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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: July 24, 1997
Date of earliest event reported: July 11, 1997
TCI MUSIC, INC.
(Exact name of registrant as specified in its charter)
Delaware 000-22815 84-1380293
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
5619 DTC Parkway, Englewood, CO 80111
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 303.267.5500
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On July 11, 1997, TCI Music, Inc. ("TCI Music") consummated the merger of
DMX Inc. ("DMX") pursuant to an Agreement and Plan of Merger, dated February 6,
1997, as amended by Amendment One to Merger Agreement dated May 29, 1997 (the
"Merger Agreement"), among DMX, Tele-Communications, Inc. ("TCI"), TCI
Music, a wholly owned subsidiary of TCI, and TCI Merger Sub, Inc. ("Merger
Sub"), a wholly owned subsidiary of TCI Music, which Merger Sub was merged with
and into DMX (the "Merger") with DMX as the surviving corporation.
In connection with the Merger, TCI and TCI Music entered into a Contribution
Agreement dated July 11, 1997 (the "Contribution Agreement"). Pursuant to the
Contribution Agreement: (i) TCI Music issued to TCI (as designee of certain of
its indirect subsidiaries), 62,500,000 shares of Series B Common Stock, par
value $.01 per share, of TCI Music and a promissory note in the amount of $40
million; (ii) until December 31, 2006 certain subsidiaries of TCI will transfer
to TCI Music the right to receive all revenue from sales of DMX music services
to their residential and commercial subscribers, net of an amount equal to 10%
of the revenue from such sales to residential subscribers and net of the revenue
otherwise payable to DMX as license fees for DMX music services under
affiliation agreements currently in effect; (iii) TCI contributed to TCI Music
the digital commercial tuners that are not in service; and (iv) TCI granted to
each stockholder who became a stockholder of TCI Music pursuant to the Merger,
one right (a "Right") with respect to each whole share of Series A Common Stock,
$.01 par value per share, of TCI Music ("TCI Music Series A Common Stock")
acquired by such stockholder in the Merger pursuant to the terms of the Rights
Agreement among TCI, TCI Music and the Bank of New York, as Rights Agent. Each
Right will entitle the holder to require TCI to purchase from such holder one
share of TCI Music Series A Common Stock for $8.00 per share, payable at the
election of TCI, in cash, a number of shares of Tele-Communications, Inc. Series
A TCI Group Common Stock ("Series A TCI Group Common Stock") having an
equivalent value or a combination thereof, if during the one-year period
beginning on July 11, 1997, the effective date of the Merger, the price of TCI
Music Series A Common Stock does not equal or exceed $8.00 per share for a
period of at least 20 consecutive trading days.
Upon consummation of the Merger, each outstanding share of common stock, $.01
par value per share, of DMX was converted into the right to receive (i)
one-quarter share of TCI Music Series A Common Stock, (ii) one Right with
respect to each whole share of TCI Music Series A Common Stock and (iii) cash in
lieu of fractional shares of TCI Music Series A Common Stock and Rights. Until
the Rights expire or are exercised, the Rights will be evidenced by a legend on
the certificates for shares of TCI Music Series A Common Stock issued in the
Merger. Accordingly, the Rights associated with the shares of TCI Music Series A
Common Stock will be represented solely by, and will not be separable from, such
shares of TCI Music Series A Common Stock, and the surrender or transfer of any
such certificate for shares of TCI Music Series A Common Stock will also
constitute the surrender or transfer of the Rights associated with the TCI Music
Series A Common Stock represented by such certificate.
The outstanding shares of TCI Music Series A Common Stock represent
approximately 19.25% of, and 2.3% of the voting power related to, the total
outstanding shares of TCI Music Series A Common Stock and TCI Music Series B
Common Stock (together, the "TCI Music Common Stock"); and the outstanding
shares of TCI Music Series B Common Stock represent approximately 80.75% of, and
97.7% of the voting power related to the total outstanding shares of TCI Music
Common Stock. TCI beneficially owns approximately 45.7% of the outstanding
shares of TCI Music Series A Common Stock and 100% of the outstanding TCI Music
Series B Common Stock, which TCI ownership collectively represents approximately
89.6% of the outstanding shares of TCI Music Common Stock and 98.7% of the
voting power of the outstanding shares of TCI Music Common Stock.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements.
The historical financial statements of DMX that are required to be included
in this Report on Form 8-K are substantially the same as the historical
financial statements of DMX that were previously included in Amendment No.
1 to the Registration Statement on Form S-4 filed by TCI Music, Inc. on
June 12, 1997 with the Securities and Exchange Commission, (file no.
333-28613). Accordingly, the historical financial statements of DMX are
not included herein.
(b) Pro Forma Financial Information.
The pro forma financial information that is required to be included in this
Report on Form 8-K is substantially the same as the pro forma information
that was previously included in Amendment No. 1 to the Registration
Statement on Form S-4 filed by TCI Music, Inc. on June 12, 1997 with the
Securities and Exchange Commission, (file no. 333-28613). Accordingly,
such pro forma financial information is not included herein.
(c) Exhibits.
2 Agreement and Plan of Merger dated as of February 6, 1997, as
amended by Amendment One dated May 29, 1997, by and among
Tele-Communications, Inc., TCI Music, Inc., TCI Merger Sub, Inc.
and DMX, Inc., incorporated by reference to TCI Music's
Registration Statement on Form S-4 dated June 6, 1997 (file no.
333-28613).
4.1 Rights Agreement dated July 11, 1997 among Tele-Communications,
Inc. and TCI Music, Inc., and the Bank of New York, as Rights
Agent.
10.1 Contribution Agreement dated July 11, 1997 among
Tele-Communications, Inc. and TCI Music, Inc.
10.2 Services Agreement dated July 11, 1997 among
Tele-Communications, Inc. and TCI Music, Inc.
ITEM 8. CHANGE IN FISCAL YEAR.
Effective July 11, 1997, TCI Music, as the successor registrant to DMX,
determined to change its fiscal year end from September 30 to December 31,
and will report the nine month transition period ended June 30, 1997 on
Form 10-K.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TCI MUSIC, INC.
Date: July 24, 1997 By: /s/ STEPHEN M. BRETT
-------------- ----------------------------------
Stephen M. Brett
Vice President, General Counsel
and Secretary
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EXHIBIT 4.1
RIGHTS AGREEMENT
AGREEMENT, dated as of July 11, 1997, among TELE-COMMUNICATIONS, INC.,
a Delaware corporation ("TCI" or the "Company"), TCI Music, Inc., a Delaware
corporation ("MusicCo"), and The Bank of New York, a New York banking
corporation, as Rights Agent for the Company's rights issued pursuant hereto
(the "Rights").
BACKGROUND
Pursuant to the Agreement and Plan of Merger dated as of February 6,
1997, as amended by Amendment One dated May 29, 1997, (the "Merger Agreement"),
the outstanding shares of Common Stock of DMX Inc., were converted on the date
of this Agreement into shares of Series A Common Stock of MusicCo upon
effectiveness of the merger contemplated by the Merger Agreement (the
"Merger").
In connection with the Merger, TCI has agreed that if, during the
one-year period beginning on the date of the Merger, the price of MusicCo's
Series A Common Stock does not equal or exceed $8.00 per share for a period of
at least 20 consecutive trading days, holders of MusicCo Series A Common Stock
will have the right, exercisable during the 30-day period beginning on the
first anniversary of the Merger, to require TCI to purchase such Common Stock
at a price of $8.00 per share, payable at TCI's election in cash or shares of
Tele-Communications, Inc. Series A TCI Group Common Stock (or a combination
thereof). Each Right will entitle the registered holder thereof (the
"Holders") to sell one share of MusicCo Series A Common Stock (subject to
adjustment) to the Company for the consideration described herein upon exercise
thereof in accordance with the terms and conditions of this Agreement.
The Company wishes the Rights Agent to act on behalf of the Company,
and the Rights Agent is willing so to act, in connection with the issuance,
division, transfer, exchange and exercise of the Rights.
AGREEMENT
In consideration of the foregoing and for the purpose of defining the
terms and provisions of the Rights, the respective rights and obligations
thereunder of the Company and the holders and certain obligations of MusicCo,
the parties agree as follows:
ARTICLE I
DEFINITIONS
1.01 Certain Definitions. As used herein, the following terms have
the meanings assigned to them in this Section 1.01 (or in the applicable
Section to which reference is made) and include the singular as well as the
plural:
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"Aggregate Consideration Amount Per Distributed Entity Share": As of
any date of determination, the sum of the Consideration Amount Per Distributed
Entity Share for each Distributed Entity then existing.
"Applicable Entity": As the context may require, MusicCo and each
Distributed Entity, as applicable.
"Bankruptcy Event": Pursuant to or within the meaning of any
Bankruptcy Law, the Company:
(a) commences a voluntary case;
(b) consents to the entry of an order for relief against
it in an involuntary case;
(c) consents to the appointment of a Custodian of it or
for all or substantially all of its property (other than for its subsidiaries
or property of its subsidiaries);
(d) makes a general assignment for the benefit of its
creditors;
(e) admits in writing its inability to pay its debts
generally as they become due;
(f) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(i) is for relief against the Company in an
involuntary case;
(ii) appoints a Custodian of the Company or for
all or substantially all of its property (other than its subsidiaries
or property of its subsidiaries);
(iii) orders the liquidation of the Company, and
any such order or decree remains unstayed and in effect for 90 days;
or
(g) the Company takes any corporate action to authorize
any of the foregoing.
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.
"Beneficial Owner": A Person shall be deemed the "Beneficial Owner"
of, and shall be deemed to "beneficially own," any securities of which such
person has "Beneficial Ownership" within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934 (or any successor
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statute or rule). Any Person's percentage beneficial ownership of any class of
securities shall be determined in accordance with such rule.
"Business Day": Any day other than a Saturday, Sunday or other day on
which commercial banks in New York, New York or Los Angeles, California are
authorized or required to close.
"Capital Stock": With respect to each Applicable Entity, any and all
shares (however designated) of capital stock or other equity interests of such
Applicable Entity, now or hereafter authorized, that, upon the liquidation of
such Applicable Entity, entitle the holder thereof to share, without limitation
as to amount, in the liquidating distribution of the assets of such Applicable
Entity to its stockholders. In determining the number and kind of shares of
Capital Stock of each Applicable Entity outstanding for purposes of the
definitions of "Per Share Value" and "Fair Market Value", any shares of capital
stock or of other equity interests of such Applicable Entity that, without
payment of additional consideration, are convertible into or exchangeable
("Convertible Shares") for shares of any other class or series of corporate
stock or of other equity interests of such Applicable Entity ("Conversion
Shares") shall be deemed to have been so converted or exchanged if the
aggregate amount that would be payable, if such Applicable Entity were then
being liquidated, to the holders of such Conversion Shares exceeds the
aggregate amount that would be payable (determined on a class by class basis),
if such Applicable Entity were then being liquidated, to the holders of the
Convertible Shares. The calculation of the aggregate amount payable upon
liquidation of such Applicable Entity to holders of Conversion Shares or
Convertible Shares, as the case may be, shall take into account any fixed
amounts payable in liquidation with respect to such shares and shall otherwise
assume that liquidating distributions will be made on the basis of the Fair
Market Value of such Applicable Entity (calculated, in the case of the
Conversion Shares, on a pro forma basis assuming the issuance of such
Conversion Shares).
"Certificates": As defined in Section 2.02.
"Change in Control Transaction": As defined in Section 4.17.
"Component": Each of the MusicCo Component and each Distributed Entity
Component, if any, of each Right.
"Consideration Amount Per Distributed Entity Share": The amount
determined in accordance with Section 4.16.
"Consideration Amount Per MusicCo Share": The amount determined in
accordance with Section 4.16.
"Current Market Price": As defined in Section 4.05.
"Deposit Date": As defined in Section 4.14.
"Disposition": Any sale, conveyance, transfer or other disposition by
the Company of Beneficial Ownership of any shares of Capital Stock of MusicCo
during the term of this
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Agreement, but excluding (i) a pledge of Capital Stock of MusicCo as collateral
security for bona fide indebtedness, (ii) a disposition of Capital Stock of
MusicCo after giving effect to which the Company continues to be the beneficial
owner of the Capital Stock so disposed of and (iii) a disposition of Capital
Stock of MusicCo in connection with a merger, consolidation or combination of
the Company with or into another corporation. The term "dispose" means to make
a disposition.
"Distributed Entity": Any entity the shares of Capital Stock of which
are distributed or sold in a Subject Distribution. The term "Distributed
Entity Stock" means the class or series of Capital Stock of each Distributed
Entity that is distributed or sold in a Subject Distribution.
"Distributed Entity Component": As defined in Section 6.04.
"Distribution Value": With respect to each distribution by an
Applicable Entity to all holders of shares of MusicCo Series A Common Stock or
Distributed Entity Stock, as the case may be, of shares of the Capital Stock of
any entity or of rights or warrants entitling such holders (for a period
expiring within 45 days after the effective date of such distribution) to
purchase shares of the Capital Stock of any entity, the positive difference, if
any, between (a) the Fair Market Value of such entity or, if the shares of
Capital Stock so distributed or sold pursuant to the distributed rights or
warrants represent less than 100% of the outstanding shares of Capital Stock of
such entity, then the portion of the Fair Market Value of such entity
represented by the shares so distributed or sold, and (b) the aggregate
consideration paid for the shares sold pursuant to the distributed rights or
warrants, if any.
"Early Expiration Event": With respect to MusicCo Series A Common
Stock and the Capital Stock of each other Applicable Entity, when the sum of
the Fair Market Values of one share of MusicCo Series A Common Stock and one
share of the Capital Stock of each other Applicable Entity shall have equaled
or exceeded $8.00 for at least 20 consecutive trading days.
"Excluded Stock": With respect to each Applicable Entity, any and all
shares (however designated) of capital stock or of other equity interests of
such Applicable Entity now or hereafter authorized that, upon the liquidation
of such Applicable Entity, do not entitle the holder thereof to share, without
limitation as to amount, in the liquidating distribution of the assets of such
Applicable Entity to its equity holders, except that any of such shares that,
without payment of additional consideration, are convertible into or
exchangeable for shares of any other class or series of capital stock or of
other equity interests that are not so limited with respect to participation in
liquidating distributions shall not constitute Excluded Stock if such shares
would be deemed to have been so converted in accordance with the definition of
"Capital Stock".
"Exercise Period": As defined in Section 4.01, subject to Section
4.17.
