders of the
Senior Notes entitled to vote or consent to any action by vote or consent
authorized or permitted under this Indenture shall be determined as provided for
in TIA (S) 316(c).
Section 2.14. CUSIP Number.
The Company in issuing the Senior Notes may use a "CUSIP" number and, if it
does so, the Trustee shall use the CUSIP number in notices of redemption or
exchange as a convenience to Holders; provided that any such notice may state
that no representation is made as to the correctness or accuracy of the CUSIP
number printed in the notice or on the Senior Notes and that reliance may be
placed only on the other identification numbers printed on the Senior Notes.
The Issuers shall promptly notify the Trustee of any change in the CUSIP number.
ARTICLE 3
REDEMPTION
Section 3.01. Notices to Trustee.
If the Issuers elect to redeem Senior Notes pursuant to the optional
redemption provisions of Section 3.07 hereof, they shall furnish to the Trustee,
at least 45 days but not more than 60 days before a redemption date, an
Officers' Certificate setting forth (i) the Section of this Indenture pursuant
to which
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<PAGE>
the redemption shall occur, (ii) the redemption date, (iii) the principal amount
of Senior Notes to be redeemed and (iv) the redemption price.
Section 3.02. Selection of Senior Notes to Be Redeemed.
If less than all of the Senior Notes are to be redeemed at any time,
selection of Senior Notes for redemption shall be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Senior Notes are listed, or, if the Senior Notes are not so
listed, on a pro rata basis, by lot or by such method as the Trustee shall deem
fair and appropriate, provided that no Senior Notes of $1,000 or less shall be
redeemed in part. Notices of redemption shall be mailed by first class mail at
least 30 but not more than 60 days before the redemption date to each Holder of
Senior Notes to be redeemed at its registered address. If any Senior Note is to
be redeemed in part only, the notice of redemption that relates to such Senior
Note shall state the portion of the principal amount thereof to be redeemed. A
new Senior Note in principal amount equal to the unredeemed portion thereof
shall be issued in the name of the Holder thereof upon cancellation of the
original Senior Note. On and after the redemption date, interest ceases to
accrue on Senior Notes or portions of them called for redemption unless the
Issuers default in making such redemption payment.
The Trustee shall promptly notify the Issuers in writing of the Senior Notes
selected for redemption and, in the case of any Senior Note selected for partial
redemption, the principal amount thereof to be redeemed. Senior Notes and
portions of them selected shall be in amounts of $1,000 or whole multiples of
$1,000; except that if all of the Senior Notes of a Holder are to be redeemed,
the entire outstanding amount of Senior Notes held by such Holder, even if not a
multiple of $1,000, shall be redeemed. Except as provided in the preceding
sentence, provisions of this Indenture that apply to Senior Notes called for
redemption also apply to portions of Senior Notes called for redemption.
Section 3.03. Notice of Redemption.
Subject to the provisions of Section 3.09 hereof, at least 30 days but not
more than 60 days before a redemption date, the Issuers shall mail or cause to
be mailed, by first class mail, a notice of redemption to each Holder whose
Senior Notes are to be redeemed at its registered address.
The notice shall identify the Senior Notes to be redeemed and shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Senior Note is being redeemed in part, the portion of the
principal amount of such Senior Note to be redeemed and that, after the
redemption date upon surrender of such Senior Note, a new Senior Note or
Senior Notes in principal amount equal to the unredeemed portion shall be
issued;
(d) the name and address of the Paying Agent;
(e) that Senior Notes called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
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<PAGE>
(f) that, unless the Issuers default in making such redemption payment,
interest on Senior Notes called for redemption ceases to accrue on and after
the redemption date;
(g) the paragraph of the Senior Notes and/or Section of this Indenture
pursuant to which the Senior Notes called for redemption are being redeemed;
and
(h) that no representation is made as to the correctness or accuracy of
the CUSIP number, if any, listed in such notice or printed on the Senior
Notes.
At the Issuers' request, the Trustee shall give the notice of redemption in
the name of the Issuers and at their expense; provided that the Issuers shall
have delivered to the Trustee, at least 45 days prior to the redemption date, an
Officers' Certificate requesting that the Trustee give such notice and setting
forth the information to be stated in such notice as provided in the preceding
paragraph.
Section 3.04. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.03 hereof,
Senior Notes called for redemption become due and payable on the redemption date
at the redemption price.
Section 3.05. Deposit of Redemption Price.
One Business Day prior to the redemption date, the Issuers shall deposit with
the Trustee or with the Paying Agent money sufficient to pay the redemption
price of and accrued interest on all Senior Notes to be redeemed on that date.
The Trustee or the Paying Agent shall promptly return to the Issuers any money
deposited with the Trustee or the Paying Agent by the Issuers in excess of the
amounts necessary to pay the redemption price of, and accrued interest on, all
Senior Notes to be redeemed.
On and after the redemption date, interest shall cease to accrue on the
Senior Notes or the portions of Senior Notes called for redemption. If a Senior
Note is redeemed on or after an interest record date but on or prior to the
related interest payment date, then any accrued and unpaid interest shall be
paid to the Person in whose name such Senior Note was registered at the close of
business on such record date. If any Senior Note called for redemption shall
not be so paid upon surrender for redemption because of the failure of the
Issuers to comply with the preceding paragraph, interest shall be paid on the
unpaid principal, from the redemption date until such principal is paid, and to
the extent lawful on any interest not paid on such unpaid principal, in each
case at the rate provided in the Senior Notes and in Section 4.01 hereof.
Section 3.06. Senior Notes Redeemed in Part.
Upon surrender of a Senior Note that is redeemed in part, the Issuers shall
issue and the Trustee shall authenticate for the Holder of the Senior Notes at
the expense of the Issuers a new Senior Note equal in principal amount to the
unredeemed portion of the Senior Note surrendered.
Section 3.07. Optional Redemption.
(a) The Senior Notes shall not be redeemable at the Issuers' option prior to
__________, 2000. Thereafter, the Senior Notes shall be subject to redemption
at the option of the Issuers, in whole or in part, upon not less than 30 nor
more than 60 days' notice, in cash at the redemption prices (expressed as
percentages of principal amount) set forth below, plus accrued and unpaid
interest, if any, thereon to the
20
<PAGE>
applicable redemption date, if redeemed during
the twelve-month period beginning on __________ of the years indicated below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
2000..................................... %
2001..................................... %
2002 and thereafter...................... 100.000%
</TABLE>
(b) Notwithstanding the foregoing, during the first 36 months after the date
of this Prospectus, the Issuers may on any one or more occasions redeem up to
35% of the initially outstanding aggregate principal amount of Senior Notes at a
redemption price equal to ___% of the principal amount thereof, plus accrued and
unpaid interest, if any, thereon to the redemption date, with the net proceeds
of one or more equity offerings of the Issuers generating in each case net
proceeds of at least $15.0 million; provided that at least 65% of the initially
outstanding aggregate principal amount of Senior Notes remains outstanding
immediately after the occurrence of any such redemption; and provided, further,
that such redemption shall occur within 60 days of the date of the closing of
any such equity offering of the Issuers.
Section 3.08. Mandatory Redemption.
Except as set forth under Sections 4.10 and 4.15 of this Indenture, the
Issuers shall not be required to make mandatory redemption or sinking fund
payments with respect to the Senior Notes.
Section 3.09. Offer to Purchase by Application of Excess Proceeds.
In the event that, pursuant to Section 4.10 hereof, the Company shall
commence an Asset Sale Offer, it shall follow the procedures specified below:
The Asset Sale Offer shall remain open for a period of 20 Business Days
following its commencement and no longer, except to the extent that a longer
period is required by applicable law (the "Offer Period"). No later than five
Business Days after the termination of the Offer Period (the "Purchase Date"),
the Company shall purchase the Offer Amount or, if less than the Offer Amount
has been tendered, all Senior Notes tendered in response to the Asset Sale
Offer.
If the Purchase Date is on or after an interest record date and on or before
the related interest payment date, any accrued interest shall be paid to the
Person in whose name a Senior Note is registered at the close of business on
such record date, and no additional interest shall be payable to Holders who
tender Senior Notes pursuant to the Asset Sale Offer.
Upon the commencement of any Asset Sale Offer, the Company shall send, by
first class mail, a notice to the Trustee and each of the Holders of the Senior
Notes, with a copy to the Trustee. The notice shall contain all instructions
and materials necessary to enable such Holders to tender Senior Notes pursuant
to the Asset Sale Offer. The notice, which shall govern the terms of the Asset
Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this Section
3.09 and Section 4.10 and the length of time the Asset Sale Offer shall
remain open;
(b) the Offer Amount, the purchase price pursuant to Section 4.10 and
the Purchase Date;
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(c) that any Senior Note not tendered or accepted for payment shall
continue to accrue interest;
(d) that any Senior Note accepted for payment pursuant to the Asset
Sale Offer shall cease to accrue interest after the Purchase Date unless the
Company defaults in making such payment;
(e) that Holders electing to have a Senior Note purchased pursuant to
any Asset Sale Offer shall be required to surrender the Senior Note, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the
Senior Note completed, to the Company, a depositary, if appointed by the
Company, or a Paying Agent at the address specified in the notice at least
three days before the Purchase Date;
(f) that Holders shall be entitled to withdraw their election if the
Company, depositary or Paying Agent, as the case may be, receives, not later
than the expiration of the Offer Period, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Senior Note the Holder delivered for purchase and a statement
that such Holder is withdrawing his election to have the Senior Note
purchased;
(g) that, if the aggregate principal amount of Senior Notes surrendered
by Holders exceeds the Offer Amount, the Company shall select the Senior
Notes to be purchased on a pro rata basis (with such adjustments as may be
deemed appropriate by the Company so that only Senior Notes in denominations
of $1,000, or integral multiples thereof, shall be purchased); and
(h) that Holders whose Senior Notes were purchased only in part shall
be issued new Senior Notes equal in principal amount to the unpurchased
portion of the Senior Notes surrendered.
On or before the Purchase Date, the Company shall, to the extent lawful,
accept for payment, on a pro rata basis to the extent necessary, the Offer
Amount of Senior Notes or portions thereof tendered pursuant to the Asset Sale
Offer, or if less than the Offer Amount has been tendered, all Senior Notes or
portions thereof tendered, and deliver to the Trustee an Officers' Certificate
stating that such Senior Notes or portions thereof were accepted for payment by
the Company in accordance with the terms of this Section 3.09. The Company,
depository or Paying Agent, as the case may be, shall promptly (but in any case
not later than five days after the Purchase Date) mail or deliver to each
tendering Holder an amount equal to the purchase price of the Senior Note
tendered by such Holder and accepted by the Company for purchase, and the
Company shall promptly issue a new Senior Note, and the Trustee shall
authenticate and mail or deliver such new Senior Note to such Holder equal in
principal amount to any unpurchased portion of the Senior Note surrendered. Any
Senior Note not so accepted shall be promptly mailed or delivered by the Company
to the Holder thereof. The Company shall publicly announce the results of the
Asset Offer on the Purchase Date.
Other than as specifically provided in this Section 3.09, any purchase
pursuant to this Section 3.09 shall be made pursuant to the provisions of
Sections 3.01 through 3.06 hereof.
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ARTICLE 4
COVENANTS
Section 4.01. Payment of Senior Notes.
The Issuers shall pay or cause to be paid the principal of, premium, if any,
and interest on the Senior Notes on the dates and in the manner provided in the
Senior Notes. Principal, premium, if any, and interest shall be considered paid
on the date due if the Paying Agent, if other than the Issuers, holds as of
10:00 a.m. Eastern Time on the due date money deposited by the Issuers in
immediately available funds and designated for and sufficient to pay all
principal, premium, if any, and interest then due.
The Issuers shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal at the rate equal to
the then applicable interest rate on the Senior Notes to the extent lawful; it
shall pay interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest (without regard to any
applicable grace period) at the same rate to the extent lawful.
Section 4.02. Maintenance of Office or Agency.
The Issuers shall maintain in the Borough of Manhattan, the City of New York,
an office or agency (which may be an office of the Trustee or an affiliate of
the Trustee, Registrar or co-registrar) where Senior Notes may be surrendered
for registration of transfer or exchange and where notices and demands to or
upon the Company in respect of the Senior Notes and this Indenture may be
served. The Issuers shall give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Issuers shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee.
The Issuers may also from time to time designate one or more other offices or
agencies where the Senior Notes may be presented or surrendered for any or all
such purposes and may from time to time rescind such designations; provided that
no such designation or rescission shall in any manner relieve the Issuers of
their obligation to maintain an office or agency in the Borough of Manhattan,
the City of New York for such purposes. The Issuers shall give prompt written
notice to the Trustee of any such designation or rescission and of any change in
the location of any such other office or agency.
The Issuers hereby designate the Corporate Trust Office of the Trustee as one
such office or agency of the Issuers in accordance with Section 2.03.
Section 4.03. Reports.
(a) So long as any of the Senior Notes remain outstanding, the Issuers are
shall submit copies of all quarterly and annual financial reports and of the
information, documents, and other reports (or copies of such portions of any of
the foregoing as the Commission may by rules and regulations prescribe) which
the Issuers are required to file with the Commission pursuant to Section 13 or
15(d) of the Exchange Act to be filed with the Trustee and mailed to the Holders
at their addresses appearing in the register of Senior Notes maintained by the
Registrar, in each case, within 15 days of filing with the Commission. If the
Issuers are not subject to the requirements of such Section 13 or 15(d) of the
Exchange Act, the Issuers are shall nevertheless continue to submit the annual
and quarterly financial statements, including any notes thereto (and, with
respect to annual reports, an auditors' report by an accounting firm of
established national reputation) and a "Management's Discussion and Analysis of
Financial Condition and Results of
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Operations," comparable to that which would have been required to appear in
annual or quarterly reports filed under Section 13 or 15(d) of the Exchange Act
to be so filed with the Commission for public availability and the Trustee and
mailed to the Holders within 120 days after the end of the Issuers' fiscal years
and within 60 days after the end of each of the first three quarters of each
such fiscal year. The Issuers shall make such information available to
securities analysts and prospective investors upon request. The Issuers shall
also comply with the provisions of TIA (S) 314(a).
(b) The Issuers shall provide the Trustee with a sufficient number of copies
of all reports and other documents and information that the Trustee may be
required to deliver to the Holders of the Senior Notes under this Section 4.03.
Section 4.04. Compliance Certificate.
(a) The Company shall deliver to the Trustee, within 120 days after the end
of each fiscal year, an Officers' Certificate stating that a review of the
activities of the Company and its Subsidiaries during the preceding fiscal year
has been made under the supervision of the signing Officers with a view to
determining whether each has kept, observed, performed and fulfilled its
obligations under this Indenture, and further stating, as to each such Officer
signing such certificate, that to the best of his or her knowledge each entity
has kept, observed, performed and fulfilled each and every covenant contained in
this Indenture and is not in default in the performance or observance of any of
the terms, provisions and conditions of this Indenture (or, if a Default or
Event of Default shall have occurred, describing all such Defaults or Events of
Default of which he or she may have knowledge and what action each is taking or
proposes to take with respect thereto) and that to the best of his or her
knowledge no event has occurred and remains in existence by reason of which
payments on account of the principal of or interest, if any, on the Senior Notes
is prohibited or if such event has occurred, a description of the event and what
action each is taking or proposes to take with respect thereto.
