<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 24, 1998
REGISTRATION NO.
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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TCI MUSIC, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
DELAWARE 84-1380293
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>
67 IRVING PLACE NORTH
4TH FLOOR
NEW YORK, NEW YORK 10003
(212) 387-7700
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
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<TABLE>
<S> <C>
STEPHEN M. BRETT, ESQ. Copies to:
C/O TELE-COMMUNICATIONS, INC. LESLIE A. NICHOLS, ESQ.
TERRACE TOWER II SHERMAN & HOWARD L.L.C.
5619 DTC PARKWAY 633 SEVENTEENTH STREET, SUITE 3000
ENGLEWOOD, COLORADO 80111 DENVER, COLORADO 80202
(303) 267-5500 (303) 297-2900
</TABLE>
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: From time to
time after the effective date of this Registration Statement as determined by
the Selling Stockholders.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the following box.
[ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
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TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED PER SHARE(1) PRICE REGISTRATION FEE
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Series A Common Stock, $.01
par value................ 3,193,125 Shares $6.25 $19,957,031.25 $5,887.32
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</TABLE>
(1) Estimated solely for purposes of determining the registration fee in
accordance with Rule 457(c); based upon the last trading price of the
Registrant's Series A Common Stock, as quoted on the Nasdaq SmallCap Market
on August 20, 1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED AUGUST 24, 1998
PROSPECTUS
3,193,125 SHARES
TCI MUSIC, INC.
SERIES A COMMON STOCK
($.01 PAR VALUE)
---------------------
This Prospectus relates to 3,193,125 shares (the "Shares") of Series A
Common Stock, $.01 par value per share ("Common Stock"), of TCI Music, Inc. (the
"Company"), to be offered and sold from time to time by certain stockholders
(the "Selling Stockholders") referred to in this Prospectus. The Company has
been advised that the Shares may be sold by the Selling Stockholders directly or
through agents designated from time to time or to or through broker-dealers
designated from time to time. The distribution of the Shares may be effected
from time to time in one or more transactions at a fixed price or prices, which
may be changed, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at prices determined on a negotiated
or competitive bid basis. The Shares may be sold through a broker-dealer acting
as agent or broker for the Selling Stockholders, or to a broker-dealer acting as
principal. In the latter case, the broker-dealer may then resell such Shares to
the public at varying prices to be determined by such broker-dealer at the time
of resale. The aggregate proceeds to the Selling Stockholders from the sale of
the Shares so offered will be the purchase price of the Shares sold less the
aggregate commissions, discounts and other compensation, if any, paid to
broker-dealers and other expenses of the offering and sale of the Shares. See
"Plan of Distribution." The Company knows of no selling arrangement between any
broker-dealer and the Selling Stockholders. The Company will not receive any of
the proceeds from the sale of the Shares but will bear certain of the expenses
thereof. See "Plan of Distribution."
On August 20, 1998, the last trading price of one share of Common Stock as
quoted on the Nasdaq SmallCap Market was $6.25 per share.
The Selling Stockholders and any broker-dealers that participate with the
Selling Stockholders in the distribution of any of the Shares may be deemed to
be "underwriters" within the meaning of the Securities Act of 1933, as amended,
and any discount or commission received by them and any profit on the resale of
the Shares purchased by them may be deemed to be underwriting commissions or
discounts under such Act. See "Plan of Distribution."
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THE SECURITIES OFFERED BY THIS PROSPECTUS INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS," PAGE 4.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
, 1998
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AVAILABLE INFORMATION
The Company has filed a registration statement on Form S-3 (together with
all amendments, exhibits and schedules thereto, the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"), relating to
the Shares. This Prospectus does not include all of the information set forth in
the Registration Statement, as permitted by the rules and regulations of the
Securities and Exchange Commission (the "Commission"). The Registration
Statement, including any amendments, schedules and exhibits filed or
incorporated by reference as a part thereof, is available for inspection and
copying as set forth below. Statements contained in this Prospectus or in any
document incorporated herein by reference as to the contents of any contract or
other document referred to herein or therein are not necessarily complete and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement or such other document, and
each such statement shall be deemed qualified in its entirety by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Information, as of particular dates, concerning directors and
officers, their remuneration, options granted to them, the principal holders of
securities of the Company and any material interest of such persons in
transactions with the Company is disclosed in proxy statements distributed to
stockholders and filed with the Commission. Such reports, proxy statements and
other information can be inspected and copied at the public reference facilities
of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
regional offices of the Commission: Midwest Regional Office, Suite 1400, 500
West Madison Street, Chicago, Illinois 60661-2511; and Northeast Regional
Office, 7 World Trade Center, Suite 1300, New York, New York 10048, and copies
of such material can be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
Information on the operation of the Public Reference Room may be obtained by
calling the SEC at 1-800-SEC-0330. The Commission maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of such site is http://www.sec.gov. Certain shares of Common Stock are quoted on
the Nasdaq SmallCap Market, and such reports, proxy statements and other
information may also be inspected at the offices of the National Association of
Securities Dealers, Inc., Reports Section, 1735 K Street, Washington D.C. 20006.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES COVERED BY
THIS PROSPECTUS IN ANY JURISDICTION WHERE, OR TO OR FROM ANY PERSON TO WHOM, IT
IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN OFFER IN SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCE, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED OR INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE. ALL INFORMATION WITH RESPECT TO THE COMPANY HEREIN
HAS BEEN PROVIDED BY THE COMPANY AND ALL INFORMATION HEREIN WITH RESPECT TO EACH
SELLING STOCKHOLDER HAS BEEN PROVIDED BY SUCH SELLING STOCKHOLDER.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the Commission
pursuant to the Exchange Act, are hereby incorporated by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, as amended by Form 10-K/A (Amendment No. 1);
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1998 and June 30, 1998;
3. Description of Series A Common Stock of the Company set forth in a
Registration Statement on Form 8-B filed by the Company with the Commission
on July 9, 1997 (File No. 000-22815).
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All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the Shares described in this Prospectus shall be
deemed to be incorporated in and made a part of this Prospectus by reference
from the date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any subsequently filed document that also is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statements so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
All information appearing in this Prospectus is qualified in its entirety
by the information and financial statements (including notes thereto) appearing
in the documents incorporated herein by reference.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, on written or oral
request of any such person, a copy of any or all of the documents incorporated
by reference herein, other than exhibits to such documents (unless such exhibits
are specifically incorporated by reference into the documents that this
Prospectus incorporates). Written or telephone requests should be directed to
TCI Music, Inc., 8101 East Prentice Avenue, Suite 500, Englewood, Colorado
80111, Attention: Ms. Vivian Carr, (303) 721-5400.
The principal executive offices of the Company are located at 67 Irving
Place North, 4th Floor, New York, New York 10003, (212) 387-7700.
THE COMPANY
The Company was incorporated in January 1997 as a wholly-owned subsidiary
of Tele-Communications, Inc. ("TCI") for the purpose of acquiring DMX Inc.
("DMX"). The Company's business consists primarily of the businesses of the
three subsidiaries it has acquired since its formation: DMX on July 11, 1997;
The Box Worldwide, Inc. ("Box") on December 16, 1997, and Paradigm Music
Entertainment Company ("Paradigm") on December 31, 1997. DMX is primarily
engaged in programming, distributing and marketing an audio digital music
service that provides continuous, commercial-free, CD-quality music programming.
Box is primarily engaged in programming, distributing and marketing an
interactive music video television programming service to cable television
systems, low power television stations and full power broadcast stations.
Paradigm operates two music distribution web sites, SonicNet and Addicted to
Noise, and an independent record label business, Paradigm Associated Labels. The
Company acquired DMX to provide digital audio services to both residential and
commercial markets, Box to serve as the platform for music video and Paradigm to
provide music-related content to DMX and Box and to position itself to take
advantage of developments in music distribution through the Internet. The
Company's business for the year ended December 31, 1997 consisted primarily of
the business of DMX.