"Fair Market Value": With respect to each Applicable Entity as of any
date of determination, the fair market value of such Applicable Entity on a
going concern basis (as if such Applicable Entity were being sold by a sale of
stock or, if applicable, of other equity interests) or on a liquidation basis
(whichever method would yield the highest valuation), (i) reduced by the
aggregate amount that would be payable, if such Applicable Entity were then
being liquidated,
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(x) on any Excluded Stock of the Applicable Entity and (y) on any shares of its
Capital Stock then outstanding (or deemed to be outstanding in accordance with
the definition of "Capital Stock") that entitle their holders to payment of a
fixed amount upon liquidation in addition to their participation in liquidating
distributions payable with respect to other shares of Capital Stock (but the
reduction pursuant to this clause (y) shall be limited to such fixed amount)
and (ii) increased by the aggregate exercise or conversion price payable to
such Applicable Entity upon the exercise or conversion of all warrants, rights
and options to purchase or acquire Capital Stock of such Applicable Entity and
convertible securities the exercise or conversion of which is taken into
account in determining the Per Share Value of such Applicable Entity. The fair
market value of an Applicable Entity on a going concern basis shall take into
account such considerations (including but not limited to tax considerations
which are specific to a sale of stock or, if applicable, of other equity
interests) as would customarily affect the price at which a willing seller
would sell and a willing buyer would buy a comparable business as a going
concern in an arm's length transaction. The fair market value of an Applicable
Entity on a liquidation basis shall take into account tax liabilities that
would be incurred in a liquidation assuming the most tax efficient and
practical plan of liquidation and all other liabilities that would be required
to be paid or reserved against before the making of liquidating distributions
to equity holders.
"Holders": As defined in the preamble.
"MusicCo Series A Common Stock": Series A Common Stock, par value
$.01 per share of MusicCo, and Capital Stock of any other class into which such
Series A Common Stock may thereafter have been changed. "MusicCo Series A
Shares" means shares of MusicCo Series A Common Stock.
"MusicCo Common Stock": Capital Stock of MusicCo including MusicCo
Series A Common Stock.
"MusicCo Component": As defined in Section 6.04.
"MusicCo Dividend": Any distribution of cash or property (other than
securities specified in Section 6.03) on MusicCo Series A Common Stock.
"Notice": As defined in Section 4.07.
"Per Share Value": With respect to each Applicable Entity, the
quotient of (x) the Fair Market Value of such Applicable Entity as of the
applicable date, divided by (y) the total number of shares of Capital Stock of
such Applicable Entity outstanding (or deemed to be outstanding in accordance
with the definition of "Capital Stock") as of such date (or shares equivalent
to (i) in the case of MusicCo, MusicCo Common Stock, or (ii) in the case of any
Distributed Entity, Distributed Entity Stock, if any shares of Capital Stock of
such Applicable Entity then outstanding or deemed to be outstanding entitle
their holders to participate in liquidating distributions on a basis different
from that which is applicable to shares of MusicCo Common Stock or Distributed
Entity Stock, as the case may be) plus the number of such shares or share
equivalents (to the extent not already treated as outstanding pursuant to the
definition of "Capital Stock")
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issuable upon the exercise of outstanding warrants, rights and options to
purchase or acquire Capital Stock of such Applicable Entity and the conversion
of outstanding convertible securities to the extent that any such exercise or
conversion would result in a profit to the holder of the related warrant,
right, option or convertible security given the Per Share Value so determined.
"Person": Any human being, corporation, partnership, limited
liability company, trust, association or other entity.
"Rights": As defined in the preamble.
"Significant Corporate Transaction": The occurrence of a Terminating
Event with respect to an Applicable Entity the Fair Market Value of which
represents a greater percentage of the Undistributed Value of MusicCo than the
percentage thereof represented by the Fair Market Value of any other Applicable
Entity, as determined by the Board of Directors of MusicCo (whose good faith
determination will be conclusive) as of the date the agreement of merger or
consolidation is executed or the vote of the Board of Directors of such
Applicable Entity to dissolve or liquidate such Applicable Entity is taken.
"Subject Distribution": As defined in Section 6.03.
"TCI Series A Common Stock": As defined in Section 4.04.
"TCI Series A Shares": As defined in Section 4.04.
"Terminating Event": Each of the following events: (a) an Applicable
Entity is a constituent party in any merger or consolidation (other than a
merger or consolidation in which such Applicable Entity is the surviving
corporation and that does not result in any reclassification or change in the
outstanding Capital Stock of such Applicable Entity, other than a change in par
value or a reclassification or other change to which Article VI is applicable
and other than a merger the sole purpose of which is to change such Applicable
Entity's domicile within the United States) or (b) such Applicable Entity is
dissolved or liquidated.
"Triggering Event": As defined in Section 4.18.
"Underlying Number": As defined in Section 6.04.
"Undistributed Value of MusicCo": As of any date as of which the
determination thereof is to be made pursuant to Section 6.03, the sum of the
respective Fair Market Values of MusicCo and of each Distributed Entity as of
such date.
"Valuation Date": The last day of the most recent quarter ended prior
to the Exercise Period or, with respect to any accelerated Exercise Period, the
applicable date determined in accordance with Section 4.17.
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ARTICLE II.
RIGHTS AGENT
2.01 Appointment of Rights Agent. The Company appoints the Rights
Agent to act as agent for the Company in accordance with the terms set forth in
this Agreement and the Rights Agent accepts such appointment.
2.02 No Rights Certificates. The rights will be evidenced only by
certificates for MusicCo Series A Shares registered in the names of holders of
MusicCo Series A Shares ("Certificates"), which Certificates will be deemed
also to be certificates for the Rights. As soon as practicable following the
Closing Date (as defined in the Merger Agreement), the Rights Agent will send a
summary of the terms of the Rights (the "Rights Summary") by first-class,
postage paid mail to each record Holder of MusicCo Series A Shares as of the
close of business on the Closing Date (as defined in the Merger Agreement), at
the address of the Holder as shown on the records of MusicCo. The Rights will
be evidenced by certificates for MusicCo Series A Shares together with the
Rights Summary and the registered Holders of MusicCo Series A Shares will also
be registered Holders of the associated Rights.
2.03 Registration. The Company and the Rights Agent shall be
entitled to treat the registered Holders(s) of the certificates representing
MusicCo Series A Shares as the absolute owner(s) of the Rights represented
thereby (notwithstanding any notation of ownership or other writing on the
Certificates made by anyone or any other notice to the contrary) for all
purposes and shall not be bound to recognize any equitable or other claim to or
interest in such Rights on the part of any other Person.
ARTICLE III.
TRANSFERS, EXCHANGES AND SUBSTITUTIONS
3.01 Transfers. The Rights will be transferable only in connection
with the transfer of the associated MusicCo Series A Shares. The surrender
for transfer of any certificates evidencing MusicCo Series A Shares, even
without a copy of the Rights Summary attached thereto, will also constitute a
transfer of the Rights associated with the MusicCo Series A Common Stock
represented by such certificate. Under no circumstances may any Right be
separated from, or transferred or assigned apart from, the associated MusicCo
Series A Share.
3.02 Legend. Certificates issued for MusicCo Series A Shares on
or after the date of this Agreement and before expiration of the Rights, which
MusicCo Series A Shares initially were issued pursuant to the Merger
Agreement, will be deemed also to be certificates for the Rights, and will have
impressed, printed or stamped on them the following legend:
As more fully described in the Agreement and Plan of Merger,
dated as of February 6, 1997, as amended, among the
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Corporation, Tele-Communications, Inc. ("TCI"), DMX Inc., and
TCI Merger Sub, Inc. (the "Merger Agreement") and the associated
Rights Agreement, among TCI, the Corporation and the rights agent
(the "Rights Agreement"), this Certificate also represents one
Right (the "Right") with respect to each whole share of Series A
Common Stock of the Corporation represented by this Certificate.
Each Right entitles the holder to require TCI to purchase during
a 30-day period beginning on a specified date (the "Exercise
Period") from such holder one share of the Corporation's Series A
Common Stock for $8 per share if during the one-year period
beginning on the effective date of the merger, the price of the
Corporation's Series A Common Stock does not equal or exceed
$8 per share for a period of at least 20 consecutive trading days.
The Rights are not separable from the shares of TCI Music Series A
Common Stock represented by the Certificate. The Rights will
terminate at the end of the Exercise Period. Please refer to the
Merger Agreement and Rights Agreement (copies of which are available
from the Corporation) for complete information concerning the terms
of the Rights.
ARTICLE IV. EXERCISE OF RIGHTS
4.01 Exercise Period. During the period commencing at the opening
of business on July 13, 1998 and ending at the close of business, New York City
time, on the 30th day after such date or the succeeding Business Day if such
date is not a Business Day (the "Exercise Period"), and during any accelerated
Exercise Period required by Section 4.17, each Holder of Rights may irrevocably
exercise all or any number of its Rights in accordance with Section 4.08. If the
Rights have one or more Distributed Entity Components at the time such Rights
are exercisable, the Holder may, in accordance with Section 4.08, irrevocably
exercise such Right as to its MusicCo Component, any or all of its Distributed
Entity Components, or any combination thereof. Notwithstanding anything to the
contrary herein, the Exercise Period shall be conducted in compliance with all
applicable laws, including all federal and state securities laws. The Rights
Agent may assume that any Right exercised is permitted to be exercised under
applicable law and shall have no liability for acting in reliance upon such
assumption. The foregoing notwithstanding, if an Early Expiration Event shall
have occurred prior to the commencement of the Exercise Period, the Rights shall
expire as of the date of the Early Expiration Event without ever becoming
exercisable by the Holder.
4.02 Expiration. In the Exercise Period and, subject to Section
4.20, any accelerated Exercise Period, the Company shall be obligated to honor
in accordance with Section 4.08 any and all exercises of the Rights then issued
and outstanding. All Rights (and fractions thereof) not theretofore exercised
shall expire and cease to be exercisable upon the expiration of the Exercise
Period (subject to earlier expiration pursuant to the last sentence of the
preceding Section and pursuant to Section 4.17). Upon the exercise of any
Right (or fraction thereof), in whole or in part, such Right (including any
Component thereof not exercised or not exercised in full) shall thereupon
expire and cease to be exercisable. Upon the consummation of a Terminating
Event with respect to any Applicable Entity, that Component of each Right (and
fractional Right) that relates to the Capital Stock of such Applicable Entity
shall expire and cease to be exercisable.
4.03 Extension.
(a) If the Company for any reason fails to give the
Notice in accordance with Section 4.07, the Exercise Period shall be extended
for a period of time equal to the delay in giving the Notice.
(b) If the record date for a Subject Distribution occurs
prior to the Exercise Period, or an accelerated Exercise Period, and the
Distributed Entity Stock with respect to such Subject Distribution is not
delivered to stockholders entitled thereto prior to the beginning of the
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applicable Exercise Period, such Exercise Period shall be extended for a period
of time equal to the number of days from the beginning of such Exercise Period
and the date such Distributed Entity Stock is mailed to such stockholders.
4.04 Consideration To Be Received Upon Exercise of Rights. Subject
to Section 4.20, upon the valid exercise of Rights, the Holder shall be
entitled to receive from the Company, at the Company's sole option (subject
only to Section 4.05 and Section 4.15), cash or shares of the Company's TCI
Group Series A Common Stock, $1.00 par value per share ("TCI Series A Common
Stock" or "TCI Series A Shares"), or any combination of cash and TCI Series A
Shares determined in such proportions or on such other basis as the Company
shall elect in the Notice given pursuant to Section 4.07, in consideration of
the sale to the Company of:
(a) if the MusicCo Component of any or all of such
exercised Rights has been exercised, a number of whole shares of MusicCo Series
A Common Stock equal to the number of whole Rights of which the MusicCo
Component has been so exercised and honored; and
(b) if any Distributed Entity Component of any or all of
such exercised Rights has been exercised, a number of whole shares of the
Distributed Entity Stock to which such Distributed Entity Component relates not
in excess of the product of (i) the number of whole Rights of which such
Distributed Entity Component has been exercised and honored and (ii) the
Underlying Number for such Distributed Entity Component of a whole Right.
4.05 Consideration Amount. The amount of cash or the number of TCI
Series A Shares to be paid or delivered by the Company shall be determined as
follows (subject to adjustments required by Section 4.11 in the determination
of the number of whole TCI Series A Shares to be delivered):
(a) for the number of such shares of MusicCo Series A
Common Stock that the Company has elected to purchase for cash, an aggregate
amount in cash equal to the product of (i) the number of such shares and (ii)
the Consideration Amount Per MusicCo Series A Share for the applicable
Exercise Period;
(b) for the number of such shares of MusicCo Series A
Common Stock that the Company has elected to purchase for TCI Series A Shares
an aggregate number of TCI Series A Shares equal to the product of (i) the
number of such shares of MusicCo Series A Common Stock and (ii) the quotient
of (A) the Consideration Amount Per MusicCo Series A Share for the applicable
Exercise Period, divided by (B) the Current Market Price of a TCI Series A
Share;
(c) for the number of such shares of Distributed Entity
Stock that the Company has elected to purchase for cash, an aggregate amount in
cash equal to the product of (i) the number of such shares and (ii) the
Consideration Amount Per Distributed Entity Share for the applicable Exercise
Period; and
(d) for the number of such shares of Distributed Entity
Stock that the Company has elected to purchase for TCI Series A Shares, an
aggregate number of TCI Series A
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<PAGE> 10
Shares equal to the product of (i) the number of such shares of Distributed
Entity Stock and (ii) the quotient of (A) the Consideration Amount Per
Distributed Entity Share for the applicable Exercise Period, divided by (B) the
Current Market Price of a TCI Series A Share.
As used herein, the "Current Market Price" of a TCI Series A Share
shall be the average of the daily closing prices for a share of TCI Series A
Common Stock for 30 consecutive trading days commencing 45 trading days before
the date of determination. The closing price for a share of TCI Series A
Common Stock is the last reported sale price on the National Association of
Securities Dealers, Inc. Automated Quotation System (or the average of the
quoted closing bid and asked prices if no sale is reported) or if the TCI
Series A Common Stock is listed on an exchange, the closing sale price on the
principal exchange on which the TCI Series A Common Stock is listed (or the
average of the reported closing bid and asked prices if no sale is reported).
In the absence of one or more of such quotations, the Board of Directors of the
Company shall in good faith determine the Current Market Price on the basis of
such quotation as it considers appropriate.
4.06 Condition to Delivery of TCI Series A Shares. The Company
shall deliver TCI Series A Shares in full or partial payment for the sale of
shares of MusicCo Series A Common Stock (or Distributed Entity Stock) only if
such TCI Series A Shares are then quoted on the National Association of
Securities Dealers, Inc. National Market System or listed on a national
securities exchange and have been registered with the Securities and Exchange
Commission on an appropriate form under the Securities Act of 1933 or an
exemption from such registration is available and such shares are freely
tradable. The Company may not elect to deliver any other security of the
Company or any security of any other issuer.