(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03 above shall be accompanied by a
written statement of the Company's independent public accountants (who shall be
a firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention which would lead them to believe that the Company has violated
any provisions of Sections 4.01, 4.05, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13,
4.14, 4.15, 4.16, 4.17, 4.18, 4.19 or 4.21 hereof or Article 5 of this Indenture
or, if any such violation has occurred, specifying the nature and period of
existence thereof, it being understood that such accountants shall not be liable
directly or indirectly to any Person for any failure to obtain knowledge of any
such violation.
(c) Each Issuer shall, so long as any of the Senior Notes are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming aware of (i) any
Default or Event of Default or (ii) any event of default under any Indebtedness
referred to in Section 6.01(d) hereof, an Officers' Certificate specifying such
Default, Event of Default or default and what action the Issuers are taking or
proposes to take with respect thereto.
Section 4.05. Taxes.
Each Issuer shall pay, and shall cause each of its Subsidiaries to pay, prior
to delinquency, all material taxes, assessments, and governmental levies except
as contested in good faith and by appropriate
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proceedings or where the failure to effect such payment is not adverse in any
material respect to the Holders of the Senior Notes.
Section 4.06. Stay, Extension and Usury Laws.
Each Issuer covenants (to the extent that it may lawfully do so) that it
shall not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, that may affect the covenants or
the performance of this Indenture; and each Issuer (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it shall not, by resort to any such law, hinder, delay
or impede the execution of any power herein granted to the Trustee, but shall
suffer and permit the execution of every such power as though no such law has
been enacted.
Section 4.07. Restricted Payments.
(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, (i) declare or pay any dividend or make
any distribution on account of the Company's or any of its Restricted
Subsidiaries' Equity Interests (including, without limitation, any such
distribution by such Persons in connection with any merger or consolidation
involving the Company or Capital Corp. but excluding any such distribution
directly relating to the reorganization of the Company as a corporation)(other
than dividends or distributions payable in Equity Interests (other than
Disqualified Interests) of the Company or dividends or distributions payable to
the Company or any Wholly Owned Restricted Subsidiary of the Company); (ii)
purchase, redeem or otherwise acquire or retire for value any Equity Interests
of the Company or any direct or indirect parent of the Company; (iii) make any
principal payment on, or purchase, redeem, defease or otherwise acquire or
retire for value any Subordinated Indebtedness, except at final maturity; or
(iv) make any Restricted Investment (all such payments and other actions set
forth in clauses (i) through (iv) above being collectively referred to as
"Restricted Payments"), unless, at the time of and after giving effect to such
Restricted Payment:
(A) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and
(B) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the most recently ended four fiscal quarters for which
financial statements are available, have been permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in Section 4.09(a) hereof; and
(C) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries after
the date hereof (excluding Restricted Payments permitted by clauses (ii),
(iii), (iv), (vi) and (vii) of the next succeeding paragraph), is less than
the sum of (1) 50% of the Consolidated Net Income of the Company for the
period (taken as one accounting period) from the beginning of the first
fiscal quarter commencing after the date hereof to the end of the Company's
most recently ended fiscal quarter for which internal financial statements
are available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, less 100% of such
deficit), plus (2) 100% of the aggregate net cash proceeds received by the
Company from the issue or sale since the date hereof of Equity Interests of
the Company or of debt securities of the Company that have been converted
into such Equity Interests (other than Equity Interests (or convertible debt
securities) sold to a Subsidiary of the Company and
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other than Disqualified Interests or debt securities that have been converted
into Disqualified Interests), plus (3) to the extent that any Restricted
Investment that was made after the date hereof is sold for cash or otherwise
liquidated or repaid for cash, the lesser of (x) the cash return of capital
with respect to such Restricted Investment (less the cost of disposition, if
any) and (y) the initial amount of such Restricted Investment.
(b) The foregoing provisions shall not prohibit (i) the payment of any
dividend or distribution within 60 days after the date of declaration thereof,
if at said date of declaration such payment would have complied with the
provisions hereof; (ii) the redemption, repurchase, retirement or other
acquisition of any Equity Interests of the Company in exchange for, or out of
the proceeds of, the substantially concurrent sale (other than to a Subsidiary
of the Company) of other Equity Interests of the Company (other than any
Disqualified Interests); provided that the amount of any such net cash proceeds
that are utilized for any such redemption, repurchase, retirement or other
acquisition shall be excluded from clause (C)(2) of the preceding paragraph;
(iii) the defeasance, redemption or repurchase of Subordinated Indebtedness with
the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness
or the substantially concurrent sale (other than to a Subsidiary of the Company)
of Equity Interests of the Company (other than Disqualified Interests); provided
that the amount of any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement or other acquisition shall be excluded from
clause (C)(2) of the preceding paragraph; (iv) distributions not more frequently
than quarterly in accordance with the Code in respect of partners' income tax
liability in an amount not to exceed the Tax Amount; (v) the repurchase,
redemption or other acquisition or retirement for value of any Equity Interests
of the Company or any Restricted Subsidiary of the Company held by any member of
the Company's (or any of its Restricted Subsidiaries') management pursuant to
the Partnership Agreement or any management equity subscription agreement or
stock option agreement in effect as of the date hereof or any successor
arrangement entered into in connection with the reorganization of the Company as
a corporation (provided that such successor arrangement is on terms
substantially similar to those of the arrangement so replaced); provided that
the aggregate price paid for all such repurchased, redeemed, acquired or retired
Equity Interests shall not exceed $500,000 in each twelve-month period, plus the
amount of any such amounts which remain unused at the end of the two prior
twelve-month periods, but in no event shall such aggregate amount exceed $1.5
million in any such twelve-month period, plus the aggregate cash proceeds
received by the Company during such twelve-month period from any reissuance of
Equity Interests by the Company to members of management of the Company and its
Restricted Subsidiaries; and no Default or Event of Default shall have occurred
and be continuing immediately after such transaction; (vi) prior to the
reorganization of the Company as a corporation, distributions or payments to
partners of the Company in an aggregate amount not to exceed $750,000 in any
fiscal year in respect of Administrative Expenses; and (vii) following the
reorganization of the Company as a corporation, (A) payments by the Company to
its parent pursuant to any tax sharing agreement between the Company and such
parent, (B) reimbursement payments by the Company to such parent in respect of
out-of-pocket insurance payments made by such parent on behalf of the Company
and its Restricted Subsidiaries and (C) payments by the Company to such parent
in respect of Administrative Expenses.
(c) The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default; provided
that in no event shall the business currently operated by the Company and
Capital Corp. be transferred to or held by an Unrestricted Subsidiary. For
purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash) in
the Subsidiary so designated shall be deemed to be Restricted Payments at the
time of such designation and shall reduce the amount available for Restricted
Payments under the first paragraph of this covenant. All such outstanding
Investments shall be deemed to constitute Investments in an amount equal to the
greatest of (x) the net book value of such Investments at the time of such
designation, (y) the fair market value of such Investments at the time of such
designation and (z) the original fair market value of such Investments
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at the time they were made. Such designation shall only be permitted if such
Restricted Payment would be permitted at such time and if such Restricted
Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
(d) The amount of all Restricted Payments (other than cash) shall be the fair
market value (evidenced by a resolution of the Board of Directors set forth in
an Officers' Certificate delivered to the Trustee) on the date of the Restricted
Payment of the asset(s) proposed to be transferred by the Company or such
Subsidiary, as the case may be, pursuant to the Restricted Payment. Not later
than the date of making any Restricted Payment, the Company shall deliver to the
Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
Section 4.07(a) hereof were computed, which calculations may be based upon the
Issuers' latest available financial statements.
Section 4.08. Dividend and Other Payment Restrictions Affecting Subsidiaries.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (a)(i) pay dividends or make any other distributions to
the Company or any of its Restricted Subsidiaries (A) on their Capital Interests
or (B) with respect to any other interest or participation in, or measured by,
its profits, or (ii) pay any indebtedness owed to the Company or any of its
Restricted Subsidiaries, (b) make loans or advances to the Company or any of its
Restricted Subsidiaries or (c) transfer any of its properties or assets to the
Company or any of its Restricted Subsidiaries, except for such encumbrances or
restrictions existing under or by reason of (i) Existing Indebtedness as in
effect on the date hereof, (ii) any Credit Facility or Foreign Credit Facility,
provided that any amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings thereto are no more
restrictive with respect to such dividend and other payment restrictions than
those contained in such Credit Facility as in effect on the date of its
execution, (iii) the Indenture and the Senior Notes, (iv) applicable law, (v) by
reason of customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices, (vi) Capital
Lease Obligations, mortgage financings or purchase money obligations for
property acquired in the ordinary course of business that impose restrictions of
the nature described in clause (c) above on the property so acquired, (vii)
existing with respect to any Person or the property or assets of such Person
acquired by the Company or any of its Restricted Subsidiaries, at the time of
such acquisition and not incurred in contemplation thereof, which encumbrances
or restrictions are not applicable to any Person or the property or assets of
any Person other than such Person or the property or assets of such Person so
acquired, or (viii) Permitted Refinancing Indebtedness, provided that the
restrictions contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive than those contained in the agreements
governing the Indebtedness being refinanced.
Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock.
(a) The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guaranty or otherwise
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired Debt) and that the
Company shall not issue any Disqualified Interests and shall not permit any of
its Subsidiaries to issue any shares of preferred stock or preferred partnership
interests; provided that the Company and any of its Restricted Subsidiaries that
is a Guarantor may incur Indebtedness (including Acquired Debt) or issue
Disqualified Interests, if the Fixed Charge Coverage Ratio for the Company's
most recently ended four
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full fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
or such Disqualified Interests is issued would have been at least (a) 2.0 to 1,
on or prior to December 31, 1998, and (b) 2.25 to 1, thereafter, in each case,
determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness had been incurred, or the
Disqualified Interests had been issued, as the case may be, at the beginning of
such four-quarter period.
(b) The foregoing provisions shall not apply to:
(i) the incurrence by the Company and any of its Restricted Subsidiaries
that is a Guarantor of Senior Revolving Debt and letters of credit pursuant
to any Credit Facility for working capital purposes (with letters of credit
being deemed to have a principal amount equal to the maximum potential
liability of the Company thereunder) in an aggregate principal amount not to
exceed the amount of the Borrowing Base;
(ii) the incurrence by the Company and its Restricted Subsidiaries of the
Existing Indebtedness and the Company's Class C-1 Limited Partner Interest
outstanding as of the date hereof and any conversion of such interests in
accordance with the terms of the Partnership Agreement;
(iii) the incurrence by the Company and Capital Corp. of the Indebtedness
represented by the Senior Notes and the incurrence by any Guarantor of the
Indebtedness represented by its Subsidiary Guarantee;
(iv) the incurrence by the Company and any of its Restricted Subsidiaries
that is a Guarantor of Permitted Refinancing Indebtedness in exchange for, or
the net proceeds of which are used to extend, refinance, renew, replace,
defease or refund, Indebtedness that was permitted hereby to be incurred;
(v) the incurrence by the Company or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among the Company and any of its Wholly
Owned Restricted Subsidiaries; provided that (A) any subsequent issuance or
transfer of Equity Interests that results in any such Indebtedness being held
by a Person other than a Wholly Owned Restricted Subsidiary and (B) any sale
or other transfer of any such Indebtedness to a Person that is not either the
Company or a Wholly Owned Restricted Subsidiary shall be deemed, in each
case, to constitute an incurrence of such Indebtedness by the Company or such
Restricted Subsidiary, as the case may be;
(vi) the incurrence by the Company and any of its Restricted Subsidiaries
that is a Guarantor of Indebtedness represented by Capital Lease Obligations,
mortgage financings or purchase money obligations, in each case incurred for
the purpose of financing up to all or any part of the purchase price or cost
of construction or improvement of property used in the business of the
Company or such Restricted Subsidiary, in an aggregate principal amount not
to exceed $2.0 million at any time outstanding;
(vii) the incurrence by the Company and any of its Restricted
Subsidiaries that is a Guarantor of Hedging Obligations that are incurred for
the purpose of fixing or hedging interest rate risk with respect to any
floating rate Indebtedness that is permitted by the terms of this Indenture
to be outstanding;
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(viii) the incurrence by the Company and any of its Restricted
Subsidiaries that is a Guarantor of statutory obligations, surety or appeal
bonds, performance bonds or other obligations of a like nature incurred in
the ordinary course of business;
(ix) the incurrence by the Foreign Restricted Subsidiaries of the Company
of Indebtedness in an aggregate amount not to exceed $3.0 million at any time
outstanding;
(x) the incurrence by the Company and any of its Restricted Subsidiaries
that is a Guarantor of Indebtedness not otherwise permitted hereunder in an
aggregate amount not to exceed $5.0 million at any time outstanding, less the
aggregate principal amount of any Indebtedness incurred pursuant to clause
(ix) of this paragraph; and
(xi) the incurrence by the Company's Unrestricted Subsidiaries of Non-
Recourse Debt, provided that, if any such Indebtedness ceases to be Non-
Recourse Debt of an Unrestricted Subsidiary, such event shall be deemed to
constitute an incurrence of Indebtedness by a Restricted Subsidiary of the
Company.
Section 4.10. Asset Sales.
(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, engage in an Asset Sale, unless (a) the Company (or the
Restricted Subsidiary, as the case may be) receives consideration at the time of
such Asset Sale at least equal to the fair market value (evidenced by a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) of the assets or Equity Interests issued or sold or
otherwise disposed of and (b) at least 75% of the consideration therefor
received by the Company or such Restricted Subsidiary is in the form of cash or
Cash Equivalents; provided that the amount of (i) any liabilities (as shown on
the Company's or such Restricted Subsidiary's most recent balance sheet or in
the notes thereto), of the Company or any Restricted Subsidiary (other than
liabilities that are by their terms subordinated to the Senior Notes or any
guarantee thereof) that are assumed by the transferee of any such assets and
(ii) any notes or other obligations received by the Company or any such
Restricted Subsidiary from such transferee that are promptly converted by the
Company or such Restricted Subsidiary into cash (to the extent of the cash
received), shall be deemed to be cash for purposes of this provision; and
provided, further, that the limitation in clause (b) above shall not apply to
any Asset Sale in which the cash portion of the consideration received therefor,
determined in accordance with foregoing proviso, is equal to or greater than
what the after-tax net proceeds would have been had such Asset Sale complied
with the aforementioned limitation.