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RISK FACTORS
The securities offered by this Prospectus involve a high degree of risk.
Each prospective purchaser of the Shares offered hereby should carefully read
the entire Prospectus but should give special consideration to the risk factors
described below.
EXERCISE OF RIGHTS; CONTINUED LISTING ON NASDAQ SMALLCAP MARKET
Certain shares of Common Stock were issued on July 11, 1997 in connection
with the merger (the "DMX Merger") of DMX with a wholly-owned subsidiary of the
Company. Such shares were issued with associated rights ("Rights") issued by
TCI, the parent of Liberty Media Corporation, the controlling stockholder of the
Company. Each Right entitled the holder to require TCI to purchase such holder's
associated share of Common Stock for $8.00 on or before August 13, 1998.
Pursuant to the terms of the Rights, the exercise period for the Rights
concluded at 5 p.m. New York City time on August 13, 1998. During the exercise
period, 7,602,483 shares of Common Stock (including 2,710,406 shares
beneficially owned by Tele-Communications International, Inc., an affiliate of
the Company) were submitted (after expiration of the guaranteed delivery
period). Prior to August 14, such shares traded together with their associated
Rights on the Nasdaq SmallCap Market under the symbol "TUNE."
The trading market for Common Stock could be adversely affected by the
exercise of the Rights. Prior to August 14, 1998, only the shares of Common
Stock issued in the DMX Merger that traded with associated Rights were quoted on
the Nasdaq SmallCap Market. Because the Rights traded together with the shares
of Common Stock as a unit, the market price of one share of Common Stock
necessarily included the value, if any, ascribed by the market to its associated
Right. The public trading market for Common Stock without associated Rights
began on the Nasdaq SmallCap Market under the symbol "TUNE" (the same symbol
under which shares of Common Stock with Rights traded prior to August 14, 1998)
on August 14, 1998. Given the brief trading history of Common Stock without
Rights, no assurances can be made that the market price per share of Common
Stock will be maintained at or near the levels achieved when the Common Stock
traded with associated Rights or at current levels.
In order to continue to be listed on the Nasdaq SmallCap Market, the Common
Stock must comply with certain maintenance requirements of the Nasdaq SmallCap
Market, which require that the Company maintain (i) at least $2 million in net
tangible assets, $35 million in market capitalization or $500,000 of net income
in the latest fiscal year, (ii) a public float of 500,000 shares valued at $1
million or more, (iii) a minimum bid price of $1.00 per share, (iv) two market
makers and (v) at least 300 stockholders. The exercise of Rights had the effect
of decreasing the public float, the number of holders of Common Stock and the
price of the Common Stock. No assurance can be made that these maintenance
requirements will continue to be satisfied.
The Series A Convertible Preferred Stock of the Company has certain
redemption rights and a liquidation preference in the event of a liquidation of
the assets of the Company.
INTERNET DEVELOPMENT
Use of the Internet by consumers is at a very early stage and market
acceptance of the Internet as a medium for commerce and advertising is subject
to a high level of uncertainty. The rapid growth of global commerce and the
exchange of information on the Internet and other online networks is new and
evolving, making it difficult to predict whether the Internet will prove to be a
viable commercial marketplace. The Company believes that the success of its
business conducted through Paradigm may depend on its ability to significantly
increase revenues from its music entertainment operations, which may require the
development and widespread acceptance of the Internet and online services as a
medium for commerce and advertising. The Internet may not prove to be a viable
commercial marketplace because of inadequate development of the necessary
infrastructure, such as reliable network backbones, or complementary services,
such as high speed modems and security procedures for financial transactions.
Consumer concern over Internet security has been, and could continue to be, a
barrier to commercial activities requiring consumers to send their credit card
information over the Internet. The Internet has experienced, and is expected to
continue to experience,
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significant growth in the number of users and amount of traffic. There can be no
assurance that the Internet infrastructure will continue to be able to support
the demands placed on it by sustained growth. In addition, the viability of the
Internet may prove uncertain due to delays in the development and adoption of
new standards and protocols, the inability to handle increased levels of
Internet activity or due to increased government regulation. If use of the
Internet does not continue to grow, or if the necessary Internet infrastructure
or complementary services are not developed to effectively support growth that
may occur, the Company's business, results of operations and financial condition
could be materially adversely affected.
LIMITED AND UNPROFITABLE OPERATING HISTORY
Prior to their respective acquisitions, the Company's subsidiaries had
unprofitable histories. Net operating losses of DMX were $22.2 million and $10.7
million for the fiscal years ended September 30, 1996 and 1995, respectively,
and $14.4 million for the nine months ended June 30, 1997. Net operating losses
of Box were $4.9 million and $1.4 million for the years ended December 31, 1996
and 1995, respectively, and $7.0 million for the period January 1, 1997 through
December 16, 1997, the effective date of the Box merger. Net operating losses of
Paradigm were $13.9 million and $2.4 million for the years ended 1997 and 1996,
and $132,000 for the period November 14, 1995 (the date Paradigm commenced
operations) through December 31, 1995. Since the acquisitions, the Company's
operating results have fluctuated. The Company had net operating income of $2.3
million for the six months ended December 31, 1997, which includes financial
results of DMX and Box from the dates of their respective acquisitions. Net
operating losses of the Company were $3.6 million for the three months ended
March 31, 1998 and $9.4 million for the six months ended June 30, 1998, the last
period for which financial results are available.
RISK OF REDUCED REVENUES AS A RESULT OF LAUNCH OF DIGITAL COMPRESSION TECHNOLOGY
Cable operators have recently begun to launch a new method of distributing
video and other programming using digital compression technology. Digital
compression technology digitizes hundreds of television channels, compressing as
many as 12 of the current analog video and other programming signals into the
space normally occupied by one. Such technology improves picture quality and
allows for carriage of significantly more video and other programming product
offerings ("Digital Distribution"). Digital Distribution permits subscribers to
receive video and music signals through a single standard set-top tuner or "box"
without the use of a separate tuner for music, as has historically been the case
with the more traditional distribution system by which the DMX service is
delivered directly to cable operators by C-band satellite for distribution to
residential and commercial cable subscribers ("Tuner Distribution"). Tuner
Distribution subscribers to the DMX service pay a separate a la carte fee to
their cable operators.
The launch of and the transition to Digital Distribution may have the
effect of materially reducing the Company's revenue from sales of the DMX
service to residential subscribers (from cable operators other than affiliates
of TCI, which pay DMX an agreed upon amount regardless of distribution method)
as a result of the expected change from the a la carte fee structure currently
in effect for Tuner Distribution to a fee structure where the DMX service is
part of a digital video programming package.
Tuner Distribution currently utilizes more of the cable spectrum than is
currently used to deliver one video channel. Accordingly, some cable operators
may determine to eliminate Tuner Distribution of the DMX service in certain
markets to recover or maintain channel capacity for Digital Distribution. If any
cable operator (other than affiliates of TCI, which will continue to pay DMX a
fixed amount regardless of distribution method) terminates Tuner Distribution in
any system, all revenues from residential and commercial subscribers receiving
Tuner Distribution of the DMX service in such system would terminate, unless
such residential subscribers elect to purchase a video and music programming
package through Digital Distribution, and Digital Distribution or other
distribution means were made available to such commercial subscribers.
Accordingly, the Company's revenue derived from distribution of the DMX service
from cable operators other than TCI affiliates could be materially adversely
affected if Tuner Distribution were terminated by such cable operators. Revenues
from such non-TCI cable operators represented approximately 13% of revenues of
DMX for the year ended December 31, 1997.