4.07 Notice to Rights Holders. The Company shall publish in The
Wall Street Journal (national edition, or if The Wall Street Journal shall
cease publication, in another national financial publication), not less than 20
nor more than 30 days prior to the commencement of an Exercise Period, a notice
(the "Notice") as to: the number of Rights outstanding on the date of such
Notice; the Consideration Amount Per MusicCo Share for such Exercise Period, if
applicable, as to each Distributed Entity Component of the Rights; the number
of shares of Distributed Entity Stock to which such Distributed Entity
Component relates and the applicable Consideration Amount Per Distributed
Entity Share for such Exercise Period; and the form of consideration pursuant
to Section 4.04 the Company has elected to deliver (and if the Company has
elected to deliver both such forms of consideration, the relative proportions
thereof or any other basis on which the relative amounts of cash to be paid and
numbers of TCI Series A Shares to be issued shall be determined). The Notice
shall contain such other information as may be required by applicable federal
or state securities laws or regulations. At, or immediately prior to the time
of the publication of the Notice, the Company will deliver to the Rights Agent
such number of copies as the Rights Agent may request of the Notice, of a
Letter of Transmittal to be used by Holders in tendering stock certificates and
of such other documents as the Company may then be required to deliver to the
Holders in accordance with applicable federal and state securities laws and
regulations. The Rights Agent shall promptly mail by first class mail, postage
prepaid to the registered Holders of the Certificates, at their respective
addresses as they appear on the register of Holders, a copy of the Notice, such
Letter of Transmittal and such other documents, if any. The Company will also
provide additional copies of the Letter of Transmittal to any registered Holder
requesting the same.
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4.08 Exercise of Rights. Rights may be exercised (in whole or as to
any Component) upon surrender to the Rights Agent at its office of the
following, together with a duly completed and signed Letter of Transmittal: (i)
if the MusicCo Component of any of such Rights is being exercised, a stock
certificate or certificates representing a number of shares of MusicCo Series A
Common Stock equal to or greater than the number of Rights of which the MusicCo
Component is being exercised, duly endorsed and in proper form for transfer and
guaranteed; (ii) if a Distributed Entity Component of any of such Rights is
being exercised, a stock certificate or certificates representing a number of
shares of the Distributed Entity Stock to which the Distributed Entity Component
relates equal to or greater than the product of the number of whole Rights of
which such Distributed Entity Component is being exercised, multiplied by the
Underlying Number for such Distributed Entity Component of a whole Right; and
(iii) payment in United States currency of an amount equal to any stamp or other
tax or governmental charge required to be paid in connection with the transfer
of such shares of MusicCo Series A Common Stock or Distributed Entity Stock in
connection with the exercise of the Rights. The Rights Agent will hold such
stock certificates in trust for the Holder until payment shall have been made in
accordance with Section 4.12 hereof and, upon such payment, shall, subject to
Section 4.09 and 4.10, deliver such stock certificates to the Company.
4.09 MusicCo Certificates. Rights may be exercised only in
integral amounts. If the MusicCo Component of a Right is being exercised and
if the Holder shall tender certificates for shares of MusicCo Series A Common
Stock that are, in the aggregate, greater than the number of Rights of which
the MusicCo Component is being exercised, the Holder shall also designate in
the Letter of Transmittal the stock certificates for the MusicCo Series A
Common Stock enclosed therewith and the number of whole shares being
surrendered from each such stock certificate. In such event, the Rights Agent
shall, as agent for such Holder, deliver the stock certificates to the transfer
agent for the MusicCo Series A Common Stock (the "Transfer Agent", which term
shall include any subsequent transfer agent for any shares of MusicCo's
capital stock issued upon reclassification of the MusicCo Series A Common
Stock), with instructions to issue a new stock certificate to the Company for
the number of shares of MusicCo Series A Common Stock surrendered to and
accepted by the Company and to issue a new stock certificate or certificates to
or in accordance with the instructions of such Holder for the balance of such
shares of MusicCo Series A Common Stock. MusicCo hereby irrevocably
authorizes and directs its present and any future Transfer Agent to issue such
new certificates in accordance herewith. MusicCo will keep a copy of this
Agreement on file with the Transfer Agent.
4.10 Distributed Entity Certificates. If a Distributed Entity
Component of a Right is being exercised, then for each Distributed Entity
Component so exercised the Holder shall designate in the Letter of Transmittal
tendered upon exercise thereof, the aggregate number of whole Shares of
Distributed Entity Stock to which such Distributed Entity Component relates
that are being surrendered upon the exercise of such Component of the Rights
(not in excess of the product of the number of whole Rights of which such
Distributed Entity Component is being exercised, multiplied by the Underlying
Number for such Distributed Entity Component of a whole Right). If a Holder
shall tender certificates for shares of Distributed Entity stock that are, in
the aggregate, greater than the number of shares of Distributed Entity Stock
being so surrendered, the Holder shall also
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<PAGE> 12
designate in the Letter of Transmittal the stock certificates for the
Distributed Entity Stock enclosed therewith and the number of whole shares of
Distributed Entity Stock surrendered from each such stock certificate. In such
event, the Rights Agent shall, as agent for the Holder, deliver the stock
certificates to the transfer agent for the Distributed Entity Stock, with
instructions to issue a new stock certificate to the Company for the number of
shares of Distributed Entity Stock surrendered to and accepted by the Company
and to issue a new stock certificate or certificates to or in accordance with
the instructions of such Holder for the balance of such shares of Distributed
Entity Stock. Each Distributed Entity, by its execution of a supplement to
this Agreement as contemplated by Section 6.07, irrevocably authorizes and
directs the transfer agent for the Distributed Entity Stock to issue such new
certificates in accordance herewith, and covenants and agrees to keep a copy of
this Agreement (as so supplemented) on file with such transfer agent.
4.11 Notices. No later than the fifth Business Day after the end
of the Exercise Period, the Rights Agent will notify the Company and MusicCo of
the following (as to each Holder individually and as to all Holders in the
aggregate): (i) the number of Rights validly exercised in the Exercise Period;
(ii) the number of shares of MusicCo Series A Common Stock surrendered upon
such exercise; and (iii) as to each Distributed Entity Component of the Rights
that has been validly exercised, the number of shares of the applicable
Distributed Entity Stock surrendered upon such exercise. Subject to Sections
4.13 and 4.14, on the later of (x) the tenth Business Day after the end of the
Exercise Period and (y) the fifth Business Day after receipt of such notice
from the Rights Agent, the Company shall deposit with the Rights Agent the
amount of cash or number of TCI Series A Shares required to make full payment
of the purchase price for the shares of MusicCo Series A Common Stock and
Distributed Entity Stock being purchased by it pursuant to such exercised
Rights. In the case of payments in TCI Series A Shares, the certificates
evidencing the same shall be registered in the names and denominations
specified by the Rights Agent in its notice to the Company. The Company shall
not be required to issue fractional TCI Series A Shares to any Holder after
taking into account all Rights exercised by such Holder. In lieu of fractional
TCI Series A Shares, the Company shall make payments in cash for the value,
based upon the Current Market Price, of such fractional shares. The Rights
Agent will promptly mail to each Holder the purchase price for the shares of
MusicCo Series A Common Stock and Distributed Entity Stock sold by him.
Payment of any cash purchase price and any cash in lieu of fractional interests
shall be made by check.
4.12 Payment. If the Company has elected in accordance with
Section 4.04 to offer a combination of cash and TCI Series A Shares in
consideration for the sale of MusicCo Series A Common Stock upon the valid
exercise of the MusicCo Component of the Rights during the Exercise Period, the
Rights Agent shall pay or deliver such consideration to all Holders who have
validly exercised the MusicCo Component of the Rights during the Exercise
Period pro rata with respect to the respective aggregate numbers of Rights the
MusicCo Component of which has been so exercised by them (subject to rounding
or other adjustments made by the Rights Agent and the payment of cash as
provided in Section 4.11 in lieu of the issuance of fractional TCI Series A
Shares). Similarly, if the Company has elected in accordance with Section 4.04
to offer a combination of cash and TCI Series A Shares in consideration for the
sale of shares of Distributed Entity Stock upon the valid exercise of a
Distributed Entity Component of the Rights during the Exercise Period, the
Rights Agent shall pay or deliver such consideration to all Holders who have
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<PAGE> 13
validly exercised such Distributed Entity Component during such Exercise Period
pro rata with respect to the respective aggregate numbers of shares of such
Distributed Entity Stock surrendered by them upon such exercise (subject to
rounding or other adjustments made by the Rights Agent and the payment of cash
as provided in Section 4.11 in lieu of the issuance of fractional TCI Series A
Shares).
4.13 Payment Deferral. Notwithstanding Section 4.17, if the
Exercise Period for each Right is accelerated due to a proposed Significant
Corporate Transaction or Change in Control Transaction and such transaction has
not been consummated prior to the expiration of such accelerated Exercise
Period, the Company may defer depositing the cash or TCI Series A Shares
required to effect the purchase of the MusicCo Series A Common Stock and
Distributed Entity Stock surrendered upon exercise of the Rights, pending
receipt of an officers' certificate in accordance with this Section 4.13.
Notwithstanding anything to the contrary contained herein, any such deferral of
the purchase of the surrendered shares of MusicCo Series A Common Stock and
Distributed Entity Stock shall be conducted in compliance with all applicable
laws, including federal and state securities laws. Not less than 10 Business
Days prior to the effective date of the proposed Significant Corporate
Transaction, unless a shorter period is acceptable to the Company, the
Applicable Entity shall deliver an officers' certificate (an "Applicable Entity
Officers' Certificate") signed by its Chairman of the Board and its President
to the Company and the Rights Agent, certifying that all conditions precedent
to the consummation of the Significant Corporate Transaction have been
satisfied or waived and setting forth the effective date of the proposed
Significant Corporate Transaction. Not less than 10 Business Days prior to the
effective date of the proposed Change in Control Transaction, the Company shall
deliver to the Rights Agent an officer's certificate (a "Company Officer's
Certificate") signed by its Chairman of the Board, President or a Vice
President, certifying that all conditions precedent to the consummation of the
Change in Control Transaction have been satisfied or waived and setting forth
the effective date of the proposed Change in Control Transaction. Promptly
following receipt by the Company of an Applicable Entity Officers' Certificate
or the delivery by the Company of a Company Officer's Certificate, as the case
may be, but in no event later than the effective date specified therein, the
Company shall make the deposit of cash or TCI Series A Shares with the Rights
Agent required by Section 4.11. Promptly following such deposit, the Rights
Agent shall distribute the cash or TCI Series A Shares so deposited to the
Persons entitled to the same as provided in Section 4.11, and deliver the
certificates for the MusicCo Common Stock and Distributed Entity Stock to the
Company as provided in Section 4.08. If the Board of Directors of the
Applicable Entity determines to terminate or abandon the proposed Significant
Corporate Transaction or that such transaction will otherwise not be
consummated, the Applicable Entity shall promptly following such determination
deliver to the Company and the Rights Agent an Applicable Entity Officers'
Certificate to such effect. If the proposed Change in Control Transaction is
terminated or abandoned or the Company otherwise determines that such proposed
transaction will not be consummated, then the Company shall promptly so notify
the Rights Agent by delivering to the Rights Agent a Company Officer's
Certificate to such effect. Promptly following receipt by the Rights Agent of
such Applicable Entity Officers' Certificate or Company Officer's Certificate,
as the case may be, the Rights Agent shall mail to each Holder by first class
mail the certificates evidencing the shares of MusicCo Series A Common Stock,
the shares of Distributed Entity Stock and the Rights surrendered by such
Holder to the Rights Agent in connection with such accelerated Exercise Period
and, if the Company has
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<PAGE> 14
made a deposit of cash or TCI Series A Shares with the Rights Agent in
connection with such accelerated Exercise Period, the Rights Agent shall
deliver the cash or TCI Series A Shares so deposited to the Company.
4.14 Abandonment or Termination. Notwithstanding Section 4.11, if
the Exercise Period for each Right is accelerated and the proposed transaction
which resulted in the acceleration is abandoned or terminated on or before the
last day (the "Deposit Date") on which the Company is required to make the
deposit pursuant to Section 4.11 of cash or TCI Series A Shares to effect the
purchase of shares of MusicCo Series A Common Stock and Distributed Entity
Stock surrendered in connection with such accelerated Exercise Period, or the
Company otherwise determines in good faith on or before the Deposit Date that
such proposed transaction will not be consummated, then the Company shall so
notify the Rights Agent by delivering to the Rights Agent an officer's
certificate to such effect signed by its Chairman of the Board, President or a
Vice President promptly following the termination or abandonment of such
proposed transaction or such determination by the Company, but in no event
later than the fifth Business Day following the Deposit Date. Upon delivery of
such officer's certificate, the Company shall be relieved of its obligation to
make the deposit otherwise required by Section 4.11 or, if such deposit has
theretofore been made, shall be entitled to the return thereof. Promptly
following receipt of such officer's certificate, the Rights Agent shall mail to
each Holder the certificates evidencing the shares of MusicCo Series A Common
Stock, the shares of Distributed Entity Stock and the Rights surrendered by
such Holder to the Rights Agent in connection with such accelerated Exercise
Period and, if the Company has made a deposit of cash or TCI Series A Shares
with the Rights Agent in connection with such accelerated Exercise Period, the
Rights Agent shall deliver the cash or TCI Series A Shares so deposited to the
Company.
4.15 Certain Covenants of the Company and Each Applicable Entity.
If the Company chooses to issue TCI Series A Shares upon the exercise of any
Component of the Rights, the Company will pay all documentary stamp and other
taxes, if any, attributable to the exercise of the Rights, other than any such
taxes payable by the Holder as provided in Section 4.08. Each of MusicCo and
each Distributed Entity shall cooperate with and assist the Company in the
preparation and filing of all applications, reports, statements, notices and
other documents or forms with, and use its reasonable best efforts to obtain
and to assist the Company in obtaining all consents and approvals of or waivers
from, all governmental and regulatory agencies and authorities having
jurisdiction (including, without limitation, the Securities and Exchange
Commission, Department of Justice and Federal Trade Commission) and shall take
such other actions, including supplying all information necessary for any
required filing, as the Company may reasonably request, all as and to the
extent necessary or advisable in order for the Company to comply with
applicable laws, rules, regulations, orders and decrees in connection with the
performance of its obligations under this Agreement and the Rights.
4.16 Consideration Amount. The Consideration Amount Per MusicCo
Share shall be equal to the difference between (i) $8.00 and (ii) the sum of
the aggregate per share amount of any MusicCo Dividends and the Aggregate
Consideration Amount Per Distributed Entity Share. The Consideration Amount
Per Distributed Entity Share shall be equal to the Per Share Value of the
applicable Distributed Entity as of the Valuation Date. The Fair Market Value
of each Distributed
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<PAGE> 15
Entity as of such date shall be determined in good faith by the Board of
Directors of MusicCo. Promptly following the determination of the Fair Market
Value of each Applicable Entity, MusicCo shall deliver to the Company, with a
copy to the Rights Agent, an officers' certificate signed by the Chairman of
the Board and the President of MusicCo, certifying the Per Share Value of each
Applicable Entity and setting forth, in reasonable detail, the computation
thereof. Each Distributed Entity, by its execution of a supplement to this
Agreement as contemplated by Section 6.07, covenants and agrees to provide
MusicCo with such information with respect to the Capital Stock of such
Distributed Entity as may be necessary to the computation of the Per Share
Value of such Distributed Entity. Anything in this Agreement to the contrary
notwithstanding, in no event will the sum of the Consideration Amount Per
MusicCo Share, the aggregate amount of any MusicCo Dividends, and the Aggregate
Consideration Amount Per Distributed Entity Share for each Distributed Entity,
exceed $8.00.