(b) Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Issuers may apply such Net Proceeds (a) to permanently reduce Pari Passu
Indebtedness, (b) to permanently reduce Indebtedness permitted to be incurred
pursuant to Section 4.09(b)(i) hereof or (c) to an investment in another
business, the making of a capital expenditure or the acquisition of other
tangible assets, in each case, in the same or a similar or related line of
business as the Issuers were engaged in on the date hereof. Pending the final
application of any such Net Proceeds, the Company may temporarily reduce Senior
Revolving Debt or otherwise invest such Net Proceeds in any manner that is not
prohibited hereby. Any Net Proceeds from Asset Sales that are not applied or
invested as provided in the first sentence of this paragraph shall be deemed to
constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds
exceeds $10.0 million, the Company shall be required to make an offer to all
holders of Senior Notes (an "Asset Sale Offer") to purchase the maximum
principal amount of Senior Notes that may be purchased out of the Excess
Proceeds (the "Offer Amount"), at an offer price in cash in an amount equal to
101% of the principal amount thereof, plus accrued and unpaid interest thereon
to the date of purchase
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(the "Asset Sale Offer Price"), in accordance with the procedures set forth
herein. To the extent that the aggregate amount of Senior Notes tendered
pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company
may use any remaining Excess Proceeds for general corporate purposes. If the
aggregate principal amount of Senior Notes surrendered by holders thereof
exceeds the amount of Excess Proceeds, the Trustee shall select the Senior Notes
to be purchased on a pro rata basis. Upon completion of such offer to purchase,
the amount of Excess Proceeds shall be reset at zero.
Section 4.11. Transactions with Affiliates.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from, or enter into
or make any contract, agreement, understanding, loan, advance or guarantee with,
or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (a) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person and (b) the Company delivers to
the Trustee (i) with respect to any Affiliate Transaction involving aggregate
consideration in excess of $1.0 million, a resolution of the Board of Directors
set forth in an Officers' Certificate certifying that such Affiliate Transaction
complies with clause (a) above and that such Affiliate Transaction has been
approved by a majority of the disinterested members of the Board of Directors
and (ii) with respect to any Affiliate Transaction involving aggregate
consideration in excess of $7.5 million, an opinion as to the fairness to the
Company or such Restricted Subsidiary of such Affiliate Transaction from a
financial point of view issued by a nationally-recognized investment banking
firm; provided that (A) any reasonable employment arrangement entered into by
the Company or any of its Restricted Subsidiaries in the ordinary course of
business of the Company or such Restricted Subsidiary, (B) transactions between
or among the Company and/or its Restricted Subsidiaries, (C) following the
reorganization of the Company as a corporation, the payment of reasonable fees,
expense reimbursement and customary indemnification and other similar
arrangements to directors of the Company, (D) reasonable loans or advances to
employees of the Company and its Restricted Subsidiaries in the ordinary course
of business and (E) transactions permitted by Section 4.07 hereof, in each case,
shall not be deemed to be Affiliate Transactions.
Section 4.12. Liens.
The Company shall not, and shall not permit any of its Subsidiaries to,
create, incur, assume or otherwise cause or suffer to exist or become effective
any Lien of any kind (other than Permitted Liens) upon any of their property or
assets, now owned or hereafter acquired, unless all payments due under this
Indenture and the Senior Notes and the Subsidiary Guarantees, if any, are
secured on an equal and ratable basis with the obligations so secured until such
time as such obligations are no longer secured by a Lien.
Section 4.13. Sale and Leaseback Transactions
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction; provided that
the Company and any of its Restricted Subsidiaries that is a Guarantor may enter
into a sale and leaseback transaction if (a) the Company or such Restricted
Subsidiary could have (i) incurred Indebtedness in an amount equal to the
Attributable Debt relating to such sale and leaseback transaction pursuant to
Section 4.09 hereof and (ii) incurred a Lien to secure such Indebtedness
pursuant to Section 4.12 hereof, (b) the gross cash proceeds of such sale and
leaseback transaction are at least equal to the fair market value (as determined
in good faith by the Board of Directors and set forth in an Officers'
Certificate delivered to the Trustee) of the property that is the subject of
such sale and
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leaseback transaction and (c) the transfer of assets in such sale and leaseback
transaction is permitted by, and the Company or such Restricted Subsidiary
applies the proceeds of such transaction in compliance with, Section 4.10
hereof.
Section 4.14. Limitation on Issuances and Sales of Capital Interests of Wholly
Owned Subsidiaries
The Company (a) shall not, and shall not permit any Wholly Owned Restricted
Subsidiary of the Company to, transfer, convey, sell, lease or otherwise dispose
of any Capital Interests of any Wholly Owned Restricted Subsidiary of the
Company to any Person (other than the Company or a Wholly Owned Restricted
Subsidiary of the Company), unless (i) such transfer, conveyance, sale, lease or
other disposition is of all the Capital Interests of such Wholly Owned
Restricted Subsidiary and (ii) the cash Net Proceeds from such transfer,
conveyance, sale, lease or other disposition are applied in accordance with
Section 4.10 hereof, and (b) shall not permit any Wholly Owned Restricted
Subsidiary of the Company to issue any of its Equity Interests (other than, if
necessary, Capital Interests constituting directors' qualifying shares or
interests) to any Person other than to the Company or a Wholly Owned Restricted
Subsidiary of the Company; provided that, notwithstanding the foregoing, Capital
Corp. shall, at all times prior to the reorganization of the Company as a
corporation, remain a Wholly Owned Restricted Subsidiary of the Company.
Section 4.15. Limitations on Issuances of Guarantees of Indebtedness
The Company shall not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee or secure the payment of any other Indebtedness, unless
such Subsidiary simultaneously executes and delivers a supplemental indenture to
this Indenture providing for the Guarantee of the payment of the Senior Notes by
such Restricted Subsidiary, which Guarantee shall be senior to or pari passu
with such Restricted Subsidiary's Guarantee of, or pledge to secure, such other
Indebtedness. Notwithstanding the foregoing, any such Guarantee by a Restricted
Subsidiary of the Senior Notes shall provide by its terms that it shall be
automatically and unconditionally released and discharged upon either (a) the
release or discharge of such Guarantee of such Indebtedness, except a discharge
by or as a result of payment under such Guarantee, or (b) any sale, exchange or
transfer, to any Person not an Affiliate of the Company, of all of the Company's
Capital Interests in, or all or substantially all the assets of, such
Subsidiary, which sale, exchange or transfer is made in compliance with the
applicable provisions hereof. The form of such Guarantee is attached as Exhibit
B hereto.
Section 4.16. Subsidiary Guarantees
If the Company or any of its Restricted Subsidiaries shall, after the date
hereof, (a) transfer or cause to be transferred, in one or a series of
transactions (whether or not related), any assets, businesses, divisions, real
property or equipment having an aggregate fair market value (as determined in
good faith by the Board of Directors) in excess of $1.0 million to any Domestic
Subsidiary that is not a Guarantor, (b) acquire another Domestic Subsidiary
having total assets with a fair market value (as determined in good faith by the
Board of Directors) in excess of $1.0 million or (c) redesignate an Unrestricted
Subsidiary that is a Domestic Subsidiary as a Restricted Subsidiary having
total assets with a fair market value (as determined in good faith by the Board
of Directors) in excess of $1.0 million, then such transferee or acquired or
redesignated Subsidiary shall execute a guarantee of the Senior Notes in the
form attached hereto as Exhibit B (each, a "Subsidiary Guarantee") and a
supplemental indenture in the form attached hereto as Exhibit C and deliver an
opinion of counsel, in accordance with the terms hereof; provided that the
foregoing shall not apply to any Subsidiary that has been properly designated as
an Unrestricted
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Subsidiary in accordance herewith for so long as such Subsidiary continues to
constitute an Unrestricted Subsidiary.
Section 4.17. Line of Business.
The Company shall not, and shall not permit any Subsidiary to, engage in any
business, other than such business activities as the Company or its Subsidiaries
are engaged in on the date hereof and such business activities similar or
reasonably related thereto.
Section 4.18. Offer to Repurchase Upon Change of Control
(a) Upon the occurrence of a Change of Control, each holder of Senior Notes
shall have the right to require the Issuers to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of such holder's Senior Notes
pursuant to the offer described below (the "Change of Control Offer") at an
offer price in cash equal to 101% of the aggregate principal amount thereof,
plus accrued and unpaid interest, if any, thereon to the date of purchase (the
"Change of Control Payment"). Within ten days following any Change of Control,
the Issuers shall mail a notice to each holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
Senior Notes pursuant to the procedures required hereby and described in such
notice. The Issuers shall comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Senior Notes as a result of a Change of Control.
(b) On the payment date set forth in the Change of Control Offer (the "Change
of Control Payment Date"), the Issuers shall, to the extent lawful, (i) accept
for payment all Senior Notes or portions thereof properly tendered pursuant to
the Change of Control Offer, (ii) deposit with the Paying Agent an amount equal
to the Change of Control Payment in respect of all Senior Notes or portions
thereof so tendered and (iii) deliver or cause to be delivered to the Trustee
the Senior Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Senior Notes or portions thereof being purchased
by the Issuers. The Paying Agent shall promptly mail to each holder of Senior
Notes so tendered the Change of Control Payment for such Senior Notes, and the
Trustee shall promptly authenticate and mail (or cause to be transferred by book
entry) to each holder a new Senior Note equal in principal amount to any
unpurchased portion of the Senior Notes surrendered, if any; provided that each
such new Senior Note shall be in a principal amount of $1,000 or an integral
multiple thereof. The Issuers shall publicly announce the results of the Change
of Control Offer on or as soon as practicable after the Change of Control
Payment Date.
Section 4.19. Corporate Existence.
Subject to Article 5 hereof, each Issuer shall do or cause to be done all
things necessary to preserve and keep in full force and effect (i) its
partnership or corporate existence, and the corporate, partnership or other
existence of any Subsidiary, in accordance with the respective organizational
documents (as the same may be amended from time to time) of such Issuer or any
such Subsidiary and (ii) their rights (charter and statutory), licenses and
franchises; provided that the Issuers shall not be required to preserve any such
right, license or franchise, or the corporate, partnership or other existence of
any Subsidiary, if the Board of Directors of each of the General Partner, on
behalf of the Company (or the Company, if the Company is a corporation), and
Capital Corp. shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Issuers and their respective
Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any
material respect to the Holders of the Senior Notes.
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Section 4.20. Reorganization of the Company as a Partnership
Notwithstanding anything else contained in the Senior Notes or this
Indenture, the Company is permitted to reorganize as a corporation, provided
that:
(a) the successor or surviving corporation is organized and existing under
the laws of the United States, any state thereof or the District of Columbia;
(b) such reorganization is not materially adverse to Holders of the Senior
Notes; provided that such reorganization shall not be considered materially
adverse to Holders of the Senior Notes solely because (i) of the accrual of
deferred tax liabilities resulting from such reorganization or (ii) the
successor or surviving corporation (A) is subject to income taxation as an
entity or (B) is considered to be an "includible corporation" of an
affiliated group of corporations within the meaning of section 1504(a)(1) of
the Internal Revenue Code of 1986 or any similar state or local law;
(c) immediately after giving effect to such transaction, no Default or
Event of Default exists;
(d) the Company's obligations under the Partnership Agreement terminate
prior to such reorganization, unless (i) the successor or surviving
corporation is not a party to the Partnership Agreement and (ii) the
successor or surviving corporation will neither assume nor be subject to, is
not currently, and will never be, liable and/or responsible for any
obligations and/or duties under the Partnership Agreement;
(e) such reorganization itself will not result in a material tax liability
to the successor or surviving corporation; and
(f) the successor or surviving corporation has assumed all obligations of
the Company under the Senior Notes and this Indenture.
The successor or surviving corporation shall execute a supplemental indenture
in a form reasonably satisfactory to the Trustee to the effect set forth in
paragraph (f) above. The Issuers shall deliver to the Trustee prior to such
reorganization an Officers' Certificate covering paragraphs (a) through (f)
above and an Opinion of Counsel covering paragraphs (a), (c), (d), (e) and (f)
above (in the case of paragraph (c), to such counsel's knowledge), stating that
such reorganization and such supplemental indenture and Collateral Documents
comply with this Indenture. The Trustee shall be entitled to conclusively rely
upon such Officers' Certificate and Opinion of Counsel.
Section 4.21. Limitation on Activities of Capital Corp.
In addition to the restrictions set forth under Section 4.09 hereof, Capital
Corp. may not incur any Indebtedness, unless (a) the Company is a co-obligor or
guarantor of such Indebtedness or (b) the net proceeds of such Indebtedness are
lent to the Company, used to acquire outstanding debt securities issued by the
Company or used directly or indirectly to refinance or discharge Indebtedness
permitted under the limitations of this paragraph. Capital Corp. may not
acquire or hold any significant assets or other properties or engage in any
business activities, other than those business activities related directly or
indirectly to obtaining money or arranging financing for the Company.
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Section 4.22. Payments for Consent.
Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any holder of any Senior Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the Indenture or the Senior Notes, unless such consideration is offered to be
paid or agreed to be paid to all holders of the Senior Notes that consent, waive
or agree to amend in the time frame set forth in the solicitation documents
relating to such consent, waiver or agreement.
ARTICLE 5
SUCCESSORS
Section 5.01. Merger, Consolidation, or Sale of Assets
(a) Neither the Company nor Capital Corp. may consolidate or merge with or
into (whether or not the Company or Capital Corp., as the case may be, is the
surviving corporation), or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of its properties or assets in one or more
related transactions to, another corporation, Person or entity, unless (i) the
Company or Capital Corp., as the case may be, is the surviving Person or the
entity or the Person formed by or surviving any such consolidation or merger (if
other than the Company or Capital Corp., as the case may be) or to which such
sale, assignment, transfer, lease, conveyance or other disposition shall have
been made is organized and existing under the laws of the United States, any
state thereof or the District of Columbia, provided that Capital Corp. may not
consolidate or merge with or into any entity other than a corporation satisfying
such requirements for so long as the Company remains a partnership; (ii) the
entity or Person formed by or surviving any such consolidation or merger (if
other than the Company or Capital Corp.) or the entity or Person to which such
sale, assignment, transfer, lease, conveyance or other disposition shall have
been made assumes all the obligations of the Issuers under the Senior Notes and
this Indenture pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee; (iii) immediately after such transaction no Default
or Event of Default exists; and (iv) the Company, Capital Corp. or the entity or
Person formed by or surviving any such consolidation or merger, or to which such
sale, assignment, transfer, lease, conveyance or other disposition shall have
been made (A) shall have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of the Company
or Capital Corp. immediately preceding the transaction and (B) shall, at the
time of such transaction and after giving pro forma effect thereto as if such
transaction had occurred at the beginning of the applicable four-quarter period,
be permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in Section 4.09(a) hereof.
(b) The Company shall deliver to the Trustee prior to the consummation of the
proposed transaction an Officers' Certificate to the foregoing effect and an
Opinion of Counsel stating that the proposed transaction and such Supplemental
Indenture comply with this Indenture. The Trustee shall be entitled to
conclusively rely upon such Officers' Certificate and Opinion of Counsel.