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RISK OF INCREASED FEES UNDER CERTAIN LICENSE AGREEMENTS
DMX and Box license rights to re-record and distribute music from a variety
of sources and pay royalties to songwriters and publishers through contracts
negotiated with performing rights societies such as the American Society of
Composers, Authors and Publishers ("ASCAP"), Broadcast Music, Inc. ("BMI") and
SESAC, Inc. ("SESAC"). DMX has separate agreements with ASCAP, BMI and SESAC for
residential and commercial distribution, and Box has separate agreements with
ASCAP, BMI and various similar international organizations. DMX's agreement with
ASCAP for commercial music distribution is currently governed by an agreement
that runs through 1999. Its agreement with SESAC for commercial distribution
expired in June 1997, and the Company is accruing fees at substantially the same
rate as were being accrued under the expired contract as it continues to
negotiate the contract renewal. DMX's agreement with BMI dated October 11, 1991
for commercial distribution expired in 1994, and since that time DMX has paid
fees on an interim basis pending the determination of a new industry-wide
commercial rate with BMI. Negotiations with respect to such rate were conducted
from 1994 until June 1997. It is now anticipated that rate court proceedings may
be required. The agreement with ASCAP with respect to residential music
distribution is governed by an industry-wide agreement dated December 20, 1991.
The parties are operating under the terms of an interim agreement pending the
resolution of ongoing proceedings in rate court. Although the Company cannot
predict the outcome of such proceedings, the rate determination, when made, may
require retroactive rate increases. In 1995, DMX entered into a new agreement
with BMI for residential distribution that expires in 1999. DMX's agreement with
SESAC for residential distribution also expired in June 1997, and the Company is
accruing fees at substantially the same rate as were being accrued under the
expired contract as it continues to negotiate the contract renewal. Box's
agreements with ASCAP and BMI have expired, and Box has continued to pay fees
under the terms of such agreements on a month-to-month basis. During the year
ended December 31, 1997, the Company's, expenses for ASCAP, BMI and SESAC
license fees were approximately $1.9 million in the aggregate. Although the
Company has been accruing for potential increases in the BMI commercial and
ASCAP residential rates, if the fees to be paid by the Company to these and
other licensors increase in excess of current accruals, the Company's results of
operations could be materially adversely affected.
INCREASE IN LICENSE FEES FOR DIGITAL PERFORMANCE RIGHTS
The Digital Performance Right in Sound Recordings Act of 1995 ("1995 Act")
establishes the right of owners of the performance rights, such as the
performers and record companies, to control digital transmission of sound
recordings by means of subscription services. The 1995 Act provides a compulsory
license for noninteractive subscription services. An arbitration proceeding
before the United States Copyright Office to determine the statutory license
royalty rate to be paid under the 1995 Act by DMX (and other digital music
residential subscription services) on services transmitted to non-business
subscribers commenced August 2, 1996. The royalty rate will be retroactive to
February 1996, and accordingly, DMX has been accruing 6.5% of residential
subscriber fee revenue as of such date. Effective May 8, 1998, the Librarian of
Congress, upon recommendation of the Register of Copyrights, issued an order
setting the royalty rate at 6.5%. The Recording Industry Association of America
(which proposed a rate of 41.5% in the arbitration) is currently appealing the
decision of the Copyright Office in the U.S. Court of Appeals. The results of
the appeal could have a material adverse effect on the Company if it is required
to pay a higher license royalty rate than the rate at which it has been
accruing.
COMPETITION
The Company's subsidiaries each face significant competition in their
respective industries. The television programming business in the United States
is highly competitive. DMX and Box compete with other providers of cable
television and DBS programming (including competitors who provide programming
similar to the services provided by DMX and Box, such as Music Choice,
MuchMusic, MTV and VH-1) for subscribers of, relationships with, and channel
space on, cable television and DBS systems. DMX also competes in the commercial
marketplace through its commercial division, DMX for Business(R), with other
programmed business music providers such as Muzak and AEI.
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Paradigm faces competition from other providers of products, services and
information available through the Internet and online services. Further,
Paradigm relies to a significant extent upon, and competes for, licensing
arrangements that allow Paradigm to produce and distribute its products,
services and information. In light of the limited operating history of
Paradigm's business, no assurances can be given that the Company will be able to
successfully compete in these industries.
DEPENDENCE ON VIEWER PARTICIPATION FOR BOX REVENUE; RISK OF FAILURE TO EXPAND
DISTRIBUTION OF BOX PROGRAMMING
Unlike other providers of video music programming, Box pays certain cable
operators a fee for carriage of the Box service. The Box service is interactive,
allowing viewers to select music videos to be aired on the Box service for a
fee, transacted by means of 900-number telephone service or on a prepaid basis
via toll-free telephone service. The fees paid to cable operators are generally
a percentage of revenues (received from viewers), with a guaranteed minimum
monthly fee. In other cases, Box pays cable operators up-front "launch fees" for
carriage of the Box service. Unless viewer and advertising revenue exceeds such
fees, the Company will lose money from operation of the Box service, which could
have a material adverse effect on the Company.
Box has arrangements with record companies pursuant to which Box has
obtained the right to air music videos in the United States produced by such
record companies at no cost to the Company. In the future, there can be no
assurance that music videos will be available for use on the Box service at no
cost or on terms deemed satisfactory to the Company.
In the past, objections have been raised with respect to the sexual and/or
violent content of certain music videos aired on the Box service. In response to
such objections Box eliminated videos with objectionable content from its viewer
selections, and net viewer revenues have been adversely affected due to the
apparent popularity of such videos with viewers. If Box is unable to balance
viewer demands and cable operators' content concerns, the Company may lose
carriage of the Box service on cable systems and may lose viewer revenue, either
of which could have a material adverse effect on the Company.
Approximately 16 percent of domestic subscribers of the Box service are
carried by cable operators that have not entered into written affiliation
agreements with Box. Further, certain of the written affiliation agreements
allow either party to cancel the agreement on 90 days' prior written notice. If
cable operators cancel carriage of the Box service, the Company could be
materially adversely affected.
The losses from Box operations are primarily attributable to the increased
expenses associated with its efforts to expand the distribution of its music
video programming both domestically and internationally. The Company expects to
continue to incur losses through 1998 with respect to the business of Box due to
the costs necessary to expand the distribution of its programming. If the
Company is unable to successfully expand the distribution of Box programming and
increase viewer and advertising revenues in excess of increased operating
expenses, there could be a material adverse effect on the Company.
DEPENDENCE ON SATELLITE DELIVERY CAPABILITIES
There are a limited number of satellites with orbital positions suitable
for transmission of the Company's signals for the DMX and Box services and a
limited number of available transponders on those satellites. Satellite
transponders receive signals, translate signal frequencies and transmit signals
to receiving satellite dish antennas. The Company subleases transponder capacity
from National Digital Television Center, Inc., a subsidiary of TCI ("NDTC"),
which also provides facilities for uplink transmission of the Company's signals
to the transponders. NDTC in turn leases the satellite transponder capacity on
the satellite known as Loral Telstar 4, formerly known as AT&T Telstar 402R,
from AT&T Skynet in connection with the transmission of DMX's signals and the
Hughes satellite known as Galaxy 7 (Transponder 13) in connection with the
transmission of Box's signals. The term of DMX's transponder sublease with NDTC
for the Loral Telstar 4 runs through February 2000. Box is in the process of
negotiating a long-term sublease with NDTC through its Headend-in-the-Sky
("HITS") transponders. If sustained interruption of the Company's signals due to
transponder failure or satellite unavailability, failure or loss, were to occur
or if NDTC were unable to provide transponder services to the Company for one or
more of its services, the Company would have to seek
7
<PAGE> 9
alternative transponder or satellite facilities. Such alternative facilities may
not be available on a timely or cost-effective basis and may require the expense
of repositioning each DBS subscriber's satellite dish in order to receive
signals from another satellite. Any one or more of these events could require
the Company to incur additional expenditures and could degrade the Company's
ability to serve its customer base and have a material adverse effect on the
Company's financial condition and results of operations. If the Company is
required to enter into new transponder lease agreements, no assurance can be
given that it will be able to do so on terms as favorable as those in its
current agreements with NDTC.