4.17 Acceleration of Exercise Period. Subject to the last sentence
of Section 4.01, if prior to July 11, 1998 (i) a Significant Corporate
Transaction is proposed, (ii) the Company proposes to make a disposition of all
or any number of the shares of Capital Stock of MusicCo beneficially owned by it
and as a result of such disposition the Company will cease to be the beneficial
owner of at least 30% (in voting power) of the shares of Capital Stock of
MusicCo then outstanding (a "Change in Control Transaction"), (iii) a Bankruptcy
Event occurs or (iv) the Company is dissolved or liquidated, then the Exercise
Period for each Right shall be accelerated as provided herein and the Company
shall be obligated to honor all Rights validly exercised in accordance with
Section 4.08 prior to the expiration of such accelerated Exercise Period.
4.18 Consideration on Acceleration. For purposes of determining
the Consideration Amount Per MusicCo Share and the Consideration Amount Per
Distributed Entity Share payable in connection with the accelerated Exercise
Period, the applicable Valuation Date shall be the last day of the fiscal
quarter of MusicCo immediately preceding the fiscal quarter in which (i) in the
case of a Significant Corporate Transaction, the agreement of merger or
consolidation is executed, or the vote of the Board of Directors of the
Applicable Entity to dissolve or liquidate the Applicable Entity is taken or
(ii) in the case of a Change in Control Transaction, a binding agreement to
make the related disposition is entered into by the Company or, if such
disposition is to be effected pursuant to a dividend or distribution to the
stockholders of the Company or otherwise than pursuant to a binding agreement,
the vote of the Board of Directors of the Company approving the making of such
dividend, distribution or other disposition is taken, or (iii) in the case of a
Bankruptcy Event, the Bankruptcy Event occurs, or (iv) in the case of the
dissolution or liquidation of the Company, the vote of the Board of Directors
of the Company to dissolve or liquidate the Company is taken. (The execution
of such agreement by the Applicable Entity or the taking of such vote by the
Board of Directors of the Applicable Entity in connection with a Significant
Corporate Transaction, the giving to the Acceptance Notice by MusicCo in the
case of a MusicCo Purchase Transaction, the execution of such binding agreement
by the Company or the taking of such vote by the Board of the Company in
connection with a Change in Control Transaction, the occurrence of a Bankruptcy
Event or the taking of such vote by the Board of Directors of the Company to
dissolve or liquidate the Company, are each referred to as a "Triggering
Event"). Promptly following the occurrence of a Triggering Event, the
applicable of MusicCo or the Company shall give written notice thereof to the
other (or in the case of a Triggering Event for
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<PAGE> 16
a Significant Corporate Transaction with respect to which a Distributed Entity
is the Applicable Entity, such Applicable Entity shall give such notice to the
Company and MusicCo), with a copy to the Rights Agent. Publication of the
Notice contemplated by Section 4.07 shall be made as promptly as practicable
(in light of applicable requirements of federal and state securities laws and
regulations) following the final determination of the Consideration Amount Per
MusicCo Share and the Consideration Amount Per Distributed Entity Share. In
the case of a Significant Corporate Transaction, the Applicable Entity shall
furnish the Rights Agent with such number of copies as the Rights Agent may
request of the proxy or information statement and other material to be
delivered to the Applicable Entity's stockholders in connection with the
stockholders' meeting to approve the Significant Corporate Transaction. The
Rights Agent shall distribute such material to the registered Holders of the
Certificates by first class mail, postage prepaid, at their respective
addresses as they appear on the Register of Holders prior to or
contemporaneously with the publication of the Notice, and such publication
shall be delayed, if necessary, until such material has been delivered to the
Rights Agent.
4.19 Exercise Period on Acceleration. The accelerated Exercise
Period shall commence at the opening of business on not earlier than the 30th
day, nor later than the 60th day, following the publication of the Notice, and
shall expire at the close of business, New York City time, on the 20th Business
Day after the commencement thereof (or such later date as may be required by
applicable federal or state securities laws and regulations). Subject to
Section 4.20 below, all Rights (and fractions thereof) (including all
Components of such Rights (and of all fractional Rights)) not validly exercised
prior to the expiration of such accelerated Exercise Period shall thereupon
expire and cease to be exercisable thereafter.
4.20 Rescission. If a proposed Significant Corporate Transaction
or Change in Control Transaction that causes an accelerated Exercise Period is
terminated or abandoned before consummation or the Company otherwise determines
in good faith on or before the Deposit Date that such proposed transaction will
not be consummated, then in any such event such acceleration of the Exercise
Period and all exercises of Rights during such accelerated Exercise Period
shall, without any requirement of action by any party, be deemed rescinded and
annulled, and any Rights that have expired by virtue of the failure of the
Holder to validly exercise the same prior to the expiration of such accelerated
Exercise Period (or by virtue of the partial exercise thereof during such
accelerated Exercise Period) shall thereupon be reinstated. The Rights Agent,
upon receipt of the officers' certificate contemplated by the applicable of
Section 4.13 or 4.14, shall make the distributions to the Holders and the
Company required by the last sentence of the applicable of such Sections.
ARTICLE V.
PURCHASE AND CANCELLATION OF RIGHTS
5.01 Purchase of Rights by the Company. The Company shall have the
right to purchase or otherwise acquire Rights by purchasing the associated
MusicCo Series A Common Stock or Distributed Entity Stock at such times, in
such manner and for such consideration as it may determine.
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ARTICLE VI.
ADJUSTMENT OF RIGHTS
6.01 Adjustment of Rights. The number of Rights represented by
each Certificate shall be subject to adjustment from time to time upon the
happening of certain events as hereinafter provided.
6.02 Mechanical Adjustment. If MusicCo shall: (a) pay a dividend
or make a distribution on the outstanding shares of MusicCo Series A Common
Stock in shares of MusicCo Common Stock, (b) subdivide the outstanding shares
of MusicCo Series A Common Stock into a larger number of shares, (c) combine
the outstanding shares of MusicCo Series A Common Stock into a smaller number
of shares or (d) issue any shares of its Capital Stock by reclassification of
the outstanding shares of MusicCo Common Stock (including any such
reclassification in connection with a consolidation or merger in which MusicCo
is the surviving corporation), the number of Rights outstanding immediately
prior to the date such dividend or distribution is paid or made or the
effective date of such subdivision, combination or reclassification shall be
adjusted to the aggregate number of shares of MusicCo Series A Common Stock
(or shares of MusicCo's Capital Stock issued in such reclassification)
outstanding immediately after the taking of such action. Such adjustment shall
be made successively whenever any event listed above shall occur. If a
reclassification described in clause (d) above occurs, each reference in this
Agreement and the Certificates to a share of MusicCo Series A Common Stock
shall be deemed to refer to the number and kind of shares of MusicCo's Capital
Stock that a Holder of one share of MusicCo Series A Common Stock would hold
immediately following such reclassification. If MusicCo takes any action
requiring an adjustment to the number of Rights prior to payment in full of the
Consideration Amount Per MusicCo Share upon exercise thereof, such
Consideration Amount Per MusicCo Share shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of Rights outstanding
immediately prior to such action and the denominator of which is the number of
Rights outstanding as a result of the taking of such action.
6.03 Adjustment for Distributions of MusicCo Securities. If (i)
MusicCo makes a distribution to all Holders of shares of MusicCo Series A
Common Stock of shares of the Capital Stock of any entity or of rights or
warrants entitling them (for a period expiring within 45 days after the
effective date of such distribution) to purchase shares of the Capital Stock of
any entity and (ii) the Distribution Value of such distribution represents 10%
or more of the Undistributed Value of MusicCo immediately prior to such
distribution, then the provisions of this Section 6.03 shall apply to such
distribution (a "Subject Distribution"). The determination of whether a
distribution meets each of the criteria referred to in the immediately
preceding sentence and is therefore a Subject Distribution shall be made by the
Board of Directors of MusicCo (whose good faith determination will be
conclusive). In making any determination of Fair Market Value for purposes of
determining the Distribution Value of such distribution and the Undistributed
Value of MusicCo, the Board of Directors of MusicCo shall apply the same
criteria as are applicable to a determination of the Fair Market Value of
MusicCo and each Distributed Entity in accordance with Section 4.16.
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<PAGE> 18
6.04 Subject Distribution Adjustment. If MusicCo makes a Subject
Distribution, then following the effective date referred to below, each whole
Right shall represent, in addition to the right to sell to the Company one
share of MusicCo Series A Common Stock (the "MusicCo Component"), the right
(the "Distributed Entity Component") to sell to the Company at the time, for
the consideration and subject to the terms and conditions set forth in this
Agreement, that number of shares of Distributed Entity Stock obtained by
multiplying one by a fraction, the numerator of which is the aggregate number
of shares of Distributed Entity Stock distributed in the Subject Distribution
or sold pursuant to the rights or warrants distributed in the Subject
Distribution, and the denominator of which is the aggregate number of shares of
MusicCo Series A Common Stock outstanding on the record date for such
distribution. The number of shares of Distributed Entity Stock (or fraction
thereof) to which the Distributed Entity Component of each whole Right applies
(the "Underlying Number") shall be determined as of and be effective
(retroactively in the case of a distribution that pursuant to Section 6.03 is
subsequently deemed to be a Subject Distribution) as of the effective date of
the distribution in the case of a distribution of shares of Distributed Entity
Stock, and shall be determined as of and be effective (retroactively in the
case of a distribution that pursuant to Section 6.03 is subsequently deemed to
be a Subject Distribution) as of the day following the distribution of rights
or warrants in the case of a distribution of rights or warrants to purchase
Distributed Entity Stock (the applicable of such dates herein referred to as
the "effective date"). In the case of fractional Rights, the Underlying Number
for the Distributed Entity Component of such fractional Right shall equal the
same fraction of the Underlying Number for the Distributed Entity Component of
a whole Right. The foregoing provisions shall apply to each Subject
Distribution and a new Distributed Component will be created with respect to
the Distributed Entity Stock distributed in each such Subject Distribution. No
Component of a Right shall be separable from the Components of such Right.
6.05 Adjustment to Underlying Number. If MusicCo takes any action
requiring an adjustment to the number of Rights pursuant to Section 6.02 at a
time when each Right has one or more Distributed Entity Components, then the
Underlying Number for each Distributed Entity Component of each Right after
giving effect to such adjustment to the number of Rights shall equal the number
obtained by multiplying the Underlying Number for such Distributed Entity
Component immediately before giving effect to such adjustment by a fraction the
numerator of which is one and the denominator of which is the number (or
fraction) to which one whole Right is adjusted as a result of the taking of
such action by MusicCo.
6.06 Distributed Entity Adjustment. If a Distributed Entity shall
(i) pay a dividend or make a distribution on the outstanding shares of
Distributed Entity Stock in shares of Distributed Entity Stock, (ii) subdivide
the outstanding shares of Distributed Entity Stock into a larger number of
shares, (iii) combine the outstanding shares of Distributed Entity Stock into a
smaller number of shares or (iv) issue any shares of its Capital Stock by
reclassification of the outstanding shares of Distributed Entity Stock
(including any such reclassification in connection with a merger or
consolidation in which the Distributed Entity is the surviving corporation),
then the Underlying Number for the applicable Distributed Entity Component of
each Right immediately prior to the date such dividend or distribution is paid
or made or the effective date of such subdivision, combination or
reclassification shall be adjusted (to the nearest one-hundredth of a share),
effective immediately after the applicable of such dates, by multiplying the
Underlying Number for such Distributed Entity
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<PAGE> 19
Component immediately prior to such adjustment by a fraction the numerator of
which is the aggregate number of shares of Distributed Entity Stock (or shares
of the Distributed Entity's Capital Stock issued in such reclassification)
outstanding immediately after the taking of such action, and the denominator of
which is the aggregate number of shares of Distributed Entity Stock outstanding
immediately prior to the taking of such action. Such adjustment to the
Underlying Number shall be made successively whenever any event listed above
shall occur. If a reclassification described in clause (iv) above occurs, each
reference in this Agreement to a share of Distributed Entity Stock shall be
deemed to refer to the number and kind of shares of the Capital Stock of the
Distributed Entity that a holder of one share of Distributed Entity Stock would
hold immediately following such reclassification. If a Distributed Entity
takes any action requiring an adjustment to the Underlying Number for the
applicable Distributed Entity Component of each Right prior to payment in full
of the Consideration Amount Per Distributed Entity Share upon exercise thereof,
such Consideration Amount Per Distributed Entity Share shall be adjusted by
multiplying such amount by a fraction the numerator of which is the Underlying
Number for such Distributed Entity Component immediately before giving effect
to such adjustment and the denominator of which is the Underlying Number for
such Distributed Entity Component immediately after giving effect to such
adjustment.
6.07 Distributions by Distributed Entity. If (i) a Distributed
Entity makes a distribution to all holders of shares of Distributed Entity
Stock of shares of the Capital Stock of any entity or of rights or warrants
entitling them (for a period expiring within 45 days after the effective date
of such distribution) to purchase shares of the Capital Stock of any entity and
(ii) the Distribution Value of such distribution represents 10% or more of the
Undistributed Value of MusicCo immediately prior to such distribution, then
such distribution shall be a Subject Distribution, the entity the shares of
Capital Stock of which are distributed or sold in such Subject Distribution
shall be a Distributed Entity, and the class of Capital Stock of the
Distributed Entity that is distributed or sold in the Subject Distribution
shall be Distributed Entity Stock, with the same effect for all purposes of
this Agreement as if MusicCo had made such distribution, except that the
Underlying Number for the Distributed Entity Component of each whole Right
created pursuant to Section 6.04 by virtue of such Subject Distribution shall
be the number obtained by multiplying one by a fraction the numerator of which
is the aggregate number of shares of Capital Stock of such entity distributed
or sold in the Subject Distribution and the denominator of which is the
aggregate number of shares of Distributed Entity Stock of the Distributed
Entity making the Subject Distribution outstanding on the record date for such
distribution. The determination of whether a distribution meets each of the
criteria referred to in the immediately preceding sentence and is therefore a
Subject Distribution shall be made by the Board of
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Directors of MusicCo (whose good faith determination will be conclusive). The
Distribution Value of any such distribution shall be made in good faith by the
Board of Directors of MusicCo. If MusicCo or any Distributed Entity makes a
distribution which individually is not a Subject Distribution solely by virtue
of clause (ii) of the first sentence of Section 6.03 or this Section 6.07, but
would be a Subject Distribution if aggregated with any other distribution or
distributions previously made by MusicCo or any Distributed Entity that also
were not Subject Distributions when made solely by virtue of that clause (ii)
(and were not thereafter deemed to be Subject Distributions pursuant to this
sentence), then upon the making of the later of such distributions such
distributions shall be deemed to be a single Subject Distribution. The
determination of whether any combination of distributions would constitute a
Subject Distribution pursuant to the immediately preceding sentence shall be
made by the Board of Directors of MusicCo (whose good faith determination will
be conclusive) on the basis of the Distribution Values of such distributions
and the Undistributed Value of MusicCo calculated in each case immediately
prior to the time the first of such distributions was made.