Section 5.02. Successor Corporation Substituted.
Upon (a) any consolidation or merger, or any sale, lease, conveyance or other
disposition of all or substantially all of the assets of any Issuer in
accordance with Section 5.01 hereof, or (b) the reorganization of the Company as
a corporation in accordance with Section 4.20 hereof, the successor corporation
formed by such consolidation or into or with which such Issuer is merged or to
which such sale, lease, conveyance
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or other disposition is made, or formed by such reorganization, as the case may
be, shall succeed to, and be substituted for and may exercise every right and
power of such Issuer under this Indenture and the Senior Notes with the same
effect as if such successor Person has been named as such Issuer herein;
provided that the predecessor Issuer shall not be released or discharged from
the obligation to pay the principal of, premium, if any, and interest on the
Senior Notes, and it is contemplated that, if upon a reorganization in
accordance with Section 4.20 hereof, or at any time after such reorganization,
the successor or surviving corporation is an includible corporation (other than
a common parent) of an affiliated group of corporations within the meaning of
Section 1504(a)(1) of the Code, a tax sharing agreement shall be entered into
consistent with the terms hereof.
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default.
Each of the following constitutes an "Event of Default":
(a) default by the Issuers for 30 days in the payment when due of interest
on the Senior Notes;
(b) default by the Issuers in the payment of all or any part of the
principal, or premium, if any, on the Senior Notes when and as the same
becomes due and payable at maturity, upon redemption, by acceleration, or
otherwise, including, without limitation, the payment of the Change of
Control Payment or the Asset Sale Offer Price, or otherwise;
(c) failure by any of the Issuers or any of their respective Subsidiaries
to observe or perform any other covenant or agreement on the part of such
Issuer or such Subsidiary contained in the Senior Notes or this Indenture
and, subject to certain exceptions, the continuance of such failure for a
period of 30 days after written notice is given to the Issuers by the Trustee
or to the Issuers and the Trustee by the holders of at least 25% in aggregate
principal amount of the Senior Notes then outstanding, specifying such
default and requiring that it be remedied;
(d) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any Indebtedness
for money borrowed by the Company or any of its Subsidiaries (or the payment
of which is guaranteed by the Company or any of its Subsidiaries) whether
such Indebtedness or guarantee now exists, or is created after the date
hereof, which default (A) is caused by a failure to pay principal of or
premium, if any, or interest on such Indebtedness prior to the expiration of
the grace period provided in such Indebtedness on the date of such default (a
"Payment Default") or (B) results in the acceleration of such Indebtedness
prior to its express maturity and, in each case, the principal amount of any
such Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or the maturity of
which has been so accelerated, aggregates $5.0 million or more;
(e) failure by the Company or any of its Subsidiaries to pay one or more
final judgments aggregating in excess of $5 million entered by courts of
competent jurisdiction which judgments are not paid, discharged or stayed
within 60 days after their entry;
(f) except as permitted hereby, any Subsidiary Guarantee shall be held in
any judicial proceeding to be unenforceable or invalid or shall cease for any
reason to be in full force and effect
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or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny
or disaffirm its obligations under its Subsidiary Guarantee;
(g) the Company or any of its Significant Subsidiaries pursuant to or
within the meaning of Bankruptcy Law:
(i) commences a voluntary case;
(ii) consents to the entry of an order for relief against it in an
involuntary case;
(iii) consents to the appointment of a Custodian of it or for all or
substantially all of its property; or
(iv) makes a general assignment for the benefit of its creditors; and
(h) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that:
(i) is for relief against the Company or any Significant Subsidiary of
the Company in an involuntary case;
(ii) appoints a Custodian of the Company or any Significant Subsidiary
of the Company or for all or substantially all of the property of the Company
or any Significant Subsidiary of the Company; or
(iii) orders the liquidation of the Company or any Significant
Subsidiary of the Company,
and the order or decree remains unstayed and in effect for 60 consecutive
days.
The term "Bankruptcy Law" means title 11, U.S. Code or any similar Federal or
state law for the relief of debtors. The term "Custodian" means any receiver,
trustee, assignee, liquidator or similar official under any Bankruptcy Law.
A Default under clause (c) is not an Event of Default until the Trustee
notifies the Issuers or the Holders of at least 25% in principal amount of the
then outstanding Senior Notes notify the Issuers and the Trustee, of the Default
and the Issuers do not cure the Default within 30 days after receipt of the
notice. The notice must specify the Default, demand that it be remedied and
state that the notice is a "Notice of Default."
Section 6.02. Acceleration.
(a) If an Event of Default (other than an Event of Default specified in
clause (g) or (h) of Section 6.01 relating to the Company, any Significant
Subsidiary or any group of Subsidiaries of the Company that, taken together,
would constitute a Significant Subsidiary) occurs and is continuing, the Trustee
by notice to the Issuers, or the Holders of not less than 25% in aggregate
principal amount of the then outstanding Senior Notes by written notice to the
Issuers and the Trustee, may declare the unpaid principal of, premium, if any,
and any accrued and unpaid interest on all the Senior Notes to be due and
payable. Upon such declaration the principal, premium, if any, and interest
shall be due and payable immediately. If an Event of Default specified in
clause (g) or (h) of Section 6.01 occurs relating to the Company, any
Significant Subsidiary or any group of Subsidiaries of the Company that, taken
together,
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would constitute a Significant Subsidiary, such an amount shall ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Holder. The Holders of a majority in
aggregate principal amount of the then outstanding Senior Notes, by written
notice to the Trustee, may on behalf of all of the Holders rescind an
acceleration and its consequences if the rescission would not conflict with any
judgment or decree and if all existing Events of Default (except nonpayment of
principal, interest or premium that has become due solely because of the
acceleration) have been cured or waived.
(b) In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Issuers with
the intention of avoiding payment of the premium that the Issuers would have had
to pay if the Issuers then had elected to redeem the Senior Notes pursuant to
Section 3.07 hereof, an equivalent premium shall also become and be immediately
due and payable to the extent permitted by law upon acceleration of the Senior
Notes. If an Event of Default occurs prior to __________, 2000 by reason of any
willful action (or inaction) taken (or not taken) by or on behalf of the Issuers
with the intention of avoiding the prohibition on redemption of the Senior Notes
prior to ___________, 2000 pursuant to Section 3.07, then the premium payable
for purposes of this paragraph for each of the years beginning on _____________
of the years set forth below shall be as set forth in the following table,
expressed as a percentage of the amount that would otherwise be due but for the
provisions of this paragraph, plus accrued interest, if any, to the date of
payment:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
1997...................... _______%
1998...................... _______%
1999...................... _______%
</TABLE>
Section 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may pursue any
available remedy to collect the payment of principal, premium, if any, and
interest on the Senior Notes or to enforce the performance of any provision of
the Senior Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Senior Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Senior Note in exercising any right
or remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
Section 6.04. Waiver of Past Defaults.
Holders of not less than a majority in aggregate principal amount of the
then outstanding Senior Notes by notice to the Trustee may on behalf of the
Holders of all of the Senior Notes waive an existing Default or Event of Default
and its consequences, except a continuing Default or Event of Default in the
payment of the principal of, premium, if any, or interest on, the Senior Notes.
Upon any such waiver, such Default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
Default or impair any right consequent thereon.
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Section 6.05. Control by Majority.
Holders of a majority in principal amount of the then outstanding Senior
Notes may direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with the law or this Indenture, that the Trustee determines may be
unduly prejudicial to the rights of other Holders of Senior Notes or that may
involve the Trustee in personal liability.
Section 6.06. Limitation on Suits.
A Holder of a Senior Note may pursue a remedy with respect to this
Indenture or the Senior Notes only if:
(a) the Holder of a Senior Note gives to the Trustee written notice of
a continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the then
outstanding Senior Notes make a written request to the Trustee to pursue
the remedy;
(c) such Holder of a Senior Note or Holders of Senior Notes offer and,
if requested, provide to the Trustee indemnity satisfactory to the Trustee
against any loss, liability or expense;
(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
(e) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Senior Notes do not give the Trustee a
direction inconsistent with the request.
A Holder of a Senior Note may not use this Indenture to prejudice the
rights of another Holder of a Senior Note or to obtain a preference or priority
over another Holder of a Senior Note.
Section 6.07. Rights of Holders of Senior Notes to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Senior Note to receive payment of principal, premium, if any, and
interest on the Senior Note, on or after the respective due dates expressed in
the Senior Note, or to bring suit for the enforcement of any such payment on or
after such respective dates, shall not be impaired or affected without the
consent of the Holder of the Senior Note.
Section 6.08. Collection Suit by Trustee.
If an Event of Default specified in Section 6.01(a) or (b) occurs and is
continuing, the Trustee is authorized to recover judgment in its own name and as
trustee of an express trust against the Issuers for the whole amount of
principal of, premium, if any, and interest remaining unpaid on the Senior Notes
and interest on overdue principal and, to the extent lawful, interest and such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
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Section 6.09. Trustee May File Proofs of Claim.
The Trustee is authorized to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Senior Notes allowed in any judicial proceedings relative to the
Issuers (or any other obligor upon the Senior Notes), its creditors or its
property and shall be entitled and empowered to collect, receive and distribute
any money or other property payable or deliverable on any such claims and any
custodian in any such judicial proceeding is hereby authorized by each Holder of
a Senior Note to make such payments to the Trustee, and in the event that the
Trustee shall consent to the making of such payments directly to the Holders of
the Senior Notes, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07 hereof.
To the extent that the payment of any such compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel, and any other amounts due
the Trustee under Section 7.07 hereof out of the estate in any such proceeding,
shall be denied for any reason, payment of the same shall be secured by a Lien
on, and shall be paid out of, any and all distributions, dividends, money,
securities and other properties which the Holders of the Senior Notes may be
entitled to receive in such proceeding whether in liquidation or under any plan
of reorganization or arrangement or otherwise. Nothing herein contained shall
be deemed to authorize the Trustee to authorize or consent to or accept or adopt
on behalf of any Holder of a Senior Note any plan of reorganization,
arrangement, adjustment or composition affecting the Senior Notes or the rights
of any Holder of a Senior Note thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder of a Senior Note in any such proceeding.
Section 6.10. Priorities.
If the Trustee collects any money pursuant to this Article, it shall pay
out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due under
Section 7.07, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the costs
and expenses of collection;
Second: to Holders of Senior Notes for amounts due and unpaid on the
Senior Notes for principal, premium, if any, and interest, ratably, without
preference or priority of any kind, according to the amounts due and
payable on the Senior Notes for principal, premium, if any and interest,
respectively; and
Third: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Senior Notes.
Section 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this Indenture
or in any suit against the Trustee for any action taken or omitted by it as a
Trustee, a court in its discretion may require the filing by any party litigant
in the suit of an undertaking to pay the costs of the suit, and the court in its
discretion may assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in the suit,
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having due regard to the merits and good faith of the claims or
defenses made by the party litigant. This Section does not apply to a suit by
the Trustee, a suit by a Holder of a Senior Note pursuant to Section 6.07, or a
suit by Holders of more than 10% in principal amount of the then outstanding
Senior Notes.
ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in their exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the
express provisions of this Indenture and the Trustee need perform only
those duties that are specifically set forth in this Indenture and no
others, and no implied covenants or obligations shall be read into this
Indenture against the Trustee, and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture. However,
the Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.
(c) the Trustee may not be relieved from liabilities for its own negligent
action, its own negligent failure to act, or its own willful misconduct, except
that:
(i) this paragraph does not limit the effect of paragraph (b) of this
Section;
(ii) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it is proved that the Trustee
was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision of this
Indenture that in any way relates to the Trustee is subject to paragraphs (a),
(b), and (c) of this Section.
(e) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or incur any liability. The Trustee shall be under no
obligation to exercise any of its rights and powers under this Indenture at the
request of any Holders of Senior Notes, unless such Holder shall have offered to
the Trustee security and indemnity satisfactory to it against any loss,
liability or expense.
(f) The Trustee shall not be liable for interest on any money received by
it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
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Section 7.02. Rights of Trustee.
(a) The Trustee may conclusively rely upon any document believed by it to
be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel and the written advice of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection from liability in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it believes to be authorized or within its rights or
powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any demand,
request, direction or notice from the Issuers shall be sufficient if signed by
an Officer of each of the General Partner, on behalf of the Company (or the
Company, if the Company is a corporation), and Capital Corp.
(f) The Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request or direction of any of
the Holders unless such Holders shall have offered to the Trustee reasonable
security or indemnity against costs, expenses and liabilities that might be
incurred by it in compliance with such request or direction.
Section 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the owner or
pledgee of Senior Notes and may otherwise deal with any Issuer or any Affiliate
of any Issuer with the same rights it would have if it were not Trustee.
However, in the event that the Trustee acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue as trustee or resign. Any Agent may do the same with like rights
and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof.
Section 7.04. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation as to
the validity or adequacy of this Indenture or the Senior Notes, it shall not be
accountable for the Issuers' use of the proceeds from the Senior Notes or any
money paid to the Issuers or upon the Issuers' direction under any provision of
this Indenture, it shall not be responsible for the use or application of any
money received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or any statement in the Senior
Notes or any other document in connection with the sale of the Senior Notes or
pursuant to this Indenture other than its certificate of authentication.
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Section 7.05. Notice of Defaults.
If a Default or Event of Default occurs and is continuing and if it is
known to the Trustee, the Trustee shall mail to Holders of Senior Notes a notice
of the Default or Event of Default within 90 days after it occurs. Except in
the case of a Default or Event of Default in payment of principal of, premium,
if any, or interest on any Senior Note, the Trustee may withhold the notice if
and so long as a committee of its Responsible Officers in good faith determines
that withholding the notice is in the interests of the Holders of the Senior
Notes.
Section 7.06. Reports by Trustee to Holders of the Senior Notes.
Within 60 days after each May 15 beginning with the May 15 following the
date of this Indenture and for so long as Senior Notes remain outstanding, the
Trustee shall mail to the Holders of the Senior Notes a brief report dated as of
such reporting date that complies with TIA (S) 313(a) (but if no event described
in TIA (S) 313(a) has occurred within the twelve months preceding the reporting
date, no report need be transmitted). The Trustee also shall comply with TIA
(S) 313(b)(2). The Trustee shall also transmit by mail all reports as required
by TIA (S) 313(c).
A copy of each report at the time of its mailing to the Holders of Senior
Notes shall be mailed to the Issuers and filed with the Commission and each
stock exchange on which the Senior Notes are listed. The Issuers shall promptly
notify the Trustee when the Senior Notes are listed on any stock exchange.
Section 7.07. Compensation and Indemnity.
The Issuers shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Issuers shall reimburse the Trustee promptly
upon request for all reasonable disbursements, advances and expenses incurred or
made by it in addition to the compensation for its services. Such expenses
shall include the reasonable compensation, disbursements and expenses of the
Trustee's agents and counsel.