CONFLICTS OF INTEREST; RELATIONSHIP WITH TCI
Certain members of the Company's management and the Board are also members
of the management and board of directors of TCI or Liberty Media Corporation, a
wholly-owned subsidiary of TCI engaged in the provision of programming services
("Liberty"). Stephen M. Brett, Vice President, Secretary and General Counsel of
the Company, is Executive Vice President, Secretary and General Counsel of TCI.
J.C. Sparkman and Donne F. Fisher, directors of the Company, are directors of
TCI. Leo J. Hindery, Jr., Chairman of the Board of the Company, is a director,
President and Chief Operating Officer of TCI. Robert R. Bennett, a director of
the Company, is Executive Vice President of TCI and a director, President and
Chief Executive Officer of Liberty. David B. Koff, a director, Vice President,
Assistant Secretary of the Company, is Senior Vice President of Liberty. No
formal policies or guidelines have been adopted by the Company with respect to
board actions that may involve actual or potential conflicts of interest between
the Company and TCI or Liberty. The directors of the Company, however, have
fiduciary obligations under Delaware law to the Company and all of its
stockholders. Mr. Fisher and Mr. Sparkman also have fiduciary obligations, when
acting as TCI directors, to TCI and its stockholders. Mr. Bennett also has
fiduciary obligations, when acting as a Liberty director, to Liberty and TCI as
the sole stockholder of Liberty.
TCI is principally engaged in the construction, acquisition, ownership and
operation of cable television systems and the provision of satellite-delivered
video services to various distribution media, principally cable television
systems. DMX and Box are primarily engaged in programming, distributing and
marketing a digital audio music service and a music video service, respectively.
TCI, through certain of its affiliates, sells and provides the DMX and Box
services to their cable television subscribers in conjunction with the delivery
of video programming. The DMX and Box services are provided pursuant to
affiliation agreements between DMX and Box, on the one hand, and certain TCI
affiliates, on the other, that provide for such TCI affiliates to pay license
fees to DMX and receive fees from Box. Such arrangements may give rise to
conflicts between TCI and the Company because of the Company's desire to
maximize the fees it receives for its programming and TCI's desire and its
affiliates' desire to minimize the fees paid.
TCI through Liberty is engaged in the provision of video programming
services. TCI does not own any material interests in any other entity providing
audio or video music services other than the Company and has no current plans or
intentions to engage in the direct programming and distribution of audio or
video music services in the future other than through the Company. However, TCI
and its affiliates have the right to engage in or possess interests in
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 of the businesses of the Company; therefore there can be no
assurance that TCI or its affiliates will not engage in the provision of
competitive audio or video music services in the future.
Under various other agreements with the Company, TCI provides certain
administrative, legal, financial, treasury, accounting, tax and other services
to the Company and makes available certain of its employee benefit plans to the
Company's employees. In addition, TCI and the Company entered into a number of
intercompany agreements covering such matters as the use of services and tax
sharing. Pursuant to a services agreement between TCI and the Company, TCI
provides to the Company certain administrative and other services. On the
effective date of the DMX Merger, the Company became a party to an existing tax
sharing agreement, as amended, among TCI and certain of its subsidiaries and as
of October 1, 1997, the Company became a party to a second tax sharing agreement
among TCI and certain of its subsidiaries. Such agreements provide, among other
things, for the allocation among the Company and the other members of the TCI
consolidated tax group of tax liabilities attributable to periods after the DMX
Merger.
8
<PAGE> 10
In connection with the DMX Merger, the Company and TCI entered into a
Contribution Agreement dated July 11, 1997, pursuant to which TCI agreed to
cause certain of its affiliates to assign and contribute to the Company the
right to receive the revenue from sales of the DMX service net of an amount
equal to 10% of the revenue from such sales to residential subscribers and net
of license fees otherwise payable to DMX for a 10-year period beginning July 1,
1997 and to transfer certain equipment to DMX useful in DMX's business. In
consideration of such agreement, in connection with the consummation of the DMX
Merger, the Company delivered to TCI, as designee for certain TCI affiliates,
62,500,000 shares of Series B Common Stock and $40,000,000. The Company and TCI
entered into the Amended Contribution Agreement effective as of July 1, 1997,
which provides, among other things, for TCI to deliver, or cause certain of its
subsidiaries to deliver, in lieu of TCI's obligation to cause its affiliates to
make contributions to the Company under the Contribution Agreement described
above, to the Company payments aggregating $18 million annually (adjusted
annually by the CPI for the prior year) for a term of 20 years. Such payments
represent (i) revenue of subsidiaries of TCI that is attributable to the
distribution and sale of the DMX service to cable subscribers who receive the
DMX service via Tuner Distribution (rather than Digital Distribution) (net of an
amount equal to 10% of such revenues derived from residential customers and
license fees otherwise payable to DMX pursuant to the Affiliation Agreement) and
(ii) compensation to the Company and DMX for certain other rights.
DMX and Satellite Services, Inc., a wholly-owned subsidiary of TCI ("SSI")
entered into the Affiliation Agreement dated as of July 1, 1997 (the
"Affiliation Agreement"), pursuant to which DMX granted to SSI and certain
affiliates of TCI the non-exclusive right to distribute and subdistribute the
DMX service to commercial and residential customers for a 10-year period in
exchange for license fees paid by SSI to DMX.
Under the Affiliation Agreement, the annual fee paid by SSI to DMX will be
$8,500,000 for the initial three years, subject to adjustment annually
(beginning July 1, 1998) by the percentage change in the CPI for the prior year
and for subscribers served by certain divested systems and acquired systems.
During the fourth through tenth years of the term of the Affiliation Agreement,
the annual fee will be further adjusted on a monthly basis upward or downward,
as the case may be, based on the increase or decease in the actual number of
subscribers in wholly-owned and operated systems above or below (i) the number
of commercial cable accounts in wholly-owned and operated TCI cable systems on
July 1, 1997 (for commercial fees) and (ii) the baseline number of two million
(for residential fees), to be calculated in accordance with the terms of the
Affiliation Agreement and not to exceed a maximum annual reduction of 10%. Such
license fees will also be adjusted upward or downward to reflect actual DMX
licensing fees payable to ASCAP, BMI, and SESAC.
The Affiliation Agreement between DMX and SSI dated July 6, 1989 (the "Old
Affiliation Agreement") provides for distribution by SSI-affiliated cable
systems of the DMX service and the Superaudio service (a basic analog music
service provided through a joint venture between DMX and an affiliate of Jones
Intercable, Inc.). Although the Affiliation Agreement supersedes the Old
Affiliation Agreement with respect to the DMX service, the Old Affiliation
Agreement remains in effect through June 30, 1999 with respect to the Superaudio
service. SSI and DMX expect to extend the Old Affiliation Agreement with respect
to the Superaudio service for an additional five years.
The terms of the agreements that govern the relationship between the
Company and TCI were established by TCI in consultation with the Company's
management and are not the result of arm's-length negotiations. Accordingly,
although the Company believes that the terms and conditions of these
arrangements taken as a whole are reasonable, there can be no assurance that the
terms and conditions of these agreements are not more or less favorable to the
Company than those that might have been obtained from unaffiliated third
parties. In addition, there can be no assurance that comparable services could
be obtained from third parties if the Services Agreement were to be terminated.