6.08 MusicCo Covenants. MusicCo covenants and agrees with the
Company and the Rights Agent and, in the case of clause (i) and clause (iv)
solely with respect to the obligations relating to clause (i), below, for the
benefit of the Holders, as follows:
(i) neither it nor any Distributed Entity will distribute
to all Holders of MusicCo Series A Common Stock rights or warrants to
purchase the Capital Stock of any entity that would expire more than
45 days after the effective date of such distribution;
(ii) neither it nor any Distributed Entity will make a
distribution to all Holders of any class of its Capital Stock of any
entity or of rights or warrants to purchase the Capital Stock of any
entity at any time during the period (or the record date or effective
date of which is at any time during the period) commencing with the
Exercise Period and ending with the date on which the Company (or its
assignee) becomes the record owner of the shares surrendered in such
Exercise Period, nor will it or any Distributed Entity, without the
prior written consent of the Company, make, pay or declare to all
Holders of any class of its Capital Stock any other dividend or
distribution or take any other action at any time during the period
(or the record date or effective date of which is at any time during
the period) commencing with the Exercise Period and ending with the
date on which the Company (or its assignee) becomes the record owner
of the shares surrendered in such Exercise Period, the reasonably
foreseeable effect of which would be to reduce or otherwise adversely
affect the Fair Market Value or the Per Share Value of MusicCo or such
Distributed Entity, other than the actions specifically enumerated in
Sections 6.02 through Section 6.06 for which an express adjustment to
the Consideration Amount Per MusicCo Share and Consideration Amount
Per Distributed Entity Share payable by the Company is provided;
(iii) without the prior written consent of the Company,
neither MusicCo nor any Distributed Entity will, at any time during
the term of this Agreement, take or recommend to their respective
shareholders any action the reasonably foreseeable effect of which
would be to adversely affect the relative rights, powers or
preferences of the shares of MusicCo Common Stock or Distributed
Entity Stock to be acquired by the Company upon the exercise of Rights
or the exercise by the Company of such rights, powers and preferences
and of full rights of ownership of such shares; and
(iv) prior to making any distribution of the Capital Stock
of any entity or of rights or warrants to purchase the Capital Stock
of any entity, the Applicable Entity making such distribution will
cause such entity to execute and deliver a supplement to this
Agreement pursuant to which such entity shall accept and agree to be
bound by and comply with the provisions of this Agreement that relate
to such entity (or will relate to such
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entity if it is thereafter deemed to be a Distributed Entity pursuant
to this Article VI) and shall agree to cooperate with the Board of
Directors of MusicCo and provide such Board with such information as
it may from time to time reasonably request in connection with its
determination of the Distributed Value of any distribution and the
Undistributed Value of MusicCo from time to time in accordance with
this Article VI and the definition of Significant Corporate
Transaction.
6.09 Notice of Adjustment. Whenever MusicCo takes any action that
would require an adjustment to the number of Rights represented by each
Certificate (and the consequent adjustment of the Underlying Number for each
Distributed Entity Component, if any) or the Consideration Amount Per MusicCo
Share, or that would require the creation of a Distributed Entity Component,
and whenever any Distributed Entity takes any action that would require an
adjustment to the Underlying Number of the applicable Distributed Entity
Component or the Consideration Amount Per Distributed Entity Share, or that
would require the creation of a Distributed Entity Component, the Applicable
Entity shall promptly notify the Company and MusicCo in writing (with a copy to
the Rights Agent) of the action taken and of all information relevant to the
computation pursuant to this Article VI of the required adjustments to the
number of Rights, the Underlying Number, the Consideration Amount Per MusicCo
Share or the Consideration Amount Per Distributed Entity Share, as the case may
be, and in the case of the creation of a Distributed Entity Component, all
information relevant to the computation of the Underlying Number of such
Distributed Entity Component. Promptly thereafter, the Company shall deliver
to the Rights Agent a certificate of a firm of independent public accountants
(who may be the regular accountants employed by MusicCo or the Company) setting
forth, as applicable:
(i) If an action requiring an adjustment to the number of
Rights is taken, the number of Rights represented by a Certificate
before and after such adjustment and, if applicable, the Consideration
Amount Per MusicCo Share and the Underlying Number for each
Distributed Entity Component of a Right, in each case before and after
such adjustment.
(ii) If an action requiring the creation of a Distributed
Entity Component is taken, the Underlying Number for the Distributed
Entity Component of each Right so created.
(iii) If an action requiring an adjustment to the
Underlying Number of a Distributed Entity Component is taken, the
Underlying Number of such Distributed Entity Component before and
after such adjustment and, if applicable, the Consideration Amount Per
Distributed Entity Share before and after such adjustment. Such
certificate shall also contain a brief statement of the facts
requiring such adjustment and the computation by which such adjustment
was made, or, if applicable, the facts requiring the creation of such
Distributed Entity Component and the computation of such Underlying
Number. The Company shall also cause the Rights Agent to send
promptly by first class mail, postage prepaid, to each Holder notice
of such adjustment or adjustments or of the creation of such
Distributed Entity
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<PAGE> 22
Component. The certificate delivered to the Rights Agent pursuant to
this Section 6.09 shall be conclusive evidence of the correctness of
the matters set forth therein in the absence of manifest error. The
Rights Agent shall be entitled to rely on such certificate and shall be
under no duty or responsibility with respect to any such certificate,
except to exhibit the same, from time to time, to any Holder desiring
an inspection thereof during regular business hours. The Rights Agent
shall be fully protected in relying on any such certificate and on any
adjustment therein contained and shall not be deemed to have knowledge
of such adjustment unless and until it shall have received such
certificate. The Rights Agent shall not at any time be under any duty
or responsibility to any Holder to determine whether any facts exist
that may require any adjustment or the creation of any Distributed
Entity Component hereunder, or with respect to the nature or extent of
any such adjustment when made or of any such Distributed Entity
Component when created, or with respect to the method employed in
making such adjustment or calculating the Underlying Number of such
Distributed Entity Component.
6.10 Statement on Certificates. Irrespective of any adjustments in
the number of Rights represented by each Certificate or the creation of any
Distributed Entity Component or any adjustments to the Underlying Number
thereof, Certificates theretofore or thereafter issued may continue to express
solely the number of Rights as are stated in the Certificates initially
issuable pursuant to this Agreement.
6.11 No Rights as Stockholders. Nothing contained in this
Agreement or in the Certificates shall be construed as conferring upon the
Holders or their transferees any rights whatsoever as stockholders of MusicCo
or the Company or any Distributed Entity.
ARTICLE VII.
RIGHTS AGENT
7.01 Inspection of Rights Agreement. The Rights Agent shall keep
copies of this Agreement and any notices given or received hereunder available
for inspection by the Holders during normal business hours at its office. The
Company shall supply the Rights Agent from time to time with such numbers of
copies of this Agreement as the Rights Agent may request.
7.02 Merger or Consolidation or Change of Name of Rights Agent. Any
corporation into which the Rights Agent may be merged or with which it may be
consolidated, or any corporation resulting from any merger or consolidation to
which the Rights Agent shall be a party, or any corporation succeeding to all or
substantially all of the corporate trust and agency business of the Rights
Agent, shall be the successor to the Rights Agent hereunder without the
execution, filing or delivery of any paper or any further act on the part of any
of the parties hereto, provided that such corporation would be eligible for
appointment as a successor Rights Agent under the provision of Section 7.16
hereof. If at the time such successor to the Rights Agent shall succeed to the
agency created by this Agreement, any of the Certificates shall have been
countersigned but not delivered, any such successor to the Rights Agent may
adopt the countersignature of the original Rights Agent and deliver such
Certificates so countersigned, and if at any time any of the Certificates shall
not have been countersigned, any successor to the Rights Agent may countersign
such Certificates either in the name of the predecessor Rights Agent or in the
name of the successor Rights Agent; and in all such cases such Certificates
shall have the full force provided in such Certificates and in this Agreement.
If at any time the name of the Rights Agent shall be changed and at such time
any of the Certificates shall have been countersigned but not delivered, the
Rights Agent may adopt the countersignatures under its prior name and deliver
such Certificates so countersigned; and if at any time any of the Certificates
shall not have been countersigned, the Rights Agent may countersign such
Certificates either in its prior name or in its changed name; and in all such
cases such
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<PAGE> 23
Certificates shall have the full force provided in the Certificates and in this
Agreement.
7.03 Concerning the Rights Agent. The Rights Agent undertakes the
duties and obligations imposed by this Agreement (and no implied duties or
obligations shall be read into this Agreement against the Rights Agent) upon the
following terms and conditions, by all of which the Company and the Holders, by
their acceptance of Certificates shall be bound.
No provision of this Agreement shall require the Rights Agent to expend
or risk in excess of $5,000 of its own funds in the performance of any of its
duties hereunder or in the exercise of its rights if there shall be reasonable
grounds for believing that repayment of such funds is not reasonably assured to
it.
7.04 Correctness of Statements. The statements contained herein
and in the Certificates shall be taken as statements, of the Company, and the
Rights Agent assumes no responsibility for the correctness of any of the same
except such as describe the Rights Agent or actions taken by it. The Rights
Agent assumes no responsibility with respect to the distribution of the
Certificates except as herein otherwise provided.
7.05 Breach of Covenants. The Rights Agent shall not be
responsible for any failure of the Company, MusicCo or any Distributed Entity
to comply with any of the covenants or conditions contained in this Agreement
or in the Certificates to be complied with or satisfied by the Company, MusicCo
or any Distributed Entity.
7.06 Performance of Duties. The Rights Agent may execute and
exercise any of the rights or powers hereby vested in it or perform any duty
hereunder either itself or by or through its attorneys, agents and employees,
and the Rights Agents shall have no liability for the acts or omissions of any
such attorney or agent (but not employee) appointed by it hereunder with due
care and approved in writing by the Company.
7.07 Reliance on Counsel. The Rights Agent may consult at any time
with legal counsel reasonably satisfactory to it (who may be counsel for the
Company) and the Rights Agent shall incur no liability or responsibility to the
Company or to any Holder in respect of any action taken, suffered or omitted by
it hereunder in good faith and in accordance with the opinion or the advice of
such counsel.
7.08 Proof of Actions Taken. Whenever in the performance of its
duties under this Agreement the Rights Agent shall deem it necessary or
desirable that any fact or matter be proved or established by the Company prior
to taking or suffering any action hereunder, such fact or matter (unless other
evidence in respect thereof be herein specifically prescribed) may be deemed
conclusively to be proved and established by a certificate signed by the
Chairman of the Board, the President or a Vice President of the Company and
delivered to the Rights Agent; and such certificate shall be full authorization
to the Rights Agent for any action taken, suffered or omitted in good faith by
it under the provisions of this Agreement in reliance upon such certificate.
7.09 Compensation, Indemnity and Reimbursement. The Company agrees
to pay the Rights Agent such compensation as shall be agreed in writing between
the Company and the Rights Agent for all services rendered by the Rights Agent
in the performance of its duties under this Agreement, to reimburse the Rights
Agent for all expenses, taxes
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<PAGE> 24
and governmental charges and other charges of any kind and nature incurred by
the Rights Agent in the performance of its duties under this Agreement, and to
indemnify the Rights Agent and save it harmless against any and all claims,
damages, expenses and liabilities, including judgments, costs and counsel fees
and expenses, for anything done or omitted by the Rights Agent in the
performance of its duties under this Agreement except as a result of the Rights
Agent's gross negligence or bad faith. The provisions of this Section 7.09 shall
survive the expiration of the rights and the termination of this Agreement.
7.10 Legal Proceedings. The Rights Agent shall be under no
obligation to institute any action, suit or legal proceeding or to take any
other action likely to involve expense unless the Company shall furnish the
Rights Agent with reasonable security and indemnity for any costs and expenses
that may be incurred in taking such action, but this provision shall not affect
the power of the Rights Agent to take such action as the Rights Agent may
consider proper, whether with or without any such security or indemnity. All
rights of action under this Agreement or under any of the Rights may be
enforced by the Rights Agent without the possession of any of the Certificates
or the production thereof at any trial or other proceeding relative thereto,
and any such action, suit or proceeding instituted by the Rights Agent shall be
brought in its name as Rights Agent.
7.11 Other Transactions in Securities of Company. The Rights Agent
in its individual and other capacities and any stockholder, director, officer
or employee of the Rights Agent may buy, sell or deal in any of the Rights, or
other securities of the Company, MusicCo or any Distributed Entity or become
pecuniarily interested in any transaction in which the Company, MusicCo or any
Distributed Entity may be interested or contract with or lend money to the
Company, MusicCo or any Distributed Entity or otherwise act as fully and freely
as though it were not Rights Agent under this Agreement. Nothing herein shall
preclude the Rights Agent from acting in any other capacity for the Company,
MusicCo or any Distributed Entity or for any other Person, including without
limitation, acting as transfer agent or registrar for other securities issued
by the Company, MusicCo or any Distributed Entity.
7.12 Liability of Rights Agent. The Rights Agent shall act
hereunder solely as agent, and its duties shall be determined solely by the
provisions hereof. The Rights Agent shall not be liable for anything that it
may do or refrain from doing in connection with this Agreement except for its
own negligence or bad faith.
7.13 Reliance on Documents. The Rights Agent will not incur any
liability or responsibility to the Company or to any Holder for any action
taken in reliance on any notice, resolution, waiver, consent, order,
certificate, or other paper, document or instrument reasonably believed by it
to be genuine and to have been signed, sent or presented by the proper parties.
7.14 Validity of Agreement. The Rights Agent shall not be under
any responsibility in respect of the validity of this Agreement or the
execution and delivery hereof (except the due execution and delivery hereof by
the Rights Agent) or in respect of the validity or execution of any Certificate
(except its countersignature thereof).