The Issuers shall indemnify the Trustee against any and all losses,
liabilities or expenses incurred by it arising out of or in connection with the
acceptance or administration of its duties under this Indenture without
negligence or bad faith on its part. The Trustee shall notify the Issuers
promptly of any claim for which it may seek indemnity. Failure by the Trustee
to so notify the Issuers shall not relieve the Issuers of their obligations
hereunder. The Issuers shall defend the claim and the Trustee shall cooperate
in the defense. The Trustee may have separate counsel and the Issuers shall pay
the reasonable fees and expenses of such counsel. The Issuers need not pay for
any settlement made without their consent, which consent shall not be
unreasonably withheld.
The obligations of the Issuers under this Section 7.07 shall survive the
satisfaction and discharge of this Indenture.
To secure the Issuers' payment obligations in this Section, the Trustee
shall have a Lien prior to the Senior Notes on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular Senior Notes. Such Lien shall survive the satisfaction
and discharge of this Indenture.
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When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01 (i) or (j) hereof occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
Section 7.08. Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged from the
trust hereby created by so notifying the Issuers. The Holders of Senior Notes
of a majority in principal amount of the then outstanding Senior Notes may
remove the Trustee by so notifying the Trustee and the Issuers in writing. The
Issuers may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a Custodian or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, the Issuers shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Senior Notes may
appoint a successor Trustee to replace the successor Trustee appointed by the
Issuers.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Issuers or the
Holders of Senior Notes of at least 10% in principal amount of the then
outstanding Senior Notes may petition any court of competent jurisdiction for
the appointment of a successor Trustee.
If the Trustee after written request by any Holder of a Senior Note who has
been a Holder of a Senior Note for at least six months fails to comply with
Section 7.10, such Holder of a Senior Note may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Issuers. Thereupon, the resignation or
removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. The successor Trustee shall mail a notice of its succession to
Holders of the Senior Notes. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, provided all sums owing
to the Trustee hereunder have been paid and subject to the Lien provided for in
Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this
Section 7.08, the Issuers' obligations under Section 7.07 hereof shall continue
for the benefit of the retiring Trustee.
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Section 7.09. Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or transfers all or
substantially all of its corporate trust business to, another corporation, the
successor corporation without any further act shall be the successor Trustee.
Section 7.10. Eligibility; Disqualification.
There shall at all times be a Trustee hereunder which shall be a
corporation organized and doing business under the laws of the United States of
America or of any state thereof authorized under such laws to exercise corporate
trustee power, shall be subject to supervision or examination by federal or
state authority and shall have a combined capital and surplus of at least $100
million as set forth in its most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the requirements
of TIA (S) 310(a)(1), (2) and (5). The Trustee is subject to TIA (S) 310(b).
Section 7.11. Preferential Collection of Claims Against Company.
The Trustee is subject to TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated therein.
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance.
The Issuers may, at the option of its Board of Directors evidenced by a
resolution set forth in an Officers' Certificate, at any time, with respect to
the Senior Notes, elect to have either Section 8.02 or 8.03 be applied to all
outstanding Senior Notes upon compliance with the conditions set forth below in
this Article 8.
Section 8.02. Legal Defeasance and Discharge.
Upon the Issuers' exercise under Section 8.01 of the option applicable to
this Section 8.02, the Issuers shall be deemed to have been discharged from
their obligations with respect to all outstanding Senior Notes on the date the
conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For
this purpose, such Legal Defeasance means that the Issuers shall be deemed to
have paid and discharged the entire Indebtedness represented by the outstanding
Senior Notes, which shall thereafter be deemed to be "outstanding" only for the
purposes of Section 8.05 and the other Sections of this Indenture referred to in
(a) and (b) below, and to have satisfied all their other obligations under such
Senior Notes and this Indenture (and the Trustee, on demand of and at the
expense of the Issuers, shall execute proper instruments acknowledging the
same), except for the following which shall survive until otherwise terminated
or discharged hereunder: (a) the rights of Holders of outstanding Senior Notes
to receive solely from the trust fund described in Section 8.04, and as more
fully set forth in such Section,
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payments in respect of the principal of, premium, if any, and interest on such
Senior Notes when such payments are due, (b) the Issuers' obligations with
respect to such Senior Notes under Sections 2.03, 2.04, 2.05, 2.06, 2.07, 2.10
and 4.02, (c) the rights, powers, trusts, duties and immunities of the Trustee
hereunder and the Company's obligations in connection therewith and (d) this
Article 8. Subject to compliance with this Article 8, the Issuers may exercise
their option under this Section 8.02 notwithstanding the prior exercise of their
option under Section 8.03 with respect to the Senior Notes.
Section 8.03. Covenant Defeasance.
Upon the Issuers' exercise under Section 8.01 of the option applicable to
this Section 8.03, the Issuers shall be released from their obligations under
the covenants contained in Sections 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13,
4.14, 4.15, 4.16, 4.17, 4,18, 4,19, 4,20, 4,21 and 4.22 and Article Five with
respect to the outstanding Senior Notes on and after the date the conditions set
forth below are satisfied (hereinafter, "Covenant Defeasance"), and the Senior
Notes shall thereafter be deemed not "outstanding" for the purposes of any
direction, waiver, consent or declaration or act of Holders (and the
consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "outstanding" for all other purposes hereunder (it being
understood that such Senior Notes shall not be deemed outstanding for accounting
purposes). For this purpose, such Covenant Defeasance means that, with respect
to the outstanding Senior Notes, the Issuers may omit to comply with and shall
have no liability in respect of any term, condition or limitation set forth in
any such covenant, whether directly or indirectly, by reason of any reference
elsewhere herein to any such covenant or by reason of any reference in any such
covenant to any other provision herein or in any other document and such
omission to comply shall not constitute a Default or an Event of Default under
Section 6.01, but, except as specified above, the remainder of this Indenture
and such Senior Notes shall be unaffected thereby. In addition, upon the
Issuers' exercise under Section 8.01 of the option applicable to this Section
8.03, Sections 6.01(d) and 6.01(e) shall not constitute Events of Default.
Section 8.04. Conditions to Legal or Covenant Defeasance.
The following shall be the conditions to application of either Section 8.02
or Section 8.03 to the outstanding Senior Notes:
(a) The Issuers shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements
of Section 7.10 who shall agree to comply with the provisions of this
Article Eight applicable to it) as trust funds in trust for the purpose of
making the following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of such Senior Notes, (i)
cash in U.S. Dollars in an amount, (ii) non-callable Government Securities
which through the scheduled payment of principal and interest in respect
thereof in accordance with their terms shall provide, not later than one
day before the due date of any payment, cash in U.S. Dollars in an amount,
or (iii) a combination thereof, in such amounts, as will be sufficient, in
the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee, to pay and discharge and which shall be applied by the Trustee (or
other qualifying trustee) to pay and discharge (A) the principal of,
premium, if any, and interest on the outstanding Senior Notes on the stated
maturity or on the applicable redemption date, as the case may be, of such
principal or installment of principal, premium, if any, or interest and (B)
any mandatory sinking fund payments or analogous payments applicable to the
outstanding Senior Notes on the day on which such payments are due and
payable in accordance with the terms of this Indenture and of such Senior
Notes; provided that the Trustee shall have been irrevocably instructed to
apply such
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money or the proceeds of such non-callable Government Securities to said
payments with respect to the Senior Notes.
(b) In the case of an election under Section 8.02, the Issuers shall
have delivered to the Trustee an Opinion of Counsel in the United States
reasonably satisfactory to the Trustee confirming that (i) the Issuers have
received from, or there has been published by, the Internal Revenue Service
a ruling or (ii) since the date hereof, there has been a change in the
applicable federal income tax law, in either case to the effect that, and
based thereon such Opinion of Counsel shall confirm that, the Holders of
the outstanding Senior Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Legal Defeasance and will
be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Legal Defeasance
has not occurred;
(c) In the case of an election under Section 8.03, the Issuers shall
have delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee to the effect that the Holders of the
outstanding Senior Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Covenant Defeasance and
will be subject to federal income tax in the same amount, in the same
manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred;
(d) No Default or Event of Default with respect to the Senior Notes
shall have occurred and be continuing on the date of such deposit (other
than a Default or Event of Default resulting from the borrowing of funds to
be applied to such deposit) or, insofar as Subsection 6.01(g) or 6.01(h) is
concerned, at any time in the period ending on the 91st day after the date
of such deposit (it being understood that this condition shall not be
deemed satisfied until the expiration of such period);
(e) Such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under, any other material
agreement or instrument (other than this Indenture) to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound;
(f) In the case of an election under either Section 8.02 or 8.03, the
Issuers shall have delivered to the Trustee an Opinion of Counsel to the
effect that after the 91st day following the deposit, and assuming that
prior to such 91st day no voluntary or involuntary bankruptcy case has been
commenced with respect to any Issuer, such deposit will not constitute a
preference as defined in Section 547 of the U.S. Bankruptcy Code, and,
assuming such a bankruptcy case is commenced on or after such 91st day, the
trust funds will not constitute property included within the estate of the
debtor.
(g) In the case of an election under either Section 8.02 or 8.03, the
Issuers shall have delivered to the Trustee an Officers' Certificate
stating that the deposit made by the Issuers pursuant to their election
under Section 8.02 or 8.03 was not made by the Issuers with the intent of
preferring the Holders over other creditors of the Issuers or with the
intent of defeating, hindering, delaying or defrauding creditors of the
Issuers or others; and
(h) The Issuers shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel in the United States, each stating
that all conditions precedent provided for
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relating to either the Legal Defeasance under Section 8.02 or the Covenant
Defeasance under Section 8.03 (as the case may be) have been complied with
as contemplated by this Section 8.04.
Section 8.05. Deposited Money and Government Securities to be Held in Trust;
Other Miscellaneous Provisions.
Subject to Section 8.06, all money and non-callable Government Securities
(including the proceeds thereof) deposited with the Trustee (or other qualifying
trustee, collectively for purposes of this Section 8.05, the "Trustee") pursuant
to Section 8.04 in respect of the outstanding Senior Notes shall be held in
trust and applied by the Trustee, in accordance with the provisions of such
Senior Notes and this Indenture, to the payment, either directly or through any
Paying Agent (including any Issuer or a Subsidiary Guarantor, if any, acting as
Paying Agent) as the Trustee may determine, to the Holders of such Senior Notes
of all sums due and to become due thereon in respect of principal, premium, if
any, and interest, but such money need not be segregated from other funds except
to the extent required by law.
The Issuers shall pay and indemnify the Trustee against any tax, fee or other
charge imposed on or assessed against the cash or non-callable Government
Securities deposited pursuant to Section 8.04 or the principal and interest
received in respect thereof other than any such tax, fee or other charge which
by law is for the account of the Holders of the outstanding Senior Notes.
Anything in this Article Eight to the contrary notwithstanding, the Trustee
shall deliver or pay to the Issuers from time to time upon the Issuers' request
any money or non-callable Government Securities held by it as provided in
Section 8.04 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee (which may be the opinion delivered under Section
8.04(a)), are in excess of the amount thereof which would then be required to be
deposited to effect an equivalent Legal Defeasance or Covenant Defeasance.
Section 8.06. Repayment to Issuers.
Any money deposited with the Trustee or any Paying Agent, or then held by the
Issuers in trust for the payment of the principal of, premium, if any, or
interest on any Senior Note and remaining unclaimed for two years after such
principal, and premium, if any, or interest has become due and payable shall be
paid to the Issuers on their request or (if then held by the Issuers) shall be
discharged from such trust; and the Holder of such Senior Note shall thereafter,
as an unsecured general creditor, look only to the Issuers for payment thereof,
and all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Issuers as trustee thereof, shall thereupon
cease; provided that the Trustee or such Paying Agent, before being required to
make any such repayment, may at the expense of the Company cause to be published
once, in the New York Times and The Wall Street Journal (national edition),
notice that such money remains unclaimed and that, after a date specified
therein, which shall not be less than 30 days from the date of such notification
or publication, any unclaimed balance of such money then remaining shall be
repaid to the Issuers.
Section 8.07. Reinstatement.
If the Trustee or Paying Agent is unable to apply any U.S. Dollars or non-
callable Government Securities in accordance with Section 8.02 or 8.03, as the
case may be, by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, then
the Issuers' obligations under this Indenture and the Senior Notes shall be
revived and
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reinstated as though no deposit had occurred pursuant to Section 8.02 or 8.03
until such time as the Trustee or Paying Agent is permitted to apply all such
money in accordance with Section 8.02 or 8.03, as the case may be; provided
that, if the Issuers make any payment of principal of, premium, if any, or
interest on any Senior Note following the reinstatement of its obligations, the
Issuers shall be subrogated to the rights of the Holders of such Senior Notes to
receive such payment from the money held by the Trustee or Paying Agent.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of Senior Notes.
Notwithstanding Section 9.02 of this Indenture, the Issuers and the Trustee
may amend or supplement this Indenture, the Senior Notes or any Subsidiary
Guarantee without the consent of any Hold er of a Senior Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Senior Notes in addition to or in place
of certificated Senior Notes;
(c) to provide for the assumption of the Issuers' obligations to the
Holders of the Senior Notes in the case of a merger, consolidation or sale of
all or substantially all of the Issuers' assets pursuant to Article 5 or
Section 10.02 hereof;
(d) to make any change that would provide any additional rights or
benefits to the Holders of the Senior Notes or that does not materially
adversely affect the legal rights hereunder of any Holder of the Senior Note;
(e) to provide for Subsidiary Guarantees of the Senior Notes; or
(f) to comply with requirements of the Commission in order to effect or
maintain the qualification of this Indenture under the TIA.
Upon the request of the Issuers accompanied by resolutions of the boards of
directors of each of the General Partner, on behalf of the Company (or the
Company, if the Company is a corporation), and Capital Corp. authorizing the
execution of any such amended or supplemental Indenture and upon receipt by the
Trustee of the documents described in Section 9.06 hereof, the Trustee shall
join with the Issuers in the execution of any amended or supplemental Indenture
authorized or permitted by the terms of this Indenture and to make any further
appropriate agreements and stipulations which may be therein contained, but the
Trustee shall not be obligated to enter into such amended or supplemental
Indenture which affects its own rights, duties or immunities under this
Indenture or otherwise.
Section 9.02. With Consent of Holders of Senior Notes.
Except as provided below in this Section 9.02, the Issuers and the Trustee
may amend or supplement this Indenture or the Senior Notes or any amended or
supplemental Indenture with the written consent of the Holders of Senior Notes
of not less than a majority in aggregate principal amount of the Senior Notes
then outstanding (including consents obtained in connection with a tender offer
or exchange offer
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for the Senior Notes), and, subject to Sections 6.04 and 6.07 hereof, any
existing Default or Event of Default and its consequences (other than a Default
or Event of Default in the payment of the principal of, premium, if any, or
interest on the Senior Notes, except a payment default resulting from an
acceleration that has been rescinded) or compliance with any provision of this
Indenture or the Senior Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Senior Notes (including
consents obtained in connection with a tender offer or exchange offer for the
Senior Notes).