Although the Company believes that its relationship with TCI is excellent,
adverse developments or material disputes with TCI could have a material adverse
effect on the Company.
9
<PAGE> 11
DISPARATE VOTING RIGHTS; CONTROL BY TCI
The 18,481,997 outstanding shares of Common Stock represent approximately
21.4% of, and 2.9% of the voting power related to, the outstanding shares of
capital stock of the Company ("Company Stock"), the 62,500,000 outstanding
shares of Series B Common Stock of the Company, par value $.01 per share
("Series B Common Stock") represent approximately 72.5% of, and 96.4% of the
voting power related to, the outstanding shares of Company Stock and the
1,742,048 shares of Series A Convertible Preferred Stock of the Company, par
value $.01 per share ("Preferred Stock"), on an as-converted basis, represent
approximately 6.1% of, and 0.8% of the voting power related to, the outstanding
shares of Company Stock, in each case assuming conversion of each outstanding
share of Preferred Stock into three shares of Common Stock. TCI beneficially
owns approximately 63.6% of the outstanding shares of Common Stock, all of the
outstanding shares of Series B Common Stock and 4.8% of the outstanding shares
of Preferred Stock, which collectively represent approximately 86.4% of the
outstanding shares of Company Stock, assuming conversion of the Preferred Stock.
Since holders of shares of Common Stock are entitled to one vote per share,
holders of shares of Series B Common Stock are entitled to ten votes per share
and holders of shares of Preferred Stock are entitled to three votes per share,
on each matter presented to a vote of the stockholders, TCI currently controls
approximately 98.2% of the voting power of the outstanding shares of Company
Stock. Thus, TCI currently has the voting power to control all matters requiring
approval of the Company's stockholders voting as a single class, including the
election of directors, the adoption of amendments to the Company's Certificate
of Incorporation and the approval of mergers and sales of the Company's assets.
COMPUTER SYSTEMS AND SOFTWARE COMPATIBILITY IN THE YEAR 2000
The Company is in the process of identifying computer systems, software and
equipment that may not function correctly in the year 2000. The Company believes
that it will be able to identify, assess, remediate and test such systems,
software and equipment before any year 2000 associated problems arise; however,
the costs of such modification and replacement cannot yet be estimated, and no
assurances can be given that such modification and replacement will be completed
before any year 2000 associated problems arise or that such costs will not have
a material adverse effect on the Company.
DIVIDENDS AND DIVIDEND POLICY
The Company does not anticipate declaring and paying cash dividends on
Common Stock at any time in the foreseeable future. The decision whether to
apply legally available funds to the payment of dividends on Common Stock will
be made by the board of directors of the Company (the "Board") from time to time
in the exercise of its business judgment, taking into account, among other
things, the Company's results of operations and financial condition, any then
existing or proposed commitments by the Company for the use of available funds,
and the Company's obligations with respect to the holders of any then
outstanding indebtedness or preferred stock. In addition, the Company may in the
future issue debt securities or preferred stock or enter into loan agreements or
other agreements that restrict the payment of dividends on, and repurchases of,
Common Stock.
POTENTIAL EFFECTS OF CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of Delaware law and the Certificate of Incorporation of
the Company (the "Charter") and the Bylaws of the Company (the "Bylaws") may
have the effect of making an acquisition of control of the Company more
difficult in a transaction that is not approved by the Board. These provisions
include the disparate voting rights of the Common Stock and the Series B Common
Stock; provisions giving the Board the power to issue up to 5,000,000 shares of
preferred stock, and to fix the rights and preferences thereof, without further
authorization of the Company's common stockholders; and the requirement of a
supermajority vote to approve specified actions. In addition, the Board is
divided into three classes, each of which serves for a staggered three-year
term, which may make it more difficult for a third party to gain control of the
Board. Many of these provisions generally are designed to permit the Company to
develop its businesses and foster its long-term growth without the disruption
caused by the threat of a takeover not deemed by the Board to be in the best
interests of the Company and its stockholders. These provisions may also have
the effect of
10
<PAGE> 12
discouraging a third party from making a tender offer or otherwise attempting to
obtain control of the Company even though such an attempt might be economically
beneficial to the Company and its stockholders.
SELLING STOCKHOLDERS
The following table sets forth: (i) the names and position of each Selling
Stockholder; (ii) the number of shares of Common Stock owned by them; (iii) the
number of shares to be offered by them; and (iv) the number of shares and
percentage of class to be owned by them after completion of the Offering. None
of the Selling Stockholders has had any position, office or other material
relationship within the past three years with the Company or any of its
predecessors or affiliates, other than as described below.
<TABLE>
<CAPTION>
# OF SHARES TO % OF CLASS
# OF # OF SHARES BE OWNED UPON AFTER
SHARES OFFERED IN COMPLETION OF COMPLETION
NAME OWNED OFFERING OFFERING OF OFFERING
---- ------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
AADosio Family Limited Partnership............. 30,609 30,609 -- --
Adesida, Ilesanmi & Patience O................. 20,600 20,600 -- --
Adwar, Jeffrey................................. 2,648 2,648 -- --
Anderson, Jerald K.(1)......................... 202,809 202,809 -- --
Armstrong, H. Paulsen.......................... 5,296 5,296 -- --
Asch, Arthur................................... 2,648 2,648 -- --
Asch, Donald R................................. 1,324 1,324 -- --
Asch, Michael A................................ 2,648 2,648 -- --
Ballato, Kenneth & Elena....................... 7,652 7,652 -- --
Barsalona, Frank(2)............................ 15,304 15,304 -- --
Battistoni, Paul & Susan....................... 7,652 7,652 -- --
Bell, Marc H................................... 5,296 5,296 -- --
Bell, Martin A................................. 95,346 95,346 -- --
Berk, Ronald J................................. 5,296 5,296 -- --
D.H. Blair Investment Banking.................. 25,484 25,484 -- --
Bloch, Steven.................................. 2,648 2,648 -- --
Braband, Baxter J.............................. 15,304 15,304 -- --
Brown, Alan E.................................. 15,304 15,304 -- --
Brownrout, Dean(1)............................. 27,546 27,546 -- --
Bucchignano, John & Sharon..................... 1,324 1,324 -- --
Butterworth, Nicholas(1)....................... 15,304 15,304 -- --
Buziak, Robert(3).............................. 21,425 21,425 -- --
Calipa, Chris.................................. 538 538 -- --
Chana Sasha Foundation......................... 15,304 15,304 -- --
Childs, Julian B............................... 16,628 16,628 -- --
Ciabattoni, Tony............................... 5,296 5,296 -- --
Curtis, Lee R.................................. 10,300 10,300 -- --
D'Ascoli, Anthony.............................. 15,304 15,304 -- --
Davidson, Mitchell............................. 3,826 3,826 -- --
Tom N. Davidson Living Trust................... 30,609 30,609 -- --
Davis, J. Morton............................... 11,712 11,712 -- --
Dawes, Steven A................................ 25,897 25,897 -- --
DeCecchis, Leonard............................. 2,648 2,648 -- --
del Aguila, Carol.............................. 1,722 1,722 -- --
Demars, Gerald V.(1)........................... 40,572 40,572 -- --
DeYoung, Benjamin S............................ 1,324 1,324 -- --
Dosio, Achilles A.............................. 21,187 21,187 -- --
Drucker, Milton, I............................. 2,648 2,648 -- --
Dweck, Isaac R................................. 2,648 2,648 -- --
</TABLE>
11
<PAGE> 13
<TABLE>
<CAPTION>