7.15 Instructions from Company. The Rights Agent is hereby
authorized and directed to accept instructions with respect to the performance
of its duties hereunder from any two of the Chairman of the Board, the
President or a Vice President of the Company, and to apply to
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<PAGE> 25
such officers for advice or instructions in connection with its duties, and
shall not be liable for any action taken or suffered to be taken by it in good
faith in accordance with instructions of any such officer or officers or for
any delay in acting while waiting for those instructions. Any application by
the Rights Agent for written instructions from the Company may, at the option
of the Rights Agent, set forth in writing any action proposed to be taken
or omitted by the Rights Agent under this Agreement and the date on and/or after
which such action shall be taken or such omission shall be effective. The
Rights Agent shall not be liable for any action taken by, or omission of, the
Rights Agent in accordance with a proposal included in such application on or
after the date specified in such application (which date shall not be less than
three Business Days after the date any officer of the Company actually receives
such application, unless any such officer shall have consented in writing to
any earlier date) unless prior to taking any such action (or the effective date
in the case of an omission), the Rights Agent shall have received written
instructions in response to such application specifying the action to be taken
or omitted.
7.16 Change of Rights Agent. The Rights Agent may resign and be
discharged from its duties under this Agreement by giving to the Company 30
days' prior notice in writing. The Rights Agent may be removed by like notice
to the Rights Agent from the Company and by notice to the Holders. If the
Rights Agent shall resign or be removed or shall otherwise become incapable of
acting, the Company shall appoint a successor to the Rights Agent. If the
Company shall fail to make such appointment within a period of 30 days after
such removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent or by any Holder (who
shall with such notice submit his Certificate for inspection by the Company),
then the Rights Agent or any Holder may apply to any court of competent
jurisdiction for the appointment of a successor to the Rights Agent. Pending
appointment of a successor to the Rights Agent, the duties of the Rights Agent
shall be carried out by the Company. Any successor Rights Agent, whether
appointed by the Company or such a court, shall be a bank or trust company, in
good standing, incorporated under the laws of the United States of America or
any state thereof and having at the time of its appointment as Rights Agent a
combined capital and surplus of at least $50,000,000. After appointment, the
successor Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the former Rights Agent shall deliver and transfer to
the successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose. Failure to give any notice provided for in this Section 7.16,
however, or any defect therein, shall not affect the legality or validity of the
resignation or removal of the Rights Agent or the appointment of the successor
Rights Agent, as the case may be. In the event of such resignation or removal
the successor Rights Agent shall mail, by first class mail, postage prepaid, to
each Holder, written notice of such removal or resignation and the name and
address of such successor Rights Agent.
ARTICLE VIII.
MISCELLANEOUS
8.01 Obtaining of Governmental Approvals. The Company will from
time to time take all action that may be necessary to obtain and keep effective
any and all permits, consents and approvals of governmental agencies and
authorities and securities acts filings under federal and state securities laws
and regulations that may be or become required in connection with the issuance,
sale, transfer and delivery of the Certificates, the exercise of the Rights and
the purchase of MusicCo Common Stock or Distributed Entity Stock upon exercise
of the Rights.
8.02 Notices. Any notice or other communication required or
permitted to be given pursuant to this Agreement to the Company, MusicCo or the
Rights Agent, shall be in writing and shall be deemed given and received on the
date delivered in person or by telecopy (answer back received) or 24 hours
after delivery to a courier service which guarantees overnight delivery or five
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days after the date mailed by registered or certified mail, return receipt
requested, postage prepaid, to the intended recipient at the address specified
below:
If to the Company:
Tele-Communications, Inc.
Terrace Tower II
5619 DTC Parkway
Englewood, Colorado 80111
Telecopier No.: (303) 488-3217
Attention: Stephen M. Brett
With a copy similarly addressed to the
attention of the Legal Department
If to MusicCo:
TCI Music, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
Telecopier No.: (303) 721-5443
Attention: David B. Koff
With a copy similarly addressed to the
attention of the Legal Department
If to the Rights Agent:
The Bank of New York
101 Barclay Street, 12th Floor
New York, New York 10286
Telecopier No.: (212) 815-2988
Attention: Joseph Varca
Any party may from time to time change the address to which notices to
it are to be given or mailed hereunder by notice given to the other parties in
the manner provided above.
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<PAGE> 27
Any notice or other communication pursuant to this Agreement to the
Holders shall be in writing and shall be mailed first class mail, postage
prepaid, or otherwise delivered, to such Holders at their respective addresses
on the Register of Holders of the Rights Agent.
8.03 Amendments Without Consent of Holders. The Company and the
Rights Agent may from time to time supplement or amend this Agreement without
the approval of any Holder, in order to cure any ambiguity or to correct or
supplement any provision contained herein that may be defective or inconsistent
with any other provision herein, or to make any other provisions in regard to
matters or questions arising hereunder that the Company and the Rights Agent
may deem necessary or desirable and that shall not be inconsistent with the
provisions of the Rights and that shall not adversely affect the interests of
the Holders. Upon the delivery of a certificate from an appropriate officer of
the Company which states that the proposed supplement or amendment is in
compliance with the terms of this Section, the Rights Agent shall execute such
supplement or amendment. Notwithstanding any other provision hereof, the Rights
Agent's consent must be obtained regarding any amendment or supplement pursuant
to this Section which alters the Rights Agent's rights or duties.
8.04 Amendments With Consent of Holders. The Company and the
Rights Agent may from time to time amend or supplement this Agreement without
notice to any Holder but with the written consent of the Holders (other than
the Company or its subsidiaries, or the officers, directors or affiliates of
the Company or any of its subsidiaries (other than MusicCo)) of a majority in
number of the outstanding Rights. The Holders of a majority of the outstanding
Rights may waive compliance by the Company with any provision of this Agreement
without notice to any Holder. Upon the delivery of a certificate from an
appropriate officer of the Company which states that the proposed supplement
or amendment is in compliance with the terms of this Section, the Rights Agent
shall execute such supplement or amendment. Notwithstanding any other provision
hereof, the Rights Agent's consent must be obtained regarding any amendment or
supplement pursuant to this Section which alters the Rights Agent's rights or
duties. Without the consent of each Holder affected, however, an amendment,
supplement or waiver may not:
(a) alter or modify the terms of the definition of Early
Expiration Event in Section 1.01, Sections 2.03, 4.01, 4.16, 4.17, 4.18, 4.19,
4.20, or Article VI hereof in any way that adversely affects the rights of any
Holder in any material respect; or
(b) waive a default in payment of the purchase price for
the MusicCo Common Stock and Distributed Entity Stock to be purchased upon
exercise of any Rights.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed supplement, but it shall
be sufficient if such consent approves the substance thereof.
8.05 Successors. All covenants and provisions of this Agreement by
or for the benefit of the Company or the Rights Agent shall bind and inure to
the benefit of their respective successors and assigns hereunder.
8.06 Applicable Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Delaware,
without giving effect to principles of conflict of laws, provided, however,
that the rights and obligations of the Rights Agent will be governed by and
construed in accordance with the internal laws of the State of New York.
8.07 Benefits of this Agreement; Limitation of Liability. Nothing
in this Agreement shall be construed to give to any Person other than the
Company, the Rights Agent and the Holders any legal or equitable right, remedy
or claim under this Agreement; but this Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the Holders. Neither
MusicCo nor any Distributed Entity, nor any director, officer, employee or
stockholder, as
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such, of the Company, MusicCo or any Distributed Entity shall have any
liability hereunder to the Holders for any obligations of the Company under
this Agreement and the Rights or for any claim based on, in respect of or by
reason of such obligations or their creation. Each Holder by accepting a
Certificate waives and releases such liability, such waiver and release being
part of the consideration for the issue of the Rights.
8.08 Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterpart shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
8.09 Captions. The captions of the Sections and subsections of
this Agreement have been inserted for convenience only and shall have no
substantive effect.
8.10 Termination. This Agreement shall terminate at such time as
the outstanding Rights are no longer exercisable under the terms of this
Agreement and the parties to this Agreement shall have discharged all of their
duties hereunder
8.11 Severability. In case any one or more of the provisions
contained in this Agreement or in the Rights shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality
or unenforceability shall not affect any other provisions of this Agreement or
of such Rights, but this Agreement and such Rights shall be construed as if
such invalid or illegal or unenforceable provision had never been contained
herein or therein.
8.12 Calculation of Time Periods. All periods of time referred to
in this Agreement (other than references to Business Days) shall include all
calendar days; provided that if the date or last date to perform the act or
give any notice with respect to this Agreement shall fall on a day that is not
a Business Day, such act or notice may be timely performed or given if
performed or given on the next succeeding Business Day.
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<PAGE> 29
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, all as of the day and year first above written.
TELE-COMMUNICATIONS, INC.
By: /s/ Stephen M. Brett
------------------------------
Name: Stephen M. Brett
------------------------------
Title: Executive Vice President
------------------------------
TCI MUSIC, INC.
By: /s/ David B. Koff
------------------------------
Name: David B. Koff
------------------------------
Title: President and Chief Executive
------------------------------
Officer
------------------------------
THE BANK OF NEW YORK, as Rights Agent
By: /s/ Joseph Varca
------------------------------
Name: Joseph Varca
------------------------------
Title: Vice President
------------------------------
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<PAGE> 1
EXHIBIT 10.1
CONTRIBUTION AGREEMENT
This Contribution Agreement (this "Agreement") is made on the
11th day of July, 1997, by and between Tele-Communications, Inc., a Delaware
corporation ("TCI"), and TCI Music, Inc., a Delaware corporation (the
"Company").
RECITALS
TCI desires to cause various of its indirect subsidiaries to
contribute to the Company the right to receive a substantial portion of the
revenues attributable to the distribution and sale by those subsidiaries of
digital music services of DMX Inc., a Delaware corporation ("DMX"), to
residential and commercial subscribers of such subsidiaries. In consideration
of such contribution and of the agreement of TCI to grant to stockholders of
DMX the right to require TCI to purchase shares of the Company issued to them
pursuant to the Agreement and Plan of Merger dated as of February 6, 1997, as
amended by Amendment One dated May 29, 1997, to which TCI, the Company and
DMX are parties, the Company desires to deliver to TCI shares of the Company's
Series B Common Stock and a promissory note in the amount of $40,000,000.
In consideration of the mutual covenants set forth in this
Agreement and other good and valuable consideration, the receipt and
sufficiency of which are acknowledged, the parties agree as follows:
I. DEFINITIONS
As used in this Agreement, terms with initial capital letters
will have the meanings ascribed to them below, unless the context clearly
requires otherwise:
Affiliate means, with respect to any Person, any other Person
Controlling, Controlled by, or under common Control with, such Person.
Business Day means any day other than a Saturday or Sunday or
a day on which banks in New York, New York or Denver, Colorado are authorized
to be closed.
Closing has the meaning set forth in Section 2.1.
Company has the meaning set forth in the preamble to this
Agreement.
Company Note means a promissory note in the principal amount
of $40,000,000 payable to the order of TCI, (i) principal payable in full 180
days after the Closing, (ii) if principal is not paid in full 180 days after
the Closing, bearing interest at 10% per annum accruing on unpaid principal
from the date first above written through and including the date of payment in
full of unpaid principal; (iii) providing for the prepayment of principal
without penalty by the Company at any time after the Closing; and (iv)
including such other terms and conditions as TCI and the Company may agree.
<PAGE> 2
interest not earlier than 180 days after the Closing and (iii) will include
such other terms and conditions as TCI and the Company may agree.
Contributed Tuners means all of the commercial tuners
indirectly owned and held in inventory by TCI at the Closing.
Control means, with respect to any Person, the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of the Controlled Person, whether by the ownership of
voting securities, by contract or otherwise.
DMX has the meaning set forth in the Recitals to this
Agreement.
DMX Affiliation Agreement means an affiliation agreement
between DMX and Satellite Services, Inc., an Owned Subsidiary of TCI (including
its successors and assigns, "SSI"), pursuant to which TCI System Owners are
granted rights to distribute and sell DMX Services, as such agreement may from
time to time be in effect.
DMX Revenues means all revenues of a TCI System Owner, as
determined in accordance with GAAP, that are attributable to the distribution
and sale of DMX Services, including charges for DMX Services and equipment
rental, installation and other charges payable by subscribers to DMX Services.
In calculating DMX Revenues, revenues attributable to the distribution and sale
of DMX Services on a tier or as part of a package that includes other audio or
video programming services and as to which there is no separate charge for DMX
Services will be deemed to be equal to the license fees payable to DMX on
account of such sales, as prescribed by the DMX Affiliation Agreement.
DMX Services means the digital music services offered for sale
to the public by DMX.
Fiscal Year means a year beginning January 1 and ending
December 31.
GAAP means generally accepted accounting principles as in
effect from time to time in the United States, applied on a basis consistent
with that applied by TCI in the preparation of its financial statements.
Merger means the merger of TCI Music Merger Sub, Inc. with and
into DMX pursuant to the Merger Agreement.
Merger Agreement means the Agreement and Plan of Merger, dated
as of February 6, 1997, as amended, among DMX, the Company, TCI and TCI Music
Merger Sub, Inc.
Music Business means the business of acquiring, producing,
packaging or compiling audio or video programming the content of which is
primarily music or music-related, and the marketing and sale of such
programming by any method of distribution.
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<PAGE> 3
Net DMX Revenues means, for any period of determination, all
DMX Revenues of a TCI System Owner for such period, minus (i) the Retained
Percentage for such period and (ii) license fees for such period that are
payable to DMX pursuant to the DMX Affiliation Agreement.
Owned Subsidiary means, with respect to any Person, any other
Person that such Person Controls and in which all the outstanding common stock,
in the case of a corporation, or, in the case of a Person that is not a
corporation, all ownership interests, are owned, directly or indirectly, by
such Person, including with respect to such Person any other Person that
pursuant to the preceding clause would be an Owned Subsidiary of any other
Owned Subsidiary.
Person means a human being or a corporation, general or
limited partnership, limited or unlimited liability company, trust,
association, unincorporated organization, governmental authority or other
entity.
Residential DMX Revenues means, for any period of
determination, that portion of DMX Revenues of a TCI System Owner for such
period that is attributable to the distribution and sale of DMX Services to
residential subscribers.
Retained Percentage means, for any period of determination, an
amount equal to 10% of Residential DMX Revenues of a TCI System Owner for such
period, subject to adjustment as provided in Section 8.2.
Shares means 62,500,000 shares of Series B Common Stock, par
value $.01 per share, of the Company.
TCI System Owner means each Owned Subsidiary of TCI that
offers DMX Services to its subscribers.
Termination Date has the meaning set forth in Section 2.3.
TCI has the meaning set forth in the preamble to this
Agreement.
II. CONTRIBUTION OF NET DMX REVENUES AND
CONTRIBUTED TUNERS; ISSUANCE OF SHARES
2.1 Rights Agreement; Assignment of Net DMX Revenues to
the Company. At the closing of the transactions contemplated by this Agreement
(the "Closing"):
(a) TCI will execute and deliver a Rights
Agreement, in the form prescribed by the Merger Agreement, granting to
stockholders of DMX who are entitled to receive shares of stock of the Company
pursuant to the Merger Agreement the right to require TCI to purchase such
shares, subject to the terms and conditions of such Rights Agreement.