Upon the request of the Issuers accompanied by resolutions of the boards of
directors of each of the General Partner, on behalf of the Company (or the
Company, if the Company is a corporation), and Capital Corp. authorizing the
execution of any such amended or supplemental Indenture, and upon the filing
with the Trustee of evidence satisfactory to the Trustee of the consent of the
Holders of Senior Notes as aforesaid, and upon receipt by the Trustee of the
documents described in Section 9.06 hereof, the Trustee shall join with the
Issuers in the execution of such amended or supplemental Indenture unless such
amended or supplemental Indenture affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise, in which case the Trustee may in
its discretion, but shall not be obligated to, enter into such amended or
supplemental Indenture.
It shall not be necessary for the consent of the Holders of Senior Notes
under this Section 9.02 to approve the particular form of any proposed amendment
or waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Issuers shall mail to the Holders of Senior Notes affected
thereby a notice briefly describing the amendment, supplement or waiver. Any
failure of the Issuers to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amended or
supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the
Holders of a majority in aggregate principal amount of the Senior Notes then
outstanding may waive compliance in a particular instance by the Issuers with
any provision of this Indenture or the Senior Notes. However, without the
consent of each Holder affected, an amendment or waiver may not (with respect to
any Senior Notes held by a non-consenting Holder of Senior Notes):
(a) reduce the principal amount of Senior Notes whose Holders must consent
to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any Senior
Note, alter the provisions with respect to the redemption of the Senior Notes
or waive a redemption payment with respect to any Senior Note;
(c) reduce the rate of or change the time for payment of interest,
including default interest, on any Senior Note;
(d) waive a Default or Event of Default in the payment of principal of,
premium, if any, or interest on the Senior Notes (except a rescission of
acceleration of the Senior Notes by the Holders of at least a majority in
aggregate principal amount of the then outstanding Senior Notes and a waiver
of the payment default that resulted from such acceleration);
(e) make any Senior Note payable in money other than that stated in the
Senior Notes;
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(f) make any change in Section 6.04 or 6.07 hereof or in the provisions of
this Indenture relating to the rights of Holders of Senior Notes to receive
payments of principal of, premium, if any, or interest on the Senior Notes;
or
(g) make any change in this sentence of this Section 9.02.
Section 9.03. Compliance with Trust Indenture Act.
Every amendment or supplement to this Indenture or the Senior Notes shall be
set forth in a amended or supplemental Indenture that complies with the TIA as
then in effect.
Section 9.04. Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a consent to it
by a Holder of a Senior Note is a continuing consent by the Holder of a Senior
Note and every subsequent Holder of a Senior Note or portion of a Senior Note
that evidences the same debt as the consenting Holder's Senior Note, even if
notation of the consent is not made on any Senior Note. However, any such
Holder of a Senior Note or subsequent Holder of a Senior Note may revoke the
consent as to its Senior Note if the Trustee receives written notice of
revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder of a Senior Note.
Section 9.05. Notation on or Exchange of Senior Notes.
The Trustee may place an appropriate notation about an amendment, supplement
or waiver on any Senior Note thereafter authenticated. The Issuers in exchange
for all Senior Notes may issue and the Trustee shall authenticate new Senior
Notes that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Senior Note shall not
affect the validity and effect of such amendment, supplement or waiver.
Section 9.06. Trustee to Sign Amendments, etc.
The Trustee shall sign any amended or supplemental Indenture authorized
pursuant to this Article 9 if the amendment or supplement does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. The
Issuers may not sign an amendment or supplemental Indenture until Board of
Directors each of the General Partner, on behalf of the Company (or the Company,
if the Company is a corporation), and Capital Corp. approves it, and no
Guarantor may sign such an amendment or supplemental Indenture until its board
of directors approves it. The Trustee shall be entitled to receive, and shall
be fully protected in relying upon, an Officer's Certificate and an Opinion of
Counsel stating that such amendment or supplement is authorized or permitted by
this Indenture, that all conditions precedent to the execution of the amendment
or supplement by the parties thereto have been complied with and that the
amendment or supplement is valid and binding upon the Issuers and any Guarantor
in accordance with its terms.
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ARTICLE 10
GUARANTEE OF SENIOR NOTES
Section 10.01. Guarantee.
Subject to the provisions of this Article 10, each Guarantor hereby, jointly
and severally, unconditionally guarantees, on a senior unsubordinated basis, to
each Holder of a Senior Note authenticated and delivered by the Trustee and to
the Trustee and its successors and assigns, irrespective of the validity and
enforceability of this Indenture, the Senior Notes or the Obligations of the
Issuers to the Holders or the Trustee hereunder or under the Senior Notes, that
(a) the principal of, premium, if any, and any accrued and unpaid interest on
the Senior Notes shall be duly and punctually paid in full when due, whether at
maturity, by acceleration or otherwise, and interest on overdue principal of,
premium, if any, and (to the extent permitted by law) interest on the Senior
Notes and all other Obligations of the Issuers to the Holders or the Trustee
hereunder or under the Senior Notes (including fees, expenses or other) shall be
promptly paid in full or performed, all in accordance with the terms hereof and
thereof; (b) in case of any extension of time of payment or renewal of any
Senior Notes or any of such other Obligations, the same shall be promptly paid
in full when due or performed in accordance with the terms of the extension or
renewal, whether at stated maturity, by acceleration or otherwise; and (c) any
and all costs and expenses (including, without limitation, reasonable attorneys'
fees and expenses) incurred by the Trustee or its agents or any Holder of Senior
Notes in enforcing any rights under any Guarantee shall be promptly paid in full
when due. Failing payment when due of any amount so guaranteed or failing
performance of any other Obligation of the Issuers to the Holders, for whatever
reason, each Guarantor shall be obligated to pay, or to perform or to cause the
performance of, the same immediately. Each Guarantor agrees that this is a
Guarantee of payment and not a Guarantee of collection. An Event of Default
under this Indenture or the Senior Notes shall constitute an event of default
under this Guarantee, and shall entitle the Holders of Senior Notes to
accelerate the Obligations of the Guarantors hereunder in the same manner and to
the same extent as the Obligations of the Issuers. Each Guarantor hereby agrees
that its Obligations hereunder shall be unconditional, irrespective of the
validity, regularity or enforceability of the Senior Notes or this Indenture,
the absence of any action to enforce the same, any waiver or consent by any
Holder of Senior Notes with respect to any provisions hereof or thereof, the
recovery of any judgment against the Issuers, any action to enforce the same or
any other circumstance which might otherwise constitute a legal or equitable
discharge or defense of a guarantor. Each Guarantor hereby waives diligence,
presentment, demand of payment, filing of claims with a court in the event of
insolvency or bankruptcy of either or any of the Issuers and such Guarantor,
protest, notice and all demands whatsoever and covenants that its Guarantee
shall not be discharged except by complete performance of all Obligations under
the Senior Notes and this Indenture, except as specified in Section 10.03. If
any Holder or the Trustee is required by any court or otherwise to return to the
Issuers or such Guarantor, or any custodian, trustee, liquidator or other
similar official acting in relation to either the Issuers or such Guarantor, any
amount paid by any such entity to the Trustee or such Holder, such Guarantor's
Guarantee, to the extent theretofore discharged, shall be reinstated in full
force and effect. Each Guarantor agrees that it shall not be entitled to any
right of subrogation in relation to the Holders in respect of any Obligations
guaranteed hereby until payment in full of all Obligations guaranteed hereby.
Each Guarantor agrees that, as between the Guarantors, on the one hand, and the
Holders of Senior Notes and the Trustee, on the other hand, (x) the maturity of
the Obligations guaranteed hereby may be accelerated as provided in Article 6
hereof for the purposes of its Guarantee, notwithstanding any stay, injunction
or other prohibition preventing such acceleration in respect of the Obligations
guaranteed hereby, and (y) in the event of any acceleration of such Obligations
as provided in Article 6 hereof, such Obligations (whether or not due and
payable) shall forthwith become due and payable by such Guarantor for the
purpose of its Guarantee.
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Section 10.02. Limitation of the Guarantors' Liability.
Each Guarantor and, by its acceptance hereof, each beneficiary hereof, hereby
confirms that it is the intention and agreement of all such parties that such
Guarantor's Guarantee not constitute a fraudulent transfer or conveyance for
purposes of any Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the
Uniform Fraudulent Transfer Act or any similar Federal or state law (including,
without limitation, the Debtor and Creditor Law of the State of New York). To
effectuate the foregoing intention, each such Person hereby irrevocably agrees
that the Obligations of the Guarantors under this Article 10 shall be limited to
the maximum amount as will, after giving effect to all other contingent and
fixed liabilities of such Guarantor, result in the Obligations of such Guarantor
under its Guarantee not constituting a fraudulent transfer or conveyance.
Section 10.03. Release of the Guarantors.
In the event of a sale or other disposition of all of the assets of any
Guarantor, by way of merger, consolidation or otherwise, or a sale or other
disposition of all of the capital stock of any Guarantor, such Guarantor (in the
event of a sale or other disposition, by way of such a merger, consolidation or
otherwise, of all of the capital stock of such Guarantor) or the corporation
acquiring the property (in the event of a sale or other disposition of all of
the assets of such Guarantor) will be released and relieved of any obligations
under its Subsidiary Guarantee; provided that the Net Proceeds of such sale or
other disposition are applied in accordance with Section 4.10 hereof. The
Trustee shall deliver an appropriate instrument evidencing such release upon
receipt of a request of the Issuers accompanied by an Officers' Certificate and
Opinion of Counsel certifying as to the compliance with this Section 10.03. Any
Guarantor not released from its Obligations under its Guarantee shall remain
liable for the full amount of principal of, premium, if any, and accrued and
unpaid interest on the Senior Notes and for the other Obligations of such
Guarantor under this Indenture as provided in this Article 10.
Section 10.04. Merger, Consolidation or Sale of Assets.
No Guarantor may consolidate with or merge with or into (whether or not such
Guarantor is the surviving Person), another corporation, Person or entity
whether or not affiliated with such Guarantor, unless (i) subject to Section
10.03 hereof, the Person formed by or surviving any such consolidation or merger
(if other than such Guarantor) assumes all the obligations of such Guarantor
pursuant to a supplemental indenture in form and substance reasonably
satisfactory to the Trustee, under the Senior Notes and the Indenture, (ii)
immediately after giving effect to such transaction, no Default or Event of
Default exists and (iii) such Guarantor, or any Person formed by or surviving
any such consolidation or merger, would be permitted by virtue of the Company's
pro forma Fixed Charge Coverage Ratio to incur, immediately after giving effect
to such transaction, at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in Section 4.09(a) hereof; provided
that the foregoing provisions shall not apply to any Asset Sale subject to
Section 4.10 hereof.
Section 10.05. Execution and Delivery of Guarantees.
To evidence its Guarantee set forth in this Article 10, each Guarantor hereby
agrees that a notation of such Guarantee substantially in the form of Exhibit B
shall be endorsed by an Officer of such Guarantor on each Senior Note
authenticated and delivered thereafter by the Trustee, and, to the extent not a
party to this Indenture on the date hereof, each Guarantor shall execute and
deliver to the Trustee a supplemental indenture in the form of Exhibit C hereto,
pursuant to which such Subsidiary shall become
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a Guarantor under this Article 10 and shall guarantee the Obligations of the
Issuers under this Indenture and the Senior Notes. Concurrently with the
execution and delivery of such supplemental indenture, the Issuers shall deliver
to the Trustee an Opinion of Counsel reasonably satisfactory to the Trustee to
the effect that such supplemental indenture has been duly authorized, executed
and delivered by such Guarantor and that, subject to the application of
bankruptcy, insolvency, moratorium and other similar laws relating to creditors'
rights generally and to general principles of equity, whether considered in a
proceeding at law or in equity, and to the discretion of the court before which
any proceeding therefor may be brought, the Guarantee of each such Guarantor
contained herein (subject to the limitations set forth in Section 10.02) is a
legal, valid and binding obligation of such Guarantor, enforceable against such
Guarantor in accordance with its terms.
Each Guarantor hereby agrees that its Guarantee set forth in this Article 10
shall remain in full force and effect and apply to all of the Senior Notes
notwithstanding any failure to endorse on each Senior Note a notation of such
Guarantee. The delivery of any Senior Note by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of the Guarantee
set forth in this Indenture on behalf of each Guarantor.
ARTICLE 11
MISCELLANEOUS
Section 11.01. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts with the
duties imposed by TIA (S)318(c), the imposed duties shall control.
Section 11.02. Notices.
Any notice or communication by the Issuers, any Guarantor or the Trustee to
the others is duly given if in writing and delivered in person or mailed by
first class mail (registered or certified, return receipt requested), telex,
telecopier or overnight air courier guaranteeing next day delivery, to the
others' address:
If to the Issuers:
Muzak Limited Partnership
2901 Third Avenue, Suite 400
Seattle, Washington 98121
Telecopier No.: (206) 633-6210
Attention: Chief Financial Officer
With a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Telecopier No.: (212) 310-8007
Attention: Norman D. Chirite, Esq.
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If to the Trustee:
Telecopier No.: (___) __________
Attention: Corporate Trust Administration
The Issuers, any Guarantor or the Trustee, by notice to the others, may
designate additional or different addresses for subsequent notices or
communications.
All notices and communications (other than those sent to Holders of Senior
Notes) shall be deemed to have been duly given: at the time delivered by hand,
if personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder of a Senior Note shall be mailed by
first class mail or by overnight air courier guaranteeing next day delivery to
its address shown on the register kept by the Registrar. Any notice or
communication shall also be so mailed to any Person described in TIA (S) 313(c),
to the extent required by the TIA. Failure to mail a notice or communication to
a Holder of a Senior Note or any defect in it shall not affect its sufficiency
with respect to other Holders of Senior Notes.
If a notice or communication is mailed in the manner provided above within
the time prescribed, it is duly given, whether or not the addressee receives it.
If the Issuers mail a notice or communication to Holders of Senior Notes,
they shall mail a copy to the Trustee and each Agent at the same time.
Section 11.03. Communication by Holders of Senior Notes with Other Holders of
Senior Notes.
Holders of the Senior Notes may communicate pursuant to TIA (S) 312(b) with
other Holders of Senior Notes with respect to their rights under this Indenture
or the Senior Notes. The Issuers, any Guarantor, the Trustee, the Registrar and
anyone else shall have the protection of TIA (S) 312(c).
Section 11.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Issuers to the Trustee to take any
action under this Indenture, the Issuers shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably satisfactory
to the Trustee (which shall include the statements set forth in Section 10.05
hereof) stating that, in the opinion of the signers, all conditions precedent
and covenants, if any, provided for in this Indenture relating to the
proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably satisfactory to
the Trustee (which shall include the statements set forth in Section 10.05
hereof) stating that, in the opinion of such counsel, all such conditions
precedent and covenants have been satisfied.