# OF SHARES TO % OF CLASS
# OF # OF SHARES BE OWNED UPON AFTER
SHARES OFFERED IN COMPLETION OF COMPLETION
NAME OWNED OFFERING OFFERING OF OFFERING
---- ------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
Elias, Jonathan & Irene........................ 20,600 20,600 -- --
Emig, Glenn E.................................. 10,300 10,300 -- --
Falcigno, Louis A.(4).......................... 286,191 286,191 -- --
Falcone, Arthur J.............................. 5,296 5,296 -- --
Falcone, Edward W. ............................ 5,296 5,296 -- --
Farber, Leonard R. ............................ 5,296 5,296 -- --
Farley, Donald F............................... 1,324 1,324 -- --
Finger, Keith A................................ 6,474 6,474 -- --
Fortin, Denis.................................. 20,600 20,600 -- --
Frank, Brian L................................. 56,779 56,779 -- --
Fried, David R................................. 2,648 2,648 -- --
Friedensohn, David(5).......................... 6,121 6,121 -- --
Gebhardt, Carl F............................... 20,756 20,756 -- --
Gershenov, Doris............................... 7,652 7,652 -- --
Gershenov, Joseph & Lena....................... 15,304 15,304 -- --
Gindi, Isaac................................... 2,648 2,648 -- --
Gindi, Raymond................................. 2,648 2,648 -- --
Goekjian, Samuel V............................. 2,648 2,648 -- --
Goldberg, Michael(1)........................... 42,851 42,851 -- --
Golden, Alan J................................. 5,296 5,296 -- --
Goldenberg, Harry A............................ 5,296 5,296 -- --
Goldfarb, Andrew............................... 1,324 1,324 -- --
Gorlin, Steve.................................. 9,182 9,182 -- --
Grant, Richard................................. 7,652 7,652 -- --
Gresham, Keith A............................... 15,304 15,304 -- --
Grinbaum, Joe.................................. 7,652 7,652 -- --
Grodnick, Scott(1)(6).......................... 55,605 55,605 -- --
Grover, Carl W................................. 20,600 20,600 -- --
Guthrie, Christopher K. ....................... 15,304 15,304 -- --
Haddad, Hiram.................................. 2,648 2,648 -- --
Hernandez, Raymond............................. 9,495 9,495 -- --
Hetherington, W. Joseph........................ 7,652 7,652 -- --
Hinkle, Richard G.............................. 7,945 7,945 -- --
Charles J. Hoffman, Inc. Pension Plan.......... 7,652 7,652 -- --
Charles J. Hoffman, Inc. Profit Sharing
Trust........................................ 7,652 7,652 -- --
Holtzman, Samuel J. and Joseph A............... 10,593 10,593 -- --
Hooper, Robert A. and Kathleen D............... 58,809 58,809 -- --
Hyman, David(1)................................ 306 306 -- --
Isely, George R. & Judith A.................... 15,304 15,304 -- --
Kalka, Howard.................................. 1,324 1,324 -- --
Katz, Aaron.................................... 756 756 -- --
Katz, Louis & Irene............................ 20,600 20,600 -- --
Katzmann, Kathleen W........................... 2,648 2,648 -- --
Kennell, Gerard J. & Mariann................... 1,324 1,324 -- --
Kornreich, Sharon C............................ 5,296 5,296 -- --
Krauss, George................................. 15,304 15,304 -- --
Kunar, Andrew J................................ 15,304 15,304 -- --
LaFroscia, Ernest J............................ 10,593 10,593 -- --
Lake, Frank G., III............................ 66,513 66,513 -- --
</TABLE>
12
<PAGE> 14
<TABLE>
<CAPTION>
# OF SHARES TO % OF CLASS
# OF # OF SHARES BE OWNED UPON AFTER
SHARES OFFERED IN COMPLETION OF COMPLETION
NAME OWNED OFFERING OFFERING OF OFFERING
---- ------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
Landes, Stephen J.............................. 7,652 7,652 -- --
Lauer, Ronald D................................ 29,404 29,404 -- --
Lauer, Richard A. & Freida..................... 29,404 29,404 -- --
Lederman, Adam................................. 3,237 3,237 -- --
Lenny Corp..................................... 3,826 3,826 -- --
Levine, Lee A.................................. 5,296 5,296 -- --
Lichaw, Stephen................................ 646 646 -- --
Luini, Jon..................................... 2,754 2,754 -- --
Madorsky, Martin L. & Judith Richard........... 17,952 17,952 -- --
Maines, William R.............................. 5,296 5,296 -- --
Manley, Marshall............................... 10,593 10,593 -- --
McPartland, Thomas(7).......................... 459,129 65,657 393,472 2.1
Meyrowitz, David............................... 7,652 7,652 -- --
Meyrowitz, Robert(8)........................... 260,173 260,173 -- --
Meyrowitz, Stacy(5)............................ 3,060 3,060 -- --
Misher, Shari.................................. 3,061 3,061 -- --
Misiolek, Michael.............................. 5,150 5,150 -- --
Molke, Richard H. & Louise G................... 1,324 1,324 -- --
Moore, Michael & Sandra........................ 5,296 5,296 -- --
Moriber, M.D., Lloyd A......................... 20,600 20,600 -- --
Nagy, Stephen W. & Louise B.................... 33,257 33,257 -- --
Nardoni, Dennis F. & Claire E.................. 12,948 12,948 -- --
Nelson, Richard A. & Elaine M.................. 28,252 28,252 -- --
Newhouse, James................................ 3,826 3,826 -- --
Nodvin, Sondra D............................... 5,296 5,296 -- --
Palogonia, Al.................................. 11,351 11,351 -- --
Paterson, Sid.................................. 5,296 5,296 -- --
Paul, Bruce H.................................. 7,652 7,652 -- --
Perlysky, Laya................................. 21,426 21,426 -- --
Pinke, James R., M.D........................... 20,600 20,600 -- --
Plafsky, Nathan................................ 2,648 2,648 -- --
Prodigy Services Corporation................... 76,593 76,593 -- --
Pye, Charles................................... 6,121 6,121 -- --
Rachlin, Robert P.............................. 2,648 2,648 -- --
Rattenni, Alfred............................... 20,600 20,600 -- --
Renov, Ruki.................................... 68,275 68,275 -- --
Renov, Ruki c/f Ari Renov...................... 4,285 4,285 -- --
Renov, Ruki c/f Eli Renov...................... 4,285 4,285 -- --
Renov, Ruki c/f Emily Renov.................... 4,285 4,285 -- --
Renov, Ruki c/f Toni Renov..................... 4,285 4,285 -- --
Renov, Ruki c/f Tova Renov..................... 4,285 4,285 -- --
Renov, Ruki c/f Yael Renov..................... 4,285 4,285 -- --
Renov, Ruki c/f Yoni Renov..................... 4,285 4,285 -- --
Roberts, Marc.................................. 19,775 19,775 -- --
Rosenberg, Norton A............................ 7,652 7,652 -- --
Rosenwald, Doni................................ 4,285 4,285 -- --
Rosenwald, Joshy............................... 4,285 4,285 -- --
Rosenwald, Rivki............................... 21,426 21,426 -- --
Satlof, Melvin G............................... 7,652 7,652 -- --
</TABLE>
13
<PAGE> 15
<TABLE>
<CAPTION>
# OF SHARES TO % OF CLASS
# OF # OF SHARES BE OWNED UPON AFTER
SHARES OFFERED IN COMPLETION OF COMPLETION
NAME OWNED OFFERING OFFERING OF OFFERING
---- ------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
Segel, Gilbert N.(2) and Joanne R.............. 15,304 15,304 -- --
Shapiro, E. Donald............................. 7,652 7,652 -- --
Silpe, Paul & Beverly.......................... 9,122 9,122 -- --
Silverman, Phyllis............................. 10,593 10,593 -- --
Solomon, Michael............................... 28,566 28,566 -- --
Sorkin, Harvey................................. 7,945 7,945 -- --
Sorkin, Howard................................. 7,945 7,945 -- --
Sparks, Harold................................. 5,296 5,296 -- --
Staggers, Samuel R............................. 12,948 12,948 -- --
Stahler, Avi................................... 4,285 4,285 -- --
Stahler, Daniel................................ 4,285 4,285 -- --
Stahler, David................................. 4,285 4,285 -- --
Stahler, Eli................................... 4,285 4,285 -- --
Stahler, Esther................................ 68,275 68,275 -- --
Stahler, Jaime................................. 4,285 4,285 -- --
Stahler, Lisa.................................. 4,285 4,285 -- --
Stern, Gershon A............................... 5,296 5,296 -- --
Strauss, Gary.................................. 9,182 9,182 -- --
Sunshine Interactive Network, Inc.............. 67,027 67,027 -- --
Terry Sports, Inc.............................. 81,817 81,817 -- --