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<PAGE> 4
(b) TCI will cause each Person that is a TCI
System Owner as of the date of this Agreement to assign and contribute to the
Company, effective as of the Closing, the right to receive Net DMX Revenues of
such TCI System Owner for a period beginning on the effective date of such
assignment and ending on the Termination Date. Payments of Net DMX Revenues
will be remitted to the Company as provided in Section 8.3.
(c) TCI will cause the Contributed Tuners to be
assigned and contributed to the Company, effective as of the Closing.
(d) The Company will deliver to TCI, as the
designee of the TCI System Owners, (i) the Shares and (ii) the Company Note.
2.2 New TCI System Owners. Promptly after any Person
becomes a TCI System Owner, TCI will cause such TCI System Owner to assign to
the Company the right to receive such TCI System Owner's Net DMX Revenues.
2.3 Effective Term of Assignment. Anything in this
Agreement to the contrary notwithstanding, the Company's right to receive Net
DMX Revenues of any TCI System Owner pursuant to this Agreement will continue
in effect until the first to occur of the following dates (the "Termination
Date"): (i) the date such TCI System Owner ceases to be a TCI System Owner and
(ii) December 31, 2006.
III. REPRESENTATIONS AND WARRANTIES OF TCI
TCI represents and warrants to the Company that:
3.1 Organization, Good Standing and Authority. Each of
TCI and the TCI System Owners is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation
and has all requisite corporate power and authority to enter into and to
perform its obligations under this Agreement and the other agreements to be
executed and delivered by it pursuant to this Agreement.
3.2 Authorization and Validity; Consents; No Conflicts.
The execution and delivery by each of TCI and the TCI System Owners of, and the
performance by each of them of its obligations under, this Agreement and the
other agreements to be executed and delivered by it pursuant to this Agreement
have been duly authorized by all requisite corporate action of TCI or such TCI
System Owner. This Agreement constitutes, and when executed and delivered by
it pursuant to this Agreement, the other agreements to be executed and
delivered by it pursuant to this Agreement will constitute, the legal, valid
and binding obligations of each of TCI and the TCI System Owners, enforceable
in accordance with their terms, except as such enforceability may be affected
by applicable bankruptcy, reorganization, insolvency, moratorium or similar
laws affecting creditors' rights generally or by general equitable principles.
No consent or approval of, notice to, or filing with, any other Person is
required in connection with the execution, delivery and performance by TCI
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<PAGE> 5
or any of the TCI System Owners of this Agreement or any other agreement to be
executed and delivered by it pursuant to this Agreement, or the consummation by
it of the transactions contemplated hereby or thereby, the failure of which to
be obtained, given or made would have a material adverse effect on TCI and the
TCI System Owners, taken as a whole, or on their ability to perform their
obligations under this Agreement. The execution and delivery by TCI or any of
the TCI System Owners of, and the performance by each of them of its
obligations under, this Agreement and any other agreement to be executed and
delivered by it pursuant to this Agreement will not violate its certificate or
articles of incorporation or bylaws or any material agreement to which it is a
party or by which it is bound or affected.
3.3 Investment Intent. TCI is acquiring the Shares for
investment only and acknowledges that they may not be sold without registration
under the Securities Act of 1933, as amended, and applicable state securities
laws, or unless an exemption therefrom is available, and agrees that a legend
to the foregoing effect may be placed on the certificate representing the
Shares.
IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
4.1 Organization, Good Standing and Authority. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation and has all requisite
corporate power and authority to enter into and to perform its obligations
under this Agreement and the other agreements to be executed and delivered by
it pursuant to this Agreement.
4.2 Authorization and Validity; Consents; No Conflicts.
The execution and delivery by the Company of, and the performance by it of its
obligations under, this Agreement and the other agreements to be executed and
delivered by it pursuant to this Agreement have been duly authorized by all
requisite corporate action of the Company. This Agreement constitutes, and
when executed and delivered by the Company pursuant to this Agreement, the
other agreements to be executed and delivered by it pursuant to this Agreement
will constitute, its legal, valid and binding obligations, enforceable in
accordance with their terms, except as such enforceability may be affected by
applicable bankruptcy, reorganization, insolvency, moratorium or similar laws
affecting creditors' rights generally or by general equitable principles. No
consent or approval of, notice to, or filing with, any other Person is required
in connection with the execution, delivery and performance by the Company of
this Agreement or any other agreement to be executed and delivered by the
Company pursuant to this Agreement, or the consummation by it of the
transactions contemplated hereby or thereby, the failure of which to be
obtained, given or made would have a material adverse effect on the Company or
on its ability to perform its obligations under this Agreement. The execution
and delivery by the Company of, and the performance by it of its obligations
under, this Agreement and any other agreement to be executed and delivered by
it pursuant to this Agreement will not violate its certificate of incorporation
or bylaws or any material agreement to which it is a party or by which it is
bound or affected.
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<PAGE> 6
4.3 No Lien on Shares. When issued and delivered by it
at the Closing, the Shares to be issued by the Company hereunder will be
validly issued, fully paid and nonassessable and will be owned by TCI (or, if
applicable, TCI 's designee) free and clear of any lien, charge, encumbrance,
security interest or any other similar right of any third party.
V. CONDITIONS TO OBLIGATIONS OF THE COMPANY
The obligations of the Company to consummate the transactions
contemplated by this Agreement to take place at the Closing are subject to
satisfaction or the waiver by it, at or prior to the Closing, of each of the
following conditions:
5.1 Truth of Representations and Warranties. All
representations and warranties of TCI set forth in this Agreement, if qualified
by a reference to materiality, are true and, if not so qualified, are true in
all material respects, in each case at the time of the Closing with the same
effect as if made at that time, except for changes permitted or contemplated by
this Agreement.
5.2 Performance of Agreements. All agreements of TCI set
forth in this Agreement that are required to be performed by it at or before
the Closing have been performed in all material respects.
5.3 Merger Completed. The Merger is completed
contemporaneously with the Closing.
VI. CONDITIONS TO OBLIGATIONS OF TCI
The obligations of TCI to consummate the transactions
contemplated by this Agreement to take place at the Closing are subject to
satisfaction or the waiver by it, at or prior to the Closing, of each of the
following conditions:
6.1 Truth of Representations and Warranties. All
representations and warranties of the Company set forth in this Agreement, if
qualified by a reference to materiality, are true and, if not so qualified, are
true in all material respects, in each case at the time of the Closing with the
same effect as if made at that time, except for changes permitted or
contemplated by this Agreement.
6.2 Performance of Agreements. All agreements of the
Company set forth in this Agreement that are required to be performed by it at
or before the Closing have been performed in all material respects.
6.3 Merger Completed. The Merger is completed
contemporaneously with the Closing.
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<PAGE> 7
VII. CLOSING
7.1 Closing. The Closing will take place on the date of
this Agreement, contemporaneously with the Merger.
7.2 Items Delivered by TCI System Owners. At the
Closing, TCI will cause each TCI System Owner to deliver to the Company (i) an
assignment transferring the rights of such TCI System Owner in and to its Net
DMX Revenues and (ii) such other assignments, bills of sale or other
instruments as are sufficient to transfer to the Company all the legal and
beneficial interests in such rights.
7.3 Items Delivered by the Company. At the Closing:
(a) The Company will deliver to the TCI System
Owners (or their designee) immediately available funds in the amount prescribed
by Section 2.1(c) of this Agreement or, if so elected by TCI, the Company Note.
(b) The Company will deliver to TCI one or more
duly executed certificates representing the Shares.
VIII. COVENANTS
8.1 Right to Compete.
(a) TCI and any Affiliate of TCI may engage in or
possess interests in one or more other businesses or ventures of any nature or
description, without regard to whether any of such businesses or ventures are
or may be deemed to be competitive in any way with any business of the Company
or any person in which the Company has an interest. Without limiting the
generality of the foregoing, none of TCI or any of its Affiliates or any
director, officer or employee of TCI or any of its Affiliates (including any
such director, officer or employee who serves as a director, officer or
employee of the Company) will be obligated to present to the Company any
particular investment or business opportunity, regardless of whether such
opportunity is of a character that the Company could pursue it if it were
presented to the Company, but instead, TCI and its Affiliates will have the
right to take such opportunity for their own account or for the account of any
other Person without any obligation whatsoever to the Company.
(b) Although the Company and TCI agree to be
bound by the provisions of subsection (a) of this Section for purposes of
defining their respective legal rights and obligations, TCI acknowledges that,
subject to such provisions, TCI intends to use commercially reasonable efforts
to expand the involvement of the Company in the Music Business and to cause the
Company to pursue future business activities in the Music Business.
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<PAGE> 8
8.2 Adjustment of Retained Percentage. Beginning at
least 60 days before the third anniversary of the Merger, and every third
anniversary thereafter, TCI, acting on behalf of the TCI System Owners, and the
Company will engage in good faith negotiations concerning the adjustment of the
Retained Percentage, taking into account, among other things, total sales of
DMX Services by TCI System Owners and the need to provide appropriate
incentives to the TCI System Owners and their personnel to maximize sales of
DMX Services. Notwithstanding the foregoing, the Retained Percentage
prescribed by this Agreement or as most recently adjusted by agreement of the
parties will continue to be applicable until a new agreement adjusting the
Retained Percentage has been reached.
8.3 Payment of Net DMX Revenues.
(a) Net DMX Revenues will be remitted to the
Company monthly in arrears for each calendar month. Each monthly payment will
be made by the end of the calendar month immediately following the calendar
month for which Net DMX Revenues are being remitted. At the time of each
payment, the Company will be given a statement setting forth in reasonable
detail TCI's calculation of Net DMX Revenues for the month in question.
(b) TCI will keep and maintain (or will cause to
be kept and maintained) books and records (the "System Books and Records") with
respect to revenues from the sale of DMX Services by TCI System Owners, which
books and records will be accurate and complete in all material respects. Upon
at least 15 Business Days' prior notice and during TCI's normal business hours,
the Company (or its authorized employees, agents, accountants and
representatives) will have the right, at the expense of the Company, to examine
and audit the System Books and Records and such other evidence of the DMX
Revenues of the TCI System Owners as the Company may reasonably request to the
extent reasonably necessary to verify the accuracy of TCI's calculation of Net
DMX Revenues. The rights granted to the Company in this Section 8.3(b) may be
exercised not more frequently than once a year and the period as to which such
right is exercised will be limited to a period beginning not more than two
years before the date such notice is given and ending as of the end of the most
recent calendar month for which information regarding DMX Revenues is
available.
(c) After receipt of a statement setting forth
the calculation of the Net DMX Proceeds in accordance with Section 8.3(b), the
Company will have two years within which to notify TCI of any disagreement with
respect to TCI's calculation of the Net DMX Revenues set forth in that
statement, which notice will specify in reasonable detail the basis for such
disagreement.
(d) If the Company notifies TCI that it agrees
with TCI's calculation of Net DMX Revenues for any period, that calculation
will be final and conclusive as of the date of delivery of such notification.
If the Company fails to provide notice of disagreement with any calculation by
TCI of Net DMX Revenues within the two-year period prescribed by Section
8.3(c), TCI's calculation will be final and conclusive as of the end of such
period.
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<PAGE> 9
(e) If within such two-year period the Company
provides notice of disagreement with TCI's calculation of Net DMX Revenues for
any month, the Company and TCI will negotiate in good faith to resolve any such
dispute for a period of 30 days following receipt of such notice of
disagreement. If the dispute is not resolved within such period, the dispute
will be referred to KPMG Peat Marwick (or, if such accounting firm is for any
reason unwilling or unable to act in such capacity, such other nationally
recognized accounting firm as may be designated by KPMG Peat Marwick), which
accounting firm will render its decision (together with a reasonably detailed
explanation therefor) as soon as possible following submission of the dispute
to it, which decision will be final and conclusive. The fees and expenses of
the accounting firm relating to services rendered pursuant to this Section
8.3(e) will be paid by the Company and TCI in equal shares.
IX. MISCELLANEOUS
9.1 Notices. All notices, requests, demands and other
communications called for or contemplated hereunder will be in writing and will
be deemed to have been duly given if delivered in person or by United States
certified or registered mail, prepaid, addressed to the parties, their
permitted successors in interest or assignees, or sent by courier or
telecopier:
To TCI at:
Tele-Communications, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
Attention: Brendan Clouston
Telecopy: (303) 488-3200
with a copy similarly addressed, Attention: Legal
Department
and another copy to:
Sherman & Howard L.L.C.
3000 First Interstate Tower North
633 Seventeenth Street
Denver, Colorado 80202
Attention: Charles Y. Tanabe, Esq.
Telecopy: (303) 298-0940
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<PAGE> 10
To the Company at:
TCI Music, Inc.
c/o Tele-Communications, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
Attention: President
Telecopy: (303) 721-5443
Any party may change the address to which notices are required to be sent by
giving notice of such change in the manner provided in this Section. All
notices will be deemed to have been received on the date of delivery or on the
third Business Day after the mailing thereof, except that any notice of a
change of address will be effective only upon actual receipt.
9.2 Expenses. Whether or not the transactions
contemplated hereby are consummated, each of the parties will bear the fees and
expenses relating to its compliance with the various provisions of this
Agreement, and each of the parties will pay all of its own expenses (including
all attorneys' fees and expenses) incurred in connection with this Agreement,
the transactions contemplated hereby, the negotiations leading to the same and
the preparation made for carrying the same into effect.
9.3 Modification; Waiver. This Agreement may be
modified or terminated by mutual agreement only by a writing signed by each of
the parties, and no provision or condition herein may be waived other than by a
writing signed by the party waiving such provision or condition.
9.4 Headings. Article and Section headings in this
Agreement are for the sole purpose of convenient reference and in no way
define, limit or prescribe the scope or intent of this Agreement or any part
hereof, and such headings will not be considered in interpreting or construing
this Agreement.
9.5 Assignment. Neither party may assign any of its
rights under this Agreement or delegate its duties hereunder unless it obtains
the prior written consent of the other party, which consent may be withheld at
such party's absolute discretion. Notwithstanding the preceding sentence, any
party may assign its rights under this Agreement to any Affiliate of such party
without the consent of any other party.
9.6 Counterparts. This Agreement may be executed in any
number of counterparts, each of which may be deemed to be an original, and all
of which taken together will constitute one instrument.
9.7 Additional Documents. At the Closing and from time
to time after Closing, at either party's request and without further
consideration, the other party will execute and deliver (or cause to be
executed and delivered) such other instruments of conveyance and transfer and
will
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take such other actions as may reasonably be required effectively to carry out
the transactions contemplated by this Agreement.