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Section 11.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (other than a certificate provided
pursuant to TIA (S) 314(a)(4)) shall comply with the provisions of TIA (S)314(e)
and shall include:
(a) a statement that the person making such certificate or opinion has
read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
satisfied; and
(d) a statement as to whether or not, in the opinion of such person, such
condition or covenant has been satisfied.
Section 11.06. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or at a meeting of
Holders of Senior Notes. The Registrar or Paying Agent may make reasonable
rules and set reasonable requirements for its functions.
Section 11.07. No Personal Liability of Directors, Officers, Employees and
Stockholders.
No director, officer, employee, incorporator or stockholder of any Issuer, as
such, shall have any liability for any obligations of the Issuers under the
Senior Notes, this Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder of the Senior Notes
by accepting a Senior Note waives and releases all such liability. The waiver
and release are part of the consideration for issuance of the Senior Notes.
Such waiver may not be effective to waive liabilities under the federal
securities laws and it is the view of the Commission that such a waiver is
against public policy.
Section 11.08. Governing Law.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE, THE SENIOR NOTES AND ANY SUBSIDIARY GUARANTEE.
Section 11.09. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or debt
agreement of any Issuer or its Subsidiaries. Any such indenture, loan or debt
agreement may not be used to interpret this Indenture.
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Section 11.10. Successors.
All agreements of the Issuers in this Indenture and the Senior Notes shall
bind their successors. All agreements of the Trustee in this Indenture shall
bind its successor.
Section 11.11. Severability.
In case any provision in this Indenture or in the Senior Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 11.12. Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each signed
copy shall be an original, but all of them together represent the same
agreement.
Section 11.13. Table of Contents, Headings, etc.
The Table of Contents, Cross-Reference Table and Headings of the Articles and
Sections of this Indenture have been inserted for convenience of reference only,
are not to be considered a part of this Indenture and shall in no way modify or
restrict any of the terms or provisions hereof.
[Signatures on following page]
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SIGNATURES
Dated as of ____________, 1996 Muzak Limited Partnership
By MLP Acquisition L.P., its General Partner
By Music Holdings Corp., its General Partner
By:_____________________________
Name:
Title:
Muzak Capital Corporation
By:_____________________________
Name:
Title:
________________________,
as Trustee
By:_____________________________
Name:
Title:
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EXHIBIT A
(Form of Face of Senior Note)
___% Senior Note due 2003
No. $__________
MUZAK LIMITED PARTNERSHIP
MUZAK CAPITAL CORPORATION
promises to pay to
____________________
or its registered assigns
the principal sum of
Dollars on ________________, 2003.
Interest Payment Dates: __________ and __________, commencing __________, 1997.
Record Dates: ________ and ________ (whether or not a Business Day).
Dated: ____________,1996
Muzak Limited Partnership
By MLP Acquisition L.P., its General Partner
By Music Holdings Corp., its General Partner
By: _____________________________________
Name:
Title:
A-1
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Muzak Capital Corporation
By: _______________________________
Name:
Title:
(SEAL)
This is one of the Senior Notes
referred to in the within-
mentioned Indenture:
_________________________, as Trustee
By: ____________________________________
(Authorized Signature)
A-2
<PAGE>
(Form of Reverse Side of Senior Note)
___% Senior Note due 2003
Capitalized terms used herein have the meanings assigned to them in the
Indenture (as defined) unless otherwise indicated.
1. Interest. Muzak Limited Partnership, a Delaware limited partnership (the
"Company"), and Muzak Capital Corporation, a Delaware corporation ("Capital
Corp." and, together with the Company, the "Issuers"), jointly and severally,
promise to pay interest on the principal amount of this Senior Note at the rate
and in the manner specified below. The Issuers shall pay interest on the
principal amount of this Senior Note in cash at the rate per annum of ___%. The
Issuers will pay interest semi-annually on __________ and ___________ of each
year, commencing _____________, 1997, or, if any such day is not a Business Day,
on the next succeeding Business Day (each, an "Interest Payment Date") to
Holders of record on the immediately preceding __________ and ___________.
Interest will be computed on the basis of a 360-day year consisting of twelve
30-day months. Interest shall accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of the
original issuance of the Senior Notes. To the extent lawful, the Issuers shall
pay interest on overdue principal at the rate of the then applicable interest
rate on the Senior Notes; they shall pay interest on overdue installments of
interest (without regard to any applicable grace periods) at the same rate to
the extent lawful.
2. Method of Payment. The Issuers will pay interest on the Senior Notes
(except defaulted interest) to the Persons who are registered Holders of Senior
Notes at the close of business on the record date next preceding the Interest
Payment Date, even if such Senior Notes are cancelled after such record date and
on or before such Interest Payment Date. The Holder hereof must surrender this
Senior Note to a Paying Agent to collect principal payments. The Issuers will
pay principal and interest in money of the United States that at the time of
payment is legal tender for payment of public and private debts. The Issuers
however, may pay principal, premium, if any, and interest by check payable in
such money. The Senior Notes will be payable as to principal, premium and
interest at the office or agency of the Issuers maintained for such purpose
within the City and State of New York or, at the option of the Issuers, payment
of interest may be made by check mailed to the Holders of Senior Notes at their
respective addresses set forth in the register of Holders of Senior Notes.
Unless otherwise designated by the Issuers, the Issuers' office or agency in New
York, New York will be the office of the Trustee maintained for such a purpose.
3. Paying Agent and Registrar. Initially, the Trustee will act as Paying
Agent and Registrar. The Issuers may change any Paying Agent, Registrar or co-
registrar without prior notice to any Holder of a Senior Note. The Company or
any Subsidiary may act in any such capacity.
4. Indenture. The Issuers issued the Senior Notes under an Indenture, dated
as of _____________ , 1996 (the "Indenture"), between the Company and the
Trustee. The terms of the Senior Notes include those stated in the Indenture
and those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (15 U.S. Code (S)(S) 77aaa-77bbbb), as in effect on the date of
the Indenture. The Senior Notes are subject to all such terms, and Holders of
Senior Notes are referred to the Indenture and such act for a statement of such
terms. The terms of the Indenture shall govern any inconsistencies between the
Indenture and the Senior Notes. The Senior Notes are senior unsecured
obligations of the Issuers limited to $100,000,000 in aggregate principal
amount.
5. Optional Redemption. The Senior Notes will not be redeemable at the
Issuers' option prior to __________, 2000. Thereafter, the Senior Notes will be
subject to redemption at the option of the
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Issuers, in whole or in part, upon not less than 30 nor more than 60 days'
notice, in cash at the redemption prices (expressed as percentages of principal
amount) set forth below, plus accrued and unpaid interest, if any, thereon to
the applicable redemption date, if redeemed during the twelve-month period
beginning on __________ of the years indicated below:
Redemption
Year Price
---- ----------
2000 ............................... %
2001 ............................... %
2002 and thereafter ................ 100.000%
Notwithstanding the foregoing, during the first 36 months after the date of
this Prospectus, the Issuers may on any one or more occasions redeem up to 35%
of the initially outstanding aggregate principal amount of Senior Notes at a
redemption price equal to ___% of the principal amount thereof, plus accrued and
unpaid interest, if any, thereon to the redemption date, with the net proceeds
of one or more equity offerings of the Issuers generating in each case net
proceeds of at least $15.0 million; provided that at least 65% of the initially
outstanding aggregate principal amount of Senior Notes remains outstanding
immediately after the occurrence of any such redemption; and provided, further,
that such redemption shall occur within 60 days of the date of the closing of
any such equity offering of the Issuers.
6. Mandatory Redemption. Except as set forth in Sections 4.10 and 4.18 of
the Indenture, the Company is not required to make mandatory redemption or
sinking fund payments with respect to the Senior Notes.
7. Repurchase at Option of Holder. (a) Upon the occurrence of a Change of
Control, each Holder of Senior Notes will have the right to require the Issuers
to repurchase all or any part (equal to $1,000 or an integral multiple thereof)
of such Holder's Senior Notes at an offer price in cash equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest, if any,
thereon to the date of purchase. Holders of Senior Notes that are subject to an
offer to purchase will receive a Change of Control Offer from the Company prior
to any related Change of Control Payment Date and may elect to have such Senior
Notes purchased by completing the form entitled "Option of Holder to Elect
Purchase" appearing below.
(b) If the Company or a Restricted Subsidiary consummates any Asset Sales,
and when the aggregate amount of Excess Proceeds from such Asset Sales exceeds
$10.0 million, the Company will be required to make an offer to all holders of
Senior Notes to purchase the maximum principal amount of Senior Notes that may
be purchased out of the Excess Proceeds, at an offer price in cash in an amount
equal to 101% of the principal amount thereof, plus accrued and unpaid interest
thereon to the date of purchase, in accordance with the procedures set forth in
the Indenture. If the aggregate principal amount of Senior Notes surrendered by
Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select
the Senior Notes to be purchased on a pro rata basis. Holders of Senior Notes
that are the subject of an offer to purchase will receive an Asset Sale Offer
from the Company prior to any related purchase date and may elect to have such
Senior Notes purchased by completing the form entitled "Option of Holder to
Elect Purchase" appearing below.
8. Notice of Redemption. Notice of redemption shall be mailed at least 30
days but not more than 60 days before the redemption date to each Holder whose
Senior Notes are to be redeemed at its registered address. Senior Notes may be
redeemed in part but only in whole multiples of $1,000, unless all of the Senior
Notes held by a Holder of Senior Notes are to be redeemed. On and after the
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<PAGE>
redemption date, interest ceases to accrue on Senior Notes or portions of them
called for redemption unless the Issuers default in making such redemption
payment.
9. Denominations, Transfer, Exchange. The Senior Notes are in registered
form without coupons in denominations of $1,000 and integral multiples of
$1,000. The transfer of Senior Notes may be registered and Senior Notes may be
exchanged as provided in the Indenture. The Registrar and the Trustee may
require a Holder of a Senior Note, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not exchange or register
the transfer of any Senior Note or portion of a Senior Note se lected for
redemption. Also, it need not exchange or register the transfer of any Senior
Notes for a period of 15 days before a selection of Senior Notes to be redeemed.
10. Persons Deemed Owners. Prior to due presentment to the Trustee for
registration of the transfer of this Senior Note, the Trustee, any Agent and the
Issuers may deem and treat the Person in whose name this Senior Note is
registered as its absolute owner for the purpose of receiving payment of
principal of, premium, if any, and interest on this Senior Note and for all
other purposes whatsoever, whether or not this Senior Note is overdue, and
neither the Trustee, any Agent nor the Issuers shall be affected by notice to
the contrary. The registered Holder of a Senior Note shall be treated as its
owner for all purposes.
11. Amendments, Supplement and Waivers. Subject to certain exceptions, the
Indenture or the Senior Notes may be amended or supplemented with the consent of
the holders of at least a majority in principal amount of the Senior Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange offer for Senior Notes), and any existing default or compliance with
any provision of the Indenture or the Senior Notes may be waived with the
consent of the holders of a majority in principal amount of the then outstanding
Senior Notes (including consents obtained in connection with a tender offer or
exchange offer for Senior Notes). Without the consent of each holder affected,
an amendment or waiver may not (with respect to any Senior Notes held by a non-
consenting holder) (i) reduce the principal amount of Senior Notes whose holders
must consent to an amendment, supplement or waiver, (ii) reduce the principal of
or change the fixed maturity of any Senior Note or alter the provisions with
respect to the redemption of the Senior Notes, (iii) reduce the rate of or
change the time for payment of interest on any Senior Note, (iv) waive a Default
or Event of Default in the payment of principal of or premium, if any, or
interest on the Senior Notes (except a rescission of acceleration of the Senior
Notes by the holders of at least a majority in aggregate principal amount of the
Senior Notes and a waiver of the payment default that resulted from such
acceleration), (v) make any Senior Note payable in money other than that stated
in the Senior Notes, (vi) make any change in the provisions of the Indenture
relating to waivers of past Defaults or the rights of holders of Senior Notes to
receive payments of principal of or premium, if any, or interest on the Senior
Notes, (vii) waive a redemption payment with respect to any Senior Note or
(viii) make any change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any holder of Senior
Notes, the Issuers and the Trustee may amend or supplement the Indenture or the
Senior Notes to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Senior Notes in addition to or in place of certificated Senior
Notes, to provide for the assumption of the Issuers' obligations to holders of
Senior Notes in the case of a merger or consolidation, to make any change that
would provide any additional rights or benefits to the holders of Senior Notes
or that does not materially adversely affect the legal rights under the
Indenture of any such holder, to provide for Subsidiary Guarantees of the Senior
Notes or to comply with requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the Trust Indenture Act.
12. Defaults and Remedies. Each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on the
Senior Notes; (ii) default in the payment of all or any
A-5
<PAGE>
part of the principal, or premium, if any, on the Senior Notes when and as the
same becomes due and payable at maturity, upon redemption, by acceleration, or
otherwise, including, without limitation, the payment of the Change of Control
Payment or the Asset Sale Offer Price, or otherwise; (iii) failure by any of the
Issuers or any of their respective Subsidiaries to observe or perform any other
covenant or agreement on the part of such Issuer or such Subsidiary contained in
the Senior Notes or the Indenture and, subject to certain exceptions, the
continuance of such failure for a period of 30 days after written notice is
given to the Issuers by the Trustee or to the Issuers and the Trustee by the
holders of at least 25% in aggregate principal amount of the Senior Notes then
outstanding, specifying such default and requiring that it be remedied; (iv)
default under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Indebtedness for money
borrowed by the Company or any of its Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Subsidiaries) whether such Indebtedness
or guarantee now exists, or is created after the date of the Indenture, which
default (A) is caused by a failure to pay principal of or premium, if any, or
interest on such Indebtedness prior to the expiration of the grace period
provided in such Indebtedness on the date of such default (a "Payment Default")
or (B) results in the acceleration of such Indebtedness prior to its express
maturity and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under which
there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $5.0 million or more; (v) failure by the Company or any
of its Subsidiaries to pay final judgments aggregating in excess of $5.0
million, which judgments are not paid, discharged or stayed for a period of 60
days; (vi) except as permitted by the Indenture, any Subsidiary Guarantee shall
be held in any judicial proceeding to be unenforceable or invalid or shall cease
for any reason to be in full force and effect or any Guarantor, or any Person
acting on behalf of any Guarantor, shall deny or disaffirm its obligations under
its Subsidiary Guarantee; and (vii) certain events of bankruptcy or insolvency
with respect to the Company or any of its Significant Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Senior Notes may
declare all the Senior Notes to be due and payable immediately. Notwithstanding
the foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, any Significant
Subsidiary or any group of Subsidiaries that, taken together, would constitute a
Significant Subsidiary, all outstanding Senior Notes will become due and payable
without further action or notice. Holders of the Senior Notes may not enforce
the Indenture or the Senior Notes except as provided in the Indenture. Subject
to certain limitations, Holders of a majority in principal amount of the then
outstanding Senior Notes may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Holders of the Senior Notes notice of any
continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it determines that
withholding notice is in their interest. The Holders of a majority in aggregate
principal amount of the Senior Notes then outstanding, by notice to the Trustee,
may on behalf of the Holders of all of the Senior Notes waive any existing
Default or Event of Default and its consequences under the Indenture except a
continuing Default or Event of Default in the payment of principal of, premium,
if any, and interest on, the Senior Notes and except as to Sections 4.10 and
4.18 of the Indenture. The Issuers are required to deliver to the Trustee
annually a statement regarding compliance with the Indenture, and the Issuers
are required upon becoming aware of any Default or Event of Default, to deliver
to the Trustee a statement specifying such Default or Event of Default.