Wasserman, Brian A............................. 10,593 10,593 -- --
Weinman, Mike.................................. 646 646 -- --
Wiener, Eric................................... 345 345 -- --
Willers, Jean B................................ 7,652 7,652 -- --
Williams, William H. & Diane B................. 7,652 7,652 -- --
Wolfson, Aaron................................. 15,304 15,304 -- --
Wolfson, Abraham............................... 15,304 15,304 -- --
Wolfson Descendants 1983 Trust................. 10,593 10,593 -- --
Wolfson Equities............................... 118,607 118,607 -- --
Wolin, David(1)................................ 27,547 27,547 -- --
Wood, Kenton................................... 3,061 3,061 -- --
Yasgur, Joseph................................. 7,652 7,652 -- --
Zeff, Kal...................................... 15,304 15,304 -- --
Zucker, Robert D............................... 10,300 10,300 -- --
</TABLE>
- ---------------
(1) Current employee of the Company or its subsidiaries
(2) Former director of Paradigm
(3) Strategic and business development consultant to the Company and its
subsidiaries
(4) Former Vice President and a director of Paradigm
(5) Former employee of Paradigm
(6) Former Senior Vice President, Chief Financial Officer and director of
Paradigm
(7) President, Chief Executive Officer and a director of the Company and former
President Chief Executive Officer and Chairman of the Board
(8) Former Secretary and a director of Paradigm
14
<PAGE> 16
PLAN OF DISTRIBUTION
All of the Shares offered hereby are being sold by the Selling
Stockholders. The Company will not receive any of the proceeds from the sale of
the Shares.
The Shares may be sold by the Selling Stockholders directly or through
agents designated from time to time or to or through broker-dealers designated
from time to time. The distribution of the Shares may be effected from time to
time in one or more transactions at a fixed price or prices, which may be
changed, at market prices prevailing at the time of sale, at prices related to
such prevailing market prices or at prices determined on a negotiated or
competitive bid basis. The Shares may be sold through a broker-dealer acting as
agent or broker for the Selling Stockholders, or to a broker-dealer acting as
principal. In the latter case, the broker-dealer may then resell such Shares to
the public at varying prices to be determined by such broker-dealer at the time
of resale.
Any Shares offered hereby which qualify for sale pursuant to Rule 144 under
the Securities Act may be sold under that rule rather than pursuant to any of
the foregoing means of distribution.
Certain expenses in connection with the distribution of the Shares,
including fees and expenses of the Company's counsel and accountants, filing
fees and printing expenses, will be borne by the Company. Each Selling
Stockholder will bear his or her own legal and accounting expenses, if any, as
well as all transfer taxes, discounts, concessions, commissions or other
compensation received by broker-dealers.
LEGALITY
Sherman & Howard L.L.C., 633 Seventeenth Street, Suite 3000, Denver,
Colorado 80202, has issued an opinion with respect to the legality of the
issuance of the Shares being offered pursuant to this Prospectus. Certain
members of Sherman & Howard L.L.C. serve as assistant secretaries of TCI.
EXPERTS
The consolidated financial statements of TCI Music, Inc. and subsidiaries
(a subsidiary of TeleCommunications, Inc.) as of December 31, 1997 and of DMX
Inc. (Predecessor) as of June 30, 1997, and for the six months ended December
31, 1997, nine months ended June 30, 1997 and the years ended September 30, 1996
and 1995, have been incorporated by reference herein and in the Registration
Statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
15
<PAGE> 17
- ------------------------------------------------------
- ------------------------------------------------------
THIS PROSPECTUS CONTAINS INFORMATION CONCERNING THE COMPANY AND ITS COMMON
STOCK, BUT DOES NOT CONTAIN ALL OF THE INFORMATION SET FORTH IN THE REGISTRATION
STATEMENT AND THE EXHIBITS RELATING THERETO, WHICH THE COMPANY HAS FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION, WASHINGTON, D.C., UNDER THE SECURITIES
ACT OF 1933, AND TO WHICH REFERENCE IS HEREBY MADE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Incorporation of Certain Documents By
Reference........................... 2
The Company........................... 3
Risk Factors.......................... 4
Selling Stockholders.................. 11
Plan of Distribution.................. 15
Legality.............................. 15
Experts............................... 15
</TABLE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR
THE PROSPECTUS SUPPLEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY.
THIS PROSPECTUS OR THE PROSPECTUS SUPPLEMENT DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER, OR
IN ANY JURISDICTION WHERE SUCH SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE
PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO. NEITHER THE
DELIVERY OF THIS PROSPECTUS OR THE PROSPECTUS SUPPLEMENT NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED OR INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
THE COMPANY SINCE SUCH DATE.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 18
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Filing Fee.................................................. $ 5,887.32
Legal Fees.................................................. 10,000.00*
Accounting Fees............................................. 3,000.00*
Transfer Agent Fees......................................... 500.00*
Printing Fees............................................... 1,000.00*
Mailing and Miscellaneous................................... 1,000.00*
----------
Total............................................. $21,387.32
==========
</TABLE>
All expenses of registration set forth above will be borne by the Company.
Expenses marked with an asterisk are estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") provides,
generally, that a corporation shall have the power to indemnify any person who
was or is a party or is threatened to be made a party to any action, suit, or
proceeding (except actions by or in the right of the corporation) by reason of
the fact that such person is or was a director, officer, employee, or agent of
the corporation, against all expenses, judgments, fines, and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such action, suit, or proceeding if such person acted in good faith and in a
manner reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such conduct was unlawful. A corporation may
similarly indemnify such person for expenses actually and reasonably incurred in
connection with the defense or settlement of an action or suit by or in the
right of the corporation if such person acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
corporation, and, in the case of claims, issues, and matters as to which such
person shall have been adjudged liable to the corporation, provided that a court
shall have determined upon application that, despite the adjudication of
liability but in view of all of the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses that such court
shall deem proper.
Section 102(b)(7) of the DGCL provides, generally, that the certificate of
incorporation may contain a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such provision
may not eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL (relating to the
unlawful payment of dividends, stock purchase or redemption), or (iv) for any
transaction from which the director derived an improper personal benefit. No
such provision may eliminate or limit the liability of a director for any act or
omission occurring prior to the date when such provision became effective.
Article V, Section E of the Certificate of Incorporation of the Company
(the "Charter") provides as follows:
1. Limitation on Liability.
To the fullest extent permitted by the Delaware General Corporation
Law as the same exists or may hereafter be amended, a director of the
Company shall not be liable to the Company or any of its stockholders for
monetary damages for breach of fiduciary duty as a director. Any repeal or
modification of this paragraph 1 shall be prospective only and shall not
adversely affect any limitation, right or protection of a director of the
Company existing at the time of such repeal or modification.