9.8 Other. This Agreement constitutes the entire
agreement of the parties regarding the subject matter hereof, and all prior or
contemporaneous agreements, understandings, representations and statements,
oral or written, are merged into this Agreement. This Agreement will be
binding upon and inure to the benefit of the parties and, subject to the
limitations set forth in Section 9.5, their respective successors and assigns.
The provisions of this Agreement are for the exclusive benefit of the parties
and their permitted successors and assigns, and no other Person is intended to
be a third-party beneficiary or to have any rights by virtue of this Agreement.
9.9 Governing Law. This Agreement will be governed by
the laws of the State of Colorado, without regard to the conflicts of laws
rules thereof.
9.10 Interpretation. Terms used with initial capital
letters will have the meanings specified, applicable to both singular and
plural forms, for all purposes of this Agreement. All pronouns (and any
variation) will be deemed to refer to the masculine, feminine or neuter, as the
identity of the Person may require. The singular or plural includes the other,
as the context requires or permits. The word "include" (and any variation) is
used in an illustrative sense rather than a limiting sense. The word "day"
means a calendar day, and if the last day for the giving of any notice or the
taking of any other action is a day that is not a Business Day, the time for
giving such notice or taking such action will be deemed extended to the next
Business Day.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
TELE-COMMUNICATIONS, INC.
By: /s/ Stephen M. Brett
-------------------------------------
Name: Stephen M. Brett
-------------------------------------
Title: Executive Vice President
-------------------------------------
TCI MUSIC, INC.
By: /s/ David B. Koff
-------------------------------------
Name: David B. Koff
-------------------------------------
Title: President and Chief Executive Officer
-------------------------------------
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<PAGE> 1
EXHIBIT 10.2
SERVICES AGREEMENT
Services Agreement (this "Agreement"), dated as of July 11,
1997, between Tele-Communications, Inc., a Delaware corporation ("TCI"), and TCI
Music, Inc., a Delaware corporation (the "Company").
RECITALS
A. TCI owns all the issued and outstanding capital stock
of the Company (the "Company Stock").
B. TCI and the Company are parties to an Agreement and
Plan of Merger dated as of February 6, 1997, as amended by Amendment One dated
May 29, 1997, among TCI, the Company, TCI Merger Sub, Inc., a Delaware
corporation and wholly owned subsidiary of the Company ("Merger Sub"), and DMX
Inc., a Delaware corporation ("DMX"), pursuant to which Merger Sub will merge
with and into DMX (the "Merger").
C. As a result of the Merger, the Company will cease to
be a wholly owned subsidiary of TCI, and TCI and the Company will be separate
public companies.
D. This Agreement sets forth the general terms upon
which TCI will provide to the Company certain facilities, services, benefits,
and personnel to the Company after consummation of the Merger.
In consideration of the mutual covenants contained in this
Agreement and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, TCI and the Company hereby agree
as follows:
SECTION 1. SERVICES. At the request of the Company, TCI shall provide
services to the Company for the administration and operation of the businesses
of the Company and its subsidiaries and affiliates and shall devote thereto
such time as may be necessary for the proper and efficient administration and
operation of such businesses. The services to be provided by TCI to the
Company pursuant to this Agreement (collectively, the "Services") shall include
such of the following services as the Company may request from time to time:
(i) tax reporting, financial reporting, payroll,
employee benefit administration, workers' compensation
administration, telephone, fleet management, package delivery,
management information systems, billing, lock box, remittance
processing and risk management services;
(ii) other services typically performed by TCI's
executive, accounting, finance, treasury, corporate, legal,
tax, benefits, insurance, facilities, purchasing, fleet
management and advanced information technology department
personnel;
<PAGE> 2
(iii) use of telecommunications and data facilities
and of systems and software developed, acquired or licensed by
TCI from time to time for financial forecasting, budgeting and
similar purposes, including without limitation any such
software for use on personal computers, in any case to the
extent available under copyright law or any applicable
third-party contract;
(iv) technology support and consulting services;
and
(v) such other management, supervisory, strategic
planning or other services as the Company may from time to
time request.
SECTION 2. SUPPLY COMMITMENTS.
(a) Certain Definitions. As used in this Agreement, the
capitalized terms listed below have the following meanings (with the singular
including the plural and vice versa):
"Equipment": Any equipment and materials that are
available for purchase by TCI and its O&O Subsidiaries on terms that include
volume discounts and would not restrict TCI or the applicable O&O Subsidiary
from complying with Section 2(b).
"O&O Subsidiaries": those of TCI's subsidiaries in
which TCI owns, directly or indirectly, all of the common equity.
"Territory": The United States and Canada
(b) Equipment Purchase Commitment. TCI shall, and shall
cause its O&O Subsidiaries to, make available to the Company in the manner
provided below the benefit of the volume discounts, if any, that are available
to TCI and its O&O Subsidiaries in purchasing Equipment and can be made
available to the Company (the foregoing being referred to herein as, TCI's
"Equipment Commitment"). The Company shall give TCI notice from time to time,
as much in advance as is practicable, of its intention to purchase Equipment
and, promptly after receipt of such notice. If TCI or an O&O Subsidiary can
make such Equipment available TCI shall give notice to the Company stating the
price and the terms on which TCI, or its applicable O&O Subsidiary, can make
such Equipment available to the Company (the "Terms Notice"). If the Company
determines to purchase the requested Equipment on the terms specified in the
Terms Notice, it shall deliver a purchase order for such Equipment to TCI and,
upon receipt thereof, (i) TCI shall use commercially reasonable efforts to
cause its supplier to sell such Equipment directly to the Company at the price
and on the terms specified in the Terms Notice or (ii) at TCI's sole election,
TCI shall, or shall cause the applicable O&O Subsidiary, to purchase such
Equipment and resell it to the Company at the price and on the terms specified
in the Terms Notice. If TCI elects the option set forth in clause (ii) of the
preceding sentence, it shall take all action necessary to assure that all
warranties and other rights available to the original purchaser of such
Equipment are assigned and extend to, or otherwise
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<PAGE> 3
enforce such warranties and rights on behalf of, the Company. TCI shall in no
event have, or be required to incur, any liability to any of its suppliers for
any Equipment ordered by the Company unless (and then only to the extent that)
it has elected the option set forth in clause (ii) of the second preceding
sentence.
(c) Termination of Commitments. TCI's obligations under
this Section 2 shall terminate immediately and without any requirement of
notice if any of the events described in clause (iii) of the first sentence of
Section 5(b) shall occur with respect to the Company. If the Company delivers
an executed purchase order for Equipment to TCI pursuant to Section 2(a) and
fails to purchase the same in accordance with the terms and conditions
specified in the Terms Notice, then TCI may terminate the Equipment Commitment
and its obligations under Section 2(b) by giving notice to such effect to the
Company within 30 days thereafter.
SECTION 3. COMPENSATION FOR SERVICES. As a compensation for Services
rendered to the Company pursuant to this Agreement, the Company shall reimburse
TCI for (i) all direct expenses incurred by TCI in providing the Services,
provided that the incurrence of such expenses is consistent with practices
generally followed by TCI in managing or operating its own business and the
businesses of its subsidiaries and affiliates and (ii) the Company's pro rata
share of TCI's indirect overhead expenses based on an annual determination by
TCI management of the usage by the Company of such services during the prior
year. Such indirect expenses shall include (i) the salaries and other
compensation of TCI's officers and employees who perform the Services for the
Company, (ii) general and administrative overhead expenses and (iii) the costs
and expenses of TCI's physical facilities that are utilized by the Company.
TCI shall keep true, complete and accurate books of account containing such
particulars as may be necessary for the purpose of calculating the above costs.
SECTION 4. EMPLOYEE BENEFIT PLANS. Subject to Section 5 hereunder, TCI
shall permit the present and future employees of the Company and its
majority-owned subsidiaries (collectively, the "TCI Music Employees") to
continue to participate in each of the benefit plans listed on Schedule A
hereto (the "TCI Plans"). Notwithstanding the foregoing, nothing in this
Agreement shall impair TCI's right to terminate one or more of the TCI Plans or
to modify or amend their terms and conditions, including those that determine
the right to participate in such plans, provided that such modification or
amendment is applicable to all employees of TCI and its subsidiaries, including
the Company. For so long as the Company shall remain a participating employer
in the TCI Plans, the Company shall make the required employer contributions to
such plans with respect to the TCI Music Employees and shall, where applicable,
deduct and accumulate from applicable sources the required employee
contributions to such plans. The determination of the total amount of
contributions required under each such TCI Plan shall be made by the Company
from time to time, and the Company shall remit such contributions in the manner
and at the times prescribed by TCI, consistent with TCI's normal practices for
determining, collecting or otherwise charging out the respective benefit plan
costs of its participating subsidiary corporations.
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SECTION 5. TERM.
(a) Commencement. This Agreement shall become effective
immediately at the Effective Time of the Merger.
(b) Termination. Except as otherwise expressly provided
herein, this Agreement and the rights and obligations of the parties hereunder
shall remain in effect until terminated as provided below or, with respect to
the parties' rights and obligations under Section 2(b), as provided in Section
2(c).
(i) The obligation of TCI to provide the Services
as provided in Section 1 of this Agreement shall remain in
effect until terminated by actions of one of the parties as
follows: (A) by TCI at any time after three years from the
effective date of this Agreement on not less than six months
prior written notice to the Company; and (B) by the Company at
any time on not less than 60 days' prior written notice to
TCI.
(ii) The obligation of TCI to permit the TCI Music
Employees to participate in the TCI Plans pursuant to Section
4 hereof shall remain in effect until TCI no longer
beneficially owns shares of the Company's Series A Common
Stock and Series B Common Stock representing at least a
majority in voting power of the outstanding shares of capital
stock of the Company entitled to vote generally in the
election of directors.
(iii) Either party may terminate this Agreement
upon written notice to the other party if such other party
shall file a petition in bankruptcy or insolvency, or a
petition for reorganization or adjustment of debts or for the
appointment of a receiver or trustee of all or a substantial
portion of its property, or shall make an assignment for the
benefit of creditors, or if a petition in bankruptcy or other
petition described in this paragraph shall be filed against
such other party and shall not be discharged within 120 days
thereafter.
(c) Effect of Termination. In the event of any
termination of this Agreement, each party shall remain liable for all
obligations of such party accrued hereunder prior to the date of such
termination, including, without limitation, all obligations of the Company (i)
to reimburse TCI for the Services provided hereunder through the termination
date, in each case as provided in Section 3 hereof, and (ii) to pay for any
Equipment supplied pursuant hereto. The provisions of Section 6 of this
Agreement shall survive indefinitely, notwithstanding any termination hereof.
SECTION 6. LIMITATION OF LIABILITY. TCI, its affiliates, directors,
officers, employees, agents and permitted assigns (each, a "TCI Party" and,
together, the "TCI Parties") shall not be liable (whether such liability is
direct or indirect, in contract or tort or otherwise) to the Company or any of
the Company's affiliates, directors, officers, employees, agents,
securityholders, creditors or permitted
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assigns, for any liabilities, claims, damages, losses or expenses (including,
without limitation, any special, indirect, incidental or consequential damages)
("Losses") arising out of, related to, or in connection with the Services, the
Equipment Commitment or this Agreement except to the extent that such Losses
result from the gross negligence or willful misconduct of TCI, in which case
TCI's liability with respect to the Services shall be limited to a refund of
that portion of the amounts actually paid by the Company hereunder which, as
determined by TCI, represented the cost to the Company of the Services in
question. The remedies, if any, available with respect to any Equipment
supplied shall be as provided in the applicable purchase. The Company hereby
agrees to indemnify and hold harmless the TCI Parties from and against any and
all Losses (including, without limitation, reasonable fees and expenses of
counsel) incurred by any TCI Party arising out of or in connection with or by
reason of the Services provided under this Agreement, other than any liability
of TCI to the Company as contemplated by the foregoing provisions of this
Section 6.
SECTION 7. MISCELLANEOUS.
(a) Entire Agreement. This Agreement constitutes the
entire agreement between the parties hereto with respect to the subject matter
hereof and supersedes all previous agreements, negotiations, understandings and
commitments with respect to such subject matter, whether or not in writing.
(b) Governing Law. This Agreement and the legal
relations between the parties with respect hereto shall be governed by and
construed in accordance with the laws of the State of Colorado, without regard
to conflicts of laws rules thereof.
(c) Notices. All notices, demands and other
communications under this Agreement shall be in writing and shall be deemed to
have been duly given: (i) on the day of delivery if delivered personally to
the party to whom notice is to be given; (ii) on the day of transmissions if
sent via facsimile transmission to the facsimile number given below (answer
back received); (iii) on the day of delivery by Federal Express or similar
overnight courier; or (iv) on the third day after mailing, if mailed to the
party to whom notice is to be given, by United States first class mail,
registered or certified, postage prepaid and properly addressed, to the party
as follows:
If to TCI:
Tele-Communications, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
Attention: General Counsel
Facsimile: (303) 488-3245
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If to the Company:
TCI Music, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
Attention: David B. Koff, President and CEO
Facsimile: (303) 721-5443
Any party may change its address for the purpose of this Section by giving the
other party written notice of its new address in the manner set forth above.
(d) Amendment. This Agreement may not be amended or
modified in any respect except by a written agreement signed by the parties
hereto.
(e) Successors and Assigns; No Third-Party Beneficiaries.
This Agreement and all of the provisions hereof shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
permitted assigns. Neither this Agreement nor any of the rights, interests and
obligations hereunder shall be assigned by either party hereto, by operation of
law or otherwise, without the prior written consent of the other party.
Nothing contained in this Agreement, except as expressly set forth, is intended
to confer upon any other persons other than the parties hereto and their
respective successors and permitted assigns, any rights or remedies.
(f) Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
(g) No Waiver. No waiver by either party hereto of any
term or condition of this Agreement, in any one or more instances, shall
operate as a waiver of such term or condition at any other time. No waiver of
any term or condition hereof shall be effective unless in a writing signed by
the party entitled to give such waiver.
(h) Relations Between the Parties. The parties are
independent contractors. Nothing in this Agreement shall constitute either
party, or any of such party's officers, directors, agents or employees, a
partner, agent or employee of, or joint venturer with, the other party.
(i) Severability. If any provision of this Agreement or
the application thereof to any person or circumstances shall be held to be
invalid or unenforceable, the remainder of this Agreement, or the application
of such provision to persons or circumstances other than those to which it was
held to be invalid or unenforceable, shall not be affected thereby, provided
that the parties shall negotiate in good faith with respect to an equitable
modification of the provision or application thereof held to be invalid.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first written above.
TELE-COMMUNICATIONS, INC.
By: /s/ Stephen M. Brett
---------------------------------------
Name: Stephen M. Brett
Title: Executive Vice President
TCI MUSIC, INC.
By: /s/ David B. Koff
---------------------------------------
Name: David B. Koff
Title: President and Chief Executive
Officer
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