13. Trustee Dealings with Issuers. The Trustee under the Indenture, in its
individual or any other capacity, may make loans to, accept deposits from, and
perform services for the Issuers or their Affiliates, and may otherwise deal
with the Issuers or their Affiliates, as if it were not Trustee; however, if the
Trustee acquires any conflicting interest it must eliminate such conflict within
90 days, apply to the Commission for permission to continue as Trustee or
resign.
A-6
<PAGE>
14. No Personal Liabilities of Directors, Officers, Employees and
Stockholders. No director, officer, employee, manager, incorporator or
stockholder or other Affiliate of the Issuers shall have any liability for any
obligations of the Issuers under the Senior Notes, the Indenture or for any
claim based on, in respect of or by reason of such obligations or their
creation. Each Holder of a Senior Note by accepting a Senior Note waives and
releases all such liability. The waiver and release are part of the
consideration for the issuance of the Senior Notes. Such waiver may not be
effective to waive liabilities under the federal securities laws and it is the
view of the Commission that such a waiver is against public policy.
15. Authentication. This Senior Note shall not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.
16. Abbreviations. Customary abbreviations may be used in the name of a
Holder of a Senior Note or an assignee, such as: TEN COM (= tenants in common),
TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
17. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Senior Notes and has directed the Trustee to
use CUSIP numbers in notices of redemption as a convenience to Holders of Senior
Notes. No representation is made as to the accuracy of such numbers either as
printed on the Senior Notes or as contained in any notice of redemption and
reliance may be placed only on the other identification numbers placed thereon.
18. Governing Law. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN
AND BE USED TO CONSTRUE THE INDENTURE, THE SENIOR NOTES AND ANY SUBSIDIARY
GUARANTEE.
The Issuers will furnish to any Holder of a Senior Note upon written request
and without charge a copy of the Indenture. Request may be made to:
Muzak Limited Partnership
Muzak Capital Corporation
2901 Third Avenue, Suite 400
Seattle, Washington 98121
Telecopier No.: (206) 633-6210
Attention: Chief Financial Officer
A-7
<PAGE>
ASSIGNMENT FORM
To assign this Senior Note, fill in the form below: (I) or (we) assign and
transfer this Senior Note to
- -------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint _______________________________________________________
agent to transfer this Senior Note on the books of the Issuers. The agent may
substitute another to act for him.
- --------------------------------------------------------------------------------
Date: ______________
Your Signature: ________________________________
(Sign exactly as your name appears on the face of
this Senior Note)
Signature Guarantee.
A-8
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have all or any part of this Senior Note purchased
by the Issuers pursuant to Section 4.10 or Section 4.18 of the Indenture check
the appropriate box:
[_] Section 4.10 [_] Section 4.18
If you want to have only part of the Senior Note purchased by the
Issuers pursuant to Section 4.10 or Section 4.18 of the Indenture, state the
amount (in integral multiples of $1,000) you elect to have purchased:
$ _______________
Date:____________
Your Signature: _________________________________
(Sign exactly as your name appears on the face of
this Senior Note)
Signature Guarantee.
A-9
<PAGE>
EXHIBIT B
GUARANTEE
---------
Each Guarantor (which term includes any successor or assign under the
Indenture) hereby, jointly and severally, unconditionally guarantees, on a
senior unsubordinated basis, to each Holder of a Senior Note authenticated and
delivered by the Trustee and to the Trustee and its successors and assigns,
irrespective of the validity and enforceability of the Indenture, the Senior
Notes or the Obligations of the Issuers to the Holders or the Trustee under the
Indenture or under the Senior Notes, that (a) the principal of, premium, if any,
and any accrued and unpaid interest on the Senior Notes shall be duly and
punctually paid in full when due, whether at maturity, by acceleration or
otherwise, and interest on overdue principal of, premium, if any, and (to the
extent permitted by law) interest on the Senior Notes and all other Obligations
of the Issuers to the Holders or the Trustee under the Indenture or under the
Senior Notes (including fees, expenses or other) shall be promptly paid in full
or performed, all in accordance with the terms hereof and thereof; (b) in case
of any extension of time of payment or renewal of any Senior Notes or any of
such other Obligations, the same shall be promptly paid in full when due or
performed in accordance with the terms of the extension or renewal, whether at
stated maturity, by acceleration or otherwise; and (c) any and all costs and
expenses (including, without limitation, reasonable attorneys' fees and
expenses) incurred by the Trustee or its agents or any Holder of Senior Notes in
enforcing any rights under any Guarantee shall be promptly paid in full when
due.
The obligations of each Guarantor to the Holders of Senior Notes and to the
Trustee pursuant to this Guarantee and the Indenture are expressly set forth in
Article 10 of the Indenture and reference is hereby made to such Indenture for
the precise terms of this Guarantee. THE TERMS OF ARTICLE 10 OF THE INDENTURE
ARE INCORPORATED HEREIN BY REFERENCE. In the case of any discrepancy between
this writing and Article 10 of the Indenture, Article 10 of the Indenture shall
control.
This is a continuing Guarantee and shall remain in full force and effect
and shall be binding upon each Guarantor and its successors and assigns until
full, final and indefeasible payment of all of the Issuers' obligations under
the Senior Notes and the Indenture (subject to Section 10.05 of the Indenture)
and shall inure to the benefit of the successors and assigns of the Trustee and
the Holders of Senior Notes and, in the event of any transfer or assignment of
rights by any Holder of Senior Notes or the Trustee, the rights and privileges
herein conferred upon the party shall automatically extend to and be vested in
such transferee or assignee, all subject to the terms and conditions hereof.
This is a Guarantee of payment and not a Guarantee of collection.
Each Guarantor and, by its acceptance hereof, each beneficiary hereof,
hereby confirms that it is the intention and agreement of all such parties that
this Guarantee not constitute a fraudulent transfer or conveyance for purposes
of any Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform
Fraudulent Transfer Act or any similar Federal or state law (including, without
limitation, the Debtor and Creditor Law of the State of New York). To
effectuate the foregoing intention, each such Person hereby irrevocably agrees
that the Obligations of each Guarantor under Article 10 of the Indenture shall
be limited to the maximum amount as will, after giving effect to all other
contingent and fixed liabilities of such Guarantor, result in the Obligations of
such Guarantor under its Guarantee not constituting a fraudulent transfer or
conveyance.
This Guarantee shall not be valid or obligatory for any purpose until the
certificate of authentication on the Senior Note upon which this Guarantee is
noted shall have been executed by the Trustee under the Indenture by the manual
signature of one of its authorized officers.
B-10
<PAGE>
[Guarantor]
By: _____________________________
Name:
Title:
Attest:
________________________________
Name:
Title:
B-11
<PAGE>
EXHIBIT C
FORM OF SUPPLEMENTAL INDENTURE
Supplemental Indenture (this "Supplemental Indenture"), dated as of
____________________, ____, between _____________________________ (the
"Guarantor"), a subsidiary of Muzak Limited Partnership, a Delaware limited
partnership (the "Company"), and ________________, as trustee under the
indenture referred to below (the "Trustee").
W I T N E S S E T H
WHEREAS, the Issuers have heretofore executed and delivered to the Trustee
an indenture (the "Indenture"), dated as of _____________, 1996, providing for
the issuance of an aggregate principal amount of $100,000,000 of ___% Senior
Notes due 2003 (the "Senior Notes");
WHEREAS, Section 4.16 of the Indenture provides that under certain
circumstances the Issuers are required to cause the Guarantor to execute and
deliver to the Trustee a supplemental indenture pursuant to which the Guarantor
shall unconditionally guarantee all of the Issuers' obligations under the Senior
Notes pursuant to a Guarantee on the terms and conditions set forth in Article
10 of the Indenture; and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the
Guarantor and the Trustee mutually covenant and agree for the equal and ratable
benefit of the holders of the Senior Notes as follows:
(a) Capitalized Terms. Capitalized terms used herein without definition
shall have the meanings assigned to them in the Indenture.
(b) Agreement to Guarantee. The Guarantor hereby agrees, jointly and
severally with all other Guarantors, to guarantee, on a senior unsubordinated
basis, the Issuers' Obligations under the Senior Notes on the terms and subject
to the conditions set forth in Article 10 of the Indenture and to be bound by
all other applicable provisions of the Indenture.
(c) No Recourse Against Others. No officer, employee, director or
stockholder of the Guarantor shall have any liability for any Obligations of the
Issuers or any Guarantor under the Senior Notes, any Guarantee, the Indenture or
this Supplemental Indenture or for any claim based on, in respect of, or by
reason of, such Obligations or their creation of any such Obligation. Each
Holder by accepting a Senior Note waives and releases all such liability, and
such waiver and release is part of the consideration for the issuance of the
Senior Notes.
(d) Governing Law. The internal laws of the State of New York shall govern
this Supplemental Indenture, without regard to the conflict of laws provisions
thereof.
(e) Counterparts. The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
C-12
<PAGE>
(f) Effect of Headings. The Section headings herein are for convenience
only and shall not affect the construction hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed and attested, all as of the date first above
written.
Dated: _______________ ___, ______
[Guarantor]
By: _____________________________
Name:
Title:
Attest:
________________________________
Name:
Title:
_________________________________,
as Trustee
By: _____________________________
Name:
Title:
Attest:
________________________________
Name:
Title:
C-13
<PAGE>
Exhibit 10.31
<PAGE>
MUZAK LIMITED PARTNERSHIP
MANAGEMENT INCENTIVE PLAN - SENIOR MANAGEMENT
I. PLAN PURPOSE
------------
The purpose of the Muzak Limited Partnership Incentive Plan (the "Plan") is
to provide key management employees of Muzak Limited Partnership (the
"Company") with an additional incentive to work together as a team and
exert their best efforts on behalf of the Company by rewarding them with an
opportunity to earn additional compensation.
II. PLAN SUMMARY
------------
A participant of the Plan may receive additional compensation above their
base salary if during the measurement period (a calendar year) the Company
and/or the participant achieve certain goals.
III. PLAN DETAILS
------------
The Plan is made up of three types of goals: 1) EBITDA 2) Operating Cash
Flow and 3)Revenue Growth. To be eligible for a payment under the Plan, at
least $21 million must be achieved.
The bonus potential is 30% of base salary at 100% of goal attainment as
follows:
<TABLE>
<CAPTION>
% of Goal Goal Bonus as a %
Attained ($000's) of Salary
-------- -------- ---------
<S> <C> <C> <C>
EBITDA 100% $21,785 10.5%
Operating Cash Flow 100% $ 7,603 9.0%
Revenue Growth 100% $89,307 10.5%
</TABLE>
The bonus amount will be determined by multiplying the sum of the attained
performance level percentages by reference to the performance matrix
attached, by the participant's annual salary at the end of the measurement
period. For example:
If the Company's 1996 EBITDA is $21,500,000, Operating Cash Flow is
$7,700,000 and Revenue is $88,100,000, with reference to the matrix, the
bonus calculation for a participant with a base salary of $80,000 would be:
<TABLE>
<CAPTION>
Performance
Attained Bonus as a %
($000's) of Salary
-------- ---------
<S> <C> <C>
EBIDTA $21,500 6.7%
Operating Cash Flow $ 7,700 10.1%
Revenue Growth $88,100 3.5%
Total 20.3%
</TABLE>
$80,000 x 20.3% = $16,240 bonus
The Operating Cash Flow and Revenue Growth goal portions of the bonus are
dependent upon the achievement of the EBITDA gateway. If EBITDA of
$21,000,000 is not achieved, no bonus will be paid for the Operating Cash
Flow and Revenue Growth goal regardless of performance levels of these
measurements.
Participants in the Plan will be eleven Senior Managers of the Company:
Borgeson, Collamer, Craig, Crowe, Funkhouser, Gentry, Harrison, Henderson,
Jester, Neal and Stewart.
<PAGE>
Muzak Limited Partnership
Senior Management Incentive Plan
Page Two
IV. PAYMENT
-------
Payment will be made by March 1 of the year following the Plan year period.
For calculation purposes, a participant's salary at the end of the Plan
year will be used. Interpolation will be used between performance levels to
determine awards.
In the event that a Plan participant's employment is terminated during the
measurement period, a prorated bonus may be awarded based on the discretion
of the President.
In all prorated cases, the annual bonus amount will be multiplied by the
number of months the participant has been included in the Plan and divided
by twelve months. For example, using the previous salary levels and
performance criteria for a five month participation:
$80,000 x 20.3% = $16,240 x 5/12 = $6,770
V. ADJUSTMENTS
-----------
The performance levels will be modified for large unplanned changes, such
as acquisitions, divestitures or development projects.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT ON FINANCIAL STATEMENT SCHEDULE OF
MUZAK LIMITED PARTNERSHIP
We consent to the use in this Registration Statement relating to the sale of
Senior Notes by Muzak Limited Partnership and Muzak Capital Corporation on
Amendment No. 4 to Form S-1 of our report dated March 6, 1996 (August 23,
1996, as to Note 10) on the financial statements of Muzak Limited Partnership
as of December 31, 1995 and 1994, and for each of the three years in the
period ended December 31, 1995, appearing in the Prospectus, which is a part
of this Registration Statement, and to the references to us under the headings
"Selected Financial Data" and "Experts" in such Prospectus.
Our audits of the financial statements referred to in our aforementioned
report also included the financial statement schedule of Muzak Limited
Partnership, listed in Item 16(b). This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits. In our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Seattle, Washington
September 16, 1996
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement relating to the sale of
Senior Notes of Muzak Limited Partnership and Muzak Capital Corporation on
Amendment No. 4 to Form S-1 of our report dated August 27, 1996 on the
financial statement of Muzak Capital Corporation as of May 8, 1996, appearing
in the Prospectus, which is part of the Registration Statement.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Seattle, Washington
September 16, 1996
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement relating to the sale of
Senior Notes of Muzak Limited Partnership and Muzak Capital Corporation on
Amendment No. 4 to Form S-1 of our report dated February 10, 1994 on the
financial statements of Comcast Sound Communications, Inc. and subsidiaries
for the year ended December 31, 1993, appearing in the Prospectus, which is
part of this Registration Statement.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Philadelphia, Pennsylvania
September 16, 1996