II-1
<PAGE> 19
2. Indemnification.
a. Right to Indemnification. The Company shall indemnify and hold
harmless, to the fullest extent permitted by applicable law as it presently
exists or may hereafter be amended, any person who was or is made or is
threatened to be made a party or is otherwise involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative (a
"proceeding") by reason of the fact that he, or a person for whom he is the
legal representative, is or was a director or officer of the Company or is
or was serving at the request of the Company as a director, officer,
employee or agent of another corporation or of a partnership, joint
venture, trust, enterprise or nonprofit entity, including service with
respect to employee benefit plans, against all liability and loss suffered
and expenses (including attorneys' fees) reasonably incurred by such
person. Such right of indemnification shall inure whether or not the claim
asserted is based on matters which antedate the adoption of Article V,
Section E of the Charter. The Company shall be required to indemnify or
make advances to a person in connection with a proceeding (or part thereof)
initiated by such person only if the proceeding (or part thereof) was
authorized by the Board of Directors of the Company.
b. Prepayment of Expenses. The Company shall pay the expenses
(including attorneys' fees) incurred in defending any proceeding in advance
of its final disposition, provided, however, that the payment of expenses
incurred by a director or officer in advance of the final disposition of
the proceeding shall be made only upon receipt of an undertaking by the
director or officer to repay all amounts advanced if it should be
ultimately determined that the director or officer is not entitled to be
indemnified under this paragraph or otherwise.
c. Claims. If a claim for indemnification or payment of expenses under
this paragraph is not paid in full within 60 days after a written claim
therefor has been received by the Company, the claimant may file suit to
recover the unpaid amount of such claim and, if successful in whole or in
part, shall be entitled to be paid the expense of prosecuting such claim.
In any such action the Company shall have the burden of proving that the
claimant was not entitled to the requested indemnification or payment of
expenses under applicable law.
d. Non-Exclusivity of Rights. The rights conferred on any person by
this paragraph shall not be exclusive of any other rights which such person
may or hereafter acquire under any statute, provision of the Charter, the
Bylaws, agreement, vote of stockholders or disinterested directors or
otherwise.
e. Other Indemnification. The Company's obligation, if any, to
indemnify any person who was or is serving at its request as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust, enterprise or nonprofit entity shall be reduced by any
amount such person may collect as indemnification from such other
corporation, partnership, joint venture, trust, enterprise or nonprofit
entity.
Article II, Section 2.9 of the Bylaws of the Company also contains an
indemnity provision, requiring the Company to indemnify members of the
Board of Directors and officers of the Company and their respective heirs,
personal representatives and successors in interest for or on account of
any action performed on behalf of the Company, to the fullest extent
provided by the laws of the State of Delaware and the Charter.
The Company may purchase liability insurance policies covering its
directors and officers.
II-2
<PAGE> 20
ITEM 16. EXHIBITS
(a) Exhibits:
The following exhibits are filed herewith, except those exhibits marked
with an asterisk which are incorporated herein by reference as stated in the
description:
<TABLE>
<CAPTION>
EXHIBIT NO.
-----------
<C> <S>
5 -- Opinion of Sherman & Howard L.L.C.
23.1 -- Consent of KPMG Peat Marwick LLP
23.2 -- Consent of Sherman & Howard L.L.C. (included in Exhibit
5)
24 -- Power of Attorney (included on signature page)
</TABLE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes that, for the purpose of
determining any liability under the Securities Act of 1933, each such
Post-Effective Amendment shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City and County of Denver, State of Colorado on the 24th day
of August, 1998.
TCI MUSIC, INC.
By: /s/ THOMAS MCPARTLAND
----------------------------------
Thomas McPartland
President and Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Thomas McPartland and David B. Koff, and each of
them, his true and lawful attorneys-in-fact and agents, each with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including pre-effective
and post-effective amendments) to this Registration Statement, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or either of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ THOMAS MCPARTLAND Director, President and Chief August 24, 1998
- ----------------------------------------------------- Executive Officer
Thomas McPartland (Principal Executive
Officer)
/s/ RALPH J. SORRENTINO Chief Financial Officer August 24, 1998
- ----------------------------------------------------- (Principal Financial and
Ralph J. Sorrentino Accounting Officer)
/s/ ROBERT R. BENNETT Chairman of the Board August 24, 1998
- -----------------------------------------------------
Robert R. Bennett
/s/ LEO J. HINDERY, JR. Director August 24, 1998
- -----------------------------------------------------
Leo J. Hindery, Jr.
/s/ PETER M. KERN Director August 24, 1998
- -----------------------------------------------------
Peter M. Kern
/s/ DAVID B. KOFF Director August 24, 1998
- -----------------------------------------------------
David B. Koff
</TABLE>
II-4
<PAGE> 22
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Director
- -----------------------------------------------------
J.C. Sparkman
/s/ LON A. TROXEL Director August 24, 1998
- -----------------------------------------------------
Lon A. Troxel
/s/ DONNE F. FISHER Director August 24, 1998
- -----------------------------------------------------
Donne F. Fisher
</TABLE>
II-5
<PAGE> 23
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO.
-----------
<C> <S>
5 -- Opinion of Sherman & Howard L.L.C.
23.1 -- Consent of KPMG Peat Marwick LLP
23.2 -- Consent of Sherman & Howard L.L.C. (included in Exhibit
5)
24 -- Power of Attorney (included on signature page)
</TABLE>
<PAGE> 1
EXHIBIT 5
August 24, 1998
TCI Music, Inc.
8101 East Prentice Avenue
Suite 500
Englewood, Colorado 80111
Re: Validity of Common Stock
Ladies and Gentlemen:
We have acted as special counsel to TCI Music, Inc., a Delaware corporation
(the "Company"), in connection with its Registration Statement on Form S-3 (the
"Registration Statement") filed by the Company with the Securities and Exchange
Commission on August 24, 1998 relating to approximately 3,193,125 shares of the
Company's Series A Common Stock, $.01 par value per share ("Common Stock") owned
by certain selling shareholders named in the Registration Statement (the
"Selling Stockholders").
We have examined the Company's Certificate of Incorporation, as amended,
and Bylaws, and minutes of the proceedings of the Board of Directors authorizing
the issuance of the Common Stock. We have also examined such other documents and
records, and we have made such inquiries of officers and representatives of the
Company, as we have deemed necessary to render the opinions set forth herein.
Based upon the foregoing examination, we advise you that in our opinion:
The shares of Common Stock owned by the Selling Stockholders as of the date
hereof and being offered pursuant to the Registration Statement have been duly
authorized and are validly issued, and, to our knowledge, fully paid and
nonassessable; and
We consent to the filing of this opinion as an exhibit to the Registration
Statement referred to above and to the reference to our firm under the heading
"Legality" in the Registration Statement. In giving this consent, we do not
thereby admit that we are within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933 or the Rules of the
Securities and Exchange Commission thereunder.
Yours truly,
/s/ SHERMAN & HOWARD L.L.C.
------------------------------------
SHERMAN & HOWARD L.L.C.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors of TCI Music, Inc.
We consent to the incorporation by reference in the registration statement
on Form S-3 of TCI Music, Inc. and subsidiaries (a subsidiary of
Tele-Communications, Inc.) of our report dated February 20, 1998, with respect
to the consolidated balance sheets of TCI Music, Inc. as of December 31, 1997
and of DMX Inc. (Predecessor) as of June 30, 1997 and the related statements of
operations, stockholders' equity (deficit) and cash flows for the six months
ended December 31, 1997, nine months ended June 30, 1997 and the years ended
September 30, 1996 and 1995, which report appears in the Annual Report (Form
10-K) of TCI Music, Inc. for the year ended December 31, 1997, and to the
reference to our Firm under the heading "Experts."
/s/ KPMG PEAT MARWICK LLP
------------------------------------
KMPG PEAT MARWICK LLP
Los Angeles, California
August 21, 1998
